<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
POPPE TYSON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7331 13-3315694
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
----------------
40 WEST 23RD STREET
NEW YORK, NEW YORK 10010-5201
(212) 727-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
FERGUS O'DALY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
40 WEST 23RD STREET
NEW YORK, NEW YORK 10010-5201
(212) 727-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ANDREW M. ROSS, ESQ. JAMES P. O'HARE, ESQ.
DEBORAH L. SALTZMAN, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
LOEB & LOEB LLP HIGH STREET TOWER, 125 HIGH STREET
345 PARK AVENUE BOSTON, MASSACHUSETTS 02110
NEW YORK, NEW YORK 10154-0037 (617) 248-7000
(212) 407-4800
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE
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<S> <C> <C>
Common Stock, par value $.001 per share............... $50,000,000 $17,242
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 8, 1996
PROSPECTUS
- ----------
SHARES
POPPE TYSON, INC.
COMMON STOCK
-----------
Of the shares of Common Stock offered hereby, are being offered by
Poppe Tyson, Inc. (together with its subsidiaries, "Poppe" or the "Company")
and are being offered by the Selling Stockholder. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholder. See
"Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. See "Underwriting" for information relating to the
determination of the initial public offering price. It is currently estimated
that the initial public offering price of the Common Stock will be between $
and $ per share.
Application has been made for listing of the Common Stock on the Nasdaq
National Market under the symbol "POPT."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- --------------------------------------------------------------------------------
Total(3)................. $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company and the Selling Stockholder have granted the several
Underwriters an option, exercisable within 30 days after the date hereof,
to purchase up to and additional shares of Common Stock,
respectively, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount,
Proceeds to Company and Proceeds to Selling Stockholder will be $ , $ ,
$ and $ , respectively. See "Principal and Selling Stockholders" and
"Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about , 1996.
-----------
MERRILL LYNCH & CO. DEAN WITTER REYNOLDS INC.
-----------
The date of this Prospectus is , 1996.
<PAGE>
[PHOTOS]
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements and a report thereon by
its independent auditors and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including "Risk Factors" and
the financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. All references in this Prospectus to Common Stock data reflect
a stock split of approximately 16,900-to-1 which the Company completed on June
25, 1996. Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option described in
"Underwriting" is not exercised.
THE COMPANY
Poppe Tyson, Inc. (together with its subsidiaries, "Poppe" or the "Company")
is a full-service marketing communications company that develops and implements
marketing programs utilizing both traditional media and new media vehicles such
as the Internet, the World Wide Web (the "Web"), CD-ROMs and digital diskettes.
The Company specializes in providing marketing communications services for
"considered purchase" products and services. Considered purchase products and
services, such as automobiles, computers and financial services, typically
involve lengthy, non-impulse sales processes during which customers generally
seek substantial detailed product information before making their purchase
decisions. The Company is also a leader among major marketing communications
companies in the creation of marketing programs using the Web. Since 1994, as a
part of its Web marketing efforts, Poppe has provided design and development
services for The White House Web site and approximately 60 other Web sites for
such clients as General Motors Corporation's Cadillac Motor Car Division
("Cadillac"), LensCrafters Inc. ("LensCrafters"), Merrill Lynch & Co. ("Merrill
Lynch") and Netscape Communications Corp. ("Netscape"). Poppe's approximately
365 full-time employees operate from offices in New York City; Morris Plains,
New Jersey; Pittsburgh, Pennsylvania; Cleveland, Ohio; and Mountain View, Palo
Alto and Los Angeles, California.
Poppe and its predecessor have been providing traditional marketing
communications services for over 70 years. The Company's objective is to be a
leading provider of marketing communications programs utilizing digital based
media such as the Web and CD-ROMs, while continuing to develop and expand its
traditional marketing business. The Company provides a range of integrated
marketing services such as the creation of core themes for marketing campaigns,
market analysis, creation of marketing materials, media planning and placement,
product positioning, corporate and product branding, public relations, database
driven sales support and Web site design, development, launch and maintenance
services. The Company delivers its clients' marketing messages through
traditional media such as broadcast, print and direct mail, as well as new
media. The Company intends to continue to develop and expand its new media
product and service offerings.
The Company believes that there are significant factors and trends driving
change and creating opportunities in the marketing communications industry for
the use of new media vehicles. These factors include the ability of marketers
to use new media to strengthen corporate and product brands, to reach targeted
demographic groups, to quantify specific information regarding their customers
and to provide in-depth information on their products and services in a timely
manner. Industry observers generally believe that the number of Internet and
Web users has increased substantially over the last several years. According to
the February 1996 issue of Internet Marketing & Technology Report published by
Computer Economics Inc., the number of commercial Web sites increased from
approximately 7,300 in June 1995 to approximately 45,000 in January 1996.
Furthermore, The Forrester Report for December 1995 estimated that typical
budgets to launch and maintain Web sites for one year ranged, depending on the
type of site, from approximately $300,000 for a site with static content, to
over $3.0 million for a site providing for consumer transactions. This report
estimated that these expenditures will rise between approximately 50.0% and
approximately 230.0% through 1997.
3
<PAGE>
The Company's revenues from Web site design, development and launch services
and other new media marketing communications services represented 1.9% and
22.3% of the Company's total revenues for the fiscal years ended March 31, 1995
and 1996, respectively. In June 1996, Poppe acquired Animated Systems & Design,
Inc. ("Animated Systems"), a new media marketing communications company that
primarily creates and develops digital interactive multimedia marketing and
sales presentations, sales information systems and computer-based training
materials delivered primarily through CD-ROMs and digital diskettes. On a pro
forma basis giving effect to the acquisitions of Animated Systems and of two
other marketing communications companies in fiscal 1996 as if they had occurred
on April 1, 1995, the Company's revenues from new media marketing communication
products and services represented 28.5% of the Company's total revenues for
fiscal 1996. The balance of the Company's revenues were derived from
traditional marketing communications services such as broadcast and print
advertising, direct mail and public relations.
Poppe's new media products and services allow its clients to provide
interactive delivery of information and services to their customers. For
example, Poppe performed Web site design and development services for E*Trade
Securities, Inc. ("E*Trade"), a discount brokerage firm accepting customer
orders over the Internet, which allows customers to buy or sell stocks directly
through the Web site and updates the customer's trading records. Also, in
conjunction with Bozell, Jacobs, Kenyon & Eckhardt, Inc.'s "milk moustache"
campaign for the National Fluid Milk Processor Promotion Board (the "Milk
Board"), Poppe performed Web site design, development and launch services.
Additionally, Animated Systems designed and created a CD-ROM based data library
for International Business Machines Corporation ("IBM") containing product
information and training materials. This software allows IBM's sales people and
customers access to detailed product information, demonstrations and trial
versions of software products, and electronic brochures.
The Company was a wholly-owned subsidiary of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. (including subsidiaries other than Poppe, "BJK&E") from February
1988 until June 1996 and as of August 1, 1996, BJK&E owned approximately 84.7%
of the outstanding Common Stock, on a fully diluted basis. Immediately after
the completion of this offering, BJK&E will own approximately %, on a fully
diluted basis, of the outstanding Common Stock ( % if the Underwriters' over-
allotment option is exercised in full). BJK&E (including Poppe) is among the 15
largest marketing communications holding companies in the world and one of the
five largest privately held marketing communications holding companies in the
world, based on worldwide gross income for 1995 of $404.5 million as published
in the April 15, 1996 issue of Advertising Age. BJK&E has worked closely with
Poppe to develop new business opportunities for Poppe and to deliver marketing
communication services to their clients. Poppe has developed Web sites for
BJK&E clients such as Chrysler Corporation ("Chrysler"), Merrill Lynch, Taylor-
Made Golf Company, Inc. ("Taylor-Made"), The Valvoline Company, a division of
Ashland Oil, Inc., ("Valvoline") and Weber-Stephen Products Co. ("Weber") (the
maker of Weber grills). Poppe expects this relationship with BJK&E to continue
after this offering. BJK&E has historically provided certain administrative and
support services to the Company. Pursuant to an operating services agreement
(the "Operating Services Agreement"), BJK&E is obligated to continue providing
these services for at least one year following the consummation of this
offering. For further information regarding the terms of the Operating Services
Agreement and additional support provided by BJK&E to the Company, see
"Business--Poppe's Strategy" and "Certain Transactions--Relationship with
BJK&E." Poppe anticipates that its continued association with BJK&E will
provide the Company with client introductions and marketplace visibility not
generally available to other new media communications companies.
Poppe is a Delaware company incorporated on December 10, 1985 under the name
"USAdvertising, Inc." Its name was changed to Poppe Tyson, Inc. on April 8,
1987 in conjunction with its acquisition at that time of an advertising agency
of the same name. The principal executive offices of the Company are located at
40 West 23rd Street, New York, New York 10010-5201, its telephone number is
(212) 727-5600, its e-mail address is @ny.poppe.com, and its World Wide Web
site is located at http://www.poppe.com. Information contained in the Company's
Web site shall not be deemed to be a part of this Prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... shares
Common Stock offered by the Selling
Stockholder....................... shares
Common Stock to be outstanding
after this offering............... shares(1)
Use of proceeds to the Company..... Repayment of intercorporate borrowings to
BJK&E, general corporate purposes, includ-
ing working capital, funding for the con-
tinued development of the Company's new
media business and for acquisition of
products, technologies or businesses that
offer marketing communications services
Proposed Nasdaq National Market
symbol............................ POPT
</TABLE>
- --------
(1) Does not include (i) 4,421,492 shares of Common Stock reserved for issuance
upon exercise of stock options pursuant to the Company's stock option plan,
of which outstanding options to purchase 1,383,261 shares have been granted
to certain executive officers and other employees of, and an advisor to,
the Company and the former optionholders of Animated Systems, at a weighted
average exercise price of $3.74 per share, or (ii) 348,333 shares of Common
Stock reserved for issuance pursuant to the Company's stock purchase plan,
none of which have been issued. See "Management--Stock Option Plan" and "--
Stock Purchase Plan."
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA(1)
------ ------ ------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Commissions and fees..... $7,332 $7,371 $10,585 $11,074 $18,963 $24,071
Operating income
(loss)(2)............... (503) (397) 560 121 473 477
Net earnings (loss)...... $ (236) $ (166) $ 313 $ 8 $ 246 $ (36)
Net earnings (loss) per
share................... $ (.01) $ (.01) $ .02 $ -- $ .01 $ --
Weighted average number
of shares
outstanding(3).......... 16,901 16,901 16,901 16,901 16,735 17,638
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(4)
------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................... $ 27 $ 156 $
Working capital (deficit)............... (722) (2,694)
Total assets............................ 17,887 21,830
Long-term liabilities................... 634 694
Total liabilities(2).................... 16,066 18,909
Total stockholders' equity.............. 1,821 2,921
</TABLE>
- --------
Notes on following page
5
<PAGE>
(1) The pro forma condensed consolidated financial data give effect to the
acquisitions by Poppe of certain assets and the assumption of certain
liabilities of The Jayme Organization, Inc., an Ohio corporation ("Jayme"),
in July 1995 (the "Jayme Acquisition") and Werner Chepelsky & Partners,
Inc., a Pennsylvania corporation ("WCP"), in January 1996 (the "WCP
Acquisition"), as well as the merger of Animated Systems into a wholly-
owned subsidiary of the Company in June 1996 (the "Animated Acquisition"
and, together with the Jayme Acquisition and WCP Acquisition, the
"Acquisitions" and financial information presented on a pro forma basis to
reflect such Acquisitions as described below being hereinafter referred to
as on a "Pro Forma Basis"). Each of the Acquisitions was accounted for
under purchase accounting. The pro forma condensed consolidated statement
of operations data combine the results of operations of the Company for the
year ended March 31, 1996 and the results of operations for that period as
if each such Acquisition had been consummated at April 1, 1995. The pro
forma condensed consolidated balance sheet data combine the financial
position of the Company at March 31, 1996 with the financial position of
Animated Systems as though the Animated Acquisition had occurred on that
date. Additionally, the pro forma condensed consolidated financial data
reflect adjustments for, among other things, amortization of intangible
assets arising from the Acquisitions, a special bonus paid to management of
WCP and interest on intercompany borrowings in connection with the Animated
Acquisition. The pro forma data are not necessarily indicative of the
results of operations which would actually have been reported had the
Acquisitions been consummated at April 1, 1995 or which may be reported in
the future. The pro forma data are not necessarily indicative of the
financial position which would actually have been reported had the Animated
Acquisition been consummated as of March 31, 1996 or which may be reported
in the future. The data should be read in conjunction with the Pro Forma
Condensed Consolidated Financial Statements (including the notes thereto)
of the Company and the respective historical financial statements
(including the notes thereto) of the Company, Jayme, WCP and Animated
Systems appearing elsewhere in this Prospectus.
(2) As of April 1, 1995, the Company adopted the provisions of the Financial
Accounting Standards Board's ("FASB") Statement of Financial Accounting
Standards No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions.
(3) The weighted average number of shares outstanding includes the weighted
average of common shares and common equivalent shares adjusted for the
903,189 common shares and common share equivalents issued in connection
with the Animated Acquisition.
(4) As adjusted to give effect to the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $ per share (the midpoint of the price range set forth on the cover
page of this Prospectus).
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors in conjunction with the other information contained in this
Prospectus before purchasing the shares of Common Stock offered hereby.
NO ASSURANCE OF CONTINUED PROFITABILITY; INCREASED EXPENSES ANTICIPATED
Although the Company had net earnings of $313,238, $8,063 and $246,130 for
the fiscal years ended March 31, 1994, 1995 and 1996, respectively (a net loss
of $35,866 for the fiscal year ended March 31, 1996 on a Pro Forma Basis), the
Company expects to incur a net loss for the fiscal year ended March 31, 1997,
due in part to the increased cost of salaries and employee benefits associated
with continued development of the Company's new media marketing communications
business. Moreover, there can be no assurance that the Company will be
profitable in the future. Future operating results will depend on many
factors, including the anticipated incurrence of significant expenses through
at least fiscal 1999 in order to fund the continued development of the
Company's new media marketing communications business, demand for the
Company's new media marketing communications products and services, the
Company's ability to expand its new media product and service offerings, the
Company's ability to effectively use emerging technologies in providing its
products and services, the Company's ability to maintain its client
relationships and obtain new accounts, the Company's success in attracting and
retaining qualified personnel and the Company's response to competitive
developments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Poppe's Strategy."
MANAGEMENT OF POTENTIAL GROWTH; RISKS ASSOCIATED WITH EXPANSION
The Company's growth over the last two fiscal years has primarily been due
to its new media business and acquisitions made by the Company. The Company
did not recognize any revenue from its new media business until fiscal 1995,
although in fiscal 1994 it did incur start-up costs related to this business.
The Company's revenues from its new media business were approximately
$210,000, or approximately 1.9% of total revenues, in fiscal 1995 and
approximately $4.2 million, or approximately 22.3% of total revenues, in
fiscal 1996. The number of the Company's full-time employees has also grown
rapidly, increasing from approximately 120 on March 31, 1995 to approximately
260 on March 31, 1996, and to approximately 365 on July 15, 1996. This growth
has placed, and any continued growth may continue to place, a strain on the
Company's operational, financial and physical resources. As part of this
growth, the Company has expanded its domestic presence by making six
acquisitions since March 31, 1993. Most recently, the Company acquired
Animated Systems, a new media marketing communications company principally
engaged in the creation and development of digital based interactive
multimedia sales, marketing and training materials, which are delivered
primarily through CD-ROMs and digital diskettes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Acquisitions
are subject to various risks and uncertainties, including the inability to
effectively assimilate the operations, products, technologies and personnel of
the acquired companies, the potential disruption of the Company's existing
business, the inability to maintain uniform standards, controls, procedures
and policies and the impairment of relationships with employees and customers
as a result of any integration of new management personnel.
BJK&E has historically provided certain administrative and support services
to the Company. Pursuant to the Operating Services Agreement entered into
between Poppe and BJK&E in connection with this offering, BJK&E is obligated
to continue providing these services for at least one year following the
consummation of this offering. The Operating Services Agreement is renewable
by the Company, in whole or in part (subject to certain conditions), for up to
four additional one year terms but may be terminated earlier by BJK&E if BJK&E
no longer owns at least 50% of the outstanding Common Stock. Any such
termination would require the Company to independently provide, or seek an
alternative source for providing, such services. There can be no assurance
that the Company could independently provide, or find a third party to
provide, these services on a cost-effective basis or that any transition from
receiving services under the Operating Services Agreement will
7
<PAGE>
not have a material adverse effect on the Company. See "Business--Poppe's
Strategy," "Employees" and "Certain Transactions--Relationship with BJK&E."
The Company currently intends to use BJK&E's services under the Operating
Services Agreement for the foreseeable future. BJK&E is not a reporting
company under the Securities Exchange Act of 1934, as amended, and accordingly
there is little information publicly available regarding BJK&E's financial
condition or results of operations. In the event of any material adverse
change in the business of BJK&E or its financial condition or results of
operations, BJK&E's referral of business to Poppe and performance of services
for Poppe could be adversely affected.
The Company's success will depend to a significant extent on the ability of
its executive officers and other members of senior management, none of whom
has any prior executive management experience in public companies, to operate
the Company effectively. See "Management--Directors and Executive Officers."
There can be no assurance that the Company has made adequate allowances for
the costs and risks associated with any potential growth or expansion, that
the Company's systems, procedures or controls will be adequate to support the
Company's operations or that the Company's management will be able to
implement its growth strategy. If the Company's management is unable to manage
growth effectively and new employees are unable to achieve anticipated
performance levels, the Company's results of operations could be adversely
affected. Potential investors should consider the risks, expenses and
difficulties frequently encountered in new and expanding operations.
CONCENTRATION OF REVENUES; ABSENCE OF LONG-TERM NON-TERMINABLE CONTRACTS
The Company's five largest clients accounted for approximately 42%, 42% and
29% of the Company's revenues for the fiscal years ended March 31, 1994, 1995
and 1996, respectively (approximately 29% for fiscal 1996 on a Pro Forma
Basis), with fluctuations in the amount of revenue contribution from each such
client from period to period. Of the Company's five largest clients during the
fiscal year ended March 31, 1996, three were in the top five for the fiscal
year ended March 31, 1995 and of the 10 largest clients for fiscal 1996, four
were in the top 10 for fiscal 1995. Toshiba America Information Systems, Inc.,
Computer Systems Division ("Toshiba"), the Company's largest client during
fiscal 1996, accounted for approximately 10.4% of the Company's revenues
during that period (8.2% for fiscal 1996 on a Pro Forma Basis). Revenues from
Toshiba are derived primarily from traditional marketing services. Consistent
with marketing communications industry custom, the Company's clients generally
have the right to terminate their relationships with the Company without
penalty on relatively short notice, typically 30 to 90 days. Therefore, a
client from whom the Company generates substantial revenue in one period may
not be a substantial source of revenue in a subsequent period.
Like most marketing communications companies, the Company may gain and lose
several significant accounts each year, and there can be no assurance that any
new account will be obtained, or if obtained, will offset any future account
losses. To the extent that the Company's major clients do not remain a
significant source of revenues, and the Company is unable to replace these
clients, there could be a material adverse effect on the Company's business,
financial condition and operating results. In addition, the Company's clients
may unilaterally reduce their marketing communications budgets or their use of
the Company's services. The termination of the Company's business relationship
with any of its significant clients or a material reduction in the use of the
Company's services by a significant client could have a material adverse
effect on the Company's business, financial condition and operating results.
In addition, the termination of the Company's business relationship with any
client which is significant to a particular office, although not to the
Company as a whole, or a material reduction in the use of the Company's
services by such a client could have a material adverse effect on the
operations of such office. See "Business--Poppe's Clients."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY OF BUSINESS
The Company's quarterly operating results have fluctuated in the past and
may fluctuate in the future as a result of a variety of factors, many of which
are not within the Company's control. These factors include timing
8
<PAGE>
of the completion, material reduction or cancellation of major projects or the
loss of a major client, timing of the receipt of new business, timing of the
hiring or loss of personnel, timing of the opening or closing of an office,
the relative mix of higher margin as compared to lower margin projects,
changes in the pricing strategies and business model of the Company or its
competitors and costs relating to the expansion of operations. Quarterly
revenues and operating results can depend on the significance of client
projects commenced and completed during a quarter, the number of working days
in a quarter and employee utilization rates. Because a high percentage of the
Company's expenses are relatively fixed, a variation in the timing of the
initiation or the completion of client projects, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter to quarter and could result in losses. The Company has historically
experienced greater revenue recognition in its third and fourth fiscal
quarters than in its first and second fiscal quarters and has historically
experienced losses in its first and second fiscal quarters. The Company's new
media business has too limited an operating history to determine whether over
time such business will be seasonal.
As a result of the foregoing and other factors, the Company anticipates that
it may experience material and adverse fluctuations in future operating
results on a quarterly or annual basis. Therefore, the Company believes that
period to period comparisons of its revenues and operating results are not
necessarily meaningful and that such comparisons cannot be relied upon as
indicators of future performance. Due to all of the foregoing factors, in some
future quarters the Company's operating results may fall below the
expectations of securities analysts and investors. In such event, the trading
price of the Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON MANAGEMENT AND KEY EMPLOYEES; NEED FOR ADDITIONAL PERSONNEL
The Company's success will depend to a significant extent upon certain
members of senior management, in particular Fergus O'Daly, Jr., Chairman of
the Board and Chief Executive Officer of the Company, David S. Carlick,
Executive Vice President of the Company and Thomas E. Wharton, Jr., Senior
Vice President of the Company. The Company has entered into three-year
employment agreements with Messrs. O'Daly, Carlick and Wharton, although there
can be no assurance that any one of them will not voluntarily terminate their
employment with the Company. See "Management--Employment Agreements." The
Company's success also will depend to a significant degree upon the continuing
contributions of its key account management, marketing, creative and software
applications development personnel as well as its ability to attract and
retain highly skilled personnel in all job categories. Competition for
qualified personnel in the marketing communications industry, especially the
new media marketing communications business, is intense. The Company has at
times experienced, and continues to experience, difficulty in recruiting
sufficient numbers of qualified personnel. Although the existence of certain
management employment agreements and various incentive programs, including the
Company's recently adopted stock option and stock purchase plans, are intended
to attract and retain new personnel and discourage the departure of key
employees, there can be no assurance that they will achieve this purpose. The
loss of the services of any senior management or other key employee or the
inability to attract and retain additional personnel as required could
adversely affect the Company's business, financial condition and results of
operations. See "Business--Competition," "--Employees" and "Management."
UNCERTAIN ADOPTION OF INTERNET AS MEDIUM OF COMMERCE AND COMMUNICATIONS
The Company's ability to derive revenues from new media marketing
communications products and services will depend in part upon an expanding
industry and an infrastructure for providing Internet access and carrying
Internet traffic. Because global commerce and exchange of information on the
Internet is new and evolving, it is difficult to predict with any assurance
whether the Internet will prove to be a viable commercial marketplace. The
Internet may not prove to be a viable commercial marketplace for many reasons,
including inadequate development of the necessary infrastructure, such as a
reliable network backbone not subject to periodic shutdowns, or timely
development of complementary products, such as high speed modems. Moreover,
critical issues concerning the commercial use of the Internet (including
security, reliability, cost, ease of use and access and quality of service)
remain unresolved and may impact the growth of Internet use. In addition, the
applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal
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privacy is uncertain. There can be no assurance that the Internet will become
a viable commercial marketplace and if it does not do so, or if it develops
more slowly than expected by many industry observers, the Company's business,
operating results and financial condition could be materially adversely
affected. While a number of industry studies have been conducted regarding the
number of persons having access to the Internet and the Web, the frequency
with which such persons "surf" the Web, user demographics and other relevant
statistics, currently, there is little industry consensus as to many of these
figures.
DEVELOPING MARKET FOR NEW MEDIA; COMPANY DEPENDENCE ON TRADITIONAL MARKETING
PRODUCTS AND SERVICES
The Company's future growth depends, in part, upon increasing the amount of
revenues it derives from providing new media marketing communications products
and services. The market for new media marketing communications products and
services is continuing to develop, is rapidly evolving and is characterized by
an increasing number of market entrants who have introduced or developed
products and services for communication and commerce through new media. Demand
and market acceptance for such new products and services are subject to a high
level of uncertainty and risk. There can be no assurance that commerce and
communication through new media will continue to grow or that significant
demand for the Company's existing new media products and services or any
future new media products and services will emerge or become sustainable.
There can be no assurance that the development or commercial use of future new
media vehicles will not adversely affect the demand for the new media products
and services provided by the Company, or in such event, that the Company could
successfully adapt its technologies and other capabilities to such other new
media. The use of new media in marketing, particularly by those individuals
and businesses that have historically relied upon traditional means of
marketing, generally requires the acceptance of a new way of conducting
business and exchanging information. In particular, businesses that have
already invested substantial resources in other means of conducting commerce
and exchanging information may be particularly reluctant or slow to adopt a
new strategy that may make their existing resources and infrastructure less
useful. Also, traditional media businesses are expected to aggressively
compete with new media vehicles. Accordingly, there can be no assurance that
the new media marketing communications industry will become an established
industry, or if it does, that the Company's products and services will be
accepted in the market.
Through fiscal 1994 all of the Company's revenues were derived from
traditional advertising products and services. New media marketing
communications products and services represented approximately 1.9% and 22.3%
of the Company's revenues for the fiscal years ended March 31, 1995 and 1996,
respectively (28.5% for fiscal 1996 on a Pro Forma Basis). The balance of the
Company's revenues for such periods continued to be derived from traditional
marketing products and services. The Company's strategy includes increasing
its revenues from new media marketing communications products and services,
although there can be no assurance that the Company will be able to do so. The
Company's revenues from its traditional marketing products and services
increased 35.7% in fiscal 1996 as compared to fiscal 1995 and 2.6% in fiscal
1995 as compared to fiscal 1994. There can be no assurance that the Company
will be able to realize any organic growth in its revenues derived from
traditional marketing products and services.
TECHNOLOGICAL CHANGE
The market for Internet-related products and services is characterized by
rapid technological developments, evolving industry standards and customer
demands, and frequent new product and service introductions and enhancements.
These market characteristics are exacerbated by the emerging nature of the
Internet and the fact that many companies are expected to introduce new
Internet-related products and services in the near future. The Company's
future success will depend in significant part on the Company correctly
identifying which technologies will achieve market acceptance, the Company's
ability to access and adapt to technological developments on a timely basis
and to respond to both evolving demands of the marketplace and competitive
product and service offerings, and there can be no assurance that the Company
will be successful in doing so.
OWNERSHIP OF INTELLECTUAL PROPERTY
The Company does not presently own any material proprietary software, other
than certain proprietary software owned by Animated Systems. The Company's
strategy includes developing Web-related software
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applications which could be licensed to third parties or reused by the Company
for products and services for multiple clients. There can be no assurances
that the Company will be able to develop any such software, or if developed,
to retain ownership of such software or other intellectual property developed
while servicing its clients or use the same on other client projects. Most of
the Company's current client contracts grant ownership of intellectual
property rights to work product created during the course of the Company's
engagement with the client, and agreements with future clients may contain
similar provisions. Other existing client contracts are, and future client
contracts may be, silent as to the ownership of such rights. To the extent
that the ownership of such intellectual property rights is expressly granted
to clients, the Company does not have the right to reuse or resell such rights
without client consent. To the extent that the ownership of such intellectual
property rights is ambiguous, the Company's ability to reuse or resell such
rights may be limited or prohibited.
COMPETITION
The marketing communications industry is, and is expected to continue to be
a highly competitive business in which companies of all sizes strive to
attract new clients or additional assignments from existing clients and to
maintain existing client relationships. The Company faces competition from a
number of sources, including national and regional advertising agencies as
well as integrated and specialized marketing communications companies. With
respect to new media, the Company's competitors also include marketing
communications companies specializing in new media marketing communications
products and services as well as new media technology companies. Many of these
new media boutiques are increasingly well-known to current and potential
clients. In addition, many traditional advertising agencies are beginning to
develop or acquire new media marketing communications departments. Consistent
with marketing communications industry custom, the Company's clients are
generally able to terminate their relationships with the Company without
penalty on relatively short notice, typically between 30 and 90 days.
Competition depends to a large extent on clients' perceptions of the quality
of the "creative product" of the marketing communication companies as well as
technical proficiency with respect to new media marketing communications
products and services. Marketing communications companies' ability to serve
clients on a broad geographic basis is also an important competitive
consideration. A large client base can limit marketing communications
companies' potential for securing new business, because many clients prefer
not to be represented by marketing communication companies that represent
competitors. Moreover, clients frequently wish to have different products
represented by different marketing communications companies.
There are relatively low barriers to entry in the marketing communications
business. For example, the Company has no significant proprietary technology
that would preclude or inhibit competitors from entering the marketing
communications market or providing services similar to those provided by the
Company. Therefore, the Company expects that it will face additional
competition from new entrants into the marketing communications industry in
the future. There can be no assurance that existing or future competitors will
not develop or offer marketing communications products or services that
provide significant performance, price, creative, technical or other
advantages over those offered by the Company, which could have a material
adverse effect on the Company's business, financial condition and operating
results. There are a number of advertising agencies, multimedia firms and
other companies which exist and which will continue to emerge that have
marketing, creative and technical expertise in marketing communications,
including new media services provided by the Company such as design and
implementation of Internet marketing programs and creation of Web sites, with
which the Company will be required to compete. See "Business--Competition."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
An element of the Company's growth strategy is to acquire businesses that
offer marketing communication products, services or technologies. In the
normal course of its business, the Company evaluates potential acquisitions of
businesses that might complement or expand the Company's business. The success
of this strategy will depend upon the Company's ability to identify and
acquire businesses on a cost-effective basis. There is no assurance that the
Company will be able to identify appropriate acquisition candidates, or if it
does so, to successfully negotiate the terms of any such acquisition or
finance any such acquisition. In addition, if the
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Company consummates any such business acquisitions, such acquisitions will be
subject to risks including the inability to effectively assimilate the
operations, products, technology and personnel of the acquired companies, the
potential disruption of the Company's existing business, the inability to
maintain uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers as a result of any
integration of new management personnel. If the Company consummates one or
more significant acquisitions in which the consideration consists of stock,
stockholders of the Company could suffer a significant dilution of their
interests in the Company. If the Company proceeds with one or more significant
acquisitions in which the consideration consists of cash, a substantial
portion of the Company's available cash (including proceeds of this offering)
could be used to consummate the acquisitions. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
POTENTIAL CLIENT CONFLICTS OF INTEREST
Conflicts of interest between existing and prospective clients are inherent
in the marketing communications industry. The Company has in the past been,
and will in the future continue to be, unable to accept various potential
marketing assignments because such assignments will require the Company to
provide products or services to direct competitors of existing Company
clients. In addition, the Company risks alienating or straining relationships
with existing clients each time the Company agrees to provide products or
services to even indirect competitors of existing Company clients. Conflicts
of interest may jeopardize the stability of revenues generated from existing
clients and preclude access to business prospects, either of which
developments could have a material adverse effect on the Company's business,
financial condition and operating results. In the event that the number of the
Company's clients increases, the potential for client conflicts of interest
will also increase.
The Company was a wholly-owned subsidiary of BJK&E from February 1988 until
June 1996, and as of August 1, 1996, BJK&E continued to own approximately
84.7% of the outstanding Common Stock, on a fully diluted basis. Immediately
after the completion of this offering, BJK&E will own approximately %, on a
fully diluted basis, of the outstanding Common Stock ( % if the Underwriters'
over-allotment option is exercised in full). Prospective or existing clients
may choose not to retain the Company for reasons of actual or perceived client
conflicts of interest based upon the Company's relationship with BJK&E and
BJK&E's present or future clients.
POTENTIAL COMPETITION AND CONFLICTS WITH BJK&E
Poppe and BJK&E have in the past and may in the future compete for clients
or assignments and there is no agreement or other understanding which would
prevent any such competition. In addition, in the past Poppe and BJK&E have
independently and jointly provided services to clients of the other and it is
anticipated that they may continue to do so in the foreseeable future.
Conflicts may arise from time to time between Poppe and BJK&E regarding the
allocation of services and/or fees in connection with any such jointly
provided services. Furthermore, there can be no assurances that BJK&E will
continue to refer business to Poppe. There are no contractual or other
restrictions on BJK&E's ability to engage in new media activities.
Accordingly, circumstances could arise in which BJK&E would engage in
activities competitive with the Company.
Conflicts of interest may arise between the Company and BJK&E in a number of
areas relating to their past and ongoing relationships, including potential
competitive business activities, tax and employee matters, indemnity
arrangements, sales or distributions by BJK&E of its shares of Common Stock
and the exercise by BJK&E of its ability to control the management and affairs
of the Company. In addition, the members of the Board of Directors of the
Company who are also affiliated with BJK&E will consider not only the short-
term and the long-term impact of operating decisions on the Company, but also
the impact of such decisions on the consolidated financial results of BJK&E.
In some cases the impact of such decisions could be disadvantageous to the
Company while advantageous to BJK&E or vice versa. See "Management,"
"Principal and Selling Stockholders" and "Certain Transactions--Relationship
with BJK&E."
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VOTING CONTROL BY BJK&E
Upon completion of this offering, BJK&E will own approximately %, on a
fully diluted basis, of the outstanding Common Stock ( % if the Underwriters'
over-allotment option is exercised in full). The Company's stockholders do not
have the right to cumulate votes for the election of directors. As a result,
BJK&E will be able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. The Company's Board of Directors has been, and is expected to
continue to be, comprised entirely of designees of BJK&E. BJK&E has the power
to approve or disapprove any corporate actions submitted to a vote of the
Company's stockholders. Control by BJK&E may discourage certain types of
transactions involving an actual or potential change of control of the
Company, including transactions in which the holders of Common Stock might
receive a premium for their shares over prevailing market prices. See
"Principal and Selling Stockholders" and "Certain Transactions--Relationship
with BJK&E."
RISK OF CAPACITY CONSTRAINTS AND SYSTEM FAILURES
The performance of the Company's new media marketing communications products
and services is critical to the Company's reputation, its ability to attract
new clients and projects in the new media arena and market acceptance of any
new media products and services. The success of the Company's new media
business will depend, in significant part, upon a high volume of traffic to
the Web sites designed, developed, launched, hosted or maintained by the
Company for its clients. Any system failure that causes interruptions in the
availability or increases response time of these Web sites would result in
less traffic thereto and, if sustained or repeated, might reduce the
attractiveness of the Company's Web products and services. The Company is also
dependent upon Web browsers, search engines and Internet and online service
providers for access to Web sites designed, developed, produced or maintained
by the Company for its clients and Internet users have experienced
difficulties due to system failures unrelated to particular Web sites. The
Company's servers used in connection with its Web site hosting activities are
vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures and similar events. The Company does not presently
have redundant, multiple site capacity or a disaster recovery plan for its
hosting activities. Despite the implementation of network security measures by
the Company, its servers are also vulnerable to computer viruses, break-ins
and similar disruptive problems. Computer viruses, break-ins or other problems
caused by third parties could lead to interruptions, delays or cessations in
service to users of the Company's products or services delivered via the
Internet. The occurrence of any of these risks could have a material adverse
effect on the Company's business, results of operations and financial
condition.
RISKS ASSOCIATED WITH FIXED FEE CONTRACTS
The Company generates the substantial majority of its new media revenues on
a fixed fee basis and therefore the Company bears the risk of cost overruns.
Many factors, including any failure to anticipate technical problems, estimate
costs accurately or control costs during performance of a fixed-price
contract, may reduce the Company's profit or cause a loss with respect to such
fixed-price contract. In the event the Company does not accurately price its
fixed fee contracts it could have a material adverse effect on the Company's
business, operating results and financial condition.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations, like those of other
marketing communications companies, will be subject to fluctuations based upon
the general economic conditions of the United States. If there were to be a
general economic downturn or a recession in the United States, then the
Company expects its clients and potential clients will substantially and
immediately reduce their marketing communications budgets leading to a
reduction in the level of the Company's fees and commissions. In the event of
a reduction in overall marketing expenditures, it is possible that marketers
may focus their reduced budgets on traditional media advertising at the
expense of new media marketing expenditures. Most of the factors that might
influence clients and potential clients to reduce their marketing
communications budgets under these circumstances are beyond the Company's
control. In the event of such an economic downturn, there can be no assurance
that the Company's business, operating results and financial condition would
not be materially and adversely affected.
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GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
The marketing communications industry is subject to extensive government
regulation, both domestic and foreign, with respect to the truth and fairness
of advertising. The Company must comply with Federal Trade Commission
regulations with respect to the marketing of products and services and similar
state regulations. In addition, there has been an increasing tendency in the
United States on the part of businesses to resort to the judicial system to
challenge comparative advertising of their competitors on the grounds that the
advertising is false and deceptive. Although BJK&E maintains communication
liability insurance for advertising agencies pursuant to which Poppe is
insured, with coverage of up to $10.0 million for any claim, there can be no
assurance that such coverage would adequately protect Poppe in the event any
such claims are made against the Company or its clients by other companies or
governmental agencies. Some of the contracts that the Company enters into with
its clients require that the Company indemnify clients with respect to any
claims or actions brought by third parties which result from the use by the
clients of materials furnished by the Company.
There are currently few laws or regulations directly applicable to access to
or commerce on the Internet. The Communications Decency Act of 1996 (the
"CDA"), which constitutes Title V of the Telecommunications Reform Act of 1996
was recently enacted and imposes criminal penalties on anyone who distributes
obscene, lascivious, indecent or patently offensive communications on the
Internet. On June 12, 1996, in American Civil Liberties Union et al. v. Reno,
a three judge panel of the United States District Court for the Eastern
District of Pennsylvania ruled that certain provisions of the CDA were
unconstitutional and preliminarily enjoined enforcement of those provisions.
On July 29, 1996, in Shea v. Reno, a three judge panel of the United States
District Court for the Southern District of New York preliminarily enjoined
the enforcement of a certain provision of the CDA on constitutional grounds.
Due to the increasing popularity and use of the Internet, it is possible that
a number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing and characteristics and quality
of products and services offered over the Internet. The adoption of any such
laws or regulations could have a material adverse effect on the Company's
business, results of operations or financial condition or may decrease the
growth of the Internet, which could in turn decrease the demand for the
Company's products and services delivered over the Internet and thereby
adversely affect the Company's business, results of operations or financial
condition. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain. Because materials may be downloaded by the online or Internet
services operated or facilitated by the Company or the Internet access
providers with which it has relationships and may be subsequently distributed
to others, there is a potential that claims will be made against the Company
for defamation, negligence, copyright or trademark infringement or other
theories based on the nature and content of such materials. Such claims have
been brought, and sometimes successfully pressed against online services in
the past. Although BJK&E carries general liability insurance and communication
liability insurance for advertising agencies pursuant to which the Company is
insured, the insurance may not cover potential claims of this type or may not
be adequate to indemnify the Company for all liability that may be imposed.
Any imposition of liability that is not covered by insurance or is in excess
of insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business--
Government Regulation."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 6,700,000
shares of preferred stock (the "Preferred Stock") and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
Further, certain provisions of the Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") and Bylaws (the
"Bylaws") and of Delaware law, including a staggered Board of Directors, could
delay or make more difficult, a merger, tender offer or proxy contest
involving the Company. The Company is subject to the anti-takeover provisions
of Section 203 of the Delaware General Corporation Law. In general, the
statute prohibits a publicly held Delaware
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corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. See "Description of Capital
Stock--Preferred Stock" and "--Delaware Law and Certain Charter Provisions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price for the Common
Stock and the Company's ability to raise capital. Upon completion of this
offering, the Company will have outstanding shares of Common Stock, of
which will be owned by BJK&E ( shares outstanding of which will be
owned by BJK&E if the Underwriters' over-allotment option is exercised in
full) and in addition, there are outstanding options to purchase 1,383,261
shares of Common Stock, of which options to purchase 786,671 shares of Common
Stock are currently exercisable. See "Management--Stock Option Plan." Of such
outstanding shares, the shares being offered hereby will be freely
tradeable other than by "affiliates" of the Company. The remaining shares are
subject to contractual "lock-up" agreements with the Company or the several
Underwriters, pursuant to which the current stockholders and option holders
have agreed not to publicly sell their shares for a period of 180 days
following the date of this Prospectus without the prior written consent of
Merrill Lynch. Beginning 180 days following the date of this Prospectus,
unless sooner released from contractual lock-up agreements, the shares owned
by BJK&E will become available for sale in the public market pursuant to Rule
144 under the Securities Act of 1933, as amended (the "Securities Act"),
subject to volume and other resale limitations under Rule 144, and an
additional shares will become available for sale in the public market
pursuant to Rule 701 under the Securities Act. See "Shares Eligible for Future
Sale." The Company is unable to estimate the number of shares which may be
sold under Rule 144 or Rule 701 since this will depend upon the market price
of the Common Stock and other factors. Although the Company can make no
prediction as to the effect, if any, that sales of shares of Common Stock
would have on the market price prevailing from time to time, sales of
substantial amounts of Common Stock or the availability of such shares for
sale could adversely affect prevailing market prices. Subject to the 180-day
lock-up agreements referred to above, pursuant to registration rights
agreements, BJK&E, the former shareholders of Animated Systems and certain
executives of the Company each have the right to require the Company to
register all or a portion of the shares of Common Stock held by them to
facilitate their possible sale. BJK&E has advised the Company that it does not
have any present intention to request any such registration, nevertheless, for
so long as BJK&E is able to elect a majority of the Company's Board of
Directors it will be able to cause the Company at any time to register all or
a portion of the Common Stock owned by BJK&E under the Securities Act, in
addition to BJK&E's contractual registration rights. See "Certain
Transactions--Relationship with BJK&E," "Description of Securities--
Registration Rights" and "Shares Eligible for Future Sale."
USE OF PROCEEDS FOR REPAYMENT OF INTERCORPORATE BORROWINGS AND GENERAL
CORPORATE PURPOSES
The Company intends to use approximately $ of the net proceeds of the
sale by the Company of Common Stock offered hereby for repayment of
intercorporate borrowings to BJK&E, including approximately $2.4 million used
by Poppe to finance the cash component of the purchase price for Animated
Systems and covenant not to compete payments and repayment of Animated
Systems' bank indebtedness. The Company intends to use the remaining net
proceeds of this offering for general corporate purposes, including working
capital and funding for the continued development of the Company's new media
business. A portion of the proceeds may also be used to acquire products,
technologies or businesses that offer marketing communications services.
Pending use of the net proceeds for the above purposes, the Company intends to
invest such proceeds in short-term, interest-bearing investment grade
obligations. See "Use of Proceeds."
ABSENCE OF PUBLIC MARKET; OFFERING PRICE DETERMINED BY AGREEMENT; POSSIBLE
VOLATILITY OF SHARE PRICE
Prior to this offering, there has been no public market for the Common Stock
and there can be no assurance that an active market for the Common Stock will
develop or continue after this offering. Accordingly, no
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assurance can be given as to the liquidity of the market for shares of Common
Stock or the price at which any sales thereof may occur, which price will
depend upon factors beyond the control of the Company. The initial public
offering price per share of Common Stock has been determined by negotiation
among the Company, the Selling Stockholder and the representatives of the
several Underwriters, and may not be indicative of the market price for the
shares of Common Stock after this offering. See "Underwriting" for factors
considered in determining the offering price. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products or services by the Company or its competitors, changes in
financial estimates by securities analysts and other events or factors. In
addition, the stock market has experienced volatility that has particularly
affected the market prices of equity securities of many companies providing
new media products and services and that can be unrelated to the operating
performance of such companies. These broad market fluctuations may materially
adversely affect the market price of the Common Stock. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Investors participating in the offering will incur immediate and substantial
dilution of $ in the pro forma net tangible book value per share of Common
Stock. To the extent outstanding options to purchase Common Stock are
exercised, there will be further dilution. See "Dilution."
LACK OF DIVIDENDS
The Company anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business. Declaration of
dividends on the Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock being offered by it hereby (at an assumed initial public offering price
of $ per share, the midpoint of the price range set forth on the cover page
of this Prospectus) are estimated to be approximately ($ if the
Underwriters' over-allotment option is exercised in full), after deduction of
the underwriting discount and estimated offering expenses. The Company intends
to use approximately $ of the net proceeds of this offering for repayment
of intercorporate borrowings to BJK&E, including approximately $2.4 million,
which bears interest at the rate of the 30-day LIBOR plus 2 1/2%, used by
Poppe to finance the cash component of the purchase price for Animated Systems
and covenant not to compete payments and repayment of Animated Systems' bank
indebtedness. The Company intends to use the remaining net proceeds of this
offering for general corporate purposes, including working capital and funding
for the continued development of the Company's new media business. A portion
of the net proceeds may also be used to acquire products, technologies or
businesses that offer marketing communications services. Although the Company
has no present agreements or commitments and is not currently engaged in any
negotiations with respect to any such material transactions, the Company
evaluates such opportunities from time to time. Management will have
significant flexibility in applying the net proceeds of this offering. Pending
use of the net proceeds for the above purposes, the Company intends to invest
the net proceeds in short-term, interest-bearing investment-grade obligations.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholder.
DIVIDEND POLICY
The Company anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the business. Declaration of
dividends on the Common Stock will depend upon, among other things, future
earnings, the operating and financial condition of the Company, its capital
requirements and general business conditions.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, on an actual basis, on a Pro Forma Basis and on a Pro Forma Basis as
adjusted to reflect the sale by the Company of shares of Common Stock
pursuant to this offering (at an assumed initial public offering price of $
per share, the midpoint of the price range set forth on the cover page of this
Prospectus) and the receipt by the Company of the estimated net proceeds
therefrom, after deducting underwriting discounts and estimated offering
expenses. The information set forth in the table below is qualified by the
more detailed financial statements (including the notes thereto) appearing
elsewhere in this Prospectus and should be read in conjunction with such
financial statements.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations........ $ 365 $ 426 $ 426
======= ======= =======
Long-term debt.................................. $ 634 $ 692 $ 692
Stockholders' equity:
Preferred Stock, $.001 par value; 6,700,000
shares authorized;
no shares outstanding(1)..................... -- --
Common Stock, $.001 par value; 50,000,000
shares authorized; 13,520,922 shares issued
and outstanding, actual; 14,424,111 shares
issued and outstanding, pro forma; shares
issued and outstanding, pro forma as
adjusted(1)(2)............................... 14 14
Additional paid-in capital.................... 5,158 6,258
Accumulated deficit........................... (3,351) (3,351)
------- ------- -------
Total stockholders' equity.................. 1,821 2,921
------- ------- -------
Total capitalization...................... $ 2,455 $ 3,613 $
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the filing of the Amended and Restated Certificate of
Incorporation which increased the Company's authorized capital stock,
effective on June 25, 1996.
(2) Does not include (i) 4,574,777 shares of Common Stock reserved for
issuance upon exercise of stock options pursuant to the Company's stock
option plan on March 31, 1996, of which on March 31, 1996, on a pro forma
basis, options to purchase 959,638 shares had been granted to certain
executive officers of, and advisors to, the Company and the former
optionholders of Animated Systems at a weighted average exercise price of
$1.22 per share, or (ii) 348,333 shares of Common Stock reserved for
issuance pursuant to the Company's stock purchase plan, none of which had
been issued at March 31, 1996. See "Management--Stock Option Plan" and "--
Stock Purchase Plan."
18
<PAGE>
DILUTION
The pro forma net tangible book deficit of the Company after giving effect
to the Animated Acquisition at March 31, 1996, was ($1,390,505), or ($.10) per
share of Common Stock. After giving effect to the sale of the shares of
Common Stock offered by the Company hereby (assuming an initial public
offering price of $ per share, the midpoint of the price range set forth on
the cover page of this Prospectus), the pro forma net tangible book value of
the Company at March 31, 1996, would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors purchasing shares in this offering. Pro forma net tangible
book value (deficit) per share is determined by subtracting total liabilities
from tangible assets and dividing the remainder by the number of shares of
Common Stock outstanding on a Pro Forma Basis. The following table illustrates
this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share.................... $
Pro forma net tangible per share book deficit before
offering.................................................. $
Increase per share attributable to new investors...........
-------
Pro forma net tangible per share book value after
offering.................................................. $
-------
Dilution per share to new investors........................ $
=======
</TABLE>
The following table summarizes, as of July 31, 1996, the number of shares of
Common Stock purchased, the total consideration paid and the average price
paid per share by existing stockholders and by new investors with respect to
shares purchased from the Company in this offering (assuming an initial public
offering price of $ per share, the midpoint of the price range set forth on
the cover page of this Prospectus):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 14,577,396 % $ 6,356,975 % $.44
New investors........... $
---------- ----- ------------ -------
Total(2).............. 100.0% $ 100.0%
========== ===== ============ =======
</TABLE>
- --------
(1) Does not include (i) 4,421,492 shares of Common Stock reserved for
issuance upon exercise of stock options pursuant to the Company's stock
option plan, of which outstanding options to purchase 1,383,261 shares
have been granted to certain executive officers and other employees of,
and an advisor to, the Company and the former optionholders of Animated
Systems at a weighted average exercise price of $3.74 per share, or (ii)
348,333 shares of Common Stock reserved for issuance pursuant to the
Company's stock purchase plan, none of which have been issued. The
issuance of shares of Common Stock upon the exercise of options under the
Company's stock option plan or under the Company's stock purchase plan
will result in additional dilution to new investors. See "Management--
Stock Option Plan" and "--Stock Purchase Plan."
(2) Following the sale of Common Stock by the Selling Stockholder in this
offering if the Underwriters' over-allotment option is exercised in full,
the number of shares held by all existing stockholders will be reduced by
shares to or % of the total shares of Common Stock outstanding
after this offering. New investors will hold shares, or % of the
total shares of Common Stock outstanding after the offering if the
Underwriters' over-allotment option is exercised in full. See "Principal
and Selling Stockholders."
19
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth, for the periods indicated, selected
financial data for the Company. The statement of operations data for the years
ended and balance sheet data as of March 31, 1992, 1993, 1994, 1995 and 1996
(historical and pro forma) have been derived from the Company's financial
statements which, in the case of the statements of operations for the years
ended March 31, 1994, 1995 and 1996 (historical only) and the balance sheets
as of March 31, 1995 and 1996 (historical only), have been audited by KPMG
Peat Marwick LLP, independent accountants. The following selected financial
data should be read in conjunction with the more detailed financial statements
(including the notes thereto) and the discussion under "Management's
Discussion and Analysis of Results of Operations and Financial Condition "
appearing elsewhere in this Prospectus. For information with respect to the
Acquisitions, see the Pro Forma Condensed Consolidated Financial Statements of
the Company and the respective historical financial statements (including the
notes thereto) of Jayme, WCP and Animated Systems appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA(1)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Commissions and fees.... $ 7,332 $ 7,371 $10,585 $11,074 $18,963 $24,071
Salaries and employee
benefits............... 4,787 4,905 6,939 7,261 12,478 15,774
Operating and
general(2)............. 3,048 2,863 3,086 3,692 6,012 7,820
Operating income
(loss)................. (503) (397) 560 121 473 477
Interest income
(expense), net......... 168 175 -- -- -- (216)
Income (loss) before
income tax expense..... (335) (222) 560 121 473 261
Income tax expense
(benefit).............. (99) (56) 247 113 227 297
------- ------- ------- ------- ------- -------
Net earnings (loss)..... $ (236) $ (166) $ 313 $ 8 $ 246 $ (36)
======= ======= ======= ======= ======= =======
Net earnings (loss) per
share.................. $ (.01) $ (.01) $ .02 $ -- $ .01 $ --
Weighted average number
of shares
outstanding(3)......... 16,901 16,901 16,901 16,901 16,735 17,638
<CAPTION>
AS OF MARCH 31,
-------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA(1)
------- ------- ------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................... $ 35 $ 30 $ 36 $ 36 $ 27 $ 156
Working capital
(deficit).............. (777) 479 455 295 (722) (2,694)
Total assets............ 5,794 6,847 8,928 9,626 17,887 21,830
Long-term liabilities... 339 367 396 443 634 694
Total liabilities(2).... 5,946 5,665 7,433 8,123 16,066 18,909
Total stockholder's
equity (deficit)....... (152) 1,182 1,495 1,503 1,821 2,921
</TABLE>
- -------
(1) The pro forma condensed consolidated financial data give effect to the
Jayme Acquisition, the WCP Acquisition and the Animated Acquisition. Each
of the Acquisitions was accounted for under purchase accounting. The pro
forma condensed consolidated statement of operations data combine the
results of operations of the Company for the year ended March 31, 1996 and
the results of the operations for that period as if each Acquisition had
been consummated at April 1, 1995. The pro forma condensed consolidated
balance sheet data combine the financial position of the Company at March
31, 1996 with the financial position of Animated Systems as though the
Animated Acquisition had occurred at that date. Additionally, the pro
forma condensed consolidated financial data reflect adjustments for, among
other things, amortization of intangible assets arising from the
Acquisitions, a special bonus paid to management of WCP and interest on
intercompany borrowings in connection with the Animated Acquisition. The
pro forma data are not necessarily indicative of results of operations
which would actually have been reported had the Acquisitions been
consummated at April 1, 1995 or which may be reported in the future. The
pro forma data are not necessarily indicative of the financial position
which would actually have been reported had the Animated Acquisition been
consummated as of March 31, 1996 or which may be reported in the future.
The data should be read in conjunction with the Pro Forma Combined
Condensed Financial Statements (including the notes thereto) of the
Company and the respective historical financial statements (including the
notes thereto) of the Company, Jayme, WCP and Animated Systems appearing
elsewhere in this Prospectus.
(2) As of April 1, 1995, the Company adopted the provisions of the FASB's
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions.
(3) The weighted average number of shares outstanding includes the weighted
average of common shares and common equivalent shares adjusted for the
903,189 common shares and common share equivalents issued in connection
with the Animated Acquisition.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following presentation should be read in conjunction with the Selected
Financial Data, Pro Forma Condensed Consolidated Financial Statements and the
Company's historical financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Except as specifically stated below,
all financial data are derived from the Company's historical financial
statements, and without limiting the foregoing, do not include any results of
operations of Animated Systems.
OVERVIEW
The Company is a full-service marketing communications company that develops
and implements marketing programs utilizing both traditional media and new
media vehicles. Such programs include creation of core themes for marketing
campaigns, market analyses, creation of marketing materials, media planning
and placement, product positioning, corporate and product branding, public
relations, database driven sales support, and Web site design, development,
launch and maintenance services. As a result of the Animated Acquisition, the
Company also creates and develops interactive marketing and sales
presentations, sales information systems and computer-based training programs
utilizing CD-ROMs and digital diskettes. Poppe specializes in providing
marketing communications services for "considered purchase" products and
services. To date, the Company has derived commissions and fees principally
from traditional marketing communications services. However, in the fiscal
years ending March 31, 1995 and 1996, Poppe derived approximately 1.9% and
22.3%, respectively, of its total revenues from new media services.
TRADITIONAL MARKETING COMMUNICATIONS SERVICES
The Company's traditional marketing communications revenues consist
primarily of commissions, fees and hourly charges earned from creating and
placing broadcast, print and direct mail advertising, as well as public
relations.
The physical material, labor and talent used in the production of finished
commercials and advertisements are typically supplied by independent
contractors under the direction and supervision of the Company's creative and
production staff. The Company generally bills its clients for such production
costs, plus a mark up or production commission. The Company negotiates
commissions for its traditional marketing communications services as a
percentage of the gross charge ("billings") for advertising space or air time.
Alternatively, fees are generated in lieu of commissions, generally relating
to the cost of providing services plus a mark up. Depending on client and
Company needs, the Company may charge a service fee, in addition to media and
production commissions or fees, for specialized services rendered by the
Company.
In general, the Company recognizes revenues from its traditional marketing
communications services (i) from production commissions, when related third
party production costs are incurred, (ii) from fees and hourly charges, when
related in-house production costs are incurred and services are rendered, and
(iii) from media commissions, when related media placements appear.
NEW MEDIA MARKETING COMMUNICATIONS SERVICES
The Company's new media marketing communications revenues consist primarily
of fees derived from performing design, development and launch services for
Web sites. The Company also derives ongoing revenues from Web site maintenance
and hosting, online public relations (referred to as "CyberPR"), new media
database services and other new media services.
Substantially all of the Company's new media services, including its Web
site design, development and launch services and those services provided by
Animated Systems, are provided on a fixed-price basis and, therefore, the
Company bears the risk of cost overruns. Other new media services, such as Web
site maintenance, are generally provided on an hourly charge basis. Poppe
charges a monthly data line fee for all client Web sites
21
<PAGE>
that it hosts, as well as a monthly fee for CyberPR. The Company regularly
reviews staff compensation and overhead costs to ensure that its services are
properly priced. The Company attempts to manage its personnel utilization
rates by closely monitoring project timetables and staffing requirements.
Because the Company's client engagements are generally terminable without
penalty on relatively short notice, an unanticipated termination of a client
project could require the Company to maintain or terminate under-utilized
employees.
In general, the Company recognizes fee revenues from its new media marketing
communications services when services are rendered.
RESULTS OF OPERATIONS
The following table sets forth the dollar amounts and the respective
percentages of the Company's commissions and fees represented by certain items
in the Company's Statements of Earnings for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
PRO FORMA
1994 1995 1996 1996(1)
----------- ----------- ----------- ------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees..... $10,585 100% $11,074 100% $18,963 100% $24,071 100%
Salaries and employee
benefits................ 6,939 66 7,261 66 12,478 66 15,774 66
Operating and
general(2).............. 3,086 29 3,692 33 6,012 32 7,820 32
Operating income......... 560 5 121 1 473 2 477 2
Interest expense, net.... -- -- -- -- -- -- (216) (1)
Income before income tax
expense................. 560 5 121 1 473 2 261 1
Income tax expense....... 247 2 113 1 227 1 297 1
Net earnings (loss)...... $ 313 3 $ 8 -- $ 246 1 $ (36) --
</TABLE>
- --------
(1) The pro forma data combine the results of operations of the Company for
the year ended March 31, 1996 with the results of the operations for that
period as if each Acquisition had been consummated at April 1, 1995, using
purchase accounting. The pro forma data are not necessarily indicative of
the results of operations which would actually have been reported had the
Acquisitions been consummated at April 1, 1995 or which may be reported in
the future. The pro forma data should be read in conjunction with the Pro
Forma Combined Condensed Financial Statements (including the notes
thereto) of the Company and the respective historical financial statements
(including the notes thereto) of the Company, Jayme, WCP and Animated
Systems appearing elsewhere in this Prospectus.
(2) As of April 1, 1995, the Company adopted the provisions of the FASB's
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Revenues. The Company's commissions and fees increased by approximately 71%
to $19.0 million in the fiscal year ended March 31, 1996 from $11.1 million in
the fiscal year ended March 31, 1995. Approximately half of this increase was
attributable to growth in the Company's new media revenues, which increased
significantly to $4.2 million in fiscal 1996 from $210,000 in fiscal 1995.
Operations of WCP (acquired in January 1996) and of Jayme (acquired in July
1995), both traditional marketing communications businesses, and increased
traditional marketing communications business during the fiscal year ended
March 31, 1996 also contributed to the increased revenues.
Salaries and Employee Benefits. The Company's salaries and employee benefits
expenses consist primarily of wages for regular and temporary employees, as
well as benefits, including insurance and 401(k) contributions, and payroll
taxes. BJK&E has historically provided certain administrative and support
services to the Company for an annual charge equal to 3% of the Company's
commissions and fees. One-half of this charge is included in salaries and
employee benefits. See "Business--Certain Transactions."
The Company's salaries and employee benefits expenses increased by
approximately 72% to $12.5 million in the fiscal year ended March 31, 1996
from $7.3 million in the fiscal year ended March 31, 1995. This increase
22
<PAGE>
resulted primarily from additional employees hired to service the growth in
new business, including employees hired as part of the Jayme Acquisition and
the WCP Acquisition. The Company's salaries and employee benefits expenses as
a percentage of revenues remained relatively constant at approximately 66% in
both fiscal 1996 and fiscal 1995. The Company expects this percentage to
increase as it implements higher staffing levels.
Operating and General. The Company's operating and general expenses consist
primarily of costs associated with new business development, facilities, and
other administrative expenses necessary to service the Company's clients and
manage the business. Also included in operating and general expenses is
amortization associated with goodwill arising from acquisitions. In addition,
one-half of the charge payable to BJK&E in respect of certain administrative
and support services provided by BJK&E to the Company referred to above is
included in operating and general expenses. See "Business--Certain
Transactions."
Operating and general expenses increased by approximately 63% to $6.0
million in the fiscal year ended March 31, 1996 from $3.7 million in the
fiscal year ended March 31, 1995. This increase represents the costs
associated with setting up the Company's new media operations in New York,
including increased rent expense and purchases of computer equipment, software
and supplies, as well as the Jayme Acquisition and the WCP Acquisition. The
Company's operating and general expenses declined as a percentage of revenues
to 32% in fiscal 1996 from 33% in fiscal 1995.
Income Taxes. The Company's effective tax rate declined to 48% in the year
ended March 31, 1996 from 93% in the year ended March 31, 1995 due to a
significant increase in pretax operating income while non-deductible expenses
(primarily life insurance premiums, club dues and meals and entertainment)
declined modestly.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
Revenues. The Company's commissions and fees increased by approximately 5%
to $11.1 million in the fiscal year ended March 31, 1995 from $10.6 million in
the fiscal year ended March 31, 1994. The Company had approximately $210,000
of new media revenues in fiscal 1995 compared to no new media revenues in
fiscal 1994.
Salaries and Employee Benefits. The Company's salaries and employee benefits
expenses increased by approximately 5% to $7.3 million in the fiscal year
ended March 31, 1995 from $6.9 million in the fiscal year ended March 31,
1994. This increase resulted primarily from additional employees hired to
service the Company's traditional marketing communications business and the
establishment of the Company's new media operations. The Company's salaries
and employee benefits expenses as a percentage of revenues remained relatively
constant at approximately 66% in both fiscal 1995 and fiscal 1994.
Operating and General. Operating and general expenses increased by
approximately 20% to $3.7 million in the fiscal year ended March 31, 1995 from
$3.1 million in the fiscal year ended March 31, 1994. The Company's operating
and general expenses increased as a percentage of revenues to 33% in fiscal
1995 from 29% in fiscal 1994 primarily as a result of new business activities,
purchases of computer equipment, software and supplies, plus office and
equipment maintenance.
Income Taxes. The Company's effective tax rate increased to 93% in the year
ended March 31, 1995 from 44% in the fiscal year ended March 31, 1994. This
resulted largely because certain non-deductible expenses (primarily life
insurance premiums, club dues and meals and entertainment) increased 120%
while pretax operating income decreased 78% in the fiscal year ended March 31,
1995 as compared to fiscal 1994.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The application of FASB 121, which will be effective
for the Company's 1997 fiscal year, will require management to review certain
long-lived
23
<PAGE>
assets, such as intangible assets, for impairment whenever events or changes
in circumstances indicate that the carrying amount of the particular asset may
not be recoverable. In the event that it is determined that an impairment loss
has accrued, then measurement of the impairment loss should be based on the
fair value of the asset. The effect of FASB 121, which must be applied
prospectively upon adoption, has not yet been determined by management.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation. FASB 123, which will be
effective for the Company's 1997 fiscal year, establishes a fair value based
method of recognizing compensation expenses for stock-based compensation to
employees. However, beginning in 1997, the Company will be required to
disclose the pro forma effects of the fair value based method of measuring
compensation expense on the Company's net income and earnings per share as if
that method were adopted.
QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's business is subject to seasonality, with the third and fourth
fiscal quarters ending December and March typically being the Company's
stronger quarters, both in terms of revenues and financial performance. The
Company reported losses for the first two fiscal quarters of both fiscal 1995
and fiscal 1996. The Company's third fiscal quarter (ending December) has
customarily been strong due to increased advertising and other marketing
communications spending during the holiday season. The Company's fourth fiscal
quarter (i.e., the first calendar quarter ending March) has customarily been
strong due to the fact that many of the Company's clients operate on a
calendar year budget cycle and often release funds from new marketing
communications budgets during the Company's fourth fiscal quarter.
Furthermore, the Company's improved financial performance beginning in the
third fiscal quarter ended December 31, 1995 reflects the emergence of new
media business during that quarter. The timing of acquisitions (Jayme in July
1995 and WCP in January 1996) has also contributed to fluctuations in
quarterly results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------
FISCAL 1995 FISCAL 1996
---------------------------------- ----------------------------------
JUNE 94 SEPT. 94 DEC. 94 MAR. 95 JUNE 95 SEPT. 95 DEC. 95 MAR. 96
------- -------- ------- ------- ------- -------- ------- -------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... $2,451 $2,434 $2,920 $3,269 $2,816 $4,115 $5,346 $6,687
Salaries and employee
benefits............... 1,738 1,691 1,829 2,003 2,208 2,858 3,203 4,209
Operating and
general(1)............. 811 915 975 991 1,065 1,447 1,643 1,857
Operating income
(loss)................. (98) (172) 116 275 (457) (190) 499 621
Income tax expense
(benefit).............. (25) (53) 61 130 (167) (65) 202 257
Net earnings (loss)..... $ (73) $ (119) $ 55 $ 145 $ (290) $ (125) $ 297 $ 364
Net earnings (loss) per
share.................. $ -- $ (.01) $ -- $ .01 $ (.02) $ (.01) $ .02 $ .02
<CAPTION>
AS PERCENTAGE OF COMMISSIONS AND FEES
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... 100% 100% 100% 100% 100% 100% 100% 100%
Salaries and employee
benefits............... 71 69 63 62 78 70 60 63
Operating and general... 33 38 33 30 38 35 30 28
Operating income
(loss)................. (4) (7) 4 8 (16) (5) 10 9
Income tax expense
(benefit).............. (1) (2) 2 4 6 2 4 4
Net earnings (loss)..... (3) (5) 2 4 (10) (3) 6 5
</TABLE>
- --------
(1) As of April 1, 1995, the Company adopted the provisions of the FASB's
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions.
ANIMATED SYSTEMS
Pursuant to the Company's strategy to grow through acquisitions, in June
1996 Poppe acquired Animated Systems for consideration aggregating $1.5
million in cash and 903,189 shares of Common Stock. The acquisition will be
accounted for under the purchase method of accounting and the Company intends
to amortize
24
<PAGE>
the resulting goodwill over a period of 10 years. In addition, the Company
paid two executives of Animated Systems $435,000 and $65,000 cash,
respectively, in consideration of their entering into non-compete agreements
with the Company, which amounts will be amortized over five years and three
years, respectively. In connection with such acquisition, outstanding options
to purchase shares of Animated Systems were assumed under the Company's stock
option plan as incentive stock options to purchase an aggregate of 19,682
shares of Common Stock. Animated Systems' business consists primarily of the
creation and development of digital based interactive multimedia marketing and
sales presentations, sales information systems and computer based training
materials delivered through new media vehicles, primarily CD-ROMs and digital
diskettes.
Historically, Animated Systems has recognized revenues on the percentage-of-
completion method which requires revenues to be recorded over the term of a
client contract based on the percentage of work completed to date. The
Company's operating results may be adversely affected by inaccurate estimates
of contract completion costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied upon borrowings from BJK&E plus cash provided by
operating activities to meet its working capital requirements.
The Company's cash decreased by approximately $10,000 during fiscal 1996 to
$26,500. Working capital decreased by approximately $1,017,000 during fiscal
1996 to a deficit of approximately $722,000 as of March 31, 1996. The
Company's cash increased by approximately $1,000 during fiscal 1995 to
approximately $36,000. Working capital decreased by approximately $160,000
during fiscal 1995 to approximately $295,000 as of March 31, 1995. In fiscal
1996, capital invested in equipment and for acquisitions consumed
substantially all the Company's operating cash flow. Amounts due from the
Company to BJK&E increased by approximately $1.4 million during fiscal 1996
and the amount owed by BJK&E to the Company declined by approximately $1.3
million during fiscal 1995. Accounts receivable increased by approximately
$6.4 million and accounts payable increased by approximately $5.7 million
during fiscal 1996, primarily due to increased business following the WCP
Acquisition and the Jayme Acquisition, as well as growth in the Company's new
media business.
As of March 31, 1996, the Company owed BJK&E approximately $1.4 million. The
Company expects to repay all amounts owed to BJK&E, including the additional
$2.4 million advanced by BJK&E to fund the Animated Acquisition in June 1996,
out of the proceeds from the sale by it of Common Stock in this initial public
offering.
In its traditional marketing communications business, the Company is billed
directly for media air time or space purchased as well as for the services of
any independent contractors hired on behalf of its clients. The Company's
policy is to bill and collect from its clients in sufficient time to pay
amounts due media and contractors on a timely basis. Normally this requirement
is met, although there can be no assurances that it will continue to be met in
the future. As is customary in the marketing communications industry, the
Company records its client invoices and the bills it receives relating to
media and contractors at their gross amount in accounts receivable and
accounts payable, respectively.
Although the Company's plans to incur additional capital expenditures,
direct employee costs and certain other increased costs are in response to
increased demand for the Company's traditional and new media products and
services, a portion of these expenses may be incurred in advance of increased
demand. If market demand does not increase as anticipated, operating results
and liquidity may be adversely affected.
The costs of the Company's new media services have been increasing, and the
Company anticipates that these costs will continue to increase, as clients'
new media marketing programs become more sophisticated. To the extent that the
Company is unable to recover these costs from its clients as incurred, these
increased costs must be funded as part of the Company's working capital
requirements. Ongoing fees, such as fees for maintenance and hosting services,
when contracted for, also help the Company to fund its working capital
requirements.
During fiscal 1996, the Company invested approximately $761,000 in capital
equipment compared to approximately $239,000 during fiscal 1995. As of March
31, 1996, the Company had no major capital
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expenditure commitments. The Company has relied on operating leases for its
premises. The Company has recently entered into a new eight year sublease
agreement with BJK&E for its expanded headquarters in New York City without a
significant rent increase. In June 1996, the Company also entered into a
three-year capital lease with a principal amount of approximately $570,000. As
the Company continues to expand, in particular with respect to its new media
business, the Company will need to invest additional capital in computer
equipment and related supplies.
The Company expects that the net proceeds of its initial public offering
(estimated to be $ million) together with funds from operations, will be
sufficient to meet the Company's capital requirements for at least the next
twelve months. The Company's long-term capital requirements will depend on
numerous factors, including the rates at which the Company grows, expands its
personnel and infrastructure to accommodate growth and invests in new
technologies. The Company has various ongoing needs for capital, including
working capital for operations, project development costs and capital
expenditures to maintain and expand its operations. In addition, as part of
its strategy, the Company evaluates potential acquisitions of products,
technologies and businesses that offer marketing communications services.
While the Company has no present plans, commitments or agreements with respect
to any material acquisition, the Company may in the future consummate
acquisitions which may require the Company to make additional capital
expenditures, and such expenditures may be significant. Future acquisitions
may be funded with available cash from the net proceeds of its initial public
offering and/or additional equity or debt offerings. The Company does not
expect to pay any dividends on its Common Stock for the foreseeable future.
As a wholly-owned subsidiary of BJK&E, the Company has participated in
BJK&E's centralized cash management facilities. Following the completion of
its initial public offering, the Company expects to continue to coordinate its
cash management with BJK&E pursuant to the Operating Services Agreement.
Effective April 1996 the Company acquired the business of Marshall Jaccoma
Mitchell Advertising Incorporated ("MJM") by acquiring certain assets of MJM
for approximately $50,000 plus additional cash consideration contingent upon
continued gross income from MJM clients over the following five years. MJM
provides traditional marketing communications services from its base in New
York City.
Including the Animated Acquisition and the acquisition of MJM, the Company
has made six acquisitions since March 1993 and intends to acquire businesses,
products and technologies in the future, should attractive opportunities
arise. The Company has frequently structured its acquisitions such that a
substantial proportion of the purchase consideration is contingent upon
continuing revenues of the acquired business, although the Animated
Acquisition did not include any contingent consideration. The Company made
contingent payments relating to acquisitions of approximately $357,000,
$273,000 and $0 during fiscal 1996, 1995 and 1994, respectively. The Company
estimates that additional contingent consideration relating to the
acquisitions of Jayme, WCP and MJM will aggregate approximately $3.0 million,
which would be paid during the next five years, although the actual amount of
these payments will depend upon performance. In addition, the Company is
obligated to pay approximately $229,000 with respect to the Carlick
acquisition in each of fiscal 1997 and fiscal 1998.
INFLATION
In the opinion of the management of the Company, inflation has not had a
material impact on the Company's financial position or results of operations.
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BUSINESS
OVERVIEW
Poppe is a full-service marketing communications company that develops and
implements marketing programs utilizing both traditional media and new media
vehicles such as the Internet, the Web, CD-ROMs and digital diskettes. The
Company specializes in providing marketing communications services for
"considered purchase" products and services. Considered purchase products and
services, such as automobiles, computers and financial services, typically
involve lengthy, non-impulse sales processes during which customers generally
seek substantial detailed product information before making their purchase
decisions. The Company is also a leader among major marketing communications
companies in the creation of marketing programs using the Web. Since 1994, as
a part of its Web marketing efforts, Poppe has provided design and development
services for The White House Web site and approximately 60 other Web sites for
such clients as Cadillac, LensCrafters, Merrill Lynch and Netscape. Poppe's
approximately 365 full-time employees operate from offices in New York City;
Morris Plains, New Jersey; Pittsburgh, Pennsylvania; Cleveland, Ohio; and
Mountain View, Palo Alto and Los Angeles, California.
INDUSTRY BACKGROUND
The Company believes that there are significant factors and trends driving
change and creating opportunities in the marketing communications industry for
the use of new media communications vehicles, including:
Continued Increase in PCs and Online Access. Datamonitor, a market research
firm, reported in July 1996 that the number of United States households
equipped with personal computers ("PCs") grew from approximately 28.0 million
in 1993 to approximately 34.3 million in 1995, and the number of United States
households with modem-equipped PCs grew from approximately 6.3 million in 1993
to approximately 16.6 million in 1995. The 1996 Online Advertising Report
published by Jupiter Communications Company stated that the number of United
States online households (consumer online and Web-only users combined)
increased from approximately 4.7 million at December 1994 to approximately 8.4
million at December 1995. These increases are expected to facilitate the
access to new media marketing communications products and services by
increasing the number of businesses and individual consumers potentially
accessing the Web as well as those able to view new media deliverables such as
CD-ROMs.
Emergence of the Web as a Marketing Medium. The recent emergence of the Web
is rapidly changing the way businesses market their corporate brands, products
and services. Commercial Web sites are marketing vehicles which can strengthen
corporate and product brands, deliver specific marketing messages and other
relevant information to their target audience in an interactive, timely manner
and, in some cases, enable products and services to be bought and sold.
According to the February 1996 issue of Internet Marketing & Technology Report
published by Computer Economics Inc., the number of commercial Web sites
increased from approximately 7,300 in June 1995 to approximately 45,000 in
January 1996. Many businesses are concluding that an Internet marketing plan,
including a Web site and its promotion, should be an integral part of their
overall marketing communications strategy. The Company believes that the
growth rate of new media marketing communications expenditures will
substantially exceed the growth rate of expenditures for traditional marketing
communications over the next several years.
Continued Emphasis on Targeted Marketing. The Company believes that
businesses are increasingly looking to improve their marketing effectiveness
by more precisely reaching targeted demographic groups. Historically, the vast
majority of marketing expenditures have been allocated to mass media such as
television, radio, newspapers and general interest magazines. The emergence of
specialized cable channels and magazines, the increased utilization of direct
mail and the more recent emergence of online services provide multiple means
of marketing products and services to more specific customer segments.
Standard & Poor's Industry Surveys (July 20, 1995) reports, for example, that
direct marketing has grown faster than total media placement, stating that
annual expenditures for direct mail marketing grew from approximately $15.0
billion to approximately $27.0
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billion between 1985 and 1993, resulting in a compounded annual growth rate of
7.5% while the total expenditures for all advertising media increased from
approximately $94.0 billion to approximately $138.0 billion which resulted in
only a 4.8% compounded annual growth rate over the same period. Interactive
media furthers customer segmentation by enabling users to participate in the
process of determining the marketing messages or other information they
receive.
Marketers' Desire for Quantifiable Results. Marketers have always devoted
considerable resources in attempting to calculate the effectiveness of their
marketing programs. However, mass media marketing results cannot be quantified
precisely. The Web environment can allow marketers to quantify the number of
visits to their Web sites, identify the users' domains, determine which Web
sites the users visited immediately prior to and after visiting a marketer's
site, identify which pages within marketers' Web sites are the most popular
and record the dates and times Web sites are visited. In addition, recent
developments in third party commercial software are intended to allow
marketers to obtain even more detailed user information, such as viewer
frequency.
Continued Advancements in Technology. The development of new software tools
and applications has allowed businesses to deliver more technologically
sophisticated marketing messages through varied digital based delivery
vehicles. For example, businesses can deliver their marketing messages with
animation and audio on the Web. Hybrid CD-ROM/Web technology allows businesses
to deliver the bandwidth intensive full motion video, audio and graphics of
CD-ROMs, with up-to-date information provided by a Web site. Software
applications that integrate and connect businesses' internal information
systems with the Web allow customers to access product information or make
purchases on demand. These advancements in technology are increasing the
complexity of developing, maintaining and marketing attractive Web sites and
creating other new media vehicles. The Company believes that these
advancements, therefore, require businesses to utilize marketing
communications companies with considerable marketing experience and technical
capability.
Greater Depth and Timely Delivery of Information. Many businesses,
especially those marketing considered purchase products and services, seek to
deliver in-depth information regarding their products and services in a timely
manner. Web sites and new media deliverables such as CD-ROMs have the capacity
to provide substantially more informational content than traditional media,
can be presented for longer periods of time than broadcast commercials and
generally are accessible 24 hours per day. Moreover, Web sites can be updated
frequently.
POPPE'S STRATEGY
The Company's objective is to be a leading provider of marketing
communications programs utilizing new media such as the Web and CD-ROMs, while
continuing to develop and expand its traditional marketing business. The
Company's strategy includes the following key elements:
Capitalize on the Capabilities of the Web and Other New Media Vehicles. The
Company believes that the emergence of new media vehicles provides marketing
communications opportunities unavailable through traditional broadcast and
print media. The Company commenced Web site design and development services in
1994, including Web site design and production, Internet marketing and online
promotion services. Since that time Poppe has provided design and development
services for approximately 60 Web sites for clients including Cadillac,
LensCrafters, Merrill Lynch and Netscape. Since 1989, Animated Systems has
been engaged in the business of new media marketing communications generally
and in particular, the creation and development of digital based interactive
multimedia marketing and sales presentations, sales information systems and
computer-based training materials, delivered primarily through digital
diskettes and CD-ROMs. The Company seeks to educate businesses about the
marketing opportunities presented by various new media vehicles and the
advantages of including new media in their marketing programs, as well as
Poppe's capabilities to assist businesses in exploiting such opportunities.
The Company intends to further develop its Web site and CD-ROM based creation
and development services to capitalize on new media capabilities and
applications as they are developed, as well as to expand into other new media
vehicles.
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Emphasize the Combination of the Company's Marketing and Technical
Capabilities. The Company intends to continue to emphasize the combination of
its traditional marketing expertise in general and its considered purchase
advertising expertise in particular, with its technical capability to utilize
new commercial authoring tools and other technologies and software
developments to develop interactive new media applications. Poppe's ability to
integrate Internet-related business into its existing mix of advertising,
public relations and database marketing was an important factor in its
recognition by Marketing Computers magazine as the 1995 High-Tech Agency of
the Year. The Company believes that this combination provides it with an
important competitive advantage.
Maintain Technical Capabilities. The Company intends to continue to develop
and expand its technical capabilities. Company personnel are experienced in
the use of various software development/authoring tools such as Director,
IconAuthor, ToolBook, SoftImage, WebObjects and Livewire, as well as various
software programming languages including Java, C, C++, HTML, Perl, sql, Lingo,
Openscript and UNIX. The Company continues to develop software applications
that can be used in the Web environment. The Company also researches
commercial authoring tools, software objects and software applications to
identify and utilize those technologies that the Company believes will enhance
its products and services.
Continue to Attract and Retain Superior Talent. Poppe intends to continue to
attract and retain talented new business, management, marketing, creative and
technical personnel. The Company employs copywriters, art directors, graphic
art designers, producers, account managers and new business personnel, as well
as software engineers and interactive media developers.
Develop and Maintain Long-Term Client Relationships; Provide Multiple
Services to Clients. Poppe seeks to establish itself with clients as a
continuing source for the development and implementation of marketing
communications programs. The integrated nature of Poppe's services creates
opportunities for the Company to provide multiple services for clients; for
example, providing traditional advertising and public relations services in
conjunction with the development of Web sites and upgrading, updating,
maintaining and hosting Web sites. The Company has provided Web site
upgrading, updating or maintenance services for approximately 30 Web sites
developed by the Company through August 1, 1996 and hosting services for
approximately 15 Web sites as of such date. In addition, the Company can
process and analyze the responses, requests and purchases of customers for its
clients through its database marketing group ("DBM Group"). By delivering
value-added services, Poppe develops a deeper knowledge of its clients'
marketing needs that encourages them to maintain long term relationships with
the Company. Of the Company's 15 largest clients for fiscal 1996 (based on the
Company's revenues), six had been clients of the Company, including its
predecessors, for eight years or longer.
Expand Service Offerings. The Company's long-term strategy includes
expanding its product and service offerings through acquisitions and by
utilizing new commercial authoring tools and other technologies and software
developments to create new applications. For example, the Company's expertise
in developing digital materials for distribution on CD-ROM and digital
diskettes is, in large part, the result of its acquisition of Animated Systems
in June 1996. In addition, as a result of its Internet experience, Poppe
identified an opportunity to apply its traditional public relations expertise
to the Internet and formed CyberPR, its online public relations service. The
Company's strategy includes developing Web-related software applications which
could be licensed to third parties or reused by the Company for products and
services for multiple clients. The Company's strategy includes providing Web
design and development services to develop intranet communications solutions
when businesses want internal Web sites for use by their employees.
Additionally, the Company's strategy includes providing transaction processing
services to businesses selling products and services on the Web. In August
1996, the Company commenced providing such services on a test basis for sales
of products through one of its client's Web sites. No assurance can be given
that the Company will be able to successfully develop or market any such Web-
related software applications, intranet solutions or transaction processing
services.
Cross-Selling Products and Services. The Company plans to cross-sell
products and services to existing and future clients, including clients
obtained through acquisitions. For instance, many of Poppe's traditional
advertising clients, including those of its recently acquired Pittsburgh and
Cleveland operations, have utilized
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the Company's new media, DBM or public relations services as well.
Furthermore, several clients which originally retained the Company to obtain
Web site services have also utilized the Company's traditional marketing
services. As the Company expands its services and geographic presence, the
Company believes that its ability to cross-sell is enhanced.
Leverage Relationship with BJK&E. Upon the completion of this offering,
BJK&E will own approximately % of the outstanding Common Stock on a fully
diluted basis ( % if the Underwriters' over-allotment option is exercised in
full). BJK&E (including the Company) is one of the 15 largest marketing
communications holding companies in the world and one of the five largest
privately held marketing communications holding companies in the world, based
on worldwide gross income for 1995 of $404.5 million as published in the April
15, 1996 issue of Advertising Age. BJK&E agencies include Poppe, Bozell
Worldwide, Inc., an international full-service advertising agency, Temerlin
McClain, Inc., a national advertising agency, and Bozell Sawyer Miller Group
Inc., a public relations and strategic consulting firm. BJK&E has worked
closely with Poppe to develop new business opportunities for Poppe and to
deliver marketing communications services to their clients. Poppe has
developed Web sites for BJK&E clients such as Chrysler, Merrill Lynch, Taylor-
Made, Valvoline and Weber. Poppe expects this relationship with BJK&E to
continue after this offering. BJK&E has historically provided certain
administrative and support services to the Company. Pursuant to the Operating
Services Agreement, BJK&E is obligated to continue providing these services
for at least one year following the consummation of this offering. The
Operating Services Agreement is renewable by the Company at its option, in
whole or in part (subject to certain conditions), for up to four additional
one year terms, but may be terminated earlier by BJK&E if BJK&E ceases to own
at least 50% of the outstanding Common Stock. For information regarding
additional support provided by BJK&E to the Company, see "Certain
Transactions--Relationship with BJK&E." Poppe anticipates that its continued
association with BJK&E will provide the Company with client introductions and
marketplace visibility not generally available to other new media
communications companies.
Conflicts may arise from time to time between Poppe and BJK&E regarding the
allocation of services and/or fees in connection with any such jointly
provided services. Furthermore, there can be no assurances that BJK&E will
continue to refer business to Poppe. There are no contractual or other
restrictions on BJK&E's ability to engage in any new media activities.
Accordingly, circumstances could arise in which BJK&E would engage in
activities competitive with the Company.
Expand Geographic Presence. The Company believes that strong geographic
coverage can enhance the competitiveness of a marketing communications
company. The Company has acquired six marketing communications companies since
March 31, 1993 thereby expanding into Pittsburgh, Cleveland and Silicon
Valley. Management intends to continue to evaluate the need for additional
offices and strategic acquisitions presenting opportunities to expand its
geographic presence.
POPPE'S PRODUCTS AND SERVICES
Poppe develops and implements marketing communications programs for its
clients either separately or as part of an integrated marketing program. Poppe
coordinates the delivery of its products and services through its account
management teams, which the Company sometimes refers to as "Information
Architects" and which serve as the primary client contact. Working with the
clients, the account management teams design marketing strategies
incorporating one or more of Poppe's products and services. In addition to the
account management team, Poppe assigns and in some cases dedicates,
appropriate personnel to clients' accounts for the purpose of providing
consistency and maintaining an understanding of clients' changing marketing
needs. Depending upon the clients' marketing strategies, the personnel
involved can include marketing, creative and graphic design personnel, as well
as software engineers. In many cases, the marketing strategies are implemented
over a six to 12 month period or include campaigns involving a series of
interrelated marketing messages. In some cases, the Company's assignments
include monitoring the response to and effectiveness of the implemented
strategies and refining the strategies. The following are the major products
and services provided by the Company.
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Advertising and Promotion Services. Poppe and its predecessors have been
providing marketing communications services for over 70 years. The Company
specializes in providing marketing communications services for "considered
purchase" products and services. The Company provides a range of integrated
services such as the creation of core themes for marketing campaigns, market
analysis, creation of marketing materials, media planning and placement,
product positioning and corporate and product branding. The creation of the
core themes for marketing campaigns includes research and analysis of clients'
products, competition and market. The creation of marketing materials includes
writing, designing and creating print advertisements and broadcast
commercials. The actual production of commercials is generally done by
independent production companies under the direct supervision and creative
direction of the Company. The Company analyzes the market for a particular
product or service, chooses the most effective media to reach that market,
taking into account factors such as the clients' advertising budget and media
demographics and places or arranges for the placement of time or space with
the selected media.
Web Environment Services. The Company's primary Internet services are the
design, development, launch and maintenance of Web sites which are delivered
through the Company's poppe.com division. A Web site is a software application
that enables interactive delivery of information and services. Poppe develops
Web sites that may be a part of clients' standalone Web marketing strategies,
as well as their overall marketing strategies. Although clients may not engage
Poppe to render all of these services in all instances, the process of
creating a Web site typically proceeds as follows.
Poppe works with the client to develop the Web site strategy and objectives.
For instance, for a client seeking to strengthen its corporate brand, one
strategy would be to establish the Web site as a repository for useful but
non-product specific, information for prospective customers. Poppe then
develops a Web marketing plan to implement the strategy which includes
recommendations with respect to the creative and technical aspects of
developing and promoting the Web site. The overall look and feel, content
layout and flow of the Web site are part of the creative proposal. The
technical proposal includes the software applications that will be developed,
the database integration requirements and the hardware specifications.
Upon client approval of the Web marketing plan, Poppe creates the design
specifications to digitally layout the graphics, illustrations and copy and
links to other Web sites. Poppe then engineers the software applications,
including multimedia programs, using various software development/authoring
tools and various software programming languages and implements the database
integration. Poppe also specifies the necessary hardware. All these steps are
performed in accordance with the creative and technical recommendations. Prior
to launching the site, Poppe tests it to insure the integrity of the Web
environment. This process includes testing the functionality and appearance of
the software applications, the external links to other sites and the site's
navigability using various operating platforms.
The launch of a Web site for commercial operations follows testing. Upon
launch, a Web site can be accessed by Web users around the world. The launch
is usually accompanied by online and traditional public relations. These
public relations services include identifying and initiating contact with
strategic Web sites for purposes of including hyper-text linkage from those
Web sites and listing the Web site address on over 150 Internet search
engines, as well as the issuance of press releases.
Poppe offers ongoing Web site support services after a site is launched.
This includes monitoring and evaluating the Web site's traffic. Poppe
recommends and implements additions and technical upgrades as well as updates
to keep the site information current. Ongoing Web site support services also
include hosting services and management and production services to coordinate
and implement ongoing site additions. Among other benefits, hosting services
allow clients' Web sites to be maintained independently from their other
information technology systems. Poppe provided hosting services for
approximately 15 Web sites at August 1, 1996. Other Internet services provided
by the Company include production and placement of Web ad banners and
promotion pages. Poppe offers these ongoing Web site support services to
clients having Web sites developed by Poppe as well as those having sites
developed by the client itself or others.
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Digital Marketing, Sales and Training. The Company's newly-acquired Animated
Systems subsidiary primarily creates and develops digital based interactive
multimedia marketing and sales presentations, sales information systems, and
computer based training materials, which are delivered primarily through CD-
ROMs and digital diskettes. These products are created using commercial and
proprietary authoring tools and can incorporate digital video, three-
dimensional animation and creative graphics. These products can also contain
substantial and detailed data and provide clients' sales personnel and
customers with access to internal and competitive product information, white
papers, data sheets, product demonstrations and training videos. These products
can improve the ease and effectiveness of creating and disseminating voluminous
sales, marketing and training materials, as well as of updating these
materials.
Public Relations Services. Poppe provides public relations services for
delivery through both traditional and online media. The Company's traditional
public relations services include media and investor relations, crisis
management, trade show support and the development of related press materials.
The Company also provides strategic public relations services to support its
clients such as employee media training and speech writing. The Company's
CyberPR group implements public relations strategies to increase the awareness
of and traffic to a client's Web site. These services include identifying and
initiating contact with strategic Web sites for purposes of including hyper-
text linkage from those Web sites to Poppe's clients' Web sites, listing
clients' Web site addresses on the over 150 Internet search engines, generating
references to clients' products and Web sites on Internet newsgroups and
billboards and employing the Company's Brand Watch service to search for
mentions of clients' products and services on the Internet.
Database Marketing and Response Services. The Company's DBM Group helps
clients obtain consumer responses to their marketing messages, understand which
marketing programs are most effective and support field sales operations by
providing sales people with information regarding "qualified" leads based on
consumer responses. The technological advances in telephone systems, automated
voice response and fax-back, and the emergence of the Internet and the Web,
have led to these technologies becoming a core part of the Company's service
offerings. The Company processes, grades and tracks consumer responses for its
clients received through Internet addresses that handle customer e-mail, Web
data collection systems that handle customers' Web input, 1-800 telephone
responses and traditional business reply card processing. The Company creates,
collects and enhances clients' customer data to profile and track potential
sales opportunities and to enhance the effectiveness of future marketing
efforts. The Company's operators also process sales orders received over the
telephone and transmit fulfillment information to its clients electronically.
POPPE'S CLIENTS
In general, clients hire Poppe to develop effective marketing campaigns for
their companies and to implement the campaigns through traditional and/or new
media, as well as to provide other new media services. Clients who have
retained Poppe to provide Web site design and development services since 1994
include:
<TABLE>
<S> <C> <C>
AT&T Software Solutions E*Trade Nokia Display Products, Inc.
Bell Communications Research, Inc. Hewlett-Packard Co. PSINet Inc.*
The Better Hong Kong Foundation* IBM Business Information Services* Raychem Corporation*
Cadillac* The Republic of Indonesia*+ Robert Half International*
The Chase Manhattan Bank, N.A.* Kawasaki Motors Corp., U.S.A.*+ Siemens Components Inc.*
Chrysler+ LensCrafters* Silicon Graphics, Inc.
Chrysler's Eagle Vehicles+ Merrill Lynch+ Sony Corporation
Chrysler's Jeep Vehicles+ Milk Board+ T. Rowe Price Associates, Inc.
Cirrus Logic Inc. Nation's Restaurant News* Taylor-Made*+
ComputerWorld Magazine Netscape Valvoline*+
Dean Witter, Discover & Co. Network General Corporation Weber*+
The Dow Chemical Company*
</TABLE>
- --------
* Poppe clients as of August 1, 1996 for which Poppe provides on-going Web site
maintenance or hosting services.
+ Companies using BJK&E for traditional advertising services as of August 1,
1996.
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Clients for which Poppe, through Animated Systems, has created and developed
marketing, sales or computer-based training materials delivered through CD-ROMs
and digital diskettes have included:
Digital Equipment Corp. Logitech Inc. Wells Fargo & Co.
Symantec Corporation Zurich-American Insurance
Group Hewlett-Packard Co.
IBM Visa International Network Server
Division
Poppe currently provides traditional marketing communications services for a
wide range of clients including:
American Express Co. Matsushita Electric Works The Sherwin-Williams
American Isuzu Motors Inc. (Panasonic brand) Company Stores Group
Inc. Mellon Bank, N.A. State of New Jersey
Banfi Vintners NEC Technologies, Inc. (Department of
Cirrus Logic Inc. Pennsylvania Brewing Commerce and Economic
Commonwealth of Company Development) ("New
Pennsylvania (Department Public Service Electric & Jersey Tourism")
of Commerce) Gas Company ("PSE&G") Synopsys Inc. Logic
("Pennsylvania Tourism") PSINet Inc. Modeling Group
GAF Materials Corporation Raychem Corporation Toshiba
IBM Siemens Components Inc. VocalTec Inc.
IPC Information Systems, Servicemaster Ltd.
Inc. Partnership
Johnson & Johnson Health
Care Systems
In fiscal 1996, Toshiba accounted for approximately 10.4% of the Company's
net revenues (8.2% on a Pro Forma Basis). Poppe has been Toshiba's marketing
communications company of record with respect to its laptop division for
approximately three years. The Company believes that it has an excellent
relationship with Toshiba although no assurance can be given that Toshiba will
maintain its relationship with Poppe at its current level or at all. On a
historical basis, three clients (including Toshiba) individually accounted for
more than 5.0% of the Company's net revenues during fiscal 1996, and on a Pro
Forma Basis, four clients (including Toshiba) individually accounted for more
than 5.0% of the Company's net revenues during fiscal 1996.
It is typical in the marketing communications industry for clients to use
different marketing communications companies for separate product lines or
brand names. A number of the Company's clients also use other marketing
communications companies. Consistent with marketing communications industry
custom, the Company's clients are generally able to terminate their
relationships with the Company without penalty on short notice, typically
between 30 and 90 days. Moreover, in general, a client may reduce its marketing
communications budget at any time.
CLIENT CASE STUDIES
The following case studies further illustrate the range of services that
Poppe offers its clients and the value that such services can provide.
. T. Rowe Price: T. Rowe Price Associates, Inc. ("T. Rowe Price") is a
leading provider of no-load mutual funds, managing over $85.0 billion for
individual and institutional accounts. T. Rowe Price traditionally promoted its
products primarily through print media and direct mail. Its products are within
the "considered purchase" category and its principal customer profile is the
self directed investor who requires extensive and timely data to make informed
investment decisions.
T. Rowe Price's objective was to establish an online presence that would
increase their brand equity and create a closer relationship with their
customers.
Poppe assisted T. Rowe Price in developing a Web marketing strategy that
focused on creating a Web environment allowing T. Rowe Price's customers free
access to information critical to an informed investment decision. The
interactive site (www.troweprice.com), is also designed to provide information
which assists
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individuals in developing investment strategies for their retirement and other
financial goals and offers information on topics such as taxes, international
investing, mutual funds and current market developments.
The site incorporates a software application created by Poppe that allows
investors to establish a watch list of selected T. Rowe Price funds. The watch
list provides daily net asset value updates that appear automatically when
users enter the site and input their password. In addition, users can
calculate the estimated impact on their portfolios of various investment
strategies in United States and foreign securities. The What's New section of
the site includes real-time access to stock quotes and weekly reviews of the
fixed income, equity and international markets and the United States economy.
The Web site was referred to in the March 1, 1996 issue of USA Today as "this
week's favorite Web page" and named on Netscape's What's New Web site section.
Poppe also designed the site so that T. Rowe Price could obtain demographic
and other information on visitors. Visitors can order fund prospectuses and
other T. Rowe Price literature and can review information on-line regarding T.
Rowe Price's discount brokerage services.
. Symantec: Symantec Corporation ("Symantec") develops, markets, and
supports a line of application and system software products designed to
enhance individual and workgroup productivity as well as manage networked
computing environments. Platforms supported include IBM PCs and compatibles,
Apple Macintosh computers as well as major network operating systems. Founded
in 1982, Symantec's global operations span North America, Europe and several
growing markets throughout Asia Pacific and Latin America.
Symantec maintains and updates voluminous product, sales, marketing and
promotional information. Disseminating this information in printed form is
costly, time consuming and cumbersome. In addition, Symantec's sales force and
other employees require fast and easy access to competitive product
information, product demonstrations and brochures.
Symantec had been a client of Poppe's Animated Systems group since 1991.
Animated Systems was engaged by Symantec in 1995 to develop a single CD-ROM
based sales support software application which would provide employees,
distribution channels and customers with sales and marketing materials in a
more efficient manner.
Upon approval by Symantec, Animated Systems managed the process of
digitizing and placing thousands of documents in an accessible format.
Animated programmed a database software application to allow users access to
personalized menus. Menus were designed to give users intuitive access to
information and documents with minimal search time. Creative graphics and
visuals were integrated into the product to make it visually appealing and
user friendly. The finished software and database was loaded onto a master CD-
ROM and then reproduced and distributed through the sales channels. Updates to
the product are programmed by Animated Systems and distributed monthly to
Symantec employees and quarterly to external audiences.
This product has improved employee access to needed information. The Company
has been advised by Symantec that this product was also distributed in June
1996 to approximately 6,000 customers worldwide, providing users at various
levels access to information on more than 50 Symantec products, including fact
sheets, reviewer's guides and press releases. As a result of the product,
Symantec reduced its printing of product information and improved the
efficiency of information access and distribution, and is able to deliver its
message to customers worldwide.
. Isuzu: American Isuzu Motors Inc. (Commercial Vehicle Division) ("Isuzu")
is a manufacturer of medium duty commercial trucks and engines. In 1995,
Isuzu, which was then an existing Poppe client in Los Angeles, planned to
introduce a new gas V8 truck with a new cab design while maintaining its core
diesel truck business. Poppe's assignment was to assist Isuzu with marketing
in connection with the introduction of its new V8 truck, as well as
repositioning its existing diesel trucks.
Poppe first utilized KRC Research & Consulting (a market research subsidiary
of BJK&E based in New York City) to conduct focus group research to better
identify the key product attributes affecting the customer's purchase decision
and each of the products' perceived competitive advantages.
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<PAGE>
Poppe used these research results to develop an integrated marketing
strategy focused on those features and benefits of Isuzu's products which were
considered most important to a customer's purchase decision. The strategy
included increasing brand awareness in the marketplace and repositioning the
diesel product as a premium brand worthy of consideration.
The tactical objectives of the campaign were to generate quality sales leads
for the dealer sales force and to build a database for ongoing targeted
relationship marketing programs. Due in part to a limited client budget, Poppe
implemented its strategy by placing content created by Poppe in selected media
during designated periods to maximize the program's media presence relative to
its competitors', most of which committed larger marketing budgets. The
primary media used were trade publication ads, direct mail and outdoor
advertising, all featuring prominent 1-800 telephone numbers for customer
response.
During the three month marketing campaign, the Company's DBM Group in Palo
Alto profiled more than 3,800 telephone responses. Details regarding promising
leads were faxed to the appropriate Isuzu dealerships and a promotional
videotape was sent to the most promising leads. The potential customers
continued to receive promotional materials on Isuzu trucks over the next nine
months to maintain brand awareness.
The Isuzu direct mail campaign resulted in a response rate of 5.2%, compared
to similar programs where 3.0% is considered a successful campaign.
COMPETITION
The marketing communications industry is and is expected to continue to be,
a highly competitive business in which companies of all sizes strive to
attract new clients or additional assignments from existing clients and to
maintain existing client relationships. The Company faces competition from a
number of sources, including national and regional advertising agencies as
well as integrated and specialized marketing communications companies. With
respect to new media, the Company's competitors also include marketing
communications companies specializing in new media marketing communications
products and services as well as new media technology companies. Many of these
new media boutiques are increasingly well-known to current and potential
clients. In addition, many traditional advertising agencies are beginning to
develop or acquire new media marketing communications departments. Consistent
with marketing communications industry custom, the Company's clients may
terminate their relationships with the Company on relatively short notice
without penalty, typically between 30 and 90 days. Competition depends to a
large extent on clients' perceptions of the quality of the "creative product"
of the marketing communication companies as well as technical proficiency with
respect to new media marketing communications products and services. Marketing
communications companies' ability to serve clients on a broad geographic basis
is also an important competitive consideration. A large client base can limit
marketing communications companies' potential for securing new business
because many clients prefer not to be represented by marketing communication
companies that represent competitors. Moreover, clients frequently wish to
have different products represented by different marketing communications
companies.
There are relatively low barriers to entry in the marketing communications
business. For example, the Company has no significant proprietary technology
that would preclude or inhibit competitors from entering the marketing
communications market or providing services similar to those provided by the
Company. Therefore, the Company expects that it will face additional
competition from new entrants into the marketing communications industry in
the future. There can be no assurance that existing or future competitors will
not develop or offer marketing communications products or services that
provide significant performance, price, creative, technical or other
advantages over those offered by the Company, which could have a material
adverse effect on the Company's business, financial condition and operating
results. There are a number of advertising agencies, multimedia firms and
other companies which exist and which will continue to emerge that have
marketing, creative and technical expertise in marketing communications,
including new media services provided by the Company such as design and
implementation of Internet marketing programs and creation of Web sites, with
which the Company will be required to compete.
35
<PAGE>
The Company believes that it is well positioned to compete in the marketing
communications industry because of its history of developing strategic
marketing programs, especially with respect to considered purchase products
and services, its proficiency in developing new media technology applications,
its management and creative expertise, its relationship with BJK&E and its
ability to offer a wide range of integrated marketing services, including both
traditional advertising and new media marketing communications services. The
principal factors on which the Company competes are service, creative quality,
price, technical sophistication and intangible factors such as the
interpersonal skill of the individuals managing client accounts. The Company's
ability to maintain its existing clients and develop new clients depends to a
significant degree on the quality of services provided by, as well as the
reputation of, the Company compared to its competitors overall and with
respect to particular traditional advertising and new media products and
services.
GOVERNMENT REGULATION
The marketing communications industry is subject to extensive government
regulation, both domestic and foreign, with respect to the truth and fairness
of advertising. The Company must comply with Federal Trade Commission
regulations with respect to the marketing of products and services and similar
state regulations. In addition, there has been an increasing tendency in the
United States on the part of businesses to resort to the judicial system to
challenge comparative advertising of their competitors on the grounds that the
advertising is false and deceptive. Although BJK&E maintains communication
liability insurance for advertising agencies pursuant to which Poppe is
insured, with coverage of up to $10.0 million for any claim, there can be no
assurance that such coverage would adequately protect Poppe in the event any
such claims are made against the Company or its clients by other companies or
governmental agencies. Some of the contracts that the Company enters into with
its clients require that the Company indemnify clients with respect to any
claims or actions brought by third parties which result from use by the
clients of materials furnished by the Company.
There are currently few laws or regulations directly applicable to access to
or commerce on the Internet. The CDA, which constitutes Title V of the
Telecommunications Reform Act of 1996, was recently enacted and imposes
criminal penalties on anyone who distributes obscene, lascivious, indecent or
patently offensive communications on the Internet. On June 12, 1996, in
American Civil Liberties Union et al v. Reno, a three judge panel of the
United States District Court for the Eastern District of Pennsylvania ruled
that certain provisions of the CDA were unconstitutional and preliminarily
enjoined enforcement of those provisions. On July 29, 1996, in Shea v. Reno, a
three judge panel of the United States District Court for the Southern
District of New York preliminarily enjoined the enforcement of a certain
provision of the CDA on constitutional grounds. Due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet, covering issues such
as user privacy, pricing and characteristics and quality of products and
services offered over the Internet. The adoption of any such laws or
regulations could have a material adverse effect on the Company's business,
results of operations or financial condition or may decrease the growth of the
Internet, which could in turn decrease the demand for the Company's products
and services delivered over the Internet and thereby adversely affect the
Company's business, results of operations or financial condition. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, libel and personal privacy is uncertain. Because materials
may be downloaded by the online or Internet services operated or facilitated
by the Company or the Internet access providers with which it has
relationships and may be subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of such materials. Such claims have been brought and
sometimes successfully pressed against online services in the past. Although
BJK&E carries general liability insurance and communication liability
insurance for advertising agencies pursuant to which the Company is insured,
the insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition.
EMPLOYEES
As of July 15, 1996, the Company employed a total of approximately 365
persons on a full-time basis in the following offices: Los Angeles,
California, 30; Mountain View, California, 45; Palo Alto, California, 55;
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<PAGE>
Morris Plains, New Jersey, 60; New York City, 100; Cleveland, Ohio, 40; and
Pittsburgh, Pennsylvania, 35. The Company has not entered into collective
bargaining agreements with any of its personnel and believes that its
relationship with its employees are good.
The Company has a range of employee benefit programs, including a stock
option plan and a stock purchase plan. See "Management--Stock Option Plan" and
"--Stock Purchase Plan." The Company believes it is competitive with other
leading new media marketing communications companies in providing financial and
other benefits to its employees. The Company's employees have been, and, until
the consummation of this offering, will continue to be, eligible to participate
in BJK&E's stock bonus plan. After the consummation of this offering, Company
employees will no longer be eligible to participate in such plan.
FACILITIES
Set forth below is a list of the Company's offices as of August 1, 1996. All
the Company's offices are leased. The Company's principal executive offices are
located in New York City. The Company believes its current office space for
each of its offices is adequate for its current needs except in the case of the
New York office. The Company is in the process of building out office space in
New York which it believes will be available for occupancy in October 1996 and
will be adequate for its current needs. For information regarding the Company's
future lease payments under existing leases, see Note 9 of the Notes to the
Company's Financial Statements.
<TABLE>
<CAPTION>
APPROXIMATE
OFFICE LOCATION SQUARE FOOTAGE LEASE EXPIRATION
--------------- -------------- ----------------
<S> <C> <C>
Los Angeles, California...................... 12,100 May 1997
Mountain View, California.................... 11,000 March 1998
Palo Alto, California........................ 8,400 June 1998
4,100 July 1997
Morris Plains, New Jersey.................... 29,700(1) January 2001
New York, New York(2)........................ 20,000 September 2004
Cleveland, Ohio.............................. 20,300 August 2000
Pittsburgh, Pennsylvania(3).................. 7,500 December 1996
</TABLE>
- --------
(1) Subleases 9,100 square feet of such facility to BJK&E. BJK&E has the right
to terminate this sublease at any time upon reasonable notice.
(2) Currently occupies space at this location subleased from BJK&E pending
build-out and occupancy by Poppe of a 36,500 square foot office space
subleased from BJK&E at the same location which is currently expected to be
completed in October 1996. The current sublease will terminate upon Poppe's
occupancy of the new space. The sublease for the new space will expire in
September 2004.
(3) Currently occupies space at this location pending relocation to an
approximately 10,000 square foot facility with respect to which the Company
has executed a letter of intent.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes would have a
material adverse effect on its business or financial condition.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors,
executive officers and nominees for director of the Company as of August 1,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman of the Board and Chief Executive
Fergus O'Daly, Jr.(4)(5)........ 53 Officer
David S. Carlick(4)............. 46 Executive Vice President and Director
Thomas E. Wharton, Jr.(4)....... 35 Senior Vice President and Director
Steven M. Blondy................ 36 Executive Vice President--Finance and
Administration
David E. Bell(1)(2)(3).......... 47 Director
Kevin C. Clark(5)............... 36 Director
Michael D. Drexler.............. 57 Director
Charles D. Peebler,
Jr.(2)(3)(5)(6)................ 60 Director
Paul C. Schorr III(1)(3)(5)..... 59 Director
Thomas H. Stoner(1)(2)(3)....... 61 Director
Valentine J.
Zammit(2)(4)(5)(6)............. 49 Director
</TABLE>
- --------
(1) Messrs. Bell, Schorr and Stoner will become directors of the Company and
members of the referenced committees on the effective date of the
Registration Statement of which this Prospectus forms a part.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Member of Executive Committee.
(5) Member of Finance Committee.
(6) Member of Stock Option Committee.
FERGUS O'DALY, JR. has been the Chairman of the Board, Chief Executive
Officer and a director of the Company for more than five years. Mr. O'Daly has
served in various positions with Poppe since 1966.
DAVID S. CARLICK has been an Executive Vice President and a director of the
Company since July 1996. Mr. Carlick served as a Senior Vice President of
Poppe from April 1993 until July 1996. Mr. Carlick was sole proprietor of
Carlick Advertising and Carlick Data Base Marketing both of which were
acquired by the Company in April 1993.
THOMAS E. WHARTON, JR. has been a director of the Company since July 1996, a
Senior Vice President of the Company since February 1994 and a Vice President
of the Company from June 1989 to February 1994. Prior thereto, Mr. Wharton
served as Financial Administrator of Poppe from 1986 and in various finance
positions within BJK&E since August 1983.
STEVEN M. BLONDY has been the Executive Vice President--Finance and
Administration of the Company since May 1996. From November 1995 until joining
the Company, Mr. Blondy was an independent consultant. Mr. Blondy served as
Senior Vice President and Chief Financial Officer of Grundy Worldwide Limited
from December 1994 through November 1995. Prior thereto, Mr. Blondy spent over
twelve years as an investment banker in mergers and acquisitions and corporate
finance with Merrill Lynch (1988-1994) and Chase Manhattan Bank, N.A. (1982-
1988).
38
<PAGE>
DAVID E. BELL will become a director of the Company on the effective date of
the Registration Statement of which this Prospectus forms a part. Dr. Bell has
been a Professor at Harvard Business School since 1977, where he currently
teaches marketing and retailing. Previously, Dr. Bell taught courses in the
field of managerial economics. He is faculty chair of the Quantitative Methods
faculty group, responsible for teaching and researching quantitative methods,
and of a two-week executive program, Strategic Retail Management. Dr. Bell
received a BA from Oxford University and a PhD from the Massachusetts
Institute of Technology.
KEVIN C. CLARK has been a director of the Company since July 1996. Since
January 1996, Mr. Clark has been a consultant to Gregory & Hoenemeyer, Inc., a
merchant bank which provides business planning and financial advisory services
to the Company. Mr. Clark was a founder of Cross Country Staffing, a leading
provider of temporary medical personnel. He has served as its Chairman since
February 1994 and served as its Chief Executive Officer from March 1986 to
January 1994. See "Certain Transactions--Other Related Party Transactions."
MICHAEL D. DREXLER has been a director of the Company since July 1996. Mr.
Drexler has been President of BJK&E's Media Group since April 1992 and was an
Executive Vice President of BJK&E from July 1986 to April 1992. Mr. Drexler
serves on the Board of Directors of BJK&E.
CHARLES D. PEEBLER, JR. has been a director of the Company since June 1991
and was President of the Company from August 1992 to July 1996. Mr. Peebler
has been Chief Executive Officer and President of BJK&E for more than five
years. Mr. Peebler serves on the Board of Directors of BJK&E as well as the
Boards of Directors of American Radio Systems Corporation, a radio
broadcasting company, and Ultrafem, Inc., a feminine hygiene products
manufacturer.
PAUL C. SCHORR III will become a director of the Company on the effective
date of the Registration Statement of which this Prospectus forms a part. Mr.
Schorr has been President and Chief Executive Officer of ComCor Holding Inc.,
a consulting company, since August 1991 and Chairman of Austin Steaks & Saloon
Inc. since April 1995. Mr. Schorr serves on the Boards of Directors of
Ameritas Life Insurance Company, Lincoln Telecommunications Inc. and Austin
Steaks & Saloon Inc.
THOMAS H. STONER will become a director of the Company on the effective date
of the Registration Statement of which this Prospectus forms a part. Mr.
Stoner has been Chairman of the Executive Committee of American Radio Systems
Corporation since November 1993. From 1965 to November 1993, Mr. Stoner was
Chairman and Chief Executive Officer of Stoner Broadcasting Systems, a radio
broadcasting company. Mr. Stoner serves on the Boards of Directors of American
Radio Systems Corporation and Gaylord Container Corp.
VALENTINE J. ZAMMIT has been a director of the Company since May 1992. Mr.
Zammit also served as Executive Vice President of the Company from June 1991
to July 1996. Mr. Zammit has been Chief Financial Officer of BJK&E and has
served on the Board of Directors of BJK&E since January 1991. Since March
1996, Mr. Zammit has also held the position of Vice Chairman of BJK&E. From
December 1990 to March 1996, Mr. Zammit also served as an Executive Vice
President of BJK&E and prior thereto he served as Senior Vice President of
Finance of BJK&E.
Officers of the Company are elected by the Board of Directors on an annual
basis and serve until their successors have been duly elected and qualified.
The Company's Certificate of Incorporation provides for a classified Board of
Directors consisting of three classes of directors with each class required to
be as nearly equal in number as possible. The number of directors is
determined from time to time by the Board of Directors. A single class of
directors is elected each year at the Company's annual meeting of
stockholders. Each director elected at each such meeting will serve for a term
ending on the date of the third annual meeting of stockholders after his or
her election and until his or her successor has been elected and duly
qualified. Messrs. O'Daly, Peebler, Clark and Bell are serving (or in the case
of Mr. Bell, will commence serving on the effective date of the Registration
Statement of which this Prospectus forms a part) terms expiring on the date of
the Company's 1997 Annual Meeting of Stockholders, Messrs. Carlick, Zammit and
Stoner are serving (or in the case of Mr.
39
<PAGE>
Stoner, will commence serving on the effective date of the Registration
Statement of which this Prospectus forms a part) for terms expiring on the
date of the Company's 1998 Annual Meeting of Stockholders and Messrs. Wharton,
Drexler and Schorr are serving (or in the case of Mr. Schorr, will commence
serving on the effective date of the Registration Statement of which this
Prospectus forms a part) for terms expiring on the date of the Company's 1999
Annual Meeting of Stockholders.
The Company's Board of Directors currently has five committees: the Audit
Committee, the Compensation Committee, the Executive Committee, the Finance
Committee and the Stock Option Committee. The Audit Committee, among other
things, recommends the firm to be appointed as independent accountants to
audit the Company's financial statements, discusses the scope and results of
the audit with the independent accountants, reviews with management and the
independent accountants the Company's interim and year-end operating results,
considers the adequacy of the internal accounting controls and audit
procedures of the Company and reviews the non-audit services to be performed
by the independent accountants. The Compensation Committee reviews and
recommends the compensation arrangements for management of the Company. The
Executive Committee may exercise all powers of the Board of Directors in the
management of the business and affairs of the Company. The Finance Committee
supervises the financial affairs of the Company. The Stock Option Committee
administers the Company's stock option plan.
DIRECTORS' COMPENSATION
Commencing upon the consummation of this offering, directors, other than Mr.
Clark or those who are also employees of the Company or employees or directors
of BJK&E ("Outside Directors"), will receive compensation for their services
as directors at the rate of $1,000 per year and a fee of $2,500 per Board of
Directors meeting attended in person and $1,000 per Committee of the Board
meeting attended in person. Outside Directors will also receive an initial
grant of options to purchase shares of Common Stock under the stock option
plan and thereafter, an annual grant of options to purchase shares of
Common Stock under the stock option plan. See "--Stock Option Plan." In
addition, all directors are entitled to reimbursement of their reasonable out-
of-pocket expenses.
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<PAGE>
EXECUTIVE COMPENSATION
The following table discloses compensation for fiscal 1996 received by the
Company's Chief Executive Officer and the Company's two other most highly
compensated executive officers whose total salary and bonus for fiscal year
1996 exceeded $100,000 (the "named executive officers"). No other executive
officer of the Company who held office at the end of fiscal 1996 met the
definition of "highly compensated" within the meaning of the Securities and
Exchange Commission's (the "Commission") executive compensation disclosure
rules.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ----------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Fergus O'Daly, Jr. ..... 1996 175,790 6,000(1) 216,913 12,255(2)
Chief Executive Officer
David S. Carlick........ 1996 175,000 -- 216,913 12,157(3)
Executive Vice
President
Thomas E. Wharton, Jr... 1996 106,667 7,000(1) 216,913 7,866(4)
Senior Vice President
</TABLE>
- --------
(1) Consists of payments made in fiscal 1996 pursuant to bonuses previously
awarded under BJK&E's management incentive plan and payable over a period
of three years, subject to certain contingencies.
(2) Consists of contributions made by BJK&E (which contributions were
allocated to the Company) of $3,000 pursuant to BJK&E's profit sharing
plan and $4,492 pursuant to BJK&E's stock bonus plan and $4,763
representing a charge to the Company in respect of such individual
pursuant to BJK&E's executive wealth accumulation plan.
(3) Consists of contributions made by BJK&E (which contributions were
allocated to the Company) of $3,000 pursuant to BJK&E's profit sharing
plan and $4,492 pursuant to BJK&E's stock bonus plan and $4,665
representing a charge to the Company in respect of such individual
pursuant to BJK&E's executive wealth accumulation plan.
(4) Consists of contributions made by BJK&E (which contributions were
allocated to the Company) of $2,279 pursuant to BJK&E's profit sharing
plan and of $3,386 pursuant to BJK&E's stock bonus plan and $2,201
representing a charge to the Company in respect of such individual
pursuant to BJK&E's executive wealth accumulation plan.
The following table sets forth information regarding individual grants of
stock options to the named executive officers during the 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF SHARES POTENTIAL REALIZABLE
SECURITIES SUBJECT TO VALUE AT ASSUMED ANNUAL
UNDERLYING OPTIONS MARKET RATES OF STOCK PRICE
OPTIONS GRANTED TO EXERCISE PRICE ON APPRECIATION FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE DATE OF GRANT EXPIRATION -----------------------------
EXECUTIVE OFFICER(1) (# OF SHARES)(2) FISCAL YEAR ($ PER SHARE) ($ PER SHARE) DATE 0% ($) 5% ($) 10% ($)
-------------------- ---------------- ------------ ------------- ------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fergus O'Daly, Jr..... 216,913 33.3% 1.21 1.38 3/2/06 36,875 225,590 513,933
David S. Carlick...... 216,913 33.3% 1.21 1.38 3/2/06 36,875 225,590 513,933
Thomas E. Wharton,
Jr................... 216,913 33.3% 1.21 1.38 3/2/06 36,875 225,590 513,933
</TABLE>
- --------
(1) The named executive officers together have a demand registration right
with respect to one-third of the shares underlying each of their options
commencing upon the expiration of the 180-day lock-up period and expiring
three years after the closing of an initial public offering by the
Company. Each named executive officer has "piggyback" registration rights
on registrations by BJK&E with respect to all of the shares underlying his
options commencing upon the expiration of the 180-day lock-up period. In
addition, the options and underlying shares are subject to restrictions on
transferability. Such restrictions lapse in the event of certain change of
control events or other significant transactions of the Company or BJK&E.
(2) The options are non-qualified stock options and are fully vested.
41
<PAGE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with Messrs. O'Daly,
Carlick and Wharton, having terms expiring on the third anniversary of this
offering, and an employment agreement with Steven M. Blondy, Executive Vice
President--Finance and Administration, having a term expiring in May 1998,
which provide for base salaries of $200,000, $175,000, $165,000 and $200,000,
respectively, during fiscal 1997. Annual bonuses and salary increases may be
granted as determined by the Board of Directors. The employment agreements
also provide for reimbursement by the Company of authorized expenses and
indemnification of the executive officers to the fullest extent permitted
under the Company's Certificate of Incorporation and Bylaws. Each employee is
entitled to participate in compensation arrangements and receive benefits
offered to the Company's executives generally. In addition, subject to certain
limitations, the employment agreements prohibit each individual from
soliciting or performing enumerated marketing communications or Internet-
related services for any accounts which are, or were within one year preceding
a termination of employment, clients of the Company or soliciting any
employees of the Company or persons who were employees of the Company within
the preceding one-year period during his employment term and for one year
thereafter and from disclosing confidential information. Mr. O'Daly's
employment agreement also provides that the Company will use its best efforts
to cause him to be nominated as a director to the Company's Board of
Directors. In connection with his employment, Mr. Blondy was granted a stock
option to purchase 116,250 shares of Common Stock under the Company's stock
option plan at an exercise price of $7.25 per share which vests at the rate of
25% each year from the date of grant subject to acceleration under certain
circumstances, including a change in control of the Company (as defined in the
related stock option agreement) and termination of Mr. Blondy's employment
other than for Cause (as defined in his employment agreement). The first
$100,000 in fair market value at the date of grant of such options vesting in
any year are incentive stock options. Such options and underlying shares are
subject to restrictions on transferability. See "--Stock Option Plan" and
"Shares Eligible for Future Sale."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. O'Daly, Peebler and Zammit, Chief Executive Officer of the Company,
former President of the Company and former Executive Vice President of the
Company, respectively, participated in deliberations of the Company's Board of
Directors concerning executive officer compensation during fiscal 1996.
STOCK OPTION PLAN
The Company's Amended and Restated 1996 Stock Option Plan (the "Plan") was
adopted by the Board of Directors and approved by BJK&E as the sole
stockholder of the Company. The Plan authorizes the issuance of 4,574,777
shares of Common Stock pursuant to the exercise of stock option grants. The
maximum aggregate number of shares of Common Stock for which options may be
granted to any one employee within one fiscal year is 2,744,866. At August 1,
1996, 153,285 shares had been issued pursuant to exercises of options granted
under the Plan, options for 1,383,261 shares were outstanding and options for
3,191,516 shares remained available for future grant under the Plan.
The Plan provides for grants of options to employees, officers, directors,
independent contractors and consultants of the Company and its subsidiaries.
Each stock option granted under the Plan is evidenced by a written option
agreement between the Company and the optionee. The Plan provides for the
granting of "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and non-qualified
stock options. On and after the initial public offering of Common Stock, the
Plan will be administered by the Stock Option Committee of the Board of
Directors (the "Committee"). The Committee will have sole discretion and
authority, consistent with the provisions of the Plan, to determine, among
other things, which eligible individuals will receive options, the terms of
options granted, the number of shares which will be subject to option grants
and the restrictions, if any, which will apply to the Common Stock subject to
option grants.
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<PAGE>
The Committee will have sole discretion to determine the exercise price per
share of Common Stock covered by each option. For any option intended to
qualify as an incentive stock option, the exercise price must not be less than
100% of the fair market value of the Common Stock on the date the option is
granted (110% of the fair market value of the Common Stock with respect to any
optionee who immediately before an option is granted, directly or indirectly,
possesses more than 10% of the total combined voting power of all classes of
stock of the Company or of a parent or subsidiary corporation of the Company
("10% Owner")). The term of each option is fixed by the Committee, but may not
exceed ten years. (An option granted to a 10% Owner which is intended to
qualify as an incentive stock option may not exceed five years.) Options first
become exercisable in accordance with a vesting schedule determined by the
Committee and specified in the applicable option agreement. Options granted to
employees generally may be exercised only while the optionee is employed by
the Company or within a specified period of time thereafter. Options granted
to non-employees who provide services to the Company may, but need not, expire
upon the termination of the optionee's relationship with the Company.
Generally, options are not assignable or transferable other than by will or
the laws of descent and distribution and may be exercised during the lifetime
of the optionee only by the optionee or by his or her guardian or legal
representative. However, if so provided in the applicable option agreement, an
optionee may transfer a non-statutory stock option to a member of the
optionee's immediate family, to the spouse of any such family member or to a
trust established for the benefit of one or more of such family members.
The Board of Directors may at any time, and from time to time alter, amend,
suspend or terminate the Plan in whole or in part. The Plan will terminate in
March 2006 unless it is terminated earlier by the Board of Directors.
STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
provides for the purchase by eligible employees of shares of the Common Stock.
The Purchase Plan was adopted by the Board of Directors in July 1996 and
approved by BJK&E as the majority stockholder of the Company. A total of
348,333 shares of Common Stock have been reserved for issuance under the
Purchase Plan. The Purchase Plan, which is intended to qualify under Section
423 of the Code, is administered by the Board of Directors or by a committee
appointed by the Board. Employees (including officers and employee directors)
of the Company or any subsidiary of the Company designated by the Board for
participation in the Purchase Plan are eligible to participate in the Purchase
Plan if they are customarily employed for more than 20 hours per week. The
Purchase Plan will generally be implemented by consecutive and overlapping 24
month offering periods each of which will initially be divided into four
consecutive six month purchase periods, subject to change by the Board of
Directors. Offering periods generally begin on January 1 and July 1 of each
year. The initial offering period will, however, begin on the effective date
of this offering and will end on June 30, 1998 and the initial purchase period
will begin on the effective date of this offering and will end on December 31,
1996. The Company has not yet offered or sold shares of Common Stock to
employees pursuant to the Purchase Plan. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 15% of an employee's compensation. Shares are purchased on the last day
of each purchase period. The price at which Common Stock may be purchased
under the Purchase Plan is equal to 85% of the lower of the fair market value
of the Common Stock on the first day of the offering period or the last day of
the purchase period. Employees may end their participation in the offering at
any time during the offering period, and participation ends automatically on
termination of employment with the Company. In addition, participants
generally may not purchase Common Stock having a value (measured at the
beginning of the offering period) greater than $12,500 in any purchase period.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH BJK&E
The Company was a wholly-owned subsidiary of BJK&E from February 1988 until
June 1996 and as of August 1, 1996, BJK&E continued to own approximately 84.7%
of the outstanding Common Stock, on a fully diluted basis, and, immediately
after the completion of this offering, BJK&E will own approximately % of the
outstanding Common Stock on a fully diluted basis ( % if the Underwriters'
over-allotment option is exercised in full). As a result, BJK&E will be able
to elect the entire Board of Directors of the Company and control the vote on
all matters submitted to a vote of the Company's stockholders, including
extraordinary transactions such as mergers, sales of all or substantially all
of the Company's assets and going private transactions. BJK&E (including
Poppe) is among the 15 largest marketing communications holding companies in
the world, as well as among the five largest privately held marketing
communications holding companies in the world, based on worldwide gross income
for 1995 of $404.5 million as published in the April 15 issue of Advertising
Age. Prospective clients may choose not to retain the Company for reasons of
actual or perceived client conflicts of interest based upon the Company's
relationship with BJK&E and BJK&E's present or future clients, although the
Company does not believe that such relationship has resulted in its loss of
any material assignments. Poppe and BJK&E may compete for clients or
assignments and there is no agreement or other understanding which would
prevent any such competition. In addition, in the past Poppe and BJK&E have
independently and jointly provided services to clients of the other and it is
anticipated that they will continue to do so in the foreseeable future.
Conflicts may arise from time to time between Poppe and BJK&E regarding the
allocation of services and/or fees in connection with any such jointly
provided services. Furthermore, there can be no assurances that BJK&E will
continue to refer business to Poppe. There are no contractual or other
restrictions on BJK&E's ability to engage in any new media activities.
Accordingly, circumstances could arise in which BJK&E would engage in
activities competitive with the Company. The Company's traditional media
buying, other than with respect to print, is made through BJK&E. The Company
currently intends to continue to conduct such buying through BJK&E but it is
under no obligation to do so. The principal executive offices of BJK&E are
located at 40 West 23rd Street, New York, New York 10010-5201, in the same
building as those of the Company. See "Business--Facilities" and "Principal
and Selling Stockholders."
OPERATING SERVICES AGREEMENT
The Company currently uses certain administrative and support services
provided by BJK&E. In addition, the Company's liability, health and other
insurance coverage is provided pursuant to insurance policies which also
insure BJK&E, as a result of which the Company believes it receives the
benefits derived from being a part of a larger base of insureds. The Company
and BJK&E have entered into the Operating Services Agreement which has a one-
year term that commences upon the consummation of this offering and is
automatically renewed for up to four successive one-year terms unless
otherwise terminated in whole or in part as to certain services (subject to
certain conditions), by BJK&E by not less than 90 days' notice to Poppe prior
to the end of the then current term in the event that at the time of such
termination BJK&E owns less than 50% of the outstanding shares of Common Stock
or by Poppe by not less than 90 days' notice to BJK&E prior to the end of the
current term. The Company currently intends to use BJK&E's services under the
Operating Services Agreement for the foreseeable future. The agreement
provides for payments by the Company to BJK&E equal to 3.0% of its commission
and fees on a monthly basis for such specified administrative and support
services provided by BJK&E and reimbursement of out-of-pocket and
extraordinary expenses. Monthly payments are based on estimated commission and
fees with a reconciliation subsequent to each year end based on the Company's
actual commission and fees. Prior to the consummation of this offering, the
costs for such specified administrative and support services and insurance
coverage were allocated to the Company as is reflected in its financial
statements. See Note 4 of the Notes to the Company's Financial Statements. The
services provided by this agreement do not include any direct client services.
SUBLEASE AND OTHER AGREEMENTS
The Company currently subleases office space in New York from BJK&E pursuant
to a sublease agreement which provides for monthly rent equal to that payable
by BJK&E under the underlying lease, for a term expiring
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in September 2004. In addition, the Company occupies office space of BJK&E in
New York City and Los Angeles pursuant to occupancy agreements which expire at
such time as BJK&E owns less than 51% of the outstanding Common Stock. The
rental thereunder is based on the portion of such space occupied by the
Company and number of Company employees using and occupying such space. The
Company currently occupies such space in New York City pending build-out and
occupancy of the subleased New York City office space which is expected to be
completed in October 1996. The Company's office space in Morris Plains, New
Jersey and New York City is shared with BJK&E. BJK&E is a guarantor of Poppe's
lease for its Palo Alto, California and Morris Plains, New Jersey facilities.
See "Business--Facilities." In addition, the Company utilizes certain
equipment leased to BJK&E pursuant to an agreement which provides for an
initial monthly rent of $56,156, to be adjusted based on the payments required
to be made by BJK&E in respect of such equipment, for so long as Poppe has use
of such equipment. In addition, the Company has provided Web site design and
development services for a majority-owned subsidiary of BJK&E for which the
Company was paid approximately $ .
TAX SHARING AGREEMENT
The Company is, and until completion of this offering will continue to be,
for federal income tax purposes, included in the consolidated group of which
BJK&E is the common parent, and the Company's federal taxable income and loss
through the closing of this offering will be included in such group's
consolidated tax return filed by BJK&E. The Company also may be included in
certain state and local tax returns of BJK&E. The Company and BJK&E have
entered into a tax sharing agreement pursuant to which BJK&E has agreed to
indemnify the Company against federal, state or local income tax liabilities
of the consolidated or combined group of which BJK&E is the common parent for
taxable periods through the closing of this offering during which the Company
is a member of such group, other than tax liabilities with respect to the
Company's earnings, and the Company is to indemnify BJK&E for tax liabilities
with respect to such earnings. BJK&E will file tax returns on behalf of such
consolidated group.
REGISTRATION RIGHTS AGREEMENT
The Company and BJK&E have entered into a Registration Rights Agreement
pursuant to which BJK&E and certain transferees of Common Stock held by BJK&E
(the "Holders") have the right to require the Company to register all or part
of the Common Stock owned by such Holders under the Securities Act (a "Demand
Registration"); provided that the Company will not be obligated to effect a
Demand Registration within 180 days of the closing date of this offering
unless Merrill Lynch consents thereto or more than four Demand Registrations
in any consecutive 36 month period. BJK&E has advised the Company that it does
not currently intend to request any such registration. In addition, the
Holders will have a right to participate in registrations by the Company of
its Common Stock (a "Piggyback Registration" and together with a Demand
Registration, a "Registration"). The Company will pay any expenses incurred in
connection with a Registration, except for underwriting discounts and
commissions attributable to the shares of Common Stock sold by such Holders
and expenses incurred with respect to any Demand Registration after the
Company has satisfied its obligations with respect to four Demand
Registrations.
None of the above-described agreements between the Company and BJK&E were
negotiated on an arms' length basis.
OTHER RELATED PARTY TRANSACTIONS
Kevin C. Clark, a director of the Company, is a consultant to Gregory &
Hoenemeyer, Inc. ("G&H"). G&H is a merchant bank which renders business
planning and financial advisory services to BJK&E and to the Company. Poppe
paid fees to G&H in the amount of $270,000 for services rendered to the
Company during fiscal 1996 and the Company's current fiscal year. In addition,
in consideration of such services to the Company, Mr. Clark received
immediately exercisable non-qualified options to purchase an aggregate of
135,932 shares of
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Common Stock at an exercise price of $1.21 per share pursuant to the Company's
stock option plan and two employees of G&H received immediately exercisable
non-qualified options to purchase an aggregate of 153,285 shares of Common
Stock at an exercise price of $1.21 per share pursuant to the Company's stock
option plan. Of such options, options to purchase 153,285 shares of Common
Stock have been exercised, including those held by Mr. Clark. Mr. Clark and
such G&H employees have "piggyback" registration rights on registrations by
any selling stockholder with respect to the shares underlying their options
and such options and underlying shares are subject to restrictions on
transferability. Mr. W. Grant Gregory, Chairman of G&H, is a director of
BJK&E. See "Management--Stock Option Plan."
The Company acquired Carlick Advertising and Carlick Data Base Marketing
from Mr. Carlick, the sole proprietor thereof, in April 1993. Mr. Carlick,
currently an Executive Vice President and director of the Company, became an
officer and director of the Company in connection with such acquisition
transaction. In connection with such transaction, in addition to prior year
payments, Mr. Carlick received a contingent payment of $229,163 in April 1996
and is entitled to receive a payment of $229,163 in each of fiscal 1997 and
fiscal 1998. In connection with such transaction, the Company entered into a
lease for its office space in Mountain View, California from Mr. Carlick. The
monthly rent for such office space was $16,960 for fiscal 1996 and is $17,190
for fiscal 1997 and $17,420 for fiscal 1998. See "Business--Facilities."
The Company and the former shareholders of Animated Systems have entered
into a Registration Rights Agreement (the "Animated Registration Rights
Agreement") pursuant to which such former shareholders and certain of their
transferees of Common Stock (the "Holders") have the right upon the Company's
qualification to use a Form S-3 Registration Statement to require the Company
to register on one occasion between 40% to 50% of the Common Stock owned by
such Holders under the Securities Act (a "Demand Registration"); provided that
the Company will not be obligated to effect a Demand Registration within 180
days of the closing date of this offering unless Merrill Lynch consents
thereto. In addition, the Holders will have a right to participate in
registrations by the Company of its Common Stock (a "Piggyback Registration"
and together with a Demand Registration, a "Registration"). The Company will
pay any expenses incurred in connection with a Registration, except for
underwriting discounts and commissions attributable to the shares of Common
Stock sold by such Holders. One of the Holders, who was the former majority
shareholder of Animated Systems, has pledged to the Company his shares of
Common Stock as security for certain of his indemnification obligations
arising in connection with the Animated Acquisition. Such Holder's right to
sell his Common Stock pursuant to the Animated Registration Rights Agreement
is subject to there being no outstanding Loss (as defined in the Animated
Registration Rights Agreement) which is subject to indemnification, or if
there is such a Loss, to the substitution of collateral.
Except as otherwise disclosed above, the Company believes that all current
transactions between the Company and its officers, directors, principal
stockholders and their affiliates have been on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of August 1, 1996 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby: (i) by
each person who is known by the Company to own beneficially more than 5.0% of
the Common Stock; (ii) by each nominee and director of the Company; (iii) by
each of the named executive officers; (iv) by all directors and executive
officers of the Company as a group; and (v) the Selling Stockholder. Except as
otherwise noted, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
-----------------------SHARES TO ----------------------
NAME NUMBER PERCENT BE SOLD NUMBER PERCENT
---- ------------ ------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Fergus O'Daly, Jr.(1)... 216,913 1.5% -- 216,913
David S. Carlick(1)..... 216,913 1.5% -- 216,913
Thomas E. Wharton,
Jr.(1)................. 216,913 1.5% -- 216,913
David E. Bell........... -- -- -- -- --
Kevin C. Clark.......... 135,932 * -- 135,932 *
Michael D. Drexler(2)... 13,520,922 92.8%
Charles D. Peebler,
Jr.(2)................. 13,520,922 92.8%
Paul C. Schorr III...... -- -- -- -- --
Thomas H. Stoner........ -- -- -- -- --
Valentine J. Zammit(2).. 13,520,922 92.8%
Bozell, Jacobs, Kenyon &
Eckhardt, Inc.(2)(3)... 13,520,922 92.8%
All Officers and
Directors as a Group (8
Persons)(4)............ 14,307,593 93.1%
</TABLE>
- --------
* Less than 1.0%.
(1) Consists of currently exercisable options to purchase shares of Common
Stock. Messrs. O'Daly, Carlick and Wharton are beneficial owners of
45,000, 5,000 and 10,300 shares of BJK&E common stock (including, in the
case of Mr. O'Daly, currently exercisable warrants to purchase shares of
BJK&E common stock), respectively, in each case representing less than
1.0% of the issued and outstanding shares of BJK&E common stock (the
foregoing calculation not taking into account any shares of BJK&E common
stock held by BJK&E's stock bonus plan and profit sharing plan in which
such persons may be deemed to have a beneficial interest).
(2) Consists of shares of Common Stock held by BJK&E as to which Messrs.
Drexler and Zammit disclaim beneficial ownership. Messrs. Drexler, Peebler
and Zammit are each executive officers and directors of BJK&E and
beneficial owners of 173,503, 1,283,822 and 294,212 shares of BJK&E common
stock (including currently exercisable warrants to purchase shares of
BJK&E common stock), respectively, representing approximately 1.0%, 7.2%
and 1.7% of the issued and outstanding shares of BJK&E common stock,
respectively (the foregoing calculation not taking into account any shares
of BJK&E common stock held by BJK&E's stock bonus plan and profit sharing
plan in which such persons may be deemed to have a beneficial interest).
In addition, Mr. Zammit is one of the trustees of BJK&E's stock bonus plan
and profit sharing plan, and as such, may be deemed to be a beneficial
owner of the shares of BJK&E common stock held by such plans, which
constitutes in the aggregate approximately 23.5% of the voting power of
the outstanding BJK&E common stock. Mr. Zammit disclaims beneficial
ownership of such shares. Pursuant to a stockholders' agreement entered
into by BJK&E stockholders holding in excess of 60.0% of the outstanding
BJK&E common stock, Mr. Peebler has the power to vote approximately 59.3%
of the voting power of the outstanding common stock of BJK&E with respect
to the election of directors and certain other major corporate actions.
(3) 40 West 23rd Street, New York, New York 10010-5201.
(4) Consists of currently exercisable options to purchase shares of Common
Stock held by each of Messrs. O'Daly, Carlick and Wharton, shares of
common stock held by Mr. Clark and shares of Common Stock held by BJK&E as
to which Messrs. Carlick, Drexler, O'Daly, Wharton and Zammit disclaim
beneficial ownership.
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DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.001 per share, and 6,700,000 shares of Preferred Stock, par value
$.001 per share.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on each matter to
be decided by stockholders. There are no provisions in the Certificate of
Incorporation specifying the vote required by such stockholders to take
action. The Bylaws specify that, when a quorum is present at a meeting, the
vote of the holders of at least a majority of the outstanding shares entitled
to vote who are present, in person or by proxy, shall decide any questions,
unless a different vote is required by law, the Certificate of Incorporation
or the Bylaws. There is no cumulative voting for election of directors. The
Common Stock has no redemption provisions and the holders thereof have no
preemptive rights. Dividends on capital stock, subject to provisions of the
Certificate of Incorporation, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Before payment of
any dividend, there may be set aside out of any funds available for dividends
such sum or sums as the directors, from time to time, in their absolute
discretion, think proper as a reserve or reserves for any proper purpose. The
directors may modify or abolish any such reserve in the manner in which it was
created. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as the Board of Directors may declare from time to time out
of funds legally available therefor. Upon liquidation of the Company, after
payment or provision for payment of all of the Company's debts and
obligations, the holders of the Common Stock may share ratably in the
Company's remaining assets, if any, after payment of any liquidation
preference to holders of Preferred Stock, if any. The outstanding shares of
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and the Common Stock offered by the Company hereby, upon payment therefor,
will be duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series and to establish the number of shares to be included in each such
series and the rights, powers, preferences and limitations of each series.
There are no provisions in the Certificate of Incorporation specifying the
vote required by the holders of Preferred Stock to take action. All such
provisions would be set out in the designation of any series of Preferred
Stock established by the Board of Directors. The Bylaws specify that, when a
quorum is present at any meeting, the vote of the holders of at least a
majority of the outstanding shares entitled to vote who are present, in person
or by proxy, shall decide any question brought before the meeting, unless a
different vote is required by law or the Certificate of Incorporation. Because
the Board of Directors has the power to establish the preferences and rights
of each series, it may afford the holders of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the right of
holders of Common Stock. The issuance of the Preferred Stock could have the
effect of delaying or preventing a change in control of the Company. The Board
of Directors has no present plans to issue any of the Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
Section 203 ("Section 203") of the Delaware General Corporation Law (the
"Delaware GCL"), as amended, provides that, subject to certain exceptions
specified therein, a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation, with an "interested stockholder" for a three-year
period following the time at which the stockholder became an "interested
stockholder" unless (i) prior to such time, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder," (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
"interested stockholder," the "interested stockholder" owned at least 85% of
the voting stock of the corporation outstanding at the time that the
transaction commenced (excluding certain shares), or (iii) at or
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<PAGE>
subsequent to such time, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the "interested
stockholder." Except as otherwise specified in Section 203, an "interested
stockholder" is defined to include (x) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates
of any such person. The Company's stockholders, by adopting an amendment to
its Certificate of Incorporation or Bylaws, may elect not to be governed by
Section 203, effective twelve months after adoption. Neither the Certificate
of Incorporation nor its Bylaws presently exclude the Company from the
restrictions imposed by Section 203.
The Certificate of Incorporation or Bylaws provide, as applicable, among
other things, (i) that the number of directors shall be determined from time
to time by resolution adopted by a majority of the Board of Directors; and
(ii) for a classified Board of Directors consisting of three classes of
directors having staggered terms of three years each, with each of the classes
being as nearly equal in number as possible.
The Certificate of Incorporation provides that, upon the closing of this
offering, any action required or permitted to be taken by the stockholders of
the Company may be taken only at a duly called annual or special meeting of
the stockholders, and may not be effected by any consent in writing by such
stockholders.
These and other provisions could have the effect of making it more difficult
for a third party to effect, or of discouraging a third party from trying to
effect, a change in the control of the Board of Directors. Such provisions may
also discourage another person or entity from making a tender offer for the
Common Stock, including offers at a premium over the market price of the
Common Stock, and might result in a delay in changes in control of management.
In addition, these provisions could have the effect of making it more
difficult for proposals favored by the stockholders to be presented for
stockholder consideration.
Under Delaware law, directors and officers of a Delaware corporation can
generally be held liable for certain types of negligence and other acts and
omissions in connection with the performance of their duties to the
corporation and its stockholders. As permitted by the Delaware GCL, however,
the Certificate of Incorporation contains a provision eliminating the
liability of the Company's directors and officers for monetary damages for
breaches of their duty of care to the Company and the stockholders, except as
described below.
Such provision does not eliminate liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) for unlawful payments of dividends or
unlawful stock purchases or redemptions as provided in Section 174 of the
Delaware GCL; or (iv) for any transaction from which the director derives an
improper personal benefit. Such provision does not eliminate the duty of care,
but only eliminates liability for monetary damages for breaches of such duty
under various circumstances. Accordingly, such provision has no effect on the
availability of equitable remedies, such as an injunction or rescission, based
upon a breach of the duty of care. Equitable remedies may not, however, be
wholly effective to remedy the injury caused by any such breach.
The Certificate of Incorporation provides that the Company shall indemnify
its directors and officers, and any person who at the express or implied
request of the Company is or was serving as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan,
to the fullest extent permitted by Delaware law, provided, that the Company
shall indemnify any such indemnitee in connection with a proceeding brought by
such indemnitee only if such proceeding was authorized by the Board of
Directors. The Company shall advance expenses to directors, and may advance
expenses to officers, employees and agents to defend any action for which
rights of indemnification are provided. The Certificate of Incorporation also
provides that the Company may purchase insurance on behalf of any such person,
whether or not the Company would have the power to indemnify him or her
against liability. The Company believes that these provisions will assist the
Company in attracting and
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<PAGE>
retaining qualified individuals to serve as directors, officers and employees.
The Company is currently a named insured under BJK&E's insurance coverage for
certain liabilities which may be incurred by directors and officers.
REGISTRATION RIGHTS
BJK&E, certain executive officers of the Company, Kevin C. Clark, a director
of the Company, two employees of G&H and former shareholders of Animated
Systems have "piggyback," and in some cases, certain demand registration
rights with respect to the shares of Common Stock held by them. See
"Management--Executive Compensation," "--Employment Agreements," "Certain
Transactions--Relationship with BJK&E," "--Other Related Party Transactions"
and "Shares Eligible for Future Sale."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.
LISTING
Application has been made for listing of the Common Stock on the Nasdaq
National Market under the symbol "POPT."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of Common
Stock issued and outstanding plus up to an additional 786,671 shares in the
event that certain executives of, and an advisor to, the Company exercise
currently exercisable options. Of these shares, the shares of Common Stock
sold in this offering will be freely transferable and tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by any "affiliate," as defined below, of the Company, which
will be subject to the resale limitations of Rule 144 under the Securities
Act. The remaining shares of Common Stock that will be issued and
outstanding ( shares if the Underwriters' over-allotment option is
exercised in full) at such time will be held by BJK&E, Kevin C. Clark, a
director of the Company, two employees of G&H, certain executives of the
Company in the event they exercise currently exercisable options, and former
shareholders of Animated Systems and will be restricted shares ("Restricted
Shares") within the meaning of Rule 144 and may not be sold without
registration under the Securities Act or an exemption from registration, such
as pursuant to Rule 144.
Under Rule 144 as currently in effect, a person (or persons whose shares are
required to be aggregated) holding Restricted Shares who has been deemed to
have beneficially owned such Restricted Shares for at least two years,
including a person who may be deemed an "affiliate" of the Company, would, in
general, be entitled to sell in any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock or the average weekly trading volume in the Common Stock in the open
market during the four calendar weeks preceding the filing of the required
notice of such sale, provided that the Company has been a reporting company
for at least 90 days. Sales under Rule 144 are also subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. Persons holding Restricted Shares who have
beneficially owned such Restricted Shares for at least three years and who are
not deemed "affiliates" of the Company are entitled to sell their shares under
Rule 144 without regard to the volume limitations. As defined under Rule 144,
an "affiliate" of an issuer is a person that directly or indirectly, through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such issuer. The Commission has proposed an amendment to Rule
144 which would reduce the holding period required for shares subject to Rule
144 to become eligible for sale in the public market. This proposal, if
adopted, could increase the number of shares of Common Stock available for
sale following the expiration of the contractual lock-up agreements discussed
below. Each of BJK&E, certain of the former shareholders of Animated Systems
and the executive officers and directors of Poppe may be deemed an "affiliate"
of the Company under the Securities Act.
50
<PAGE>
Commencing 90 days after the date of this Prospectus, the shares of Common
Stock owned by BJK&E will be eligible for sale under Rule 144, subject to the
volume limitations and other restrictions described above. However, the
Company and all of its directors, officers and current stockholders have
agreed not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock
without the prior written consent of Merrill Lynch for a period of 180 days
after the date of this Prospectus, except that the Company may, without such
consent, grant options or issue shares of Common Stock pursuant to the stock
option and stock purchase plans that have been adopted by the Company. See
"Management--Stock Option Plan" and "--Stock Purchase Plan."
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. As of the date of this Prospectus, the holders of
options exercisable for shares of Common Stock will be eligible to sell
their Rule 701 shares commencing 90 days after the date of this Prospectus and
holders of options exercisable for shares will be eligible to sell their
Rule 701 shares upon the expiration of the 180-day lock-up period referred to
above.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issued or reserved for
issuance under the stock option plan, thus permitting the resale of such
shares in the public market without restriction under the Securities Act. Such
registration statement will not be effective prior to the date 180 days after
the date of this Prospectus.
In addition, BJK&E, certain executive officers of the Company, Kevin C.
Clark, who is a director of the Company, two employees of G&H and the former
shareholders of Animated Systems have "piggyback," and in some cases, certain
demand registration rights with respect to the shares of Common Stock held by
them. See "Management--Executive Compensation," "--Employment Agreements,"
"Certain Transactions--Relationship with BJK&E" and "--Other Related Party
Transactions."
Prior to this offering, there has been no public market for the Common Stock
and no prediction can be made as to whether an active trading market will
develop or, if it develops, will continue or as to the effect, if any, that
market sales of shares or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time. Future sales of
substantial amounts of Common Stock in the public market could adversely
affect prevailing market prices.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company, the Selling Stockholder and each of
the Underwriters named below (the "Underwriters"), the Company and the Selling
Stockholder have agreed to sell to each of the Underwriters, and each of the
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Dean Witter Reynolds Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase, the aggregate number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
Dean Witter Reynolds Inc. ..................................
----
Total..................................................
====
</TABLE>
The Underwriters named therein have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Common Stock being sold pursuant to such Purchase Agreement if any of the
shares of Common Stock being sold pursuant to such Purchase Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby to the public at
the public offering price set forth on the cover page of the Prospectus and to
certain dealers at such price less a concession not in excess of $ per share
of Common Stock. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company and the Selling Stockholder have respectively granted the
Underwriters an option to purchase up to an additional and shares of
Common Stock at the initial public offering price, less the underwriting
discount. Such option, which will expire 30 days after the date of this
Prospectus, may be exercised solely to cover over-allotments. The option
granted by the Selling Stockholder must be exercised in full in order before
the option granted by the Company becomes exercisable. To the extent that the
Underwriters exercise such option or options, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of the option shares that the number of
shares to be purchased initially by it is of the shares of Common Stock
offered hereby.
The Company and all of its directors, officers and current stockholders have
agreed not to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock,
without the prior written consent of Merrill Lynch, for a period of 180 days
after the date of this Prospectus, except that the Company may, without such
consent, grant options or issue shares of Common Stock pursuant to the
Company's stock option plan and under the Company's stock purchase plan.
The Underwriters do not intend to confirm sales of Common Stock offered
hereby to any accounts over which they exercise discretionary authority.
Prior to this offering, there has been no established trading market for the
Common Stock. The initial public offering price of the Common Stock has been
determined by negotiations between the Representatives and the Company. Among
the factors considered in such negotiations, in addition to prevailing market
conditions, were price-earnings ratios of publicly-traded companies that the
Representatives and the Company believe to be reasonably comparable to the
Company, the Company's net revenues and results of operations in recent
periods,
52
<PAGE>
estimates of the business potential and earnings prospects of the Company, the
current state of the Company's development, and the current state of the
Company's industry and the economies of the Company's principal markets as a
whole. The initial public offering price set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual
value of the Common Stock. Such price is subject to change as a result of
market conditions and other factors. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to this offering at or above the initial
public offering price.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act and other applicable securities laws, or to contribute to
payments the Underwriters may be required to make in respect thereof.
Certain of the Underwriters have performed, from time to time, various
investment banking services for BJK&E. Merrill Lynch is a client of Poppe and
BJK&E and Dean Witter, Discover & Co., the parent of Dean Witter Reynolds
Inc., is a client of Poppe.
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Loeb & Loeb LLP, New York, New York. Loeb & Loeb LLP has
represented, and may continue to represent, BJK&E and certain of its
affiliates (including the Company) in connection with certain legal matters.
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Underwriters by Testa,
Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements (and schedule) of Poppe Tyson, Inc. as of March 31,
1996 and 1995, and for each of the years in the three-year period ended March
31, 1996, have been included in this Prospectus and in the Registration
Statement of which this Prospectus forms a part in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere in this Prospectus, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP covering
financial statements of Poppe Tyson, Inc. for the year ending March 31, 1996
refers to a change in accounting on adoption of the FASB's Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions.
The financial statements of The Jayme Organization, Inc. for the period of
January 1, 1995 to June 30, 1995 and for the two-year period ended December
31, 1994; the financial statements of Werner Chepelsky & Partners, Inc. for
each of the years in the three-year period ended December 31, 1995; and the
consolidated financial statements of Animated Systems & Design, Inc. and
Subsidiary as of March 31, 1996 and 1995 and as of December 31, 1995 and 1994
and for the year ended March 31, 1996, the period from January 1 to March 31,
1995 and for the two-year period ended December 31 1994 have been included in
this Prospectus and in the Registration Statement of which this Prospectus
forms a part in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere in this
Prospectus, and upon the authority of said firm as experts in accounting and
auditing.
53
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
S-1 of which this Prospectus is a part under the Securities Act, with respect
to the shares of Common Stock offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement on Form S-1, and
the exhibits and schedules thereto (collectively, the "Registration
Statement"). For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement,
which may be inspected, without charge, at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60611-2511. Copies of
all or any portion of the Registration Statement may be obtained from the
Commission at the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fee
prescribed by the Commission. Additionally, the Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding the Company at http://www.sec.gov.
Statements made in this Prospectus as to the contents of any contract,
agreement or other documents are not necessarily complete, and, in each
instance, reference is made to the copy of such documents filed as an exhibit
to the Registration Statement. Each such statement shall be deemed qualified
in its entirety by such reference.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
THE COMPANY
Independent Auditors' Report............................................. F-2
Balance Sheets as of March 31, 1996 and 1995............................. F-3
Statements of Earnings for the years ended March 31, 1996, 1995 and
1994.................................................................... F-4
Statements of Stockholder's Equity for the years ended March 31, 1996,
1995 and 1994........................................................... F-5
Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994.................................................................... F-6
Notes to Financial Statements............................................ F-7
ACQUIRED COMPANIES
Animated Systems & Design, Inc. and Subsidiary
Independent Auditors' Report.............................................. F-14
Consolidated Balance Sheets as of March 31, 1996 and 1995 and December
31, 1994 and 1993....................................................... F-15
Consolidated Statements of Operations for the year ended March 31, 1996,
the period from January 1, 1995 through March 31, 1995 and the years
ended December 31, 1994 and 1993......................................... F-16
Consolidated Statements of Stockholders' Equity for the year ended March
31, 1996, the period from January 1, 1995 through March 31, 1995 and the
years ended December 31, 1994 and 1993................................... F-17
Consolidated Statements of Cash Flows for the year ended March 31, 1996,
the period from January 1, 1995 through March 31, 1995 and the years
ended December 31, 1994 and 1995......................................... F-18
Notes to Consolidated Financial Statements............................... F-19
The Jayme Organization, Inc.
Independent Auditors' Report.............................................. F-26
Statements of Operations and Retained Earnings for the six-month period
ended June 30, 1995 and the years ended December 31, 1994 and 1993....... F-27
Statements of Cash Flows for the six-month period ended June 30, 1995 and
the years ended December 31, 1994 and 1993............................... F-28
Notes to Financial Statements............................................ F-29
Werner Chepelsky & Partners, Inc.
Independent Auditors' Report.............................................. F-33
Statement of Operations and Retained Earnings for the years ended December
31, 1995, 1994 and 1993.................................................. F-34
Statement of Cash Flows for the years ended December 31, 1995, 1994 and
1993..................................................................... F-35
Notes to Financial Statements............................................. F-36
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis for Presentation of Pro Forma Financial Statements.................. F-38
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996....... F-39
Pro Forma Condensed Consolidated Statement of Operations for the year
ended March 31, 1996..................................................... F-40
Notes to Pro Forma Condensed Consolidated Financial Statements............ F-41
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Poppe Tyson, Inc.:
We have audited the accompanying balance sheets of Poppe Tyson, Inc., as of
March 31, 1995 and 1996, and the related statements of earnings, stockholder's
equity and cash flows for each of the years in the three-year period ended
March 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurances about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Poppe Tyson, Inc. as of
March 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 6 to the financial statements, the Company changed its
method of accounting for postretirement benefits as of April 1, 1995, to
conform with the requirements of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
KPMG Peat Marwick LLP
Omaha, Nebraska
May 17, 1996, except as to note 10
and the second paragraph of
note 11 which are as of June 27, 1996
F-2
<PAGE>
POPPE TYSON, INC.
BALANCE SHEETS
MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash............................................... $ 36,394 $ 26,500
Receivables, less allowance for doubtful
receivables of $70,000............................ 7,638,882 14,037,458
Billable production expenditures................... 195,501 484,725
Prepaid expenses................................... 64,763 138,040
Deferred income taxes (note 5)..................... 24,000 24,000
Due from parent company (note 4)................... 15,628 --
----------- -----------
Total current assets............................. 7,975,168 14,710,723
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and equipment.................. 2,241,975 3,167,240
Leasehold improvements............................. 175,758 229,441
----------- -----------
2,417,733 3,396,681
Less accumulated depreciation and amortization..... 1,548,069 1,859,038
----------- -----------
Net property and equipment....................... 869,664 1,537,643
----------- -----------
Deferred income taxes (note 5)....................... 103,000 24,000
Excess of purchase price over fair value of net
assets acquired, net of accumulated amortization of
$64,105 and $18,182 in 1996 and 1995, respectively
(note 3)............................................ 513,700 1,320,328
Other................................................ 164,423 294,771
----------- -----------
Total other assets............................... 781,123 1,639,099
----------- -----------
Total assets..................................... $ 9,625,955 $17,887,465
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Book overdraft..................................... $ 2,287,472 $ 1,765,213
Accounts payable................................... 4,390,919 10,119,393
Acquisition price payable (note 3)................. 259,146 364,574
Accrued expenses................................... 254,253 415,444
Advance billings................................... 487,919 1,406,146
Due to parent company (note 4)..................... -- 1,362,333
----------- -----------
Total current liabilities........................ 7,679,709 15,433,103
Acquisition price payable (note 3)................... -- 408,054
Other................................................ 443,167 225,599
----------- -----------
Total liabilities................................ 8,122,876 16,066,756
----------- -----------
Stockholder's equity (notes 4, 7 and 10):
Preferred stock, $.001 par value:
authorized 6,700,000 shares, no outstanding shares
(note 10)......................................... -- --
Common stock, $.001 par value:
authorized 50,000,000 shares, outstanding
13,520,922 shares in 1996 and 16,901,152.5 shares
in 1995 (3,380,230.5 shares held in treasury in
1996)............................................. 16,901 13,521
Additional paid-in capital......................... 5,083,099 5,157,979
Accumulated deficit................................ (3,596,921) (3,350,791)
----------- -----------
Total stockholder's equity....................... 1,503,079 1,820,709
----------- -----------
Commitments and contingent liabilities (notes 9 and
11)
Total liabilities and stockholder's equity....... $ 9,625,955 $17,887,465
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF EARNINGS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Commissions and fees........................ $10,585,275 $11,073,699 $18,963,490
----------- ----------- -----------
Operating expenses (note 4)
Salaries and employee benefits (note 6)... 6,938,809 7,261,130 12,478,401
Operating and general..................... 3,086,228 3,691,506 6,011,959
----------- ----------- -----------
Total operating expenses................ 10,025,037 10,952,636 18,490,360
----------- ----------- -----------
Operating income........................ 560,238 121,063 473,130
----------- ----------- -----------
Income tax expense (note 5)................. 247,000 113,000 227,000
----------- ----------- -----------
Net earnings............................ $ 313,238 $ 8,063 $ 246,130
=========== =========== ===========
Earnings per share.......................... $ .02 $ -- $ .01
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1993....... $16,901 $5,083,099 $(3,918,222) $1,181,778
Net earnings.................. -- -- 313,238 313,238
------- ---------- ----------- ----------
Balance at March 31, 1994....... 16,901 5,083,099 (3,604,984) 1,495,016
Net earnings.................. -- -- 8,063 8,063
------- ---------- ----------- ----------
Balance at March 31, 1995....... 16,901 5,083,099 (3,596,921) 1,503,079
Net earnings.................. -- -- 246,130 246,130
Issuance of stock options (see
note 7)...................... -- 71,500 -- 71,500
Treasury stock purchased...... (3,380) 3,380 -- --
------- ---------- ----------- ----------
Balance at March 31, 1996....... $13,521 $5,157,979 $(3,350,791) $1,820,709
======= ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows provided by operating
activities:
Net earnings........................... $ 313,238 $ 8,063 $ 246,130
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization......... 263,474 336,492 299,348
Provision for expense on stock
options.............................. -- -- 71,500
Changes in assets and liabilities:
Receivables.......................... (729,100) (1,932,125) (6,398,576)
Billable production expenditures..... 313,895 110,894 (289,224)
Prepaid expenses..................... 16,353 -- (73,277)
Other assets......................... (136,179) (24,030) (130,348)
Accounts payable..................... 1,101,225 351,299 5,728,474
Due to and from Parent Company....... (2,022,795) 1,338,668 1,377,961
Accrued expenses..................... 308,207 (119,945) 161,191
Deferred income taxes................ (27,000) (23,000) 79,000
Advance billings..................... 391,568 (258,372) 918,227
Other liabilities.................... 395,852 47,315 (217,568)
----------- ----------- -----------
Net cash provided by (used in)
operating activities.............. 188,738 (164,741) 1,772,838
----------- ----------- -----------
Cash flows used in investing activities:
Payments for purchases of property and
equipment, net........................ (36,995) (239,359) (761,492)
Payment for contingent consideration... -- (272,736) (357,251)
Payments for property and equipment
from acquisitions..................... (266,430) (5,000) (141,730)
----------- ----------- -----------
Net cash used in investing
activities........................ (303,425) (517,095) (1,260,473)
----------- ----------- -----------
Cash flows provided by (used in)
financing activities:
Change in book overdraft............... 119,783 682,713 (522,259)
----------- ----------- -----------
Net cash provided by (used in)
financing activities.............. 119,783 682,713 (522,259)
----------- ----------- -----------
Net increase (decrease) in cash......... 5,096 877 (9,894)
Cash at beginning of year............... 30,421 35,517 36,394
----------- ----------- -----------
Cash at end of year..................... $ 35,517 $ 36,394 $ 26,500
----------- ----------- -----------
A summary of supplemental disclosures of
cash flow information follows:
Cash paid during the year for
income taxes...................... $ 274,000 $ 136,000 $ 148,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Poppe Tyson, Inc. (the "Company") is a wholly-owned subsidiary of Bozell,
Jacobs, Kenyon & Eckhardt, Inc. (the "Parent Company"). The Company
specializes in offering a wide range of integrated marketing communications
products and services that help companies market and sell their products,
services or messages. The Company's revenue is derived form commissions, fees
and hourly charges earned in the production and placement of advertising in
various media and for the creation and production of new media content and
applications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Revenue Recognition
Revenues from commissions, fees, and hourly charges are recognized when
media placements appear, when production costs are incurred and when new media
services are rendered. The Company does not have any significant service
obligations related to post contract customer support under any of its service
contracts.
(c) Depreciation and Amortization
Depreciation of furniture, fixtures and equipment is provided on a straight-
line basis over the estimated useful lives of the assets (5 to 12 years).
Amortization of leasehold improvements is provided on a straight-line basis
over the term of the respective lease.
(d) Excess of Purchase Price over Fair Value of Net Assets Acquired
The excess of cost of acquisitions over the fair value of the net assets
acquired is being amortized on a straight-line basis over 15 years. The
Company reviews and, if necessary, adjusts the recorded amounts of intangible
assets based upon current facts and circumstances and management's best
estimate of recoverability (based on undiscounted future cash flows of the
related businesses).
(e) Income Taxes
The Company joins the Parent Company and other eligible subsidiaries in
filing a consolidated Federal income tax return. Pursuant to the terms of a
tax-sharing arrangement, the Company provides Federal income taxes in the
accompanying financial statements and makes payment to the Parent as if it
filed separate tax returns.
The Company uses the asset and liability method to account for income taxes.
Under this method deferred income taxes are recognized at enacted tax rates
for the tax consequences of temporary differences between financial statement
carrying amounts and tax bases of existing assets and liabilities.
(f) Earnings Per Share
Earnings per share have been determined by dividing the net earnings
applicable to common stockholders by the sum of the weighted average number of
common shares and common equivalent shares outstanding (16,901,153,
16,901,153, and 16,735,243 in 1994, 1995 and 1996, respectively).
F-7
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Fair Values of Financial Instruments
Fair values of cash, receivables, book overdrafts, accounts payable and
amounts due to and due from affiliates are estimated to approximate carrying
values due to the short maturities of these financial instruments.
(h) Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The application of FASB 121, which will be effective for the Company's 1997
fiscal year, will require management to review certain long-lived assets, such
as intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the particular asset may
not be recoverable. In the event that it is determined that an impairment loss
has occurred, then measurement of the impairment loss should be based on the
fair value of the asset. The effect of FASB 121, which must be applied
prospectively upon adoption, has not yet been determined by management.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." FASB 123, which will be
effective for the Company's 1997 fiscal year, establishes a fair-value based
method of measuring compensation expense for stock-based compensation. As
permitted by FASB 123, the Company expects to continue to use the intrinsic
value based method of recognizing compensation expense for stock-based
compensation to employees. However, beginning in 1997, the Company will be
required to disclose the pro forma effects of the fair value based method of
measuring compensation expense on the Company's net income and earnings per
share as if that method were adopted.
(3) ACQUISITIONS
During the three years ended March 31, 1996, the Company acquired the
advertising agencies set forth below. Each acquisition has been accounted for
as a purchase. As a result, the accompanying financial statements include the
operating results of each business from the date of acquisition. Purchase
price has been allocated to the assets acquired in each acquisition based upon
their fair values at the dates of acquisition. The agreements for each
acquisition principally include contingent cash consideration for the value of
future gross income from the client accounts of the acquired agencies. The
contingent consideration in each of the acquisitions is payable in five annual
installments following the date of acquisition. Contingent consideration is
recorded as additional cost of the acquired business when the contingency is
resolved and the consideration is payable. Contingent consideration was
approximately $853,000, $259,000, and $273,000 in 1996, 1995 and 1994,
respectively, and has been reported as an increase in excess of purchase price
over fair value of net assets acquired.
Acquisitions, which occurred through purchases of certain assets of each
business, (see also note 11) during the three years ended March 31, 1996 were
as follows:
. On April 1, 1993, the Company purchased the business of Carlick
Advertising. In 1996, the acquisition agreement was amended to establish
a fixed amount of consideration for the client accounts of Carlick
Advertising in Mountain View, California.
. On February 1, 1995, the Company acquired the business of Schurdell
Communications in Cleveland, Ohio.
. On July 1, 1995, the Company acquired the business of The Jayme
Organization, Inc. ("Jayme") in Cleveland, Ohio.
. On January 1, 1996, the Company acquired the business of Werner Chepelsky
& Partners, Inc. ("WCP") in Pittsburgh, Pennsylvania.
F-8
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the amounts paid for the Company's
acquisitions:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash paid for assets at closing.................. $266,430 $ 5,000 $141,730
Additional consideration allocated to excess of
purchase price over fair value of net assets
acquired-contingent consideration(1)............ 272,736 259,146 215,335
Fixed consideration for Carlick, payable through
fiscal 1999..................................... -- -- 637,217
-------- -------- --------
$539,166 $264,146 $994,282
======== ======== ========
</TABLE>
--------
(1) Includes amounts paid for WCP, Jayme and Schurdell in 1996 and amounts
paid for Carlick in 1995 and 1994.
(4) RELATED PARTY TRANSACTIONS
The Parent Company's senior debt of $18,800,000 is secured by the common
stock of the Company held by the Parent Company. The Company is also a
guarantor of the Parent Company's senior debt which guarantee is secured by
the Company's accounts receivable. The interest rate on the senior debt was
8.375 percent and 9.5 percent at March 31, 1996 and 1995, respectively. Upon
the successful completion of the Company's initial public stock offering (see
also note 10), the Company will be released as a guarantor of the Parent
Company's senior debt and the lien on the Company's accounts receivable will
be removed.
In the normal course of business, the Company has various transactions with
the Parent Company and its subsidiaries. The Company incurs allocated charges
for administrative and support services at amounts equal to 3 percent of its
commissions and fees. Occupancy and human resource charges are also allocated
to the Company based on the actual use of those resources. Total allocated
expenses were $931,415, $1,026,876 and $1,397,693 in 1994, 1995 and 1996,
respectively.
Amounts due to the Parent Company represent unsecured advances of cash
between the Company and its Parent Company. Interest is not accrued on these
advances. See also note 11.
The Company leases office space under two noncancellable operating leases
with employees of the Company. The last of these leases expire in 1998.
Minimum annual rentals under these leases are approximately $281,000 and
$209,000 in 1997 and 1998, respectively. The Company incurred rent expense
under these leases of approximately $200,000, $200,000 and $218,500 in 1994,
1995 and 1996, respectively.
(5) INCOME TAXES
The provision for income taxes consists of the following for the years ended
March 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------------------------- --------------------------- --------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal................. $236,000 $(27,000) $209,000 $116,000 $(23,000) $ 93,000 $122,000 $79,000 $201,000
State & Local........... 38,000 -- 38,000 20,000 -- 20,000 26,000 -- 26,000
-------- -------- -------- -------- -------- -------- -------- ------- --------
$274,000 $(27,000) $247,000 $136,000 $(23,000) $113,000 $148,000 $79,000 $227,000
======== ======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
F-9
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1995 and 1996, the deferred tax assets and liabilities consist
of the following:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables...................... $ 24,000 $ 24,000
Accrued liabilities..................................... 24,000 11,900
Deferred compensation................................... 155,100 77,600
Post retirement benefits other than pensions............ -- 6,200
Stock options........................................... -- 24,000
-------- --------
Total deferred tax assets............................... 203,100 143,700
Deferred tax liabilities
Excess depreciation..................................... 76,100 95,700
-------- --------
Net deferred tax assets................................. $127,000 $ 48,000
======== ========
</TABLE>
Actual income tax expense differs from amounts computed by applying the U.S.
federal income tax rate of 34% to pretax earnings as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Expected Federal income taxes.................. $191,000 $ 41,000 $161,000
State and local income taxes, net of Federal
benefit....................................... 25,000 13,000 17,000
Meals and entertainment........................ 8,000 22,000 34,000
Officers life insurance........................ 17,000 31,000 (1,000)
Other.......................................... 6,000 6,000 16,000
-------- -------- --------
$247,000 $113,000 $227,000
======== ======== ========
</TABLE>
(6) EMPLOYEE BENEFIT PLANS
The Company joins the Parent Company and other eligible affiliated companies
in sponsoring a profit-sharing and savings plan covering substantially all
employees of the Company. The contribution to the profit-sharing component of
the plan is determined annually by the Board of Directors of the Parent
Company and may not exceed the amounts allowable under the Internal Revenue
Code. Under the employee savings component of the plan, the Company will match
50 percent of an employee's contribution up to 4 percent of salary which is
vested immediately. The Company contributed $71,573, $92,749 and $116,782, in
1994, 1995 and 1996, respectively, to the employee savings plan. No profit-
sharing contributions were made or accrued in any of these years.
The Company also joins the Parent Company and other eligible affiliated
companies in sponsoring a Stock Bonus Plan. The Stock Bonus Plan primarily
holds Class A common stock of the Parent Company. Contributions to the Stock
Bonus Plan are made annually at the discretion of the Board of Directors of
the Parent Company. The Company recognized expense of $93,500, $128,000 and
$155,000 in 1994, 1995 and 1996, respectively, for contributions of Class A
common stock and cash to the Stock Bonus Plan for the benefit of the Company's
participants.
Deferred Compensation
The Company joins the Parent Company and other eligible affiliated companies
in sponsoring deferred compensation plans. The plans provide fixed benefits
payable over a specified period of time or upon retirement or death. The
benefits are partially funded through the purchase of ordinary life insurance
policies. The Company recognized expense of $42,764, $89,011 and $63,508, in
1994, 1995 and 1996, respectively, for benefits accruing under these plans.
F-10
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Postretirement Benefits Other Than Pensions
The Company also provides health care and life insurance benefits to retired
employees meeting certain eligibility criteria. Substantially all of the
Company's employees may become eligible for these benefits if they reach
normal retirement age while working for the Company.
Effective April 1, 1995, the Company adopted FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions", on a
prospective basis. The net transition obligation represents the difference
between the Company's April 1, 1995 accrued benefits costs prior to the
adoption of FASB 106 and the Plan's unfunded liability as of that date. The
net transition liability at April 1, 1995 was $205,115 and will be amortized
over twenty years.
The components of net periodic postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Service cost-benefits earned during the year...................... $ 2,796
Interest on projected benefit obligations......................... 17,415
Amortization of net transition obligation over 20 years........... 10,256
-------
Net postretirement benefit cost................................. $30,467
=======
</TABLE>
A reconciliation of the accumulated postretirement benefit obligation to the
liability recognized in the balance sheet as of March 31, 1996, is as follows:
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Accumulated postretirement benefit obligation
Active participants........................................... $ 79,749
Retirees...................................................... 159,757
---------
239,506
Unrecognized transition obligation.............................. (194,859)
Unrecognized net losses......................................... (37,403)
---------
Postretirement benefit obligation............................... $ 7,244
=========
</TABLE>
The actuarial calculation assumes health care inflation of 8.6 percent in
1996 and grades down uniformly to 7.0 percent in 2004 and remains level
thereafter. Increases in the health care cost trend rate have a minor effect
on the amounts reported because the Company's share of health care premium
rates is capped. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent. The Company's
postretirement benefit plans are not funded.
Prior to 1996, the costs of providing these benefits, which were not
significant, were expensed as paid.
(7) STOCK OPTION PLAN
Effective March 1996, the Company established the 1996 Stock Option Plan
(the "Plan") to grant options to employees and consultants to the Company
meeting specified eligibility requirements. Under the Plan, the Company may
grant incentive and non-qualified stock options. The Plan provides for the
granting of maximum of 4,574,777 options. The maximum term of an option may
not exceed ten years for both incentive and non-qualified options. As of March
31, 1996, the Plan had 939,956 non-qualified options granted, outstanding and
exercisable with an exercise price of $1.21 per share. In 1996, the Company
recognized expense of $71,500 for
F-11
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the difference between the estimated fair value of the Company's common stock
and the exercise price of the options granted.
(8) MAJOR CUSTOMERS
Commissions and fees from one major customer amounted to $1,398,000 and
$1,963,000 in 1995 and 1996, respectively. Another major customer provided
commissions and fees of $1,412,000 and $1,350,000 in 1994 and 1995,
respectively.
(9) COMMITMENTS
Employment Contracts
At March 31, 1996, the Company was committed to minimum annual payments for
employment, consulting and noncompete agreements as follows:
<TABLE>
<S> <C>
1997.............................................................. $409,000
1998.............................................................. 290,000
1999.............................................................. 290,000
2000.............................................................. 290,000
2001.............................................................. 217,500
</TABLE>
Charges to expense under employment, consulting and noncompete agreements
approximated $292,000, $298,000 and $545,500, for 1994, 1995 and 1996,
respectively.
Operating Leases
The Company occupies office space in various locations under noncancellable
operating lease agreements. Rent expense under these agreements approximated
$1,365,000, $1,136,000 and $1,622,000 in 1994, 1995 and 1996, respectively.
At March 31, 1996, the Company's minimum annual rentals under existing
noncancellable leases are approximately as follows:
<TABLE>
<S> <C>
1997............................................................ $1,213,000
1998............................................................ 1,173,000
1999............................................................ 933,000
2000............................................................ 927,000
2001............................................................ 686,000
</TABLE>
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties.
(10) COMMON AND PREFERRED STOCK
The Company is planning to file a Registration Statement on Form S-1 for an
initial public offering (the "IPO") pursuant to which the Parent Company, will
offer shares of the Company's common stock to the public in fiscal year 1997.
In connection therewith, in June 1996, the Company effected a 16,901.1525-to-1
stock split which has been given retroactive effect in the accompanying
financial statements. The authorized common stock of the Company was increased
from 1,000 shares to 50,000,000 shares, the 800 issued and outstanding common
shares were increased to 13,520,922 and the 200 treasury shares were increased
to 3,380,230.5. As a result,
F-12
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
$16,801 was transferred from additional paid-in-capital to common stock. In
addition, the Company is authorized to issue up to 6,700,000 shares of
preferred stock, $.001 par value.
(11) SUBSEQUENT EVENTS
Effective April 1, 1996, the Company completed an acquisition of the
business of Marshall Jaccoma Mitchell Advertising Incorporated ("MJM").
Subsequently, the Company paid cash of $50,000 for the tangible assets of MJM
and is committed to pay contingent cash consideration for the gross income
from the client accounts of MJM through 2001.
On June 27, 1996, the Company completed a transaction to acquire the common
stock of Animated Systems & Design, Inc. ("Animated Systems"). Consideration
to be paid by the Company for the acquisition is $2,600,000, consisting of
cash of $1,500,000 and 903,189 shares of common stock of the Company
(estimated fair value of $1,100,000). In addition, the Company paid cash
consideration of $500,000 in exchange for covenants-not-to-compete with two
shareholder-managers of Animated Systems. The cash paid for the acquisition
plus additional cash required to retire bank borrowings of $382,078 for
Animated Systems due at closing was provided by an advance from the Parent
Company of $2,382,078. The advance bears interest at the 30-day LIBOR rate
plus 2.5 percent (8.375 percent at March 31, 1996) and is payable from the
proceeds of the Company's initial public stock offering.
Pro forma (unaudited) operating results of the Company for 1996 and 1995,
assuming the acquisitions of Animated Systems, WCP, and Jayme were made as of
April 1, 1994, are summarized below. The operating results of MJM and
Schurdell Communications have been excluded from (unaudited) pro forma
information because these businesses are not significant to the Company.
<TABLE>
<CAPTION>
1995 1996
------- -------
(000'S OMITTED)
<S> <C> <C>
Commissions and fees..................................... $17,910 $24,071
======= =======
Net earnings (loss)...................................... (342) (36)
======= =======
Earnings (loss) per share................................ $ (.02) $ --
======= =======
</TABLE>
The pro forma results have been prepared for comparative purposes only and
include adjustments for amortization of intangible assets, the exclusion of a
special bonus to shareholder-managers of WCP and interest expense on advances
made in connection with the acquisition of Animated Systems from the Parent
Company. They do not purport to be indicative of the results of operations
which actually would have resulted had the acquisitions occurred on April 1,
1994.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Poppe Tyson, Inc.:
We have audited the accompanying consolidated balance sheets of Animated
Systems & Design, Inc. and Subsidiary as of December 31, 1993 and 1994 and
March 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1993 and 1994, the period from January 1, 1995 through March 31, 1995, and
for the year ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Animated
Systems and Design, Inc. and Subsidiary as of December 31, 1993 and 1994 and
March 31, 1995 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1993 and 1994, the period from January 1,
1995 through March 31, 1995, and for the year ended March 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
June 21, 1996, except as to the
second paragraph of note 12
which is as of June 27, 1996
F-14
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994 AND MARCH 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...... $ -- $ 76,091 $ 8,317 $ 7,038
Trade receivables, less
allowance of $27,000, $3,000,
$8,000 and $29,000 in 1993,
1994, 1995 and 1996,
respectively.................. 182,931 148,684 375,926 656,586
Cost in excess of billings on
uncompleted
contracts..................... -- -- -- 9,300
Deferred taxes................. 31,880 6,451 8,279 15,049
Loan receivable from officer... 32,872 41,345 43,228 --
Other assets................... -- -- -- 425
-------- -------- -------- ---------
Total current assets......... 247,683 272,571 435,750 688,398
Property, plant and equipment,
net............................. 121,702 89,032 94,750 137,729
Goodwill, net.................... -- -- -- 21,124
Other assets..................... 3,106 3,106 3,106 3,709
-------- -------- -------- ---------
$372,491 $364,709 $533,606 $ 850,960
======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital
lease obligation.............. $ 4,368 $ 4,212 $ 4,933 $ 29,873
Current portion of notes
payable....................... 27,891 17,469 18,580 32,026
Accounts payable............... 64,195 34,398 31,549 138,670
Income taxes payable........... 494 7,461 7,042 4,812
Billings in excess of costs on
uncompleted contracts......... 212,823 226,325 346,083 93,350
Bank borrowings................ 46,000 -- -- 260,000
Accrued expenses............... 30,282 15,714 47,749 101,365
-------- -------- -------- ---------
Total current liabilities.... 386,053 305,579 455,936 660,096
Capital lease obligations........ 16,867 12,655 24,008 47,133
Notes payable.................... 41,484 24,015 19,570 11,437
Deferred taxes................... 9,100 3,484 5,670 2,056
-------- -------- -------- ---------
453,504 345,733 505,184 720,722
-------- -------- -------- ---------
Stockholders' equity:
Common stock no par value;
10,000,000 shares authorized,
1,880,000 issued and
outstanding at December 31,
1993 and 2,000,000 issued and
outstanding at December 31,
1994 and March 31, 1995 and
1996.......................... 9,400 10,000 10,000 10,000
Retained earnings, (accumulated
deficit)...................... (90,413) 8,976 18,422 120,238
-------- -------- -------- ---------
Total stockholders' equity... (81,013) 18,976 28,422 130,238
-------- -------- -------- ---------
Commitments and contingencies....
$372,491 $364,709 $533,606 $ 850,960
======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994,
THE PERIOD FROM JANUARY 1, 1995 THROUGH
MARCH 31, 1995 AND YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Fee revenue................. $1,112,634 $1,429,563 $430,354 $2,637,404
---------- ---------- -------- ----------
Operating expenses
Salaries and employee
benefits................. 745,115 861,070 254,529 1,592,433
Operating and general..... 401,355 426,647 157,927 860,541
---------- ---------- -------- ----------
Total operating
expenses............... 1,146,470 1,287,717 412,456 2,452,974
Operating income
(loss)................. (33,836) 141,846 17,898 184,430
---------- ---------- -------- ----------
Other income (expense)
Interest income........... 281 560 421 712
Interest expense.......... (17,320) (13,593) (1,537) (15,326)
---------- ---------- -------- ----------
Income (loss) before
income taxes............. (50,875) 128,813 16,782 169,816
Income tax expense
(benefit)................ (20,686) 29,424 7,336 68,000
---------- ---------- -------- ----------
Net earnings (loss)......... $ (30,189) $ 99,389 $ 9,446 $ 101,816
========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993 AND 1994,
THE PERIOD FROM JANUARY 1, 1995 THROUGH
MARCH 31, 1995 AND THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK EARNINGS STOCKHOLDERS'
----------------- (ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT) (DEFICIT)
--------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1992....... 1,880,000 $ 9,400 $(60,224) $(50,824)
Net loss.......................... -- -- (30,189) (30,189)
--------- ------- -------- --------
Balances, December 31, 1993....... 1,880,000 9,400 (90,413) (81,013)
Net income........................ -- -- 99,389 99,389
Stock issued...................... 120,000 600 -- 600
--------- ------- -------- --------
Balances, December 31, 1994....... 2,000,000 10,000 8,976 18,976
Net income........................ -- -- 9,446 9,446
--------- ------- -------- --------
Balances, March 31, 1995.......... 2,000,000 10,000 18,422 28,422
Net income........................ -- -- 101,816 101,816
--------- ------- -------- --------
Balances, March 31, 1996.......... 2,000,000 $10,000 $120,238 $130,238
========= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994,
THE PERIOD FROM JANUARY 1, 1995 THROUGH
MARCH 31, 1995 AND THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(30,189) $ 99,389 $ 9,446 $ 101,816
Adjustments to reconcile net
income to net cash provided
by operating activities net
of the effect of the
acquisition of Accent
Software, Inc.:
Depreciation and
amortization............... 59,444 64,643 18,478 69,507
Deferred income taxes....... 12,720 19,813 358 (10,384)
Loss on disposal of property
and equipment.............. -- -- -- 4,603
Changes in operating assets
and liabilities:
(Increase) decrease in
trade receivable(s),
net...................... 116,794 34,247 (227,242) (276,102)
Increase in cost in excess
of billings on
uncompleted contracts.... -- -- -- (9,300)
Decrease in other assets.. -- -- -- 2,459
Increase (decrease) in
accounts payable......... (58,089) (29,797) (2,849) 107,121
Increase (decrease) in
billings in excess of
costs on uncompleted
contracts................ (2,574) 13,502 119,758 (252,733)
Increase (decrease) in
accrued expenses......... 30,282 (14,568) 32,035 52,450
Increase (decrease) in
income taxes payable..... (7,298) 6,967 (419) (2,230)
-------- -------- --------- ---------
Net cash provided by
(used in) operating
activities............. 121,090 194,196 (50,435) (212,793)
-------- -------- --------- ---------
Cash flows from investing
activities:
Purchase of equipment....... (47,672) (31,973) (10,934) (36,682)
Acquisition of Accent
Software, Inc.............. -- -- -- (43,728)
Proceeds received (advances
made) on loan receivable
from officer............... (25,356) (8,473) (1,883) 43,228
-------- -------- --------- ---------
Net cash used in
investing activities... (73,028) (40,446) (12,817) (37,182)
-------- -------- --------- ---------
Cash flows from financing
activities:
Proceeds received (payments
made) on bank borrowings... (62,000) (46,000) -- 260,000
Proceeds received (payments
made) on note payable--
bank....................... 31,111 (13,333) (3,334) 9,449
Payments made on capital
leases..................... -- (4,368) (1,188) (16,617)
Proceed from sale of stock.. -- 600 -- --
Payments made on note
payable--other............. (18,140) (14,558) -- (4,136)
-------- -------- --------- ---------
Net cash provided by
(used in) financing
activities............. (49,029) (77,659) (4,522) 248,696
-------- -------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... (967) 76,091 (67,774) (1,279)
Cash and cash equivalents at
inception of year............ 967 -- 76,091 8,317
-------- -------- --------- ---------
Cash and cash equivalents at
end of year.................. $ -- $ 76,091 $ 8,317 $ 7,038
======== ======== ========= =========
Supplemental disclosure of
cash flow information:
Cash paid for interest...... $ 17,320 $ 13,593 $ 1,537 $ 15,326
======== ======== ========= =========
Cash paid for income taxes.. $ -- $ 16,049 $ 419 $ 43,014
======== ======== ========= =========
Non-cash financing activities:
Equipment capital leases.... $ 21,235 $ -- $ 13,262 $ 64,682
======== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND MARCH 31, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Animated Systems & Design, Inc., a California corporation, produces and
develops new media based marketing and training materials.
Principles of Consolidation
The consolidated financial statements as of March 31, 1996 include the
accounts of Animated Systems & Design, Inc. and its wholly-owned subsidiary
Accent Software, Inc. (together "the Company") (note 2). All significant
intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year
Effective January 1, 1995 the Company changed its fiscal year end from
December 31 to March 31. The statements of earnings and retained earnings and
cash flows are presented for the three month period ended March 31, 1995 and
for the years ended December 31, 1993 and 1994 and March 31, 1996.
Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments with a maturity of three months
or less to be cash equivalents.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated
depreciation. Depreciation expense is computed using the straight line method
over the estimated useful lives of the individual assets (note 3). Costs for
major renewals and additions are capitalized, while repairs and maintenance
costs are expensed as incurred.
Revenue Recognition
The Company uses the percentage of completion method of accounting for
significant long-term contracts. Percentage of completion is measured by the
percentage of costs incurred to date to estimated total contract costs.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance. Amounts billed in excess of revenues
recognized are reflected on the balance sheets as billings in excess of costs
on uncompleted contracts, a current liability. Amounts of revenue in excess of
billings are reflected on the balance sheets as costs in excess of billings on
uncompleted contracts, a current asset.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement
F-19
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in the tax rates is recognized in income
in the period that includes the enactment date.
Disclosure About Fair Value of Financial Instruments
The fair values of long-term debt and capital leases, including current
portion, are estimated based on the current rates offered to the Company. As
of March 31, 1996 the carrying value of the financial instruments approximates
fair value. Fair values of cash, trade receivables, accounts payable, bank
borrowings and accrued expenses are estimated to approximate carrying values
due to the short maturities of these financial instruments.
Recently Issued Accounting Standards
In March 1995, the Financing Accounting Standards Board ("FASB") issued
statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The application of FASB 121, which will be effective for the Company's 1997
fiscal year, will require management to review certain long-lived assets, such
as intangible assets, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the particular asset may
not be recoverable. In the event that it is determined that an impairment loss
has accrued, then measurement of the impairment loss should be based on the
fair value of the asset. The effect of FASB 121, which must be applied
prospectively upon adoption, has not yet been determined by management.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation." FASB 123, which will be
effective for the Company's 1997 fiscal year establishes a fair value based
method of recognizing compensation expenses for stock-based compensation to
employees. However, beginning in 1997, the Company will be required to
disclose the pro forma effects of the fair value based method of measuring
compensation expense on the Company's net income and earnings per share as if
that method were adopted.
(2) ACQUISITION OF WHOLLY-OWNED SUBSIDIARY
On July 19, 1995, the Company acquired all of the outstanding shares of
Accent Software, Inc. for $45,000 cash. The acquisition has been accounted for
using the purchase method of accounting, and, accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed based
upon the fair values at the date of acquisition. The excess of the net assets
acquired over fair value was $24,852 and has been recorded as goodwill, which
is being amortized on a straight-line basis over 5 years. The amount of
goodwill amortization for fiscal 1996 was $3,728.
The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Accounts receivable................................................ $ 4,558
Furniture and equipment............................................ 11,997
Other assets....................................................... 3,487
Goodwill........................................................... 24,852
Accrued expenses................................................... (1,166)
--------
Purchase price, net of cash received............................... $ 43,728
========
</TABLE>
The operating results of Accent Software, Inc. have been included in the
consolidated statements of operations from the date of acquisition.
F-20
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
Major classifications of property, plant and equipment consist of the
following:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, USEFUL
1993 1994 1995 1996 LIVES (YEARS)
------------ ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Machinery and
equipment.............. $176,337 $226,810 $269,037 $325,672 3-5
Software................ 50,875 32,375 13,875 -- 3
Furniture and fixtures.. -- -- 470 7,001 7
-------- -------- -------- --------
227,212 259,185 283,382 332,673
Less accumulated
depreciation........... 105,510 170,153 188,632 194,944
-------- -------- -------- --------
$121,702 $ 89,032 $ 94,750 $137,729
======== ======== ======== ========
</TABLE>
The Company had no capital expenditure commitments at March 31, 1996.
(4) NOTES PAYABLE
The notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Note payable--bank:
Principal amount....... $40,000 $40,000 $40,000 $35,000
Date of issuance....... April 26, 1993 March 15, 1994 March 15, 1995 January 12, 1996
Date of expiration..... March 15, 1994 March 15, 1995 April 1, 1996 January 12, 1998
Interest rate.......... Prime rate plus 3% Prime rate plus 3% Prime rate plus 3% Prime rate plus 1.25%
Amounts outstanding.. $31,111 $17,778 $14,444 $23,893
Note payable--other: 38,264 23,706 23,706 19,570
------- ------- ------- -------
69,375 41,484 38,150 43,463
Less current portion.... 27,891 17,469 18,580 32,026
------- ------- ------- -------
Amounts outstanding.. $41,484 $24,015 $19,570 $11,437
======= ======= ======= =======
</TABLE>
The note payable to other than banks for all periods presented is for the
purchase of a 50% ownership of a software tool. The note has zero stated
interest, thus the principal of the note was discounted based on an imputed
interest rate of 9%. The unamortized discount on the note was $4,767, $2,294,
$2,294 and $430 as of December 31, 1993, December 31, 1994, March 31, 1995 and
March 31, 1996, respectively.
(5) LINE OF CREDIT
The Company entered into agreements with banks to borrow up to the following
amounts under revolving lines of credit:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Amount of line of
credit................. $100,000 $100,000 $175,000 $300,000
Date of issuance........ April 25, 1993 March 15, 1994 March 15, 1995 January 12, 1996
Date of expiration...... March 15, 1994 March 15, 1995 April 1, 1996 January 10, 1997
Interest rate........... Prime rate plus 3% Prime rate plus 3% Prime rate plus 1% Prime rate plus 1%
Prime rate at period
end.................... 6% 8.5% 9.0% 8.25%
Amounts used............ $46,000 -- -- $260,000
Collateral.............. All assets of
-- -- -- the Company
</TABLE>
F-21
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The facility available as of March 31, 1996 contains financial covenants
with respect to working capital, tangible net worth, debt to tangible net
worth and profitability. As of March 31, 1996 the Company was not in
compliance with these financial covenants.
(6) COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities, equipment and transportation
equipment under operating lease agreements with varying terms and conditions.
Certain equipment with a net book value of $99,179 was leased under capital
lease arrangements. The leases expire on various dates through 2000. Future
minimum lease payments under these leases are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
MARCH 31, 1996 LEASES LEASES
- --------------- --------- ---------
<S> <C> <C>
1997................................................... .. $ 36,799 $112,095
1998................................................... .. 36,321 39,663
1999................................................... .. 14,311 6,609
2000................................................... .. -- 890
2001................................................... .. -- --
-------- --------
Minimum lease payments................................. $ 87,431 $159,257
========
Amounts representing interest at approximately 11%..... .. (10,425)
--------
77,006
Current portion of capital lease obligations........... .. (29,873)
--------
$ 47,133
========
</TABLE>
Rent expense under operating leases was $58,057, $71,309, $18,762 and
$112,606, for the years ended December 31, 1993 and 1994, the period from
January 1, 1995 through March 31, 1995, and the year ending March 31, 1996,
respectively.
In the ordinary course of business, certain claims, suits and complaints may
be filed or are pending against the Company. In the opinion of management, all
matters are adequately covered by insurance, or if not covered, are in the
opinion of management and counsel not probable or would not be material to the
financial position or results of operations of the Company.
(7) RELATED PARTY TRANSACTIONS
The Company held notes receivable from an officer in the amount of $32,872,
$41,345 and $43,228 as of December 31, 1993, December 31, 1994 and March 31,
1995, respectively. The notes did not bear interest and were repaid in full in
March 1996.
F-22
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) INCOME TAXES
Income tax expense for the years ended December 31, 1993 and 1994, the period
January 1, 1995 through March 31, 1995 and the year ended March 31, 1996
consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- ------- --------
<S> <C> <C> <C>
December 31, 1993:
Current....................................... $ 443 $ 1,651 $ 2,094
Deferred...................................... (17,886) (4,894) (22,780)
-------- ------- --------
$(17,443) $(3,243) $(20,686)
======== ======= ========
December 31, 1994:
Current....................................... $ 7,564 $ 2,047 $ 9,611
Deferred...................................... 15,557 4,256 19,813
-------- ------- --------
$ 23,121 $ 6,303 $ 29,424
======== ======= ========
March 31, 1995:
Current....................................... $ 3,864 $ 3,114 $ 6,978
Deferred...................................... 280 78 358
-------- ------- --------
$ 4,144 $ 3,192 $ 7,336
======== ======= ========
March 31, 1996:
Current....................................... $ 58,572 $19,812 $ 78,384
Deferred...................................... (6,647) (3,737) (10,384)
-------- ------- --------
$ 51,925 $16,075 $ 68,000
======== ======= ========
</TABLE>
The following is a reconciliation of the statutory federal income tax rate to
the effective income tax rate:
<TABLE>
<CAPTION>
FOR THE PERIOD
YEARS JANUARY 1,
ENDED 1995 YEAR
DECEMBER THROUGH ENDED
----------- MARCH 31, MARCH 31,
1993 1994 1995 1996
---- ---- -------------- ---------
<S> <C> <C> <C> <C>
Statutory tax rate.................... (34)% 34% 34% 34%
State taxes net of federal benefit.... (6) 6 6 6
Meals and entertainment............... -- 4 12 5
Graduated tax rates................... -- (20) (8) (3)
Other................................. (1) (1) -- (2)
--- --- --- ---
Effective tax rate.................... (41)% 23% 44% 40%
=== === === ===
</TABLE>
F-23
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- -----------------
1993 1994 1995 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
Deferred tax assets:
Depreciable assets................... $ -- $ -- $ -- $ 3,350
Deferred revenue..................... 13,361 650 -- --
Bad debt expense..................... 11,835 1,299 3,464 6,176
Net operating loss carryforwards..... -- -- -- 52,700
General business credits............. -- -- -- 6,300
Other................................ 6,684 4,502 4,815 5,523
------- ------- ------- --------
Gross deferred tax assets.............. 31,880 6,451 8,279 74,049
Valuation allowance.................... -- -- -- (59,000)
------- ------- ------- --------
Net deferred tax assets.............. $31,880 $ 6,451 $ 8,279 $15,049
======= ======= ======= ========
Deferred tax liabilities:
Depreciable assets................... $(9,100) $(3,484) $(5,670) $ --
State taxes.......................... -- -- -- (2,056)
------- ------- ------- --------
Deferred tax liabilities........... $(9,100) $(3,484) $(5,670) $ (2,056)
======= ======= ======= ========
</TABLE>
At March 31, 1996, the Company's subsidiary has federal and California net
operating loss carryforwards of $123,064 and $176,909, respectively, which are
not expected to be available to offset future taxable income due to various
tax loss limitations. The Company has general business credits at March 31,
1996 of approximately $18,528 which are also not expected to be available to
offset future tax liabilities. There are no net operating loss carryforwards
or general business credits for the years ended December 31, 1993 and 1994 and
March 31, 1995.
The valuation allowance for deferred tax assets was $59,000 at March 31,
1996. This valuation allowance relates to deferred tax assets from net
operating loss and business credit carryforwards related to the Accent
Software acquisition which are not likely to be realized due to limitations in
tax statutes. No valuation allowance was necessary for periods prior to the
fiscal year ended March 31, 1996.
(9) EMPLOYEE RETIREMENT AND SAVINGS PLAN
The Company maintains a defined contribution plan for eligible employees
with eligibility conditioned upon full-time employment. Benefits are accrued
through annual contributions as a percent of taxable wages. Participants are
100% vested in their accounts. The employer contribution for year ended March
31, 1996 was $6,432.
(10) STOCK OPTION PLAN
In 1996, the Company adopted a Stock Option Plan (the Plan). Under the Plan
options may be granted to employees, non-employee board members and
consultants, who provide valuable services to the Company, to purchase common
stock at an exercise price fixed by the Plan Administrator. In no event,
however, shall the exercise price per share be less than eighty-five percent
of the fair market value per share of common stock on the date of the option
grant. If the individual to whom an incentive option is granted is a ten
percent shareholder or greater, then the exercise price per share shall not be
less than one hundred ten percent of the fair market
F-24
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value per share of common stock on the grant date. As adopted the Plan calls
for up to an aggregate of 2,000,000 shares of common stock to be available for
issuance upon the exercise of options.
On February 28, 1996, the Company granted options for the issuance of
110,000 shares of common stock at an exercise price of $0.75 per share. The
exercise price reflected the fair market value of the shares at the date of
grant and therefore no compensation has been recorded.
As of March 31, 1996, all 110,000 options are fully exercisable. Shares
issued in connection with option exercises continue to be subject to
forfeiture as follows: Of the total, 45,000 option shares were fully vested as
of the grant date and the remaining 65,000 option shares vest ratably over a
period of three years from the date of grant. The unvested shares are
forfeited to the Company in the event of termination of employment prior to
completion of the vesting period. In the event that the employee terminates
prior to vesting, option shares held by the employee revert to the Company. In
the case of the transfer of all or substantially all of the assets of the
Company or upon a sale, merger, or other transfer of shares resulting in the
current shareholders of the Company owning less than fifty percent (50%) of
the outstanding shares of the Company, 20,000 option shares become fully
vested.
(11) MAJOR CUSTOMERS
The Company considers an individual customer that generates more than 10% of
total revenue in any of the years represented a major customer. The revenues
are derived from discrete projects that vary in size and scope. Therefore,
major customers change from year to year. Professional fees from major
customers amounted to $400,389, $173,441, $54,610 and $1,089,000, for the
periods ending December 31, 1993, December 31, 1994, March 31, 1995 and March
31, 1996, respectively.
(12) SUBSEQUENT EVENT
Effective May 10, 1996, the Company's Board of Directors declared a 200 for
1 stock split of the Company's common shares. Therefore, each outstanding
share of stock was divided into 200 shares of stock. In addition, the
shareholders approved an amendment to the Company's Articles of Incorporation
to increase the number of shares of common stock authorized from 100,000 to
10,000,000, and decrease the par value from $1.00 to $0.001. All share amounts
in these financial statements have been retroactively adjusted accordingly.
On June 27, 1996, the common stock of the Company was acquired by Poppe
Tyson, Inc. In connection with closing, the bank borrowings were repaid.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Poppe Tyson, Inc.:
We have audited the accompanying statements of operations and cash flows for
the years ended December 31, 1993 and 1994 and for the six-month period ended
June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of The
Jayme Organization, Inc. for the years ended December 31, 1993 and 1994 and
for the six-month period ended June 30, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Cleveland, Ohio
June 14, 1996
F-26
<PAGE>
THE JAYME ORGANIZATION, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND THE
SIX MONTH PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Commissions and fees (note 7).......... $ 3,463,552 $ 3,233,491 $1,432,931
Operating expenses
Salaries and employee benefits (note
6).................................. 2,539,740 2,131,563 1,030,475
Operating and general................ 641,698 478,432 239,766
Rent expense......................... 540,720 362,562 183,090
Depreciation and amortization........ 69,110 66,202 31,902
Bad debt expense..................... 231,925 33,154 --
------------ ------------ ----------
Total operating expenses........... 4,023,193 3,071,913 1,485,233
------------ ------------ ----------
Operating income (loss)............ (559,641) 161,578 (52,302)
------------ ------------ ----------
Nonoperating income (expense)
Interest expense..................... (61,330) (37,341) (23,426)
Rent income.......................... 136,587 26,695 5,289
------------ ------------ ----------
Total other income (expense)....... 75,257 (10,646) (18,137)
------------ ------------ ----------
Income (loss) before provision for
income taxes...................... (484,384) 150,932 (70,439)
Income tax expense (note 4)............ -- 14,260 --
------------ ------------ ----------
Net earnings (loss)................ $ (484,384) $ 136,672 $ (70,439)
============ ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
THE JAYME ORGANIZATION, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND SIX-MONTH PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Cash flows provided by (used in)
operating activities
Net earnings (loss)..................... $ (484,384) $ 136,672 $ (70,439)
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities
Depreciation and amortization......... 69,110 66,202 31,902
Deferred income taxes................. -- 14,259 --
Changes in assets and liabilities
Receivables......................... 805,830 (129,107) 187,970
Billable production expenditures.... 5,511 6,683 12,720
Prepaid expenses.................... 1,174 (1,562) 6,648
Recoverable income taxes............ 28,297 -- --
Other assets........................ (23,259) 32,084 (6,640)
Accounts payable.................... (313,474) (36,796) (59,005)
Advance billings.................... (212,167) (37,594) (99,093)
------------ ------------ ---------
Net cash provided by (used in)
operating activities............. (123,362) 50,841 4,063
Cash flows provided by (used in)
investing activities
Payments for purchases of property and
equipment.............................. (17,711) (87,728) (754)
Collections of note receivable.......... 254,731 -- 21,469
------------ ------------ ---------
Net cash provided by (used in)
investing activities............. 237,020 (87,728) 20,715
Cash flows provided by (used in)
financing activities
Proceeds from the sale of stock......... 56,978 -- --
Repurchase of stock..................... (118,522) -- (67,708)
Proceeds from the issuance of debt...... 52,929 -- --
Proceeds from the issuance of long-term
debt................................... -- 111,895 --
Payment of long-term debt............... (107,748) (170,886) (104,802)
Net collection of stock subscriptions
receivable............................. 38,245 23,520 21,469
------------ ------------ ---------
Net cash provided by (used in)
financing activities............. (78,118) (35,471) (151,041)
Net increase (decrease) in cash and cash
equivalents............................ 35,540 (72,358) (126,263)
Cash and cash equivalents at beginning
of period.............................. 177,437 212,977 140,619
------------ ------------ ---------
Cash and cash equivalents at end of
period................................. $ 212,977 $ 140,619 $ 14,356
============ ============ =========
A summary of supplemental disclosures of
cash flow information follows:
Cash paid during the year for
Interest.............................. $ 61,330 $ 40,396 $ 19,355
============ ============ =========
Income taxes.......................... -- -- --
============ ============ =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
THE JAYME ORGANIZATION, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993 AND 1994 AND
SIX-MONTH PERIOD ENDED JUNE 30, 1995
(1) NATURE OF OPERATIONS
The Jayme Organization, Inc. (Company) is a marketing communications agency
located in Cleveland, Ohio, that provides service to client accounts in five
states. The Company's principal sources of revenue are commissions, fees, and
hourly charges earned in the production and placement of advertising in
various media.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Revenue Recognition
Income from commissions, fees, and hourly charges are recognized when media
placements appear, production costs are incurred, and new media services are
rendered. Salaries and other agency costs are expensed when incurred.
(c) Depreciation and Amortization
Depreciation of furniture, fixtures, and equipment is provided on a
straight-line basis over the estimated useful lives of the assets (5 to 10
years). Amortization of leasehold improvements is provided on a straight-line
basis over the term of the respective lease.
(d) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Under this method deferred income taxes are recognized at enacted tax rates
for the tax consequences of temporary differences between financial statement
carrying amounts and tax bases of existing assets and liabilities.
(e) Fair Values of Financial Instruments
Fair values of cash, receivables, book overdrafts, and accounts payable are
estimated to approximate carrying values due to the short maturities of these
financial instruments.
(f) Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or
less are considered to be cash equivalents.
(3) SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company accepted notes from employees for the subscription of common
stock and issued notes to employees for redemption of common stock (note 5),
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995
-------------- ----------- ----------
<S> <C> <C> <C>
Subscriptions for common stock
issued............................. $ 56,978 -- --
Notes issued for redemption of
common stock....................... 44,707 -- --
============== ========== ===
</TABLE>
F-29
<PAGE>
THE JAYME ORGANIZATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- JUNE 30,
1993 1994 1995
---------- ------------- ----------
<S> <C> <C> <C>
Federal
Current............................. $ -- $ 59,200 --
Deferred............................ -- 14,260 --
Net operating loss utilization...... -- (59,200) --
---------- ------------- ---
$ -- $ 14,260 --
========== ============= ===
</TABLE>
Actual income tax expense differs from amounts computed by applying the U.S.
federal income tax rate of 34 percent to pretax earnings (loss) as a result of
the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- JUNE 30,
1993 1994 1995
---------- ------------- ----------
<S> <C> <C> <C>
Expected federal income taxes........ $ -- $ 51,317 --
Change in valuation allowance for
deferred tax assets................. -- 14,260 --
Net operating loss utilization....... -- (59,200) --
Other................................ -- 7,883 --
---------- ------------- ---
$ -- $ 14,260 --
========== ============= ===
</TABLE>
(5) EMPLOYEE STOCK PLAN
As authorized by the board of directors, employees may be offered an
opportunity to subscribe for the purchase of shares of the Company's stock.
The price per share is 90 percent of book value as of the end of the previous
fiscal year, which was $25.38 and $-0- for 1993 and 1994, respectively, and
$6.52 for the six-month period ending June 30, 1995. Employees subscribed for
the purchase of 2,245 shares during 1993. Imputed interest on long-term notes
would not be material. Shares of the Company are redeemable at the current
buy-sell price.
(6) EMPLOYEE BENEFIT PLANS
The Company sponsors a deferred profit sharing plan covering substantially
all employees which is funded by discretionary employer contributions as
determined by the Company's board of directors. The contribution is allocated
to participants of the plan based upon current compensation and service
levels. Participants partially vest after two years and become fully vested
after six years of credited service. Expense related to employer contributions
was approximately $1,600 for the six-month period ended June 30, 1995 and
$47,000 in 1994. There was no expense recognized for employer contributions in
1993.
The Company also sponsors a 401(k) savings plan which covers substantially
all employees. Participation is voluntary and contributions are limited to a
fixed dollar portion of the individual's annual compensation. No Company
contribution is made.
The Company is committed under a consulting agreement with a former chief
executive officer of the Company through the expiration of the contract in
February 1995. Expenses recognized under this consulting
F-30
<PAGE>
THE JAYME ORGANIZATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
contract were $108,000 and $58,500 for 1993 and 1994, respectively, and $9,000
for the six-month period ended June 30, 1995.
Pension Plan
Effective December 1, 1990, the Company froze its contributory defined
benefit pension plan covering substantially all employees. Benefits are based
on the final five-year average salary less a percent of the social security
benefit at the time of retirement. Vesting occurs after 12 months of
consecutive service totaling at least 1,000 hours.
The net periodic pension expense for years ended December 31, 1993 and 1994
and the six-months ended June 30, 1995 included the following components:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Service cost........................ $ 2,156 $ (1,268) $ 645
Interest cost on projected benefit
obligation......................... 19,007 19,930 11,164
Actual return on plan assets........ (6,205) (4,662) (2,718)
Amortization........................ 9,930 9,930 5,787
------------ ------------ -------
Net periodic pension expense...... $ 24,888 $ 23,930 $14,878
============ ============ =======
</TABLE>
The assumptions used in the accounting at December 31, 1993 and 1994 and
June 30, 1995 were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------- ENDED
1993 1994 JUNE 30, 1995
---------------- ---------------- -----------------
<S> <C> <C> <C>
Discount rate........... 8.0% 7.0% 7.0%
Expected long-term
rate................... 7.0% 7.0% 7.0%
Mortality rates......... 7/1/93 Valuation 7/1/94 Valuation 7/1/95 Valuation
Report Report Report
</TABLE>
(7) MAJOR CUSTOMERS
The Company has certain customers which, in the years ended December 31,
1993 and 1994 and in the six months ended June 30, 1995, accounted for 10
percent or more of commissions and fees. The approximate commissions and fees
for these customers are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1993 1994 JUNE 30, 1995
------------ ------------ -------------
<S> <C> <C> <C>
Customer 1........................... $ 396,000 $ 322,000 $222,000
Customer 2........................... 954,000 795,000 --
Customer 3........................... -- 204,000 243,000
Customer 4........................... -- -- 167,000
Customer 5........................... 500,000 -- --
------------ ------------ --------
Total.............................. $ 1,850,000 $ 1,321,000 $632,000
============ ============ ========
</TABLE>
F-31
<PAGE>
THE JAYME ORGANIZATION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) COMMITMENT
The Company occupies office space under an operating lease agreement. Rent
expense under this agreement approximated $541,000, $363,000 and $183,000, for
the years ended December 31, 1993 and 1994 and the six months ended June 30,
1995, respectively.
Certain office equipment is leased under operating leases expiring in
various years through 1998. Minimum future rentals under noncancelable
operating leases having remaining terms in excess of one year at June 30, 1995
are as follows:
<TABLE>
<CAPTION>
FOR THE CALENDAR
YEARS ENDED
DECEMBER 31,
----------------
<S> <C>
1995........................... $10,835
1996........................... 21,671
1997........................... 21,368
1998........................... 14,421
-------
$68,295
=======
</TABLE>
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other equipment.
(9) SUBSEQUENT EVENTS
Effective July 1, 1995, the business, through the sale of certain assets,
was acquired by Poppe Tyson, Inc. (a wholly owned subsidiary of Bozell,
Jacobs, Kenyon & Eckhardt, Inc.).
F-32
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors Poppe Tyson, Inc.:
We have audited the accompanying statements of operations and retained
earnings and cash flows of Werner, Chepelsky and Partners, Inc. for each of
the years in the three-year period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Werner,
Chepelsky and Partners, Inc. for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
June 14, 1996
F-33
<PAGE>
WERNER, CHEPELSKY AND PARTNERS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Commissions and fees (note 6)................. $1,604,750 $2,172,243 $2,317,933
---------- ---------- ----------
Operating expenses:
Salaries and employee benefits (note 3)..... 1,189,432 1,413,259 2,197,659
Operating and general....................... 152,923 241,971 296,142
Rent expense (note 3)....................... 84,642 94,582 104,405
Depreciation and amortization............... 42,632 58,442 50,647
Bad debt expense............................ 25,875 17,276 38,123
---------- ---------- ----------
Total operating expenses.................. 1,495,504 1,825,530 2,686,976
---------- ---------- ----------
Operating income (loss)................... 109,246 346,713 (369,043)
---------- ---------- ----------
Nonoperating income:
Interest income............................. 5,372 22,927 20,110
---------- ---------- ----------
Income (loss) before income taxes........... 114,618 369,640 (348,933)
Income tax expense (benefit) (note 4)......... 38,227 159,961 (106,557)
---------- ---------- ----------
Net earnings (loss)......................... 76,391 209,679 (242,376)
Retained earnings, beginning of year.......... 403,262 479,653 689,332
---------- ---------- ----------
Retained earnings, end of year................ $ 479,653 $ 689,332 $ 446,956
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
WERNER, CHEPELSKY AND PARTNERS, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows provided by (used in)
operating activities:
Net earnings (loss)..................... $ 76,391 $ 209,679 $ (242,376)
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 42,632 58,442 50,647
Changes in assets and liabilities:
Receivables........................... (180,178) (60,030) (1,575,967)
Billable production expenditures...... 91,788 639 (49,167)
Prepaid expenses...................... (3,707) 323 (980)
Accounts payable...................... (262,845) (146,007) 1,207,495
Advanced billings..................... (1,806,117) (604,568) 60,098
Accrued expenses...................... (7,274) 30,183 20,862
Income taxes.......................... 97,648 76,659 (489,897)
----------- ---------- -----------
Net cash used in operating activities.. (1,951,662) (434,680) (1,019,285)
----------- ---------- -----------
Cash flows used in investing activities:
Purchase of property and equipment...... (11,063) (118,444) (19,208)
----------- ---------- -----------
Cash flows provided by (used in)
financing activities:
Change in bank overdraft, net........... -- -- 118,795
Payment of long-term debt............... (23,333) (5,833) --
Net collection of stock subscriptions
receivable............................. 2,835 3,009 3,195
----------- ---------- -----------
Net cash provided by (used in) financing
activities............................. (20,498) (2,824) 121,990
----------- ---------- -----------
Net decrease in cash and cash
equivalents............................. (1,983,223) (555,948) (916,503)
Cash and cash equivalents at beginning of
period.................................. 3,479,338 1,496,115 940,167
----------- ---------- -----------
Cash and cash equivalents at end of
period.................................. $ 1,496,115 $ 940,167 $ 23,664
=========== ========== ===========
A summary of supplemental disclosures of
cash flow information follows:
Cash paid (received) during the year
for:
Interest............................... $ 1,578 $ 135 $ --
=========== ========== ===========
Income taxes........................... $ (59,421) $ 83,302 $ 383,340
=========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
WERNER, CHEPELSKY & PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Werner, Chepelsky & Partners, Inc. (the "Company") is a marketing
communications agency located in Pittsburgh, Pennsylvania. The Company's
principal sources of revenue are commissions, fees and hourly charges earned
in the production and placement of advertising in various media. The
substantial majority of the Company's revenues is derived from three clients
located in the Pittsburgh area. See also note 8.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(b) Revenue Recognition
Income from commissions, fees, and hourly charges is recognized when media
placements appear, production costs are incurred and new media services are
rendered. Salaries and other agency costs are expensed in the year incurred.
(c) Depreciation and Amortization
Depreciation of furniture, fixtures and equipment and amortization of
leasehold improvements are provided using an accelerated method and the
estimated useful lives of the assets, which produces a result that is
immaterially different from the straight line method.
(d) Income Taxes
The Company uses the asset and liability method to account for income taxes.
Under this method, deferred income taxes are recognized at enacted tax rates
for the tax consequences of temporary differences between financial statement
carrying amounts and tax bases of existing assets and liabilities.
(e) Cash Equivalents
Cash equivalents include highly liquid debt instruments purchased with
original maturity dates of three months or less.
(3) RELATED PARTY TRANSACTIONS
In 1995, the Company paid a bonus of $632,850 to three members of executive
management who were also the principal shareholders of the Company.
The Company leased its facilities on a month-to-month basis from a
partnership which was controlled by the former majority shareholder of the
Company. Rent expense incurred by the Company under this arrangement totaled
$84,000, $93,750 and $93,750, for the years ended December 31, 1993, 1994 and
1995, respectively. Upon acquiring the Company (see note 8), Poppe Tyson, Inc.
entered into a one year lease agreement covering the same facilities,
commencing on January 1, 1996 with an annual rental of $102,000.
F-36
<PAGE>
WERNER, CHEPELSKY & PARTNERS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(4) INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31,
1993, 1994, and 1995, consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal...................................... $ 33,366 $114,423 $ (92,830)
State........................................ 15,407 36,986 --
-------- -------- ---------
48,773 151,409 (92,830)
Deferred:
Federal...................................... (9,372) 2,924 (13,727)
State........................................ (1,174) 5,628 --
-------- -------- ---------
(10,546) 8,552 (13,727)
-------- -------- ---------
$ 38,227 $159,961 $(106,557)
======== ======== =========
</TABLE>
The following is a reconciliation between the federal statutory tax and the
Company's provision for (benefit from) income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Expense (benefit) at statutory rate.......... $ 38,970 $125,678 $(118,637)
State income (net of federal income tax bene-
fit)........................................ 9,394 28,125 --
Surtax exemption............................. (11,526) -- 943
Other........................................ 1,389 6,158 11,137
-------- -------- ---------
$ 38,227 $159,961 $(106,557)
======== ======== =========
</TABLE>
(5) EMPLOYEE BENEFIT PLAN
The Company sponsored a 401(k) savings and retirement plan which covered its
full-time employees who had attained the age of 21 and completed one year of
service. Eligible employees made voluntary contributions to the plan up to 8%
of their annual compensation. The Company provided a 25% matching contribution
which totaled $5,873, $6,552 and $9,059 in 1993, 1994 and 1995, respectively.
The plan was terminated on December 31, 1995.
(6) MAJOR CUSTOMERS
Commissions and fees from one customer totaled $1,252,000, $1,739,000 and
$1,657,000 for the years ended 1993, 1994 and 1995, respectively. Commissions
and fees from a second customer totaled $318,000 and $383,000 in 1994 and 1995
respectively. Commissions and fees from a third customer totaled $294,000 in
1995.
(7) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is subjected to claims and
legal actions. While it is not possible to accurately predict or determine the
ultimate outcome of these matters, management does not believe that any of
those presently pending will have a material adverse effect upon the Company's
financial position or results of operations.
(8) SUBSEQUENT EVENT
Effective January 1, 1996, the business, through the sale of certain assets,
was acquired by Poppe Tyson, Inc. (a wholly-owned subsidiary of Bozell,
Jacobs, Kenyon & Eckhardt, Inc.).
F-37
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed consolidated financial
statements give effect to Poppe Tyson, Inc.'s acquisitions of The Jayme
Organization, Inc. ("Jayme"), Werner Chepelsky & Partners, Inc. ("WCP") and
Animated Systems & Design, Inc. and Subsidiary ("Animated Systems") using the
purchase method of accounting.
A summary of these acquisitions and the basis of presentation used in these
unaudited pro forma condensed consolidated financial statements are as
follows:
. Poppe Tyson, Inc. (the "Company") acquired the business of Jayme through
the purchase of certain assets effective July 1, 1995. Consequently, the
historical financial statements of the Company include the financial
position of Jayme as of March 31, 1996 and the results of Jayme's
operations for the nine-month period from July 1, 1995 to March 31, 1996.
The unaudited pro forma condensed consolidated statement of operations
gives effect to Jayme's results of operations for the (pre-acquisition)
three-month period from April 1, 1995 to June 30, 1995.
. The Company's acquisition of the business of WCP through the purchase of
certain assets was effective as of January 1, 1996. Consequently, the
historical financial statements of the Company include the financial
position of WCP as of March 31, 1996 and the results of WCP's operations
for the three-month period from January 1, 1996 to March 31, 1996.
The unaudited pro forma condensed consolidated statement of operations
gives effect to WCP's results of operations for the (pre-acquisition)
nine-month period from April 1, 1995 to December 31, 1995.
. The Company acquired all of the common stock of Animated Systems
subsequent to March 31, 1996, closing the transaction on June 27, 1996.
The unaudited pro forma condensed consolidated balance sheet gives effect
to the acquisition of Animated Systems as if the transaction had occurred
on March 31, 1996.
The unaudited pro forma condensed consolidated statement of operations
gives effect to Animated Systems' results of operations for the (pre-
acquisition) year ended March 31, 1996.
The unaudited pro forma condensed consolidated financial statements are
based upon the historical financial statements of the Company, Jayme, WCP and
Animated Systems, and should be read in conjunction with those financial
statements and the notes thereto appearing elsewhere in this Prospectus.
The unaudited pro forma condensed consolidated financial statements do not
necessarily indicate the results that would have actually occurred if the
acquisitions had been in effect on the date indicated or that may occur in the
future.
F-38
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
POPPE ANIMATED ADJUST- NOTE PRO FORMA
ASSETS TYSON SYSTEMS MENTS REF. POPPE TYSON
------ ----------- -------- ---------- ---- -----------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash..................... $ 26,500 $ 7,038 $ 122,078 1(a) $ 155,616
Receivables, net......... 14,037,458 656,586 -- 14,694,044
Billable production
expenditures............ 484,725 9,300 -- 494,025
Prepaid expenses......... 138,040 -- -- 138,040
Other assets............. -- 425 -- 425
Deferred income taxes.... 24,000 15,049 -- 39,049
----------- -------- ---------- -----------
Total current assets..... 14,710,723 688,398 122,078 15,521,199
Property and equipment,
net...................... 1,537,643 137,729 -- 1,675,372
Deferred income taxes..... 24,000 -- -- 24,000
Convents-not-to-compete... -- -- 500,000 1(b) 500,000
Excess of purchase price
over fair value of net
assets acquired, net..... 1,320,328 21,124 2,469,762 1(c) 3,811,214
Other..................... 294,771 3,709 -- 298,480
----------- -------- ---------- -----------
Total assets............. $17,887,465 $850,960 $3,091,840 $21,830,265
=========== ======== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdraft........... $ 1,765,213 $ -- $ -- $ 1,765,213
Current portion of
capital lease
obligations and long-
term obligation......... -- 61,899 -- 61,899
Accounts payable......... 10,119,393 138,670 -- 10,258,063
Income taxes payable..... -- 4,812 -- 4,812
Acquisition price
payable--current........ 364,574 -- -- 364,574
Bank borrowings.......... -- 260,000 (260,000) 1(a) --
Accrued expenses......... 415,444 101,365 -- 516,809
Advance billings......... 1,406,146 93,350 -- 1,499,496
Due to parent company.... 1,362,333 -- 2,382,078 1(a) 3,744,411
----------- -------- ---------- -----------
Total current
liabilities............. 15,433,103 660,096 2,122,078 18,215,277
Acquisition price
payable--long-term....... 408,054 -- -- 408,054
Capital lease obligations
and notes payable........ -- 58,570 -- 58,570
Deferred taxes............ -- 2,056 -- 2,056
Other..................... 225,599 -- -- 225,599
----------- -------- ---------- -----------
Total liabilities........ 16,066,756 720,722 2,122,078 18,909,556
----------- -------- ---------- -----------
Stockholders' equity:
Common stock............. 13,521 10,000 (9,097) 1(d) 14,424
Additional paid-in
capital................. 5,157,979 -- 1,099,097 1(e) 6,257,076
Retained earnings
(deficit)............... (3,350,791) 120,238 (120,238) 1(f) (3,350,791)
----------- -------- ---------- -----------
Total stockholders'
equity.................. 1,820,709 130,238 969,762 2,920,709
----------- -------- ---------- -----------
Total liabilities and
stockholders' equity.... $17,887,465 $850,960 $3,091,840 $21,830,265
=========== ======== ========== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
F-39
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ANIMATED PRO FORMA NOTE PRO FORMA
POPPE TYSON JAYME WCP SYSTEMS ADJUSTMENTS REF. POPPE TYSON
----------- --------- ---------- ---------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commission and fees..... $18,963,490 $667,884 $1,801,769 $2,637,404 $ -- $24,070,547
----------- --------- ---------- ---------- -------- -----------
Operating expenses:
Salaries and employee
benefits.............. 12,478,401 527,248 1,808,422 1,592,433 (632,850) 3 15,773,654
Operating and general.. 6,011,959 214,277 372,572 860,541 360,768 4 7,820,117
----------- --------- ---------- ---------- -------- -----------
Total operating
expenses.............. 18,490,360 741,525 2,180,994 2,452,974 (272,082) 23,593,771
----------- --------- ---------- ---------- -------- -----------
Operating income
(loss)................ 473,130 (73,641) (379,225) 184,430 272,082 476,776
----------- --------- ---------- ---------- -------- -----------
Other income (expense):
Interest income........ -- 329 11,407 712 -- 12,448
Interest expense....... -- (13,341) -- (15,326) (199,500) 5 (228,167)
----------- --------- ---------- ---------- -------- -----------
-- (13,012) 11,407 (14,614) (199,500) (215,719)
----------- --------- ---------- ---------- -------- -----------
Earnings (loss) before
income taxes.......... 473,130 (86,653) (367,818) 169,816 72,582 261,057
----------- --------- ---------- ---------- -------- -----------
Income tax expense
(benefit).............. 227,000 -- (106,557) 68,000 108,480 6 296,923
----------- --------- ---------- ---------- -------- -----------
Net earnings (loss).... $ 246,130 $ (86,653) $ (261,261) $ 101,816 $(35,898) $ (35,866)
=========== ========= ========== ========== ======== ===========
Earnings per share...... $ .01 --
=========== ===========
Weighted average common
shares and
common equivalents..... 16,735,243 903,189 7 17,638,432
=========== ======== ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
F-40
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1. ACQUISITION OF ANIMATED SYSTEMS
On June 27, 1996, Poppe Tyson, Inc. (the "Company") acquired the outstanding
common shares of Animated Systems. Consideration paid by the Company to the
shareholders of Animated Systems included $1,500,000 in cash plus 903,189
shares of common stock of the Company. The common stock issued by the Company
had an estimated fair value of $1,100,000 for a total purchase price of
$2,600,000 for Animated Systems. In addition, for covenants-not-to-compete,
the Company paid cash of $435,000 to one manager-shareholder (5 year term) and
$65,000 to another manager-shareholder (3 year term). The cash paid for the
acquisition of Animated Systems, covenants-not-to-compete plus additional cash
of $382,078 required to retire bank borrowings at closing was provided by an
advance of $2,382,078 from the Company's parent company. The advance bears
interest at the 30-day LIBOR rate plus 2.5 percent (8.375 percent at March 31,
1996) and is payable from the proceeds of the Company's initial public stock
offering.
(a) Due to parent company
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment has been made to record the payment of bank
borrowings ($260,000) and the increase to working capital ($122,078). A
corresponding adjustment to record the advance of $2,382,078 from the parent
company has also been made.
(b) Covenants-not-to-compete
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment of $500,000 has been made to record the purchase
of covenants-not-to-compete (to be amortized over estimated useful lives of 3
and 5 years).
(c) Excess of purchase price over fair value of net assets acquired
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment of $2,469,763 has been made to record the excess
of purchase price over fair value of net assets acquired (to be amortized over
10 years).
(d) Common stock
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment of $9,097 has been made to eliminate the common
stock accounts of Animated Systems in consolidation and to record the issuance
of shares by the Company in connection with the acquisition of Animated
Systems. These entries are summarized as follows:
<TABLE>
<S> <C>
Common stock issued in connection with acquisition (903,189
shares at $.001 per share)................................. $ 903
Elimination of the common stock account of Animated Systems
in consolidation........................................... (10,000)
--------
Total adjustments......................................... $ (9,097)
========
</TABLE>
F-41
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Additional paid-in capital
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment of $1,099,097 has been made to record the excess
of fair value over par value of common stock issued by the Company in
connection with the acquisition of Animated Systems.
(f) Retained earnings/(deficit)
For purposes of the pro forma condensed consolidated balance sheet as of
March 31, 1996, an adjustment of $120,238 has been made to eliminate the
retained earnings of Animated Systems in consolidation.
2. ACQUISITIONS OF JAYME AND WCP
The Company acquired the businesses through the purchase of certain assets
of Jayme (effective July 1, 1995) and WCP (effective January 1, 1996) in
transactions accounted for as purchases. Pursuant to the terms of the
acquisition agreements, the Company paid cash for the fixed assets of these
businesses and is committed to pay contingent consideration for the future
gross income from the client accounts of Jayme and WCP. The contingent
consideration is based upon a percentage of the gross income generated by each
agency and is payable in five annual installments following the effective date
of each acquisition.
The Company records contingent consideration when the contingency is
resolved and the consideration is payable. Through March 31, 1996, the Company
has incurred contingent consideration of $189,132 for the acquisitions of
Jayme and WCP. The amortization of additional purchase price occurs over 15
years. Consequently, additional charges to the statement of operations may
result as additional contingent consideration is incurred by the Company over
the remaining earn-out periods. The Company estimates that additional
contingent consideration under these acquisitions will be approximately
$2,700,000, which would be paid during the next five years.
3. SPECIAL BONUS
In 1995, WCP paid a special bonus of $632,850 to three members of executive
management who were also the principal shareholders of WCP. For the pro forma
condensed consolidated statement of operations, the effect of this special
bonus on pro-forma earnings has been eliminated because the bonus is not
reflective of compensation that may be expected for these executives as
employees of the Company.
4. AMORTIZATION EXPENSE
For purposes of the pro forma condensed consolidated statement of operations
for the year ended March 31, 1996, an adjustment has been made to give effect
to the amortization of covenants-not-to-compete and the excess of purchase
price over fair value of net assets acquired, allocated as follows:
<TABLE>
<S> <C>
Covenants-not-to-compete...................................... $108,667
--------
Excess of purchase price over fair value of net assets
acquired:
Animated Systems............................................ 246,976
WCP and Jayme............................................... 5,125
--------
252,101
--------
Total adjustment.......................................... $360,768
========
</TABLE>
F-42
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INTEREST EXPENSE
For purposes of the condensed consolidated statement of operations for the
year ended March 31, 1996, an adjustment of $199,500 has been made to record
interest expense on the advance of $2,382,078 from the parent company for
purposes of funding the acquisition of Animated Systems and covenants-not-to-
compete. See also note 1.
6. TAX EFFECTS
For purposes of the condensed consolidated statement of operations for the
year ended March 31, 1996, pro forma adjustments affecting pretax income
(loss) have been tax-effected at a rate of 34%, after consideration of
permanent differences between book and taxable income resulting from the
amortization of nondeductible intangible assets.
7. EARNINGS PER SHARE
For purposes of the pro forma condensed consolidated statement of
operations, the weighted average common shares and common share equivalents
has been adjusted for 903,189 shares of common stock issued in connection with
the acquisition of Animated Systems in calculating pro forma earnings per
share.
F-43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Results of Operations and
Financial Condition..................................................... 21
Business................................................................. 27
Management............................................................... 38
Certain Transactions..................................................... 44
Principal and Selling Stockholders....................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 50
Underwriting............................................................. 52
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 54
Index to Financial Statements............................................ F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
POPPE TYSON, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated (except for the Securities and
Exchange Commission fee, the National Association of Securities Dealers, Inc.
fee and the Nasdaq National Market listing fee) expenses, other than the
underwriting discounts, expected to be incurred by the Company in connection
with the distribution of the securities registered under this Registration
Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 17,242
Nasdaq National Market listing fee................................. 20,000
National Association of Securities Dealers, Inc. fee............... 5,500
Printing (other than stock certificates)........................... 200,000
Engraving and printing stock certificates.......................... 6,000
Blue Sky fees and expenses.........................................
Accounting fees and expenses....................................... 350,000
Transfer Agent and Registrar fees.................................. 5,000
Legal fees and expenses............................................ 300,000
Miscellaneous...................................................... 399,758
--------
Total............................................................ $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides for the Company to indemnify
directors and officers to the maximum extent permitted by Delaware General
Corporation law (the "Delaware GCL"). In addition, the Company's Certificate
of Incorporation limits the liability of directors to the maximum extent
permitted by Delaware GCL. Delaware law provides that the directors of a
Delaware corporation will not be personally liable to such corporation or its
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for liability (i) for any breach of their duty of loyalty to
the corporation of its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for unlawful payments of dividends or unlawful stock purchases or
redemptions as provided in Section 174 of the Delaware GCL; or (iv) for any
transaction from which the director derives an improper personal benefit. The
Company is currently a named insured under Bozell, Jacobs, Kenyon & Eckhardt,
Inc.'s insurance coverage for certain liabilities which may be incurred by
directors and officers. Additionally, the Company has entered into employment
agreements with certain of its executive officers whereby the Company has
agreed to indemnify them to the fullest extent permitted under the Certificate
of Incorporation and Bylaws.
Article TENTH of the Company's Certificate of Incorporation provides, in
pertinent part, as follows:
TENTH. Indemnification. (a) Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he
or she is or was a director or an officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another Corporation or of a partnership, joint venture, trust
or other enterprise, including service with respect to an employee benefit
plan (hereinafter "indemnities"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, consultant,
employee or agent or in any other capacity while serving as a director or
officer shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the General Corporation Law of Delaware, as
the same exists or may hereafter be amended (but in the case of any such
amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than permitted prior thereto),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such in connection
therewith; provided, however, that, except as provided below with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a
II-1
<PAGE>
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
(b) The right to indemnification conferred in paragraph (a) of this
Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); provided, however,
that if the General Corporation Law of Delaware requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of any
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such person is not
entitled to be indemnified under this section or otherwise. The rights to
indemnification and to the advancement of expenses conferred in paragraphs
(a) and (b) of this Article shall be contract rights and such rights to
indemnification and advancement of expenses shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
(g) A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except that a director shall be liable to the
extent provided by applicable law (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which the director
derived an improper personal benefit or (iv) under Section 174 of the
General Corporation Law of Delaware. If the General Corporation Law of
Delaware is hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the General Corporation Law of Delaware,
as so amended. Any repeal or modification of this paragraph (g) shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth information relating to all securities of the
Registrant sold by it since August 1, 1993:
On March 2, 1996, options to purchase an aggregate of 939,956 shares of
Common Stock at an exercise price of $1.21 per share were granted pursuant
to the Registrant's stock option plan to three executive officers of, and
three advisors to, the Registrant in respect of services rendered to the
Registrant. As of May 16, 1996, options to purchase 116,250 shares of
Common Stock at an exercise price of $7.25 per share were granted pursuant
to such plan to an executive officer of the Registrant in connection with
his employment by the Registrant. On June 27, 1996, an aggregate of 903,189
shares of Common Stock were issued to the former shareholders of Animated
Systems & Design, Inc. ("ASD") as part of the merger of ASD into a wholly-
owned subsidiary of the Registrant. Options to purchase an aggregate of
19,682 shares of Common Stock at an exercise price of $1.71 per share were
granted pursuant to the Registrant's stock option plan to the former
optionholders of ASD in connection with the assumption, amendment and
restatement of outstanding options to purchase ASD stock as part of such
merger on June 27, 1996. On June 27, 1996, an aggregate of 153,285 shares
of Common Stock were issued to two advisors to the Registrant upon exercise
of options at an exercise price of $1.21 per share. On July 16, 1996
options to purchase an aggregate of 460,658 shares of Common Stock at an
exercise price of $7.25 per share were granted pursuant to the Registrant's
stock option plan to certain employees of the Company.
Exemption from registration under the Securities Act of 1933, as amended
(the "Act"), is claimed for the grant of options under the Registrant's
stock option plan referred to above in reliance upon the exemption afforded
by Sections 3(b) and 4(2) of the Act and for the sales of common stock
referred to above in reliance upon the exemption afforded by Section 4(2)
of the Act for transactions not involving a public offering. Each
certificate evidencing such shares of Common Stock bears an appropriate
restrictive legend and "stop transfer" orders are maintained on
Registrant's stock transfer records there against. None of these sales
involved participation by an underwriter or a broker-dealer.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
A) EXHIBITS
Unless otherwise indicated, the following Exhibits are filed to the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Purchase Agreement
3.1 Amended and Restated Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Specimen of Common Stock Certificate*
5.1 Opinion of Loeb & Loeb LLP*
10.1 Employment Agreement between Registrant and Fergus O'Daly, Jr.
10.2 Employment Agreement between Registrant and David S. Carlick
10.3 Employment Agreement between Registrant and Thomas E. Wharton, Jr.
10.4 Employment Agreement between Registrant and Steven M. Blondy
10.5 Operating Services Agreement between Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc.
10.6 Tax Sharing Agreement between Registrant and Bozell, Jacobs, Kenyon
& Eckhardt, Inc.
10.7 Registration Rights Agreement between Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc.
10.8 Sublease Agreement between Registrant and Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
10.9 Lease Agreement between Registrant and David S. Carlick
10.10 Amendment to Business Acquisition Agreement between Registrant and
Carlick Advertising and Carlick Data Base Marketing
10.11 Amended and Restated Stock Option Plan of Registrant
10.12 Stock Purchase Plan of Registrant
10.13 Agreement and Plan of Reorganization and Merger among Registrant,
Animated Systems & Design, Inc. (Delaware), Animated Systems &
Design, Inc. (California) and Rea B. Callender
10.14 Registration Rights Agreement among Registrant and Former
Shareholders of Animated Systems & Design, Inc. (California)
10.15 Agreement between Registrant and The Jayme Organization, Inc.
10.16 Acquisition Agreement between Registrant and Werner Chepelsky &
Partners, Inc.
10.17 Stock Option Agreement between Registrant and Fergus O'Daly, Jr.
10.18 Stock Option Agreement between Registrant and David S. Carlick
10.19 Stock Option Agreement between Registrant and Thomas E. Wharton, Jr.
10.20 Amended and Restated Stock Option Agreement between Registrant and
Steven M. Blondy
10.21 Form of Advisor Stock Option Agreement
10.22 Agreement between Registrant and Bozell, Jacobs, Kenyon & Eckhardt,
Inc.
11.1 Statement re computation of per share earnings*
21.1 Subsidiaries of the Registrant
23.1 Auditors' Report on Schedule II and Consent of KPMG Peat Marwick LLP
23.2 Consent of Loeb & Loeb LLP (included in Exhibit 5.1)*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.3 Consent of David E. Bell
23.4 Consent of Paul C. Schorr III
23.5 Consent of Thomas H. Stoner
24.1 Powers of Attorney (included on signature page to
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be submitted by amendment.
B) THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENT SCHEDULES ARE FILED
HEREWITH:
<TABLE>
<CAPTION>
SCHEDULES
---------
<C> <S>
II Valuation and Qualifying Accounts (included in Exhibit 23.1)
</TABLE>
All other financial statement schedules are not included because they are
inapplicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Purchase Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON JULY 31, 1996.
Poppe Tyson, Inc.
By: _________________________________
Fergus O'Daly, Jr.
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PEOPLE BY THESE PRESENTS that each person whose signature appears
below does hereby constitute and appoint Fergus O'Daly, Jr. and Thomas E.
Wharton, Jr., and each of them, such person's true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution in each of
them, to do any and all acts and things in such person's respective name and
on such person's respective behalf in any and all capacities that they or any
of them may deem necessary or advisable to enable the Registrant to comply
with the Securities Act of 1933 (the "Securities Act"), and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for such respective person any and all
amendments (including post-effective amendments and any and all pre-effective
and post-effective amendments under Rule 462(b) of the Securities Act) hereto
and to sign the same, with all exhibits thereto and other documents therewith,
with the Securities and Exchange Commission; and each such person does hereby
ratify and confirm all that they or any of them, shall do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE
---- ----- ----
Chairman of the Board and July 31,
_________________________________ Chief Executive Officer 1996
Fergus O'Daly, Jr. (principal executive officer)
Executive Vice President-- July 31,
_________________________________ Finance and Administration 1996
Steven M. Blondy (principal financial and
accounting officer)
Director July 31,
_________________________________ 1996
David S. Carlick
Director July 31,
_________________________________ 1996
Thomas E. Wharton, Jr.
II-5
<PAGE>
NAME TITLE DATE
---- ----- ----
Director July 31,
_________________________________ 1996
Kevin C. Clark
Director July 31,
_________________________________ 1996
Michael D. Drexler
Director July 31,
_________________________________ 1996
Charles D. Peebler, Jr.
Director July 31,
_________________________________ 1996
Valentine J. Zammit
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
1.1 Form of Purchase Agreement
3.1 Amended and Restated Certificate of Incorporation of
Registrant
3.2 Bylaws of Registrant
4.1 Specimen of Common Stock Certificate*
5.1 Opinion of Loeb & Loeb LLP*
10.1 Employment Agreement between Registrant and Fergus O'Daly,
Jr.
10.2 Employment Agreement between Registrant and David S.
Carlick
10.3 Employment Agreement between Registrant and Thomas E.
Wharton, Jr.
10.4 Employment Agreement between Registrant and Steven M.
Blondy
10.5 Operating Services Agreement between Registrant and Bozell,
Jacobs, Kenyon & Eckhardt, Inc.
10.6 Tax Sharing Agreement between Registrant and Bozell,
Jacobs, Kenyon & Eckhardt, Inc.
10.7 Registration Rights Agreement between Registrant and
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
10.8 Sublease Agreement between Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc.
10.9 Lease Agreement between Registrant and David S. Carlick
10.10 Amendment to Business Acquisition Agreement between
Registrant and Carlick Advertising and Carlick Data Base
Marketing
10.11 Amended and Restated Stock Option Plan of Registrant
10.12 Stock Purchase Plan of Registrant
10.13 Agreement and Plan of Reorganization and Merger among
Registrant, Animated Systems & Design, Inc. (Delaware),
Animated Systems & Design, Inc. (California) and Rea B.
Callender
10.14 Registration Rights Agreement among Registrant and Former
Shareholders of Animated Systems & Design, Inc.
(California)
10.15 Agreement between Registrant and The Jayme Organization,
Inc.
10.16 Acquisition Agreement between Registrant and Werner
Chepelsky & Partners, Inc.
10.17 Stock Option Agreement between Registrant and Fergus
O'Daly, Jr.
10.18 Stock Option Agreement between Registrant and David S.
Carlick
10.19 Stock Option Agreement between Registrant and Thomas E.
Wharton, Jr.
10.20 Amended and Restated Stock Option Agreement between
Registrant and Steven M. Blondy
10.21 Form of Advisor Stock Option Agreement
10.22 Agreement between Registrant and Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
11.1 Statement re computation of per share earnings*
21.1 Subsidiaries of the Registrant
23.1 Auditors' Report on Schedule II and Consent of KPMG Peat
Marwick LLP
23.2 Consent of Loeb & Loeb LLP (included in Exhibit 5.1)*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------- ----------- --------
<C> <S> <C>
23.3 Consent of David E. Bell
23.4 Consent of Paul C. Schorr III
23.5 Consent of Thomas H. Stoner
24.1 Powers of Attorney (included on signature page to
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be submitted by amendment.
<PAGE>
Description of Artwork
Contained in the Registration Statement
Inside Front Cover
- ------------------
The top 2/3 of this page contains one large globe in the center. This
globe is surrounded on each side by three smaller globes which grow
incrementally larger with the smallest surrounding globe being next to the
center globe. The globes appear to be spinning. The center globe is in a shaft
of light which casts concentric ripples in the sea below and sky above. A
caption which reads "POPPE TYSON" appears above the picture and a caption which
reads "Advanced Marketing Communications for an Evolving World." appears below
the picture.
Three pictures appear on the bottom of this page immediately below a
caption identifying each picture. These pictures each depict the home page of
the Web site for, from left to right, LensCrafters, Valvoline and Chase
Manhattan Bank. Along the bottom of this page the stabilization legend and
additional text appears.
Left-Side Fold-Out Page
- -----------------------
The bottom half of this page contains two rows of three pictures each
immediately below a caption identifying each picture. The pictures in the top
row, from left to right, depict the home page of an IBM CD-ROM, the package
design for Pennsylvania Brewing and the home page for The White House Web site.
The pictures in the bottom row, from left to right, depict print ads for Banfi
Vintners, Pennsylvania Tourism and PSINet.
In the center of this page a paragraph which reads as follows appears:
Interactive Innovation. Poppe Tyson has an extensive resume of marketing
services. Poppe Tyson's marketing communications services include Web site
design and development, Web applications, Web hosting, Web-to-database
connectivity, on-line media placement, public relations and database
marketing services. Since 1994, as part of its Web marketing efforts, Poppe has
provided design and development services for The White House Web site and over
60 other Web sites for such clients as General Motors Corporation's Cadillac
Motor Car Division, LensCrafters Inc., Merrill Lynch & Co. and Netscape
Communications Corp.
Centered in the top third of this page is half of a picture, the other
half of which appears on the following page, of various three-dimensional
geometric shapes including spheres, cones and cubes below a skyline. A caption
which reads "Communicating in the 21st century and beyond." appears above the
picture.
Right-Side Fold-Out Page
- ------------------------
The other half of the above-described picture appears centered in the
top third of this page.
In the center of this page a paragraph which reads as follows appears:
The High-Tech Connection. The Company believes that the emergence of new media
vehicles provides marketing communications opportunities unavailable through
traditional broadcast and print media. The development of new software tools and
applications has allowed businessess to deliver more technologically
sophisticated marketing messages through varied digital-based delivery vehicles.
Poppe's new media products and services allow its clients to provide interactive
delivery of information and services to their customers.
The bottom half of this page contains two rows of three pictures in the
top row and two pictures in the bottom row immediately below a caption
identifying each picture. The pictures in the top row, from left to right,
depict the home page for the Milk Board's Web site, a print ad for VocalTec and
a print ad for PSE&G. The pictures in the bottom row, from left to right, depict
a print ad for Isuzu and the home page of a Symantec CD-ROM.
Inside Back Cover Page
- ----------------------
Centered in the top 1/4 of this page is a picture of two rows of columns
with globes on top. The columns decrease in size incrementally as they extend
toward the horizon. The first row contains seven columns. The second row
contains one. The far left side of the picture contains part of a pyramid. A
caption which reads "Branding through Integrated Marketing." appears below the
picture.
In the center of this page a paragraph which reads as follows appears:
Poppe Tyson develops marketing communications programs for its clients that
combine traditional and new media vehicles. We utilize the appropriate forums -
broadcast, print, outdoor and direct mail - support them with public relations
and database marketing and complement them with Web environments. Our marketing
strategies are designed to actively target consumers with our clients' marketing
messages in a consistent, persuasive and effective manner. Poppe's ability to
integrate Internet-related business into its existing mix of advertising, public
relations and database marketing was an important factor in its recognition by
Marketing Computers magazine as the 1995 High-Tech Agency of the Year.
The bottom 2/3 of this page contains three columns. The left column has
three pictures immediately below a caption identifying each picture, from top to
bottom, which depict the Toshiba Web site home page and two examples of Toshiba
television commericals. The middle column contains two examples of Toshiba print
ads, one above the other, immediately below a caption identifying each picture.
The right column contains the center most portion of the picture appearing in
the top 2/3 of the inside front cover. A caption which lists the following
cities appears above this column: New York, Los Angeles, Cleveland, Pittsburgh,
Mountain View, Palo Alto and Morris Plains. A caption which reads "POPPE TYSON
Application Branding. For A New World" appears below the picture.
<PAGE>
Draft of August 7, 1996
-----------------------
POPPE TYSON, INC.
(a Delaware corporation)
_________ Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: __________ __, 1996
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
PURCHASE AGREEMENT
<S> <C>
SECTION 1. Representations and Warranties..................................2
(a) Representations and Warranties by the Company........................2
(i) Compliance with Registration Requirements.........................3
(ii) Independent Accountants..........................................3
(iii) Financial Statements............................................4
(iv) No Material Adverse Change in Business...........................4
(v) Good Standing of the Company......................................4
(vi) Good Standing of Subsidiaries....................................4
(vii) Capitalization..................................................5
(viii) Authorization of Agreement.....................................5
(ix) Authorization and Description of Securities......................5
(x) Absence of Defaults and Conflicts.................................5
(xi) Absence of Labor Dispute.........................................6
(xii) Absence of Proceedings..........................................6
(xiii) Accuracy of Exhibits...........................................6
(xiv) Possession of Intellectual Property.............................6
(xv) Absence of Further Requirements..................................7
(xvi) Possession of Licenses and Permits..............................7
(xvii) Leasehold Interests and Title to Property......................7
(xviii) Compliance with Cuba Act......................................8
(xix) Investment Company Act..........................................8
(xx) Environmental Laws...............................................8
(xxi) Registration Rights.............................................8
(xxii) Related Transactions...........................................8
(xxiii) Foreign Corrupt Practices Act.................................9
(xxiv) Insurance......................................................9
(xxv) Taxes...........................................................9
(xxvi) Internal Controls..............................................9
(xxvii) Filings.......................................................9
(xxviii) Brokers.....................................................10
(xxix) Rights to Acquire Securities..................................10
(xxx) Compliance with Laws...........................................10
(xxxi) Absence of Manipulation.......................................10
(xxxii) Lock-Ups.....................................................10
(xxxiii) Distribution of Prospectus..................................10
(xxxiv) Services Agreement...........................................10
(b) Representations and Warranties by the Selling Shareholder...........11
(i) Good Standing of the Selling Shareholder.........................11
(ii) Absence of Defaults and Conflicts...............................11
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
(iii) Beneficial Ownership..............................................12
(iv) Accurate Disclosure................................................12
(v) Authorization of Agreement..........................................12
(vi) Good and Marketable Title..........................................12
(vii) Absence of Manipulation...........................................13
(viii) Absence of Further Requirements..................................13
(ix) Restriction on Sale of Securities..................................13
(x) Certificates Suitable for Transfer..................................13
(xi) No Association with NASD...........................................13
(xii) Inter-corporate Agreements........................................14
(c) Officer's Certificates................................................14
SECTION 2. Sale and Delivery to Underwriters; Closing......................14
(a) Initial Securities....................................................14
(b) Option Securities.....................................................15
(c) Payment...............................................................15
(d) Denominations; Registration...........................................16
SECTION 3. Covenants of the Company........................................16
(a) Compliance with Securities Regulations and Commission Requests........16
(b) Filing of Amendments..................................................16
(c) Delivery of Registration Statements...................................17
(d) Delivery of Prospectuses..............................................17
(e) Continued Compliance with Securities Laws.............................17
(f) Blue Sky Qualifications...............................................17
(g) Rule 158..............................................................18
(h) Use of Proceeds.......................................................18
(i) Listing...............................................................18
(j) Restriction on Sale of Securities.....................................18
(k) Reporting Requirements................................................19
(1) Form SR...............................................................19
(m) Form S-8..............................................................19
(n) Information...........................................................19
(o) Transfer Agent........................................................19
SECTION 4. Payment of Expenses.............................................20
(a) Expenses..............................................................20
(b) Termination of Agreement..............................................20
SECTION 5. Conditions of Underwriters' Obligations.........................20
(a) Effectiveness of Registration Statement...............................21
(b) Opinion of Counsel for Company........................................21
(c) Opinion of Counsel for the Selling Shareholder........................21
(d) Opinion of Counsel for Underwriters...................................21
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(e) Officer's Certificate.................................................21
(f) Accountant's Comfort Letter...........................................22
(g) Bring-down Comfort Letter.............................................22
(h) Approval of Listing...................................................22
(i) Certain Guaranties....................................................22
(j) Termination of Agreements.............................................22
(i) No Objection..........................................................22
(j) Lock-up Agreements....................................................23
(k) Conditions to Purchase of Option Securities...........................23
(i) Officers' Certificate...............................................23
(ii) Opinion of Counsel for Company.....................................23
(iii) Opinion of Counsel for Selling Shareholder........................23
(iv) Opinion of Counsel for Underwriters................................23
(v) Bring-down Comfort Letter...........................................23
(l) Additional Documents..................................................23
(m) Termination of Agreement..............................................24
SECTION 6. Indemnification.................................................24
(a) Indemnification of Underwriters.......................................24
(b) Indemnification of the Company, Directors and Officers, and the
Selling Shareholder.................................................26
(c) Actions against Parties; Notification.................................26
(d) Settlement without Consent if Failure to Reimburse....................27
SECTION 7. Contribution....................................................27
SECTION 8. Representations, Warranties and Agreements to Survive Delivery..29
SECTION 9. Termination of Agreement........................................29
(a) Termination; General..................................................29
(b) Liabilities...........................................................29
SECTION 10. Default by One or More of the Underwriters.....................29
SECTION 11. Default by the Selling Shareholder or the Company..............30
SECTION 12. Notices........................................................31
SECTION 13. Parties........................................................31
SECTION 13. Governing Law and Time.........................................31
SECTION 14. Effect of Headings.............................................31
</TABLE>
-iii-
<PAGE>
______________________
SCHEDULES AND EXHIBITS
Schedule A Underwriters
Schedule B Securities
Schedule C Initial Public Offering Price
Schedule D List of Persons with Registration Rights
Schedule E List of Persons Subject to Lock-up
Exhibit A Form of Company Counsel Opinion
Exhibit B Form of Selling Shareholder Opinion
Exhibit C Form of Lock-up
-iv-
<PAGE>
POPPE TYSON, INC.
(a Delaware corporation)
________ Shares of Common Stock
(Par Value $.001 Per Share)
PURCHASE AGREEMENT
------------------
________ __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Dean Witter Reynolds Inc.
as Representative(s) of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Poppe Tyson, Inc., a Delaware corporation (the "Company"), and Bozell,
Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation (the "Selling
Shareholder"), confirm their respective agreements with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of
the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom Merrill Lynch and Dean
Witter Reynolds Inc. are acting as representatives (in such capacity, the
"Representatives"), with respect to (i) the sale by the Company and the Selling
Shareholder, acting severally and not jointly, and the purchase by the
Underwriters, acting severally and not jointly, of the respective numbers of
shares of Common Stock, par value $.001 per share, of the Company ("Common
Stock") set forth in Schedules A and B hereto, and (ii) the grant by the Company
and the Selling Shareholder to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of ________ and ________ additional shares of Common Stock, respectively,
to cover over-allotments, if any. The aforesaid ________ shares of Common Stock
(the "Initial Securities") to be purchased by the Underwriters and all or any
part of the ________ shares of Common Stock subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities".
<PAGE>
The Company and the Selling Shareholder understand that the Underwriters
propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-________) covering
the registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b).
The information included in such prospectus or in such Term Sheet, as the case
may be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and any schedules thereto, at the time
it became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated __________ __, 1996 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
-2-
<PAGE>
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has become
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement or any Rule 462(b) Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the Commission for additional
information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the requirements of the 1933 Act and
the 1933 Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading. Neither the
Prospectus nor any amendments or supplements thereto, at the time the Prospectus
or any such amendment or supplement was issued and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different," as such term is used in Rule
434, from the Prospectus included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information furnished to
the Company in writing by any Underwriter through Merrill Lynch expressly for
use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the 1933 Act Regulations and, if applicable, each
preliminary prospectus and the Prospectus delivered to the Underwriters for use
in connection with this offering was identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting notes and schedules of the Company and its
subsidiaries, and of the Jayme Organization, Inc., Animated Systems & Design,
Inc. and subsidiary, and Werner, Chepelsky and Partners, Inc. (collectively
referred to as the "Acquired Companies") included in the Registration Statement
are independent public accountants as required by the 1933 Act and the 1933 Act
Regulations.
-3-
<PAGE>
(iii) Financial Statements. The financial statements included in
--------------------
the Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company and
its consolidated subsidiaries, and of the Acquired Companies, respectively, at
the dates indicated and the statement of operations, stockholders' equity and
cash flows of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any, included in
the Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and the
summary financial information included in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent with that
of the audited financial statements included in the Registration Statement. The
pro forma financial statements of the Company and its subsidiaries and the
related notes thereto included in the Registration Statement and the Prospectus
have been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly compiled on the
basis described therein. No other financial statements or schedules are
required to be included in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and the
Prospectus, except as otherwise stated therein, (A) there has been no material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock, other than the dividend of DoubleClick Inc.'s
common stock to the Selling Shareholder.
(v) Good Standing of the Company. The Company has been duly organized
----------------------------
and is validly existing as a corporation in good standing under the laws of the
State of Delaware and has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this Agreement;
and the Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the Company
-----------------------------
has been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which such
-4-
<PAGE>
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of the subsidiaries was issued in violation
of the preemptive or similar rights arising by operation of law, or under the
charter or by-laws of any subsidiary or under any agreement to which the Company
or any subsidiary is a party. The only subsidiaries of the Company are the
subsidiaries listed on Exhibit 21.1 to the Registration Statement.
(vii) Capitalization. The authorized, issued and outstanding
--------------
capital stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to employee benefit
plans referred to in the Prospectus or pursuant to the exercise of options
referred to in the Prospectus). The shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The Securities to
-------------------------------------------
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against payment
of the consideration set forth herein, will be validly issued and fully paid and
non-assessable; the Common Stock materially conforms to all statements relating
thereto contained in the Prospectus and such description conforms to the rights
set forth in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and the
issuance of the Securities is not subject to preemptive or other similar rights
of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company nor any of
---------------------------------
its subsidiaries is in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which any of them may be bound, or to
which any of the property or assets of the Company or subsidiary is subject
(collectively, "Agreements and Instruments"), except for such violations or
defaults that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated herein and in the Registration
Statement (including the issuance and sale of the Securities by the Company and
-5-
<PAGE>
the use by the Company of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds") and compliance
by the Company with its obligations hereunder have been duly authorized by all
necessary corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event (as defined below) under, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any subsidiary pursuant to, the Agreements and
Instruments, except for such conflicts, breaches or defaults or liens, charges
or encumbrances that would not result in a Material Adverse Effect, nor will
such action result in any violation of the provisions of the charter or by-laws
of the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any subsidiary or any of their assets or properties, except for such
violations that would not result in a Material Adverse Effect. As used herein,
a "Repayment Event" means any event or condition which gives the holder of any
note, debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any subsidiary.
(xi) Absence of Labor Dispute. No labor dispute with the employees of
------------------------
the Company or any subsidiary exists or, to the knowledge of the Company, is
imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its or any subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of the
Selling Shareholder or the Company, threatened, against or affecting the Selling
Shareholder or the Company or any subsidiary, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the consummation of this Agreement or the performance by the
Company of its obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Selling Shareholder, the Company or any
subsidiary is a party or of which any of their respective property or assets is
the subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so described
and filed as required.
(xiv) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses,
-6-
<PAGE>
inventions, copyrights, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on the
business now operated by them, and neither the Selling Shareholder, the Company
nor any of their respective subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would result
in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration, qualification or
decree of, any court or governmental authority or agency is necessary or
required for the performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Securities hereunder or
the consummation of the transactions contemplated by this Agreement, except such
as have been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations or state securities laws.
(xvi) Possession of Licenses and Permits. The Company and its
----------------------------------
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary to
conduct the business now operated by them; the Company and its subsidiaries are
in compliance with the terms and conditions of all such Governmental Licenses,
except where the failure to possess such Governmental Licenses or so to comply
would not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect, except when
the invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a Material Adverse
Effect; and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xvii) Leasehold Interests and Title to Property. The Company and
-----------------------------------------
its subsidiaries own no real property and have good title to all other
properties (other than real property) owned by them, in each case, free and
clear of all mortgages, pledges, liens, security interests, claims, restrictions
or encumbrances of any kind except such as (a) are described in the Prospectus
or (b) do not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company or any of its subsidiaries; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectus, are in full force and
effect, and neither the Company nor any subsidiary has any notice of any
material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any subsidiary under any of
-7-
<PAGE>
the leases or subleases mentioned above, or affecting or questioning the rights
of the Company or such subsidiary of the continued possession of the leased or
subleased premises under any such lease or sublease.
(xviii) Compliance with Cuba Act. The Company has complied with,
------------------------
and is and will be in compliance with, the provisions of that certain Florida
act relating to disclosure of doing business with Cuba, codified as Section
517.075 of the Florida statutes, and the rules and regulations thereunder
(collectively, the "Cuba Act") or is exempt therefrom.
(xix) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Prospectus will not be, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except such violations as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law and any
judicial or administrative interpretation thereof including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and
its subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or threatened administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries and (D) there
are no events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or proceeding
by any private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to any Hazardous Materials or the
violation of any Environmental Laws.
(xxi) Registration Rights. Except for the persons listed on
-------------------
Schedule D, there are no persons with registration or other similar rights to
have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act.
(xxii) Related Transactions. There are no outstanding loans,
--------------------
advances (except normal advances for business expenses in the ordinary course of
business) or guarantees of indebtedness by the Company to or for the benefit of
any of the Selling Shareholder, the
-8-
<PAGE>
Company's or the Selling Shareholder's officers or directors or any of the
members of the families of any of them, that are required to be disclosed, that
are not disclosed, in the Registration Statement and the Prospectus.
(xxiii) Foreign Corrupt Practices Act. Neither the Company nor any
-----------------------------
of its subsidiaries has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office or failed to disclose
fully any contribution in violation of law or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
(xxiv) Insurance. The Company together with its subsidiaries
---------
carries or is covered by insurance with insurers of recognized financial
responsibility of the types and in the amounts generally deemed adequate for
their respective businesses and consistent with insurance coverage maintained by
similar companies in similar businesses, including, but not limited to,
insurance covering real and personal property owned or leased by the Company or
the subsidiaries against theft, damage, destruction, acts of vandalism and all
other risks customarily insured against, all of which insurance is in full force
and effect; neither the Company nor any of its subsidiaries had been refused any
insurance coverage sought or applied for; and neither the Company nor any of the
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(xxv) Taxes. The Selling Shareholder, the Company and their
-----
respective subsidiaries have filed all federal, state and foreign income tax
returns which have been required to be filed and have paid all taxes and all
assessments received by them to the extent such taxes have become due, except
where the failure to so file or pay would not have a Material Adverse Effect.
(xxvi) Internal Controls. The Company and each of its
-----------------
subsidiaries maintains (or the Selling Shareholder maintains on their behalf) a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xxvii) Filings. The Company has filed a registration statement
-------
pursuant to Section 12(g) of the Exchange Act, to register the Common Stock, has
filed an application to list the securities on the Nasdaq National Market, and
has received notification that the listing has been approved, subject to notice
of issuance of the Securities.
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<PAGE>
(xxviii) Brokers. The Company has not incurred any liability for a
-------
fee, commission, or other compensation on account of the employment of a broker
or finder in connection with the transactions contemplated by this Agreement
other than as contemplated hereby.
(xxix) Rights to Acquire Securities. There are no outstanding
----------------------------
subscriptions, rights, warrants, options, calls, convertible securities,
commitments of sale or liens related to or entitling any person to purchase or
otherwise to acquire any shares of the capital stock of, or other ownership
interest in, the Company or any subsidiary thereof except as described in the
Prospectus.
(xxx) Compliance with Laws. The Company and its subsidiaries are
--------------------
in compliance with all applicable laws, statutes, ordinances, rules or
regulations, except where the noncompliance with such laws, statutes,
ordinances, rules or regulations would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.
(xxxi) Absence of Manipulation. The Selling Shareholder, the
-----------------------
Company and its subsidiaries have not (i) taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the initial filing of the Registration Statement (A)
sold, bid for, purchased or paid anyone any compensation for soliciting
purchases of, the Securities, or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(xxxii) Lock-Ups. The Company has obtained and delivered to the
--------
Representative(s) the agreements of the persons and entities named in Schedule E
in the form of Exhibit C hereto.
(xxxiii) Distribution of Prospectus. The Company has not distributed
--------------------------
and, prior to the later to occur of (i) the Closing Time and (ii) completion of
the distribution of the Securities, will not distribute any prospectus (as such
term is defined in the 1933 Act and the 1933 Act Regulations) in connection with
the offering and sale of the Securities other than the Registration Statement,
any preliminary prospectus filed with the Commission, the Prospectus or other
materials, if any, permitted by the 1933 Act or by the 1933 Act Regulations and
approved by the Representative(s).
(xxxiv) Services Agreement. Each of the Operating Services
------------------
Agreement between the Selling Shareholder and the Company (the "Services
Agreement"), the Sublease Agreement and the Occupancy Agreements described in
the Prospectus under "Certain Transactions" (collectively, the "Sublease
Agreement"), and the Tax Sharing Agreement between the Selling Shareholder and
the Company (all of the foregoing agreements being referred to herein as the
"Inter-corporate Agreements") has been duly and validly authorized, executed and
delivered by
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<PAGE>
the Company and the Selling Shareholder and is the valid and binding agreement
of the Company and the Selling Shareholder enforceable against each of the
Company and the Selling Shareholder in accordance with its terms, except as
provided by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law) (collectively, "applicable bankruptcy laws"). The execution,
delivery and performance of the Inter-corporate Agreements by the Company, the
consummation of the transactions therein contemplated and compliance with the
terms thereof do not and will not conflict with or constitute a breach of, or
default or Repayment Event under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect, nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary or any of
their assets or properties, except for such violations that would not result in
a Material Adverse Effect. Except for those that have been obtained, no consent,
approval, authorization or order of any court, governmental agency or body or
financial institution is required in connection with the consummation of the
transactions contemplated by such Inter-corporate Agreements.
(b) Representations and Warranties by the Selling Shareholder. The
Selling Shareholder represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time, and if the Selling Shareholder is selling Option
Securities on a Date of Delivery, as of each Date of Delivery, and agrees with
each Underwriter, as follows:
(i) Good Standing of the Selling Shareholder. The Selling Shareholder
----------------------------------------
has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as currently conducted and to enter into and perform its obligations under this
Agreement.
(ii) Absence of Defaults and Conflicts. The Selling Shareholder is
---------------------------------
not in violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
license, lease or other agreement or instrument to which the Selling Shareholder
is a party or by which it may be bound, or to which any of the property or
assets of the Selling Shareholder is subject (collectively, "Selling Shareholder
Agreements and Instruments") except for such violations or defaults that would
not result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Selling Shareholder and its subsidiaries considered as one enterprise (a
"Selling Shareholder Material Adverse Effect").
-11-
<PAGE>
(iii) Beneficial Ownership. The Selling Shareholder owns, and
--------------------
will own as of record and beneficially, the number of shares of Common Stock of
the Company set forth in the Prospectus, free and clear of any liens,
encumbrances, claims or restrictions except for any lien arising from that
certain Pledge Agreement dated June 22, 1994 between the Selling Shareholder and
Citibank, N.A. as Agent for certain other lenders as described therein.
(iv) Accurate Disclosure. The representations and warranties of the
-------------------
Company contained in Section 1(a) hereof are true and correct; the Selling
Shareholder has reviewed and is familiar with the Registration Statement and the
Prospectus and the Prospectus does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; the Selling Shareholder is not prompted to sell the
Securities to be sold by the Selling Shareholder hereunder by any information
concerning the Company or any subsidiary of the Company which is not set forth
in the Prospectus.
(v) Authorization of Agreement. The Selling Shareholder has the full
--------------------------
right, power and authority to enter into this Agreement and to sell, transfer
and deliver the Securities to be sold by the Selling Shareholder hereunder. The
execution, delivery and performance of this Agreement by the Selling Shareholder
and the sale and delivery of the Securities to be sold by the Selling
Shareholder and the consummation by the Selling Shareholder of the transactions
contemplated herein and in the Registration Statement and compliance by the
Selling Shareholder with its obligations hereunder have been duly authorized by
all necessary corporate action and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Selling Shareholder Repayment Event (as defined below)
under, or result in the creation or imposition of any tax, lien, charge or
encumbrance upon the Securities to be sold by the Selling Shareholder or any
property or assets of the Selling Shareholder pursuant to, the Selling
Shareholder Agreements and Instruments, nor will such action result in any
violation of the provisions of the charter or by-laws of the Selling Shareholder
or any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Selling Shareholder or any of its assets
or properties. As used herein, a "Selling Shareholder Repayment Event" means
any event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Selling Shareholder, the Company or any Company
subsidiary.
(vi) Good and Marketable Title. Selling Shareholder will at the
-------------------------
Closing Time and, if any Option Securities are purchased, on the Date of
Delivery have good and marketable title to the Securities to be sold by the
Selling Shareholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind, other
than pursuant to this Agreement; and upon delivery of such Securities and
payment of the purchase price therefor as herein contemplated, assuming each
such Underwriter has no notice of any adverse claim, the Selling Shareholder
will transfer to each of the Underwriters good and
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<PAGE>
marketable title to the Securities purchased by it from the Selling Shareholder,
free and clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind.
(vii) Absence of Manipulation. The Selling Shareholder has not
-----------------------
(i) taken, directly or indirectly, any action designed to cause or to result in,
or that has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or (ii) since the initial filing
of the Registration Statement (A) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Securities, or (B) paid or agreed
to pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(viii) Absence of Further Requirements. No filing with, or
-------------------------------
consent, approval, authorization, order, registration, qualification or decree
of, any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Selling Shareholder of its
obligations hereunder, or in connection with the sale and delivery of the
Securities hereunder or the consummation of the transactions contemplated by
this Agreement, except such as may have previously been made or obtained or as
may be required under the 1933 Act or the 1933 Act Regulations or state
securities laws.
(ix) Restriction on Sale of Securities. During a period of 180 days
---------------------------------
from the date of the Prospectus, the Selling Shareholder will not, without the
prior written consent of Merrill Lynch, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to the Securities to be sold hereunder.
(x) Certificates Suitable for Transfer. Certificates for all of the
----------------------------------
Securities to be sold by the Selling Shareholder pursuant to this Agreement, in
suitable form for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank with signatures guaranteed, will
be delivered to the Underwriters pursuant to, and in accordance with, this
Agreement.
(xi) No Association with NASD. Neither the Selling Shareholder nor
------------------------
any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
or has any other association with (within the meaning of Article I, Section 1(m)
of the By-laws of the National Association of Securities Dealers, Inc.), any
member firm of the National Association of Securities Dealers, Inc.
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<PAGE>
(xii) Inter-corporate Agreements. Each of the Inter-corporate
--------------------------
Agreements to which the Selling Shareholder is a party has been duly and validly
authorized, executed and delivered by the Selling Shareholder and is the valid
and binding agreement of the Selling Shareholder enforceable in accordance with
its terms, except as provided by applicable bankruptcy laws. The consummation
of the transactions therein contemplated and compliance with the terms thereof
do not and will not conflict with or constitute a breach of, or default or
Repayment Event under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Selling Shareholder
pursuant to, the Selling Shareholder Agreements and Instruments except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a Selling Shareholder Material Adverse Effect, nor will such action
result in any violation of the provisions of the charter or by-laws of the
Selling Shareholder or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Selling Shareholder or any of
its assets or properties, except for such violations that would not result in a
Selling Shareholder Material Adverse Effect. No consent, approval,
authorization or order of any court, governmental agency or body or financial
institution is required in connection with the consummation by the Selling
Shareholder of the transactions contemplated by the Inter-corporate Agreements
to which the Selling Shareholder is a party, except such as have been obtained.
(c) Officer's Certificates. Any certificate signed by any officer of the
Company or any subsidiary thereof delivered to the Representatives or to counsel
for the Underwriters shall be deemed a representation and warranty by the
Company to each Underwriter as to the matters covered thereby; and any
certificate signed by or on behalf of the Selling Shareholder thereof delivered
to the Representatives or to counsel for the Underwriters pursuant to the terms
of this Agreement shall be deemed a representation and warranty by the Selling
Shareholder to the Underwriters as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and the Selling Shareholder, severally and not jointly, agree to sell to
each Underwriter, severally and not jointly, and each Underwriter, severally and
not jointly, agrees to purchase from the Company and the Selling Shareholder, at
the price per share set forth in Schedule C, that proportion of the number of
Initial Securities set forth in Schedule B opposite the name of the Company or
the Selling Shareholder, as the case may be, which the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial Securities, subject in each case, to such
adjustments among the Underwriters as the Representatives in their sole
discretion shall make to eliminate any sales or purchase of fractional
securities.
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<PAGE>
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Selling Shareholder, severally and not jointly,
hereby grant an option to the Underwriters, severally and not jointly, to
purchase up to an additional ________ shares and ________ shares of Common
Stock, respectively, as set forth in Schedule B, at the price per share set
forth in Schedule C. The option hereby granted will expire 30 days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice by the
Representatives to the Company and the Selling Shareholder setting forth the
number of Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery for such
Option Securities. Any such time and date of delivery (a "Date of Delivery")
shall be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the Option Securities, each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
Option Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Loeb &
Loeb LLP, 345 Park Avenue, New York, New York 10154, or at such other place as
shall be agreed upon by the Representatives and the Company and the Selling
Shareholder, at 10:00 A.M. (Eastern Time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern Time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company and the Selling Shareholder
(such time and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company and the Selling Shareholder, on each Date of Delivery as
specified in the notice from the Representatives to the Company and the Selling
Shareholder.
Payment shall be made to the Company and the Selling Shareholder by wire
transfer of immediately available funds to bank accounts designated by the
Company and the Selling Shareholder, respectively, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as
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<PAGE>
representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in the City of New York not later than 10:00 A.M. (Eastern Time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Representatives immediately, and
confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement, shall become effective, or any supplement to the
Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information, and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus. The Company will
make every reasonable effort to prevent the issuance of any stop order and, if
any stop order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) Filing of Amendments. The Company will give the Representatives notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)), any Term Sheet or any amendment,
supplement or revision to either the prospectus included in the Registration
Statement at the time it became effective or to the Prospectus and will furnish
the Representatives with copies of any such documents a reasonable amount of
time prior to such proposed filing or use, as the case may be, and will not file
or use any such document to which the Representatives or counsel for the
Underwriters shall object.
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<PAGE>
(c) Delivery of Registration Statements. The Company has furnished or will
deliver to the Representatives and counsel for the Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. If
applicable, the copies of the Registration Statement and each amendment thereto
(including all exhibits filed therewith), furnished to the Representatives will
be identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. If
applicable, each preliminary prospectus and the Prospectus and any amendments or
supplements thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a Prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish to the
Underwriters such number of copies of such amendment or supplement as the
Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year
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<PAGE>
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and maintain
the quotation of the Common Stock (including the Securities) on the Nasdaq
National Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180 days from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any share of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock or
file any registration statement under the 1933 Act with respect to any of the
foregoing, except for the granting of options pursuant to the Company's Amended
and Restated 1996 Stock Option Plan as described in the Prospectus, or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued or options to purchase
Common Stock granted pursuant to any non-employee director stock plan.
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<PAGE>
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
(l) Form SR. The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 of the 1933 Act Regulations.
(m) Form S-8. The Company will not file a Form S-8 registration statement
until one hundred eighty (180) days after the date of the final prospectus filed
pursuant to Rule 424(b) under the Act.
(n) Information. During a period of five years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and unaudited quarterly statements
of operations for each of the first three quarters of the fiscal year. During a
period of three years after the date hereof, the Company will furnish to you,
(i) concurrently with furnishing such reports to its stockholders, statements of
operations of the Company for each of the first three quarters in the form
furnished to the Company's stockholders, (ii) concurrently with furnishing to
its stockholders a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations of shareholders' equity and of cash
flows of the Company for such fiscal year, accompanied by a copy of opinion or
report thereon of independent certified public accountants, (iii) as soon as
they are available, copies of all reports (financial or other) mailed to
stockholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to stockholders or prepared by the Company or any of the subsidiaries,
and (vi) any additional information of a public nature concerning the Company or
the subsidiaries, or its business which you may reasonably request. During such
five-year period, if the Company shall have active subsidiaries, the foregoing
financial statements shall be on a consolidated basis to the extent that the
accounts of the Company and the subsidiaries are consolidated, and shall be
accompanied by similar financial statements for any significant subsidiary which
is not consolidated. To the extent applicable, such reports or documents shall
be identical to the electronically transmitted copies thereof filed with the
commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(o) Transfer Agent. The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
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<PAGE>
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale and delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
or duties payable upon the sale of the Securities to the Underwriters, (iv) the
fees and disbursements of the Company's counsel, accountants and other advisors,
(v) the qualification of the Securities under securities laws in accordance with
the provisions of Section 3(f) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities, and (x) the fees and expenses incurred in connection with the
inclusion of the Securities on the Nasdaq National Market.
(b) Expenses of the Selling Shareholder. The Selling Shareholder will pay
(i) all underwriting discounts and selling commissions applicable to the sale of
its Securities; (ii) stock transfer taxes, if any, payable upon the sale of the
Securities to the Underwriters, and its transfer between the Underwriters
pursuant to an agreement between such underwriters, and (iii) the fees and
disbursements of its counsel and accounts, to the extent not paid by the Company
pursuant to Section 4(a).
(c) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5, Section 9(a)(i)
or Section 11 hereof, the Company shall reimburse the Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
----------------------------------------
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholder
contained in Section 1 hereof or in certificates of any officer of the Selling
Shareholder, the Company or any subsidiary delivered pursuant to the provisions
hereof, to the performance by the Selling Shareholder and the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
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<PAGE>
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective on the
date hereof and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has elected to
rely upon Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the Representatives
shall have received the favorable opinion, dated as of Closing Time, of Loeb &
Loeb LLP, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters to the effect set forth in Exhibit A hereto
and to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for the Selling Shareholder. At Closing Time the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Loeb & Loeb LLP, counsel for the Selling Shareholder, in form and
substance satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit B hereto and to such further effect as counsel to
the Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii), (v),
(vi) (solely as to preemptive or other similar rights arising by operation of
law or under the charter or by-laws of the Company), (viii) through (x),
inclusive, (xiv) (solely as to the information in the Prospectus under
"Description of Capital Stock -- Common Stock) and the penultimate paragraph of
Exhibit A hereto. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the
Commonwealth of Massachusetts, the federal law of the United States and the
General Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials.
(e) Officer's Certificate. At Closing Time there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business
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affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, and
the Representatives shall have received a certificate from each of the President
or a Vice President of the Selling Shareholder and the Company and of the chief
financial or chief accounting officer of the Selling Shareholder and the
Company, dated as of Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) the representations and warranties in Section 1(a)
and Section 1(b) hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Selling Shareholder
and the Company have complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been initiated or
threatened by the Commission.
(f) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from KPMG Peat Marwick LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time the Representatives shall
have received from KPMG Peat Marwick LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to Closing
Time.
(h) Approval of Listing. At the Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(i) Certain Guaranties. At the Closing Time, the Company shall not be a
party to, or obligated under, any guarantee of indebtedness of money borrowed
by, or reimbursement in connection with a letter of credit issued to secure an
obligation of, the Selling Shareholder or any other person other than itself or
the deferred purchase price of any property acquired by the Selling Shareholder
or any person other than itself.
(j) Termination of Agreements. At the Closing Time, the Securities being
sold by the Selling Shareholder shall have been released from any lien created
by that certain Pledge Agreement dated June 22, 1994 together with any and all
amendments thereto made by the Selling Shareholder, as Pledgor, to Citibank,
N.A. ("Citibank"), as agent for the lenders referred to therein, and that
certain Guarantee dated June 22, 1994 together with any and all amendments
thereto made by the Company in favor of Citibank shall have been terminated.
(k) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
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(l) Lock-up Agreements. At the date of this Agreement, the Representatives
shall have received an agreement substantially in the form of Exhibit C hereto
signed by the persons listed on Schedule E hereto.
(m) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Selling Shareholder and the Company contained herein and the statements
in any certificates furnished by the Selling Shareholder and the Company
hereunder shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of each of the President or a Vice President of the Selling
Shareholder and the Company and of the chief financial or chief accounting
officer of the Selling Shareholder and the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of Loeb &
------------------------------
Loeb LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for Selling Shareholder. The favorable
------------------------------------------
opinion of Loeb & Loeb LLP, counsel for the Selling Shareholder, in form
and substance satisfactory to counsel for the Underwriters, dated such Date
and Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(c).
(iv) Opinion of Counsel for Underwriters. The favorable opinion of
-----------------------------------
Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(d) hereof.
(v) Bring-down Comfort Letter. A letter from KPMG Peat Marwick LLP,
-------------------------
in form and substance satisfactory to the Representatives and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Representatives pursuant to Section 5(f) hereof,
except that the "specified date" on the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(n) Additional Documents. At Closing Time and at each Date of Delivery
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may
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reasonably require for the purpose of enabling them to pass upon the issuance
and sale of the Securities as herein contemplated, or in order to evidence the
accuracy of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the Selling
Shareholder and the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance to
the Representatives and counsel for the Underwriters.
(o) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option Securities
on a Date of Delivery which is after the Closing Time, the obligations of the
several Underwriters to purchase the relevant Option Securities, may be
terminated by the Representatives by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. The Company and, subject to the last
paragraph of this subsection (a), the Selling Shareholder each jointly and
severally agree to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company and the Selling Shareholder; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch subject to
the terms of Section 6(c)
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<PAGE>
hereof with respect to counsel fees), reasonably incurred in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the 430A Information and the
Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
In making a claim for indemnification under this Section 6 or contribution
under Section 7 hereof by the Company or the Selling Shareholder, the
indemnified parties may proceed against either (i) the Company and the Selling
Shareholder jointly or (ii) the Company only, but may not proceed solely against
the Selling Shareholder. In the event that the indemnified parties are entitled
to seek indemnity or contribution hereunder against any loss, liability, claim,
damage and expense under this Section 6 or Section 7 hereof (each such
circumstance or event, a "Loss") the indemnified parties shall seek to satisfy
the Loss in full from the Company by making a written demand upon the Company
for such satisfaction. Only in the event such Loss shall remain unsatisfied in
whole or in part 20 days following the date of receipt by the Company of a
demand shall any indemnified party have the right to take action to satisfy such
Loss by making demand directly on the Selling Shareholder (but only if and to
the extent that the Company has not already satisfied such Loss, whether by
settlement, release or otherwise). The indemnified parties may exercise this
right to first seek to obtain payment from the Company and thereafter obtain
payment from the Selling Shareholder without regard to the pursuit by any party
of its rights to the appeal of any judgment. The indemnified parties shall,
however, be relieved of this obligation to seek to obtain payment from the
Company with respect to such Loss and having sought such payment, to wait such
20 days after failure by the Company to immediately satisfy any such Loss if (i)
the Company files a petition for relief under the United States Bankruptcy Code
(the "Bankruptcy Code"), (ii) an order for relief is ordered against the Company
in an involuntary case under the Bankruptcy Code, (iii) the Company makes an
assignment for the benefit of its creditors, or (iv) any court orders or
approves the appointment of a receiver or custodian for the Company or a
substantial portion of its assets. In the case of reimbursement of expenses
pursuant to this Section 6, the indemnified parties shall first seek to obtain
such reimbursement in full from the Company by making a written demand upon the
Company for such reimbursement. Only in the event such expenses shall remain
unreimbursed in full or in part 20 days following the date of receipt by the
Company of such demand shall the indemnified party have the right to receive
reimbursement of such expenses from the Selling Shareholder by making written
demand directly on the Selling Shareholder (but only to the extent the Company
has not already satisfied the demand for reimbursement, whether by settlement,
release or otherwise). The indemnified parties, however, shall be relieved of
their
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<PAGE>
obligation to first seek to obtain such reimbursement from the Company or,
having made written demand therefor, to wait 20 days after notice to the Company
to immediately reimburse such expenses if (i) the Company files a petition for
relief under the Bankruptcy Code, (ii) an order for relief is entered against
the Company in an involuntary case under the Bankruptcy Code, (iii) the Company
makes an assignment for the benefit of its creditors, or (iv) any court orders
or approves the appointment of a receiver or custodian for the Company or a
substantial portion of its assets. Notwithstanding anything to the contrary
contained herein, the provisions of this paragraph shall not apply to any claim
for indemnity pursuant to this Section 6 arising from a breach by the Selling
Shareholder of its representations and warranties contained in each of Section
1(b) (iii), (iv), (vi), or (vii).
In the event that the Selling Shareholder shall be required to satisfy a
Loss under this Section 6 or Section 7 hereof after demand on the Company (or in
cases where no such demand on the Company is required hereunder), the Selling
Shareholder shall be entitled to recover from the Company the Company's pro rata
share of such Loss (other than in the case of a Loss resulting from a breach by
the Selling Shareholder of its representations and warranties contained in each
of Section 1(b) (iii), (iv), (vi) or (vii) hereof). The Company's pro rata
share of such Loss shall equal the product obtained by multiplying the amount of
the Loss by a number determined by dividing the number of Securities actually
sold by the Company hereunder by the total number of Securities sold by the
Company and the Selling Shareholder hereunder.
(b) Indemnification of the Company, Directors and Officers, and the Selling
Shareholder. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of the officers who signed the Registration
Statement, the Selling Shareholder and each person, if any, who controls the
Company or the Selling Shareholder within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section
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<PAGE>
6(b) above, counsel to the indemnified parties shall be selected by the Company.
An indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall, subject to the
terms and conditions contained in Section 6 hereof, contribute to the aggregate
amount of such losses, liabilities, claims, damages and expenses incurred by
such indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Selling Shareholder and the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities pursuant to this Agreement or (ii) if the allocation provided
by clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Selling Shareholder and the Company on
the one hand and of the Underwriters on the other hand in connection with the
statements or omissions, which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
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<PAGE>
The relative benefits received by the Selling Shareholder and the Company
on the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Selling Shareholder and the Company and the total underwriting discount
received by the Underwriters, in each case as set forth on the cover of the
Prospectus, or, if Rule 434 is used, the corresponding location on the Term
Sheet, bear to the aggregate initial public offering price of the Securities as
set forth on such cover or the Term Sheet.
The relative fault of the Selling Shareholder and the Company on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Selling Shareholder or the Company or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Selling Shareholder and the Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses (subject to the terms of
Section 6(c) hereof with respect to counsel fees) reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or the
Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
the Selling
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<PAGE>
Shareholder. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the number of Initial
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Selling Shareholder or the Company submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Underwriter or controlling
person, or by or on behalf of the Selling Shareholder or the Company, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Shareholder, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or limited by the Commission or the
Nasdaq National Market, or if trading generally on the American Stock Exchange
or the New York Stock Exchange or in the Nasdaq National Market has been
suspended or limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more of
------------------------------------------
the Underwriters shall fail at Closing Time or on a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms
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herein set forth; if, however, the Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-
defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of
the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Selling Shareholder to sell the relevant Option
Securities, as the case may be, either the Representatives or the Company shall
have the right to postpone the Closing Time or the relevant Date of Delivery, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Default by the Selling Shareholder or the Company. (a) If
-------------------------------------------------
the Selling Shareholder shall fail at Closing Time or at a Date of Delivery to
sell and deliver the number of Securities which the Selling Shareholder is
obligated to sell hereunder, then the Underwriters may, at the option of the
Representatives, by notice from the Representatives to the Company terminate
this Agreement without any liability on the fault of any non-defaulting party
except that the provisions of Section 1, 4, 6, and 7 shall remain in full force
and effect. No action taken pursuant to this Section 11 shall relieve the
Selling Shareholder so defaulting from liability, if any, in respect of such
default.
In the event of a default by the Selling Shareholder as referred to in
this Section 11, each of the Representatives and the Company shall have the
right to postpone Closing Time or Date of Delivery for a period not exceeding
seven days in order to effect any required change in the Registration Statement
or Prospectus or in any other documents or arrangements.
(b) If the Company shall fail at Closing Time or at the Date of Delivery
to sell the number of Securities that it is obligated to sell hereunder, then
this Agreement shall terminate
-30-
<PAGE>
without any liability on the part of any nondefaulting party; provided, however,
that the provisions of Sections 4, 6 and 7 shall remain in full force and
effect. No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
SECTION 12. Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative(s) c/o of Merrill Lynch &
Co. at North Tower, World Financial Center, New York, New York 10281-1201,
attention of Syndicate Department, and notices to the Selling Shareholder and
the Company shall be directed to them c/o Poppe Tyson, Inc. and Bozell, Jacobs,
Kenyon & Eckhardt, Inc. at 40 West 23rd Street, New York, New York 10010,
attention of Valentine J. Zammit and Steven M. Blondy.
SECTION 13. Parties. This Agreement shall each inure to the benefit of
-------
and be binding upon the Underwriters, the Selling Shareholder and the Company
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Selling Shareholder and the
Company and their respective successors and the controlling persons and officers
and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Selling Shareholder and the Company
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-31-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Selling Shareholder and the Company a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement among the Underwriters, the Selling Shareholder and
the Company in accordance with its terms.
Very truly yours,
POPPE TYSON, INC.
By:
-----------------------------------
Name:
Title:
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By:
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEAN WITTER REYNOLDS INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
-32-
<PAGE>
SCHEDULE A
Number of
Name of Underwriter Initial Securities
- ------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................
Dean Witter Reynolds Inc.....................
Total........................................
===========
<PAGE>
SCHEDULE B
Number of Initial Maximum Number of Option
Securities to be Sold Securities to be Sold
--------------------- ------------------------
POPPE TYSON, INC..........
BOZELL, JACOBS, KENYON &
ECKHARDT................
Total.....................
===========
<PAGE>
SCHEDULE C
POPPE TYSON, INC.
____________ Shares of Common Stock
(Par Value $.001 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $_____.
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $_____, being an amount equal to the initial
public offering price set forth above less $___ per share.
<PAGE>
SCHEDULE D
List of Persons with
Registration Rights
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
G. Douglas Burck
Walter M. Lewis, Jr.
Brodie Callendar
Laurien Callendar
Rea B. Callendar
Mary Malone
Larry Henninger
Warren E. Anderson and Catherine L. Anderson as Co-Trustees of a trust dated
4/25/95
Robert L. and Karen Stevens, Trustees of a trust dated 8/9/78
James L. McBride, Jr.
Fergus O'Daly, Jr.
David S. Carlick
Thomas E. Wharton, Jr.
W. Grant Gregory
Kevin C. Clark
Jason C. Schmidly
<PAGE>
SCHEDULE E
List of persons and entities
subject to lock-up
Fergus O'Daly, Jr.
David S. Carlick
Thomas E. Wharton, Jr.
Steven M. Blondy
David E. Bell
Kevin C. Clark
Michael D. Drexler
Charles D. Peebler, Jr.
Paul C. Schorr III
Thomas H. Stoner
Valentine J. Zammit
W. Grant Gregory
Jason C. Schmidly
G. Douglas Burck
Walter M. Lewis, Jr.
Brodie Callendar
Laurien Callendar
Rea B. Callendar
Mary Malone
Larry Henninger
Warren E. Anderson and Catherine L. Anderson as Co-Trustees of a trust dated
4/25/95
Robert L. and Karen Stevens, Trustees of a trust dated 8/9/78
James C. McBride, Jr.
[List any other Shareholders of the Company]
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under the
Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction listed on Schedule 1
hereto.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to the
Purchase Agreement or pursuant to reservations, agreements, employee benefit
plans or the exercise of convertible securities or options referred to in the
Prospectus); the shares of issued and outstanding capital stock have been duly
authorized and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any securityholder of the Company.
(v) The Securities to be issued for sale to the Underwriters have been duly
authorized for issuance and sale to the Underwriters pursuant to the Purchase
Agreement and, when issued and delivered by the Company pursuant to the Purchase
Agreement against payment of the consideration set forth in the Prospectus, will
be validly issued and fully paid and non-assessable and no holder of the
Securities is or will be subject to personal liability by reason of being such a
holder.
(vi) The issuance of the Securities is not subject to preemptive or other
similar rights of any securityholder of the Company.
(vii) Animated Systems & Design, Inc. has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction listed on Schedule 1 hereto; all of
the issued and outstanding capital stock of such subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and, to the best
of our knowledge and information, is owned by the Company, directly, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
<PAGE>
claim or equity; none of the outstanding shares of capital stock of such
subsidiary was issued in violation of the preemptive or similar rights of any
securityholder of such subsidiary.
(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared (or in the case of any Rule 462(b) Registration
Statement, become) effective under the 1933 Act; any required filing of the
Prospectus pursuant to Rule 424(b) has been made in the manner and within the
time period required by Rule 424(b); and, to the best of our knowledge and
information, no stop order suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein, as to
which no opinion need be rendered) complied as to form in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not "materially
different," as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective.
(xii) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xiii) To the best of our knowledge, except as described in the
Prospectus, there is not pending or threatened any action, suit, proceeding,
inquiry or investigation, to which the Selling Shareholder, the Company or any
Company subsidiary is a party, or to which the property of the Selling
Shareholder, the Company or any Company subsidiary is subject, before or brought
by any court or governmental agency or body, which might reasonably be expected
to result in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the Purchase Agreement or the performance by the Selling
Shareholder and the Company of its obligations thereunder;
(xiv) [This paragraph will be modified as necessary as the draft
Registration Statement is modified.] The information in the Prospectus under
"Description of Capital Stock--Common Stock", "Description of Capital Stock--
Preferred Stock", "Description of Capital Stock--Delaware Law and Certain
Charter Provisions," "Management--Limitation on Liability and Indemnification
Matters" and "Business--Litigation" and in the Registration Statement under item
15, to the extent that it constitutes matters of law, summaries of legal
matters, the
A-2
<PAGE>
Company's charter and by-laws or legal proceedings, or legal conclusions, has
been reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.
(xvi) All descriptions in the Prospectus of contracts and other documents
to which the Company or its subsidiaries are a party are accurate in all
material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvii) To the best of our knowledge, and except as would have no Material
Adverse Effect, no default by the Company or any Subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent or order of
any court or governmental authority or agency (other than under the 1933 Act and
the 1933 Act Regulations, which have been obtained, or as may be required under
the securities or blue sky laws of the various states, as to which we need
express no opinion) is required in connection with the authorization, execution
and delivery of the Agreement or for the offering, issuance or sale of the
Securities;
(xix) The execution, delivery and performance of the Purchase Agreement by
the Company and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the issuance and
sale by the Company of the Securities and the use of the proceeds from the sale
of the Securities by the Company as described in the Prospectus under the
caption "Use Of Proceeds") and compliance by the Company with its respective
obligations under the Purchase Agreement will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(x)of the Purchase
Agreement) under or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any Subsidiary
pursuant to any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or any other agreement or instrument, known to us, to
which the Company or any Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a Material Adverse Effect), nor will
such action result in any violation of the provisions of the charter or by-laws
of the Company or any Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order,
A-3
<PAGE>
writ or decree, known to us, of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or any
subsidiary or any of their respective properties, assets or operations.
(xx) Except as set forth in the Prospectus and Schedule D to the Purchase
Agreement, to the best of our knowledge, there are no persons with registration
or other similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the 1933
Act.
(xxi) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act.
(xxii) Except as disclosed in the Prospectus, to the best of such
counsel's knowledge, there are no outstanding options, warrants or other rights
calling for the issuance of, and no commitments, obligations, plans or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company. The
outstanding stock options relating to the Company's Common Stock have been duly
authorized and validly issued and the description thereof contained in the
Prospectus is accurate in all material respects.
(xxiii) Each of the Operating Services Agreement between the Selling
Shareholder and the Company (the "Services Agreement"), the Sublease Agreement
and the Occupancy Agreement described in the Prospectus under "Certain
Transactions", and the Tax Sharing Agreement between the Selling Shareholder and
the Company (all of the foregoing agreements being referred to herein as the
"Inter-corporate Agreements") has been duly and validly authorized, executed and
delivered by each of the Selling Shareholder and the Company and is the valid
and binding agreement of each of the Selling Shareholder and the Company
enforceable in accordance with its terms, except as provided by bankruptcy,
insolvency, reorganization or other similar laws affecting creditors' rights
generally and subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law) (collectively,
"applicable bankruptcy laws"). The execution, delivery and performance of the
Inter-corporate Agreements by each of the Selling Shareholder and the Company,
the consummation of the transactions therein contemplated and compliance with
the terms thereof do not and will not result in a violation of, or constitute a
default under, the corporate charter, by-laws or other governing documents of
each of the Selling Shareholder and the Company, or any agreement, indenture or
other instrument to which the Selling Shareholder or the Company is a party or
by which it is bound, or to which any of its properties is subject, and do not
and will not violate any existing law, rule, administrative regulation or decree
of any court or any governmental agency or body having jurisdiction over the
Selling Shareholder or the Company or any of its properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Selling Shareholder or the Company, which would be
material to the Company and its subsidiaries taken as a whole. No consent,
approval, authorization or order of any court, governmental agency or body or
financial institution is
A-4
<PAGE>
required in connection with the consummation of the transactions contemplated by
such Inter-corporate Agreements.
Nothing has come to our attention that would lead us to believe that the
Registration Statement, including the Rule 430A Information and Rule 434
Information (if applicable), (except for financial statements and schedules and
other financial data included therein, as to which we make no statement), at the
time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
therein, as to which such counsel need make no statement), at the time the
Prospectus or any such amended or supplemented Prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-5
<PAGE>
Exhibit B
FORM OF OPINION FOR THE SELLING SHAREHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) The Selling Shareholder has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Shareholder for the performance by the Selling
Shareholder of its obligations hereunder, or in connection with the offer, sale
or delivery of the Securities to the Underwriters or the consummation of the
transactions contemplated by the Purchase Agreement.
(iii) The Purchase Agreement has been duly executed and delivered
by or on behalf of the Selling Shareholder.
(iv) The sale of the Securities by the Selling Shareholder is not
subject to preemptive or similar rights by operation of law or, to such
counsel's knowledge, otherwise.
(v) The execution, delivery and performance of the Purchase Agreement,
the sale and delivery of the Securities by the Selling Shareholder, the
consummation of the transactions contemplated in the Purchase Agreement and in
the Registration Statement and compliance by the Selling Shareholder with their
obligations under the Purchase Agreement have been duly authorized by all
necessary action on the part of the Selling Shareholder and, to the knowledge of
such counsel, do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or default
or Repayment Event under, or result in the creation or imposition of any tax
lien, charge or encumbrance upon the Securities or any property or assets of the
Selling Shareholder pursuant to, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other instrument or
agreement to which the Selling Shareholder is a party or by which it may be
bound, or to which any of the property or assets of the Selling Shareholder may
be subject nor will such action result in any violation of the provisions of the
charter or by-laws of the Selling Shareholder, if applicable, or any law,
administrative regulation, judgment or order of any governmental agency or body
or any administrative or court decree having jurisdiction over the Selling
Shareholder or any of its properties (except that such counsel needs not express
an opinion as to the securities or blue sky laws of any jurisdiction other than
the United States).
(vi) The Selling Shareholder is, and immediately prior to Closing Time
will be, the sole registered owner of the Securities to be sold by the Selling
Shareholder; upon consummation of the sale of the Securities pursuant to the
Purchase Agreement, each of the Underwriters will be
<PAGE>
the registered owner of the Securities purchased by it from the Selling
Shareholder and, assuming the Underwriters purchased the Securities for value in
good faith, to the knowledge of such counsel, the Underwriters will have
acquired all rights of the Selling Shareholder in the Securities free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or equity,
and the owner of the Securities, if other than the Selling Shareholder, is
precluded from asserting against the Underwriters the ineffectiveness of any
unauthorized endorsement; and the Selling Shareholder has the requisite
corporate power and authority (A) to enter into the Purchase Agreement and (B)
to sell, transfer and deliver the Securities to be sold by the Selling
Shareholder under the Purchase Agreement.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Selling Shareholder and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
B-2
<PAGE>
Exhibit C
Form of Lock-up
---------------
___________ __, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
DEAN WITTER REYNOLDS INC.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Poppe Tyson, Inc.
---------------------------------------------
Dear Sirs:
The undersigned, a stockholder, officer and/or director of Poppe Tyson,
Inc., a Delaware corporation (the "Company"), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and
Dean Witter Reynolds Inc. propose to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company and Bozell, Jacobs, Kenyon & Eckhardt,
Inc., the Company's parent ("Bozell"), providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.001 per
share (the "Common Stock"). In recognition of the benefit that such an offering
will confer upon the undersigned as a stockholder, officer and/or director of
the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 180
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option for the sale of, or
otherwise dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
<PAGE>
any such swap or transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:____________________________
Print Name:___________________________
C-2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
POPPE TYSON, INC.
Poppe Tyson, Inc., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Poppe Tyson, Inc. The name under
which it was originally incorporated was USAdvertising, Inc.
2. The date of filing of its original Certificate of Incorporation
with the Secretary of State was December 10, 1985.
3. The text of the Certificate of Incorporation is hereby amended and
restated to read as herein set forth in full:
"FIRST. Name. The name of the Corporation is Poppe Tyson, Inc.
----
SECOND. Registered Office. The address of its registered office in
-----------------
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, State of Delaware 19801, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD. Purposes. The nature of the business or purposes to be
--------
conducted or promoted is:
To engage in any lawful act or activity for which
corporations may be organized under the General
Corporation Law of Delaware and to do all things
and exercise all powers, rights and privileges which
a business corporation may now or hereafter be
organized or authorized to do or to exercise under
the laws of the State of Delaware.
FOURTH. Capitalization. (a) The total number of shares of stock
--------------
which the Corporation shall be authorized to issue is 56,700,000 shares,
consisting of 50,000,000 shares of Common Stock, $.001 par value per share, and
6,700,000
1
<PAGE>
shares of Preferred Stock, $.001 par value per share, which shall be issuable in
series with such designations, relative rights, preferences, privileges,
restrictions and limitations as may be fixed from time to time by the Board of
Directors.
(b) At the time this Amended and Restated Certificate of Incorporation
becomes effective, each share of Common Stock then issued and outstanding shall
automatically and without any further act of this Corporation or its
stockholders be split into 16,901.1525 shares of Common Stock, such that the 800
shares of Common Stock issued and outstanding are changed into 13,520,922 shares
of Common Stock.
A. COMMON STOCK
------------
All shares of Common Stock will be equal and will entitle the holders
thereof to the same rights and privileges.
(1) Voting Rights. Subject to any exclusive voting rights which may vest
-------------
in holders of the Preferred Stock under the provisions of this Article FOURTH
(or under the provisions of any resolution or resolutions adopted by the Board
of Directors providing for the issue of any series of Preferred Stock), the
holders of outstanding shares of Common Stock shall be entitled to notice of any
stockholders meeting and to one vote for each share upon any matter submitted to
stockholders for a vote.
(2) Dividends. The Board of Directors of the Corporation may cause
---------
dividends to be paid to holders of outstanding shares of Common Stock out of
funds legally available for the payment of dividends, subject to the terms of
any then outstanding shares of Serial Preferred Stock.
B. PREFERRED STOCK
---------------
The shares of Preferred Stock may be divided into and issued in one or
more series, as the Board of Directors may from time to time determine. The
Board of Directors is authorized to determine or alter the rights, preferences,
privileges, restrictions and limitations granted to and imposed upon any series
of Preferred Stock, and to fix the number of shares of any series of Preferred
Stock and the designation of any series of Preferred Stock. The Board of
Directors, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock, may increase or decrease (but not
below the number of shares of such series then outstanding)
2
<PAGE>
the number of shares of any series of Preferred Stock subsequent to the issue of
shares of that series.
FIFTH. Additional Powers of Board of Directors. The Board of
---------------------------------------
Directors shall have power, without stockholder action, to make By-Laws for the
Corporation and to amend, alter or repeal any By-Laws.
The powers and authorities herein conferred upon the Board of
Directors are in furtherance and not in limitation of those conferred by the
laws of the State of Delaware. In addition to the powers and authorities herein
or by statute expressly conferred upon it, the Board of Directors may exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware, of this Certificate of Incorporation and of the By-Laws of
the Corporation.
SIXTH. Compromise or Arrangement. Whenever a compromise or
-------------------------
arrangement is proposed between this Corporation and its creditors or any class
of them and/or between this Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this Corporation or of any creditor or
stockholder thereof, or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
SEVENTH. Unclaimed Dividends. Any and all right, title, interest and
-------------------
claim in or to any dividends declared by the Corporation, whether in cash, stock
or otherwise, which are unclaimed by the stockholder entitled thereto for a
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period of six years after the close of business on the payment date, shall be
and be deemed to be extinguished and abandoned; and such unclaimed dividends in
the possession of the Corporation, its transfer agents or other agents or
depositaries, shall at such time become the absolute property of the
Corporation, free and clear of any and all claims of any persons whatsoever.
EIGHTH. Action by Stockholders. Effective upon the Corporation's
----------------------
initial public offering of securities pursuant to a registration statement filed
under the Securities and Exchange Act of 1933, as amended, no action shall be
taken by the stockholders except at an annual or special meeting of
stockholders.
NINTH. Elections of Directors. Elections of directors need not be by
----------------------
ballot unless the By-Laws of the Corporation provide otherwise. The number of
directors of the Corporation shall not be less than three, nor more than
fifteen, the exact number of directors to be fixed from time to time in the
manner provided in the By-Laws. No decrease in the number of directors shall
shorten the term of any incumbent director. The directors shall be divided into
three classes: Class I, Class II, and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the whole number of the Board of
Directors, the term of office of the Class I directors to expire at the annual
meeting of stockholders next ensuing after the adoption of this Article by the
sole stockholder of the Corporation, the term of office of the Class II
directors to expire at the annual meeting one year thereafter, the term of
office of the Class III directors to expire at the annual meeting two years
thereafter, and in the case of each class, until their respective successors are
elected and qualified. At each annual election held after the initial election
of directors according to classes, the directors chosen to succeed those whose
terms have expired shall be identified as being of the same class as the
directors they succeed and shall be elected to hold office for a term to expire
at the third succeeding annual meeting after their election, and until their
respective successors are elected and qualified. If the number of directors is
changed, any increase or decrease in directors shall be apportioned among the
classes so as to maintain all classes as equal in number as possible, and any
additional director elected to any class shall hold office for a term which
shall coincide with the terms of the other directors in such class. Any vacancy
occurring in the Board of Directors caused by death, resignation, or removal,
and any newly created directorship resulting from an increase in the number of
directors, may be filled by a majority of the directors in office, although less
than a quorum, or by a sole remaining director. Each
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director chosen to fill a vacancy or newly created directorship shall hold
office until the next election of the class for which such director shall have
been chosen, and until his or her successor shall be elected and qualified, or
until his or her death, or until he or she shall have resigned, or have been
removed.
Notwithstanding the foregoing, whenever the holders of any class of
stock (other than Common Stock) issued by the Corporation shall have the right,
voting as a class or otherwise, to elect directors, the then authorized number
of directors of the Corporation shall be increased by the number of additional
directors so to be elected. The provisions of this paragraph shall apply
notwithstanding the maximum number of directors hereinabove set forth.
TENTH. Indemnification. (a) Each person who was or is made a party
---------------
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter "indemnities"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, consultant, employee or agent or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorney's fees, judgments fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such in connection therewith; provided,
--------
however that, except as provided below with respect to proceedings to enforce
- -------
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnities
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
(b) The right to indemnification conferred in paragraph (a) of this
Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
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(hereinafter an "advancement of expenses"); provided, however, that if the
-------- -------
General Corporation Law of Delaware requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer (and
not in any other capacity in which services was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of any undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such person is not entitled to be indemnified under this
section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in paragraphs (a) and (b) of this Article shall be contract
rights and such rights to indemnification and advancement of expenses shall
continue as to an indemnitee who has ceased to be a director or officer and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
(c) If a claim under this Article is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part of any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnities shall be entitled to be paid also the expense of prosecution of
defending such suit. It shall be a defense to such suit (other than a suit
brought by an indemnitee to enforce a right to advancement of expenses), and in
any suit by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking that the Corporation shall be entitled to recover
such expenses upon a final adjudication, that the indemnitee has not met any
applicable standard for indemnification set forth in the General Corporation Law
of Delaware. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the General Corporation Law of
Delaware, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
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brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to an undertaking, the burden of proving that
the indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article or otherwise, shall be on the Corporation.
(d) The rights conferred by this Article shall not be exclusive of any
other right which such person may have or hereafter acquire under any statute,
this Certificate of Incorporation, any by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
General Corporation Law of Delaware.
(f) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and to the advancement
of expenses, to any consultant, employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(g) A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that a director shall be liable to the extent
provided by applicable law (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for any transaction from which the director derived an improper personal
benefit or (iv) under Section 174 of the General Corporation Law of Delaware.
If the General Corporation Law of Delaware is hereinafter amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware, as so amended. Any repeal or modification of this paragraph
(g) shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification."
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4. This Amended and Restated Certificate of Incorporation of Poppe
Tyson, Inc. was duly adopted by vote of the Board of Directors and by vote of
the sole stockholder of the Corporation in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, Poppe Tyson, Inc. has caused this certificate to
be signed by Thomas E. Wharton, Jr., its Senior Vice President, and attested by
William J. Marlow, its Assistant Secretary, this 25th day of June, 1996.
POPPE TYSON, INC.
By:___________________________
Thomas E. Wharton, Jr.
Senior Vice President
Attest By:_____________________
William J. Marlow
Assistant Secretary
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EXHIBIT 3.2
BY-LAWS
of
POPPE TYSON, INC.
OFFICES
1. The registered office of the company shall be in the State of
Delaware, County of New Castle, City of Wilmington. The company may also have
offices and places of business at such other places both within and without the
State of Delaware as the Board of Directors may from time to time determine or
the business of the company may require.
MEETINGS OF STOCKHOLDERS
2. Meetings of the stockholders shall be held at the principal
office of the company or at such other place within or without the State of
Delaware, as the Board of Directors shall authorize.
3. The annual meeting of the stockholders of the company for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such time as shall be
determined by the Board of Directors and stated in the notice of meeting.
4. The presence, in person or by proxy, of the holders of record of
a majority of the shares issued and outstanding and entitled to vote is
requisite and shall constitute a quorum at all meetings of the stockholders for
the transaction of business except as otherwise provided by law or by the
certificate of incorporation. If such majority shall not be present, those
present shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
at the meeting. If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by law or by the certificate of
incorporation, may be called by the Board of Directors or by the Chief Executive
Officer, and shall be called by the Chief Executive Officer or Secretary at the
written request of the holders of a majority of the shares issued and
outstanding and entitled to vote. Such
<PAGE>
request shall state the purpose or purposes of the proposed meeting.
6. Business transacted at all special meetings of stockholders shall
be confined to the purpose or purposes stated in the call and matters germane
thereto.
7. Written notice of each meeting of the stockholders stating the
time, place and purpose or purposes thereof and, unless it is notice of the
annual meeting, indicating that it is being issued by or at the direction of the
person or persons calling the meeting, shall be served either personally or by
mail, not less than ten nor more than sixty days previous to such meeting, upon
each stockholder of record entitled to vote at such meeting, and upon each
stockholder of record who, by reason of any action proposed to be taken at such
meeting, would be entitled to have his, her or its shares appraised if such
action were taken, at his, her or its address as it shall appear on the record
of stockholders of the company unless he, she or it shall have filed with the
Secretary of the company a written request that notices intended for him, her or
it be mailed to some other address, in which case it shall be mailed to the
address designated in such request.
8. At each meeting of the stockholders, every holder of shares
entitled to vote may vote in person or by proxy, and shall, for all purposes,
have one vote for each share registered in his, her or its name unless otherwise
provided by the certificate of incorporation. The voting may be viva voce, but
---- ----
any qualified voter may demand a share vote, whereupon such share vote shall be
taken by ballot. Each ballot shall state the name of the stockholder voting and
the number of shares voted by him, her or it and, if such ballot be cast by a
proxy, it shall also state the name of such proxy. Every proxy shall be in
writing, subscribed by the stockholder or his, her or its duly authorized
attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged.
9. Whenever any action, other than the election of directors, is to
be taken by vote of the stockholders, it shall, except as otherwise required by
law or the certificate of incorporation or these by-laws, be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Directors shall, except as otherwise required by law
or the certificate of incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
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10. The election of directors and any other vote by ballot at any
meeting of the stockholders shall be supervised by at least two inspectors. Such
inspectors may be appointed by the Chairman of the Board or Chief Executive
Officer before or at the meeting; or if one or both inspectors so appointed
shall refuse to serve or shall not be present, such appointment shall be made by
the officer presiding at the meeting.
BOARD OF DIRECTORS
11. Subject to any provisions in the certificate of incorporation,
the business of the company shall be managed under the direction of a board of
directors, which shall consist of not more than fifteen directors, the exact
number to be determined from time to time by resolution of the Board of
Directors; provided, however, that when and if the holders of the company's
-------- -------
preferred stock are entitled to elect directors pursuant to the company's
certificate of incorporation or any certificate of designation duly adopted by
the Board, then subject to the terms, conditions and restrictions set forth in
the certificate of designation, without any further action the number of
directors constituting the entire board of directors shall thereupon be
increased by the number of directors so to be elected; provided further,
-------- -------
however, that when and if the right of the holders of the company's preferred
- -------
stock to elect any directors of the company pursuant to the company's
certificate of incorporation or any certificate of designation terminates, then
without any further action the number of directors shall thereupon be decreased
by directors so to be elected.
12. Any director may be removed at any time, with or without cause,
at a special meeting of the stockholders called for that purpose. Any director
may resign his or her office at any time, such resignation to be in writing and
to be effective upon receipt by the company or at such later date as shall be
specified therein. Newly created directorships resulting from an increase in the
number of directors and vacancies occurring in the board of directors for any
reason except the removal of directors without cause may be filled by a majority
of the directors then in office, although less than a quorum exists, or by the
stockholders, but any director elected by the directors to fill a vacancy shall
serve only until the vacancy is filled by the stockholders. Vacancies occurring
in the board of directors by reason of the removal of directors without cause
shall be filled by the stockholders at a special meeting of the stockholders
called for that purpose or at an annual meeting of stockholders.
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13. In addition to the powers expressly conferred upon them by these
by-laws, the Board of Directors may exercise such powers and do such acts and
things as are not prohibited by law or by the certificate of incorporation or by
these bylaws.
14. Directors as such shall not receive any stated salary for their
services, but by resolution of the Board of Directors a fixed sum and expenses
of attendance, if any, may be allowed for attendance at any meeting. Nothing
herein contained shall be construed to preclude any director from serving the
company in any other capacity and receiving compensation therefor.
15. The Board of Directors may hold its meetings, regular or special,
have one or more offices and keep the books of the company, except such as are
required by law to be kept within the state, outside of Delaware at an office of
the company or at such other places as it may from time to time determine.
16. Immediately after each annual election of directors, the newly
constituted Board of Directors shall meet forthwith at the principal office of
the company or at the place where such annual election was held or at such other
place as may be fixed by the directors, for the purpose of organization, the
election of officers and the transaction of all such other business as the
directors present thereat may deem proper. Other regular meetings of the Board
of Directors may be held without notice at such times and places as the Board of
Directors may determine.
17. Special meetings of the Board of Directors may be called by the
Chairman of the Board of Directors or by the Chief Executive Officer on two
days' notice to each director. Special meetings shall be called by the Chief
Executive Officer or Secretary in a like manner at the written request of two
directors.
18. (a) At all meetings of the Board of Directors, the presence of
a majority of the directors then in office, but not less than one-third of the
total number of directors which the company would have if there were no
vacancies, shall be necessary to constitute a quorum and sufficient for the
transaction of business, and any acts of a majority of those present at a
meeting, at which there is a quorum, shall be the acts of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
certificate of incorporation or by these by-laws.
(b) Any action required or permitted to be taken by the Board
of Directors or any committee thereof may
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<PAGE>
be taken without a meeting if all of the members of the Board of Directors or
the committee consent in writing to the adoption of a resolution authorizing the
action.
(c) Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other, and
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
19. The Board of Directors by resolution adopted by a majority of the
total number of directors the company would have if there were no vacancies, may
designate, from among its members, an executive committee and other committees,
each consisting of one or more directors, and each of which, to the extent
provided in the resolution, shall have all the authority of the Board of
Directors, except as otherwise provided by law. Vacancies in the membership of
any such committee shall be filled by the Board of Directors at a regular or
special meeting. Each such committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when so required.
OFFICERS
20. The officers of the company shall be a Chief Executive Officer, a
Chairman of the Board of Directors, one or more Executive Vice Presidents, one
or more Senior Vice Presidents, a Secretary, and a Treasurer, and such other
officers as the Board of Directors may deem necessary or advisable for the
conduct of the company's business. The officers shall be elected by the Board of
Directors after the annual meeting of stockholders, and each officer shall hold
office until the next annual meeting of the Board of Directors and until his or
her successor has been elected and has qualified. Any officer elected by the
Board of Directors may be removed by the Board of Directors at any time and with
or without cause. Any two of the aforesaid offices may be held by the same
person. Any office may be left vacant by the Board of Directors. The Chairman of
the Board shall have the qualifications that he or she be a member of the Board
of Directors but no other officer need be a director or stockholder.
21. The Board of Directors may elect such other officers (including
additional Vice Presidents, Assistant
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Secretaries and Assistant Treasurers) as it shall deem necessary who shall have
such authority and shall perform such duties as from time to time shall be
prescribed by the Board of Directors.
22. The salaries of all officers of the company shall be fixed by the
Board of Directors or a committee thereof or if not fixed by the Board of
Directors or a committee thereof, shall be fixed by the Chief Executive Officer.
23. The Chief Executive Officer shall be the chief executive officer
of the company; he or she shall preside at all meetings of the stockholders and,
if no Chairman has been elected or in his or her absence, of the Board of
Directors and shall perform all other duties as are required of him or her by
the Board of Directors; he or she shall, subject to the powers of the Board of
Directors, have general management and control of the business of the company
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
24. The Chairman of the Board of Directors shall preside at all
meetings of the Board of Directors; he or she shall, in the absence or
disability of the Chief Executive Officer, exercise the powers and perform the
duties of the Chief Executive Officer. He or she shall perform such other
executive duties as shall be prescribed by the Board of Directors.
25. The Executive Vice President and the Senior Vice President, or if
there be more than one of either, the Executive Vice Presidents and the Senior
Vice Presidents, in the order in which they are named in the resolutions adopted
by the Board of Directors electing officers pursuant to which the Executive Vice
Presidents and the Senior Vice Presidents are then serving, shall, in the
absence or disability of the Chairman and the Chief Executive Officer and with
any Executive Vice President having precedence over any Senior Vice President,
exercise the powers and perform the duties of the Chairman and the Chief
Executive Officer. Each Executive Vice President and Senior Vice President shall
exercise such powers and perform such duties as shall be prescribed by the Board
of Directors or the Chief Executive Officer.
26. The Secretary shall attend all meetings of the Board of Directors
and of the stockholders, act as clerk thereof, and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and he or she
shall perform like duties for any committee of the Board of Directors when
required. He or she shall cause to be
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given notice of meetings of the stockholders and of the Board of Directors and
shall perform such other duties as pertain to his or her office. He or she shall
keep in safe custody the seal of the company and when authorized by the Board of
Directors shall affix it when required to any instrument. He or she shall sign
such instruments as require his or her signature and shall perform such other
duties as shall be prescribed by the Board of Directors or the Chief Executive
Officer.
27. The Treasurer shall have custody of all the company's funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the company and shall deposit all monies and
other valuable effects in the name and to the credit of the company in such
depositories as may be designated by the Board of Directors. He or she shall
render to the Chief Executive Officer and to the Board of Directors at its
regular meetings or whenever it may require it, an account of all his or her
transactions as Treasurer and of the financial condition of the company. He or
she shall sign such instruments as require his or her signature and shall
perform such other duties as shall be prescribed by the Board of Directors.
28. Unless otherwise ordered by the Board of Directors and the Chief
Executive Officer and Chairman of the Board, any Executive Vice President or
Senior Vice President shall have full power and authority on behalf of the
company to attend, act and vote, or in the name of the company to execute
proxies to vote, at any meeting of stockholders of any corporation in which the
company may hold shares, and at any such meeting shall possess and may exercise,
in person or by proxy, any and all rights, powers and privileges incident to the
ownership of such shares. Said officers shall be, and they hereby are,
authorized and empowered to transfer, convert, endorse, sell, assign, set over
and deliver any and all shares of stock, bonds, debentures, notes, subscription
warrants, stock purchase warrants, evidences of indebtedness, or other
securities now or hereafter standing in the name of or owned by the company, and
to make, execute and deliver, under the seal of the company, any and all written
instruments of assignment and transfer necessary or proper to effectuate the
authority hereby conferred. The Board of Directors may by resolution from time
to time confer like powers upon any other person or persons.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed pursuant to and in accordance with the
foregoing paragraph (a), a certificate of the Secretary or an Assistant
Secretary of
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the company in office at the date of such certificate setting forth the
provisions of this Section 31 and stating that they are in full force and effect
and setting forth the names of persons who are then officers of the company,
then all persons to whom such instrument and annexed certificate shall
thereafter come shall be entitled, without further inquiry or investigation and
regardless of the date of such certificate, to assume and to act in reliance
upon the assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly transferred, endorsed, sold,
assigned, set over and delivered by the company, and that with respect to such
securities, the authority of these provisions of the by-laws and of such
officers is still in full force and effect.
29. If any office becomes vacant for any reason, the Board of
Directors may elect a successor who shall hold office for the unexpired term.
Any officer may resign his or her office at any time, such resignation to be in
writing and to be effective upon receipt by the company or at such later date as
shall be specified therein.
30. Except as provided in sections 23, 24 and 25 hereof, in case of
the absence of any officer of the company, or for any other reason that the
Board of Directors may deem sufficient, the Board of Directors may delegate the
powers or duties of such officer to any other officer or to any director for the
time being.
CERTIFICATES FOR SHARES
31. The shares of the company shall be represented by certificates in
such form as shall be approved by the Board of Directors. All certificates shall
be consecutively numbered and the names and addresses of the stockholders, the
number and class of shares held by each, and the dates when they respectively
became the owners of record thereof, shall be entered on a record.
32. Upon surrender to the company or the transfer agent of the
company of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto, and the old
certificate cancelled and the transaction recorded upon the books of the
company.
33. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the company, alleged to have been lost or destroyed, upon
the
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making of an affidavit of that fact by the person claiming the certificate to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his, her or its legal representative(s), to
advertise the same in such manner as it shall require and/or give the company a
bond in such sum and with such surety or sureties as it may direct as indemnity
against any claim that may be made against the company with respect to the
certificate alleged to have been lost or destroyed.
REGISTERED STOCKHOLDERS
34. The company shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
INSPECTION OF BOOKS
35. The Board of Directors shall determine from time to time, whether
and if allowed, when and under what conditions and regulations the accounts and
books of the company or any of them (except such as may by law be specifically
open to inspection), shall be open to the inspection of the stockholders and the
stockholders' rights in said respect are and shall be restricted and limited
accordingly.
FIXING RECORD DATE
36. For the purpose of determining stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining the stockholders entitled to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other action,
the Board of Directors may fix, in advance, a date as the record date for any
such determination of stockholders. Such date shall not be more than sixty nor
less than ten days before the date of any meeting nor more than sixty days prior
to any other action. When a determination of stockholders of record entitled to
notice of or to vote at any meeting of stockholders has been made as provided in
this section, such
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<PAGE>
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
SEAL
37. The seal of the company shall be circular in form and contain the
name of the company, the year of its incorporation and the words "Corporate Seal
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
FISCAL YEAR
38. The fiscal year of the company shall be determined by the Board
of Directors.
CHECKS, NOTES, DRAFTS, etc.
39. The funds of the company shall be deposited in such banks,
savings and loan associations or trust companies as the Board of Directors from
time to time may designate. All checks or demands for money and notes, drafts or
bills of exchange of the company shall be signed by such officers or other
persons as the Board of Directors from time to time may designate.
NOTICE AND WAIVER OF NOTICE
40. Any stockholder, officer or director may waive any notice
required to be given by law or under the provisions of the certificate of
incorporation or by these by-laws, by a waiver in writing, signed by the person
or persons entitled to such notice, whether before or after the holding of any
meeting which was the subject of such required notice. Actual attendance at any
such meeting in person, or in the case of any stockholder, by proxy, shall be
deemed equivalent to the giving of such notice to such person.
41. Whenever required by law or under the provisions of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his, her or its address as it appears on the records
of the company, with postage thereon prepaid, and such notice shall be deemed to
be given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
10
<PAGE>
AMENDMENTS
42. These by-laws may be added to, amended, altered or repealed by
the stockholders or the Board of Directors, provided that the stockholders may
specifically designate one or more by-laws as not being subject to amendment or
repeal by the Board of Directors. If any by-law regulating an impending election
is adopted, amended, altered or repealed by the Board of Directors, there shall
be set forth in the notice of the next meeting of stockholders the by-law so
adopted, amended, altered or repealed, together with a precise statement of the
changes resulting therefrom.
11
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 3rd day of July, 1996, by and between Poppe
Tyson, Inc. (hereinafter the "Agency" or the "Company"), a Delaware corporation,
with its principal place of business at 40 West 23rd Street, New York, New York
10010 and Fergus O'Daly, Jr. (hereinafter the "Executive"), residing at 77
Highland Avenue, Northport, New York 11768.
W I T N E S S E T H
-------------------
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, all on the terms and subject to the
conditions contained herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Upon the terms and subject to the conditions contained in this
Agreement, the Agency hereby engages the Executive to render his services
exclusively to the Agency during the Term of this Agreement, as hereinafter
defined, and the Executive hereby accepts such employment and agrees to render
his services well and faithfully, to the best of his ability and in a competent
and professional manner. The Executive shall devote his full time and attention
to the services to be rendered by him hereunder and to promote the interests of
the Company.
2. The Executive shall serve as the Chairman of the Board and Chief
Executive Officer of the Company. The Executive shall perform such functions and
have such responsibilities as are related to the foregoing position and such
other commensurate functions as may from time to time be designated by the Board
of Directors (which term, for purposes of this Agreement, shall also include the
Executive Committee) of the Company not inconsistent with the Executive's
position and the Executive shall report directly to the Board of Directors of
the Company. In addition, the Company shall use its best efforts to cause the
Executive to be nominated as a director to the Company's Board of Directors
during the Term (as defined below).
3. The term of this Agreement (the "Term") shall commence upon the
consummation of the initial public offering of the common stock of the Company
(the "IPO"); provided, however, that in the event that the consummation
-------- -------
<PAGE>
of the IPO does not take place on or prior to 5:00 p.m. New York time on March
31, 1997, this Agreement and the rights and obligations of the Company and the
Executive hereunder shall be null and void and without any liability hereunder
to any other party. This Agreement shall terminate on the third anniversary of
the date of the commencement of the Term, subject to earlier termination as
provided herein. In the event that the Company elects not to renew the
Executive's employment at the end of the Term and fails to give Executive at
least six months prior notice of such election, then the Executive shall be
entitled as a severance payment to an amount equal to his salary for such
period, up to six months, as to which such notice was not given.
4. During the Term, as full compensation for his services hereunder,
the Agency agrees to pay the Executive, and the Executive agrees to accept, the
following:
a. A salary computed at the annual rate of Two Hundred Thousand
Dollars ($200,000), payable in such installments as salaries are paid to other
executive personnel of the Agency. Such salary is to be reviewed annually by the
Company, and may be increased but not decreased.
b. Such bonuses, if any, as the Board of Directors of the Company,
in its sole discretion, shall determine.
c. Reimbursement of authorized business expenses incurred in
connection with the performance of his duties in accordance with the Agency's
standard policy with regard thereto for Agency executives of comparable level.
All amounts payable pursuant to this Agreement shall be made subject to
all applicable withholdings.
5. The Executive shall be entitled to life, health and dental
insurance, and participation in the Agency's other fringe benefits (including
severance pay arrangement) in accordance with the Agency's standard policy
affecting Agency executives of comparable level and in accordance with the terms
of the applicable plans as the same may be in effect from time to time.
6. The Executive shall be entitled to participate in the incentive
compensation arrangements established by the Agency on a basis comparable to
other senior executives of the Company of comparable rank and position, and in
accordance with the terms of the applicable
2
<PAGE>
plans as the same may be in effect from time to time; provided, however, that
any grant of awards or other compensation under any such plan may take into
account the performance of the Executive, as determined by the Board of
Directors or committee administering such plan.
7. The Agency may terminate this Agreement for Cause at any time upon
written notice to the Executive. "Cause", as used herein, is hereby defined as:
a. the Executive's conviction in a court of law of any crime or
offense involving misuse or misappropriation of money or other property of the
Agency, or
b. the Executive's continued, willful failure or refusal to perform
(unless cured within 15 days after written notice) specific written directives
of the Board of Directors of the Agency regarding the Executive's duties and
responsibilities which are consistent with the scope and nature of the
Executive's duties and responsibilities as set forth in Paragraph 2 hereof, or
c. any flagrant act of dishonesty by the Executive, any
intentionally disparaging comment made by the Executive about the Company which
is published and publicly disseminated by the press or media, or any act
involving gross moral turpitude of the Executive which in the latter two cases,
may materially adversely affect the business of the Agency in the reasonable
judgment of the Board; provided, however, the Executive shall be given an
opportunity to address the Board with respect to any termination for Cause under
this clause c before he is so terminated.
If the Executive's employment is terminated for Cause, the Executive
shall be entitled only to his salary and all previously earned and accrued
benefits from the Company or its affiliates through the date of such
termination, but shall not be entitled to any other payments.
8. The employment of the Executive shall terminate upon the Executive's
death or disability. "Disability", as used herein, is hereby defined as the
unwillingness, inability or failure of the Executive, because of ill health or
physical or mental disability to perform his responsibilities under this
Agreement for a period of ninety (90) consecutive business days or for a total
of one hundred twenty (120) business days, whether or not consecutive, in any
twelve (12) consecutive calendar months. If the Executive's employment is
terminated due to his death or Disability, he shall be entitled only to his
salary and all previously earned and accrued benefits from
3
<PAGE>
the Company or its affiliates through the date of such termination but shall not
be entitled to any other payments.
9. In consideration of the Executive's employment and continued
employment by the Agency, the Executive agrees that for the Term and, unless
while this Agreement is in effect, Executive is terminated without Cause or
quits for Good Reason (as hereinafter defined), for a period of one year
thereafter (such period being the "Non-Competition Period"), he will not,
directly or indirectly, either on his own behalf or on behalf of any other
person, firm or corporation:
a. solicit any account which is a client of the Agency at the time
of such termination, or which was a client of the Agency at any time within one
(1) year prior to the date of such termination; or
b. perform any services relating to new media, the Internet,
advertising, marketing, or public relations for any account described in (a)
above, either on his own behalf or on behalf of any other new media entity,
advertising agency, marketing, or public relations or other organization
representing any such account or on behalf of any such account; or
c. solicit the employment or consulting services of or employ or
retain the consulting services of or attempt to employ or retain the consulting
services of, or assist anyone else to employ or retain the consulting services
of, any person who is at such time or who was at any time within one (1) year
immediately prior to such time, an employee of the Agency.
The Executive also agrees that he will not at any time (whether
before or after the termination of his employment with the Agency and regardless
as to why he is no longer employed by the Agency) disclose to anyone any
confidential information or trade secrets of the Agency or of any client of the
Agency, or utilize such confidential information or trade secrets for his own
benefit or for the benefit of third parties. All records, memoranda, notes and
other documents compiled by him or made available to him during his employment
concerning the business of the Agency or the business of any of its clients
shall be and remain the property of the Agency, and shall be delivered to the
Agency upon the termination of the Executive's employment or at any time prior
thereto upon request.
In the event of any breach or threatened breach by the Executive of
any of the covenants hereinabove contained, it is specifically understood and
agreed that the Agency shall be entitled, in addition to any other remedies
4
<PAGE>
which it may have, to equitable relief by way of injunction or otherwise.
For purposes hereof, in the event that (A) the Company is in material
breach of the Agreement including, without limitation, (i) a demotion in the
Executive's title or position or a material diminution in responsibilities as
described herein, (ii) the failure of the Executive having to report directly to
the Board of Directors of the Company, or (iii) any reduction in the Executive's
salary or the failure of the Company to pay when due to the Executive any salary
or other compensation or benefits described herein, (B) the Executive gives
written notice of such breach to the Company, (C) the Company does not remedy
such breach within 30 days of such notice, and (D) the Executive terminates his
employment within 45 days of such notice, such termination of employment shall
be deemed to be a termination of employment for "Good Reason."
10. This Agreement constitutes the complete understanding between the
parties with respect to the employment of the Executive hereunder, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement shall
not be altered, modified, amended or terminated except by a written instrument
signed by each of the parties thereto.
11. If any covenant or other provision of this Agreement is invalid,
unlawful, or incapable of being enforced, by reason of any rule of law or public
policy, it shall be enforceable to the maximum extent permitted by law and all
other conditions and provisions of this Agreement which can be given effect
without the invalid, unlawful or unenforceable provision, shall be given effect.
12. Unless the Executive and the Company enter into a binding agreement
which specifically states that it is extending the Term, in the event that the
Executive continues in the employ of the Company past the stated expiration of
the Term, such employment shall be considered to be "at will" and none of the
provisions of this Agreement regarding Executive's employment or the terms and
conditions thereof shall continue in effect; provided, however, that such
continued employment shall not adversely effect the Executive's right to receive
any benefit (including any severance or other benefit otherwise payable for non-
renewal of this Agreement) which he would otherwise have been entitled to
hereunder or under the Stock Option Agreement had his employment not continued
beyond the stated expiration of the Term.
5
<PAGE>
13. The Agency shall have the right to set off against any amounts
payable by the Agency under this Agreement any amounts owed by the Executive to
the Agency.
14. The obligations and rights of the Executive shall inure to the
benefit of and shall be binding upon him and his personal representatives, and
the obligations and rights of the Agency shall inure to the benefit of and shall
be binding upon it and its successors and assigns; provided however that the
Executive shall not have the right to assign any of his obligations under this
Agreement.
15. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration to be held in the City of
New York before a single arbitrator in accordance with the rules of the American
Arbitration Association then in effect. Each party hereto shall bear its own
fees and expenses in connection with the arbitration and 50% of the fees and
expenses of the American Arbitration Association and the cost of any transcript.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction, and the parties consent to the jurisdiction of the New York courts
for that purpose. Nothing contained in this Paragraph shall, however, prevent
the Company from seeking an injunction to enforce a restrictive covenant
contained herein.
16. To the extent permissible by law, the Executive shall be
indemnified by the Company to the fullest extent permissible under the Company's
amended and restated certificate of incorporation and its by-laws, both as in
effect on June 26, 1996, without regard to subsequent reductions thereof.
17. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
POPPE TYSON, INC.
By: ____________________________________
Name:
Title:
________________________________________
Fergus O'Daly, Jr.
6
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 3rd day of July, 1996, by and between Poppe
Tyson, Inc. (hereinafter the "Agency" or the "Company"), a Delaware corporation,
with its principal place of business at 40 West 23rd Street, New York, New York
10010 and David Scott Carlick (hereinafter the "Executive"), residing at 20
Antonio Court, Portola Valley, California 94028.
W I T N E S S E T H
-------------------
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, all on the terms and subject to the
conditions contained herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Upon the terms and subject to the conditions contained in this
Agreement, the Agency hereby engages the Executive to render his services
exclusively to the Agency during the Term of this Agreement, as hereinafter
defined, and the Executive hereby accepts such employment and agrees to render
his services well and faithfully, to the best of his ability and in a competent
and professional manner. The Executive shall devote his full time and attention
to the services to be rendered by him hereunder and to promote the interests of
the Company.
2. The Executive shall serve as an Executive Vice President of the
Company. The Executive shall perform such functions and have such
responsibilities as are related to the foregoing position and such other
commensurate functions as may from time to time be designated by the Board of
Directors (which term, for purposes of this Agreement, shall also include the
Executive Committee) of the Company or the Chief Executive Officer or Chief
Operating Officer of the Company not inconsistent with the Executive's position,
and the Executive shall report directly to the Chief Executive Officer or the
Chief Operating Officer of the Company. Notwithstanding the foregoing, the
Executive shall be entitled to moderate his work load to the extent he
reasonably deems it necessary to remain healthy and able to perform his
functions hereunder.
3. The term of this Agreement (the "Term") shall commence upon the
consummation of the initial public offering of the common stock of the
Company (the "IPO"); provided, however, that in the event that the consummation
-------- -------
of the IPO does not take place on or prior to 5:00 p.m. New
<PAGE>
York time on March 31, 1997, this Agreement and the rights and obligations of
the Company and the Executive hereunder shall be null and void and without any
liability hereunder to any other party. This Agreement shall terminate on the
third anniversary of the date of the commencement of the Term, subject to
earlier termination as provided herein. In the event that the Company elects
not to renew the Executive's employment at the end of the Term and fails to give
Executive at least six months prior notice of such election, then the Executive
shall be entitled as a severance payment to an amount equal to his salary for
such period, up to six months, as to which such notice was not given.
4. During the Term, as full compensation for his services hereunder,
the Agency agrees to pay the Executive, and the Executive agrees to accept, the
following:
a. A salary computed at the annual rate of One Hundred
Seventy-Five Thousand Dollars ($175,000), payable in such installments as
salaries are paid to other executive personnel of the Agency. Such salary is to
be reviewed annually by the Company, and may be increased but not decreased.
b. Such bonuses, if any, as the Board of Directors of the
Company, in its sole discretion, shall determine.
c. Reimbursement of authorized business expenses incurred in
connection with the performance of his duties in accordance with the Agency's
standard policy with regard thereto for Agency executives of comparable level.
All amounts payable pursuant to this Agreement shall be made subject
to all applicable withholdings.
5. The Executive shall be entitled to life, health and dental
insurance, and participation in the Agency's other fringe benefits (including
severance pay arrangement) in accordance with the Agency's standard policy
affecting Agency executives of comparable level and in accordance with the terms
of the applicable plans as the same may be in effect from time to time.
6. The Executive shall be entitled to participate in the incentive
compensation arrangements established by the Agency on a basis comparable to
other senior executives of the Company of comparable rank and position (which
executives shall not include the Company's chief executive officer or chief
operating officer), and in
2
<PAGE>
accordance with the terms of the applicable plans as the same may be in effect
from time to time; provided, however, that any grant of awards or other
compensation under any such plan may take into account the performance of the
Executive, as determined by the Board of Directors or committee administering
such plan.
7. The Agency may terminate this Agreement for Cause at any time
upon written notice to the Executive. "Cause", as used herein, is hereby
defined as:
a. the Executive's conviction in a court of law of any crime or
offense involving misuse or misappropriation of money or other property of the
Agency, or
b. the Executive's continued, willful failure or refusal to
perform (unless cured within 15 days after written notice) specific
written directives of the Board of Directors of the Agency or of the officer to
whom he has been directed to report directly, or
c. any flagrant act of dishonesty by the Executive, any
intentionally disparaging comment made by the Executive about the Company
which is published and publicly disseminated by the press or media, or any act
involving gross moral turpitude of the Executive which in the latter two cases,
may materially adversely affect the business of the Agency in the reasonable
judgment of the Board; provided, however, the Executive shall be given an
opportunity to address the Board with respect to any termination for Cause under
this clause c before he is so terminated.
If the Executive's employment is terminated for Cause, the
Executive shall be entitled only to his salary and all previously earned and
accrued benefits from the Company or its affiliates through the date of such
termination, but shall not be entitled to any other payments.
8. The employment of the Executive shall terminate upon the
Executive's death or disability. "Disability", as used herein, is hereby defined
as the unwillingness, inability or failure of the Executive, because of ill
health or physical or mental disability to perform his responsibilities under
this Agreement for a period of ninety (90) consecutive business days or for a
total of one hundred twenty (120) business days, whether or not consecutive, in
any twelve (12) consecutive calendar months. The determination as to whether or
not the Executive has incurred a Disability shall be made without regard to the
last sentence of Paragraph 2 hereof. If the Executive's employment is terminated
due to his death or Disability, he shall be entitled only to his salary and all
previously earned and accrued benefits from
3
<PAGE>
the Company or its affiliates through the date of such termination but shall not
be entitled to any other payments.
9. In consideration of the Executive's employment and continued
employment by the Agency, the Executive agrees that for the Term and, unless
while this Agreement is in effect, Executive is terminated without Cause or
quits for Good Reason (as hereinafter defined), for a period of one year
thereafter (such period being the "Non-Competition Period"), he will not,
directly or indirectly, either on his own behalf or on behalf of any other
person, firm or corporation:
a. solicit any account which is a client of the Agency at the
time of such termination, or which was a client of the Agency at any time within
one (1) year prior to the date of such termination; or
b. perform any services relating to new media, the Internet,
advertising, marketing, or public relations for any account described
in (a) above, either on his own behalf or on behalf of any other new media
entity, advertising agency, marketing, or public relations or other organization
representing any such account or on behalf of any such account; or
c. solicit the employment or consulting services of or employ
or retain the consulting services of or attempt to employ or retain the
consulting services of, or assist anyone else to employ or retain the consulting
services of, any person who is at such time or who was at any time within one
(1) year immediately prior to such time, an employee of the Agency.
The Executive also agrees that he will not at any time (whether
before or after the termination of his employment with the Agency and regardless
as to why he is no longer employed by the Agency) disclose to anyone any
confidential information or trade secrets of the Agency or of any client of the
Agency, or utilize such confidential information or trade secrets for his own
benefit or for the benefit of third parties. All records, memoranda, notes and
other documents compiled by him or made available to him during his employment
concerning the business of the Agency or the business of any of its clients
shall be and remain the property of the Agency, and shall be delivered to the
Agency upon the termination of the Executive's employment or at any time prior
thereto upon request.
In the event of any breach or threatened breach by the Executive
of any of the covenants hereinabove contained, it is specifically understood and
agreed that the Agency shall be entitled, in addition to any other remedies
4
<PAGE>
which it may have, to equitable relief by way of injunction or otherwise.
For purposes hereof, in the event that (A) the Company is in
material breach of the Agreement including, without limitation, (i) a demotion
in the Executive's title or position or a material diminution in
responsibilities as described herein, (ii) the failure of the Executive having
to report directly to the Chief Executive Officer or Chief Operating Officer of
the Company, or (iii) any reduction in the Executive's salary or the failure of
the Company to pay when due to the Executive any salary or other compensation or
benefits described herein, (B) the Executive gives written notice of such breach
to the Company, (C) the Company does not remedy such breach within 30 days of
such notice, and (D) the Executive terminates his employment within 45 days of
such notice, such termination of employment shall be deemed to be a termination
of employment for "Good Reason."
10. This Agreement constitutes the complete understanding between
the parties with respect to the employment of the Executive hereunder,
and no statement, representation, warranty or covenant has been made by either
party with respect thereto except as expressly set forth herein. This Agreement
shall not be altered, modified, amended or terminated except by a written
instrument signed by each of the parties thereto.
11. If any covenant or other provision of this Agreement is invalid,
unlawful, or incapable of being enforced, by reason of any rule of law or public
policy, it shall be enforceable to the maximum extent permitted by law and all
other conditions and provisions of this Agreement which can be given effect
without the invalid, unlawful or unenforceable provision, shall be given effect.
12. Unless the Executive and the Company enter into a binding
agreement which specifically states that it is extending the Term, in
the event that the Executive continues in the employ of the Company past the
stated expiration of the Term, such employment shall be considered to be "at
will" and none of the provisions of this Agreement regarding Executive's
employment or the terms and conditions thereof shall continue in effect;
provided, however, that such continued employment shall not adversely effect the
Executive's right to receive any benefit (including any severance or other
benefit otherwise payable for non-renewal of this Agreement) which he would
otherwise have been entitled to hereunder or under the Stock Option Agreement
had his employment not continued beyond the stated expiration of the Term.
5
<PAGE>
13. The Agency shall have the right to set off against any amounts
payable by the Agency under this Agreement any amounts owed by the Executive to
the Agency.
14. The obligations and rights of the Executive shall inure to the
benefit of and shall be binding upon him and his personal representatives, and
the obligations and rights of the Agency shall inure to the benefit of and shall
be binding upon it and its successors and assigns; provided however that the
Executive shall not have the right to assign any of his obligations under this
Agreement.
15. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration to be held in the
City of New York before a single arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Each party hereto shall bear
its own fees and expenses in connection with the arbitration and 50% of the fees
and expenses of the American Arbitration Association and the cost of any
transcript. Judgment may be entered on the arbitrator's award in any court
having jurisdiction, and the parties consent to the jurisdiction of the New York
courts for that purpose. Nothing contained in this Paragraph shall, however,
prevent the Company from seeking an injunction to enforce a restrictive covenant
contained herein.
16. To the extent permissible by law, the Executive shall be
indemnified by the Company to the fullest extent permissible under the Company's
amended and restated certificate of incorporation and its by-laws, both as in
effect on June 26, 1996, without regard to subsequent reductions thereof.
17. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first above written.
POPPE TYSON, INC.
By:___________________________
Name:
Title:
______________________________
David Scott Carlick
7
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 3rd day of July, 1996, by and between Poppe
Tyson, Inc. (hereinafter the "Agency" or the "Company"), a Delaware corporation,
with its principal place of business at 40 West 23rd Street, New York, New York
10010 and Thomas E. Wharton, Jr. (hereinafter the "Executive"), residing at 81
Moraine Road, Morris Plains, New Jersey 07950.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, all on the terms and subject to the
conditions contained herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Upon the terms and subject to the conditions contained in this
Agreement, the Agency hereby engages the Executive to render his services
exclusively to the Agency during the Term of this Agreement, as hereinafter
defined, and the Executive hereby accepts such employment and agrees to render
his services well and faithfully, to the best of his ability and in a competent
and professional manner. The Executive shall devote his full time and attention
to the services to be rendered by him hereunder and to promote the interests of
the Company.
2. The Executive shall serve as a Senior Vice President of the
Company and the General Manager of Poppe Tyson Interactive Businesses, with
responsibility as the general manager of Poppe.com. He shall be responsible for
the integration of Animated Systems into Poppe.com, for Poppe Tyson Database
Marketing Group and for the overall management and supervision of all Company
network and computer systems. The Executive shall also perform such functions
and have such responsibilities as are related to the foregoing positions and
such other commensurate functions as may from time to time be designated by the
Board of Directors (which term, for purposes of this Agreement, shall also
include the Executive Committee) of the Company or the Chief Executive Officer
or Chief Operating Officer of the Company not inconsistent with the Executive's
position, and the Executive shall report directly to the Chief Executive Officer
or the Chief Operating Officer of the Company.
3. The term of this Agreement (the "Term") shall commence upon the
consummation of the initial public
<PAGE>
offering of the common stock of the Company (the "IPO"); provided, however, that
-------- -------
in the event that the consummation of the IPO does not take place on or prior to
5:00 p.m. New York time on March 31, 1997, this Agreement and the rights and
obligations of the Company and the Executive hereunder shall be null and void
and without any liability hereunder to any other party. This Agreement shall
terminate on the third anniversary of the date of the commencement of the Term,
subject to earlier termination as provided herein. In the event that the
Company elects not to renew the Executive's employment at the end of the Term
and fails to give Executive at least six months prior notice of such election,
then the Executive shall be entitled as a severance payment to an amount equal
to his salary for such period, up to six months, as to which such notice was not
given.
4. During the Term, as full compensation for his services hereunder,
the Agency agrees to pay the Executive, and the Executive agrees to accept, the
following:
a. A salary computed at the annual rate of One Hundred
Sixty-Five Thousand Dollars ($165,000), payable in such installments as salaries
are paid to other executive personnel of the Agency. Such salary is to be
reviewed annually by the Company, and may be increased but not decreased.
b. Such bonuses, if any, as the Board of Directors of the
Company, in its sole discretion, shall determine.
c. Reimbursement of authorized business expenses incurred in
connection with the performance of his duties in accordance with the Agency's
standard policy with regard thereto for Agency executives of comparable level.
All amounts payable pursuant to this Agreement shall be made
subject to all applicable withholdings.
5. The Executive shall be entitled to life, health and dental
insurance, and participation in the Agency's other fringe benefits (including
severance pay arrangement) in accordance with the Agency's standard policy
affecting Agency executives of comparable level and in accordance with the terms
of the applicable plans as the same may be in effect from time to time.
6. The Executive shall be entitled to participate in the incentive
compensation arrangements established by the Agency on a basis comparable to
other senior executives of the Company of comparable rank and position (which
executives shall not include the Company's chief executive officer or chief
operating officer), and in
2
<PAGE>
accordance with the terms of the applicable plans as the same may be in effect
from time to time; provided, however, that any grant of awards or other
compensation under any such plan may take into account the performance of the
Executive, as determined by the Board of Directors or committee administering
such plan.
7. The Agency may terminate this Agreement for Cause at any time
upon written notice to the Executive. "Cause", as used herein, is hereby
defined as:
a. the Executive's conviction in a court of law of any crime
or offense involving misuse or misappropriation of money or other property of
the Agency, or
b. the Executive's continued, willful failure or refusal to
perform (unless cured within 15 days after written notice) specific written
directives of the Board of Directors of the Agency or of the officer to whom he
has been directed to report directly, regarding the Executive's duties and
responsibilities which are consistent with the scope and nature of the
Executive's duties and responsibilities as set forth in paragraph 2 hereof, or
c. any flagrant act of dishonesty by the Executive, any
intentionally disparaging comment made by the Executive about the Company
which is published and publicly disseminated by the press or media, or any act
involving gross moral turpitude of the Executive which in the latter two cases,
may materially adversely affect the business of the Agency in the reasonable
judgment of the Board; provided, however, the Executive shall be given an
opportunity to address the Board with respect to any termination for Cause under
this clause c before he is so terminated.
If the Executive's employment is terminated for Cause, the
Executive shall be entitled only to his salary and all previously earned and
accrued benefits from the Company or its affiliates through the date of such
termination, but shall not be entitled to any other payments.
8. The employment of the Executive shall terminate upon the
Executive's death or disability. "Disability", as used herein, is hereby
defined as the unwillingness, inability or failure of the Executive, because of
ill health or physical or mental disability to perform his responsibilities
under this Agreement for a period of ninety (90) consecutive business days or
for a total of one hundred twenty (120) business days, whether or not
consecutive, in any twelve (12) consecutive calendar months. If the Executive's
employment is terminated due to his death or Disability, he shall be entitled
only to his
3
<PAGE>
salary and all previously earned and accrued benefits from the Company or its
affiliates through the date of such termination but shall not be entitled to any
other payments.
9. In consideration of the Executive's employment and continued
employment by the Agency, the Executive agrees that for the Term and, unless
while this Agreement is in effect, Executive is terminated without Cause or
quits for Good Reason (as hereinafter defined), for a period of one year
thereafter (such period being the "Non-Competition Period"), he will not,
directly or indirectly, either on his own behalf or on behalf of any other
person, firm or corporation:
a. solicit any account which is a client of the Agency at the
time of such termination, or which was a client of the Agency at any time within
one (1) year prior to the date of such termination; or
b. perform any services relating to new media, the Internet,
advertising, marketing, or public relations for any account described in (a)
above, either on his own behalf or on behalf of any other new media entity,
advertising agency, marketing, or public relations or other organization
representing any such account or on behalf of any such account; or
c. solicit the employment or consulting services of or employ
or retain the consulting services of or attempt to employ or retain the
consulting services of, or assist anyone else to employ or retain the consulting
services of, any person who is at such time or who was at any time within one
(1) year immediately prior to such time, an employee of the Agency.
The Executive also agrees that he will not at any time (whether
before or after the termination of his employment with the Agency and regardless
as to why he is no longer employed by the Agency) disclose to anyone any
confidential information or trade secrets of the Agency or of any client of the
Agency, or utilize such confidential information or trade secrets for his own
benefit or for the benefit of third parties. All records, memoranda, notes and
other documents compiled by him or made available to him during his employment
concerning the business of the Agency or the business of any of its clients
shall be and remain the property of the Agency, and shall be delivered to the
Agency upon the termination of the Executive's employment or at any time prior
thereto upon request.
In the event of any breach or threatened breach by the Executive
of any of the covenants hereinabove
4
<PAGE>
contained, it is specifically understood and agreed that the Agency shall be
entitled, in addition to any other remedies which it may have, to equitable
relief by way of injunction or otherwise.
For purposes hereof, in the event that (A) the Company is in
material breach of the Agreement including, without limitation, (i) a demotion
in the Executive's title or position or a material diminution in
responsibilities as described herein, (ii) the failure of the Executive having
to report directly to the Chief Executive Officer or Chief Operating Officer of
the Company, or (iii) any reduction in the Executive's salary or the failure of
the Company to pay when due to the Executive any salary or other compensation or
benefits described herein, (B) the Executive gives written notice of such breach
to the Company, (C) the Company does not remedy such breach within 30 days of
such notice, and (D) the Executive terminates his employment within 45 days of
such notice, such termination of employment shall be deemed to be a termination
of employment for "Good Reason."
10. This Agreement constitutes the complete understanding between
the parties with respect to the employment of the Executive hereunder, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement shall
not be altered, modified, amended or terminated except by a written instrument
signed by each of the parties thereto.
11. If any covenant or other provision of this Agreement is invalid,
unlawful, or incapable of being enforced, by reason of any rule of law or public
policy, it shall be enforceable to the maximum extent permitted by law and all
other conditions and provisions of this Agreement which can be given effect
without the invalid, unlawful or unenforceable provision, shall be given effect.
12. Unless the Executive and the Company enter into a binding
agreement which specifically states that it is extending the Term, in
the event that the Executive continues in the employ of the Company past the
stated expiration of the Term, such employment shall be considered to be "at
will" and none of the provisions of this Agreement regarding Executive's
employment or the terms and conditions thereof shall continue in effect;
provided, however, that such continued employment shall not adversely effect the
Executive's right to receive any benefit (including any severance or other
benefit otherwise payable for non-renewal of this Agreement) which he would
otherwise have been entitled to hereunder or under the Stock Option Agreement
5
<PAGE>
had his employment not continued beyond the stated expiration of the Term.
13. The Agency shall have the right to set off against any amounts
payable by the Agency under this Agreement any amounts owed by the Executive to
the Agency.
14. The obligations and rights of the Executive shall inure to the
benefit of and shall be binding upon him and his personal representatives, and
the obligations and rights of the Agency shall inure to the benefit of and shall
be binding upon it and its successors and assigns; provided however that the
Executive shall not have the right to assign any of his obligations under this
Agreement.
15. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration to be held in the
City of New York before a single arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Each party hereto shall bear
its own fees and expenses in connection with the arbitration and 50% of the fees
and expenses of the American Arbitration Association and the cost of any
transcript. Judgment may be entered on the arbitrator's award in any court
having jurisdiction, and the parties consent to the jurisdiction of the New York
courts for that purpose. Nothing contained in this Paragraph shall, however,
prevent the Company from seeking an injunction to enforce a restrictive covenant
contained herein.
16. To the extent permissible by law, the Executive shall be
indemnified by the Company to the fullest extent permissible under the Company's
amended and restated certificate of incorporation and its by-laws, both as in
effect on June 26, 1996, without regard to subsequent reductions thereof.
17. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
POPPE TYSON, INC.
By:___________________________
Name:
Title:
______________________________
Thomas E. Wharton, Jr.
7
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 15th day of May 1996, by and between Poppe
Tyson (hereinafter the "Agency" or the "Company"), a Delaware corporation, with
its principal place of business at 40 West 23rd Street, New York, New York 10010
and Steven M. Blondy (hereinafter the "Executive"), residing at 46 East Lane,
Madison, New Jersey 07940.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, all on the terms and subject to the
conditions contained herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Upon the terms and subject to the conditions contained in this
Agreement, the Agency hereby engages the Executive to render his services
exclusively to the Agency during the Term of this Agreement, as hereinafter
defined, and the Executive hereby accepts such employment and agrees to render
his services well and faithfully, to the best of his ability and in a competent
and professional manner. The Executive shall devote his full time and attention
to the services to be rendered by him hereunder and to promote the interests of
the Company.
2. The Executive shall serve as Executive Vice President, Finance
and Administration, and shall be the most senior financial officer of the
Company. The Executive shall perform such functions and have such
responsibilities as are related to the foregoing position and such other
functions as may from time to time be designated by the Board of Directors
(which term, for purposes of this Agreement, shall also include the Executive
Committee) of the Company or the Chief Executive Officer or Chief Operating
Officer of the Company not inconsistent with the Executive's position and the
Executive shall report directly to the Chief Executive Officer or Chief
Operating Officer of the Company. Without limiting the foregoing, the
Executive's responsibilities shall include all the responsibilities set forth in
Attachment A to this Agreement.
3. The term of this Agreement (the "Term") shall commence on the
date hereof and shall terminate on the
<PAGE>
second anniversary thereof, subject to earlier termination as provided herein.
In the event that the Company elects not to renew the Executive's employment at
the end of the Term and fails to give Executive at least three months prior
notice of such election, then the Executive shall be entitled as a severance
payment to an amount equal to his salary for such period, up to three months, as
to which such notice was not given.
4. During the Term, as full compensation for his services hereunder,
the Agency agrees to pay the Executive, and the Executive agrees to accept,
the following:
a. A salary computed at the annual rate of Two Hundred Thousand
Dollars ($200,000), payable in such installments as salaries are paid to other
executive personnel of the Agency. Such salary is to be reviewed annually by the
Company, and may be increased but not decreased.
b. Such bonuses, if any, as the Board of Directors of the
Company, in its sole discretion, shall determine.
c. Reimbursement of authorized business expenses incurred in
connection with the performance of his duties in accordance with the Agency's
standard policy with regard thereto for Agency executives of comparable level.
d. The stock option described in Paragraph 7 hereof.
All amounts payable pursuant to this Agreement shall be made subject
to all applicable withholdings.
5. The Executive shall be entitled to life, health and dental
insurance, and participation in the Agency's other fringe benefits in
accordance with the Agency's standard policy affecting Agency executives of
comparable level and in accordance with the terms of the applicable plans as the
same may be in effect from time to time.
6. The Executive shall be entitled to participate in the incentive
compensation arrangements established by the Agency on a basis comparable to
other senior executives of the Company of comparable rank and position (which
executives shall not include the Company's chief executive officer or chief
operating officer), and in accordance with the terms of the applicable plans as
the same may be in effect from time to time; provided, however, that any grant
of awards or other compensation under any
2
<PAGE>
such plan may take into account the performance of the Executive, as determined
by the Board of Directors or committee administering such plan.
7. The parties acknowledge that contemporaneously herewith they are
entering into a stock option agreement (the "Stock Option Agreement") granting
to the Executive options to purchase 6.8782293081 shares of the Company's stock
(the "Stock Options").
8. The Agency may terminate this Agreement for Cause at any time
upon written notice to the Executive. "Cause", as used herein, is hereby defined
as:
a. the Executive's conviction in a court of law of any crime or
offense involving misuse or misappropriation of money or other property of the
Agency, or
b. the Executive's continued, willful failure or refusal to
perform (unless cured within 15 days after written notice) specific written
directives of the Board of Directors of the Agency or of the officer of the
Company (the Chief Executive Officer or Chief Operating Officer) to whom he has
been directed to report directly, regarding the Executive's duties and
responsibilities which are consistent with the scope and nature of the
Executive's duties and responsibilities as set forth in Paragraph 2 hereof, or
c. any flagrant act of dishonesty by the Executive, any
intentionally disparaging comment made by the Executive about the Company
which is published and publicly disseminated by the press or media or any act
involving gross moral turpitude of the Executive, which in the latter two cases,
may materially adversely affect the business of the Agency in the reasonable
judgment of the Board; provided, however, the Executive shall be given an
opportunity to address the Board with respect to any termination for Cause under
this clause c before he is so terminated.
If the Executive's employment is terminated for Cause, the
Executive shall be entitled only to his salary and all previously earned and
accrued benefits from the Company or its affiliates through the date of such
termination, but shall not be entitled to any other payments.
9. The employment of the Executive shall terminate upon the
Executive's death or disability. "Disability", as used herein, is hereby
defined as the unwillingness, inability or failure of the Executive, because of
ill health or physical or mental disability to
3
<PAGE>
perform his responsibilities under this Agreement for a period of ninety (90)
consecutive business days or for a total of one hundred twenty (120) business
days, whether or not consecutive, in any twelve (12) consecutive calendar
months. If the Executive's employment is terminated due to his death or
disability, he shall be entitled only to his salary and all previously earned
and accrued benefits from the Company or its affiliates through the date of such
termination but shall not be entitled to any other payments.
10. Upon the Executive's termination of employment for any reason
during the term of this Agreement, he shall be entitled to his salary and
all previously earned and accrued compensation and benefits from the Company
through the date of such termination. In addition, within 10 business days of
either (1) the Executive's termination of his employment hereunder for "Good
Reason," as hereinafter defined, or (2) the Company's termination of the
Executive's employment without Cause, the Company shall pay to the Executive
three months salary. For purposes hereof, in the event that (A) the Company is
in material breach of the Agreement including, without limitation, (i) a
demotion in the Executive's title or position or a material diminution in
responsibilities as described herein, (ii) the Company's requiring the Executive
to report directly to someone other than the Chief Executive Officer or Chief
Operating Officer of the Company, or (iii) any reduction in the Executive's
salary or the failure of the Company to pay when due to the Executive any salary
or other compensation or benefits described herein, (B) the Executive gives
written notice of such breach to the Company, (C) the Company does not remedy
such breach within 30 days of such notice, and (D) the Executive terminates his
employment within 45 days of such notice, such termination of employment shall
be deemed to be a termination of employment for "Good Reason." The parties
hereto agree that the payment to Executive of three months salary (whether made
under the circumstances described in the second preceding sentence or otherwise)
plus the accelerated Stock Option vesting provided for in Section 9(a)(ii) of
the Stock Option Agreement shall constitute full and complete liquidated damages
for any and all claims and causes of action which Executive might claim or
commence against the Company, its Board of Directors, officers and/or employees,
relating to a termination of employment or a breach by the Company of this
Agreement, and is in lieu of the severance payment provided for in Section 3
hereof.
11. In consideration of the Executive's employment and continued
employment by the Agency and grant to the Executive of the Stock Options, the
Executive agrees that for the Term and, unless while this Agreement is in
effect, Executive is terminated without Cause or quits for Good Reason, for a
period of one year thereafter (such
4
<PAGE>
period being the "Non-Competition Period"), he will not, directly or indirectly,
either on his own behalf or on behalf of any other person, firm or corporation:
a. solicit any account which is a client of the Agency at the
time of such termination, or which was a client of the Agency at any time within
one year prior to the date of such termination; or
b. perform any services relating to new media, the Internet,
advertising, marketing, or public relations for any account described
in (a) above, either on his own behalf or on behalf of any other new media
entity, advertising agency, marketing, or public relation or other organization
representing any such account or on behalf of any such account; or
c. solicit the employment or consulting services of or employ or
retain the consulting services of or attempt to employ or retain the consulting
services of, or assist anyone else to employ or retain the consulting services
of, any person who is at such time or who was at any time within one (1) year
immediately prior to such time, an employee of the Agency.
The Executive also agrees that he will not at any time (whether
before or after the termination of his employment with the Agency and regardless
as to why he is no longer employed by the Agency) disclose to anyone any
confidential information or trade secrets of the Agency or of any client of the
Agency, or utilize such confidential information or trade secrets for his own
benefit or for the benefit of third parties. All records, memoranda, notes and
other documents compiled by him or made available to him during his employment
concerning the business of the Agency or the business of any of its clients
shall be and remain the property of the Agency, and shall be delivered to the
Agency upon the termination of the Executive's employment or at any time prior
thereto upon request.
In the event of any breach or threatened breach by the Executive
of any of the covenants hereinabove contained, it is specifically understood and
agreed that the Agency shall be entitled, in addition to any other remedies
which it may have, to equitable relief by way of injunction or otherwise.
12. This Agreement constitutes the complete understanding between
the parties with respect to the employment of the Executive hereunder, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Agreement shall
not be altered, modified,
5
<PAGE>
amended or terminated except by a written instrument signed by each of the
parties thereto.
13. If any covenant or other provision of this Agreement is invalid,
unlawful, or incapable of being enforced, by reason of any rule of law or public
policy, it shall be enforceable to the maximum extent permitted by law and all
other conditions and provisions of this Agreement which can be given effect
without the invalid, unlawful or unenforceable provision, shall be given effect.
14. Unless the Executive and the Company enter into a binding
agreement which specifically states that it is extending the Term, in
the event that the Executive continues in the employ of the Company past the
stated expiration of the Term, such employment shall be considered to be "at
will" and none of the provisions of this Agreement regarding Executive's
employment or the terms and conditions thereof shall continue in effect;
provided, however, that such continued employment shall not adversely effect the
Executive's right to receive any benefit (including any severance or other
benefit otherwise payable for non-renewal of this Agreement) which he would
otherwise have been entitled to hereunder or under the Stock Option Agreement
had his employment not continued beyond the stated expiration of the Term.
15. The Agency shall have the right to set off against any amounts
payable by the Agency under this Agreement any amounts owed by the Executive
to the Agency.
16. The obligations and rights of the Executive shall inure to the
benefit of and shall be binding upon himself and his personal representatives,
and the obligations and rights of the Agency shall inure to the benefit of and
shall be binding upon it and its successors and assigns; provided however that
the Executive shall not have the right to assign any of his obligations under
this Agreement.
17. Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration to be held in the
City of New York before a single arbitrator in accordance with the rules of the
American Arbitration Association then in effect. Each party hereto shall bear
its own fees and expenses in connection with the arbitration and 50% of the fees
and expenses of the American Arbitration Association and the cost of any
transcript. Judgment may be entered on the arbitrator's award in any court
having jurisdiction, and the parties consent to the jurisdiction of the New York
courts for that purpose. Nothing contained in this Paragraph shall, however,
prevent the Company from seeking an
6
<PAGE>
injunction to enforce a restrictive covenant contained herein.
18. To the extent permissible by law, the Executive shall be
indemnified by the Company to the fullest extent permissible under the
Company's amended and restated certificate of incorporation and its by-laws,
both as in effect on June 26, 1996, without regard to subsequent reductions
thereof.
19. This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
POPPE TYSON, INC.
By: ___________________________
Name:
Title:
___________________________
Steven M. Blondy
7
<PAGE>
ATTACHMENT A
CORPORATE FINANCE
- -----------------
. treasury and capital planning/structure
. accounting and audit
. SEC reporting
. taxation
. establishment and administration of credit policies
. billing and accounts receivable management (includes
client cost accounting)
. purchasing and accounts payable management
. expense approvals
. budgeting - both operating and capital
. mergers & acquisitions
ADMINISTRATION
- --------------
. corporate structure and policies
. data processing and information systems
. facilities and equipment
. public/investor relations
. legal and secretarial
. human resources and payroll
. benefits administration
. compensation including all stock plans
8
<PAGE>
EXHIBIT 10.5
OPERATING SERVICES AGREEMENT
----------------------------
OPERATING SERVICES AGREEMENT dated the __th day of June, 1996 between
Poppe Tyson, Inc. ("Poppe"), a Delaware corporation, with its principal
executive offices at 40 West 23rd Street, New York, NY 10010-5201 and Bozell,
Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E"), a Delaware corporation, with its
principal executive offices at 40 West 23rd Street, New York, NY 10010-5201.
IN CONSIDERATION of the mutual covenants and agreements contained
herein, the parties agree as follows:
ARTICLE 1
OBLIGATIONS OF THE PARTIES
1.1 Services. Subject to the terms and conditions set forth herein,
--------
(a) BJK&E, in consideration of the Contract Price (as defined in
Section 2.1) agrees to perform or cause to be performed the services described
in Schedule A hereto (the "Services") in accordance with such Schedule A and the
other terms hereof, and
(b) Poppe agrees to pay for the Services as set forth in Section 2.1.
1.2 Employees. All personnel assigned by BJK&E to perform Services
---------
shall be employees or independent contractors of BJK&E (or subsidiaries of BJK&E
other than
<PAGE>
Poppe) and BJK&E (or any such BJK&E subsidiary) shall be responsible for the
payment of all fees, salaries and expenses, all federal, state and local payroll
and withholding taxes relating to such employees and shall comply with all
federal, state and local employer-employee related laws. BJK&E shall be
considered, for all purposes, an independent contractor, and it shall not,
directly or indirectly, act as an agent, servant or employee of Poppe.
1.3 Benefit Plans. BJK&E shall permit Poppe and/or its employees, as
-------------
applicable, to participate in BJK&E's employee benefit plans, including plans
which provide either pension or welfare benefits (other than the Stock Bonus
Plan), and to receive health, life insurance and other insurance coverage
thereunder, so long as, and to the extent permitted by each such plan or policy.
To the extent that Poppe participates in a BJK&E plan, Poppe hereby agrees that
BJK&E or BJK&E's designee(s) shall be the plan administrator, which shall be the
sole party responsible for interpretation and administration of the plan,
including claim review and related litigation. Notwithstanding anything to the
contrary contained herein, to the extent that a Poppe employee or a former Poppe
employee, or a member of the employee's or former employee's family, brings a
claim against BJK&E, its directors, officers or employees relating to such
person's participation in the plan which results in a liability to one or more
of such parties, which
2
<PAGE>
is paid by such party and which is not recovered from the insurance issued under
these plans (or, in the case of an uninsured arrangement, is in excess of the
normal amount payable with respect thereto without a showing of wrongdoing on
the part of BJK&E or the plan administrator), Poppe shall reimburse and hold
harmless such party for the full amount paid, unless such liability is a result
of such party's gross negligence.
1.4 Modifications to Services. Either party may request a
-------------------------
modification of the scope of the Services hereunder. Any such request shall be
submitted in writing to the other party. If the Services will materially
increase or decrease as a result of such modification, the parties shall
negotiate in good faith with respect to the requested modification taking into
account any additional costs or savings which may arise as a result of the
requested modification and the impact of such modification on the Contract Price
(as hereinafter defined).
1.5 Additions to Services. Poppe may from time to time request that
---------------------
BJK&E perform additional services for it not otherwise set forth in Schedule A.
BJK&E agrees that it will consider such request by Poppe and if it is capable of
performing such additional services negotiate in good faith a reasonable fee for
the additional services requested.
3
<PAGE>
ARTICLE 2
TERMS OF PAYMENT
2.1 Contract Price. In consideration for performance of the Services,
--------------
Poppe shall pay to BJK&E the amount set forth in Schedule B hereto (the
"Contract Price") pursuant to Section 2.2 hereof. Subject to Sections 2.3 and
3.1, the Contract Price includes all amounts to be paid by Poppe under this
Agreement for the performance of the Services. The payment for the Services
during any renewal term of this Agreement shall be at the Contract Price set
forth in Schedule B.
2.2 Payment of Contract Price. As part of the annual budget process,
-------------------------
Poppe shall submit to BJK&E its budget for each fiscal year commencing April 1st
of each year, which budget shall contain an estimate of commissions and fees to
be received by Poppe during the following fiscal year. An estimated Contract
Price (the "Estimated Contract Price") shall be calculated based upon Poppe's
estimated commissions and fees. Poppe shall pay to BJK&E one twelfth of the
Estimated Contract Price each month on or before the 10th day of each month. At
the end of each fiscal year Poppe shall submit to BJK&E a statement showing the
actual commissions and fees received for the prior fiscal year and the Contract
Price for the prior fiscal year shall be calculated based upon actual
commissions and fees received. In the event that the Estimated Contract Price
has exceeded
4
<PAGE>
the Contract Price as finally determined BJK&E shall pay such excess to Poppe
within (10) days of such determination. If the Contract Price as finally
determined exceeds the Estimated Contract Price, then Poppe shall pay to BJK&E
such excess within (10) days of such determination. In the event that this
Agreement is terminated during any fiscal year, the Contract Price shall be
determined based upon actual commissions and fees received by Poppe to the date
of such termination and appropriate adjustments shall be made if the amounts so
determined exceed or are less than the Estimated Contract Price and payment
shall be made to reflect such adjustments within ten (10) days of such
determination.
2.3 Supplies and Goods; Out of Pocket Expenses. Except as otherwise
------------------------------------------
provided for in Schedule A, the Services do not include operating supplies or
accessories, or other goods used in performing the Services or third party
services, such as legal and auditing and Poppe shall be responsible for direct
payment for such goods, supplies and services to the persons from whom obtained
(other than legal fees and expenses which shall be paid by BJK&E and reimbursed
to BJK&E by Poppe). BJK&E shall be reimbursed for all reasonable out of pocket
expenses incurred in performance of the Services upon submission of appropriate
supporting documentation and for unusual expenses incurred at the request of
Poppe. That portion of out of pocket expense incurred on behalf of Poppe
together with BJK&E or
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any of its subsidiaries other than Poppe, such as insurance premiums, shall be
allocated to Poppe as BJK&E may reasonably and in good faith determine to be
appropriate.
ARTICLE 3
TERM OF AGREEMENT
3.1 Term. This Agreement shall be effective from the date of
----
consummation of the initial public offering of the common stock of Poppe for an
initial term of one year. Upon the expiration of the initial term, this
Agreement shall be automatically renewed for up to four successive one year
terms unless earlier terminated in accordance with this Agreement. Poppe shall
have the right to terminate this Agreement at the end of the then current term
in whole or in such part or parts set forth in the written notice referred to in
this sentence below, upon not less than ninety (90) days' written notice to
BJK&E prior to the end of such term; provided, however, that Poppe shall not
-------- -------
have the right to terminate this Agreement in part (a "Partial Termination") to
the extent that BJK&E in good faith advises Poppe that it is burdensome because
of increased costs or otherwise for BJK&E to supply non-terminated Services
which are related to the Partial Termination. In the event that BJK&E owns less
than 50% of the outstanding shares of common stock of Poppe at the end of any
term then, BJK&E shall have the right to terminate this Agreement, in whole
only, at the end of the then current term upon not less than ninety (90) days'
6
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written notice to Poppe prior to the end of such term. In addition, BJK&E shall
have the right to terminate this Agreement in such part or parts set forth in
the written notice referred to in this sentence below, but only with respect to
services no longer being performed by BJK&E (or a subsidiary of BJK&E other than
Poppe) for BJK&E or substantially all of BJK&E's subsidiaries other than Poppe
so that continuing to provide such service or services to Poppe is more than
merely an incremental burden, at the end of the then current term upon not less
than ninety (90) days' written notice to Poppe prior to the end of such term.
In the event of the termination of this Agreement with respect to less than all
the Services, the Contract Price shall be determined by the mutual agreement of
the parties hereto.
3.2 Survival of Certain Articles. Notwithstanding the termination of
----------------------------
this Agreement pursuant to Section 3.1 or Article 13 hereof, Articles 6, 8 and
10 shall survive any such termination and remain in full force and effect.
ARTICLE 4
RISK OF LOSS; INSURANCE
4.1 Risk. BJK&E shall provide for all proper safeguards and shall
----
assume all risks of loss to BJK&E (or subsidiaries of BJK&E) and its employees
incurred in performing Services hereunder.
7
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4.2 Insurance. BJK&E shall maintain insurance coverage against losses
---------
and damages which may result from or arise out of the performance of the
Services by BJK&E (or subsidiaries of BJK&E) including worker's compensation,
public liability, property damage and automobile liability. BJK&E shall, if
requested, produce a certificate of insurance showing that the necessary
coverage is currently in force and will endeavor to procure from the insurance
carrier an agreement to give Poppe at least ten (10) days' prior written notice
before the required insurance can be altered or cancelled.
ARTICLE 5
PERFORMANCE OF SERVICES
5.1 BJK&E Performance. In performing the Services BJK&E shall:
-----------------
(a) Perform or cause the Services to be performed in a timely and
professional manner by qualified personnel consistent with the past performance
of such Services by BJK&E on behalf of Poppe taking into account, however, that
Poppe is a public company.
(b) Comply with all applicable laws, rules or regulations including
those governing health and safety of its employees assigned to perform Services
and shall have obtained all permits required to comply with such laws and
regulations.
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5.2 Poppe Performance. Subject to the terms of this Agreement, Poppe
-----------------
shall provide to BJK&E any data or goods in Poppe's possession necessary or
required to enable BJK&E to perform the Services and Poppe and its employees
shall otherwise cooperate with BJK&E in order to enable BJK&E to perform the
Services. Any data or goods so provided shall be and remain the property of
Poppe.
ARTICLE 6
CONFIDENTIAL INFORMATION
6.1 Restriction. During the term of this Agreement and thereafter,
-----------
BJK&E agrees not to use or disclose any Confidential Information (as hereinafter
defined) to anyone other than employees of Poppe or otherwise as required to
perform the Services, to prepare BJK&E's consolidated financial statements and,
if applicable, consolidated tax returns, or for so long as Poppe is a majority-
owned subsidiary of BJK&E, as is consistent with similar information of other
majority-owned subsidiaries of BJK&E. For purposes of this Agreement,
"Confidential Information" is information contained in any materials delivered
to BJK&E pursuant to this Agreement, which relates to Poppe's business affairs
or that of any of its customers or affiliates. Confidential Information does
not include information which (i) is generally available to the public without
breach of this Agreement, (ii) has been lawfully received from another source
having the right to
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furnish such information free of restriction or (iii) was known to BJK&E at the
time of disclosure free of restriction. To the extent BJK&E is required to
disclose any Confidential Information by applicable law or legal process, BJK&E
shall notify Poppe of such pending disclosure so that Poppe may seek an
appropriate protective order and/or waive BJK&E's compliance with this Section
6.1.
6.2 Delivery. Upon termination of this Agreement, BJK&E shall deliver
--------
to Poppe all Confidential Information and other materials belonging to Poppe in
BJK&E's possession whether provided pursuant to Section 5.2, developed by BJK&E
in the performance of Services or otherwise; provided, however, that BJK&E may
-------- -------
keep copies of such Confidential Information and use the same in any manner
consistent with Section 6.1.
ARTICLE 7
WARRANTIES
BJK&E MAKES NO WARRANTIES, EXPRESS OR IMPLIED, OTHER THAN THE EXPRESS
WARRANTIES OF BJK&E SET FORTH IN THIS AGREEMENT. NO REPRESENTATIONS OR
STATEMENTS NOT EXPRESSLY SET FORTH HEREIN SHALL BE BINDING ON BJK&E AS A
WARRANTY OR OTHERWISE. SPECIFICALLY EXCLUDED ARE ALL WARRANTIES OF BJK&E,
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10
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BJK&E agrees, at the request and expense of Poppe, to enforce or
request enforcement for the benefit of Poppe during the term of this Agreement
any and all rights which BJK&E may have, directly or indirectly, against any
third party under any warranty agreement, service agreement or indemnification
or other agreement for, among other things, any breach of warranty, fraud,
infringement of rights of others, misrepresentation or defect in any equipment
used in the performance of Services hereunder or for any liability arising out
of the performance by such third party of any of the Services hereunder provided
the exercise and enforcement of such rights are without any recourse whatsoever
against BJK&E and any such breach, fraud, infringement, misrepresentation or
performance shall have no effect whatsoever on the rights and obligations of
either party with respect to this Agreement.
ARTICLE 8
LIMITATION OF LIABILITY
Without limiting Article 10 hereof, in no event shall BJK&E, its
officers, directors, agents, or employees, be liable to Poppe or any third party
for damages, ordinary, incidental, special, consequential or exemplary, arising
out of, pursuant to or in connection with this Agreement or the performance by
BJK&E of the Services hereunder if the Services were performed in accordance
with the terms of this Agreement and pursuant to instructions properly received
11
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pursuant thereto, if performed in good faith and without gross negligence or
willful misconduct.
ARTICLE 9
EXCUSE FOR NON-PERFORMANCE
BJK&E's obligation to perform Services hereunder shall be excused
without liability when prevented by labor controversy resulting in a strike or
work stoppage, act of God, governmental action, accident, failure of vendors or
suppliers to BJK&E or any other condition beyond its reasonable control. BJK&E
agrees to resume performance of Services as soon as practicable following
cessation of such condition; provided, that if BJK&E is unable to resume
performance within thirty (30) days of the occurrence of the event excusing
performance Poppe may obtain the Services from a third party and deduct from the
Contract Price the amount of the Contract Price payable for the period during
which the Services are performed by a third party.
ARTICLE 10
DISCLAIMER OF CONSEQUENTIAL DAMAGES
Poppe shall not in any action or proceeding, or otherwise, assert any
claim for incidental or consequential damages, loss of profits or punitive
damages against BJK&E on account of any loss, cost, damage or expense which
Poppe may suffer or incur because of any act or omission of BJK&E or its
employees in the performance of the Services, and Poppe hereby expressly waives
all such claims.
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ARTICLE 11
TAXES
Poppe shall be responsible for the payment of all sales, use or excise
taxes levied or imposed by reason of the Services provided pursuant to this
Agreement, except for any tax based on BJK&E's net income or related to BJK&E's
employees as provided in Section 1.2 hereof. Poppe shall promptly pay to BJK&E
any amount of such tax actually paid or required to be collected or paid by
BJK&E.
ARTICLE 12
DEFAULT
Each party has the right to terminate this Agreement if the other
party breaches or is in default of any material obligation hereunder which
default is incapable of cure or which, being capable of cure, has not been cured
within ninety (90) days after receipt of notice of such default (or such
additional cure period as the non-defaulting party may authorize).
ARTICLE 13
TERMINATION
Either party may immediately terminate this Agreement by written
notice to the other and may regard the other party in default of this Agreement,
if the other party dissolves, terminates its existence, becomes insolvent, makes
a general assignment for the benefit of creditors, files a voluntary petition in
bankruptcy, suffers or permits
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the appointment of a receiver for its business or assets, or becomes subject to
any proceeding under any bankruptcy or insolvency law, or any law relating to
the relief of debtors, reorganization, composition or extension, whether
domestic or foreign which proceeding is not dismissed within sixty (60) days of
the commencement thereof without the entry of an order for relief. In the event
that any of the above events occurs, the affected party shall immediately notify
the other party of its occurrence.
ARTICLE 14
SECURITY AND RECORDS
14.1 Security. BJK&E will maintain strict security with respect to
--------
any facilities granted access to BJK&E by Poppe.
14.2 Records. BJK&E will maintain an accurate record of Services
-------
rendered hereunder. BJK&E will keep such records throughout the term of this
Agreement, which records shall be available for inspection by Poppe at Poppe's
reasonable request. At the termination of this Agreement, all such records shall
be given to Poppe. BJK&E may retain copies thereof.
14
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ARTICLE 15
RESPONSIBILITY OF POPPE DIRECTORS OR OFFICERS
Nothing contained herein shall be construed to relieve the Directors
or Officers of Poppe from the performance of their respective duties or to limit
the exercise of their powers in accordance with the Charter or By-laws of Poppe
or in accordance with any applicable statute or regulation.
ARTICLE 16
GENERAL
16.1 Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party.
16.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the law of the State of New York applicable to contracts made and to be
performed within such State.
16.3 Amendment. This Agreement, including the Schedules hereto, may
---------
be amended only by an instrument in writing executed by the parties hereto.
16.4 No Third Party Rights. Nothing in this Agreement, whether
---------------------
express or implied, shall be construed to give any person other than Poppe or
BJK&E (or any subsidiaries of BJK&E providing Services hereunder) any legal or
equitable right, remedy or claim under or in respect of this Agreement.
15
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16.5 Section Headings. Section and Article headings are for reference
----------------
purposes only and shall not affect the interpretation or meaning of this
Agreement.
16.6 Notices. All notices pursuant to this Agreement shall be in
-------
writing, except as provided herein. Notices in writing shall be sufficient if
hand delivered or mailed by registered mail, postage prepaid, or sent by
telegram, telecopy, telex or facsimile to the attention of the person listed
below at the address of such party set forth below, or at such other address or
to the attention of such other person as such party shall have designated for
such purpose in a written notice complying as to delivery with the terms of this
Section.
BJK&E: Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
40 West 23rd Street
New York, NY 10010-5201
Attention: Valentine J. Zammit,
Chief Financial Officer
Facsimile:(212) 727-1739
Poppe: Poppe Tyson, Inc.
40 West 23rd Street
New York, NY 10010-5201
Attention: Fergus O'Daly, Jr.,
Chief Executive Officer
Facsimile:(212) 727-5662
16.7 No Waiver of Performance. Failure by either party at any time to
------------------------
require performance by the other party or to claim a breach of any provision of
this Agreement shall not be construed as a waiver of any right accruing under
this Agreement, nor affect any subsequent breach, nor affect the
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effectiveness of this Agreement or any part hereof, nor prejudice either party
as regards any subsequent action.
16.8 Entire Agreement; Conflicting Provisions. This Agreement
----------------------------------------
together with the Schedules hereto constitutes the entire agreement between
Poppe and BJK&E with respect to the subject matter hereof and no representation
or statement not contained in the main body of this Agreement or such Schedules
shall be binding upon BJK&E or Poppe as a warranty or otherwise. In the event of
any conflict between the terms of the main body of this Agreement and any of the
Schedules hereto, the terms of the main body of this Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have respectively caused this
Agreement to be executed by their duly authorized officers as of the day and
year first written above.
BOZELL, JACOBS, KENYON & POPPE TYSON, INC.
ECKHARDT, INC.
By:________________________ By:___________________________
Name: Valentine J. Zammit Name: Fergus O'Daly, Jr.
Title: Chief Financial Title: Chief Executive Officer
Officer
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Schedule A
BJK&E SERVICES FOR POPPE
. General Accounting Systems
. Budgets
. General Ledger/Financial Reporting
. Expenses
. Fixed Assets Depreciation
. Cash Disbursements
. Bank Reconciliation
. Sales
. Production (Estimating/Billing/Paying)
. Cash Management/Accounts Receivable/Collection
. Client Cost Accounting
. Daily Time Recording
. Employee Related
. Payroll Processing
. Payroll Tax Filing
. Benefit Administration
. Profit Sharing/401K Plans if BJK&E plans
. Employee Staff Manual - Handbook - if BJK&E handbook
. Affirmative Action Reporting
. Service Bureau Coordination/*/
. Donovan Data Systems
. Network/Print/Spot
. Internal Audit Functions
. Broadcast Business Coordination - Talent Residuals -
Contracts
. Facilities Management - Property & Equipment
. Office Lease Coordination
. Capital Asset Budgeting/Equipment Lease Negotiating
. Insurance Coordination
- --------------
/*/ In addition to the Contract Price, Poppe shall pay 2 1/2 percent of spot
placement and 1 1/2 percent of network placement to the BJK&E media group for
placements made on behalf of Poppe.
Poppe shall reimburse BJK&E at Donovan Data System's Standard Rate Card
rates (newspaper .003, magazine .001 and outdoor .002) for all print media
placed through Donovan Data System.
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. Year End Coordination
. Annual Audit
. Corporate Tax Filings
. Industry Agency Reporting
. Quarterly Reporting
. Investor Information
. Coordination with Transfer Agent and Registrar
. Legal Coordination
. Employee Related EEOC
. Copy Clearance
. Contracts
. SEC Reporting and Compliance
. General Corporate
. Litigation
. Benefits
. Transactions
. Corporate Record Keeping Service
. Maintenance of corporate records
. Maintenance of minute books
19
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Schedule B
CONTRACT PRICE
3% of commissions and fees of Poppe and its subsidiaries
20
<PAGE>
EXHIBIT 10.6
TAX SHARING AGREEMENT
---------------------
AGREEMENT dated the __th day of July, 1996 between Bozell, Jacobs,
Kenyon & Eckhardt, Inc. ("BJK&E"), a Delaware corporation with offices at 40
West 23rd Street, New York, New York 10010-5201 and Poppe Tyson, Inc. ("PT"), a
Delaware corporation with offices at 40 West 23rd Street, New York, New York
10010-5201.
WHEREAS, PT has been included in BJK&E's consolidated federal income
tax return under Section 1501 et seq. of the Internal Revenue Code of 1986, as
amended (the "Code") and BJK&E's Unitary California tax returns.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties agree as follows:
1. Definitions. The following terms, as used herein, shall have
-----------
the following meaning:
"Consolidated Returns" means any return, declaration, report, statement and
other document filed on a consolidated, combined, or unitary basis with
respect to any Tax, including any schedule or attachment thereto and any
amendment thereof.
"Tax" or "Taxes" mean any federal, state, local or foreign income,
alternative minimum, gross receipts, transfers, sales, use, ad valorem,
franchise, license, withholding, excise, FICA, unemployment compensation,
disability, import, property, or other tax, fee or like
<PAGE>
assessment or charge, together with any interest or any penalty or
addition, imposed by any governmental authority.
2. Filing Consolidated Returns.
---------------------------
2.1 PT has heretofore consented and, for all periods ending on
or prior to the closing of a public offering by PT of PT's common stock, PT
shall continue to consent to the filing, with BJK&E, of Consolidated Returns for
any taxable year and with respect to any Tax for which Consolidated Returns are
permitted or required by law, and PT shall cause any of its subsidiaries now in
existence or which may hereafter be formed, to agree to be included in any such
Consolidated Returns.
2.2 BJK&E represents and warrants that (i) the Consolidated
Returns heretofore filed by it have been timely filed, are in general and with
respect to PT's items of income, gain, deduction, loss, and credit, correct and
complete in all material respects, all Consolidated Returns to be filed by it
will be timely filed and will be in general and with respect to PT's items of
income, gain, deduction, loss, and credit, correct and complete in all material
respects and all Tax, owing in connection therewith, shown on such Consolidated
Returns to be due, other than Taxes which are being contested in good faith and
for which adequate reserves have been established have been and shall be timely
paid; (ii) the tax positions taken by
2
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BJK&E in connection with the Consolidated Returns have been and shall be
reasonable and asserted in good faith; and (iii) there have been and will be
neither any deferred intercompany transactions nor any transactions involving
the recapture of depreciation deductions or investment credits between PT and
any of BJK&E and any of its consolidated subsidiaries.
2.3 BJK&E agrees that it will submit to PT for review a draft of all
such portions of the Consolidated Returns to be filed which relate to PT's
operations (the "PT Separate Return"). The drafts of the PT Separate Return
shall be submitted by BJK&E to PT prior to the filing of such returns, if
practicable, or, if not practicable, BJK&E shall supply PT with a copy of the PT
Separate Return as filed, and PT shall have the right to submit its comments to
BJK&E. BJK&E shall also provide PT with the calculation of the amount of PT's
Separate Income Tax Liability (as said term is hereinafter defined). If, prior
to filing the Consolidated Returns, a draft of the PT Separate Return is
submitted to PT, then BJK&E agrees that no changes will be made thereto without
PT's consent, which consent shall not be unreasonably withheld or delayed.
Nothing contained herein shall in any manner restrict BJK&E's obligation to file
the Consolidated Returns on a timely basis. If after review, PT requests
changes in the PT Separate Return, BJK&E shall reflect such changes either by
making an equitable
3
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adjustment in PT's Separate Income Tax Liability or by filing amended
Consolidated Returns.
3. Separate Income Tax Liability. For any taxable year or
-----------------------------
period thereof during which BJK&E and PT (including any of its subsidiaries) are
included in Consolidated Returns (whether or not other corporations are included
in the group filing such Consolidated Returns), on each due date for the payment
(whether or not any payment is, in fact, owing) by BJK&E of any consolidated Tax
(or any portion thereof, including installments of estimated Tax, any payment
made in connection with an extension of time for filing any return or any
payment made with the filing of any return), the amount of PT's separate income
tax liability (or portion thereof, including installments of estimated Tax, any
payment made in connection with an extension of time for filing any return or
any payment made with the filing of any return) that it would have been
obligated to pay for such taxable year or period had it not joined in such
Consolidated Returns with BJK&E ("PT's Separate Income Tax Liability") shall be
advanced by BJK&E for the benefit of PT (the "Tax Advance"). BJK&E shall give
PT prompt notice of the amount of any Tax Advance. BJK&E shall have the right
to charge interest on the outstanding Tax Advance at the announced published
prime rate of Citibank, N.A. plus 1 1/2% which interest shall begin to accrue
after the filing
4
<PAGE>
date of the final Consolidated Return with PT. PT shall have the right to pay
the Tax Advance at any time.
4. Computation of Separate Income Tax Liability. The amount of
--------------------------------------------
PT's Separate Income Tax Liability shall be computed by BJK&E based on generally
accepted tax accounting principles made solely by reference to PT's items of
income, gain, deduction, loss, and credit, notwithstanding that any such item
may have required a different treatment or limitation on the Consolidated
Returns, except that (a) the amount of PT's tax liability shall be computed at
the highest marginal corporate tax rate and (b) no recapture of depreciation
deductions or investment credits or recognition of gain on deferred intercompany
transactions shall be taken into consideration upon the transfer of property to
another member of the BJK&E affiliated group unless and until such recapture or
gain is recognized in the Consolidated Returns.
5. Adjustments.
-----------
5.1 In the event that there is an adjustment (by reason of an audit
or otherwise) to the aggregate amount of Tax payable by BJK&E, such adjustment
shall be reflected in calculating the amount of PT's Separate Income Tax
Liability for the taxable year for which the adjustment is made. In the event
that the adjustment is attributable, in whole or in part, to an increase in PT's
taxable income (including the taxable income of its subsidiaries, if any) for
the taxable year for which the adjustment is made which
5
<PAGE>
results in an increase in PT's Separate Income Tax Liability, PT shall pay to
BJK&E an amount equal to the PT Tax Liability, as said term is hereinafter
defined. To the extent that the adjustment is attributable, in whole or in
part, to a deduction from or reduction in PT taxable income (or the income of
its subsidiaries) for the taxable year of the adjustment which would reduce PT's
Separate Income Tax Liability for such taxable year, BJK&E shall pay to PT, or
reduce any outstanding Tax Advance, within ten (10) days of BJK&E's receipt of a
tax refund or other notification of the adjustment, an amount equal to the
excess of (a) the amount of PT's Separate Income Tax Liability which was paid to
BJK&E or advanced by BJK&E for the taxable year for which the adjustment is made
over (b) the actual amount of PT's Separate Tax Liability for such taxable year
calculated to reflect the adjustment. The provisions of this paragraph 5 shall
apply regardless of whether the adjustment occurs during the period of
consolidation between BJK&E and PT or anytime thereafter, provided that such
adjustment increases or decreases PT's Separate Income Tax Liability for a
taxable year or period thereof for which BJK&E and PT file Consolidated Returns.
5.2 If after the period of consolidation PT deducts an item for tax
purposes (the "Post-Consolidation Deduction") and the Post-Consolidation
Deduction is disallowed on the separate return of PT and its subsidiaries
6
<PAGE>
but the Post-Consolidation Deduction is allowed on the Consolidated Return, then
BJK&E shall pay to PT or reduce the outstanding Tax Advance, if any, the tax
benefit derived by BJK&E from the use of the Post-Consolidation Deduction at the
highest marginal corporate tax rate.
5.3 If PT (including the subsidiaries of PT, if any) sustains a net
operating loss (the "PT Net Operating Loss") during the period of consolidation
and such loss is utilized by BJK&E on the Consolidated Returns, then BJK&E shall
pay to PT, or reduce any outstanding Tax Advance, the tax benefit derived by
BJK&E from the use of the PT Net Operating Loss at the highest marginal
corporate tax rate. Such payment shall be made, or reduction in any outstanding
Tax Advance shall be effective, as the case may be, upon the filing date of the
Consolidated Returns in which the PT Net Operating Loss is utilized.
5.4 The procedures and mechanics of paragraph 7(c) shall be applied
to adjustments in PT's Separate Income Tax Liability under this paragraph.
5.5 With respect to adjustments under paragraphs 5.2 and 5.3, PT may
request that BJK&E file amended Consolidated Returns to reflect a deduction for
a Post-Consolidation Deduction or a PT Net Operating Loss. If PT requests the
filing of amended Consolidated Returns, BJK&E shall have the right either (a) to
pay to PT (or reduce any outstanding Tax Advance) the amount of tax
7
<PAGE>
benefit which would have been derived by BJK&E from deducting the Post-
Consolidation Deduction or the PT Net Operating Loss or (b) to file the
requested amended Consolidated Return and pay PT (or reduce any outstanding Tax
Advance) within (10) days of BJK&E's receipt of a tax refund or other
notification of adjustment attributable to the Post-Consolidation Deduction or
PT Net Operating Loss.
6. Tax Information and Cooperation. BJK&E or PT, as the case may
-------------------------------
be, shall permit the other to have full access at any reasonable time and from
time to time, at the business location at which the relevant books and records
are maintained, to such data as shall be necessary to implement all of the
provisions of this Agreement including the conduct of any audit or similar
proceeding. BJK&E and PT agree to use their respective best efforts to assist
each other and cooperate fully in connection with any matter arising under this
Agreement.
7. Indemnification.
---------------
(a) BJK&E Indemnity BJK&E agrees to indemnify and hold harmless PT
---------------
and the directors, officers, employees and affiliates thereof (the "PT
Indemnitees") against and in respect of any and all out-of-pocket loss,
liability or damage (including reasonable attorneys' fees and other costs and
expenses) incurred or sustained by the PT Indemnitee as a result of (i) the
breach of BJK&E's warranties and representations contained herein or (ii) any
8
<PAGE>
and all liabilities for Tax except with respect to the PT Tax Liability.
(b) PT Indemnity PT agrees to indemnify and hold harmless BJK&E
------------
against and in respect of any and all out-of-pocket loss, liability or damage
(including reasonable attorneys' fees and other costs and expenses) incurred or
sustained by BJK&E as a result of the inclusion of PT in the Consolidated
Returns but such indemnification shall be limited to the difference (together
with interest and penalties attributable to such difference, the "PT Tax
Liability") between (i) PT's Separate Income Tax Liability as adjusted (by
reason of audit or otherwise) and (ii) PT's Separate Income Tax Liability
determined without any such adjustment. PT shall be obligated to pay any
amount found owing to BJK&E pursuant to this Section 7(b) only after the amount
of Tax is finally determined with the appropriate tax authority.
(c) Procedure for Indemnification. BJK&E shall give notice to PT
-----------------------------
of the assertion of any liability or claim against which BJK&E is indemnified by
PT or against which PT is indemnified by BJK&E within 20 days of receiving
notice of such potential liability or claim; and PT shall have no right to
participate in, conduct or control such audit or related proceeding except with
respect to any liability or claim against which BJK&E is indemnified by PT.
With respect to any such liability or claim for which BJK&E
9
<PAGE>
is indemnified by PT and PT controls such audit or proceeding, PT shall keep
BJK&E informed as to the progress of such audit or related proceeding and PT
shall not compromise or settle any such liability or claim without the consent
of BJK&E which consent shall not be unreasonably withheld or delayed. With
respect to any such liability or claim for which PT is indemnified by BJK&E, and
BJK&E controls such audit or proceeding, BJK&E shall keep PT informed as to the
progress of such audit or related proceeding and BJK&E shall not compromise or
settle any such liability or claim without the consent of PT which consent shall
not be unreasonably withheld or delayed.
8. Termination. This Agreement shall continue until the later of
-----------
(i) two (2) years from the date of this Agreement and (ii) with respect to any
particular Tax or any representation or warranty, until the expiration of the
statute of limitations applicable to such Tax or the Tax to which such
representation or warranty relates. No termination of this Agreement shall
affect any liability of either party to the other party for obligations arising
under this Agreement prior to such termination.
9. General.
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(a) Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party.
10
<PAGE>
(b) Governing Law. This Agreement will be governed in all
-------------
respects by the law of the State of New York applicable to contracts made and to
be performed within such State.
(c) Amendment. This agreement may be amended only by an instrument
---------
in writing executed by the parties hereto.
(d) Entire Agreement; Conflicting Provisions. This Agreement
----------------------------------------
constitutes the entire agreement between PT and BJK&E with respect to the
subject matter hereof and no representation or statement not contained in this
Agreement shall be binding upon BJK&E or PT.
(e) No Third Party Rights. Nothing in this Agreement, whether
---------------------
express or implied, shall be construed to give any person other than PT or BJK&E
any legal or equitable right, remedy or claim under or in respect to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have respectively caused this
Agreement to be executed by their duly authorized officers as of the day and
year first written above.
POPPE TYSON, INC. BOZELL, JACOBS, KENYON &
ECKHARDT, INC.
By:__________________________ By:_________________________
Title:_______________________ Title:______________________
_____________________________ ____________________________
11
<PAGE>
EXHIBIT 10.7
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of July __,
1996, between Poppe Tyson, Inc., a Delaware corporation (the "Company"), and
Bozell, Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation (the
"Stockholder").
WHEREAS, the Company, currently a majority-owned subsidiary of the
Stockholder of which the Stockholder owns in excess of 85% of the Company's
outstanding Common Stock is in the process of preparing for filing a
registration statement with the Securities and Exchange Commission for an
initial offering of its Common Stock to the public; and
WHEREAS, as an inducement to the Stockholder to permit the dilution of
its ownership interest in the Company that will occur as a result of the
Company's initial public offering, the Company now wishes to grant to the
Stockholder certain registration rights as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value, of
------------
the Company, as constituted as of the date of this Agreement.
"Company" shall have the meaning provided therefor in the first
-------
paragraph of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in
---------------------
Section 7.
<PAGE>
"Restricted Stock" shall mean the Shares and all other shares of
----------------
Common Stock now or hereafter acquired or otherwise obtained (including by
dividend or other distribution) by the Stockholder or any of its corporate
affiliates, but excluding shares of Common Stock which have been (a)
registered under the Securities Act pursuant to an effective registration
statement filed thereunder and disposed of in accordance with the
registration statement covering them or (b) publicly sold pursuant to Rule
144 under the Securities Act, provided, however, that the term "Restricted
-------- -------
Stock" shall be deemed to include the number of shares of Restricted Stock
that would be issuable to a holder of convertible securities, options,
warrants or other securities, convertible into or exercisable for shares of
Common Stock upon conversion or exercise of all other such securities held
by such holder at such time.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 7.
----------------
"Shares" shall mean all shares of Common Stock held of record by
------
Stockholder as of the date of this Agreement.
"Stockholder" shall have the meaning provided therefor in the first
-----------
paragraph of this Agreement.
2. Restrictive Legend. Each certificate representing the Shares
------------------
shall, except in compliance with the following legend, be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING
SUCH SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION
FROM REGISTRATION THEREUNDER IS AVAILABLE.
3. Required Registration.
---------------------
2
<PAGE>
(a) At any time, and subject to Section 3(b), from time to time,
unless the managing underwriter (if any) consents thereto, 180 days after the
effective date of a registration statement under the Securities Act with respect
to an initial public offering of securities of the Company, the Stockholder may
sell, upon notice to the Company and covering the Restricted Stock filed in
accordance with the provisions of this Agreement, all or any portion of the
shares of Restricted Stock held by it in the manner specified in such notice,
provided that the reasonably anticipated aggregate price to the public of such
public offering would exceed $5 million.
Notwithstanding the foregoing, the only securities that the Company shall be
required to register pursuant hereto shall be shares of Common Stock.
Notwithstanding anything to the contrary contained herein, no sale of Restricted
Stock may be made under this Section 3 within 180 days after the effective date
of a registration statement filed by the Company covering a firm commitment
underwritten initial public offering of securities of the Company under the
Securities Act; provided, however, that the managing underwriter of such initial
-------- -------
public offering may waive this prohibitions. Notwithstanding anything to the
contrary contained herein, the Company may postpone for a reasonable period of
time, not to exceed thirty (30) days, the filing or the effectiveness of any
registration statement covering the shares of Restricted Stock requested to be
registered by the Stockholder, if the Board of Directors of the Company in good
faith determines that such registration might have a material adverse effect on
any plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or the Company
is in possession of material non-public information that, if publicly disclosed,
could result in a material disruption of a major corporate development or
transaction then pending or in progress or in other material adverse
consequences to the Company.
(b) Following receipt of any notice under this Section 3, the Company
shall use its best efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice from the
Stockholder, the number of shares of Restricted Stock specified in such notice.
If such method of disposition shall be an underwritten public offering, the
Stockholder may designate the managing underwriter(s) of such offering, subject
to the approval of the Company, which approval shall not be unreasonably
withheld or delayed and which managing underwriter(s) specifically may include
any or all of the managing underwriter(s) in any initial public offering by the
Company. The Company shall be obligated to
3
<PAGE>
register Restricted Stock pursuant to this Section 3 on an unlimited number of
occasions, provided, however, the Company shall not be obligated to register
-------- -------
Restricted Stock pursuant to this Section 3 on more than four occasions in any
36 month period unless such prohibition is waived by the managing underwriter of
an initial public offering of securities of the Company under the Securities
Act. The Company's obligation to so register Restricted Stock pursuant to this
Section 3 shall be deemed satisfied in any instance only when a registration
statement covering all shares of Restricted Stock specified in the notice from
the Stockholder referred to above, for sale in accordance with the method of
disposition specified by the Stockholder, (i) shall have become effective and,
if such method of disposition is a firm commitment underwritten public offering,
all such shares shall have been sold pursuant thereto, (ii) after such
registration statement shall have become effective, it shall not be interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason, and (iii) the
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration (other than action
required to be taken by the Stockholder) are satisfied or waived.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 3, for sale in accordance with the method
of disposition specified by the Stockholder, shares of Common Stock to be sold
by the Company for its own account, except as and to the extent that, in the
reasonable opinion of the managing underwriter (if such method of disposition
shall be an underwritten public offering), such inclusion would materially
adversely affect the marketing of the Restricted Stock to be sold. Except for
registration statements on Form S-4, S-8 or any successor thereto, the Company
will not file with the Commission any other registration statement with respect
to its Common Stock, whether for its own account or that of other stockholders,
from the date of receipt of a notice from the Stockholder pursuant to this
Section 3 until the completion of the period of distribution of the shares of
Restricted Stock registered thereby.
4. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 3 or Section 5) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public and except with
4
<PAGE>
respect to any initial public offering of securities by the Company for its own
account), each such time it will give written notice to the Stockholder of its
intention so to do and of the proposed method of distribution of such
securities. Upon the written request of the Stockholder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent and under the conditions
such registration is permitted under the Securities Act. In the event that any
registration pursuant to this Section 4 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of shares of Restricted
Stock to be included in such an underwriting may be reduced if and to the extent
that the managing underwriter shall be of the opinion that the inclusion of some
or all of the Restricted Stock would adversely affect the marketing of the
securities to be sold by the Company therein, provided, however, that any
-------- -------
reduction of the number of shares of Restricted Stock of the Stockholder to be
included in such an underwriting shall be reduced on a pro rata basis with all
other selling stockholders in the offering. Notwithstanding the foregoing, such
number of shares of Restricted Stock shall not be reduced if any shares are to
be included in such underwriting for the account of any person other than (i)
the Company, (ii) the Stockholder or (iii) persons who at that time are former
shareholders or optionholders of Animated Systems & Design, Inc., a California
corporation (the "Former ASD Securityholders") in the case of one demand
registration by such Former ASD Securityholders (the "ASD Demand").
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4 without thereby incurring
any liability to the Stockholder.
5. Registration on Form S-3.
------------------------
If at any time (i) the Stockholder shall request that the Company file
a registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Restricted Stock held by the
Stockholder, the reasonably anticipated aggregate price to the public (net of
underwriting discounts and commissions) of which would exceed $5 million, and
(ii) the Company is a registrant entitled to use Form S-3 or any successor
thereto to register such shares, then the Company shall use its best efforts to
register under the Securities Act on Form S-3 or any successor thereto, for
public sale in accordance with
5
<PAGE>
the method of disposition specified in such notice from the Stockholder, the
number of shares of Restricted Stock specified in such notice.
Whenever the Company is required by this Section 5 to use its best
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 3 (including the limitation set forth in the proviso
of the penultimate sentence of Section 3(b)) shall apply to such registration,
provided, however, that the requirements contained in the first sentence of
- -------- -------
Section 3(a) shall not apply to any registration on Form S-3 that may be
requested and obtained under this Section 5.
6. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Sections 3, 4 or 5 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 3,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain continuously effective and usable for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 6(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the Stockholder's intended
method of disposition set forth in such registration statement for such period;
(c) furnish to the Stockholder and to each underwriter such number of
copies of the registration statement (including all exhibits) and the prospectus
included therein (including each preliminary prospectus), and such documents
incorporated by reference in such registration statement or prospectus, as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
6
<PAGE>
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the Stockholder or, in the case of an underwritten
public offering, the managing underwriter reasonably shall request, and do any
and all other acts and things which may be reasonably necessary or advisable to
enable the Stockholder to consummate the disposition in such jurisdictions,
provided, however, that the Company shall not for any such purpose be required
- -------- -------
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified, or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with the Nasdaq National Market System or any securities
exchange on which the Common Stock of the Company is then listed;
(f) immediately notify the Stockholder and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which the Company has knowledge as a result of which the prospectus contained
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing. The Stockholder agrees upon receipt of such
notice forthwith to cease making offers and sales of Restricted Stock pursuant
to such registration statement or deliveries of the prospectus contained therein
for any purpose until the Company has prepared and furnished such amendment or
supplement to the prospectus as may be necessary so that, as thereafter
delivered to purchasers of such Restricted Stock, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(g) if the offering is underwritten and at the request of the
Stockholder, use its best efforts to furnish on the date that Restricted Stock
is delivered to the underwriters for sale pursuant to such registration: (i) an
opinion, dated such date, of counsel representing the Company for the purposes
of such registration (which may be counsel to the Stockholder), addressed to the
underwriters and to the Stockholder, stating that such registration statement
has become effective under the Securities Act and that (A) to the best knowledge
of such counsel, no stop
7
<PAGE>
order suspending the effectiveness thereof has been issued and no proceedings
for that purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus and each
amendment or supplement thereof, comply as to form in all material respects with
the requirements of the Securities Act (except that such counsel need not
express any opinion as to financial statements and the notes thereto and the
schedules and other financial and statistical data contained therein) and (C) to
such other effect as reasonably may be requested by counsel for the underwriters
or by the Stockholder or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to the Stockholder, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
(h) give the Stockholder, and any of the Stockholder's agents or
attorneys, the opportunity to participate, at its own expense, in the
preparation of any registration statement, prospectus, and all supplements and
amendments to any thereof, prepared and filed in connection with this Agreement,
and make available for inspection upon reasonable notice during the Company's
regular business hours by the Stockholder, any underwriter participating in any
distribution pursuant to such registration statement, and any attorney,
accountant or other agent retained by the Stockholder or such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, independent accountants
certifying the Company's financial statements, and employees to supply all
information reasonably requested by the Stockholder, or any such underwriter,
attorney, accountant or agent in connection with such registration statement;
(i) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to the Stockholder, as
soon as reasonably practicable but not more than 13 months after the effective
date of such registration statement, an earnings statement, which need not be
audited, covering a period of at least 12
8
<PAGE>
months commencing after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act, and will furnish to the Stockholder at least five business days
prior to the filing thereof a copy of any amendment or supplement to such
registration statement or prospectus and shall not file any thereof to which the
Stockholder shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the requirements of the
Securities Act or of the rules of regulations thereunder; and
(j) provide and cause to be maintained a transfer agent and registrar
for all Restricted Stock covered by such registration statement from and after a
date not later than the effective date of such registration statement.
For purposes of Section 6(a) and 6(b) and of Section 3(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 90 days
after the effective date thereof.
In connection with each registration hereunder, the Stockholder shall
(a) provide such information and execute such documents as may reasonably be
required in connection with such registration, (b) agree to sell Restricted
Stock on the basis provided in any underwriting arrangements and (c) complete
and execute all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements, which arrangements shall not be inconsistent herewith.
In connection with each registration pursuant to Sections 3, 4 or 5
covering an underwritten public offering, the Company and the Stockholder agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
7. Expenses. All expenses incurred by the Company in complying with
--------
Sections 3, 4, and 5, including, without limitation, all registration and filing
fees, word processing, duplicating and printing expenses, fees and disbursements
of counsel and independent public accountants
9
<PAGE>
for the Company, including the expenses of any special audits or "cold comfort"
letters required by or incidental to such performance or compliance hereunder,
fees and expenses (including counsel fees) incurred in connection with complying
with state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc. transfer taxes, fees of transfer agents and registrars,
and fees and disbursements of one counsel for the Stockholder, and other costs
arising out of the public offering of the Restricted Stock being registered and
any fees and disbursements of underwriters customarily paid by issuers or
sellers, but excluding any Selling Expenses, are called "Registration Expenses".
All underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses".
The Company shall pay all Registration Expenses in connection with
each registration statement under Sections 4 and 5 and shall pay all
Registration Expenses in connection with each registration statement under
Section 3 until the Company shall have satisfied its obligation to register
Restricted Stock pursuant to Section 3 on four (4) occasions. All Selling
Expenses in connection with each registration statement under Sections 3, 4 and
5, and all Registration Expenses in connection with each registration statement
under Section 3 subsequent to such four (4) occasions, shall be borne by the
Stockholder, or by the Stockholder and the Company (to the extent the Company
shall be a seller thereunder) in proportion to the number of shares sold by
each, or as they may otherwise agree.
8. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 3, 4 or 5, the Company will
indemnify and hold harmless the Stockholder, each underwriter of such Restricted
Stock thereunder and each other person, if any, who controls the Stockholder or
such underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Stockholder, such
underwriter or such controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Sections 3, 4 or 5, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to
10
<PAGE>
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will pay the legal fees and other
expenses of the Stockholder, each such underwriter and each such controlling
person incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action, provided, however, that the Company
-------- -------
will not be liable in any such case if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in reliance
upon and in conformity with information furnished by the Stockholder (with
respect to the Stockholder and its shares), any such underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus, and, provided further, however, that the Company will
-------- ------- -------
not be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue or alleged untrue
statement or omission or an alleged omission made in any preliminary prospectus
or final prospectus if (1) the Stockholder failed to send or deliver a copy of
the final prospectus or prospectus supplement with or prior to the delivery of
written confirmation of the sale of the Restricted Stock, and (2) the final
prospectus or prospectus supplement was correct and the Company gave the
Stockholder notice of such untrue statement or omission, and its subsequent
correction.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 3, 4 or 5, the Stockholder will
indemnify and hold harmless the Company, each person, if any, who controls the
Company within the meaning of the Securities Act, each officer of the Company
who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Sections 3, 4 or 5, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will pay the legal fees and other expenses of the
11
<PAGE>
Company and each such officer, director, underwriter and controlling person
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Stockholder will
-------- -------
be liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information furnished in writing to the
Company by the Stockholder (with respect to the Stockholder and its shares)
specifically for use in such registration statement or prospectus, and, provided
--------
further, however, that the liability of the Stockholder hereunder shall be
- ------- -------
limited to the proportion of any such loss, claim, damage, liability or expense
that is equal to the proportion that the public offering price of the shares
sold by the Stockholder under such registration statement bears to the total
public offering price of all securities sold thereunder, but not in any event to
exceed the proceeds received by the Stockholder from the sale of Restricted
Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the failure to so notify the
indemnifying party shall not relieve it from any liability that it may have to
such indemnified party other than under this Section 8 and shall only relieve it
from any liability that it may have to such indemnified party under this Section
8 if and to the extent the indemnifying party is actually prejudiced thereby.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof; provided, however,
-------- -------
that, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded (based on the advice of counsel) that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed
12
<PAGE>
to conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assert such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel as required by the
local rules of such jurisdiction) at any time for all such indemnified parties.
(d) In order to provide for just and equitable contribution for joint
liability under the Securities Act in any case in which either (i) the
Stockholder, or any controlling person of the Stockholder, makes a claim for
indemnification pursuant to this Section 8 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of the
Stockholder or any such controlling person of the Stockholder in circumstances
for which indemnification is provided under this Section 8; then, and in each
such case, the Company and the Stockholder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) in such proportion so that the Stockholder is
responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) the Stockholder will not
-------- -------
be required to contribute any amount in excess of the public offering price of
all such Restricted Stock offered by it pursuant to such registration statement;
and (B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any
13
<PAGE>
settlement of any pending or threatened action, suit or proceeding in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such action, suit or proceeding.
9. Changes in Common Stock. If, and as often as, there is any
-----------------------
change in the Common Stock by way of a stock split, stock dividend, combination
or reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the Common Stock as so changed.
10. Rule 144 Reporting and Rule 144A Information. With a view to
--------------------------------------------
making available the benefits of certain rules and regulations of the Commission
that may at any time permit the resale of the Restricted Stock without
registration, the Company will:
(a) at all times after 90 days after any registration statement
covering a public offering of securities of the Company under the Securities Act
shall have become effective:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(iii) furnish to the Stockholder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
such Rule 144 and of the Securities Act and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed by the Company as the Stockholder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Stockholder to sell any Restricted Stock without registration; and
(b) at any time, at the request of the Stockholder, make available to
the Stockholder and to any prospective transferee of such shares of Restricted
Stock
14
<PAGE>
the information concerning the Company described in Rule 144A(d)(4) under the
Securities Act.
11. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to the Stockholder as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
cause a violation of any provision of any law applicable to the Company, any
order of any court or other agency of government applicable to the Company, the
Charter or By-laws of the Company or any provision of any indenture, agreement
or other instrument to which it or any of its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
12. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto, provided,
--------
however, that registration rights conferred herein on the Stockholder shall not
- -------
inure to the benefit of any transferee of Restricted Stock other than an
affiliate of the Stockholder unless the Company shall consent to such transfer.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by certified or registered mail, return
receipt requested, postage prepaid, or sent by Federal Express or other
recognized overnight courier service, addressed as follows:
if to the Company:
Poppe Tyson, Inc.
40 West 23rd Street
New York, New York 10010
15
<PAGE>
Attention: Fergus O'Daly
Chairman of the Board and
Chief Executive Officer
if to the Stockholder:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Valentine J. Zammit
Vice Chairman and
Chief Financial Officer
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (by the Stockholder) or to the Stockholder (in the
case of the Company) in accordance with the provisions of this Section 12(b).
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to conflicts of
laws principles.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and of the
Stockholder.
(e) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In proving this Agreement it shall not be
necessary to produce or account for more than one such counterpart executed by
the party against whom enforcement is sought.
(f) If requested in writing by the underwriters for an underwritten
public offering of securities of the Company, the Stockholder shall agree not to
sell publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period following the effective date of the registration statement relating to
such offering to be reasonably determined by the underwriters; provided,
--------
however, that, other than in the case of the ASD Demand by the Former ASD
- -------
Securityholders, all persons entitled to registration rights with respect to
shares of Common Stock who are not parties to this Agreement, all other persons
selling shares of Common Stock in such offering and all executive officers and
directors of the Company shall also have agreed not to sell publicly
16
<PAGE>
their Common Stock under the circumstances and pursuant to the terms set forth
in this Section 12(f).
(g) The Company shall not grant to any third party any registration
rights more favorable than, or inconsistent with, any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect.
(h) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(i) This Agreement and the registration rights granted herein shall
terminate on the seventh anniversary of the effective date of the initial public
offering of securities of the Company pursuant to an effective registration
statement under the Securities Act.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and year first above written.
POPPE TYSON, INC.
By:__________________________________
Name: Fergus O'Daly
Title: Chairman and Chief
Executive Officer
AGREED TO AND ACCEPTED as of
the date first above written
BOZELL, JACOBS, KENYON
& ECKHARDT, INC.
By:______________________________
Name: Valentine J. Zammit
Title: Vice Chairman and
Chief Financial Officer
17
<PAGE>
EXHIBIT 10.8
SUBLEASE AGREEMENT
------------------
THIS SUBLEASE AGREEMENT ("Sublease") is made as of the 1st day of
June, 1996 between BOZELL, JACOBS, KENYON & ECKHARDT, INC., a Delaware
corporation ("Sublandlord"), and POPPE TYSON, INC., a Delaware corporation
("Subtenant").
R E C I T A L S
- - - - - - - -
23rd Street Properties ("Landlord"), as landlord and Sublandlord, as
tenant, did enter into that certain lease agreement, dated June 18, 1986, which
lease agreement as thereafter amended by letter agreement dated December 22,
1987 and lease amendment (the "Amendment") dated as of June 1, 1996 is
hereinafter referred to as the "Lease", for the lease by Sublandlord of certain
space located in the building (the "Building") known as 40 West 23rd Street, New
York, New York.
The space leased in the Building by Sublandlord pursuant to the Lease
is hereinafter referred to as the "Premises".
Sublandlord and Subtenant desire to enter into this Sublease, pursuant
to the terms of which Subtenant will lease from Sublandlord and Sublandlord will
lease to Subtenant a portion of the Premises.
NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations set forth in this Sublease, Sublandlord and Subtenant do hereby
agree as follows:
1. Subleased Premises. Sublandlord does hereby lease to Subtenant,
------------------
and Subtenant does hereby lease and rent from Sublandlord, that portion of the
Building consisting of the entire 5th floor and mezzanine therein and defined in
the Amendment as the "Additional Space" (the "Subleased Premises").
2. Term. The term of this Sublease (the "Sublease Term") shall begin
----
on June 1, 1996 (the "Commencement Date"). The Sublease Term shall expire at
12:00 midnight on September 29, 2004, unless the Lease or this Sublease is
sooner terminated or expires earlier in accordance with the terms and conditions
set forth therein or herein.
3. Rent.
----
(a) Subtenant shall pay to Sublandlord, throughout the Sublease
Term, the "Fixed Rent" per annum provided to be paid with respect to the
Additional Space pursuant to the Amendment (the "Base Rent"). The Base Rent
shall be payable by Subtenant to Sublandlord, in advance, in equal consecutive
monthly installments which are due and payable on or before the date that is
five (5) business days preceding the first day of each calendar month during the
Sublease Term. Notwithstanding the foregoing, to the extent Landlord does not
require Sublandlord to pay Base Rent for the period commencing June 1, 1996 and
ending September 30, 1996, the Base Rent for such period shall be abated.
(b) Subtenant shall also pay to Sublandlord, throughout the
Sublease Term as additional rent ("Additional Rent"), all additional rent and
other charges due under the Lease which is attributable to the Subleased
Premises. The additional rent and other charges which is attributable to the
Subleased Premises shall be (i) as set forth in the Amendment, and (ii) to the
extent not set forth in the Amendment shall be determined by dividing the total
payments payable by Sublandlord under the Lease by the rentable square feet of
the Premises and multiplying the quotient by the number of rentable square feet
in the Subleased Premises. Subtenant shall be responsible for both any
estimated payments of Additional Rent and any reconciliation payments of
Additional Rent which are payable by Sublandlord pursuant to the Lease.
Appropriate prorations shall be made with
<PAGE>
respect to any partial calendar years included in the Sublease Term.
Sublandlord shall notify Subtenant of any such estimated amounts and any
reconciliation amounts promptly upon Sublandlord's receipt of notice from
Landlord of the amounts due with respect to the entire Premises. Subtenant
shall make all Additional Rent payments to Sublandlord upon demand.
(c) Subtenant shall be solely responsible for any costs or
charges attributable to the Subleased Premises during the Sublease Term for
items such as damage repair, extra or after-hours HVAC service, extra janitorial
services, excess electrical consumption, light bulb replacement and the like.
Subtenant shall also pay any and all tax due with respect to Rent (as such term
is hereinafter defined) pursuant to the laws of New York and/or any political
subdivision thereof; provided, however, that Subtenant shall not be responsible
for the payment of any tax levied on Sublandlord that is in the nature of an
income tax.
(d) The Base Rent, Additional Rent and all charges due by
Subtenant under subparagraph (c) of this Article "3" are collectively referred
to in this Sublease as "Rent".
4. Relationship to Lease. This Sublease and all of Subtenant's
---------------------
rights hereunder are expressly subject to and subordinate to all of the terms of
the Lease. Subtenant hereby acknowledges that it has received copies of the
Lease and has read all of the terms and conditions thereof. Subtenant hereby
agrees to assume all obligations of Sublandlord (as tenant under the Lease) with
respect to the Subleased Premises. Subtenant hereby acknowledges that Subtenant
shall look solely to Landlord for the performance of all the Landlord's
obligations under the Lease and that Sublandlord shall not be obligated to
provide any services to Subtenant or otherwise perform any obligations in
connection with this Sublease. Subtenant acknowledges that any termination of
the Lease may result in a termination of the Sublease. In the event of a default
under any underlying lease of all or any portion of the Subleased Premises which
results in the termination of such lease, Subtenant shall, at the option of the
lessor under any such lease ("Underlying Lessor"), provided such option is
exercised within thirty (30) days of the termination of such underlying lease,
attorn to and recognize the Underlying Lessor as landlord hereunder and shall,
promptly upon the Underlying Lessor's request, execute and deliver all
instruments necessary or appropriate to confirm such attornment and recognition.
Notwithstanding such attornment and recognition, the Underlying Lessor shall not
(i) be liable for any previous act or omission of Sublandlord under this
Sublease, (ii) be subject to any offset, not expressly provided for in this
Sublease, which shall have accrued to the Subtenant against Sublandlord, or
(iii) be bound by any modification of this Sublease or by any prepayment of more
than one month's rent, unless such modification or prepayment shall have been
previously approved in writing by the Underlying Lessor. Subtenant hereby waives
all rights under any present or future law to elect, by reason of the
termination of such underlying lease, to terminate this Sublease or surrender
possession of the Subleased Premises.
5. Use. Subtenant's use of the Subleased Premises shall be strictly
---
in accordance with the use and all other provisions of the Lease. No person or
entity other than Subtenant may use or occupy the Subleased Premises without
Sublandlord's prior written consent. Subtenant shall make no alterations or
changes to the Subleased Premises of any kind or nature without Sublandlord's
prior written consent.
6. Default. Any act or omission by Subtenant that would constitute,
-------
create, cause, or contribute to a default under the Lease shall be a default by
Subtenant under this Sublease. In addition, any failure by Subtenant to (i) pay
Rent when due (and the continuance of such failure for five (5) days following
notice from Sublandlord to Subtenant) or, (ii) perform any other obligations
required under this Sublease, shall be a default hereunder. Any default by
Subtenant shall entitle Sublandlord to
2
<PAGE>
exercise any and all of the same rights and remedies against Subtenant as are
available to Landlord against Sublandlord as tenant under the Lease, arising out
of a default, beyond the expiration of any and all applicable grace, notice and
cure periods under the Lease, by the Sublandlord as tenant under the Lease, and
any other remedies available at law or in equity.
7. Quiet Enjoyment. Subject to the Lease and provided Subtenant has
---------------
performed its obligations hereunder, Subtenant shall have the quiet enjoyment of
the Subleased Premises without interference by Sublandlord or anyone claiming
by, through or under Sublandlord.
8. Insurance and Indemnities. Subtenant hereby agrees to
-------------------------
indemnify and hold Sublandlord harmless, with respect to the Subleased Premises,
to the same extent that Sublandlord is required to indemnify and hold Landlord
harmless with respect to the Premises. Likewise, Subtenant hereby agrees to
obtain and provide evidence satisfactory to Sublandlord, on or before the date
of this Sublease, that Subtenant is carrying insurance in the same amounts and
of the same types required to be carried by Sublandlord with regard to the
Premises.
9. Subleasing and Assignment. Subtenant shall have no right to
-------------------------
sublease or assign its rights under this Sublease or its rights with regard to
the Subleased Premises (i) without the prior written consent of Sublandlord, and
(ii) in any manner not in accordance with the terms and provisions of Articles
"11" and "39" of the Lease. The following events and circumstances constitute an
assignment of this Sublease requiring the Sublandlord's consent thereto and in
the event that Subtenant fails to so obtain Sublandlord's consent it shall be a
default hereunder: (i) if Subtenant is a partnership or limited liability
company, the withdrawal or change, whether voluntary, involuntary or by
operation of law, of 50% or more of the partners or members, or transfer of 50%
or more of partnership or membership interests, within a twelve (12) month
period, or the dissolution of the partnership or limited liability company and
(ii) if Subtenant is a closely held corporation (i.e., whose stock is not
- -
publicly held and not traded through an exchange or over the counter), the
dissolution, merger, consolidation or other reorganization of Subtenant, or,
within a twelve (12) month period, (A) the sale or other transfer of more than
an aggregate of 50% of the voting shares of Subtenant (other than to immediate
family members by reason of gift or death, or (B) the sale, mortgage,
hypothecation or pledge of more than an aggregate of 50% of the value of the
unencumbered assets of Subtenant.
10. Condition of Subleased Premises. Upon the expiration or earlier
-------------------------------
termination of this Sublease, Subtenant shall return the Subleased Premises to
Sublandlord in the condition required by the Lease.
11. Notices. Notices by Sublandlord and Subtenant shall be given to
-------
each other in the same manner provided by the Lease at the following addresses:
Sublandlord:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
800 Blackstone Centre
302 South 36th Street
Omaha, Nebraska 68131-2453
Attention: Mr. Michael L. Schultz
Senior Vice President
Subtenant:
Poppe Tyson, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Mr. Steven Blondy
Chief Financial Officer
3
<PAGE>
12. Brokers. Each party represents to the other that it has not dealt
-------
with any real estate broker, sales person or finder in connection with this
Sublease. Each party hereby agrees to indemnify and hold the other harmless
from and against any liabilities and claims for commissions or fees due or
claimed to be due by any party, claiming to have dealt with the indemnifying
party in connection with this Sublease.
13. Payment to Subtenant. Provided Subtenant is not in default under
--------------------
this Sublease, Sublandlord shall pay to Subtenant, as, when and to the extent
received by Sublandlord, "Landlord's Contribution" (as such term is defined in
the Lease).
14. Miscellaneous. This Sublease shall be governed by the laws of the
-------------
State of New York. Time shall be of the essence with regard to the obligations
under this Sublease. This Sublease supersedes all prior discussions and
agreements between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Sublease, as
of the day and year first above written.
SUBLANDLORD:
BOZELL, JACOBS, KENYON &
ECKHARDT, INC., a
Delaware corporation
By:________________________________
SUBTENANT:
POPPE TYSON, INC., a Delaware
corporation
By:________________________________
4
<PAGE>
EXHIBIT 10.9
LEASE AGREEMENT
---------------
This Lease Agreement made and entered into this ____ day of March, 1993 by
and between David Scott Carlick, a resident of the State of California (herein
"Landlord"), and Poppe Tyson, Inc., a New York corporation (herein "Tenant").
W I T N E S S E T H :
1. LEASE OF PREMISES
Landlord, as the owner of the building at 707 California Street, Mountain
View, California (the "Building"), hereby leases to Tenant, and Tenant hereby
leases from Landlord, the said Building which consists of 11,000 rentable square
feet as set forth on Exhibit "A" hereto (the "Premises"), for the Term and
subject to the provisions of this Lease.
2. TERM
The term of this Lease shall be operable for a period of five (5) years
commencing April 1, 1993 and expiring March 31, 1998, except that Tenant may
terminate this Lease at the end of any calendar month subject to written notice
to Landlord and provided that the effective date thereof shall not be earlier
than ninety (90) days subsequent to Landlord's receipt thereof. The term may
begin prior to the date set forth above, except that the expiration date shall
not be effected by such earlier commencement.
3. RENT
The Tenant agrees to pay to Landlord, except as hereinafter provided, a
Monthly Rent for the Premises at the rate of Sixteen Thousand Five Hundred
Dollars ($16,500.00) per month. The Monthly Rent shall increase by the sum of
Two hundred Thirty Dollars ($230.00) per month during each calendar year of the
lease term subsequent to the initial calendar year of the term. Monthly Rent
shall be paid in advance on the first day of each calendar month of the term. If
the term shall commence on other than the first day of a calendar month, the
rental for such month shall be equitably pro-rated.
Tenant shall pay the Rent to Landlord at the Building, or to such person or
at such other place as Landlord shall designate by written notice to Tenant.
<PAGE>
4. SERVICES
A. Landlord, at Landlord's expense, shall provide (1) heat and air
conditioning to the extent necessary for the comfortable occupancy and use of
the Premises; (2) city water from the regular Building outlets for drinking,
lavatory and toilet purposes; (3) cleaning and janitorial service in and about
the Premises; and (4) window washing or washing of windows in the Premises,
inside and out, weather permitting, not less frequently than two times during
each calendar year.
B. Landlord, at Landlord's expense, shall furnish electric power in the
Building and Building lighting fixtures and electrical service to the Premises
required by Tenant.
C. If as a result of any failure to furnish or delay in furnishing any of
the services described in sections A and B above, the Premises are rendered
untenantable and are not employed for business purposes by Tenant for a period
of 72 consecutive hours, then Rent shall abate for the term of such
untenantability until Tenant is able to resume occupancy of the Premises. Tenant
agrees that Landlord shall not be liable for damages for failure to furnish or
delay in furnishing any service which failure or delay is caused, in whole or in
part, by war, insurrection, civil disturbance, riots, acts of God, governmental
action or any other act or cause beyond the reasonable control of Landlord.
D. Tenant shall make arrangements directly with the telephone company for
telephone service in the Premises desired by Tenant. Tenant shall pay the cost
of all telephone charges incurred in the Premises.
5. USE OF PREMISES
Tenant shall occupy and use the Premises for general office and purposes
incident thereto, but shall not occupy or use the Premises or permit the
Premises to be occupied or used for any purpose, act or thing which is in
violation or any public law, ordinance or governmental regulation, which may be
dangerous to persons or property, which may invalidate or increase the amount of
premiums for any policy of insurance carried on the Building or violate the
terms thereof, and if any additional amount of insurance premium is payable as a
result of Tenant's occupancy or use of the Premises, Tenant shall pay to
Landlord the additional amount on demand. Tenant shall not do or permit anything
to be done in the Premises, or bring or keep anything in the Premises which is
in violation of rules, regulations or
2
<PAGE>
requirements of the Omaha Fire Department or any other similar authority having
jurisdiction over the Building.
6. CONDITION OF PREMISES
Tenant shall notify Landlord in writing during the term of any defects in
the Premises. Except for defects described in such notice and latent defects,
Tenant will be conclusively presumed to have accepted the Premises in the
condition existing on the date Tenant first takes possession, and to have waived
all claims relating to the condition of the Premises. No agreement of Landlord
to alter, remodel, decorate, clean or improve the Premises or the Building and
no representation respecting the condition of the Premises or the Building has
been made by or on behalf of Landlord to Tenant, except as stated in this Lease.
7. ASSIGNMENT AND SUBLETTING
Tenant shall not: (1) encumber or mortgage this Lease or any interest under
this Lease; (2) allow any lien upon Tenant's interest under this Lease by
operation of law; (3) transfer, assign or sublease all or any portion of the
Premises without prior written consent of Landlord, except that Landlord shall
not unreasonably or arbitrarily withhold its consent thereto.
In the event of any sublease of the Premises, or any assignment,
conveyance, encumbrance, mortgage or transfer of this Lease or Tenant's interest
under this Lease, Tenant shall not be released or discharged from any liability,
whether past, present or future, under this Lease.
8. REPAIRS
A. Except as otherwise provided in section B of this Article 8, and in
Article 14 hereof, Tenant shall, at its own expense: (1) subject to the
provisions of Article 8 and except for damage caused by Landlord, its agents or
servants, keep the Premises in good condition and repair during the Term,
reasonable wear and tear excepted, and (2) promptly and adequately repair all
damage to the Premises caused by Tenant or any of its agents or employees.
B. Landlord shall maintain and make necessary repairs to the structural
elements of the Building, and to the electrical, plumbing, heating, ventilating
and air conditioning systems in the Building and exterior windows, except for
the cost of repairing any damage to any of the foregoing caused by the act or
neglect of Tenant, its agents or employees.
3
<PAGE>
9. ALTERATIONS AND IMPROVEMENTS
A. All structural alterations, improvements, additions or installations in
or to the Premises, including installation of telephone or other similar
systems, and the performance of all similar work in the Premises proposed to be
done by or at the request of Tenant, or in or to the Premises, shall require
Landlord's prior written consent, which consent shall not be unreasonably
withheld. Before commencement of any such work or delivery of any materials into
the Premises, Tenant, if Landlord shall request in writing, shall furnish to
Landlord for approval: architectural plans and specifications and instruments of
indemnification and waivers of lien against any and all claims, costs, expenses,
damages and liabilities which may arise in connection with such work, all in
such form and amount as shall be reasonably satisfactory to Landlord. Whether or
not Tenant furnishes the foregoing, Tenant agrees to hold Landlord and
Landlord's beneficiaries and their respective agents and employees forever
harmless against all claims and liabilities of every kind, nature and
description which may arise out of or in any way connected with such work. All
such work shall comply with all insurance requirements and with all laws,
ordinances, rules and regulations of all governmental authorities, and shall be
done in a good and workmanlike manner and with the use of good grades of
materials. All alterations, improvements, additions and installations to or in
the Premises shall become part of the Premises at the time of installation.
B. Tenant agrees not to suffer or permit any lien of any mechanic or
materialman to be placed or filed against the Premises, the Building or the real
estate on which it is located. In case any such lien shall be filed, Tenant
shall immediately satisfy and release such lien of record.
10. RESERVATION OF RIGHTS BY LANDLORD
Landlord shall have the right, exercisable without notice, (1) to designate
or approve prior to installation of signs and all internal lighting, fixtures or
equipment that may be visible from the exterior of the Premises or the Building,
and (2) to take any and all reasonable measures, including inspections, repairs,
alterations, decorations, additions and improvements to the Premises or to the
Building, as may be reasonably necessary or desirable in the operation thereof
or for the safety, protection or preservation thereof or Landlord's interest
therein.
4
<PAGE>
11. WAIVER OF CLAIMS AND INDEMNITY
A. Tenant hereby releases and waives all claims against Landlord for
injury or damage to person, property or business sustained in or about the
Building or the Premises by Tenant, its agents, employees or servants, other
than by reason of the negligence or willfulness of Landlord or Landlord's agents
or employees.
B. Tenant agrees to indemnify and hold harmless Landlord against any and
all claims arising from Tenant's improper use or occupancy of the Premises or
from any breach or default on the part of Tenant in the performance of any
agreement of Tenant to be performed pursuant to the terms of this Lease.
C. Tenant agrees to maintain in good standing during the Term of this
Agreement a policy of liability coverage with single limits of not less than
$1,000,000.00 for injury to any person or persons and for damage to property, in
which Landlord is designated as an additional insured.
12. LANDLORD'S REMEDIES
A. If any involuntary petition or similar pleading is filed in any court
under any section of the federal Bankruptcy Act (as from time to time amended)
seeking to declare Tenant bankrupt, or seeking a plan of reorganization for
Tenant under the federal Bankruptcy Act, and such petition or pleading is not
withdrawn or denied within fifteen (15) days after its filing, or if any
voluntary petition or similar pleading is filed in any court under any section
of the federal Bankruptcy Act (as amended from time to time) seeking to declare
Tenant bankrupt or seeking a plan of reorganization or arrangement for Tenant,
then in any such event Landlord may, if Landlord so elects, but not otherwise,
and with or without other action by Landlord, immediately terminate this Lease.
Upon such termination, Landlord shall be entitled to recover immediately from
Tenant as liquidated damages an amount equal to the entire amount of Rent for
the shorter of the following periods: (1) the remainder of the Term following
such termination; or (2) to the extent permitted by law in the case of
proceedings under the federal Bankruptcy Act commencing on the date of surrender
of the Premises to Landlord or at the date of re-entry by Landlord, whichever
occurs first; plus all unpaid Rent and other sums owed by Tenant to Landlord at
the time of such termination.
B. In the event: (1) Tenant defaults in the payment of Rent and does not
cure the default within ten (10) days after written demand for payment; or (2)
Tenant defaults in
5
<PAGE>
the prompt and full performance of any other provision of this Lease and does
not cure the default within fifteen (15) days after written demand by Landlord
that the default be cured, or with respect to a default which cannot reasonably
be cured within fifteen (15) days, Tenant fails to commence such cure within
said fifteen (15) day period or fails diligently to complete such cure
thereafter; or (3) Tenant makes an assignment for the benefit of creditors or
takes any action towards a general compromise of its debts or a composition with
its creditors; then and in any such event Landlord may, if Landlord elects,
either immediately terminate this Lease and Tenant's right to possession of the
Premises or, without terminating this Lease, immediately terminate Tenant's
right to possession of the Premises.
C. In the event Landlord elects to terminate this Lease and Tenant's right
to possession, as provided in section B above, Landlord shall be entitled to
recover from Tenant damages in an amount equal to the value of all Rent reserved
under this Lease for the remainder of the Term following such termination plus
all unpaid Rent and other sums then owed by Tenant to Landlord at the time of
such termination, reduced by the then rental value of the Premises.
D. In the event Landlord elects to terminate Tenant's right to possession
only without terminating this Lease, Landlord may, at Landlord's option, enter
on to the Premises, remove Tenant's signs and other evidences of tenancy, and
take and hold possessions, the Premises; provided, however, that such entry and
possession shall not terminate this Lease or release Tenant, in whole or in
part, from Tenant's obligation to pay the Rent reserved under this lease for the
full Term or from any other obligation of Tenant under this Lease. Landlord
agrees in event of such default to exercise reasonable efforts to mitigate any
damages suffered by Landlord, and if the rent collected by Landlord upon any
reletting of the Premises for Tenant's account is insufficient to pay when due
the full amount of all unpaid Rent and other sums owed by Tenant to Landlord
plus all of Landlord's expenses of reletting, Tenant shall pay to Landlord from
time to time the amount of such deficiency promptly upon demand.
E. Upon termination of this Lease, whether by lapse of time or otherwise,
or upon any termination of Tenant's right to possession of the Premises without
termination of this Lease, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and damage by fire or other casualty
excepted.
6
<PAGE>
13. HOLDING OVER
If Tenant retains possession of the Premises or any part of the Premises
after the termination of this Lease by lapse of time or otherwise, Tenant shall
pay to Landlord the monthly installments of Rent, at the rate payable for the
month immediately preceding said holding over, computed on a per-month basis,
for each month or part thereof (without reduction for any such partial month
that Tenant thus remains in possession, and, in addition thereto, Tenant shall
pay to Landlord all direct and consequential damages sustained by reason of
Tenant's retention of possession.
14. DAMAGE BY FIRE OR OTHER CASUALTY
A. If the Building or the Premises are made substantially untenantable by
fire or other casualty, Landlord or Tenant may elect either to: (1) terminate
this Lease as of the date of such fire or other casualty by delivery of notice
of termination to the other of them within thirty (30) days after said date; or
(2) if not so terminated, Landlord shall proceed with due diligence to repair
and restore or rehabilitate the Building or the Premises.
B. If the Premises or the Building are damaged by fire or other casualty,
but are not made substantially untenantable, then Landlord shall proceed with
due diligence to repair and restore the Building or the Premises, other than
leasehold improvements paid for by Tenant, unless such damages occur during the
last six (6) months of the Term, in which event Landlord or Tenant shall have
the right to terminate this Lease as of the date of such fire or other casualty
by delivery of written notice of termination to Tenant within thirty (30) days
after said date.
C. If all or any part of the Premises are rendered substantially
untenantable by fire or other casualty, Rent shall abate for all or the part of
the Premises which are untenantable on a per diem basis from and after the date
of the fire or other casualty and until the premises are repaired and restored.
15. EMINENT DOMAIN
A. In the event the whole or any substantial part of the Building or the
Premises shall be sold to or taken or condemned by any competent authority for
any public or quasi-public use, this Lease shall terminate as of the date of the
sale to, or taking of possession by, the condemning authority, and Rent shall be
apportioned as of said date.
7
<PAGE>
B. In the event a part of the Premises shall be sold, taken or condemned
for any public or quasi-public use and this Lease is not terminated pursuant to
section A above, there shall be a reduction in the Rent payable under this Lease
proportionate to the part of the Premises so sold or taken.
C. Landlord shall be entitled to receive the entire award from any such
sale, taking or condemnation without any payment to Tenant, and Tenant hereby
assigns to landlord Tenant's interest, if any, in such award; provided, however,
Tenant shall have the right separately to pursue against the condemning
authority an award in respect of the loss, if any, to leasehold improvements
paid for by Tenant and costs of moving incident to such proceeding.
16. ANTI-SUBROGATION
Landlord and Tenant hereby waive all claims for recovery from each other
for any loss or damage to them or to any of their property insured under valid
and collectible insurance policies to the extent of the proceeds collected under
such insurance policies.
17. RULES AND REGULATIONS
Tenant agrees, for itself and each of their respective customers, invitees
and guests, to comply fully with reasonable rules and regulations, and with such
reasonable modifications and additions to such rules and regulations as Landlord
may make for the Building, except such modifications shall not materially
interfere with the use of the Premises for the purposes permitted under this
Lease.
18. SUBORDINATION OF LEASE AND ATTORNMENT
A. This lease and the rights of Tenant and all those claiming by, through
or under Tenant under this Lease shall be and are hereby made expressly subject
and subordinate at all times to the lien of any first mortgage now or hereafter
existing against the Building and/or any ground leasehold estate. Tenant agrees
to execute and deliver such instruments subordinating this Lease to any lien of
any such first mortgage as may be requested in writing by Landlord from time to
time.
B. In the event of the foreclosure of any such mortgage by summary
proceedings, voluntary agreement or otherwise, to the commencement of any
judicial action seeking such foreclosure, Tenant shall attorn to and recognize
any first mortgagee as Tenant's Landlord under this Lease. Tenant agrees to
execute and deliver at any
8
<PAGE>
time any instrument to evidence such attornment. Tenant further hereby waives
its right, if any, to elect to terminate this Lease or to surrender possession
of the Premises in the event of any such mortgage foreclosure.
19. NOTICES
A. All notices to be given by one party to the other under this Lease
shall be in writing and served, in the manner hereinafter described, at the
following addresses: (1) to Landlord: at the Premises, or at such other address
as Landlord shall designate by notice to Tenant, and (2) to Tenant: at the
Premises and at the offices of Bozell Worldwide, Inc., 10250 Regency Circle,
Omaha, Nebraska 68114, or such other address as Tenant shall designate.
B. Notices shall be effectively served by Landlord upon Tenant by hand
delivery to Tenant or to an agent of Tenant, and by mailing by certified or
registered mail, postage prepaid, return receipt requested.
C. Notices shall be effectively served by Tenant upon Landlord by hand
delivery to an authorized person of Landlord in the Building, or by mailing by
certified or registered mail, postage prepaid, return receipt requested.
20. MISCELLANEOUS
A. Subject to the limitations contained in this Lease, each provision of
this Lease shall be binding upon and inure to the benefit of Landlord and Tenant
and their respective heirs, assigns, executors, administrators, legal
representatives and successors.
B. The heading or captions of articles are for convenience only, are not
part of this Lease, and shall not affect the interpretation of this Lease.
21. QUIET ENJOYMENT
So long as Tenant shall perform its obligations under this Lease, it shall
be entitled to peaceful and quiet
9
<PAGE>
enjoyment of the Premises, subject to the terms of this Lease.
------------------------------
David Scott Carlick
POPPE TYSON, INC., a New York
corporation
By:___________________________
Title:________________________
10
<PAGE>
EXHIBIT 10.10
AMENDMENT TO BUSINESS ACQUISITION AGREEMENT
-------------------------------------------
AMENDMENT dated and effective as of April 1, 1995 to the agreement
dated March 15, l993 (the "Agreement") by and among POPPE TYSON, INC., a
Delaware corporation, with offices at 40 West 23rd Street, New York, New York
10010 ("PT") and CARLICK ADVERTISING ("CA"), and CARLICK DATA BASE MARKETING
("CDBM"), both sole proprietorships having offices at 707 California Street,
Mountain View, California 94041 (CA and CDBM are hereinafter sometimes
collectively referred to as "CARLICK").
In consideration of the premises contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Agreement is hereby modified as follows:
1. Paragraphs 5(a), (b) and (c) of the Agreement are hereby deleted
in their entirety and a new paragraph 5(a) shall be inserted in their place as
follows:
"(a) pay to Carlick for each of the three (3) consecutive annual
periods (the "Annual Periods"), commencing on April 1, l995, the
sum of Two Hundred Twenty Nine Thousand, One Hundred Sixty Two
Dollars and 50/100 cents ($229,162.50)."
2. Paragraph 5(d) of the Agreement shall be deleted in its entirety
and a new paragraph numbered as 5(b) shall be inserted in its place as follows:
"(b) Any payments due pursuant to subparagraph 5(a) hereof shall
be paid within sixty (60) days following the expiration of the
applicable Annual Period."
3. Paragraphs 5(e) and (f) shall be renumbered as 5(c) and (d),
respectively.
Except as modified herein, all terms and conditions of the Agreement
shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed or caused
this Amendment to be executed by its officers thereunto duly authorized, as of
the day and year first above written.
POPPE TYSON, INC.
By:________________________
Title:_____________________
CARLICK ADVERTISING
By:________________________
CARLICK DATA BASE MARKETING
By:________________________
2
<PAGE>
EXHIBIT 10.11
THE AMENDED AND RESTATED
1996 STOCK OPTION PLAN
OF
POPPE TYSON, INC.
1. Purpose. Poppe Tyson, Inc., a Delaware corporation
-------
("Poppe Tyson"), desires to attract and retain the best available talent and to
-----------
encourage the highest level of performance. The Amended and Restated Poppe
Tyson, Inc. 1996 Stock Option Plan (the "Plan") is intended to contribute
----
significantly to the attainment of these objectives, by affording eligible
employees and independent contractors (and employees, advisors and consultants
thereof) of Poppe Tyson and its subsidiary corporations (collectively, the
"Company") the opportunity to acquire a proprietary interest in Poppe Tyson
- --------
through the grant of stock options ("Options") to purchase shares of common
-------
stock, $.001 par value, of Poppe Tyson (the "Common Stock").
------------
2. Administration.
--------------
(a) Committee. The Plan shall be administered by the Stock Option
---------
Committee (the "Committee") of the Board of Directors of Poppe Tyson (the
---------
"Board"), which shall consist of not fewer than two members of the Board. On
-----
and after an initial public offering of any common stock of Poppe Tyson, each
member of the Committee shall be (i) a "non-employee director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (ii) unless the deduction disallowance imposed by Section
------------
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), need not
----
take into account Options granted under the Plan (by virtue of Treas. Reg. (S)
1.162-27(f) or otherwise), an "outside director" within the meaning of Code
Section 162(m). The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Committee.
(b) Authority of the Committee. Subject to paragraph (c) hereof,
--------------------------
the Committee shall have plenary authority in its discretion, to the maximum
extent permissible by law, subject to and not inconsistent with the express
provisions of the Plan, to make all awards of Options under the Plan, to select
from among the persons eligible for grants under the Plan those individuals who
will be awarded Options, to determine the number of shares
<PAGE>
of Common Stock covered by each Option, the Option exercise price per share of
Common Stock covered by each Option (and, in connection therewith, determine the
fair market value of the Common Stock for purposes of the Plan), and the
restrictions, if any, which shall apply to the Common Stock subject to an
Option, to determine the terms and conditions of each Option, to approve the
form of each Option agreement (an "Option Agreement"), to amend any such Option
----------------
Agreement from time to time, to construe and interpret the Plan and all Option
Agreements executed thereunder and to make all other determinations necessary or
advisable for the administration of the Plan. In exercising its authority to
set the terms and conditions of Options, and subject only to the limits of
applicable law, the Committee shall be under no obligation or duty to treat
similarly situated grantees of an Option Agreement ("Optionees") in the same
---------
manner, and any action taken by the Committee with respect to the grant of an
Option to one Optionee shall in no way obligate the Committee to take the same
or similar action with respect to any other Optionee. The Committee may adopt
such rules as it deems necessary or advisable in order to carry out the purpose
of the Plan. All questions of interpretation, administration and application of
the Plan shall be determined by a majority of the members of the Committee then
in office, except that the Committee may authorize any one or more of its
members, or any officer of the Company, to execute and deliver documents
(including any applicable Option Agreement) on behalf of the Committee or Poppe
Tyson. Any interpretation or determination made by the Committee pursuant to
the foregoing shall be conclusive and binding upon any person having or claiming
any interest under the Plan.
(c) Authority of Board. Notwithstanding the foregoing, prior to
------------------
an initial public offering of Common Stock, the Board (and not the Committee
unless the Board specifically resolves to the contrary) shall have plenary
authority in its discretion, to the maximum extent permissible by law, subject
to and not inconsistent with the express provisions of the Plan, (i) to make all
awards of Options under the Plan, to select from among the persons eligible for
grants under the Plan those individuals who will be awarded Options, to
determine the number of shares of Common Stock covered by each Option, the
Option exercise price per share of Common Stock covered by each Option (and, in
connection therewith, determine the fair market value of the Common Stock for
purposes of the Plan) and the restrictions, if any, which shall apply to the
Common Stock subject to an Option, and (ii) to the extent it so elects, to
determine other principal terms and conditions of each Option granted. To the
extent that the Board does not elect to determine a principal term and condition
of an Option
2
<PAGE>
granted, such determination shall be made by the Committee in accordance with
paragraph (b). To the extent necessary to be consistent with the provisions of
this paragraph (c), any reference in the Plan and/or an Option Agreement to a
decision, determination or action of the Committee shall be read and understood
as referring to a decision, determination or action of the Board.
(d) Liability of Board and Committee Members. No member of the
----------------------------------------
Board or Committee shall be liable for anything whatsoever in connection with
the administration of the Plan except such member's own willful misconduct.
Under no circumstances shall any member of the Board or Committee be liable for
any act or omission of any other member of the Board or Committee. In the
performance of its functions with respect to the Plan, the Board and Committee
shall be entitled to rely upon information and advice furnished by Poppe Tyson's
officers, Poppe Tyson's accountants, Poppe Tyson's legal counsel and any other
party the Board and Committee deems necessary, and no member of the Board or
Committee shall be liable for any action taken or not taken in reliance upon any
such advice.
3. Type of Options. Options granted under the Plan may be either
---------------
incentive stock options ("ISOs") intended to meet the requirements of Code
----
Section 422 or nonqualified stock options ("NSOs") which are not intended to
----
meet such Code requirements.
4. Eligible Persons. Options may be awarded only to employees
----------------
and independent contractors of the Company; provided, however, that ISOs may
only be awarded to employees of the Company. For purposes hereof, independent
contractors shall include officers, consultants, advisors and directors of the
Company, and shall also include the employees, advisors and consultants of an
independent contractor of the Company. In determining the persons to whom awards
shall be made and the number of shares to be covered by each Option, the
Committee shall take into account the duties of the respective persons, their
present and potential contributions to the success of the Company and such other
factors as the Committee, in its discretion, shall deem relevant in connection
with accomplishing the purposes of the Plan.
5. Shares Subject to the Plan. No more than 4,574,777 shares of
--------------------------
Common Stock shall be issued pursuant to the exercise of Options granted under
the Plan. The maximum aggregate number of shares of Common Stock for which
Options may be granted to any one employee within one fiscal year shall be
2,744,866. Such aggregate numbers shall be subject to adjustment as provided in
Section 16. If an Option is
3
<PAGE>
forfeited or expires without being exercised, the shares of Common Stock subject
to the Option shall be available for additional Option grants under the Plan.
If an Option is exercised in whole or in part by an Optionee by tendering
previously owned shares of Common Stock, or if any shares are withheld in
connection with the exercise of its Option to satisfy the Optionee's tax
liability, the full number of shares in respect of which the Option has been
exercised shall be applied against the limit set forth in this Section 5.
6. Term of Options. The term of each Option shall be fixed by
---------------
the Committee and specified in the applicable Option Agreement, but in no event
shall it be more than ten years from the date of grant, subject to earlier
termination as provided in Section 8 and subject to Section 17. Subject to
Section 17, the term of an Option may be extended from time to time by the
Committee, provided that no such extension shall extend the term beyond ten
years from the date of grant.
7. Vesting; Employment Requirement.
-------------------------------
(a) Options shall first become exercisable, i.e., shall vest, in
----
accordance with a vesting schedule determined by the Committee and specified in
the applicable Option Agreement.
(b) Except as provided in Section 8, no Option which is granted to
an individual who is an employee of the Company at the time of the Option grant
may be exercised unless the Optionee remains an employee of the Company
continuously from the date of grant.
(c) Any Option Agreement may contain such provisions as the
Committee shall approve with reference to the determination of the date
employment terminates for purposes of the Plan and the effect of leaves of
absence, which provisions may vary from one another.
8. Termination of Relationship to the Company.
------------------------------------------
(a) Options Granted To Employees. With respect to an Option
----------------------------
granted to an individual who is an employee of the Company at the time of Option
grant, the following rules shall apply:
(i) Termination Other Than Death or Disability. In the event that
------------------------------------------
an Optionee shall cease to be an employee of the Company other than by reason of
death or by reason of becoming permanently and totally disabled, any Option held
by such Optionee may be exercised (to the extent
4
<PAGE>
that the Option is vested at the time of termination) at any time within three
months after such termination, or, in the case of a NSO, such period specified
in the applicable Option Agreement, which period shall not exceed one year from
such termination, but in all events, may not be exercised later than the date on
which the Option, by its terms, otherwise would have expired; provided, however,
-------- -------
that unless the applicable Option Agreement provides otherwise, any Option held
by an employee whose employment shall be terminated either (A) by the Company
for cause or (B) voluntarily by the employee and without the consent of the
Company (which consent shall be presumed in the case of retirement on or after
attainment of age 65) shall, to the extent not theretofore exercised, forthwith
terminate.
(ii) Death or Disability. If an Optionee shall die or become
-------------------
permanently and totally disabled while he is employed by the Company, any Option
held by such Optionee may be exercised as set forth herein by the guardian or
legal representative of the Optionee, or by the Optionee (to the extent that the
Option is vested as of such event), at any time within one year of the death or
termination of employment for permanent and total disability, as applicable, or
such shorter period specified in the Optionee's Option Agreement, but in all
events may not be exercised later than the date on which the Option, by its
terms, otherwise would have expired.
(b) Options Granted to Consultants. Paragraph (a) of this Section
------------------------------
8 shall have no application to an Option granted to an individual who is not an
employee of the Company at the time of Option grant. With respect to an Option
granted to such an individual, the applicable Option Agreement shall specify the
consequences, if any, of the termination of the Optionee's relationship with the
Company.
9. Option Exercise Price. Subject to Section 17, the Option
---------------------
exercise price per share of Common Stock covered by an Option shall be
established by the Committee.
10. Exercise of Options.
-------------------
(a) An Option may be exercised at any time and from time to time,
in whole or in part, as to any or all full shares as to which the Option is then
exercisable; provided, however, that if so specified in the Option Agreement,
the Option may not, in a single exercise, be exercised for fewer than the
minimum number of shares specified in the Option Agreement, unless the exercise
is for all of the shares as to which the Option is then exercisable. Prior to
an initial public offering of the Common Stock, an Option may not be exercised
with respect to a fractional share unless it is exercised as to all of the
5
<PAGE>
shares as to which the Option is then exercisable. On and after an initial
public offering of the Common Stock, an Option may not be exercised with respect
to a fractional share; if the Option is exercised with respect to all of the
whole shares as to which the Option is then exercisable, and the Option remains
exercisable with respect to less than one share of Common Stock, the Company
shall pay the Optionee the excess of (i) the fair market value of such remaining
fractional share, over (ii) the Option exercise price for such remaining
fractional share, and the Option shall terminate with respect to such fractional
share. An Optionee (or other person who, pursuant to Section 13, may exercise
the Option) shall exercise the Option by delivering to Poppe Tyson at the
address provided in the Option Agreement a written, signed notice or exercise,
stating the number of shares of Common Stock with respect to which the option
exercise is being made, and satisfy the requirements of paragraphs (b) and (c)
of this Section 10. Upon receipt by Poppe Tyson of any notice of exercise, the
exercise of the Option as set forth in that notice shall be irrevocable.
(b) Upon exercise of an Option the Optionee shall pay to Poppe
Tyson the Option exercise price per share of Common Stock multiplied by the
number of full shares as to which the Option is then exercised. An Optionee may
pay the Option exercise price by tendering or causing to be tendered to Poppe
Tyson cash, previously owned shares of Common Stock or other property permitted
by law and acceptable to the Committee, or any combination thereof.
(c) An Optionee shall, upon notification of the amount due and
prior to or concurrently with delivery of the certificate representing the
shares as to which the Option has been exercised, promptly pay or cause to be
paid the amount determined by the Committee as necessary to satisfy all
applicable tax withholding requirements. Subject to Rule 16b-3 under the
Exchange Act, an Optionee may satisfy his or her tax withholding requirement in
any manner satisfactory to the Committee.
(d) The certificate representing the shares as to which an Option
has been exercised shall bear an appropriate legend setting forth the
restrictions applicable to such shares.
11. Option Agreement. The terms and conditions of each Option
----------------
shall be set forth in an Option Agreement in the form approved by the Committee.
Each Option Agreement shall be executed by Poppe Tyson and the Optionee. Each
Option Agreement shall, at a minimum, specify (i) the number of shares of Common
Stock subject to the Option, (ii) whether the Option is intended to be an ISO or
NSO,
6
<PAGE>
(iii) the provisions related to vesting and exercisability of the Option,
including the Option exercise price, and (iv) that the Option is subject to the
terms and provisions of the Plan and that in the event of any conflict between
the Option Agreement and the Plan, the Plan shall control. The Option Agreement
may also contain such other terms and conditions as the Committee determines to
be necessary or advisable. Option Agreements may vary from one another.
12. No Stockholder Rights. No Optionee shall have the rights of
---------------------
a stockholder with respect to shares covered by an Option until such person
becomes the holder of record of such shares.
13. Nontransferability.
------------------
(a) Except as provided in paragraph (b) below, Options granted
under the Plan shall not be assignable or transferable other than by will or the
laws of descent and distribution and Options may be exercised during the
lifetime of the Optionee only by the Optionee or by the Optionee's guardian or
legal representative.
(b) Notwithstanding paragraph (a), if (and on the terms) so
provided in the applicable Option Agreement, an Optionee shall be permitted to
transfer a NSO to a member of such Optionee's immediate family, to the spouse of
any such family member or to a trust established for the benefit of one or more
of such family members. If an NSO is transferred in accordance with this
paragraph, the Option shall be exercisable solely by the transferee, but the
determination of the exercisability of the Option shall be based solely on the
activities and state of affairs of the Optionee. Thus, for example, if after a
transfer the Optionee ceases to be an employee of the Company, such termination
shall trigger the provisions of Section 8 hereof. Conversely, if after a
transfer the transferee ceases to be an employee of the Company, such
termination shall not trigger the provisions of Section 8 hereof.
14. Compliance with Law; Registration of Shares.
-------------------------------------------
(a) The Plan and any grant hereunder shall be subject to all applicable
laws, rules, and regulations of any applicable jurisdiction or authority or
agency thereof and to such approvals by any regulatory or governmental agency
which, in the opinion of Company's counsel, may be required or appropriate.
(b) Notwithstanding any other provision of this Plan or Option Agreements
made pursuant hereto, the Company shall not be required to issue or deliver any
7
<PAGE>
certificate or certificates for shares of Common Stock under this Plan prior to
fulfillment of all of the following conditions:
(i) Effectiveness of any registration or other qualification of
such shares of the Company under any law or regulation of any applicable
jurisdiction or authority or agency thereof which the Committee shall, in
its absolute discretion or upon the advice of counsel, deem necessary or
advisable; and
(ii) Grant of any other consent, approval or permit from any
applicable jurisdiction or authority or agency thereof or securities
exchange which the Committee shall, in its absolute discretion or upon the
advice of counsel, deem necessary or advisable.
The Company shall use all reasonable efforts to obtain any consent,
approval or permit described above; provided, however, that except to the extent
as may be specified in an Option Agreement with respect to any particular Option
grant, the Company shall be under no obligation to register or qualify any
shares subject to an Option under any federal or state securities law or on any
exchange.
15. No Restriction on the Right of Poppe Tyson to Effect
----------------------------------------------------
Corporate Changes. The Plan and the Options granted hereunder shall not affect
- -----------------
in any way the right or power of Poppe Tyson or its stockholders to make or
authorize any or all adjustments, recapitalization, reorganizations or other
changes in Poppe Tyson's or the Company's capital structure or its business, or
any merger or consolidation of Poppe Tyson or the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights of holders thereof or which are convertible into or
exchangeable for Common Stock, or the dissolution or liquidation of Poppe Tyson
or the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise.
16. Certain Adjustments.
-------------------
(a) In the event that the Company or the division or subsidiary for
which an Optionee performs services is sold, merged, consolidated, reorganized
or liquidated, the Committee shall make such adjustments, if any, as it
determines to be necessary or advisable to provide each Optionee with a benefit
equivalent to that to
8
<PAGE>
which the Optionee would have been entitled had such event not occurred.
(b) In the event of any stock dividend or split, recapitalization,
combination, exchange or similar change affecting the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company, the Committee shall make any or
all of the following adjustments as it deems appropriate to equitably reflect
such event: (i) adjust the aggregate number of shares (or such other security
as is designated by the Committee) which may be acquired pursuant to the Plan,
(ii) adjust the option price to be paid for any or all such shares subject to
the then outstanding Options, (iii) adjust the number of shares of Common Stock
(or such other security as is designated by the Committee) subject to any or all
of the then outstanding Options and (iv) make any other equitable adjustments or
take such other equitable action as the Committee, in its discretion, shall deem
appropriate. For purposes hereof, the conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration."
(c) Any and all adjustments or actions taken by the Committee
pursuant to this Section shall be conclusive and binding for all purposes.
17. ISO Provisions.
--------------
(a) Option Exercise Price. Subject to paragraph (b), the Option
---------------------
exercise price per share of Common Stock covered by an ISO shall be no less than
the fair market value of a share of Common Stock on the date of grant of the
Option.
(b) 10% Shareholders. In the case of an individual
----------------
who at the time the Option is granted owns stock possessing more than 10% of the
total combined voting power of all classes of the stock of Poppe Tyson or of a
parent or subsidiary corporation of Poppe Tyson (a "10% Holder"), (i) the Option
----------
exercise price of the Common Stock covered by any ISO granted to such person
shall in no event be less than 110% of the fair market value of the Common Stock
on the date the ISO is granted and (ii) the term of an ISO granted to such
person may not exceed five years from the date of grant.
(c) $100,000 Limit. The aggregate fair market value
--------------
(determined at the time an ISO is granted) of the Common Stock covered by ISOs
exercisable for the first
9
<PAGE>
time by an employee during any calendar year (under all plans of the Company)
may not exceed $100,000.
18. No Right to Continued Employment. Neither the Plan nor
--------------------------------
any action taken hereunder shall be construed as giving any employee or any
independent contractor any right to continue in the employ of or to be engaged
as an independent contractor by the Company or affect the right of the Company
to terminate such person's employment or other relationship with the Company at
any time.
19. Amendment; Early Termination. The Board may at any time and
----------------------------
from time to time alter, amend, suspend or terminate the Plan in whole or in
part; provided, however, that no amendment requiring stockholder approval by law
or by the rules of any stock exchange, inter-dealer quotation system, or other
market in which shares of Common Stock are traded, shall be effective unless and
until such stockholder approval has been obtained in compliance with such rule
or law; and provided, further, that no such amendment shall adversely affect the
rights of an Optionee in any Option previously granted under the Plan (including
an amendment which would cause an ISO to become a NSO) without the Optionee's
written consent.
20. Effective Date. The Plan shall be effective as of the
--------------
date of its adoption by the Board (the "Effective Date"), subject to the
--------------
approval thereof by the stockholders of Poppe Tyson entitled to vote thereon
within 12 months of such date. In the event that such stockholder approval is
not obtained within such time period, the Plan and any Options granted under the
Plan on or prior to the expiration of such 12 month period shall be void and of
no further force and effect. Any Options granted under the Plan on or prior to
the date of such stockholder approval shall expressly provide that such Options
are subject to the approval of the Plan by the stockholders of Poppe Tyson
within 12 months of the Effective Date.
21. Termination of Plan. Unless terminated earlier by the
-------------------
Board in accordance with Section 19 above, the Plan shall terminate on, and no
further Options may be granted after, the tenth anniversary of the Effective
Date.
22. Severability. In the event that any one or more provisions
------------
of the Plan or an Option Agreement, or any action taken pursuant to the Plan or
an Option Agreement, should, for any reason, be unenforceable or invalid in any
respect under the laws of the United States, any state of the United States or
any other jurisdiction, such unenforceability or invalidity shall not affect any
other provision of the Plan or Option Agreement, but in such
10
<PAGE>
particular jurisdiction and instance the Plan and/or Option Agreement, as
applicable, shall be construed as if such unenforceable or invalid provision had
not been contained therein or if the action in question had not been taken
thereunder.
23. Certain Definitions.
-------------------
(a) The terms "parent corporation" and "subsidiary corporation" shall
have the respective meanings, with respect to Poppe Tyson, set forth in Code
Section 424(e) and (f).
(b) The term "fair market value" of Common Stock on any given date
shall be: (a) if the Common Stock is listed for trading on one or more national
securities exchanges, the mean of the high and low sales prices on the principal
such exchange on the date in question, or, if the Common Stock shall not have
been traded on such principal exchange on such date, the mean of the high and
low sales prices on such principal exchange on the first day prior thereto on
which the Common Stock was so traded; (b) if Common Stock is not listed for
trading on a national securities exchange but is traded on the over-the-counter
market, the mean of the highest and lowest bid prices for the Common Stock on
the date in question, or, if there are no such bid prices for the Common Stock
on such date, the mean of the highest and lowest bid prices on the first day
prior thereto on which such prices appear; or (c) such other amount as may be
determined by the Board or the Committee by any fair and reasonable means.
(c) The term "permanently and totally disabled" or words to like
effect shall mean (i) with respect to an NSO granted to an Optionee who is a
party to an employment agreement with the Company, the meaning set forth in such
agreement, and (ii) otherwise, the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than 12 months.
(d) The term "termination of employment for cause" or words to like
effect shall mean (i) with respect to an Optionee who is a party to an
employment agreement with the Company, the meaning set forth in such agreement,
as such term or a similar term is so defined (other than death or disability),
or (ii) otherwise, termination by the Company of the employment of the Optionee
by reason of the Optionee's (1) willful refusal to perform his obligations to
the Company, (2) willful misconduct, contrary to the
11
<PAGE>
PAGE>
interests of the Company, or (3) commission of a serious criminal act, whether
denominated a felony, misdemeanor or otherwise. In the event of any dispute as
to whether a termination for cause has occurred, the Committee may resolve such
dispute and such resolution shall be final and conclusive on all parties.
24. Headings. The headings of sections and subsections herein
--------
are included solely for convenience of reference and shall not affect the
meaning of any of the provisions of the Plan.
25. Governing Law. This Plan and all rights hereunder shall be
-------------
construed in accordance with and governed by the laws of the State of Delaware.
12
<PAGE>
EXHIBIT 10.12
POPPE TYSON, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Poppe Tyson, Inc. 1996 Employee Stock
-------
Purchase Plan (the "Plan") is to provide employees of Poppe Tyson, Inc., a
Delaware corporation ("Poppe Tyson"), and its Designated Subsidiaries (as
hereinafter defined) with an opportunity to purchase common stock of Poppe
Tyson, par value $.001 per share ("Common Stock"), through accumulated payroll
deductions. It is the intention of Poppe Tyson to have the Plan qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"). Accordingly, the provisions of the Plan shall be
construed in a manner consistent therewith.
2. Definitions.
-----------
(a) "Board" shall mean the board of directors of Poppe Tyson.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of Poppe Tyson, par
------------
value $.001, per share.
(d) "Company" shall mean Poppe Tyson and its Designated Subsidiaries.
-------
(e) "Compensation" shall mean all base straight time gross earnings,
------------
including commissions, overtime, shift premium, and bonuses (unreduced for
amounts which are contributed by the Company pursuant to a salary reduction
agreement and which are not currently includible in gross income under a Code
Section 125 or 401(k) arrangement), but excluding other compensation.
(f) "Designated Subsidiary" shall mean a Subsidiary Corporation which
---------------------
has been designated by the Board as eligible to participate in the Plan. The
Board, in its sole discretion, may at any time, and from time to time, designate
a Subsidiary Corporation as a Designated Subsidiary or terminate a Subsidiary
Corporation's status as a Designated Subsidiary.
(g) "Employee" shall mean any individual who is an employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours
<PAGE>
per week. For purposes of the Plan, an individual's employment relationship
shall be treated as continuing intact while the individual is on sick leave or
other leave of absence approved by the Company; provided, however, that if an
individual's period of leave exceeds 90 days and his or her right to
reemployment is not guaranteed either by statute or by contract, for purposes of
this Plan the individual's employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean the fair market value of Common
-----------------
Stock as determined by the Plan Administrator or under procedures established by
the Plan Administrator. Unless otherwise determined by the Plan Administrator,
the Fair Market Value per share of Common Stock as of any given date shall be
the closing sale price (or the average of the latest bid and asked prices) per
share reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Common Stock is traded on the date as of which such
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported. Notwithstanding the foregoing, for
purposes of the Enrollment Date of the first Offering Period under the Plan, the
Fair Market Value of the Common Stock shall be the price to the public as set
forth in the final prospectus included within the Registration Statement on Form
S-1 filed with the Securities and Exchange Commission for the initial public
offering of the Common Stock.
(k) "Offering Period" shall mean the twenty-four (24) month period
---------------
during which an option granted pursuant to the Plan may be exercised, commencing
on January 1 and July 1 of each year and terminating twenty-four months later;
provided, however, that the first Offering Period shall be the period commencing
with the date on which the Company's registration statement on Form S-1 (or any
successor form thereof) is declared effective by the Securities and Exchange
Commission and terminating on June 30, 1998. The duration and timing of
Offering Periods may be changed pursuant to Section 4, but in no event shall the
duration of an Offering Period exceed twenty-seven (27) months.
(l) "Parent Corporation" shall mean a parent corporation, within the
------------------
meaning of Code Section 424(e), of Poppe Tyson.
2
<PAGE>
(m) "Pay Day" shall mean a day on which Compensation is paid, whether
-------
or not such day is a day on which salary is normally paid.
(n) "Plan" shall mean this Poppe Tyson, Inc. 1996 Employee Stock
----
Purchase Plan.
(o) "Plan Administrator" shall mean the party which, in accordance
------------------
with Section 14, is responsible for administration of the Plan.
(p) "Poppe Tyson" shall mean Poppe Tyson, Inc., a Delaware
-----------
corporation.
(q) "Purchase Price" shall mean an amount equal to the lesser of (i)
--------------
85% of the Fair Market Value of a share of Common Stock on the Enrollment Date,
or (ii) 85% of the Fair Market Value of a share of Common Stock on the Exercise
Date.
(r) "Purchase Period" shall mean the six month period commencing after
---------------
one Exercise Date and ending with the next Exercise Date, except that the first
Purchase Period of any Offering Period shall commence on the Enrollment Date and
end with the next Exercise Date. Notwithstanding the foregoing, the first
Purchase Period of the first Offering Period shall commence on the date on which
the Company's registration statement on Form S-1 (or any successor thereof) is
declared effective by the Securities and Exchange Commission and terminate on
December 31, 1996.
(s) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option granted under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(t) "Subsidiary Corporation" shall mean a subsidiary corporation,
----------------------
within the meaning of Code Section 424(f), of Poppe Tyson.
3. Eligibility.
-----------
(a) Each Employee who is employed by the Company on the Enrollment
Date of a given Offering Period shall be eligible to participate in such
Offering Period.
(b) Any provision of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan if, immediately after the
grant, such
3
<PAGE>
Employee (or any other person whose stock would be attributed to such Employee,
pursuant to Code Section 424(d)) would own capital stock of either Poppe Tyson
or a Parent or Subsidiary Corporation possessing five percent (5%) or more of
the total combined voting power or value of all classes of the capital stock of
Poppe Tyson or its Parent or Subsidiary Corporation. For purposes of this
paragraph, stock which an Employee may purchase under outstanding options shall
be treated as stock owned by such Employee.
(c) Any provision of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan which permits his or her
rights to purchase stock under all employee stock purchase plans of Poppe Tyson
and its Parent and Subsidiary Corporations to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair
Market Value of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on January 1
and July 1 of each year, or on such other date as the Board shall determine.
Notwithstanding the foregoing, the first Offering Period shall be the period
commencing with the date on which the Company's registration statement on Form
S-1 (or any successor form thereof) is declared effective by the Securities and
Exchange Commission and terminating on June 30, 1998. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval;
provided, however, that no such change shall be announced less than five (5)
days prior to the scheduled beginning of the first Offering Period to be
affected thereby.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement in a form prescribed by the Plan
Administrator authorizing payroll deductions and filing it with the Plan
Administrator prior to the applicable Enrollment Date, unless a later time for
filing the subscription agreement is set by the Plan Administrator for all
Employees.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to
4
<PAGE>
which such authorization is applicable (unless the participant sooner withdraws
pursuant to Section 10 hereof).
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
the participant shall elect to have payroll deductions made on each Pay Day
during the Offering Period in an amount equal to a whole percentage, not
exceeding fifteen percent (15%), of the participant's compensation which is paid
at such time. The aggregate rate of payroll deductions on a Pay Day, with
respect to all the Offering Periods in which a Pay Day occurs, shall not exceed
fifteen percent (15%) of the Compensation which the participant receives on such
Pay Day.
(b) All payroll deductions made for a participant shall be credited to
the participant's account under the Plan. A participant may not make any
additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing and filing a new
subscription agreement authorizing a change in payroll deduction rate with the
Plan Administrator. The Plan Administrator may, in its discretion, limit the
number of rate changes permitted during any Offering Period. A change in rate
shall be effective with the first full payroll period following ten (10)
business days after the Plan Administrator's receipt of the new subscription
agreement unless the Company elects to process a given change in participation
more quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless the participant withdraws pursuant to Section
10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Code Section 423(b)(8) and Section 3(c) hereof, a participant's payroll
deductions shall be decreased to 0% when the aggregate payroll deductions
accumulated for the participant with respect to all Purchase Periods ending
within a particular calendar year equals $21,250. In such event, the
participant's payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year (unless the
participant sooner withdraws pursuant to Section 10 hereof).
5
<PAGE>
(e) No later than the date as of which an amount first becomes
includible in the gross income of a participant for federal income tax purposes
with respect to any option or share of Common Stock issued upon exercise
thereof, the participant shall pay to the Company or make arrangements
satisfactory to the Company regarding the payment of any taxes of any kind
required by law to be withheld by the Company with respect to such amount.
Unless otherwise determined by the Plan Administrator, withholding obligations
may be settled with Common Stock, including Common Stock that is part of the
option that gives rise to the withholding requirement, provided that any
applicable requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan shall be conditional on such payment
and arrangements, and the Company shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to the
participant. If a participant disposes of shares of Common Stock acquired
pursuant to an option in any transaction considered to be a disqualifying
transaction under the Code, the participant shall give the Company written
notice of such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
participant.
7. Grant of Option. On the Enrollment Date of each
---------------
Offering Period, each eligible Employee participating in such Offering Period
shall be granted an option to purchase on each Exercise Date during such
Offering Period (at the applicable Purchase Price) up to a number of shares of
Common Stock determined by dividing such Employee's payroll deductions
accumulated on or prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided,
however, that in no event shall an Employee be permitted to purchase during each
Purchase Period more than a number of shares of Common Stock determined by
dividing $12,500 by the Fair Market Value of a share of Common Stock on the
Enrollment Date; and provided further, that such purchase shall be subject to
all of the limitations set forth in the other provisions hereof. Exercise of an
option shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof, and shall expire on the last day of the
Offering Period.
8. Exercise of Option. Unless a participant withdraws
------------------
from the Plan as provided in Section 10 hereof, his or her option for the
purchase of shares shall be exercised automatically on the Exercise Date, and
the maximum number of shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her
6
<PAGE>
account. Any monies left over in a participant's account after the last
Exercise Date in an Offering Period shall be returned to the participant.
During a participant's lifetime, a participant's option to purchase shares
hereunder shall be exercisable only by the participant.
9. Delivery. Shares of Common Stock purchased pursuant
--------
to the Plan shall be delivered and held in the custody of such investment or
financial firm as shall be appointed by the Plan Administrator. The custodian
may hold in nominee or street name certificates for shares purchased pursuant to
the Plan, and may commingle shares in its custody pursuant to the Plan in a
single account without identification as to individual participants. By
appropriate instructions to the custodian on forms to be provided for that
purpose, a participant may from time to time obtain (i) transfer into the
participant's own name or into the name of the participant and another
individual of all or part of the whole shares held by the custodian for the
participant's account; (ii) transfer of all or part of the whole shares held for
the participant's account by the custodian to a regular individual brokerage
account in the participant's own name or in the name of the participant and
another individual, either with the firm then acting as custodian or with
another firm, or (iii) sale of all or part of the whole shares held by the
custodian for the participant's account at the market price at the time the
order is executed and the remittance of the net proceeds of the sale to the
participant. Within ninety (90) days of a participant's termination of
employment with the Company, the shares held by the custodian for such
participant shall be transferred to the participant in accordance with clause
(i) of the preceding sentence, unless, within sixty (60) days of the termination
of employment, the participant otherwise provides instructions to the custodian
in accordance with the preceding sentence. The custodian shall not transfer,
sell or deliver any fractional shares; upon a transfer, sale or delivery of all
of the whole shares credited to the account of a participant, the custodian
shall pay in cash to the participant the Fair Market Value of any fractional
shares credited to the participant's account. Unless paid by the Company,
brokerage fees and other reasonable administrative expenses incurred for
transfers, sales and delivery of shares from the custodian brokerage account
shall be paid by the participant.
10. Withdrawal. A participant may withdraw all (but not
----------
less than all) the payroll deductions credited to his or her account and not yet
used to exercise his or her option under the Plan at any time by giving written
notice to the Plan Administrator, using a form approved by the Plan
Administrator. Promptly after receipt of notice of
7
<PAGE>
withdrawal, all of a participant's payroll deductions credited to his or her
account shall be paid to the participant, the participant's option for all the
Offering Periods then in progress shall be automatically terminated, and no
further payroll deductions for the purchase of shares for the participant shall
be made for such Offering Period(s). If a participant withdraws from the Plan,
his or her payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant delivers to the Company a new
subscription agreement.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee (as defined in Section 2(g) hereof) for any reason, he or she shall be
deemed to have elected to withdraw from the Plan. Consequently, payroll
deductions credited to the participant's account which have not yet been used to
exercise the option shall be returned to the participant (or, in the case of the
participant's death, to the person or persons entitled thereto under Section 15
hereof) and such participant's option shall automatically terminate.
12. Interest. No interest shall accrue on a participant's payroll
--------
deductions.
13. Stock.
-----
(a) The maximum number of shares of Common Stock which shall be made
available for sale under the Plan shall be 348,333 shares, subject to adjustment
upon changes in capitalization of Poppe Tyson, as provided in Section 19 hereof.
If on a given Exercise Date the number of shares with respect to which options
are to be exercised exceeds the number of shares then available under the Plan,
the Plan Administrator shall make a pro rata allocation of the shares remaining
available for purchase in as uniform a manner as shall be practicable and as it
shall determine to be equitable.
(b) Subject to Section 22, upon exercise of an option, Poppe Tyson
shall issue the shares of Common Stock subject to the option. No person shall
have any rights of a stockholder as to shares of Common Stock subject to an
option until, after proper exercise of the option, and subject to Section 22,
such shares shall have been registered on Poppe Tyson's official stockholder
records as having been issued and transferred.
14. Administration.
--------------
(a) The Plan shall be administered by the Board or by a committee of
individuals appointed by the
8
<PAGE>
Board (the "Plan Administrator"); provided, however, that to the extent
necessary to comply with Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any successor provision ("Rule
16b-3"), the Plan Administrator shall be limited to a party which satisfies the
applicable requirements of Rule 16b-3.
(b) The Plan Administrator shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to determine
eligibility, to adjudicate all disputed claims filed under the Plan, and to
adopt, alter and repeal rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable. All findings, decisions and
determinations made by the Plan Administrator shall, to the fullest extent
permitted by law, be final and binding upon all parties and shall not be subject
to de novo review if challenged in court.
(c) The Plan Administrator shall have the authority to appoint and
compensate agents, counsel, auditors and other specialists, including the
Company, officers and employees of the Company and counsel to the Company, to
aid it in the discharge of its duties.
15. Death of Participant. In the event of the death of a
--------------------
participant, any shares of Common Stock and/or cash which is credited to the
participant's account under the Plan shall be delivered to the executor or
administrator of the estate of the participant. If to the knowledge of the Plan
Administrator no such executor or administrator has been appointed, the Plan
Administrator, in its discretion, may deliver such shares and/or cash to the
participant's spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Plan
Administrator, then to such other person as the Plan Administrator may
designate.
16. Transferability. Neither payroll deductions credited
---------------
to a participant's account nor any rights with regard to the exercise of an
option or to receive shares of Common Stock under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way by the participant
(except upon death, as provided in Section 15 hereof). Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw from the
Plan in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held
------------
by the Company under the Plan may be used
9
<PAGE>
by the Company for any corporate purpose. The Company shall be under no
obligation to segregate any payroll deductions which it receives or holds from
the Company's general funds.
18. Reports. Individual accounts shall be maintained for
-------
each Plan participant. Statements of account shall be given to participants at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any, credited to the participant's account.
19. Adjustments Upon Changes in Capitalization, Dissolution,
--------------------------------------------------------
Liquidation, Merger or Asset Sale.
- ----------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of Poppe Tyson, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by Poppe Tyson; provided, however,
that conversion of any convertible securities of Poppe Tyson shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
Poppe Tyson of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of Poppe Tyson, the Offering Periods shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of Poppe Tyson with or into another corporation,
each option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Periods then in progress by setting a new
10
<PAGE>
Exercise Date (the "New Exercise Date"). If the Board shortens the Offering
Periods then in progress in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that his or her option will be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Plan as
provided in Section 10 hereof. For purposes of this paragraph, an option
granted under the Plan shall be deemed to be assumed if, following the sale of
assets or merger, the option confers the right to purchase, for each share of
option stock subject to the option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
share of Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding shares of Common Stock);
provided, however, that if such consideration received in the sale of assets or
merger was not solely common stock of the successor corporation or its parent
(as defined in Code Section 424(e)), the Board may, with the consent of the
successor corporation, provide for the consideration to be received upon
exercise of the option to be solely common stock of the successor corporation or
its parent equal in fair market value to the per share consideration received by
holders of Common Stock in the sale of assets or merger.
20. Amendment or Termination.
------------------------
(a) The Board may for any reason, at any time, and from time to time,
amend or terminate the Plan. No such amendment or termination shall require
stockholder approval except to the extent necessary to comply with Rule 16b-3 or
Code Section 423 or any successor rule or provision or any other applicable law
or regulation. Subject to paragraph (b), and except as provided in Section 19
hereof, no such amendment or termination may adversely affect options previously
granted without the approval of the affected participant; provided, however,
that an Offering Period may be terminated by the Board on any Exercise Date if
the Board determines that such termination is in the best interest of Poppe
Tyson and its stockholders.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board or the Plan Administrator shall be entitled to change the Offering
11
<PAGE>
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board or the Plan Administrator determines in its sole
discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a
-------
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Plan
Administrator at the location, or by the person, designated by the Plan
Administrator for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not
----------------------------------
be issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. The
Company shall not be required to issue or deliver any certificates for shares of
Common Stock prior to (i) the listing of such shares on any stock exchange (or
other public market) on which the Common Stock may then be listed (or regularly
traded), (ii) the completion of any registration or qualification of such shares
under Federal or state law, or any ruling or regulation of any government body
which the Plan Administrator determines to be necessary or advisable, and (iii)
the satisfaction of any applicable withholding obligation in order for the
Company to obtain a deduction with respect to the exercise of an option. The
Company may cause any certificate for any shares of Common Stock to be delivered
to be properly marked with a legend or other notation reflecting the limitations
on transfer of such Common Stock as provided in this Plan or as the Plan
Administrator may otherwise require. The Plan Administrator may require any
person exercising an Option to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of the Common Stock in compliance with applicable law or otherwise.
12
<PAGE>
23. Term of Plan. The Plan shall become effective upon the
------------
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To
-----------------------------------------------
the extent permitted by Rule 16b-3 of the Exchange Act, if the Fair Market Value
of the Common Stock on any Exercise Date in an Offering Period is lower than the
Fair Market Value of the Common Stock on the Enrollment Date of such Offering
Period, all participants in such Offering Period shall be automatically
withdrawn from such Offering Period immediately after the exercise of their
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
13
<PAGE>
EXHIBIT 10.13
AGREEMENT AND PLAN
OF
REORGANIZATION AND MERGER
dated
June 27, 1996
By and Among
Poppe Tyson, Inc.,
a Delaware corporation,
Animated Systems & Design, Inc.,
a Delaware corporation,
Animated Systems & Design, Inc.,
a California corporation,
and
Rea B. Callender,
an individual
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS................................. 1
1.1 Definitions..................................... 1
ARTICLE II THE MERGER AND RELATED MATTERS.............. 8
2.1 The Merger...................................... 8
2.2 Exchange of Certificates........................ 10
2.3 Dissenting Shares............................... 11
2.4 Closing......................................... 11
2.5 Legend.......................................... 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ASD
AND THE PRINCIPAL SHAREHOLDER............... 12
3.1 Corporate Existence and Power................... 12
3.2 Corporate Authorization......................... 12
3.3 Governmental Authorization...................... 13
3.4 Non-Contravention............................... 13
3.5 ASD Capitalization.............................. 13
3.6 Subsidiaries.................................... 13
3.7 Consents........................................ 14
3.8 Financial Statements............................ 14
3.9 Absence of Certain Changes...................... 15
3.10 Title to Assets................................. 16
3.11 Real Estate..................................... 16
3.12 Litigation...................................... 16
3.13 Contracts....................................... 16
3.14 Licenses and Permits............................ 17
3.15 Compliance with Laws............................ 17
3.16 Intangible Property............................. 17
3.17 Finders' Fees................................... 19
3.18 Clients; Billings............................... 19
3.19 Employees....................................... 19
3.20 Prepaids........................................ 19
3.21 Taxes........................................... 20
3.22 Environmental and Industrial Hygiene Compliance. 21
3.23 Labor and Employment Matters.................... 23
3.24 Pension and Benefit Plans....................... 24
3.25 Insurance....................................... 28
3.26 Books and Records............................... 28
3.27 Hart-Scott-Rodino Act........................... 29
3.28 Investment Intent............................... 29
3.29 Qualification as Investors...................... 30
3.30 Other Information............................... 30
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUBSIDIARY........................ 31
4.1 Organization and Existence....................... 31
4.2 Corporate Authorization.......................... 31
4.3 Governmental Authorization....................... 31
4.4 Non-Contravention................................ 31
4.5 Parent Capitalization............................ 32
4.6 Finders' Fees.................................... 32
4.7 Litigation....................................... 32
4.8 Financial Statements............................. 32
4.9 Absence of Certain Changes....................... 33
4.10 Title to Assets.................................. 34
4.11 Compliance with Laws............................. 34
4.12 Taxes............................................ 34
ARTICLE V COVENANTS OF ASD AND PRINCIPAL
SHAREHOLDER.................................. 35
5.1 Conduct of the Business......................... 35
5.2 Insurance....................................... 36
5.3 No Defaults..................................... 36
5.4 Reporting and Compliance With Law............... 37
5.5 Arrangements with Employees..................... 37
5.6 Access to Information........................... 37
5.7 Notices of Certain Events....................... 37
5.8 Transfer Taxes.................................. 38
5.9 Other Offers.................................... 38
ARTICLE VI COVENANTS OF PARENT.......................... 38
6.1 Access.......................................... 39
ARTICLE VII COVENANTS OF ALL PARTIES HERETO.............. 39
7.1 Best Efforts; Further Assurances................ 39
7.2 Public Announcements............................ 39
7.3 Best Efforts to Obtain Consents................. 39
ARTICLE VIII CONDITIONS TO CLOSING........................ 40
8.1 Conditions to the Obligations of Parent,
Subsidiary, ASD and Principal Shareholder....... 40
8.2 Conditions to the Obligations of Parent and
Subsidiary...................................... 40
8.3 Conditions to Obligation of ASD and Principal
Shareholder..................................... 43
ARTICLE IX SURVIVAL; INDEMNIFICATION;
TERMINATION; RELEASE......................... 43
9.1 Survival........................................ 43
9.2 Indemnification................................. 44
9.3 Procedures...................................... 45
9.4 Release......................................... 46
9.5 Grounds for Termination......................... 47
9.6 Effect of Termination........................... 47
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE X ARBITRATION.................................. 47
ARTICLE XI MISCELLANEOUS................................ 48
11.1 Notices.......................................... 48
11.2 Amendments; No Waivers........................... 49
11.3 Expenses......................................... 49
11.4 Successors and Assigns........................... 49
11.5 Governing Law.................................... 49
11.6 Counterparts; Effectiveness...................... 50
11.7 Entire Agreement................................. 50
11.8 Severability..................................... 50
11.9 Captions......................................... 50
11.10 Attorneys' Fees.................................. 50
11.11 Ambiguities...................................... 50
11.12 No Third Party Rights............................ 50
</TABLE>
iii
<PAGE>
EXHIBITS
- --------
Exhibit A Agreement of Merger
Exhibit B Certificate of Merger
Exhibit C Stock Option Agreement
Exhibit D-1 Employment Agreement (Callender)
Exhibit D-2 Employment Agreement (Malone)
Exhibit E Non-Competition Agreement
Exhibit F ASD Shareholder's Certificate
Exhibit G Pledge Agreement
Exhibit H Registration Rights Agreement
ASD SCHEDULES
- -------------
Schedule 3.5 Capitalization
Schedule 3.6 Subsidiaries
Schedule 3.7 ASD Consents
Schedule 3.8 Undisclosed Liabilities
Schedule 3.9 Absence of Certain Changes
Schedule 3.10 Title to Assets
Schedule 3.11 Real Property
Schedule 3.13 Contracts
Schedule 3.14 Licenses and Permits
Schedule 3.16 Intangible Property
Schedule 3.18 Clients
Schedule 3.19 Employees
Schedule 3.20 Prepaids
Schedule 3.21 Taxes
Schedule 3.22 Environmental Compliance
Schedule 3.23 Labor Matters
Schedule 3.24 Pension and Benefit Plans
Schedule 3.25 Insurance
Schedule 3.26 Officers and Directors
PARENT SCHEDULES
- ----------------
Schedule 2.1 Distribution of Cash, Parent Stock and Parent Options
Schedule 4.5 Capitalization
Schedule 4.8 Undisclosed Liabilities
Schedule 4.9 Absence of Certain Changes
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
dated June 27, 1996, by and among Poppe Tyson, Inc., a Delaware corporation
("Parent"), Animated Systems & Design, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Subsidiary"), Animated Systems & Design, Inc., a
California corporation ("ASD") and Rea B. Callender, an individual and the
principal shareholder of ASD ("Principal Shareholder").
W I T N E S S E T H :
WHEREAS, Parent, Subsidiary and ASD desire to effect the acquisition of
ASD by Parent by means of a merger of ASD with and into Subsidiary (the
"Merger") in accordance with the terms of this Agreement and the Agreement of
Merger (as defined herein); and
WHEREAS, Parent, Subsidiary, ASD and Principal Shareholder desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
-----------
meanings:
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person.
"Agreement" has the meaning set forth in the recitals hereto.
"Agreement of Merger" means the Agreement of Merger to be entered into
by and between Subsidiary and ASD substantially in the form of Exhibit "A"
hereto, subject to any changes that may be necessary to conform to any
requirements of any governmental entity having authority over the Merger.
<PAGE>
"ASD" has the meaning set forth in the introductory paragraph of this
Agreement.
"ASD 1996 Balance Sheet" has the meaning set forth in Section 3.8(a).
"ASD Certificates" has the meaning set forth in Section 2.2(a).
"ASD Consent" has the meaning set forth in Section 3.7.
"ASD Disclosure Schedules" means all of the schedules delivered by ASD
pursuant to this Agreement.
"ASD Documents" means this Agreement, the Agreement of Merger and any
other documents, instruments or certificates executed and delivered by ASD in
connection with this Agreement.
"ASD Financial Statements" has the meaning set forth in Section
3.8(a).
"ASD Intangible Property" means all intangible properties owned by ASD
or in which ASD has any interest (including the right to use) or owned by any
ASD shareholder and used in ASD's business (other than intangible property owned
by third parties and available generally for commercial license from others),
including without limitation, (i) ASD's name and all Marks; (ii) all statutory,
common law and registered copyrights and mask work rights, and all applications
for the registration thereof; (iii) all Patents; (iv) all Software; (v) all
other inventions, discoveries, improvements, processes, formulas (secret or
otherwise), algorithms, Trade Secrets, information, know-how and ideas
(including those in the possession of third parties, but that are the property
of ASD); and (vi) all Technical Documentation.
"ASD Options" has the meaning set forth in Section 2.1(e)(1).
"ASD Stock" has the meaning set forth in Section 2.1(d)(2).
"Books and Records" shall mean all books and records, stock transfer
books, minute books, copies of outstanding stock certificates, ledgers, employee
records, customer lists, files, correspondence, and other written records of
every kind owned by ASD or in which ASD has any interest.
2
<PAGE>
"Bozell" means Bozell, Jacobs, Kenyon & Eckhardt, Inc., a Delaware
corporation.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as the
same may be amended from time to time.
"Certificate of Merger" means the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware substantially in the form
of Exhibit B hereto, subject to any changes that may be necessary to conform to
any requirements of any governmental entity having authority over the Merger.
"Closing" has the meaning set forth in Section 2.4(a).
"Closing Date" means the date of the Closing.
"Code" shall mean the Internal Revenue Code of 1986, as the same may
hereafter be amended from time to time. Any reference to a specific section of
the Code shall refer to the cited provision as the same may be subsequently
amended from time to time, as well as to any successor provision(s).
"Confidentiality Agreement" means that certain letter agreement, dated
May 16, 1996, among Bozell, Parent and ASD.
"Contracts" means all contracts, agreements, warranties, guaranties,
indentures, bonds, options, leases, subleases, easements, mortgages, plans,
collective bargaining agreements, licenses, commitments or binding arrangements
of any nature whatsoever, express or implied, written or unwritten, and all
amendments thereto, entered into or binding upon ASD or to which the property of
ASD may be subject.
"DGCL" means the Delaware General Corporation Law.
"Effective Time" has the meaning set forth in Section 2.1.
"Environmental Laws and Orders" shall mean collectively, all laws and
orders relating to industrial hygiene, occupational safety conditions or
environmental conditions on, under or about property, including, without
limitation, RCRA, CERCLA and all other laws and orders relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or indus-
3
<PAGE>
trial, hazardous or toxic materials or wastes into the environment (including
abient air, surface water, ground water, land surface or sub-surface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals
or industrial hazardous or toxic materials or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may hereafter be amended from time to time. Any reference to
a specific section of ERISA shall refer to the cited provision as the same may
be subsequently amended from time to time, as well as to any successor
provision(s).
"ERISA Affiliate" shall mean any entity that is a member of a group of
which ASD is a member and which is under common control with ASD, within the
meaning of the regulations promulgated under Section 414 of the Code.
"ERISA Plans" shall mean, collectively, all Pension Plans and all
Welfare Plans required to be disclosed in Schedule 3.24.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as the same may hereafter be amended from time to
time.
"Indemnified Party" has the meaning set forth in Section 9.3.
"Indemnifying Party" has the meaning set forth in Section 9.3.
"IRS" means the Internal Revenue Service.
"Knowledge of ASD" means the actual knowledge of each of ASD's
directors, executive officers (including Principal Shareholder) and key
employees, the knowledge that each such person would have acquired upon
reasonable inquiry and the knowledge that is imputed to each such person and/or
to ASD by operation of law.
"Knowledge of Parent and Subsidiary" means the actual knowledge of
each of Parent's and Subsidiary's directors, executive officers and key
employees, the knowledge that each such person would have acquired upon
reasonable inquiry and the knowledge that is imputed to each such person and/or
to Parent and Subsidiary by operation of law.
4
<PAGE>
"Labor Agreements" shall mean, collectively, (i) all employment
agreements, collective bargaining agreements or other labor agreements to which
ASD is a party or by which it or its properties is bound; (ii) all pension,
profit sharing, deferred compensation, bonus, stock option, stock purchase,
savings, retainer, consulting, retirement, welfare or incentive plans or
contracts (including ERISA Plans) to which ASD is a party or by which it or its
properties is bound; and (iii) all plans or agreements under which "fringe
benefits" (including, but not limited to, hospitalization plans or programs,
medical insurance, vacation plans or programs, sick plans or programs and
related benefits) are afforded to any employees of ASD.
"Letter of Intent" means that certain letter agreement, dated May 16,
1996, among Bozell, Parent, ASD and Principal Shareholder.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
including, without limitation, any agreement to give any of the foregoing and
any conditional sale.
"Loss" has the meaning set forth in Section 9.2(a).
"Marks" means all registered and unregistered trademarks, service
marks, trade names, and slogans, all applications therefor, and all associated
goodwill.
"Material Adverse Change" means a material adverse change in the
business, assets, condition (financial or otherwise), results of operations or
prospects of ASD's business, including, without limitation, loss or threatened
loss of any of ASD's material clients or a material reduction in projected
revenues from any client individually or all clients taken as a whole, which
involves a minimum loss or exposure of Ten Thousand Dollars ($10,000).
"Material Adverse Effect" means a material adverse effect on the
business, assets, condition (financial or otherwise), results of operations or
prospects of ASD's business, which involves a minimum loss or exposure of Ten
Thousand Dollars ($10,000).
"Merger" has the meaning set forth in the recitals to this Agreement.
"Parent" has the meaning set forth in the introductory paragraph to
this Agreement.
5
<PAGE>
"Parent 1996 Balance Sheet" has the meaning set forth in Section
4.8(a).
"Parent Options" has the meaning set forth in Section 2.1(e)(1).
"Parent Financial Statements" has the meaning set forth in Section
4.8(a).
"Parent Stock" has the meaning set forth in Section 2.1(d)(2).
"Parent and Subsidiary Consents" means the consents, waivers and
amendments to be obtained by Parent, Subsidiary and their respective Affiliates
from other Persons with respect to the execution, delivery and performance by
Parent and Subsidiary of this Agreement and all related matters among Parent,
Subsidiary and ASD.
"Parent and Subsidiary Documents" means this Agreement, the Agreement
of Merger and any other documents, instruments and certificates which are
delivered by Parent and Subsidiary pursuant to this Agreement.
"Patents" shall mean all registered patents, including, without
limitation, all reissues, divisions, continuations, continuations in part,
utility models and design patents, all patent applications, and all associated
inventions, industrial models, processes, designs, technical information, shop
rights, know-how, Trade Secrets, processes, operating, maintenance and other
manuals, drawings and specifications, process flow diagrams and related data.
"Pension Plan" shall mean any employee pension benefit plan within the
meaning of Section 3(2) of ERISA.
"Permits" has the meaning set forth in Section 3.14.
"Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization, including a government,
domestic or foreign, or political subdivision or an agency or instrumentality
thereof.
"Principal Shareholder" has the meaning set forth in the introductory
paragraph of this Agreement.
"RCRA" shall mean the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901, et seq., as the same may be amended from time to time.
6
<PAGE>
"Software" shall mean all partial or whole "software" and "firmware"
and documentation thereof (including, without limitation, all electronic data
processing systems and program specifications, source codes, object codes,
routines, microcodes, input data and report layouts and formats, record file
layouts, outlines, documentation, diagrams, specifications and narrative
descriptions and flow charts).
"Subsidiary" has the meaning set forth in the introductory paragraph
to this Agreement.
"Subsidiary Stock" has the meaning set forth in Section 2.1(d)(1).
"Tax" or "Taxes" mean any federal, state, local or foreign income,
alternative minimum, gross receipts, transfers, sales, use, ad valorem,
franchise, license, withholding, excise, FICA, unemployment compensation,
disability, import, property, or other tax, fee or like assessment or charge,
together with any interest or any penalty or addition, imposed by any
governmental authority.
"Technical Documentation" shall mean all technical information and
documentation, including, without limitation, all partial or whole designs,
drawings, schematics, board layouts, bills of material, chip tooling, pattern
generation tapes, test tapes, logic diagrams, circuit diagrams, partial or whole
mask, board, chip or cell designs, outlines, or other specifications,
descriptions used in ASD's business, or documentation, writings, drawings,
papers, records, books, tapes, disks, or other tangible media embodying any of
the ASD Intangible Property.
"Trade Secrets" shall have its meaning as defined under the laws of
the State of California and includes without limitation any information,
including a formula, pattern, compilation, program, device, method, technique,
or process, that: derives independent economic value, actual or potential, from
not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use; and is the subject of efforts that
are reasonable under the circumstances to maintain its secrecy. Without
limiting the foregoing broad definition in any way, Trade Secrets include
inventions, technical and business information, such as information set out in
or relating to computer programs, engineering or technical data, drawings,
designs, manufacturing techniques, research and development plans and practices,
cost data, pricing practices and policies, marketing practices and policies,
licensing practices and policies, and the identity and location of
7
<PAGE>
past, present, or prospective suppliers, licensors, licensees, or customers.
"Welfare Plan" shall mean any employee welfare benefit plan within the
meaning of Section 3(1) of ERISA.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1 The Merger.
----------
The Merger shall become effective upon the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the provisions of the DGCL (the "Effective Time"). Subsequent to such
filing in the State of Delaware, the Agreement of Merger shall be filed with the
Secretary of State of the State of California. It is the intention of the
parties that the Merger will be deemed a tax-free reorganization to the extent
permitted under the Internal Revenue Code. However, no party is making any
representation or warranty to any other party regarding the tax treatment of the
Merger. At the Effective Time, the following transactions will be deemed to
have occurred simultaneously:
(a) The Surviving Entity. ASD shall be merged with and into
--------------------
Subsidiary, with Subsidiary being the surviving entity, and the separate
corporate existence of ASD shall cease. Subsidiary shall possess all the
rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of both Subsidiary and ASD, as provided
under the DGCL.
(b) Articles of Incorporation and Bylaws. The Articles of
------------------------------------
Incorporation and Bylaws of Subsidiary following the Effective Time shall be the
Articles of Incorporation and Bylaws of Subsidiary as in effect immediately
prior to the Effective Time, until thereafter amended in accordance with
applicable law.
(c) Directors and Officers. Until successors are duly elected or
----------------------
appointed and qualified in accordance with applicable law, the directors and
officers of Subsidiary immediately prior to the Effective Time shall remain
directors and officers of Subsidiary.
(d) Conversion of Shares. Automatically and without any action on
--------------------
the part of any holder thereof:
8
<PAGE>
(1) Each share of Subsidiary common stock, $.01 par value per
share ("Subsidiary Stock"), issued and outstanding immediately prior to the
Effective Time shall remain an issued and outstanding share of Subsidiary Stock
and shall not be converted or otherwise affected by the Merger.
(2) Subject to Section 2.3, all of the shares of ASD common
stock, no par value per share ("ASD Stock"), issued and outstanding immediately
prior to the Effective Time, shall, on and after the Effective Time, be
automatically cancelled and cease to be issued and outstanding shares of ASD
Stock and shall be converted into the right to receive (i) cash in the aggregate
amount of One Million Five Hundred Thousand Dollars ($1,500,000) and (ii) an
aggregate of 903,189 shares of Parent common stock, $.001 par value per share
("Parent Stock"), such cash and Parent Stock to be distributed to the holders of
the ASD Stock in accordance with Schedule 2.1.
(e) Stock Options.
-------------
(1) Subject to Section 2.1(e)(2), all of the options to
acquire shares of ASD Stock (the "ASD Options") issued and outstanding
immediately prior to the Effective Time shall, on and after the Effective Time,
be assumed, amended and restated by and be deemed to be options granted by
Parent pursuant to the 1996 Stock Option Plan of Poppe Tyson, Inc. (the "Parent
Options"), to purchase an aggregate of 19,682 shares of Parent Stock. Such
Parent Options shall be distributed to the holders of the ASD Options in
accordance with Schedule 2.1; provided, however, that no option shall be deemed
granted by the Parent to acquire a fractional share of Parent Stock.
(2) Assumption and conversion of the ASD Options shall be
contingent upon the Closing and upon the execution within a reasonable period of
time after the Closing by the particular optionee, Parent and ASD of a new
option agreement in substantially the form of Exhibit C hereto providing for the
assumption and conversion of the ASD Options and the exercise price of the
Parent Options granted to the particular optionee.
(3) Each option to acquire Parent Stock issued and
outstanding immediately prior to the Effective Time shall not be affected by the
Merger.
9
<PAGE>
2.2 Exchange of Certificates.
------------------------
(a) Upon surrender to Parent of certificates representing the ASD
Shares (collectively, the "ASD Certificates"), the holder of such ASD
Certificate shall be entitled to receive in exchange therefor cash and one
certificate representing, respectively, the amount of cash and the number of
shares of Parent Stock to which such holder shall have become entitled pursuant
to the provisions of Section 2.1(d). Upon receipt of evidence reasonably
satisfactory to ASD of the loss, theft, destruction or mutilation of any ASD
Certificate, and (if lost, stolen or destroyed) of indemnity reasonably
satisfactory to Parent, and (if mutilated) upon surrender and cancellation of
the ASD Certificate, such holder shall be entitled to receive in exchange
therefor one certificate representing the number of shares of Parent Stock to
which such holder shall have become entitled pursuant to the provisions of
Section 2.1(d).
(b) Each ASD Certificate converted into Parent Stock shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be cancelled and retired and cease to exist. In the
event of a transfer of ownership of ASD Certificates which have not been
registered in the transfer records of ASD, Parent Stock may be delivered to a
transferee if the ASD Certificate is presented to Parent and accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2(b), each holder of shares of ASD Stock shall
thereafter cease to possess any rights with respect to such shares, except the
right to receive upon such surrender such amount of cash and such number of
shares of Parent Stock as provided by Section 2.1(d) and the provisions of the
DGCL.
(c) No dividends on the Parent Stock shall be paid to the holder
of any unsurrendered ASD Certificate until such ASD Certificate is surrendered;
provided, however, that upon surrender of an ASD Certificate, there shall be
- -------- -------
paid to such holder the amount of dividends, if any, which theretofore became
payable, but which were not paid by reason of the foregoing, with respect to the
number of shares of Parent Stock issued upon such surrender. Subject to the
effect, if any, of applicable escheat and other laws, following surrender of any
ASD Certificate, there shall be delivered to the person or entity entitled
thereto, without interest, the amount of dividends so withheld as of any date
subsequent to the Effective Date and prior to such date of delivery.
10
<PAGE>
(d) All cash and Parent Stock delivered in exchange for the ASD
Stock in accordance with the terms hereof shall be deemed to have been delivered
in full satisfaction of all rights pertaining to such ASD Stock. After the
Effective Time, there shall be no further registration of transfers on the stock
transfer books of ASD of the ASD Certificates that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, ASD Certificates are
presented for any reason, they shall be cancelled and exchanged as provided in
this Section 2.2.
2.3 Dissenting Shares. Notwithstanding the terms of Section 2.1,
-----------------
to the extent that appraisal rights are available under the California General
Corporation Law, shares of ASD Stock outstanding immediately prior to the
Effective Time and held by a holder who has demanded appraisal for such shares
in accordance with such law shall not be converted into a right to receive cash
and shares of Parent Stock as provided in Section 2.1, unless and until such
holder fails to perfect or withdraws or otherwise loses his right to appraisal.
If after the Effective Time such holder fails to perfect or withdraws or loses
his right to appraisal, such shares shall be treated as if they had been
converted as of the Effective Time into a right to receive cash and shares of
Parent Stock as provided in Section 2.1. ASD shall give Parent and Subsidiary
prompt notice of any demands received by ASD for appraisal of shares of ASD
Stock.
2.4 Closing.
-------
(a) The closing of the Merger (the "Closing") shall occur at the
offices of Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles,
California 90017 at 10:00 a.m. on the earliest practicable date after the
conditions of Article VIII shall have been met or such other time and date to
which the parties agrees in writing.
(b) At the Closing the parties hereto shall deliver and cause to be
delivered, such documents or certificates as may be necessary, in the reasonable
opinion of counsel for any of the parties, to effectuate the transactions
contemplated by this Agreement. From and after the Effective Time of the
Merger, each of the parties hereto hereby covenants and agrees, without the
necessity of any further consideration whatsoever, to execute, acknowledge and
deliver any and all other documents and instruments and take any and all such
other action as may be reasonably necessary or desirable to effectuate the
transactions set forth herein or contemplated hereby, and the officers and
directors of the parties hereto shall execute and deliver, or caused to be
executed and delivered, all such documents
11
<PAGE>
as may reasonably be required to effectuate such transactions.
2.5 Legend. The following legend shall be placed on the
------
certificates of Parent Stock delivered pursuant to Section 2.2:
THE SHARES REPRESENTED BY THIS CERTIFI-
CATE ARE RESTRICTED SECURITIES AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD OR TRANSFERRED UNLESS SO
REGISTERED OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SKILLED IN SECURITIES
MATTERS AND OTHER EVIDENCE OF COMPLIANCE
WITH THE ACT PRIOR TO PERMITTING A
TRANSFER OF THE SHARES.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ASD
AND THE PRINCIPAL SHAREHOLDER
Subject to the exceptions set forth in the ASD Disclosure Schedules,
ASD and the Principal Shareholder hereby jointly and severally represent and
warrant to Parent and Subsidiary that:
3.1 Corporate Existence and Power. ASD is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of the State of
California, and has all power and authority, corporate and otherwise, and all
governmental licenses, authorizations, consents and approvals required to carry
on its Business as now conducted. ASD is not qualified to do business as a
foreign corporation in any other jurisdiction and there is no jurisdiction in
which the character of the property owned or leased by ASD or the nature of its
activities make such qualification necessary. ASD's only office is located at
1900 Embarcadero Road, Suite 110, Palo Alto, California 94303.
3.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by ASD of this Agreement and all of the other ASD Documents and the
consummation by ASD of the transactions contemplated hereby and thereby are
within the corporate powers of ASD and have been duly authorized by all
necessary corporate action on the part of ASD. This Agreement is, and as of the
Closing Date, the other ASD Documents shall be, the legal, valid and binding
obligations of ASD,
12
<PAGE>
enforceable against ASD in accordance with its respective terms.
3.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by ASD of this Agreement and the other ASD Documents require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority other than the filing of the Certificate of Merger with
the Secretary of State of Delaware and the filing of the Agreement of Merger
with the Secretary of State of the State of California as contemplated by
Section 2.1.
3.4 Non-Contravention. None of the execution, delivery and
-----------------
performance by ASD of this Agreement or the other ASD Documents does or will (i)
contravene or conflict with the articles of incorporation or bylaws of ASD, (ii)
contravene or conflict with or constitute a violation of any provision of any
law, statute, rule, regulation, judgment, injunction, order, writ or decree
binding upon or applicable to ASD, or any part of its business, (iii) assuming
the obtaining of all ASD Consents, constitute a default under or breach of or
violate or give rise to any right of termination, cancellation or acceleration
of any right or obligation of ASD or to a loss of any benefit relating to its
business to which ASD is entitled under any provision of any agreement, contract
or other instrument binding upon ASD or by which any of its assets is or may be
bound or any Permit, or (iv) result in the creation or imposition of any Lien on
any of its assets.
3.5 ASD Capitalization. The authorized capital stock of ASD
------------------
consists solely of 10,000,000 shares of ASD Stock, of which 2,065,000 shares are
issued and outstanding. All such outstanding shares are duly authorized,
validly issued and outstanding, fully paid and non-assessable and, except for
such outstanding shares, there are no shares of capital stock or other
securities or other equity interests of ASD outstanding. Except as set forth on
Schedule 3.5, as of the date of this Agreement, there are no outstanding
options, warrants or other rights in or with respect to the unissued shares of
ASD Stock nor any securities convertible into such stock, and ASD is not
obligated to issue any additional shares of ASD Stock or any options, warrants
or other rights in or with respect to the unissued shares of such stock or any
other securities convertible into such stock. Schedule 3.5 sets forth a true a
complete list of all of the shareholders of ASD as of the date of this Agreement
and the number of shares of ASD Stock owned by each such shareholder as of the
date hereof.
3.6 Subsidiaries. Except as disclosed on Schedule 3.6, ASD does
------------
not own, directly or indirectly,
13
<PAGE>
securities or other ownership interests in any other entity, which entity is
material to the business or operations of ASD, nor is ASD a party to any
agreement relating to the formation of any other entity or joint venture.
Accent Software, Inc., a California corporation, the wholly-owned subsidiary of
ASD, is completely inactive and has no assets or liabilities whatsoever.
3.7 Consents. Schedule 3.7 sets forth each Contract and each
--------
Permit requiring a consent, approval, authorization, order or other action of or
filing with any Person as a result of the execution, delivery and performance of
this Agreement or any of the other ASD Documents or the consummation of the
transactions contemplated hereby or thereby (each of the foregoing, an "ASD
Consent").
3.8 Financial Statements.
--------------------
(a) ASD has previously delivered to Parent true and correct
copies of the financial statements of ASD for the fiscal year ended March 31,
1996 (the balance sheet of ASD included therein is referred to as the "ASD 1996
Balance Sheet"), the fiscal period of January 1, 1995 through March 31, 1995,
and the calendar years ended December 31, 1994 and December 31, 1993
(collectively, the "ASD Financial Statements"). The ASD Financial Statements
fairly present, in conformity with generally accepted accounting principles
applied on a consistent basis (except that they do not contain the footnotes
required by generally accepted accounting principles), the financial position of
ASD as of the dates thereof and the results of operations of ASD for the periods
then ended, and set forth as of the respective dates thereof adequate reserves
for all reasonably anticipated material losses and costs and expenses.
(b) Except for (i) those liabilities specifically reflected
or reserved against on the ASD 1996 Balance Sheet, (ii) those current
liabilities for trade or business obligations incurred since March 31, 1996 in
connection with the purchase of goods or services in the ordinary course of
ASD's business and consistent with past practices, (none of which is,
individually or in the aggregate, material and none of which is for breach of
contract, breach of warranty, tort or infringement), (iii) those liabilities
arising under any Contract (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement) or (iv) those liabilities otherwise
disclosed on Schedule 3.8 (none of which liabilities is for breach of contract,
breach of warranty, tort or infringement), ASD does not have, as of the date
hereof, any direct or indirect indebtedness, liabilities, claims,
14
<PAGE>
losses, damages, deficiencies, obligations (including, without limitation, the
obligation to indemnify any other Person for any liabilities or expenses which
have been or may in the future be incurred by or asserted against such other
Person, or responsibilities, known or unknown, liquidated or unliquidated,
accrued, absolute, contingent or otherwise, and whether or not of a kind
required by generally accepted accounting principles to be set forth on a
financial statement, which individually or in the aggregate are material to the
condition (financial or otherwise), assets, liabilities, business, operations or
prospects of ASD. There are no circumstances, conditions, events or
arrangements which may hereafter give rise to any liabilities of ASD except in
the ordinary course of business or as otherwise set forth in this Section 3.8.
3.9 Absence of Certain Changes. Since March 31, 1996, ASD has
--------------------------
conducted its business in the ordinary course consistent with past practices,
and there has not been:
(a) any Material Adverse Change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
(b) any dividend or other distribution declared or paid with
respect to any of ASD's capital stock;
(c) any loan or forgiveness of indebtedness to any holder of
ASD's capital stock or any Affiliate thereof;
(d) any bonus, salary or other compensation paid or agreed
to be paid to any employee except in accordance with Schedule 3.19 hereto;
(e) any incurrence of indebtedness for borrowed money;
(f) any creation or other incurrence of any Lien on any of
its assets;
(g) any transaction, Contract entered into, or commitment
made, by ASD relating to its business or any of its assets (including the
acquisition or disposition of any assets) or any relinquishment by ASD of any
contract or other right, in either case other than transactions and commitments
in the ordinary course of business consistent with past practices and those
contemplated by this Agreement; or
15
<PAGE>
(h) any transfer of any assets of ASD to any Person who is a
shareholder or other Affiliate of ASD.
3.10 Title to Assets. ASD has good and marketable title to its
---------------
material properties and assets, other than real property, owned or stated to be
owned by ASD, free and clear of all Liens except: (i) as set forth in the ASD
Financial Statements, (ii) Liens for current taxes not yet due, (iii) Liens
incurred in the ordinary course of business, (iv) Liens that are not substantial
in character, amount or extent (individually or collectively) and that do not
(individually or collectively) materially detract from the value, or interfere
with present use, of the property subject thereto or affected thereby, or
otherwise materially impair the conduct of business of ASD, or (v) as set forth
on Schedule 3.10. All of the material properties and assets used or intended to
be used by ASD or held by ASD, other than the leased assets listed on Schedule
3.10, are owned by ASD, free and clear of all Liens except as set forth on
Schedule 3.10.
3.11 Real Estate. Schedule 3.11 sets forth a true and complete
-----------
list of real property, including leaseholds and all other interests in real
property, owned by ASD. ASD has good and marketable title to the real property
and valid leasehold interest in the leaseholds, described in Schedule 3.11, free
and clear of all Liens, except: (i) for rights of lessors, co-lessees or
sublessees and such matters that are reflected in the lease, (ii) current taxes
not yet due and payable, (iii) Liens of public record, (iv) Liens, if any as do
not materially detract from the value of or materially interfere with the
present use of such property, and (v) as described on Schedule 3.11.
3.12 Litigation. There is no action, suit, investigation, hearing
----------
or proceeding or, to the Knowledge of ASD, any basis therefor pending against,
or threatened against or affecting, ASD, any of its officers, directors, or
shareholders, its business or any assets or any Contract before any court or
arbitrator or any governmental body, agency official or which would have a
Material Adverse Effect or in any manner challenges or seeks to prevent, enjoin,
alter or delay the transactions contemplated hereby. There are no outstanding
judgments against ASD.
3.13 Contracts. Each Contract is a valid and binding agreement,
---------
and is in full force and effect, and no party thereto is in default (whether
with or without the passage of time or the giving of notice or both) under the
terms of any such Contract. ASD has not assigned, delegated, or otherwise
transferred any of its rights or obligations with respect to any Contracts, or
granted any
16
<PAGE>
power of attorney with respect thereto. Schedule 3.13 is a true and correct
list of all Contracts involving an outstanding monetary obligation greater than
Ten Thousand Dollars ($10,000), or with a remaining term greater than one year.
3.14 Licenses and Permits. Schedule 3.14 correctly describes each
--------------------
license, franchise, permit or other similar authorization affecting, or relating
in any way to ASD's business, together with the name of the government agency or
entity issuing such license or permit (the "Permits"). Such Permits are valid
and in full force and effect and, assuming the related ASD Consents have been
obtained prior to the Closing Date, are transferable by ASD, and none of the
Permits will, assuming the related ASD Consents have been obtained prior to the
Closing Date, be terminated or impaired or become terminable as a result of the
transactions contemplated hereby.
3.15 Compliance with Laws. ASD is not in violation of, has not
--------------------
violated, and is neither under investigation with respect to nor has been
threatened to be charged with or given notice of any violation of, any law,
rule, statute, ordinance or regulation, or judgment, order or decree entered by
any court, arbitrator or governmental authority, domestic or foreign, materially
applicable to ASD's assets or the conduct of its business.
3.16 Intangible Property.
-------------------
(a) Schedule 3.16 sets forth (i) a true and complete schedule
identifying each Mark, item of Software, or Trade Secret constituting a part of
the ASD Intangible Property; (ii) a true and complete schedule identifying each
statutory, common law, and registered copyright, or mask work right, and each
registration and application therefor constituting a part of the ASD Intangible
Property; (iii) a true and complete schedule identifying all of ASD's Technical
Documentation and the specific location of each item thereof; and (iv) a true
and complete schedule identifying each contract to which ASD is a party relating
to any item of ASD Intangible Property. ASD has no Patents, including no Patent
applications. No contracts or other agreements or instruments require ASD to
(or will require Subsidiary to) pay or entitles it to receive any royalty,
license fee, or other compensation. None of the ASD Intangible Property
development was funded by a third Person (other than any shareholder of ASD) or
was conducted by or as a joint venture, in partnership, or otherwise in
collaboration, with any other Person (except an employee solely in his or her
capacity as such). The effectuation of the transactions contemplated hereby
will not adversely affect in any manner
17
<PAGE>
any item or part of the ASD Intangible Property or the nature or usefulness
thereof in the hands of Subsidiary.
(b) All trademarks, copyrights, mask work rights and all other ASD
Intangible Property and all state, Federal, and foreign registrations and all
applications therefor are valid and in full force and effect and are not subject
to any taxes, maintenance fees or actions.
(c) ASD has (and upon the consummation of the transactions
contemplated hereby Subsidiary will have) the full, exclusive, and irrevocable
right and authority to use each item of the ASD Intangible Property in
perpetuity; to the Knowledge of ASD, such use did not ever, does not, and will
not conflict with, infringe upon, or violate any Patent, copyright, Mark, Trade
Secret or other proprietary right of any other Person; to the Knowledge of ASD,
ASD has not infringed and is not now infringing any proprietary right belonging
to any other Person; no Person has made any assertion contrary to or
inconsistent with the foregoing; and, to the Knowledge of ASD, no Person has
infringed upon or violated any ASD Intangible Property or threatened to do so.
(d) All Trade Secrets of ASD are valid and protectible, and are not
part of the public knowledge or literature, nor to the Knowledge of ASD have any
been used, divulged or appropriated for the benefit of any Person other than ASD
or to the detriment of ASD; ASD has taken all reasonable security measures to
protect the secrecy, confidentiality, and value of its Trade Secrets; and the
Technical Documentation related to each Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it, and to allow its
full and proper use without reliance on the special knowledge or memory of
others.
(e) Each employee of ASD (whether now or at any time previously
employed) executed an agreement with ASD pursuant to which such employee vested
fully, exclusively, and irrevocably in ASD (and upon the consummation of the
transactions contemplated hereby, in Subsidiary) all ASD Intangible Property
developed, in whole or in part, or alone or together with others, by each ASD
employee during the term of his or her employment with ASD and is otherwise
enforceable by ASD (and after the consummation of the transactions hereby, by
Subsidiary) in accordance with its terms.
(f) None of the property which is purportedly an asset of ASD was
developed or conceived by any ASD employee, officer or director while employed
by any
18
<PAGE>
other Person and no ASD shareholder has violated any agreement with any former
employer which pertains to any of such property.
(g) Except as set forth in Schedule 3.16, none of ASD's
material properties and tangible assets or ASD Intangible Property is subject to
(a) any material contractual restriction on the manner in, purpose for, or
location at, which the same may be used, or (b) any other restriction on any use
of the same that would result from the consummation of the transactions
contemplated hereby.
3.17 Finders' Fees. There is no investment banker, broker, finder
-------------
or other intermediary which has been retained by or is authorized to act on
behalf of ASD or any of its Affiliates who might be entitled to any fee or
commission from Parent, Subsidiary or any of their Affiliates upon consummation
of the transactions contemplated by this Agreement.
3.18 Clients; Billings. ASD has previously furnished to Parent a
-----------------
true and correct list of ASD's clients, together with related billing
information. Except as indicated on Schedule 3.18, ASD, has not been notified,
on a formal or informal basis, of the probability or actuality that any of its
clients that had billings in excess of Five Thousand Dollars ($5,000) in fiscal
1995 intends to or will reduce its billings with ASD (or, after the Closing,
with Parent).
3.19 Employees.
---------
(a) Schedule 3.19 sets forth a true and complete list of
the names, titles, annual salaries or wage rates and other compensation and
office location of all employees of ASD, indicating part-time and full-time
employment and all changes in salaries and wage rates per employee since January
1, 1994. ASD has not promised any employee, consultant or agent of ASD, other
than those listed on Schedule 3.19, that he or she will be employed by or
receive any particular benefits from Parent, Subsidiary or any of their
Affiliates on or after the Closing.
(b) ASD is not a party to or subject to any employment
contract, consulting agreement, collective bargaining agreement, confidentiality
agreement restricting the activities of ASD, non-competition agreement
restricting the activities of ASD, or any similar agreement.
3.20 Prepaids. Except as set forth on Schedule 3.20, ASD has not
--------
received any payments with respect to any
19
<PAGE>
services to be rendered or goods to be provided after the Closing.
3.21 Taxes.
-----
(a) ASD has filed all federal and foreign income tax
returns, all state and local franchise and income tax, real and personal
property tax, sales and use tax, premium tax, excise tax, employment tax and
other tax returns of every character required to be filed by it and has paid in
full all Taxes (including, without limitation, all tax deposits), together with
any interest and penalties owing in connection therewith, shown on such returns
to be due in respect of the periods covered by such returns, other than taxes
which are being contested in good faith and for which adequate reserves have
been established. The tax and audit positions taken by ASD in connection with
the tax returns described in the preceding sentence were reasonable and asserted
in good faith. Adequate provision has been made in the books and records of ASD
and, to the extent required by generally accepted accounting principals,
reflected in the ASD Financial Statements, for all Tax liabilities, including
interest or penalties, whether or not due and payable and whether or not
disputed, with respect to any and all federal, foreign, state, local and other
Taxes for the periods covered by the ASD Financial Statements and for all prior
periods. Schedule 3.21 sets forth the date or dates through which the IRS has
examined the federal income taxes of ASD and the date or dates through which any
foreign, state, local or other taxing authority has examined any other tax
returns of ASD. Schedule 3.21 also contains a complete list of each year for
which any federal, state, local or foreign tax authority has obtained or has
requested an extension of the statute of limitations from ASD and lists each tax
case of ASD currently pending in audit, at the administrative appeals level or
in litigation. Schedule 3.21 further lists the date and issuing authority of
each statutory notice of deficiency, notice or proposal assessment and revenue
agent's report issued to ASD within the last twelve (12) months. Except as set
forth on Schedule 3.21, neither the IRS nor any foreign, state, local or other
taxing authority has, during the past three years, examined or is in the process
of examining any federal, foreign, state, local or other tax returns of ASD.
Neither the IRS nor any foreign, state, local or other taxing authority is now
asserting or threatening to assert any deficiency or claim for additional taxes
(or interest thereon or penalties in connection therewith) except as set forth
on Schedule 3.21.
(b) There are no requests for rulings, nor are there any
outstanding subpoenas or requests for informa-
20
<PAGE>
tion, notices of proposed reassessment of any property owned or leased by ASD.
There are no Liens for Taxes upon any property or assets of ASD.
(c) ASD has delivered to Parent true and complete copies of
all federal, state and foreign income tax returns (together with any Revenue
Agent's Reports) filed by ASD relating to its operations for taxable years ended
1993, 1994 and 1995.
(d) ASD has not filed a consent pursuant to Section 341(f)
of the Code, and has not filed, and would not be deemed to have filed, any
election under Section 338 of the Code.
(e) ASD has not made any payment which constitutes an "excess
parachute payment" within the meaning of Section 280G of the Code, and no
payment by ASD required to be made under any contract or otherwise will, if
made, constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
(f) ASD has never been, nor is ASD currently, bound by or
subject to any obligation under any agreement relating to the sharing of any
liability for, or payment of, Taxes with any other person or entity.
(g) ASD has withheld or will withhold, and has paid over or
will pay over to applicable taxing authorities amounts from its employees and
has filed or will file all federal, foreign, state, and local returns and
reports with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Effective Date, in compliance with the provisions of the Code and other
applicable federal, foreign, state and local laws.
3.22 Environmental and Industrial Hygiene Compliance. Except as
------------------------------------ ----------
disclosed in Schedule 3.22, (i) neither ASD nor any of its properties has ever
been or is now in any material respect in violation of any applicable
Environmental Laws or Orders; (ii) neither ASD, nor any third party has prior to
the date hereof ever used, generated, manufactured, stored or disposed of on,
under or about such properties or transported to or from such properties any
flammable explosives, radioactive materials, hazardous wastes, toxic substances
or related materials; (iii) ASD has obtained and now holds all permits, licenses
and other authorizations which are required to be held by it under all
applicable Environmental Laws or Orders; (iv) ASD is in compliance in all
material respects with all terms and conditions of any and all required permits,
licenses and
21
<PAGE>
authorizations and all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all applicable Environmental Laws and Orders, and any notice or demand letter
issued, entered, promulgated or approved thereunder; (v) no facts, past or
present events or conditions interfere with or prevent continued material
compliance by ASD with, or give rise to any material present or potential legal,
common law or statutory liability of ASD under, any applicable Environmental Law
or Order; (vi) there is no pending civil or criminal litigation, notice of
violation or administrative proceeding involving ASD and relating in any way to
any Environmental Law or Order (including notices, demand letter or claims under
RCRA, CERCLA and similar state or local laws), other than rulemaking
proceedings, if any; and (vii) there has been no disposal by ASD, directly or
indirectly, of any materials or wastes to, on or in any site currently listed or
formally proposed to be listed on the National Priorities List under CERCLA or
any site listed or formally proposed to be listed as a major or priority cleanup
site under any comparable state law. For the purpose of this Section 3.22,
hazardous materials shall include but not be limited to (i) substances now or at
any time hereafter defined as "hazardous substances," "hazardous materials," or
"toxic substances" in CERCLA; the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq. or RCRA, as the same may be amended from time to
time, or in the regulations adopted and publications promulgated pursuant to
said Laws from time to time and (ii) those substances now or at any time
hereafter defined as "hazardous wastes" in Section 25117 of the California
Health & Safety Code or as "hazardous substances" in Section 25316 of the
California Health & Safety Code, as the same may be amended from time to time,
or in the regulations adopted and publications promulgated pursuant to said laws
from time to time.
(a) Indemnity and Hold Harmless. Without limiting any other
---------------------------
indemnity contained herein, the Principal Shareholder shall, from and after the
Effective Time, indemnify and hold harmless Parent and Subsidiary and their
respective shareholders, directors, officers, employees, agents and attorneys,
and any assigns or successors in interest to Subsidiary's interest in any such
affected property and their respective shareholders, directors, officers,
employees, agents and attorneys, from and against any and all liabilities,
claims, costs and expenses (including actual attorneys' fees and court costs),
directly or indirectly arising out of the presence, use, generation, storage, or
disposal of hazardous materials on any property of ASD, whether the same was the
fault of ASD, or any prior owner or operator of such affected property or any
other Person, including, without limitation, all general, special,
22
<PAGE>
foreseeable or unforeseeable consequential damages and the cost of any required
or necessary repair, cleanup, or detoxification and the preparation of any
closure or other required plans, whether or not such action is required or
necessary prior to or following transfer of title to any such affected property,
and to the full extent that such action is attributable, directly or indirectly,
to the presence or use, generation, storage, release, threatened release, or
disposal of hazardous materials by any person on any property of ASD prior to
the Effective Time.
3.23 Labor and Employment Matters.
----------------------------
(a) Except as disclosed in Schedule 3.23, as of the date
hereof:
(1) The employment of each employee of ASD may be
terminated immediately by ASD, except as otherwise provided by statute or
decisional authority;
(2) To the Knowledge of ASD, no key executive
employee of ASD and no group of employees of ASD has plans to terminate his, her
or its employment at or prior to the Closing, whether or not as a result of the
transactions contemplated herein; and
(3) ASD has not had any material labor relations
problems.
(4) Except as disclosed in Schedule 3.23, ASD has
complied in all material respects with all Labor Agreements and all applicable
laws and orders relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of Taxes and
other sums as required by appropriate governmental authorities and has withheld
and paid to the appropriate governmental authorities, or is holding for payment
not yet due to such governmental authorities, all amounts required to be
withheld from such employees of ASD and is not liable for any arrears of wages,
Taxes, penalties or other sums for failure to comply with any of the foregoing.
No present or former employee, officer or director of ASD has, or will have at
the Effective Time, any claim against ASD for any matter, including but not
limited to (i) overtime pay for work done through the Effective Time; (ii) wages
or salary for the work done through the Effective Time; (iii) vacation time off
or pay in lieu of vacation time off for the period through the Effective Time;
(iv) any violation of any statute, ordinance or regulation relating to minimum
wages or maximum hours, workplace conditions, or any other matter; or (v)
injuries or other damages which are not fully covered by ASD's insurance
policies.
23
<PAGE>
(b) Except as disclosed in Schedule 3.23, as of the date
hereof, there is no:
(1) unfair labor practice complaint against ASD
pending before the National Labor Relations Board or any state or local agency;
(2) pending labor strike or other material labor
trouble affecting ASD;
(3) material labor grievance pending against ASD;
(4) pending representation question respecting the
employees of ASD; or
(5) pending arbitration proceedings arising out of or
under any collective bargaining agreement to which ASD is a party.
(c) In addition: (i) none of the matters specified in clauses
(a) through (e) above is threatened against ASD; (ii) no union organizing
activities have taken place with respect to ASD; (iii) no basis exists for which
a claim may be made under any collective bargaining agreement to which ASD is a
party; and (iv) to the Knowledge of ASD, all key employees of ASD are in good
health.
3.24 Pension and Benefit Plans.
-------------------------
(a) All accrued obligations of ASD applicable to its
employees, whether arising by operation of law, by contract, by past custom or
otherwise, for payments by ASD to trusts or other funds or to any governmental
agency, with respect to unemployment compensation benefits, social security
benefits or any other benefits for its employees with respect to the employment
of said employees through the date hereof have been paid or adequate accruals
therefor have been made on the Books and Records. All obligations of ASD with
respect to such employees, whether arising by operation of Law, by contract, by
past custom, or otherwise, for salaries, vacation and holiday pay, sick pay,
bonuses and other forms of compensation payable to such employees in respect of
the services rendered by any of them prior to the date hereof have been or will
be paid by ASD prior to the Effective Time.
(b) Except as disclosed in Schedule 3.24, as of the date
hereof:
(1) Neither ASD nor any of its ERISA Affiliates
maintains or has any obligations to contribute
24
<PAGE>
to, or has in effect or has committed to adopt, any Pension Plan or any Welfare
Plan;
(2) Each ERISA Plan conforms in all material respects
to all applicable laws and orders, including ERISA and the applicable provisions
of the Code. All notices, reports, returns, applications and disclosures have
been timely made which are required to be made to the Internal Revenue Service,
the U.S. Department of Labor, the Pension Benefit Guaranty Corporation, any
participants in the ERISA Plans, any trustee, or any insurer with respect to the
ERISA Plans;
(3) ASD and its ERISA Affiliates have made or
provided for (with fully-funded reserves) all contributions heretofore required
to have been made under all of the ERISA Plans, and will, by the Closing Date,
have made or provided for (with fully-funded reserves) all contributions
required to be made on or before the Closing Date under all such plans;
(4) No ERISA Plan nor any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction which may
subject any of such ERISA Plans, any such trust, or any party dealing with such
ERISA Plans or any such trust, to the Tax or penalty on prohibited transactions
imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502
of ERISA;
(5) There are no material actions, claims or lawsuits
which have been asserted or instituted against the assets of any of the trusts
under the ERISA Plans, and no basis for such action, claim or lawsuit exists,
and no such action, claim or lawsuit has been threatened;
(6) ASD has not agreed to indemnify any other party
for any liabilities or expenses which have been or may in the future be incurred
by or asserted against such other party in respect of any ERISA Plan;
(7) Each Pension Plan constituting one of the ERISA
Plans is qualified under Section 401 of the Code, each of the trusts maintained
with respect thereto is exempt from federal income taxation under Section 501 of
the Code, and nothing has occurred which would cause the loss of such
qualification or exemption or the imposition of any penalty under Section 4971
of the Code;
(8) The assets of each Pension Plan constituting one
of the ERISA Plans (including Pension Plans maintained by an ERISA Affiliate)
are sufficient to pay all
25
<PAGE>
liabilities of the plan, including, without limitation, all liabilities to pay
benefits to any past or present participant or beneficiary in such plan, any
expense incurred in administering the plan, and any liabilities for Taxes which
may be imposed on the plan or on any trust maintained in connection with the
plan;
(9) The value of all accrued benefits under each
Pension Plan constituting one of the ERISA Plans (including Pension Plans
maintained by an ERISA Affiliate) which is a "defined benefit plan" within the
meaning of Section 3(35) of ERISA, including each "multi-employer plan" within
the meaning of Section 3(37) of ERISA, does not exceed, on an accrual basis, the
aggregate value of the assets of each such plan;
(10) There has been no "reportable event," within the
meaning of Section 4043(b) of ERISA, with respect to any Pension Plan which
constitutes one of the ERISA Plans since the effective date of Section 4043(b)
of ERISA;
(11) The transaction contemplated by this Agreement
will not result in a reportable event, within the meaning of ERISA Section 4043,
other than a reportable event with respect to which (i) the ERISA Section 4043
reportable event notice requirement has been waived or (ii) the Pension Benefit
Guaranty Corporation will not apply a penalty for failure to satisfy the
reportable event notice requirement;
(12) Neither ASD nor any of its ERISA Affiliates has
any liability to the Pension Benefit Guaranty Corporation pursuant to Title IV
of ERISA in respect of any Pension Plan constituting one of the ERISA Plans
(including Pension Plans maintained, or formerly maintained, by an ERISA
Affiliate);
(13) Neither ASD nor any of its ERISA Affiliates
maintains or has any obligation to contribute to any multi-employer plan;
(14) Neither ASD nor any of its ERISA Affiliates has
terminated a defined benefit plan or multi-employer plan or suffered or
otherwise caused a "complete withdrawal" or "partial withdrawal" as such terms
are respectively defined in Sections 4203 and 4205 of ERISA from any multi-
employer plan. Since April 1, 1979, neither ASD nor any of its ERISA Affiliates
has complied with Section 4204 of ERISA in order to avoid any such "complete
withdrawal" or "partial withdrawal";
26
<PAGE>
(15) The transaction contemplated by this Agreement
will not result in a Company liability for severance or termination pay or
result in increased employee benefits becoming payable to any employees of the
Company;
(16) Neither ASD nor any of its ERISA Affiliates has
any unpaid liability in respect of any employee for any contributions and/or
premiums due under any Welfare Plan constituting one of the ERISA Plans;
(17) Neither ASD nor its ERISA Affiliates has any
liability as to any benefits to which any employee may be entitled under any
Welfare Plan constituting one of the ERISA Plans, whether for benefits due or
claims filed; and
(18) ASD does not maintain any health or life
insurance plan that provides for continuing benefits or coverage for any
participant or any spouse, dependent or beneficiary under such plan after
termination of employment, other than as may be required under Section 4980B of
the Code and regulations thereunder ("COBRA"). ASD and its Subsidiaries are in
compliance with the COBRA notice and continuation coverage requirements with
respect to Plans maintained by ASD.
(c) True, correct and complete copies of the following
documents, with respect to the each of the ERISA Plans, have been delivered to
Parent:
(1) Each ERISA Plan document, employment contract,
policy, procedure or other governing instrument relating to a ERISA Plan,
including all amendments, supplements, collective bargaining agreements,
letters, memoranda, understandings and any other document reasonably necessary
to reflect the terms and conditions of each ERISA Plan.
(2) The most recent summary plan description of each
ERISA Plan for which a summary plan description is required under ERISA, and
summaries of material modification thereto.
(3) All instruments under which the assets of any
ERISA Plan are held or managed and benefits provided, including, but not limited
to, insurance contracts, trust agreements, custodial contracts and investment
management agreements.
(4) The two most recent Forms 5500, 5500-C or 5500-R
for each ERISA Plan for which such filing is required, with all attachments and
schedules thereto.
27
<PAGE>
(5) The two most recent annual financial statements
for each ERISA Plan, if not included with such Form 5500 (5500-C or 5500-R).
(6) The most recent actuarial valuation report for
each ERISA Plan (as applicable).
(7) With respect to each ERISA Plan that has received
a determination letter under Section 401(a) of the Code, and any voluntary
employee benefit association trust that has received a determination letter
under Section 501(c) of the Code, the most recent Internal Revenue Service
determination letter (including any letter concerning the tax-exempt status of
any trust under Section 501(a) of the Code), the application submitted when
requesting such determination letter, and any subsequently filed determination
letter request.
(d) All Pension Plans shall be terminated by ASD prior to the
Effective Time.
3.25 Insurance. Schedule 3.25 sets forth a true and correct list
---------
of all policies or binders of fire, liability, workers' compensation, vehicular
or other insurance held by or on behalf of ASD specifying the insurer, the
policy number or covering note number with respect to binders, and describing
each pending claim thereunder of more than Five Thousand Dollars ($5,000). Such
policies and binders are in full force and effect and are in all material
respects in accordance with the customary insurance requirements for the
industry of ASD and in compliance with all applicable laws and orders. ASD is
not in any material respect in default, nor has it during the last five (5)
years ever been in any material respect in default, with respect to any
provision contained in any such policy or binder or has failed to give any
notice or present any claim under any such policy or binder in due and timely
fashion. There are no outstanding unpaid claims under any such policy or
binder. ASD has not received a notice of cancellation or non-renewal of any
such policy or binder. There is no inaccuracy in any application for such
policies or binders, any failure to pay premiums when due, or any similar state
of facts which may form the basis for termination of any such insurance. ASD
has never been refused any insurance with respect to its properties or
operations, nor has its insurance coverage ever been limited. No such policy is
terminable or cancelable by the insurer by virtue of the consummation of the
transactions contemplated herein.
3.26 Books and Records. The Principal Shareholder and ASD have
-----------------
heretofore furnished or made available to Parent for its examination the
following, each of which is,
28
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and will be maintained as to remain until the Closing, accurate and complete in
all material respects:
(1) copies of the Articles of Incorporation and
bylaws, as in effect on the date hereof;
(2) the minute books of ASD containing all
proceedings, consents, actions and meetings of its shareholders and Boards of
Directors;
(3) copies of all permits, orders and consents with
respect to ASD's securities issued by any administrative agency or governmental
body regulating the issuance or transfer of such securities and all applications
for such permits, orders and consents;
(4) the stock transfer books of ASD setting forth all
transfers of its securities;
(5) copies of all outstanding stock certificates;
(6) copies of all agreements and documents referred
to in any ASD Disclosure Schedule; and
(7) all other Books and Records of ASD.
Schedule 3.26 contains an accurate list of all of the incumbent
officers and directors of ASD.
3.27 Hart-Scott-Rodino Act. The total assets of the ASD "Acquired
---------------------
Person" for which Principal Shareholder is the "Ultimate Parent Entity" are less
than Ten Million Dollars ($10,000,000), as calculated pursuant to rules and
regulations promulgated pursuant to the Hart-Scott-Rodino Act. For purposes of
this section, the provisions in quotations shall have the meanings ascribed to
them in the regulations promulgated under the Hart-Scott-Rodino Act.
3.28 Investment Intent.
-----------------
(a) The shares of Parent Stock being acquired by Principal
Shareholder hereunder are being acquired for his own account and not with a view
to, or for resale in connection with, any distribution other than resales made
in compliance with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Act") and any applicable state
securities laws.
(b) Principal Shareholder understands that, subject to future
registration under a Registration Rights
29
<PAGE>
Agreement delivered pursuant to Section 8.3(b), the shares of Parent Stock to be
issued to him have not been registered under the Act or qualified with the
Commissioner of Corporations of the State of California by reason of available
exemptions from the registration and prospectus delivery requirements of the Act
and from the qualification requirements of the California Corporations Code,
that such shares must be held indefinitely unless they are registered under the
Act and qualified under applicable state securities laws or until any transfer
is exempt from registration and qualification, and that reliance of Parent upon
these exemptions is predicated in part upon these representations and warranties
by Principal Shareholder.
3.29 Qualification as Investors.
--------------------------
(a) Each of the ASD shareholders, including Principal
Shareholder, who will be issued shares of Parent Stock pursuant to Section
2.1(d) and any Person who will obtain an option to acquire shares of Parent
Stock pursuant to Section 2.1(e) (collectively, the "Qualified Issuees"), are,
by reason of their business or financial experience or the business or financial
experience of their professional advisors who are unaffiliated with and who are
not compensated by ASD, Parent, Subsidiary or any Affiliate of Parent, directly
or indirectly, has the capacity to protect their own interests in connection
with the Merger.
(b) Principal Shareholder has received certain information
concerning Parent and has had the opportunity to obtain additional information
as desired in order to evaluate the merits and risks of holding Parent Stock,
and is able to bear the economic risk and lack of liquidity inherent in holding
Parent Stock. Furthermore, Principal Shareholder has had the full opportunity to
discuss with Parent all material aspects of an investment in Parent Stock,
including the opportunity to ask, and to receive answers to his full
satisfaction, regarding such questions as he has deemed necessary to evaluate
this opportunity to invest.
(c) Principal Shareholder has had full opportunity to seek
advice of independent counsel respecting this investment and the tax risks and
implications of the Merger and all transactions consummated in connection
therewith.
3.30 Other Information. None of the documents or other
-----------------
information made available to Parent, Subsidiary or their Affiliates, attorneys,
accountants, agents or representatives in connection with the transactions
contemplated by this Agreement contains any untrue statement of a mate-
30
<PAGE>
rial fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading. ASD has provided Parent all
material information regarding its business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Parent and Subsidiary jointly and severally represent and warrant to
ASD that:
4.1 Organization and Existence. Each of Parent and Subsidiary is
--------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
4.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by each of Parent and Subsidiary of this Agreement and the other
Parent and Subsidiary Documents and the consummation by each of them of the
transactions contemplated hereby and thereby are within their respective
corporate powers and as of the Closing will have been duly authorized by all
necessary corporate action on their respective part. Subject to obtaining all
requisite corporate approvals, this Agreement is, and the other Parent and
Subsidiary Documents shall be, as of the Closing, the legal, valid and binding
obligations of Parent and Subsidiary, respectively, enforceable against each of
them in accordance with their respective terms.
4.3 Governmental Authorization. The execution, delivery and
--------------------------
performance by each of Parent and Subsidiary of this Agreement and the other
Parent and Subsidiary Documents require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than the filing
of the Certificate of Merger with the offices of the Secretary of State of
Delaware and the Secretary of State of the State of California as contemplated
by Section 2.1.
4.4 Non-Contravention. The execution, delivery and performance by
-----------------
Parent and Subsidiary of this Agreement and other Parent and Subsidiary
Documents does not and will not (i) contravene or conflict with their
certificates of incorporation or bylaws, (ii) contravene or conflict with any
provision of any law, statute, rule, regulation, judg-
31
<PAGE>
ment, injunction, order, writ, or decree binding upon them or (iii) assuming the
obtaining of all Parent and Subsidiary Consents, constitute a default under or
breach of any agreement, contract or other instrument binding upon them.
4.5 Parent Capitalization. The authorized capital stock of Parent
---------------------
consists solely of 50,000,000 shares of common stock, $.001 par value, of which
13,520,922 shares are issued and outstanding, and 6,700,000 shares of preferred
stock, $.001 par value, of which no shares are issued and outstanding. All
outstanding shares of common stock are duly authorized, validly issued and
outstanding, fully paid and non-assessable and, except for such outstanding
shares, there are no shares of capital stock or other securities or other equity
interests of Parent outstanding. Except as set forth on Schedule 4.5, as of the
date of this Agreement, there are no outstanding options, warrants or other
rights in or with respect to the unissued shares of Parent Stock nor any
securities convertible into such stock, and Parent is not obligated to issue any
additional shares of Parent Stock or any options, warrants or other rights in or
with respect to the unissued shares of such stock or any other securities
convertible into such stock. As of the date of this Agreement, Bozell is the
sole stockholder of Parent.
4.6 Finders' Fees. There is no investment banker, broker, finder
-------------
or other intermediary which has been retained by or is authorized to act on
behalf of Parent or Subsidiary or any of their respective Affiliates who might
be entitled to any fee or commission from ASD or any of its Affiliates upon
consummation of the transactions contemplated by this Agreement.
4.7 Litigation. There is no action, suit, investigation, hearing
----------
or proceeding (or, to the Knowledge of Parent and Subsidiary, any basis
therefor) pending against, or threatened against or affecting, Parent or
Subsidiary, any of their officers, directors, or shareholders, their business or
any assets or any Contract before any court or arbitrator or any governmental
body, agency official or which would have a material adverse effect or in any
manner challenges or seeks to prevent, enjoin, alter or delay the transactions
contemplated hereby. There are no outstanding judgments against Parent or
Subsidiary.
4.8 Financial Statements.
--------------------
(a) Parent has previously delivered to ASD true and correct
copies of the Financial Statements of Parent (collectively, the "Parent
Financial Statements") for each of the years in the three-year period ended
March 31,
32
<PAGE>
1996 (the balance sheet of Parent included therein is referred to as the "Parent
1996 Balance Sheet"). The Parent Financial Statements fairly present, in
conformity with generally accepted accounting principles applied on a consistent
basis, the financial position of Parent as of the dates thereof and the results
of operations of Parent for the years then ended.
(b) Except for (i) those liabilities specifically reflected
or reserved against on the Parent 1996 Balance Sheet, (ii) those current
liabilities for trade or business obligations incurred since the date of the
Parent 1996 Balance Sheet in connection with the purchase of goods or services
in the ordinary course of Parent's business and consistent with past practices
(none of which is, individually or in the aggregate, material and none of which
is for breach of contract, breach of warranty, tort or infringement), (iii)
those liabilities arising under any Contract (none of which liabilities is for
breach of contract, breach of warranty, tort or infringement) or (iv) those
liabilities otherwise disclosed on Schedule 4.8, Parent does not have, as of the
date hereof, any direct or indirect indebtedness, liabilities, claims, losses,
damages, deficiencies, obligations (including, without limitation, the
obligation to indemnify any other Person for any liabilities or expenses which
have been or may in the future be incurred by or asserted against such other
Person, or responsibilities, known or unknown, liquidated or unliquidated,
accrued, absolute, contingent or otherwise, and whether or not of a kind
required by generally accepted accounting principles to be set forth on a
financial statement, which individually or in the aggregate are material to the
condition (financial or otherwise), assets, liabilities, business, operations or
prospects of Parent. There are no circumstances, conditions, events or
arrangements which may hereafter give rise to any liabilities of Parent except
in the ordinary course of business or as otherwise set forth in this Section
4.8.
4.9 Absence of Certain Changes. Since the date of the Parent 1996
--------------------------
Balance Sheet and other than as set forth on Schedule 4.9, Parent has conducted
its business in the ordinary course consistent with past practices, and there
has not been:
(a) any material adverse change or any event, occurrence,
development or state of circumstances or facts which could reasonably be
expected to result in a material adverse change;
33
<PAGE>
(b) any incurrence of indebtedness for borrowed money for any
amount in excess of Twenty Million Dollars ($20,000,000); and
(c) any creation or other incurrence of any Lien on any of its
assets.
4.10 Title to Assets. Parent has good and marketable title to its
---------------
material properties and assets owned or stated to be owned by Parent, free and
clear of all Liens except: (i) as set forth in the Parent Financial Statements,
(ii) Liens for current taxes not yet due, (iii) Liens incurred in the ordinary
course of business, or (iv) Liens that are not substantial in character, amount
or extent (individually or collectively) and that do not (individually or
collectively) materially detract from the value, or interfere with present use,
of the property subject thereto or affected thereby, or otherwise materially
impair the conduct of business of Parent.
4.11 Compliance with Laws. Parent and Subsidiary are not in
--------------------
violation of, have not violated, and are neither under investigation with
respect to nor have been threatened to be charged with or given notice of any
violation of, any law, rule, statute, ordinance or regulation, or judgment,
order or decree entered by any court, arbitrator or governmental authority,
domestic or foreign, applicable to Parent's or Subsidiary's assets or the
conduct of their business.
4.12 Taxes.
-----
(a) Parent has filed all federal (as part of the consolidated
return of Bozell) and foreign income tax returns, all state and local franchise
and income tax, real and personal property tax, sales and use tax, premium tax,
excise tax, employment tax and other tax returns of every character required to
be filed by it (some of which may have been consolidated or combined with
Bozell) and has paid in full its share of all Taxes (including, without
limitation, all tax deposits), together with any interest and penalties owing in
connection therewith, shown on such returns to be due in respect of the periods
covered by such returns, other than taxes which are being contested in good
faith and for which adequate reserves have been established. The tax and audit
positions taken by Parent in connection with the tax returns described in the
preceding sentence were reasonable and asserted in good faith. Adequate
provision has been made in the books and records of Parent and, to the extent
required by generally accepted accounting principles, reflected in the Parent
Financial Statements, for all Tax liabilities, including interest or penalties,
whether or not
34
<PAGE>
due and payable and whether or not disputed, with respect to any and all
federal, foreign, state, local and other Taxes for the periods covered by the
Parent Financial Statements and for all prior periods.
(b) There are no requests for rulings, nor are there any
outstanding subpoenas or requests for information, notices of proposed
reassessment of any property owned or leased by Parent. There are no Liens for
Taxes upon any property or assets of Parent, except liens for current Taxes not
yet due.
(c) Except with respect to any consolidated group, Parent has never
been, nor is Parent currently, bound by or subject to any obligation under any
agreement relating to the sharing of any liability for, or payment of, Taxes
with any other person or entity.
(d) Parent has withheld or will withhold, and has paid over or will
pay over to applicable taxing authorities amounts from its employees and has
filed or will file all federal, foreign, state, and local returns and reports
with respect to employee income tax withholding and social security and
unemployment Taxes for all periods (or portions thereof) ending on or before the
Effective Date, in compliance with the provisions of the Code and other
applicable federal, foreign, state and local laws, except where Parent files
consolidated federal tax returns and combined state tax returns in certain
states with Bozell and has entered into a tax sharing agreement with Bozell.
ARTICLE V
COVENANTS OF ASD AND PRINCIPAL SHAREHOLDER
ASD and Principal Shareholder agree that:
5.1 Conduct of the Business. From the date hereof until the
-----------------------
Closing Date, ASD shall conduct its business in the ordinary course consistent
with past practice and shall use its best efforts to preserve intact the
business relationships with third parties. Without limiting the generality of
the foregoing, from the date hereof until the Closing Date, ASD will not:
(a) amend, waive any provision of, terminate prior to its
scheduled expiration date, or otherwise compromise in any way, any Contract
(including contracts described in clause (b) below), or any other right or asset
of ASD, without Parent's prior written consent, which consent shall not be
unreasonably withheld;
35
<PAGE>
(b) enter into any contract, agreement, lease, license or
commitment (including without limitation any leases of real property, capital
leases, employment or severance agreements, or agreements with respect to the
borrowing of money) not to be fully performed prior to the Closing without
Parent's prior written consent, which consent shall not be unreasonably withheld
(and which may be conditioned, among other things, on express provision in such
contract for the assignment thereof to Parent and Subsidiary as of the Closing);
(c) sell, lease, license or otherwise dispose of any of its
assets except (i) pursuant to existing contracts or commitments disclosed herein
and (ii) in the ordinary course consistent with past practice;
(d) pay, declare or promise to pay any dividends,
distributions or other payments to ASD's shareholders, other than salaries
consistent with Schedule 3.19;
(e) grant any options, warrants or other rights to acquire
any securities of ASD;
(f) pay any bonuses or other compensation not in the ordinary
course of business;
(g) adopt any employee benefits plans; or
(h) agree to do any of the foregoing.
ASD will not (i) take or agree to take any action that would make any
representation or warranty of ASD hereunder inaccurate in any respect at, or as
of any time prior to, the Closing Date or (ii) omit to take, or agree to omit to
take, any action necessary to prevent any such representation or warranty from
being inaccurate in any respect at any such time.
5.2 Insurance. From the date hereof through the Effective Time,
---------
ASD shall maintain in force (including necessary renewals thereof) the insurance
policies listed on Schedule 3.25, except to the extent that they may be replaced
with equivalent policies appropriate to insure its respective assets, properties
and business to the same extent as currently insured at the same rates or at
different rates approved by Parent.
5.3 No Defaults. From the date hereof through the Effective Time,
-----------
ASD shall not commit a material default under any term or provision of, or
suffer or permit to exist any condition or event which, with notice or lapse of
time
36
<PAGE>
or both, would constitute a material default by ASD under, any Contract or under
any of its licenses or permits.
5.4 Reporting and Compliance With Law. From the date hereof
---------------------------------
through the Effective Time, ASD shall duly and timely file all tax returns
required to be filed with governmental authorities and duly observe and conform
in all material respects to all applicable laws and orders.
5.5 Arrangements with Employees. From the date hereof until the
---------------------------
Effective Time, ASD shall permit Parent to approach and negotiate with any or
all employees of ASD, including, but not limited to, managerial staff, in an
effort to persuade them to continue in the employ of ASD pending the Closing and
thereafter to enter into the employ of Parent or Subsidiary, and ASD shall use
reasonable efforts to assist Parent in such negotiations.
5.6 Access to Information. From the date hereof until and
---------------------
including the Closing Date, ASD (a) will continue to give Parent, Subsidiary and
their counsel and other representatives full access to the offices, properties,
books and records of ASD relating to ASD's business, (b) will furnish to Parent,
Subsidiary and their counsel and other representatives such information relating
to its business as such Persons may reasonably request and (c) will instruct the
employees, counsel and representatives of ASD to cooperate with Parent and
Subsidiary in their investigation of ASD's business; provided that no
--------
investigation pursuant to this Section (or any investigation prior to the date
hereof) shall affect any representation or warranty given by ASD; and provided
--------
further that any investigation pursuant to this Section shall be conducted in
- -------
such manner as not to interfere unreasonably with the conduct of the business of
ASD.
5.7 Notices of Certain Events. ASD shall promptly
-------------------------
notify Parent of:
(a) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the Knowledge of ASD, threatened against, relating to or
involving or otherwise
37
<PAGE>
affecting ASD or its business that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 3.12 or that
relate to the consummation of the transactions contemplated by this Agreement.
5.8 Transfer Taxes. Although the parties do not anticipate that
--------------
the transactions contemplated by this Agreement will result in any transfer,
documentary, sales, use or other Taxes assessed upon or with respect to the
Merger or any recording or filing fees with respect thereto, any such taxes and
fees shall be the responsibility of Principal Shareholder. Neither party shall
initiate the payment of such taxes or fees unless advised to do so by its
financial or legal counsel, or as required by a regulatory authority of
competent jurisdiction.
5.9 Other Offers. (a) From the date hereof until the earlier of
------------
(i) such time, if any, as Parent gives written notice by a duly authorized
officer that it is terminating negotiations with respect to the Merger, and (ii)
sixty (60) days after the date a fully executed copy of the Letter of Intent was
returned to Bozell, neither ASD, Principal Shareholder, their Affiliates, nor
anyone on their behalf, shall, directly or indirectly, solicit, initiate or
participate in any way in discussions or negotiations or enter into any
agreement with, or provide any information or assistance to, any person, entity
or group of persons or entities other than Parent and/or Bozell concerning any
acquisition, merger, consolidation, joint venture, partnership, disposition of
all or substantially all of the assets of, or similar transaction with, or
concerning any direct or indirect equity interest in, ASD or any of its
subsidiaries and (b) to promptly (within 24 hours) communicate to Parent the
terms of any proposal or inquiry which it may receive in respect of any such
transaction, the identity of the party making such proposal or inquiry, and the
nature of any such information requested from it or of any such negotiations or
discussions being sought to be initiated with it; provided, however, that,
without waiving any other provisions of this Section 5.9, ASD and Principal
Shareholder shall not be required to disclose to Parent the terms of the first
proposal ASD may receive from CKS Group, Inc.
ARTICLE VI
COVENANTS OF PARENT
Parent agrees that:
38
<PAGE>
6.1 Access to Information. From the date hereof through the
---------------------
Closing Date, Parent (a) will give ASD and its counsel and other representatives
full access to the offices, properties, books and records of Parent relating to
Parent's business, (b) will furnish to ASD and its counsel and other
representatives such information relating to its business as such Persons may
reasonably request and (c) will instruct the employees, counsel and
representatives of Parent to cooperate with ASD in its investigation of Parent's
business; provided that no investigation pursuant to this Section (or any
--------
investigation prior to the date hereof) shall affect any representation or
warranty given by Parent; and provided further that any investigation pursuant
----------------
to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of Parent. ASD will hold, and
will use its best efforts to cause its officers, directors, employees,
accountants, counsel and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning Parent or the Business
provided to it pursuant to this Section 6.1.
ARTICLE VII
COVENANTS OF ALL PARTIES HERETO
The parties hereto agree that:
7.1 Best Efforts; Further Assurances. Subject to the terms and
--------------------------------
conditions of this Agreement, each party will use its commercially reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary or desirable under applicable laws and regulations
to consummate the transactions contemplated by this Agreement. The parties
hereto each agree to execute and deliver such other documents, certificates,
agreements and other writings and to take such other actions as may be necessary
or desirable in order to consummate or implement expeditiously the transactions
contemplated by this Agreement.
7.2 Public Announcements. The parties agree that any press
--------------------
release or other public statement with respect to this Agreement or the
transactions contemplated hereby shall be as agreed upon in writing in advance
thereof by Parent and ASD, except where such release or statement is required by
law.
7.3 Best Efforts to Obtain Consents. ASD hereby agrees to use its
-------------------------------
commercially reasonable best efforts to
39
<PAGE>
obtain each ASD Consent, and Parent and Subsidiary hereby agrees to use its best
efforts to obtain each Parent and Subsidiary Consent, in each case as promptly
as practicable hereafter.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 Conditions to the Obligations of Parent, Subsidiary, ASD and
------------------------------------------------------------
Principal Shareholder. The obligations of Parent, Subsidiary, ASD and Principal
- ---------------------
Shareholder to consummate the Closing are subject to the satisfaction of the
following conditions: no provision of any applicable law or regulation, and no
judgment, injunction, order or decree shall prohibit the consummation of the
Closing, and there shall not be pending any proceeding brought by a third-party
non-Affiliate to enjoin or otherwise restrict the consummation of the Closing.
8.2 Conditions to the Obligations of Parent and Subsidiary. The
------------------------------------------------------
obligation of Parent and Subsidiary to consummate the Closing is subject to the
satisfaction of the following further conditions:
(a) Performance of Obligations, Etc. (i) ASD and Principal
--------------------------------
Shareholder shall have performed in all material respects all of their
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of ASD and Principal Shareholder
contained in this Agreement and in any certificate or other writing delivered by
ASD and Principal Shareholder pursuant hereto, disregarding all qualifications
and exceptions contained therein relating to materiality or Material Adverse
Effect, shall be true at and as of the Closing Date, as if made at and as of
such date with only such exceptions as would not in the aggregate reasonably be
expected to have a Material Adverse Effect, (iii) no Material Adverse Change
shall have occurred since the date of this Agreement, (iv) no material changes
in the manner in which ASD conducts business shall have occurred since the date
of this Agreement, and (v) Parent shall have received a certificate signed by
the President of ASD and Principal Shareholder to the effect set forth in
clauses (i) through (v) of this Section 8.2(a).
(b) Court Orders. No court, arbitrator or governmental
------------
body, agency or official shall have issued any order, or have pending before it
a proceeding for the issuance of any order, and there shall not be any law,
40
<PAGE>
statute, rule or regulation, restraining or prohibiting the consummation of the
Merger.
(c) Existence and Authorization. Parent shall have received
---------------------------
all documents it may reasonably request relating to the existence of ASD and the
authority of ASD for this Agreement, all in form and substance reasonably
satisfactory to Parent, including, without limitation, (i) a copy of the
Articles of Incorporation of ASD certified as of a recent date by the Secretary
of State of its jurisdiction of organization, (ii) copies of ASD's bylaws as
effective on the date hereof, (iii) copies of resolutions duly adopted by the
Board of Directors of ASD authorizing this Agreement, the Agreement of Merger
and the other ASD Documents and the transactions contemplated hereby and
thereby, (iv) copies of resolutions adopted by the unanimous vote or consent of
ASD's shareholders authorizing this Agreement, the Agreement of Merger and the
transactions contemplated hereby and thereby, (v) a certificate of the Secretary
of ASD certifying as to signatures of the officer(s) executing this Agreement
and any certificate or document to be delivered pursuant hereto, together with
evidence of the incumbency of such Secretary, and (vi) a recent good standing
certificate regarding ASD from the office of the Secretary of State of the State
of California.
(d) Satisfactory Review. Parent and Bozell shall be fully
-------------------
satisfied, in their sole discretion which shall be exercised in good faith, with
the results of their and their representatives' review of ASD and its business
(including, without limitation, any review of the assets, financial condition,
and prospects of ASD's business and the resolution of any client conflicts),
provided that no such review shall affect any representation or warranty of ASD
- --------
given hereunder or in any agreement related to the transactions contemplated
hereby.
(e) Parent and Subsidiary Consents. Parent and Subsidiary
------------------------------
shall have received all Parent and Subsidiary Consents, in form and substance
reasonably satisfactory to them, and no such Parent and Subsidiary Consent shall
have been revoked, and Parent and Subsidiary shall have received all necessary
corporate approvals of Parent, Subsidiary and its Affiliates.
(f) Employment Agreements. Each of Rea B. Callender and Mary
---------------------
Malone shall have executed and delivered to Parent an Employment Agreement
substantially in the forms of Exhibits D-1 and D-2, respectively, hereto.
(g) Non-Competition Agreements. Each of Rea B. Callender
--------------------------
and Mary Malone shall have executed and
41
<PAGE>
delivered to Parent a Non-Competition Agreement substantially in the form of
Exhibit E hereto.
(h) Loans to Related Parties. Except for normal travel and
------------------------
expense advances to employees not exceeding One Hundred Dollars ($100)
individually or One Thousand Dollars ($1,000) in the aggregate, all loans and
advances by ASD to officers, shareholders and employees, and their Affiliates
shall have been repaid in full.
(i) ASD Consents. Parent shall have received all ASD
------------
Consents, in form and substance reasonably satisfactory to Parent, and no such
ASD Consent shall have been revoked.
(j) Release of Liens. ASD shall have delivered to Parent
----------------
documents satisfactory to Parent to evidence the release of all Liens on any
portion of its assets and the filing of appropriate UCC Termination Statements.
(k) Employee Benefit Plans. Parent shall have received
----------------------
satisfactory evidence that (i) all of ASD's Pension Plans, programs and
arrangements have been terminated on terms and conditions reasonably
satisfactory to Parent, and (ii) all benefits payable under such plans, programs
and arrangements have been paid.
(l) Remediation. All remediation of environmental
-----------
contamination or conditions set forth on Schedule 3.22 shall have been completed
or provided for to the satisfaction of Parent.
(m) Securities Laws.
---------------
(1) Parent shall have received all state securities
or "Blue Sky" permits and other authorizations necessary to issue Parent Stock
pursuant to Section 2.1(d).
(2) Parent shall have received from each shareholder
of ASD, an executed certificate in the form of Exhibit F hereto, setting forth
certain matters relating to the issuance of Parent Stock to such shareholders.
(n) Shareholder Vote. The holders of the issued and
----------------
outstanding shares of ASD Stock shall have unanimously approved the Merger.
(o) Pledge of Stock. Principal Shareholder shall have
---------------
delivered to Parent a Pledge Agreement in the form of Exhibit G hereto, pursuant
to which he shall pledge
42
<PAGE>
all of his shares of Parent Stock as security for his obligations to Parent
under Section 9.2.
(p) Opinion. Parent and Subsidiary shall have received an
-------
opinion of counsel to ASD and Principal Shareholder, in form and substance
satisfactory to Parent and Subsidiary.
8.3 Conditions to Obligation of ASD and Principal
---------------------------------------------
Shareholder.
- -----------
(a) Performance of Obligations. The obligation of ASD and
--------------------------
Principal Shareholder to consummate the Closing is subject to the satisfaction
of the following further conditions: (i) Parent and Subsidiary shall have
performed in all material respects all of their respective obligations hereunder
required to be performed by them at or prior to the Closing Date, (ii) the
representations and warranties of Parent and Subsidiary contained in this
Agreement and in any certificate or other writing delivered by Parent and
Subsidiary pursuant hereto shall be true in all material respects at and as of
the Closing Date, as if made at and as of such date and (iii) ASD shall have
received a certificate signed by an officer of Parent and an officer of
Subsidiary to the foregoing effect.
(b) Registration Rights. Parent shall have executed and
-------------------
delivered a Registration Rights Agreement for the benefit of all of the
shareholders of ASD in the form of Exhibit H hereto.
(c) Opinion. ASD and Principal Shareholder shall have
-------
received an opinion of counsel to Parent and Subsidiary in form and substance
satisfactory to ASD and Principal Shareholder.
(d) Employment Agreements. Parent shall have executed and
---------------------
delivered to each of Rea B. Callender and Mary Malone an Employment Agreement
substantially in the form of Exhibits D-1 and D-2, respectively, thereto.
ARTICLE IX
SURVIVAL; INDEMNIFICATION; TERMINATION; RELEASE
9.1 Survival.
--------
(a) Each representation, warranty, covenant and agreement of
Principal Shareholder contained in this Agreement or in any of the ASD Documents
shall survive the execution and delivery of this Agreement and the Closing and
43
<PAGE>
shall thereafter terminate and expire on the second anniversary of the Closing
Date, except that, (i) the representations and warranties of the Principal
Shareholder contained in Section 3.21 shall terminate and expire ninety (90)
days after the expiration of the statute of limitations applicable to claims by
third parties against Parent, Subsidiary or their Affiliates, in respect of the
matter or matters which are the subject of said representations and warranties,
(ii) the representations and warranties of the Principal Shareholder contained
in Section 3.22 shall terminate and expire on the third anniversary of the
Closing Date, and (iii) the representations and warranties of the Principal
Shareholder contained in Sections 3.5 and 3.10 shall survive the execution and
delivery of this Agreement and the Closing and shall not terminate or expire.
Notwithstanding anything else contained in this Section 9.1(a), the
representations and warranties referenced in Sections 9.1(a)(i) and (ii) shall
not terminate and expire if, on or before the termination and expiration date
provided for therein, Parent, Subsidiary or any of their Affiliates has
delivered to Principal Shareholder a written notice of a claim with respect
to such representations and warranties.
(b) Each representation, warranty, covenant and agreement of
Parent and Subsidiary contained in this Agreement or in any of the Parent and
Subsidiary Documents shall terminate as of the Closing.
9.2 Indemnification.
---------------
(a) Principal Shareholder and, prior to (but not after the
Closing), ASD jointly and severally with Principal Shareholder, shall indemnify
Parent, Subsidiary and their Affiliates against, and shall hold each of them
harmless from, any and all cost, claims, damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding) (collectively, "Loss") incurred or suffered by Parent, Subsidiary or
any of their Affiliates arising out of any misrepresentation or breach, or any
allegation thereof, of any representation, warranty, covenant or agreement made
or to be performed by ASD or Principal Shareholder pursuant to this Agreement;
provided, however, that Principal Shareholder shall only be required to
indemnify Parent, Subsidiary and their Affiliates if, on a cumulative and
aggregate basis, the amount of Loss incurred by Parent, Subsidiary and their
Affiliates exceeds the amount of One Hundred Thousand Dollars ($100,000).
However, if the cumulative and aggregate amount of such Loss exceeds One Hundred
Thousand Dollars ($100,000), all of the Loss shall
44
<PAGE>
be subject to indemnification hereunder by Principal Shareholder.
(b) Parent shall indemnify ASD and Principal Shareholder
against, and shall hold them or any of their Affiliates harmless from, any and
all Loss incurred or suffered by Principal Shareholder, ASD or any of their
Affiliates arising out of any misrepresentation or breach of representation,
warranty, covenant or agreement made or to be performed by Parent or Subsidiary
pursuant to this Agreement.
(c) Parent shall indemnify Principal Shareholder against, and
shall hold him harmless from, any and all Loss incurred or suffered by him
arising out of any real property lease to which ASD is a party which is
guaranteed by Principal Shareholder as of the date hereof, to the extent such
lease is assumed by Parent or Subsidiary.
9.3 Procedures. The party seeking indemnification under Section
----------
9.2 (the "Indemnified Party") agrees to give prompt notice to the party against
whom indemnity is sought (the "Indemnifying Party") of the assertion of any
claim, or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought under such Section 9.2; provided that the failure to
give such notice shall not limit the Indemnified Party's right to
indemnification hereunder except to the extent that the Indemnifying Party is
materially prejudiced thereby. The Indemnifying Party may, and at the request
of the Indemnified Party shall, participate in and control the defense of any
such suit, action or proceeding at its own expense. The Indemnifying Party
shall not be liable under Section 9.2 for any settlement effected without its
consent of any claim, litigation or proceeding in respect of which indemnity may
be sought hereunder; provided, however, that consent to settlement shall not be
unreasonably withheld. In any such suit, action or proceeding, the Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party has failed to assume the defense of such suit, action or
proceeding or to employ counsel reasonably satisfactory to the Indemnified
Party, or (iii) in the reasonable judgment of such Indemnified Party
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them, in any which case, if the
Indemnified Party notifies the Indemnifying Party in writing that the
Indemnified Party elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to
45
<PAGE>
assume the defense of such suit, action or proceeding on behalf of the
Indemnified Party. The Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) at any time for all the Indemnified Parties.
9.4 Release. In consideration of the issuance of shares of Parent
-------
Stock and other consideration to Principal Shareholder at the Closing, effective
as of the Effective Time, Principal Shareholder shall release and discharge ASD,
Parent, Subsidiary and their Affiliates, and each of their respective
shareholders, officers, directors, employees, agents and attorneys, from any and
all claims, contentions, demands, causes of action at law or in equity, debts,
liens, agreements, notes, obligations or liabilities of any nature, character or
description whatsoever, whether known or unknown, which Principal Shareholder
may now or hereafter have against ASD by reason of any matter, event, thing or
state of facts occurring, arising, done, omitted or suffered to be done prior to
the Effective Time.
Principal Shareholder hereby acknowledges and represents that he has
been advised by his attorney of record, and is familiar with, Section 1542 of
the Civil Code of the State of California, which presently provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor
at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor."
Principal Shareholder hereby waives and relinquishes any and all
rights and benefits under Section 1542 of the Civil Code as now worded and as it
may from time to time hereafter be amended.
It is understood by Principal Shareholder that the facts in respect of
which this release is given may hereafter turn out to be other than or different
from the facts in that connection known or believed to be true. Principal
Shareholder therefore expressly assumes the risk of the facts turning out to be
so different and agrees that the foregoing release shall be in all respects
effective and not subject to termination or rescission by any such difference in
facts.
46
<PAGE>
9.5 Grounds for Termination. This Agreement and any obligations
-----------------------
of the parties under the Letter of Intent may be terminated at any time prior to
the Closing:
(a) by mutual written agreement of the parties hereto;
(b) by either ASD or Parent if the Closing shall not have
been consummated on or before 5:00 p.m. in Los Angeles, California on July 15,
1996 or such other time and/or date as the parties shall mutually agree to
(except that no such right of termination shall be available to a party whose
own breach of warranty or covenant hereunder prevents consummation of the
Closing on or before such date); or
(c) by either ASD or Parent if consummation of the
transactions contemplated hereby would violate any nonappealable final order,
decree or judgment of any court or governmental body having competent
jurisdiction.
The party desiring to terminate this Agreement pursuant to clause (ii)
or (iii) shall give notice of such termination to the other party.
9.6 Effect of Termination. Any termination of this Agreement
---------------------
pursuant to Section 9.5 shall be without liability of either party (or any
shareholder, director, officer, employee, agent, consultant or representative of
such party) to the other party to this Agreement; provided that any such
--------
termination shall not relieve such party from liability for any failure to
perform its obligations under this Agreement. The provisions of Section 10.3
shall survive any termination hereof pursuant to Section 9.5.
ARTICLE X
ARBITRATION
If at any time after the Effective Time there is any claim or
controversy between the parties relating to or arising from this Agreement, the
parties shall each designate a senior officer to meet with the designated senior
officer of the other and shall use their best efforts to settle such dispute.
If such senior officers fail to settle the dispute within fourteen (14) days
after first conferring or if any party refuses to so meet, the dispute shall be
submitted as final and binding arbitration to the American Arbitration
Association in accordance with its Commercial Arbitration Rules, to be held in
the City of Los Angeles, State of California. There shall be three arbitrators,
one
47
<PAGE>
to be chosen directly by each party at will, and the third arbitrator to be
selected by the two arbitrators so chosen. The parties shall be permitted to
take such discovery as the arbitrators deem reasonable and, in addition to all
other powers, the arbitrators shall have the power to grant preliminary and
permanent injunctive relief. Any order, decision or award made by the
arbitrators shall be enforceable by any court of competent jurisdiction.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, requests and other communications to
-------
any party hereunder shall be in writing and shall be given to such party at its
address or telecopier number set forth below, or such other address or
telecopier number as such party may hereinafter specify by notice to each other
party hereto:
if to Parent, to:
Poppe Tyson, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Steven M. Blondy
Chief Financial Officer
Telecopy: (212) 727-5662
with a copy to:
Loeb & Loeb LLP
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Attention: Robert S. Barry, Jr., Esq.
Telecopy: (213) 688-3460
if to ASD:
1900 Embarcadero Road
Suite 110
Palo Alto, California 94303
Attention: Rea B. Callender
President
Telecopy: (415) 424-8453
48
<PAGE>
with a copy to:
Ritchey, Fischer, Whitman & Klein
1717 Embarcadero Road
Palo Alto, California 94303
Attention: Lawrence Klein, Esq.
Telecopy: (415) 857-1288
Each such notice, request or other communication shall be effective (i) if given
by telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the appropriate answerback is received or, (ii) if given by mail, 72
hours after such communication is deposited in the mails with first class
postage prepaid, properly addressed or, (iii) if given by any other means, when
delivered at the address specified herein.
11.2 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the case
of an amendment, by each party hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No failure or delay by any party hereto in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
11.3 Expenses. Except as otherwise provided herein, all costs and
--------
expenses incurred by ASD and Principal Shareholder in connection with this
Agreement shall be paid by ASD and all costs and expenses incurred by Parent and
Subsidiary in connection with this Agreement shall be paid by Bozell.
11.4 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that ASD may not assign, delegate or
--------
otherwise transfer any of its rights or obligations under this Agreement without
the prior written consent of Parent.
11.5 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the
49
<PAGE>
State of California, without giving effect to the conflict of laws principles
thereof.
11.6 Counterparts; Effectiveness. This Agreement may be signed in
---------------------------
any number of counterparts, each of which shall be an original and all of which
shall be deemed to be one and the same instrument, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
11.7 Entire Agreement. In addition to the Confidentiality
----------------
Agreement, this Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter of this Agreement, including without limitation,
the Letter of Intent. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by any
party hereto. Neither this Agreement nor any provision hereof is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
11.8 Severability. If any one or more provisions of this
------------
Agreement shall, for any reasons, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
11.9 Captions. The captions herein are included for convenience
--------
of reference only and shall be ignored in the construction or interpretation
hereof.
11.10 Attorneys' Fees. In the event of any litigation or legal
---------------
proceedings (including arbitration) between the parties hereto, the
nonprevailing party shall pay the expenses, including reasonable attorneys' fees
and court costs, of the prevailing party in connection therewith.
11.11 Ambiguities. The parties acknowledge that each party and
-----------
its counsel has materially participated in the drafting of this Agreement and
consequently the rule of contract interpretation that ambiguities, if any, in
the writing be construed against the drafter, shall not apply.
11.12 No Third Party Rights. Nothing in this Agreement, whether
---------------------
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any Persons other than the parties to it and their
respective successors and assigns, nor is anything in this
50
<PAGE>
Agreement intended to relieve or discharge the obligation or liability of any
third Persons to any party to this Agreement, nor shall any provision give any
third Persons any right of subrogation or action over against any party to this
Agreement.
51
<PAGE>
IN WITNESS WHEREOF, Parent, Subsidiary and ASD have caused this
Agreement to be duly executed by their respective authorized officers or
representatives, and Principal Shareholder has duly executed this Agreement, as
of the day and year first above written.
POPPE TYSON, INC.,
a Delaware corporation
By:
-----------------------------------
Steven M. Blondy
Executive Vice President
of Finance and Administration
ANIMATED SYSTEMS & DESIGN, INC.,
a Delaware corporation
By:
------------------------------------
Steven M. Blondy
Secretary and Treasurer
ANIMATED SYSTEMS & DESIGN, INC.,
a California corporation
By:
------------------------------------
Rea B. Callender,
President
---------------------------------------
Rea B. Callender
The undersigned, Bozell, Jacobs, Kenyon & Eckhardt, Inc. acknowledges
the provisions of Section 10.3 of the foregoing Agreement and, to the extent
they require it to perform any obligation, hereby agrees to perform the same.
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
By: ______________________________
Name: ____________________
Title: ____________________
52
<PAGE>
EXHIBIT 10.14
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated June 27, 1996,
between Poppe Tyson, Inc., a Delaware corporation (the "Company"), and the
stockholders listed on the signature pages hereto (the "Stockholders") of
Animated Systems & Design, Inc., a California corporation ("ASD California").
WHEREAS, the Company, ASD California, Rea Callender and Animated Systems &
Design, Inc., a Delaware corporation which is a wholly-owned subsidiary of the
Company ("ASD Delaware"), have entered into an Agreement of Reorganization and
Merger dated as of June 27, 1996 (the "Merger Agreement"), providing for the
merger of ASD California with and into ASD Delaware and pursuant to which the
Stockholders shall upon the consummation of such merger receive, among other
things, 903,189 shares of Common Stock (the "Shares"); and
WHEREAS, as an inducement to enter into the Merger Agreement, the Company
has agreed to grant the Stockholders certain registration rights with respect to
the Shares as set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value per share, of
------------
the Company, as constituted as of the date of this Agreement.
"Company" shall have the meaning provided therefor in the first paragraph
-------
of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
"Registration Expenses" shall mean the expenses so described in Section 6.
---------------------
"Restricted Stock" shall mean the Shares, but excluding shares of Common
----------------
Stock which have been (a) registered under the Securities Act pursuant to an
effective registration statement filed thereunder and disposed of in accordance
with the registration statement covering them or (b) publicly sold pursuant to
Rule 144 under the Securities Act or (c) as to which the restrictive legend
referred to in Section 3 has been removed.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 6.
----------------
"Shares" shall have the meaning provided therefor in the first whereas
------
clause of this Agreement.
"Stockholders" shall have the meaning provided therefor in the first
------------
paragraph of this Agreement.
2. Restrictive Legend. Each certificate representing the Shares shall,
------------------
except in compliance with the following legend, be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THAT
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, AN EXEMPTION
FROM REGISTRATION THEREUNDER IS AVAILABLE.
3. Required Registration.
---------------------
(a) Immediately upon the Company's qualification to use a Form S-3
Registration Statement to register shares of Restricted Stock and for a period
of 120 days thereafter, the holders of Restricted Stock constituting at least a
majority of the total shares of Restricted Stock then owned beneficially or of
record by the Stockholders may request the Company to register under the
Securities Act between forty percent (40%) and fifty percent (50%) of the shares
of Restricted Stock held by such
2
<PAGE>
Stockholders for sale in the manner specified in such notice, provided that the
reasonably anticipated aggregate price to the public of such public offering
would exceed Two Million Five Hundred Thousand Dollars ($2,500,000). The
Company shall notify the Stockholders within thirty (30) days after it has
become subject to the requirements of Section 12 of the Exchange Act.
Notwithstanding the foregoing and anything to the contrary contained
herein, (i) the only securities that the Company shall be required to register
pursuant hereto shall be shares of Common Stock, (ii) no request may be made
under this Section 3 within 180 days after the effective date of a registration
statement filed by the Company covering a firm commitment underwritten public
offering of securities of the Company under the Securities Act and (iii) the
Company may postpone for a reasonable period of time, not to exceed thirty (30)
days, the filing or the effectiveness of any registration statement covering the
shares of Restricted Stock requested to be registered by the stockholders, if
the Board of Directors of the Company in good faith determines that such
registration might have a material adverse effect on any plan or proposal by the
Company with respect to any financing, acquisition, recapitalization,
reorganization or other material transaction, or the Company is in possession of
material non-public information that, if publicly disclosed, could result in a
material disruption of a major corporate development or transaction then pending
or in progress or in other material adverse consequences to the Company.
(b) Following receipt of any notice under this Section 3, the
Company shall immediately notify the other Stockholders and use its reasonable
efforts to register under the Securities Act, for public sale in accordance with
the method of disposition specified in such notice from requesting holders, the
Restricted Stock specified in such notice pursuant hereto (and between forty
percent (40%) to fifty percent (50%) of all Restricted Stock of all Stockholders
who give notice to the Company within 30 days after the giving of such notice by
the Company). If such method of disposition shall be an underwritten public
offering, the Company shall designate the managing underwriter of such offering,
subject to the approval of the Stockholders, which approval shall not be
unreasonably withheld or delayed and which managing underwriter(s) specifically
may include any or all of the managing underwriter(s) in any initial public
offering by the Company. The Company shall be obligated to register the
Restricted Stock pursuant to this Section 3 on one occasion only, provided,
--------
however, that such obligation shall be deemed satisfied only when a registration
- -------
statement covering the
3
<PAGE>
Restricted Stock, for sale in accordance with the method of disposition
specified in the notice, shall have become effective.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 3, for sale in accordance with the method
of disposition specified in the notice from the holders of Restricted Stock
referred to above, shares of Common Stock to be sold by the Company for its own
account. Except for registration statements on Form S-4, S-8 or any successor
thereto, the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other stockholders, from the date of receipt of a notice from the holders of
Restricted Stock pursuant to this Section 3 until the completion of the period
of distribution of the shares of Restricted Stock registered thereby.
4. Incidental Registration. Without any obligation to do so, in the
-----------------------
event the Company (other than pursuant to Section 3) proposes to register any of
its securities under the Securities Act for sale to the public solely for cash,
whether for its own account or for the account of other security holders or both
(except with respect to registration statements on Forms S-4, S-8 or another
form not available for registering the Restricted Stock for sale to the public
and except with respect to any initial public offering of securities by the
Company for its own account), it will give written notice to the holders of
Restricted Stock of its intention so to do and of the proposed method of
distribution of such securities. Upon the written request of any such holder,
received by the Company within 20 days after the giving of any such notice by
the Company, to register any of its Restricted Stock, the Company will use
reasonable efforts to cause the Restricted Stock as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
and under the conditions such registration is permitted under the Securities
Act. In the event that any registration pursuant to this Section 4 shall be, in
whole or in part, an underwritten public offering of Common Stock, and such
registration is demanded by a holder of the Common Stock other than a
Stockholder, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced if and to the extent that the managing underwriter
shall be of the opinion that the inclusion of some or all of the Restricted
Stock would adversely affect the marketing of the securities to be sold therein
by the Company or any other stockholder of the Company. If any registration
pursuant to this Section 4 is initiated at the
4
<PAGE>
discretion of the Company, any reduction of the number of shares of Restricted
Stock of each Stockholder to be included in such an underwriting shall be
reduced on a pro-rata basis with all other selling stockholders in the offering.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 4 without thereby incurring
any liability to the Stockholder.
5. Registration Procedures. If and whenever the Company is required
-----------------------
by the provisions of Section 3 or 4 to use reasonable efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as reasonably possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use reasonable efforts to cause
such registration statement to become effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in Section 5(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus), as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Shares of Restricted Stock covered by such registration
statement;
(d) use reasonable best efforts to register or qualify the
Restricted Stock covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the sellers of Restricted Stock or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
-------- -------
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified, subject itself to
taxation in any jurisdiction wherein it is not so subject, or to consent to
general service of process in any such jurisdiction;
5
<PAGE>
(e) use its best efforts to list the Restricted Stock covered
by such registration statement with any securities exchange or the NASDAQ
National Market System on which the Common Stock of the Company is then listed;
(f) promptly notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing. The sellers of
Restricted Stock agree upon receipt of such notice forthwith to cease making
offers and sales of Restricted Stock pursuant to such registration statement or
deliveries of the prospectus contained therein for any purpose until the Company
has prepared and furnished such amendment or supplement to the prospectus as may
be necessary so that, as thereafter delivered to purchasers of such Restricted
Stock, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
For purposes of Sections 5(a) and 5(b) and of Section 3(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of the Shares of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all the Shares of Restricted Stock
covered thereby and 60 days after the effective date thereof.
In connection with any registration hereunder, the sellers of
Restricted Stock shall (a) provide such information and execute such documents
as may reasonably be required in connection with such registration, (b) agree to
sell the Shares of Restricted Stock on the basis provided in any underwriting
arrangements and (c) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements, which arrangements shall not
be inconsistent herewith.
6
<PAGE>
In connection with any registration pursuant to Section 3 or 4
covering an underwritten public offering, the Company and each seller of
Restricted Stock agree to enter into a written agreement with the managing
underwriter selected in the manner herein provided in such form and containing
such provisions as are customary in the securities business for such an
arrangement between such underwriter and companies of the Company's size and
investment stature.
6. Expenses. All expenses incurred by the Company in complying with
--------
Sections 3 and 4 including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the NASD and of transfer agents and registrar but excluding any Selling
Expenses, are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of the Shares of Restricted Stock are
called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Section 3 or 4. All Selling Expenses in
connection with each registration statement under Section 3 or 4 shall be borne
by the participating sellers in proportion to the number of shares sold by each,
or by such participating sellers other than the Company (except to the extent
the Company shall be a seller) as they may otherwise agree.
7. Rule 144. During any period that the Company has any securities
--------
registered under the Exchange Act, the Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and it will
take such further action as any Stockholder may reasonably request, all to the
extent required from time to time to enable such Stockholder to sell Common
Stock without registration under the Securities Act within the limitation of the
exemption provided by (i) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission.
8. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any Restricted Stock under
the Securities Act pursuant to Section 3 or 4, the Company will indemnify and
hold harmless each seller of such Restricted Stock thereunder,
7
<PAGE>
each underwriter of such Restricted Stock thereunder and each other person, if
any, who controls such underwriter within the meaning of the Securities Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock were registered under the Securities Act
pursuant to Section 3 or 4, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will pay the legal fees and other expenses of each such seller, each such
underwriter and each such controlling person incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
- -------- -------
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in reliance upon and in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing, and, provided further, however, that the Company will not be
-------- ------- -------
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue or alleged untrue
statement or omission or an alleged omission made in any preliminary prospectus
or final prospectus if (1) such holder failed to send or deliver a copy of the
final prospectus or prospectus supplement with or prior to the delivery of
written confirmation of the sale of Restricted Stock and (2) the final
prospectus or prospectus supplement would have corrected such untrue statement
or omission.
(b) In the event of a registration of any Restricted Stock under
the Securities Act pursuant to Section 3 or 4, each seller of such Shares
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of the
Securities Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Securities Act or otherwise,
8
<PAGE>
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Shares were registered under the Securities Act pursuant to Section
3 or 4, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will pay
the legal fees and other expenses of the Company and each such officer,
director, underwriter and controlling person incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
- -------- -------
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
furnished in writing to the Company by such seller for use in such registration
statement or prospectus.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the failure to so notify
the indemnifying party shall not relieve it from any liability that it may have
to such indemnified party other than under this Section 8 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 8 if and to the extent the indemnifying party is prejudiced thereby. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof; provided, however,
-------- -------
that, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded (based on the advice of counsel) that there may be reasonable defenses
available to it which are different from or additional to those available
9
<PAGE>
to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assert such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel as required by the local rules of such jurisdiction) at any time for all
such indemnified parties.
(d) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
9. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including, without
limitation, transferees of any shares of Restricted Stock), whether so expressed
or not, provided, however, that registration rights conferred herein on the
-------- -------
Stockholders shall only inure to the benefit of a transferee of such Restricted
Stock pursuant to the laws of descent and distribution.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or sent by Federal Express or
other recognized overnight courier service, addressed as follows:
10
<PAGE>
if to the Company:
Poppe Tyson, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Fergus O'Daly
Chairman and
Chief Executive Officer
if to the Stockholders:
c/o Mr. Rea B. Callender
Animated Systems & Design, Inc.
1900 Embarcadero Road
Suite 110
Palo Alto, California 94303
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Restricted Stock) or to
the holders of Restricted Stock (in the case of the Company) in accordance with
the provisions of this Section 9(b).
(c) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York without giving effect to the
conflict of laws provisions.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the
Stockholders holding of record at least a majority of the Restricted Stock.
(e) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. In proving this Agreement it shall not
be necessary to produce or account for more than one such counterpart executed
by the party against whom enforcement is sought.
(f) If requested in writing by the underwriters for an underwritten
public offering of securities of the Company, the Stockholders shall agree not
to sell publicly any Restricted Stock or any other shares of Common Stock (other
than shares of Restricted Stock or other shares of Common Stock being registered
in such offering), without the consent of such underwriters, for a period
following the effective date of the registration statement relating to such
offering to be reasonably determined by the underwriters; provided, however,
that with respect to any
11
<PAGE>
underwritten public offering initiated by the Company (as opposed to a
stockholder of the Company) the sales restrictions under this Section 9(f) shall
be no greater than those imposed on officers and directors of Parent who are
also selling stockholders in the offering.
(g) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(h) This Agreement and the rights granted herein shall terminate on
the third anniversary of the effective date of the initial public offering of
securities of the Company pursuant to an effective registration statement under
the Securities Act; or on the third anniversary of the date hereof if no such
initial public offering shall have occurred by that date; provided, however, if
any Stockholder's employment with the Company or any of its subsidiaries is
terminated for cause (as determined pursuant to any employment agreement then in
effect between the Company or any subsidiary and such Stockholder, and otherwise
as determined by the Company's Board of Directors in good faith judgment), then
such Stockholder's rights under this Agreement shall immediately terminate.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and year first above written.
POPPE TYSON, INC.
By:________________________________
Steven M. Blondy
Executive Vice President of
Finance and Administration
13
<PAGE>
AGREED TO AND ACCEPTED as of
the date first above written
______________________________
G. Douglas Burck
______________________________
Brodie Callender
______________________________
Laurin Callender
______________________________
Rea B. Callender
______________________________
Larry Henninger
______________________________
Walter M. Lewis, Jr.
______________________________
Mary Malone
______________________________
James C. McBride, Jr.
___________________________________
Warren E. Anderson, Co-Trustee
under that certain Declaration
of Trust dated April 25, 1995
___________________________________
Catherine L. Anderson, Co-Trustee
under that certain Declaration
of Trust dated April 25, 1995
14
<PAGE>
___________________________________
Robert L. Stevens, Trustee of the
Robert and Karen Stevens Revocable
Trust dated August 9, 1978
___________________________________
Karen Stevens, Trustee of the
Robert and Karen Stevens Revocable
Trust dated August 9, 1978
15
<PAGE>
EXHIBIT 10.15
AGREEMENT (the "Agreement") dated July __, 1995, by and between Poppe
Tyson, Inc., a Delaware corporation, with offices at 40 West 23rd Street, New
York, New York 10010 ("PT") and The Jayme Organization, Inc., including its
affiliate divisions, JAYME Advertising and PROCONSUL Public Relations
(collectively, "Jayme"), an Ohio corporation, with offices at One Corporate
Exchange, 25825 Science Park Drive, Beachwood, Ohio 44122 (the "Premises").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Jayme is a full-service advertising agency engaged in the business
of rendering advertising services (the "Business"), and
WHEREAS, Jayme desires and intends to discontinue permanently its
operations as an advertising agency, and
WHEREAS, Jayme desires to arrange for the orderly transfer of all of the
Jayme advertising business to PT, upon the terms and conditions hereinafter set
forth, to which PT is agreeable, and
WHEREAS, PT wishes to purchase from Jayme, and Jayme wishes to sell to PT,
certain of the assets, properties and equipment owned or used by Jayme upon the
terms and conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the foregoing and the mutual premises
and covenants set forth herein, the parties hereby agree as follows:
1. SALE OF ASSETS
--------------
1.1 Assets to be Transferred. Subject to the terms and conditions
------------------------
set forth in this Agreement, and in reliance upon the representations and
warranties of Jayme and PT herein set forth, at the Closing (as hereinafter
defined), Jayme shall sell, convey, transfer, assign and deliver to PT, and PT
shall purchase from Jayme, all of Jayme's right, title and interest in and to
the following (the "Purchased Assets"):
(a) Tangible assets owned by Jayme or used in the Business,
including without limitation, all furniture, fixtures, equipment and office
supplies (the "Tangible Assets") as listed on Schedule A, attached hereto.
(b) The leases of all business machines and equipment (which
hereinafter shall be referred to collectively as the "Leases"), subject to
receiving the
<PAGE>
consent of the lessors prior to the Closing Date (as hereinafter defined). A
listing of the Leases is attached hereto as Schedule B and Jayme has heretofore
delivered a true and correct copy of all such Leases to PT. The term "Leases"
as defined herein shall not include any lease with respect to the Premises or
any other real-estate leases to which Jayme is a party.
(c) All raw materials, work-in-process, finished goods,
supplies and other inventories.
(d) All trademarks, service marks, tradenames, inventions,
trade secrets, copyrights or other similar types of proprietary intellectual
property rights, in each case which is owned by Jayme, including computer
software programs which relate to the servicing of the Advertising Accounts, any
derivatives thereof and any goodwill associated therewith (the "Intellectual
Property Rights"), but excluding the tradename The Jayme Organization, Inc., or
any similar designation thereof, and any financial or accounting software
programs designed for Jayme relating to the operation of the Business.
(e) All books, records, film, files and paper, whether in hard
copy or computer format, including, without limitation, sales and promotional
literature, manuals and data, sales and purchase correspondence, lists of
present and former suppliers, list of any present and former clients, personnel
and employment records, but excluding tax and financial records which Jayme is
required to maintain for tax reporting purposes and any records which Jayme
determines, after consultation with and agreement by PT, are unnecessary to PT
to service the Advertising Accounts.
(f) All transferable licenses, permits or other governmental
authorizations, if any.
1.2 It is understood and agreed that Purchased Assets shall not
include accounts and notes receivable; cash and cash equivalents (including the
cash value of any life insurance policies), deferred incomes taxes and general
intangibles; and all other machinery, equipment, furniture and fixtures which
are not identified on Schedule A attached hereto.
1.3 Transfer of Advertising Accounts. Jayme agrees to use its best
--------------------------------
efforts to arrange for the appointment of PT, effective as of the Closing Date,
as the advertising agency for all of the Advertising Accounts of Jayme, as
hereinafter defined. Notwithstanding the foregoing, if on the Closing Date, PT
reasonably estimates
2
<PAGE>
that the Advertising Accounts to be transferred will collectively provide PT
with less than Two Million Four Hundred Thousand Dollars ($2,400,000) of Gross
Income, as hereinafter defined, in the twelve (12) month period immediately
following the Closing Date, then PT shall be under no obligation to proceed with
the Closing, and this Agreement shall in such event for all intents and purposes
be considered null and void.
"Advertising Accounts," as used herein, shall be defined as the
advertising and public relations client accounts of Jayme which are listed on
Schedule C attached hereto and any of the advertising accounts also listed on
Schedule C which become accounts of PT in the six (6) month period immediately
following the Closing Date (hereinafter "New Accounts"). It is understood that
PT may, in good faith, refuse to accept a New Account, and that it may at its
option and in its sole discretion, to be reasonably exercised, resign any
Advertising Account at any time and for any legitimate business reason.
1.4 Sales Tax. Jayme shall be solely responsible and liable for any
---------
sales tax imposed by the State of Ohio in connection with the sale to PT of the
Tangible Assets.
2. ASSUMPTION OF CERTAIN SPECIFIED LIABILITIES.
-------------------------------------------
From and after the Closing Date, PT shall assume, perform, discharge
and pay when due the following obligations and liabilities (the "Assumed
Liabilities"):
2.1 All obligations and liabilities of Jayme under the Leases which
arise after the Closing Date;
2.2 All obligations of Jayme under any agreements with the
Advertising Accounts (provided such accounts are transferred to PT prior to the
Closing Date), which obligations arise after the Closing Date;
2.3 All obligations of Jayme relating to work-in-process being
transferred hereunder, it being understood and agreed that all work-in-process
shall be handled as set forth in paragraph 5 below; and
3. EXCLUDED FROM TRANSACTION.
-------------------------
It is specifically understood and agreed that in connection with this
transaction, no asset of Jayme is being transferred to PT other than those
specifically set forth in paragraph 1 hereof, and it is further agreed that in
connection with such transfer, PT is not assuming and shall not be bound to pay,
perform or discharge any of the
3
<PAGE>
liabilities or obligations of Jayme arising either prior to or after the Closing
Date, including, but not limited to, obligations under any of Seller's pension
or other employee benefit plans (and Jayme shall not make any representations to
its employees to the contrary), obligations to any media or trade creditors in
existence on the Closing Date, contractual obligations to clients, employees or
third parties, or obligations with respect to the Premises or to the lessor of
the Premises.
4. TERMINATION OF LEASE OF PREMISES.
--------------------------------
It is acknowledged that Jayme is attempting to terminate its lease for
the Premises on the terms and conditions outlined in the Settlement Agreement
attached hereto as Schedule F. If Jayme does not execute the Settlement
Agreement prior to the Closing date hereof, then PT shall be under no obligation
to proceed with the Closing, and this Agreement shall in such event for all
intents and purposes be considered null and void.
5. WORK-IN-PROCESS AND APPLICATION OF COMMISSION INCOME.
----------------------------------------------------
5.1 Work-in-Process.
---------------
(a) With respect to work-in-process as of the Closing Date
relating to the Advertising Accounts, it is agreed that PT will complete all of
such work-in-process at its sole cost and expense, and that all billing for such
work-in-process upon completion thereof shall be undertaken by PT, which billing
shall indicate that payment therefor is to be made to PT.
(b) On the Closing Date, Jayme shall deliver to PT an invoice
("Jayme Invoice") for each current production work-in-process job that has not
been completed by Jayme by the Closing Date for the Advertising Accounts, which
Jayme Invoice shall include all out-of-pocket expenses paid or incurred,
billable employee time paid or incurred, and all commissions attributable
thereto. The Jayme Invoice will include only amounts that remain unbilled to
the Advertising Accounts as of the Closing Date. PT shall pay to Jayme the
total amount of each of the Jayme Invoices promptly after receipt by PT of
payment from the Advertising Accounts, but in no event shall PT be under any
obligation to pay Jayme for the production work-in-process reflected in the
Jayme Invoice unless and until payment for that amount has been received by PT
from the Advertising Accounts. It is understood and agreed that in the event
that either of the parties hereto receives payment from the Advertising Accounts
which payment properly belongs to the other party
4
<PAGE>
as hereinabove provided, such payment shall promptly be delivered and turned
over to the other party.
5.2 Application of Commission Income. It is agreed that all
--------------------------------
commission income received from the Advertising Accounts (i) with respect to
print advertisements, the media closing dates of which are on or after the
Closing Date, and (ii) with respect to commercials, the air dates of which are
on or after the Closing Date, shall be billable by and payable to PT.
All commission income received from the Advertising Accounts (i) with
respect to print advertisements, the media closing dates of which are prior to
the Closing Date, and (ii) with respect to commercials, the air dates of which
are prior to the Closing Date, shall be billable by and payable to Jayme.
6. CONSIDERATION TO JAYME.
----------------------
In consideration of the transfer by Jayme to PT of (i) the Tangible
Assets, Leases and other assets as provided in paragraph 1.1 hereof, (ii) the
Advertising Accounts as provided in paragraph 1.3 hereof and for the agreement
of Jayme to discontinue doing business as an advertising agency as provided in
paragraph 8 hereof and the covenants, warranties and representations contained
herein, PT agrees to:
(a) Pay to Jayme a percentage, as provided below, of Gross Income (as
hereinafter defined) earned by PT from the Advertising Accounts for each of the
five (5) successive annual periods (the "Annual Periods") immediately following
the Closing Date. Such payments shall hereinafter be referred to as the
"Payments".
(i) for all amounts up to One Million Dollars ($1,000,000):
four percent (4%);
(ii) for all amounts between One Million Dollars ($1,000,000)
and Two Million Dollars ($2,000,000): twelve percent (12%);
(iii) for all amounts over Two Million Dollars ($2,000,000):
eight percent (8%).
The Payments for each of the initial four (4) Annual Periods shall be
determined by PT based upon the Gross Income PT reasonably anticipates it will
earn during each such Annual Period (the "Estimate"). Payment for the fifth
(5th) Annual Period will be based upon the Gross Income actually earned by PT
during said Annual Period. At
5
<PAGE>
the conclusion of each of the initial four (4) Annual Periods, PT shall
reconcile the difference between the Estimate and the actual Gross Income earned
by PT for the applicable Annual Period. If the Estimate exceeds the actual
Gross Income earned by PT, then the applicable percentage (as set forth above)
of said excess shall be deducted from the Payment for the immediately subsequent
Annual Period. If the actual Gross Income earned by PT exceeds the Estimate,
then the applicable percentage (as set forth above) of said excess shall be
added to the Payment for the immediately following Annual Period.
"Gross Income", as used in this Agreement, is hereby defined as (a)
commissions earned from media, (b) fees earned from accounts, (c) agency
commissions on print and broadcast production, and (d) time charges for
collateral materials and other services. The determination of Gross Income for
each applicable annual period shall be made by the internal financial department
of PT in accordance with generally accepted accounting principles consistently
applied by the Agency.
In the event Jayme shall disagree with such determination, it shall
promptly (but not later than fifteen (15) days after notice of such
determination) give written notice to PT of any exceptions thereto. If Jayme
and PT reconcile their differences, the determination of Gross Income shall be
adjusted accordingly and thereupon become final and conclusive upon the parties
hereto. If Jayme and PT are unable to reconcile their differences, the items in
dispute shall be submitted to a mutually agreed-upon accounting firm for
determination. The determination of such accounting firm shall become final and
conclusive upon the parties hereto. The fees and expenses of such accounting
firm shall be paid as follows: by PT, if the determination increases the Gross
Income amount by five percent (5%) or more; by PT and Jayme equally if the
determination increases the Gross Income by less than five percent (5%); and by
Jayme if the determination does not increase the Gross Income at all.
(b) Payments shall be made as follows:
(i) For the first Annual Period, on the Closing Date;
(ii) For the three (3) Annual Periods immediately following the
first Annual Period, within sixty (60) days following the commencement
of each such Annual Period; and
6
<PAGE>
(iii) For the fifth (5th) Annual Period, sixty (60) days
following the conclusion of said Annual Period.
(c) Pay to Jayme on the Closing Date, the value of the equipment,
furniture and fixtures listed on Schedule A, as reasonably determined by PT. It
is understood and agreed that PT shall determine in its sole discretion which of
the equipment, furniture and fixtures it will acquire, and the value thereof,
and PT shall have no obligation with respect to any equipment, furniture or
assets which it determines is not needed by PT to service the Advertising
Accounts.
(d) Pay to Jayme on the Closing Date, an amount equal to the
aggregate of all security deposits paid by Jayme under the Leases, as listed on
Schedule B.
(e) All payments to be made by PT to Jayme on the Closing Date shall
be via Federal funds wire transfer to bank account(s) specified by Jayme in
advance of the Closing.
7. It is understood and agreed that PT shall have the right to terminate
its relationship with the Advertising Accounts at any time based upon any
legitimate business reason. Notwithstanding the foregoing, if PT terminates any
of the Advertising Accounts by reason of a conflict with another account or
prospective account of PT which would prevent PT from servicing both of such
accounts, then Jayme shall continue to receive such Payments which shall
thereafter be based upon the amount of Gross Income earned for the twelve (12)
month period on such Advertising Accounts immediately preceding the date on
which such termination occurs.
8. DISCONTINUANCE OF ADVERTISING BUSINESS OF JAYME.
-----------------------------------------------
8.1 After the Closing, Jayme shall promptly wind up its advertising
business, including the collection of accounts receivable and the payment of
accounts payable.
8.2 Jayme hereby agrees that, effective as of the Closing Date, and
for a period of ten (10) years thereafter, it will not engage in any manner in
the conduct of a business competitive to the business of PT within a range of
one hundred miles from the City of Cleveland, Ohio. If any court determines that
the agreement of Jayme herein contained is unenforceable because of the duration
or geographic scope of such provision, the court shall have the power to reduce
the duration and geographic scope of such
7
<PAGE>
provision and, in its reduced form, such provision shall then be enforceable.
9. JAYME EMPLOYEES.
---------------
9.1 PT agrees to employ, commencing on the Closing Date, all of the
employees of Jayme who are listed on Schedule D annexed hereto (the "Jayme
Transferred Employees"), provided such employees are employed by Jayme on the
Closing Date, at their salaries, which are indicated on Schedule D, and are
willing to execute PT's standard non-compete and confidentiality agreements, and
provided further that the collective salaries for all such employees do not
exceed fifty-four percent (54%) of the Estimate of Gross Income to be earned by
PT from the Advertising Accounts during the first Annual Period. It is
specifically acknowledged that PT shall not be responsible for, and Jayme shall
remain solely liable for, any obligations to all of its employees who are not
Jayme Transferred Employees. It is further specifically acknowledged that PT, by
employing the Jayme Transferred Employees, shall be under no obligation to
retain any of such Jayme Transferred Employees in its employ for any specific
period of time, except Cathy Pokorny, and that the employment of all Jayme
Transferred Employees, with the exception of Cathy Pokorny, shall constitute no
relationship with PT other than as an employment at will. It is expressly
understood and agreed that PT will not assume any employment contract currently
in place between Jayme and any of the Jayme Transferred Employees.
9.2 All Jayme Transferred Employees will be eligible for life
insurance, medical and dental insurance, participation in PT's Profit-Sharing
and 401(k) Plan, Stock Bonus Plan, Bonus Compensation Plan, Severance
Compensation program and other fringe benefits in accordance with PT's standard
policy with regard to such benefits as in effect from time to time, and that
each Jayme Transferred Employee will be given full credit for his or her period
of full time employment with Jayme for all purposes except severance, including
eligibility, participation, and benefits, under all of PT's employee benefit
plans and programs as if that employee had been employed by PT for that same
period of time, unless such eligibility, participation, benefits, or other
application of this principle is prohibited by law. For the purpose of severance
determination, each Jayme Transferred Employee shall be considered employed by
PT as of the Closing Date, and the amount of any applicable severance payment
shall be in accordance with PT's Employment Manual.
8
<PAGE>
10. CLOSING.
-------
Subject to the satisfaction or waiver of the conditions set forth
herein, the Closing of the transaction contemplated by this Agreement (the
"Closing"), shall take place at the offices of Ulmer & Berne at 1300 East Ninth
Street, Suite 900, Cleveland, Ohio on or about July 7, l995 or as soon
thereafter as possible, or at such other date, time and place as Jayme and PT
may agree (the "Closing Date") and shall be deemed effective as of July 1, 1995.
11. WARRANTIES AND REPRESENTATIONS OF JAYME.
---------------------------------------
Jayme warrants and represents to PT that:
11.1 Jayme is a corporation duly organized, validly existing and in
good standing under the laws of Ohio and has all requisite power and authority
to execute, deliver and perform this Agreement and consummate the transactions
contemplated hereby and to conduct the Business.
11.2 Jayme has not billed, and prior to the Closing Date will not
bill, any client, and has not received nor will it receive prior to the Closing
Date, any payments from any client with respect to any services to be rendered
after the Closing Date. In the event of any breach of the warranties and
representations contained in this paragraph 11.2, Jayme agrees to pay over to PT
the amount of any such pre-billing, or, at the option of PT, such amount may be
deducted from payments due from PT to Jayme pursuant to this Agreement.
11.3 Schedule A contains a list of the major Tangible Assets of
Jayme as of the date hereof which PT has agreed to acquire. The Tangible Assets
have no material defects, are in good operating condition and repair (ordinary
wear and tear excepted) and have been reasonably maintained, and are suitable
for their present uses. Jayme has not mortgaged, pledged or subjected any of the
Tangible Assets to any lien or other encumbrance. Jayme has good and marketable
title to each item of the Tangible Assets and at Closing, the delivery to PT of
this Agreement will vest good and marketable title to the Tangible Assets in PT,
free and clear of all liens and other encumbrances.
11.4 Jayme has heretofore delivered true and correct copies of the
Leases to PT. The Leases are in full force and effect and Jayme has performed
all of its obligations and is not in default under the Leases and to the best of
its knowledge, no other parties are in default
9
<PAGE>
thereunder. All monies required to be paid under the Leases shall on the
Closing Date be paid through the Closing Date.
11.5 The Advertising Accounts have not advised Jayme, either
formally or informally, that they are terminating or contemplating the
termination of their relationship with Jayme, either in whole or in part nor
have they advised Jayme that they intend to reduce their billing with Jayme.
11.6 None of the Jayme Transferred Employees is employed by Jayme
under a written employment agreement and the salaries of all such employees as
stated on Schedule D are accurate and complete for their new employment by PT
and the total of all such salaries does not exceed fifty-four percent (54%) of
the Estimate of Gross Income to be earned by PT from the Advertising Accounts
during the first Annual Period.
11.7 To the best of Jayme's knowledge, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (a) violate any provision of the Articles of Incorporation or Code
of Regulations of Jayme; (b) violate, or constitute a default under, or permit
the termination or acceleration of the maturity of, any indebtedness of Jayme;
(c) violate, conflict with or constitute a default under any material contract,
the Leases, or any material agreement or other instrument to which Jayme is a
party or by which it or its property is bound; or (d) require the consent of any
party to any material contract, the Leases, agreement or other instrument to
which Jayme is a party or by which it or its property is bound (except such
consents as shall have been obtained prior to the Closing Date).
11.8 Within the past five (5) years (or prior thereto if the
same is still pending or subject to appeal or reinstatement), Jayme has not been
sued or charged in writing with or been a defendant in any claim, suit, action
or proceeding that involves a claim of infringement of any intellectual property
rights, and Jayme has no knowledge of any other claim of infringement by Jayme
and no knowledge of continuing infringement by any other person of any
intellectual property rights.
11.9 Jayme is current in the payment of all taxes of any kind with
respect to the Business, including without limitation, federal, state, local
income, sales and use taxes, as well as any franchise, license, withholding,
property or other tax or like assessment or charge, imposed by any governmental
authority and all interest and penalties
10
<PAGE>
due thereon for any tax period ending on or before the Closing Date.
11.10 All representations by Jayme contained herein or in any
Schedule or document delivered pursuant hereto or in connection with the
transaction contemplated hereby shall be true and accurate in all material
respects as of the date when made and shall be deemed to be made again at the
Closing Date and shall then be true and accurate in all material respects,
except to any matters as may be consented to in writing by PT.
11.11 There are no circumstances, actions, suits, proceedings, orders
or investigations pending or, to Jayme's knowledge, threatened against or
affecting the Business, its prospects or condition, financial or otherwise, of
Jayme which have not been set forth herein or is not already known by PT, which
may have a material adverse effect on the value or condition of the Business.
11.12 To the best of Jayme's knowledge, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby and thereby will at Closing violate any statutes or law or any judgment,
decree, order, regulation or rule of any court or governmental authority to
which Jayme or its property is subject.
12. WARRANTIES AND REPRESENTATIONS OF PT.
------------------------------------
PT warrants and represents to Jayme that:
12.1 PT has all requisite corporate power and authority to execute,
deliver and perform this Agreement and consummate the transactions contemplated
hereby.
12.2 To the best of PT's knowledge, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will at Closing (a) violate any provision of the charter documents of PT;
(b) violate, or constitute a default under, or permit the termination or
acceleration of the maturity of, any indebtedness of PT; (c) violate, conflict
with, or constitute a default under any material contract, lease, agreement or
other instrument to which PT is a party or by which it or its property is bound;
(d) require the consent of any party to any agreement to which PT is a party or
by which it or its property is bound; or (e) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which PT or its property is subject.
11
<PAGE>
13. BUSINESS EXAMINATIONS.
---------------------
From the date hereof until the Closing Date, PT shall be entitled,
through its employees and representatives, including, but not limited to, its
attorneys and accountants, to make such investigations and examinations of the
Premises, properties, books and records of Jayme relating to the Business and
Jayme shall furnish to PT, its counsel and other representatives such
information relating to the Business as such persons may reasonably request. It
is understood and agreed that no investigation pursuant to this paragraph (or
any investigation prior to the date hereof) shall affect any representation or
warranty given by Jayme hereunder.
14. CONDITIONS TO CLOSING.
---------------------
14.1 Conditions to Obligation of PT. The obligation of PT to
------------------------------
consummate the Closing is subject to the satisfaction of the following
conditions:
(a)(i) Jayme shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of Jayme contained in this
Agreement and in any certificate delivered by Jayme pursuant hereto,
disregarding all qualifications and exceptions contained therein relating to
materiality or a material adverse effect on the Business, shall be true at and
as of the Closing Date, as if made at and as of such date with only such
exceptions as would not in the aggregate reasonably be expected to have a
material adverse effect on the Business, and (iii) PT shall have received a
certificate signed by the Chairman of Jayme to the effect set forth in clauses
(i) and (ii) of this section 14.1(a).
(b) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Closing or the
effective operation by PT of the Purchased Assets after the Closing Date, and no
proceeding challenging this Agreement or the transactions contemplated hereby or
seeking to prohibit, alter, prevent or delay the Closing shall have been
instituted by any person before any court, arbitrator or governmental body,
agency or official or be pending.
(c) Jayme shall have received all consents required of Jayme
hereunder, including, without limitation, the consents required of the lessors
under the Leases, in form and substance reasonably satisfactory to PT, and no
such consent shall have been revoked.
12
<PAGE>
(d) PT shall have received all documents it may reasonably request
relating to the existence of Jayme and the authority of Jayme for this
Agreement, all in form and substance reasonably satisfactory to PT.
(e) PT shall be fully satisfied, in its sole discretion which shall
be exercised in good faith, with the results of its and its representatives'
review of Jayme and the Business (including, without limitation, any review of
the assets, financial condition, and prospects of the Business), provided that
--------
no such review shall affect any representation or warranty of Jayme given
hereunder or in any agreement related to the transactions contemplated hereby.
(f) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall restrain, prohibit or otherwise interfere with
the effective operation or enjoyment by PT of all or any material portion of the
Purchased Assets.
(g) Jayme shall have delivered to PT documents satisfactory to PT to
evidence the release of any lien on any portion of the Purchased Assets.
(h) Cathy Pokorny shall have executed the employment agreement with
PT (the "Employment Agreement") attached hereto as Schedule E.
(i) PT shall be fully satisfied, in its sole discretion which shall
be exercised in good faith, that as of the Closing Date, it is reasonably
estimated that the Advertising Accounts to be transferred will collectively
provide PT with no less than Two Million Four Hundred Thousand Dollars
($2,400,000) of Gross Income, in the first Annual Period immediately following
the Closing Date.
(j) Jayme shall have executed the Settlement Agreement attached
hereto as Schedule F.
14.2 Conditions to Obligation of Jayme. The obligation of Jayme to
---------------------------------
consummate the Closing is subject to the satisfaction of the following
conditions:
(a)(i) PT shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of PT contained in this Agreement
and in any certificate or other writing delivered by PT pursuant hereto shall be
true in all material respects at and as of the Closing Date, as if made at and
as of such date and (iii) Jayme shall have received a certificate
13
<PAGE>
signed by the Senior Vice President of PT to the foregoing effect.
(b) Jayme shall have received all documents it may reasonably request
relating to the existence of PT and the authority of PT for this Agreement, all
in form and substance reasonably satisfactory to Jayme.
(c) Jayme shall be fully satisfied, in its sole discretion which
shall be exercised in good faith, with the results of its and its
representatives' review of PT, provided that no such review shall affect any
--------
representation or warranty of PT given hereunder or in any agreement related to
the transactions contemplated hereby.
(d) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Closing, and no
proceeding challenging this Agreement or the transactions contemplated hereby
shall have been instituted by any person before any court, arbitrator or
governmental body, agency or official or be pending.
(e) PT shall have received all consents required of PT hereunder, in
form and substance reasonably satisfactory to Jayme, and no such consent shall
have been revoked.
(f) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall restrain, prohibit or otherwise interfere with
the effective operation or enjoyment by Jayme of all or any material portion of
the Payments.
(g) PT shall have executed the employment agreement with Cathy
Pokorny, attached hereto as Schedule E.
(h) Jayme shall have executed the Settlement Agreement attached
hereto as Schedule F.
(i) PT shall have executed the agreement with Beachwood Office
Building Limited Partnership attached hereto as Schedule G.
(j) Jayme shall have received releases from any holders of liens
affecting the Purchased Assets, specifically Huntington National Bank and
Beachwood Office Building Limited Partnership.
14
<PAGE>
15. INDEMNIFICATION.
---------------
15.1 Indemnification by Jayme. Jayme shall indemnify, defend and
------------------------
hold harmless PT, its directors, officers, shareholders, attorneys, agents and
representatives, and their respective successors and assigns, from and against
any and all losses, liabilities, obligations, judgments, settlements, damages,
costs and expenses, including without limitation, reasonable attorneys' fees,
court costs and other expenses of litigation (collectively "Losses") suffered by
any of such parties and arising out of, resulting from or due to (i) any breach
of any representation, warranty, covenant or agreement of Jayme contained in
this Agreement; or (ii) any liability or obligation of Jayme relating to the
Tangible Assets, the Leases, the operation or conduct of the Business or this
transaction prior to or after the Closing Date except those specifically assumed
by PT hereunder.
15.2 Indemnification by PT. PT shall indemnify, defend and hold
---------------------
harmless Jayme, its directors, officers, shareholders, attorneys, agents and
representatives, and their respective successors and assigns, from and against
any and all Losses suffered by any of such parties and arising out of or due to
(i) any breach of any representation, warranty, covenant or agreement of PT
contained in this Agreement; or (ii) any liability or obligation specifically
assumed by PT hereunder.
15.3 Survival. The Indemnities contained in this paragraph 15 shall
--------
survive the termination of the other provisions of this Agreement for a period
of five (5) years, shall constitute separate and independent obligations of the
parties hereto from their other obligations hereunder and shall give rise to
separate and independent causes of action of each party hereto against the other
party hereto.
16. RIGHT OF SET-OFF.
----------------
Jayme agrees that PT shall have the right to set-off against any
amounts owed Jayme hereunder, any costs, damages and expenses (including
reasonable counsel fees) incurred by PT as a result of the breach by Jayme of
any covenant, warranty or representation hereunder.
17. NOTICES.
-------
Any notice hereunder shall be in writing and shall be sufficient if
personally delivered or sent by certified or registered mail, return receipt
requested, to the address set forth above for such party or to such other
address as the parties may designate to the others in writing from time
15
<PAGE>
to time for this purpose in accordance with this notice provision. Such notice
shall be deemed given when so delivered or five days after it is so mailed.
18. MISCELLANEOUS.
-------------
18.1 No Partnership. Nothing contained herein shall be deemed to
--------------
create a partnership, joint venture or any other working relationship between PT
and Jayme.
18.2 Entire Agreement. This Agreement contains the entire
----------------
agreement between the parties hereto with respect to the transactions
contemplated herein; supersedes all prior written agreements and negotiations
and oral understandings, if any; and may not be amended, supplemented or waived
except by an instrument in writing signed by all of the parties hereto.
18.3 Bulk Sales Laws. PT hereby waives compliance by Jayme with
---------------
the provisions of the "bulk sales", "bulk transfer" or similar laws of any
state. Jayme agrees to indemnify and hold PT harmless from and against any and
all loss, cost or expense (including reasonable counsel fees) incurred by PT or
its affiliates, as a result of any failure to comply with any such "bulk sales",
"bulk transfer" or similar laws.
18.4 Benefit of Agreement. This Agreement shall be binding upon
--------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that no assignment of this Agreement shall serve
to extinguish or in any way limit the primary liability of the parties hereto.
18.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York applicable to
contracts made and performed entirely therein.
18.6 Further Assurances and Cooperation; Public Announcement.
-------------------------------------------------------
The parties hereto agree that, they will execute and deliver such
further documents and instruments and take all such further action as may be
reasonably necessary or proper, to fully effectuate this Agreement and the
intent hereof. Until the Closing Date, neither Jayme or PT will make any public
announcement or publicity release pertaining to this Agreement or the
transactions contemplated herein, without the consent of the other party.
16
<PAGE>
18.7 Counterparts. This Agreement may be executed in any number
------------
of counterparts, which taken together shall constitute one and the same
instrument.
18.8 Paragraph Headings. The paragraph headings of this
------------------
Agreement are inserted for convenience of reference only and shall not be deemed
to alter or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have each executed or
caused this Agreement to be executed by its officers thereunto duly authorized,
as of the day and year first above written.
POPPE TYSON, INC.
By:________________________
Title:_____________________
THE JAYME ORGANIZATION, INC.
___________________________
Cathy Pokorny, Chairman
___________________________
Allen B. Straka, Secretary
17
<PAGE>
SCHEDULES OMITTED IN ACCORDANCE
WITH ITEM 601(b)(2) OF
REGULATION S-K
-------------------------------
SCHEDULE "A"
------------
MAJOR TANGIBLE ASSETS
---------------------
<PAGE>
SCHEDULE "B"
------------
LEASES
------
<PAGE>
SCHEDULE "C"
------------
ADVERTISING ACCOUNTS TO BE TRANSFERRED
--------------------------------------
NEW ACCOUNTS
------------
<PAGE>
SCHEDULE "D"
------------
JAYME TRANSFERRED EMPLOYEES
---------------------------
<PAGE>
SCHEDULE "E"
------------
CATHY POKORNY EMPLOYMENT AGREEMENT
----------------------------------
<PAGE>
SCHEDULE "F"
------------
SETTLEMENT AGREEMENT
--------------------
<PAGE>
SCHEDULE "G"
BEACHWOOD OFFICE BUILDING LIMITED
---------------------------------
PARTNERSHIP AGREEMENT
---------------------
The Company will furnish supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request, provided however, that the
Company may request confidential treatment pursuant to Rule 406 of the
Securities Act for any schedule or exhibit so furnished.
<PAGE>
EXHIBIT 10.16
ACQUISITION AGREEMENT
---------------------
AGREEMENT (the "Agreement"), dated January 1, 1996, between Poppe
Tyson, Inc., a Delaware corporation, with offices at 40 West 23rd Street, New
York, New York 10010 ("PT") and Werner Chepelsky & Partners, Inc. a Pennsylvania
corporation, with offices (the "Premises") at No. 7 Engine Co., 2216
Pennsylvania Avenue, Pittsburgh, Pennsylvania 15222 ("WCP").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, WCP is a full-service advertising agency engaged in the
business of providing advertising services (the "Business") to its clients; and
WHEREAS, WCP desires to arrange for the orderly transfer of
advertising accounts to PT, upon the terms and conditions hereinafter set forth,
to which PT is agreeable; and
WHEREAS, PT wishes to purchase from WCP and WCP wishes to sell to PT,
certain of the assets, properties and equipment owned or used by WCP upon the
terms and conditions hereinafter set forth and desires and intends to
discontinue permanently its operations as an advertising agency;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises and covenants set forth herein, the parties hereto hereby agree as
follows:
1. SALE OF ASSETS.
--------------
1.1 Assets to be Transferred. Subject to the terms and
conditions set forth herein, and in reliance upon the representations and
warranties of WCP and PT herein set forth, at the Closing (as hereinafter
defined), WCP shall sell, convey, transfer, assign and deliver to PT, and PT
shall purchase from WCP, all of WCP's right, title and interest in and to the
following (the "Purchased Assets"):
(a) All tangible assets owned by WCP or used in the
Business, including without limitation, all furniture, fixtures, equipment and
office supplies (the "Tangible Assets") listed on Schedule A, attached hereto.
(b) The leases of all business machines and equipment
(which hereinafter shall be referred to collectively as the "Leases"), subject
to receiving the consent of the lessors prior to the Closing Date (as
hereinafter defined). A listing of the Leases is attached
<PAGE>
hereto as Schedule B and WCP has heretofore delivered a true and correct copy of
all such Leases to PT.
(c) All raw materials, work-in-process, finished goods,
supplies and other inventories.
(d) All trademarks, service marks, tradenames,
inventions, trade secrets, copyrights or other similar types of proprietary
intellectual property rights, in each case which is owned by WCP, including
computer software programs which relate to the servicing of the advertising
accounts listed on Schedule C, attached hereto (the "Advertising Accounts"), the
"Werner Chepelsky & Partners" name, any derivatives thereof and any goodwill
associated therewith (the "Intellectual Property Rights") and any financial or
accounting software programs designed for WCP relating to the operation of the
Business.
(e) All books, records, film, files and paper, whether in
hard copy or computer format, including, without limitation, sales and
promotional literature, manuals and data, sales and purchase correspondence,
lists of present and former suppliers, lists of any present and former clients,
personnel and employment records.
(f) All transferable licenses, permits or other
governmental authorizations, if any.
1.2 It is understood and agreed that Purchased Assets shall not
include accounts and notes receivable; cash and cash equivalents (including the
cash value of any life insurance policies), deferred incomes taxes and general
intangibles; and all other machinery, equipment, furniture and fixtures which
are not identified on Schedule A attached hereto.
1.3 Transfer of Advertising Accounts. WCP agrees to use its
--------------------------------
best efforts to arrange for the appointment of PT, effective as of the Closing
Date, as the advertising agency for all of the Advertising Accounts.
1.4 Sales Tax. WCP shall be solely responsible and liable for
---------
any sales tax imposed by the Commonwealth of Pennsylvania in connection with the
sale to PT of the Tangible Assets.
2. ASSUMPTION OF CERTAIN SPECIFIED LIABILITIES.
-------------------------------------------
From and after the Closing Date, PT shall assume, perform,
discharge and pay when due the following obligations and liabilities (the
"Assumed Liabilities"):
2
<PAGE>
2.1 All obligations and liabilities of WCP under the Leases
which arise after the Closing Date;
2.2 All obligations of WCP under any agreements with the
Advertising Accounts (provided such accounts are transferred to PT prior to the
Closing Date), which obligations arise after the Closing Date;
2.3 All obligations of WCP relating to work-in-process being
transferred hereunder, it being understood and agreed that all work-in-process
shall be handled as set forth in paragraph 5 below; and
3. EXCLUDED FROM TRANSACTION.
-------------------------
Other than as provided in paragraph 2 above, it is specifically
understood and agreed that in connection with this transaction, no asset of WCP
is being transferred to PT other than those specifically set forth in paragraph
1 hereof, and it is further agreed that in connection with such transfer, PT is
not assuming and shall not be bound to pay, perform or discharge any of the
liabilities or obligations of WCP arising either prior to or after the Closing
Date, including, but not limited to, obligations under any of WCP's pension or
other employee benefit plans (and WCP shall not make any representations to its
employees to the contrary), obligations to any media or trade creditors in
existence on the Closing Date, contractual obligations to clients, employees or
third parties, or obligations with respect to the Premises or to the lessor of
the Premises.
4. NAME OF AGENCY.
--------------
Subject to the terms and conditions set forth herein, for a
period of six (6) months commencing on the Closing Date, the name of the
advertising agency shall be "PoppeWCP." Thereafter, the name of the agency shall
be "Poppe Tyson, Inc."
5. WORK-IN-PROCESS AND APPLICATION OF COMMISSION INCOME.
----------------------------------------------------
5.1 Work-in-Process.
---------------
(a) With respect to work-in-process as of the Closing
Date relating to the Advertising Accounts, it is agreed that PT will complete
all of such work-in-process at its sole cost and expense, and that all billing
for such work-in-process upon completion thereof shall be undertaken by PT,
which billing shall indicate that payment therefor is to be made to PT.
3
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(b) On the Closing Date, WCP shall deliver to PT an
invoice ("WCP Invoice") for each current production work-in-process job that has
not been completed by WCP by the Closing Date for the Advertising Accounts,
which WCP Invoice shall include all out-of-pocket expenses paid or incurred,
billable employee time paid or incurred, and all commissions attributable
thereto. The WCP Invoice will include only amounts that remain unbilled to the
Advertising Accounts as of the Closing Date. PT shall pay to WCP the total
amount of each of the WCP Invoices promptly after receipt by PT of payment from
the Advertising Accounts, but in no event shall PT be under any obligation to
pay WCP for the production work-in-process reflected in the WCP Invoice unless
and until payment for that amount has been received by PT from the Advertising
Accounts. It is understood and agreed that in the event that either of the
parties hereto receives payment from the Advertising Accounts which payment
properly belongs to the other party as hereinabove provided, such payment shall
promptly be delivered and turned over to the other party.
5.2 Application of Commission Income. It is agreed that all
--------------------------------
commission income received from the Advertising Accounts (i) with respect to
print advertisements, the media closing dates of which are on or after the
Closing Date, and (ii) with respect to commercials, the air dates of which are
on or after the Closing Date, shall be billable by and payable to PT.
All commission income received from the Advertising Accounts
(i) with respect to print advertisements, the media closing dates of which are
prior to the Closing Date, and (ii) with respect to commercials, the air dates
of which are prior to the Closing Date, shall be billable by and payable to WCP.
6. CONSIDERATION TO WCP.
--------------------
In consideration of the transfer by WCP to PT of (i) the Tangible
Assets, Leases and other assets as provided in paragraph 1.1 hereof, (ii) the
Advertising Accounts as provided in paragraph 1.3 hereof and for the agreement
of WCP to discontinue doing business as an advertising agency as provided in
paragraph 7 hereof and the covenants, warranties and representations contained
herein, PT agrees to:
(a) Pay to WCP a percentage, as provided below, of the
Gross Income (as hereinafter defined) to be earned by PT from the Advertising
Accounts during the first annual period (the "First Annual Period") immediately
following the Closing Date, payable within sixty (60) days of the expiration of
said First Annual Period.
4
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(i) for all amounts up to One Million Dollars
($1,000,000): five percent (5%);
(ii) for all amounts from One Million Dollars ($1,000,000)
up to Two Million Dollars ($2,000,000): nine percent (9%);
(iii) for all amounts over Two Million Dollars
($2,000,000): seven percent (7%).
"Gross Income", as used in this Agreement, is hereby defined as (a)
commissions earned from media, (b) fees earned from accounts, (c) agency
commissions on print and broadcast production, and (d) time charges for
collateral materials and other services. The determination of Gross Income for
each applicable annual period shall be made by the internal financial department
of PT in accordance with generally accepted accounting principles consistently
applied by PT.
(b) Pay to WCP on the Closing Date, the value of the equipment,
furniture and fixtures listed on Schedule A, as reasonably determined by PT. It
is understood and agreed that PT shall determine in its sole discretion which of
the equipment, furniture and fixtures it will acquire, and the value thereof,
and PT shall have no obligation with respect to any equipment, furniture or
assets which it determines is not needed by PT to service the Advertising
Accounts.
(c) Pay to WCP on the Closing Date, an amount equal to the
aggregate of all security deposits paid by WCP under the Leases, as listed on
Schedule B.
(d) It is understood and agreed that PT shall have the right to
terminate its relationship with the Advertising Accounts at any time based upon
any legitimate business reason.
7. DISCONTINUANCE OF ADVERTISING BUSINESS OF WCP.
---------------------------------------------
7.1 After the Closing, WCP shall promptly wind up its
advertising business, including the collection of accounts receivable and the
payment of accounts payable.
7.2 WCP hereby agrees that, effective as of the Closing Date,
and for a period of ten (10) years thereafter, it will not engage in any manner
in the conduct of a business competitive to the business of PT within a range of
one hundred miles from any city in which PT currently operates. If any court
determines that the agreement of WCP herein contained is unenforceable because
5
<PAGE>
of the duration or geographic scope of such provision, the court shall have the
power to reduce the duration and geographic scope of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
8. CLOSING.
-------
Subject to the satisfaction or waiver of the conditions set forth
in this Agreement, the closing of the transaction contemplated hereunder (the
"Closing"), shall take place at a location to be mutually agreed upon by the
parties hereto.
9. WCP EMPLOYEES.
-------------
9.1 PT agrees to employ, commencing on the Closing Date, all of
the employees of WCP who are listed on Schedule D annexed hereto (the "WCP
Transferred Employees"), provided such employees are employed by WCP on the
Closing Date, at their salaries, which are indicated on Schedule D, and are
willing to execute PT's standard non-compete and confidentiality agreements, and
provided further that the collective salaries for all such employees do not
exceed fifty percent (50%) of the Gross Income to be earned by PT from the
Advertising Accounts during the First Annual Period. It is specifically
acknowledged that PT shall not be responsible for, and WCP shall remain solely
liable for, any obligations to all of its employees who are not WCP Transferred
Employees. It is further specifically acknowledged that PT, by employing the WCP
Transferred Employees, shall be under no obligation to retain any of such WCP
Transferred Employees in its employ for any specific period of time, except the
Executives (as defined below), and that the employment of all WCP Transferred
Employees, with the exception of such Executives, shall constitute no
relationship with PT other than as an employment at will. It is expressly
understood and agreed that PT will not assume any employment contract currently
in place between WCP and any of the WCP Transferred Employees.
9.2 PT agrees to employ, commencing on the Closing Date, Ray
Werner and John Chepelsky (the "Executives") pursuant to the employment
agreements attached hereto as Schedule E (the "Executive Agreements").
9.3 All WCP Transferred Employees will be eligible for life
insurance, medical and dental insurance, participation in PT's Profit-Sharing
and 401(k) Plan, Stock Bonus Plan, Bonus Compensation Plan, Severance
Compensation program and other fringe benefits in accordance with PT's standard
policy with regard to such benefits as in effect from time to time, and that
each WCP Transferred Employee
6
<PAGE>
will be given full credit for his or her period of full time employment with WCP
for all purposes except severance and retirement payment, including eligibility,
participation, and benefits, under all of PT's employee benefit plans and
programs as if that employee had been employed by PT for that same period of
time, unless such eligibility, participation, benefits, or other application of
this principle is prohibited by law. For the purpose of severance or retirement
payment determination, each WCP Transferred Employee shall be considered
employed by PT as of the Closing Date, and the amount of any applicable
severance or retirement payment shall be in accordance with PT's Employment
Manual.
10. WARRANTIES AND REPRESENTATIONS OF WCP.
-------------------------------------
WCP warrants and represents to PT that:
10.1 WCP is a corporation duly organized, validly existing and
in good standing under the laws of Pennsylvania and has all requisite power and
authority to execute, deliver and perform the provisions of the Agreement and
consummate the transactions contemplated hereby and to conduct the Business.
10.2 WCP has not billed, and prior to the Closing Date will not
bill, any client, and has not received nor will it receive prior to the Closing
Date, any payments from any client with respect to any services to be rendered
after the Closing Date. In the event of any breach of the warranties and
representations contained in this paragraph 10.2, WCP agrees to pay over to PT
the amount of any such pre-billing, or, at the option of PT, such amount may be
deducted from payments due from PT to WCP pursuant to this Agreement.
10.3 Schedule A attached hereto contains a list of the major
Tangible Assets of WCP as of the date hereof which PT has agreed to acquire.
The Tangible Assets have no material defects, are in good operating condition
and repair (ordinary wear and tear excepted) and have been reasonably
maintained, and are suitable for their present uses. WCP has not mortgaged,
pledged or subjected any of the Tangible Assets to any lien or other
encumbrance. WCP has good and marketable title to each item of the Tangible
Assets and at Closing, the delivery to PT of the Agreement will vest good and
marketable title to the Tangible Assets in PT, free and clear of all liens and
other encumbrances.
10.4 WCP has heretofore delivered true and correct copies of
the Leases to PT. The Leases are in full force and effect and WCP has performed
all of its obligations and is not in default under the Leases and to
7
<PAGE>
the best of its knowledge, no other parties are in default thereunder. All
monies required to be paid under the Leases shall on the Closing Date be paid
through the Closing Date.
10.5 The Advertising Accounts have not advised WCP, either
formally or informally, that they are terminating or contemplating the
termination of their relationship with WCP, either in whole or in part nor have
they advised WCP that they intend to reduce their billing with WCP.
10.6 To the best of WCP's knowledge, neither the execution and
delivery of the Agreement nor the consummation of the transactions contemplated
hereby will (a) violate any provision of the Certificate of Incorporation or
Bylaws of WCP; (b) violate, or constitute a default under, or permit the
termination or acceleration of the maturity of, any indebtedness of WCP; (c)
violate, conflict with or constitute a default under any material contract, the
Leases, or any material agreement or other instrument to which WCP is a party or
by which it or its property is bound; or (d) require the consent of any party to
any material contract, the Leases, agreement or other instrument to which WCP is
a party or by which it or its property is bound (except such consents as shall
have been obtained prior to the Closing Date).
10.7 Within the past five (5) years (or prior thereto if the
same is still pending or subject to appeal or reinstatement), WCP has not been
sued or charged in writing with or been a defendant in any claim, suit, action
or proceeding that involves a claim of infringement of any Intellectual Property
Rights, and WCP has no knowledge of any other claim of infringement by WCP and
no knowledge of continuing infringement by any other person of any Intellectual
Property Rights.
10.8 WCP is current in the payment of all taxes of any kind with
respect to the Business, including without limitation, federal, state, local
income, sales and use taxes, as well as any franchise, license, withholding,
property or other tax or like assessment or charge, imposed by any governmental
authority and all interest and penalties due thereon for any tax period ending
on or before the Closing Date.
10.9 All representations by WCP contained herein or in any
Schedule or document delivered pursuant hereto or in connection with the
transaction contemplated hereby shall be true and accurate in all material
respects as of the date when made and shall be deemed to be made again at the
Closing Date and shall then be true and
8
<PAGE>
accurate in all material respects, except to any matters as may be consented to
in writing by PT.
10.10 There are no circumstances, actions, suits, proceedings,
orders or investigations pending or, to WCP's knowledge, threatened against or
affecting the Business, its prospects or condition, financial or otherwise, of
WCP which have not been set forth herein or is not already known by PT, which
may have a material adverse effect on the value or condition of the Business.
10.11 To the best of WCP's knowledge, neither the execution
and delivery of the Agreement nor the consummation of the transactions
contemplated hereby and thereby will at Closing violate any statutes or law or
any judgment, decree, order, regulation or rule of any court or governmental
authority to which WCP or its property is subject.
11. WARRANTIES AND REPRESENTATIONS OF PT.
------------------------------------
PT warrants and represents to WCP that:
11.1 PT has all requisite corporate power and authority to
execute, deliver and perform the Agreement and consummate the transactions
contemplated hereby.
11.2 To the best of PT's knowledge, neither the execution and
delivery of the Agreement nor the consummation of the transactions contemplated
hereby will at Closing (a) violate any provision of the Certificate of
Incorporation or Bylaws of PT; (b) violate, or constitute a default under, or
permit the termination or acceleration of the maturity of, any indebtedness of
PT; (c) violate, conflict with, or constitute a default under any material
contract, lease, agreement or other instrument to which PT is a party or by
which it or its property is bound; (d) require the consent of any party to any
agreement to which PT is a party or by which it or its property is bound; or (e)
violate any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental authority to which PT or its property is subject.
12. BUSINESS EXAMINATIONS.
---------------------
From the date of this Agreement until the Closing Date, PT
shall be entitled, through its employees and representatives, including, but not
limited to, its attorneys and accountants, to make such investigations and
examinations of the Premises, properties, books and records of WCP relating to
the Business and WCP shall furnish to PT, its counsel and other representatives
such information relating to the Business as such persons may reasonably
9
<PAGE>
request. It is understood and agreed that no investigation pursuant to this
paragraph (or any investigation prior to the date hereof) shall affect any
representation or warranty given by WCP hereunder.
13. CONDITIONS TO CLOSING.
---------------------
13.1 Conditions to Obligation of PT. The obligation of PT
------------------------------
to consummate the Closing is subject to the satisfaction of the following
conditions:
(a) (i) WCP shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of WCP contained herein and in any
certificate delivered by WCP pursuant hereto, disregarding all qualifications
and exceptions contained therein relating to materiality or a material adverse
effect on the Business, shall be true at and as of the Closing Date, as if made
at and as of such date with only such exceptions as would not in the aggregate
reasonably be expected to have a material adverse effect on the Business, and
(iii) PT shall have received a certificate signed by the President of WCP to the
effect set forth in clauses (i) and (ii) of this paragraph 13.1(a).
(b) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Closing or the
effective operation by PT of the Purchased Assets after the Closing Date, and no
proceeding challenging the Agreement or the transactions contemplated hereby or
seeking to prohibit, alter, prevent or delay the Closing shall have been
instituted by any person before any court, arbitrator or governmental body,
agency or official or be pending.
(c) WCP shall have received all consents required of WCP hereunder,
including, without limitation, the consents required of the lessors under the
Leases, in form and substance reasonably satisfactory to PT, and no such consent
shall have been revoked.
(d) PT shall have received all documents it may reasonably request
relating to the existence of WCP and the authority of WCP for the Agreement, all
in form and substance reasonably satisfactory to PT.
(e) PT shall be fully satisfied, in its sole discretion which shall
be exercised in good faith, with the results of its and its representatives'
review of WCP and the Business (including, without limitation, any review of the
assets, financial condition, and prospects of the
10
<PAGE>
Business), provided that no such review shall affect any representation or
--------
warranty of WCP given hereunder or in any agreement related to the transactions
contemplated hereby.
(f) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall restrain, prohibit or otherwise interfere with
the effective operation or enjoyment by PT of all or any material portion of the
Purchased Assets.
(g) WCP shall have delivered to PT documents satisfactory to PT to
evidence the release of any lien on any portion of the Purchased Assets.
(h) The Executives shall each have executed an employment
agreement with PT.
14. Conditions to Obligation of WCP. The obligation of WCP to
-------------------------------
consummate the Closing is subject to the satisfaction of the following
conditions:
(a) (i) PT shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the Closing
Date, (ii) the representations and warranties of PT contained herein and in any
certificate or other writing delivered by PT pursuant hereto shall be true in
all material respects at and as of the Closing Date, as if made at and as of
such date and (iii) WCP shall have received a certificate signed by the Chief
Financial Officer of PT to the foregoing effect.
(b) WCP shall have received all documents it may reasonably request
relating to the existence of PT and the authority of PT for the Agreement, all
in form and substance reasonably satisfactory to WCP.
(c) WCP shall be fully satisfied, in its sole discretion which shall
be exercised in good faith, with the results of its and its representatives'
review of PT, provided that no such review shall affect any representation or
--------
warranty of PT given hereunder or in any agreement related to the transactions
contemplated hereby.
(d) No court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining or prohibiting the consummation of the Closing, and no
proceeding challenging the Agreement or the transactions contemplated hereby
shall have been instituted by any person before any court, arbitrator or
governmental body, agency or official or be pending.
11
<PAGE>
(e) PT shall have received all consents required of PT hereunder, in
form and substance reasonably satisfactory to WCP, and no such consent shall
have been revoked.
(f) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall restrain, prohibit or otherwise interfere with
the effective operation or enjoyment by WCP of all or any material portion of
the Payments.
15. INDEMNIFICATION.
---------------
15.1 Indemnification by WCP. WCP shall indemnify, defend
----------------------
and hold harmless PT, its directors, officers, shareholders, attorneys, agents
and representatives, and their respective successors and assigns, from and
against any and all losses, liabilities, obligations, judgments, settlements,
damages, costs and expenses, including without limitation, reasonable attorneys'
fees, court costs and other expenses of litigation (collectively "Losses")
suffered by any of such parties and arising out of, resulting from or due to (i)
any breach of any representation, warranty, covenant or agreement of WCP
contained herein; or (ii) any liability or obligation of WCP relating to the
Tangible Assets, the Leases, the operation or conduct of the Business or this
transaction prior to or after the Closing Date except those specifically assumed
by PT hereunder.
15.2 Indemnification by PT. PT shall indemnify, defend and
---------------------
hold harmless WCP, its directors, officers, shareholders, attorneys, agents and
representatives, and their respective successors and assigns, from and against
any and all Losses suffered by any of such parties and arising out of or due to
(i) any breach of any representation, warranty, covenant or agreement of PT
contained herein; or (ii) any liability or obligation specifically assumed by PT
hereunder.
15.3 Survival. The Indemnities contained in this paragraph
--------
15 shall survive the termination of the other provisions hereof, shall
constitute separate and independent obligations of the parties hereto from their
other obligations hereunder and shall give rise to separate and independent
causes of action of each party hereto against the other party hereto.
16. RIGHT OF SET-OFF.
----------------
WCP agrees that PT shall have the right to set-off against any amounts
owed WCP hereunder, any costs, damages and expenses (including reasonable
counsel fees)
12
<PAGE>
incurred by PT as a result of the breach by WCP of any covenant, warranty or
representation hereunder.
17. NOTICES.
-------
Any notice hereunder shall be in writing and shall be sufficient if
personally delivered or sent by certified or registered mail, return receipt
requested, to the address set forth above for such party or to such other
address as the parties may designate to the others in writing from time to time
for this purpose in accordance with this notice provision. Such notice shall be
deemed given when so delivered or five days after it is so mailed.
18. MISCELLANEOUS.
-------------
18.1 Entire Agreement. The Agreement contains the entire
----------------
agreement between the parties hereto with respect to the transactions
contemplated herein; supersedes all prior written agreements and negotiations
and oral understandings, if any; and may not be amended, supplemented or waived
except by an instrument in writing signed by all of the parties hereto.
18.2 Bulk Sales Laws. PT hereby waives compliance by WCP
---------------
with the provisions of the "bulk sales", "bulk transfer" or similar laws of any
state. WCP agrees to indemnify and hold PT harmless from and against any and
all loss, cost or expense (including reasonable counsel fees) incurred by PT or
its affiliates, as a result of any failure to comply with any such "bulk sales",
"bulk transfer" or similar laws.
18.3 Benefit of Agreement. The Agreement shall be binding
--------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that no assignment of the Agreement
shall serve to extinguish or in any way limit the primary liability of the
parties hereto.
18.4 Governing Law. The Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York applicable to
contracts made and performed entirely therein.
18.5 Further Assurances and Cooperation; Public Announcement.
-------------------------------------------------------
The parties hereto agree that, they will execute and deliver such
further documents and instruments and take all such further action as may be
reasonably necessary or proper, to fully effectuate the Agreement and the intent
hereof. Until the Closing Date, neither WCP or PT will make any public
announcement or publicity release pertaining to the Agreement or the
13
<PAGE>
transactions contemplated herein, without the consent of the other party.
18.6 Counterparts. The Agreement may be executed in any
------------
number of counterparts, which taken together shall constitute one and the same
instrument.
18.7 Paragraph Headings. The paragraph headings of the
------------------
Agreement are inserted for convenience of reference only and shall not be deemed
to alter or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have each executed or caused
this Agreement to be executed by its officers thereunto duly authorized, as of
the day and year first above written.
POPPE TYSON, INC.
BY:___________________
ITS:__________________
WERNER CHEPELSKY & PARTNERS
BY:____________________
ITS:___________________
14
<PAGE>
SCHEDULES OMITTED IN ACCORDANCE
WITH ITEM 601(b)(2) OF
REGULATION S-K
-------------------------------
SCHEDULE "A"
------------
MAJOR TANGIBLE ASSETS
---------------------
<PAGE>
SCHEDULE "B"
------------
LEASES
------
<PAGE>
SCHEDULE "C"
------------
ADVERTISING ACCOUNTS
--------------------
<PAGE>
SCHEDULE "D"
------------
WCP TRANSFERRED EMPLOYEES
-------------------------
<PAGE>
SCHEDULE "E"
------------
EMPLOYMENT AGREEMENTS
---------------------
The Company will furnish supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request; provided however, that the
Company may request confidential treatment pursuant to Rule 406 of the
Securities Act for any schedule or exhibit so furnished.
<PAGE>
EXHIBIT 10.17
THE 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 2nd day of March, 1996, by and between
POPPE TYSON, INC., a Delaware corporation with principal offices at 40 West 23rd
Street, New York, New York (the "Company"), and FERGUS O'DALY, JR., an employee
of the Company, residing at 77 Highland Avenue, Northport, New York 11768 (the
"Optionee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has determined to grant stock options to attract
and retain the best available talent and to encourage the highest level of
performance, all in accordance with the 1996 Stock Option Plan of Poppe Tyson,
Inc. (the "Plan");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions of the Plan and
---------------
this Agreement, the Company hereby grants to the Optionee the right (the
"Option") to purchase all or any part of an aggregate of 12.8342245989 shares of
common stock of the Company, par value $0.10 per share ("Common Stock").
2. Vesting Schedule. This Option is exercisable as to all shares of
----------------
Common Stock subject to the Option as of the date hereof.
3. Exercise Price. The price of each share of Common Stock purchased
--------------
pursuant to this Option shall be $20,453.13.
4. Manner of Exercise. The Optionee may exercise the Option, in whole
------------------
or in part, with respect to any whole number of shares of Common Stock subject
to the Option. Prior to an IPO (as defined in paragraph 10(c)(i) hereof) the
Optionee may exercise the Option with respect to less than one share only if the
Option is then exercised as to all of the shares then purchasable hereunder. On
and after an IPO of the Common Stock, an Option may not be exercised with
respect to a fractional share; if the Option is exercised with respect to all of
the whole shares as to which the Option is then exercisable, and the Option
remains exercisable with respect to less than one share of Common
<PAGE>
Stock, the Company shall pay the Optionee the excess of (i) the fair market
value of such remaining fractional share, over (ii) the Option exercise price
for such remaining fractional share, and the Option shall terminate with respect
to such fractional share. The Optionee shall exercise the Option by giving the
Company written notice, in a form prescribed by the Company. Such notice shall
specify the number of shares of Common Stock to be purchased and shall be
accompanied by payment, in cash or certified check or by official bank check, of
an amount equal to the option price of such shares multiplied by the number of
shares as to which the Option is being exercised; provided, however, that the
purchase price may be paid, in whole or in part, by surrender or delivery to the
Company of Common Stock having a fair market value on the date of exercise equal
to the portion of the purchase price being so paid or other property acceptable
to the Stock Option Committee which administers the Plan.
5. Delivery of Stock Certificate. As soon as practicable after receipt
-----------------------------
of the notice and payment referred to in paragraph 4 above, the Company shall
deliver to the Optionee a certificate or certificates for such shares; provided,
however, that the time of such delivery may be postponed by the Company for such
period of time as the Company may require for compliance with any law, rule or
regulation applicable to the issuance or transfer of shares. The certificate or
certificates representing the shares as to which the Option has been exercised
shall bear an appropriate legend setting forth the restrictions applicable to
such shares, if any.
6. Withholding; Assurances. Prior to or concurrently with delivery by
-----------------------
the Company to the Optionee of a certificate(s) representing such shares, the
Optionee shall (i) upon notification of the amount due, pay promptly, in cash,
any amount necessary to satisfy applicable tax requirements, and (ii) if such
shares are not then registered under the Securities Act of 1933 (the "Securities
Act"), give assurance satisfactory to the Company that such shares are being
purchased for investment (unless such assurance is not necessary, as reasonably
determined by the Company) and not with a view to the distribution thereof other
than in compliance with the registration provisions of the Securities Act of
1933 or any exemption therefrom, and the Optionee shall give such other
assurance and take such other action as the Company shall reasonably require to
secure compliance with any law, rule or regulation applicable to the issuance of
shares.
7. Termination of Option. The Option and all rights of the Optionee to
---------------------
purchase shares of Common Stock
2
<PAGE>
hereunder shall terminate on the tenth anniversary of the date hereof (the
"Expiration Date"); provided, however, that except as provided in paragraph 9,
the Option may not be exercised unless the Optionee has remained an employee of
the Company continuously from the date hereof.
8. Definition of Employment. As used herein, employment with the
------------------------
Company shall include employment with the Company and/or a "subsidiary
corporation" of Company, within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code")(a "Subsidiary"). A leave of
absence or an interruption in service (including an interruption during military
service) authorized by the Company, or the Subsidiary employing the Optionee, as
the case may be, shall not be deemed an interruption of employment.
9. Termination of Employment.
-------------------------
a. Termination Other Than Death or Permanent and Total Disability.
--------------------------------------------------------------
In the event that the Optionee ceases to be an employee of the Company other
than by reason of death or "permanent and total disability" (in the event that
Optionee enters into an employment agreement with the Company on or after this
date, as such term or words to like effect are defined in the first employment
agreement which the Optionee enters into with the Company on or after this date,
whether or not such agreement is then still in effect, or, if none, as otherwise
defined in the Plan)("Disability"), the Option may be exercised (to the extent
that the Optionee is otherwise entitled to exercise such Option at the
termination of such employment) at any time within six months after such
termination, but not later than the Expiration Date; provided, however, that if
Optionee's employment with the Company shall be terminated either (A) by the
Company (or the Subsidiary employing the Optionee) for cause (in the event that
Optionee enters into an employment agreement with the Company on or after this
date, as such term is defined in the first employment agreement which the
Optionee enters into with the Company on or after this date, whether or not such
agreement is then still in effect, or, if none, as otherwise defined in the
Plan)("Cause") or (B) by the Optionee and without the consent of the Company (or
the Subsidiary employing the Optionee)(which consent shall be presumed in the
case of retirement on or after attainment of age 65) (other than a termination
by the Optionee which, pursuant to the following sentence, is deemed to be a
termination of employment by the Company without Cause) the Option shall, to the
extent not theretofore exercised, forthwith terminate. Solely for purposes of
this paragraph 9(a) and paragraph 10(b), in the event that (A) the Company is in
material breach of the Current or Renewed Employment Agreement, (B) the Optionee
3
<PAGE>
gives written notice of such breach to the Company, (C) the Company does not
remedy such breach within 30 days of such notice, and (D) the Optionee
terminates his employment within 45 days of such notice, such termination of
employment shall be deemed to be a termination of employment by the Company
without Cause.
b. Death or Permanent and Total Disability. In the event that the
---------------------------------------
Optionee shall die or become Disabled while the Optionee is employed by the
Company, the Option may be exercised as set forth herein by the Optionee or by
the guardian or legal representative of the Optionee, at any time within one
year of the death or termination of employment for Disability of the Optionee,
as applicable, but not later than the Expiration Date.
10. Restrictions Applicable to Option Stock.
---------------------------------------
a. Transfer Restrictions. Unless and until the earlier of (i) the
---------------------
occurrence of a Major Event (as defined in paragraph 10(c)) or (ii) March 1,
1999, none of the shares of Common Stock which are sold to the Optionee (or to
the guardian or legal representative of the Optionee) upon exercise of the
Option ("Option Stock") may be sold, assigned, transferred, pledged,
hypothecated, or in any other way disposed of or encumbered (collectively,
"Transfer"), voluntarily or involuntarily, except as specifically provided
herein. No Transfer of Option Stock shall be valid for any purpose if made in
violation of this Agreement.
During the period commencing with the expiration of the lock up
period required by the managing underwriters following an IPO (as defined in
paragraph (c) of this paragraph 10) and ending with three (3) years from the
closing of an initial public offering, the Optionee may Transfer up to one-third
(1/3) of the total number of shares of Option Stock free of the restrictions set
forth in paragraph 10(a) hereof. In such event, unless with respect to such
Transfer an exemption to the registration requirements under the Securities Act
is available without a required holding period, at the request on one occasion
only of Optionee, David Carlick and Thomas Wharton, Jr. (collectively, the
"Executives", and any request for registration under this Agreement and any
stock option agreement of any other Executive constituting a registration
request for purposes of this Agreement and such other agreements) the Company
shall use its reasonable best efforts to register such one-third (1/3) of the
total shares of Option Stock together with one-third (1/3) of the Option Stock
of the other Executives on customary terms and conditions, at Company's expense,
except that Optionee shall be obligated to pay any underwriter discount and
commission
4
<PAGE>
with respect to the Option Stock. During such period, the balance of the Option
Stock may not be Transferred, voluntarily or involuntarily, except as
specifically provided herein. To the extent that a Transfer of Option Stock
during such period exceeds one-third (1/3) of the total number of shares of
Option Stock, it shall not be valid for any purpose, unless it is otherwise made
in compliance with this Agreement.
To the extent that Optionee has not Transferred his Option Stock
within three (3) years from the closing of an initial public offering, Optionee
thereafter shall have the right to Transfer such shares, subject to applicable
securities law requirements. Furthermore, on or after the death of the Optionee
or the termination of Optionee's employment for Disability, Optionee (or in the
case of death or if otherwise applicable, his personal representative) shall
have the right to Transfer the Option Stock, subject to applicable securities
law requirements.
Notwithstanding anything to the contrary set forth in this
Agreement, the restrictions on Transfer of Option Stock set forth herein shall
not apply to any Transfer (i) in favor of one or more trusts established for the
benefit of the Optionee and/or his or her spouse and/or lineal descendants;
provided, and only for so long as, the Optionee retains the sole voting control
over the Option Stock, in a trustee capacity or otherwise, or (ii) to any IRA,
Keogh or custodial account for the benefit of the Optionee or any of the
foregoing persons; provided that no Transfer shall be valid until recorded on
the books of the Company. Any transferees under the preceding sentence shall
hold the Option Stock subject to all the provisions of this Agreement in the
same manner as the transferor and shall execute and deliver to the Company such
instruments as the Company shall require to evidence the same. Furthermore, the
restrictions on Transfer of Option Stock set forth herein shall not apply to any
Transfer after the occurrence of either of the following two events:
1. Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E") ceases to be
the beneficial owner of at least 50% of the voting rights of all outstanding
shares of common stock of the Company or any successor entity thereof.
2. The shareholders of BJK&E as of this date, as a group (the
"Current BJK&E Shareholders") cease to be the beneficial owners of at least 50%
of the voting rights of all outstanding shares of common stock of BJK&E in a
transaction (or series of related transactions) in which the Current BJK&E
Shareholders receive, in
5
<PAGE>
consideration of their shares of BJK&E common stock cash, cash equivalents
and/or freely tradeable securities.
If the Company files a registration statement on Form S-8 or any
successor form thereto with respect to the issuance of Common Stock under the
Plan and the Option Stock is eligible to be covered by such registration
statement, then if the Option Stock Transfer restrictions set forth in this
paragraph 10(a) lapse, such registration statement (whether filed before or
after the lapse of the Transfer restrictions) shall cover the Option Stock.
b. Put and Call. Subject to the immediately following sentence, if
------------
either (i) no IPO occurs by March 1, 1999, then from and after March 1, 1999, or
(ii) prior to the occurrence of an IPO the Optionee ceases to be an employee of
the Company for any reason other than either (A) the Company terminating
Optionee's employment for Cause or (B) Optionee terminating his employment with
Company for any reason other than death, Disability or a termination which,
pursuant to paragraph 9(a), is deemed to be a termination of employment by the
Company without Cause, the Optionee shall have the right and option, upon 10
days written notice to the Company, to elect to sell to the Company all Option
Stock held by the Optionee at the Higher Buy Back Price specified in the balance
of this paragraph and the Company shall have the right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Higher Buy Back Price specified in the balance of this
paragraph. If at any time either (i) the Company terminates Optionee's
employment for Cause or (ii) the Optionee terminates his employment with Company
for any reason while Optionee is subject to an employment agreement with the
Company other than death, Disability or a termination which, pursuant to
paragraph 9(a), is deemed to be a termination of employment by the Company
without Cause, the Optionee shall have the right and option, upon 10 days
written notice to the Company, to elect to sell to the Company all Option Stock
held by the Optionee at the Lower Buy Back Price specified in the balance of
this paragraph and the Company shall have the right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Lower Buy Back Price specified in the balance of this
paragraph. For purposes of this paragraph, the term "Higher Buy Back Price"
means the greater of (i) the exercise price paid by the Optionee to acquire such
Option Stock, or (ii) the fair market value of the Option Stock on the date of
the receipt of any put or call notice pursuant to this paragraph, as reasonably
determined by the Company's board of directors (the "Board") in good faith, and
the term "Lower Buy Back Price" means the lesser of (i) the exercise price paid
by the Optionee to acquire such Option Stock, or (ii) the fair
6
<PAGE>
market value of the Option Stock on the date of the receipt of any put or call
notice pursuant to this paragraph, as reasonably determined by the Board in good
faith. The Higher or Lower Buy Back Price, as applicable, shall be paid by the
Company to the Optionee in a single lump sum cash payment at the time of its
purchase of the Option Stock.
c. Major Event. For all purposes of this Agreement other than for
-----------
purpose of paragraph 10(a), the term "Major Event" means either (i) the
consummation of an "IPO" (as hereinafter defined) or (ii) the occurrence of a
"Change in Control" (as hereinafter defined). Solely for purposes of paragraph
10(a), the term "Major Event" means either (i) the expiration of the lock up
period required by the managing underwriters following an IPO or (ii) the
occurrence of a Change in Control.
(1) An "IPO" is consummated the first time a registration
statement filed under the Securities Act of 1933 with the Securities and
Exchange Commission or any other Federal agency at the time administering the
Securities Act of 1933, or any similar Federal statute (other than a
registration statement filed on Form S-4 or any successor form thereto or a
registration statement filed on Form S-8 or any successor form thereto with
respect to the issuance of Common Stock, or securities convertible into or
exercisable or exchangeable for, Common Stock or rights to acquire Common Stock
or such securities, granted or to be granted to employees or directors of or
consultants to the Company or its subsidiaries) respecting an offering, whether
primary or secondary, of not less than 10% (or such lesser percentage as a lead
underwriter shall determine is the maximum amount to be offered and sold
pursuant to such registration statement) of the Common Stock then outstanding on
a fully-diluted basis is declared effective and the shares so registered are
offered and sold.
(2) A "Change in Control" shall mean the moment in time
immediately prior to the sale of all or substantially all the assets of the
Company or if any person or entity or a group (as defined under Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) becomes the beneficial owner
(within the meaning of Rule 13d-3 under said act), of shares of Common Stock of
the Company (or in the case of any merger, consolidation of reorganization, of
the surviving or new entity) constituting in excess of 50% of the voting rights
of all outstanding shares of common stock of the Company (or in the case of any
merger, consolidation or reorganization, of the surviving or new entity),
including for purposes of this calculation common stock as to which there is
then deemed to be a beneficial owner (within the meaning of said Rule 13d-3). At
any time when BJK&E either directly or indirectly owns at least 25%
7
<PAGE>
of the total combined voting power of all classes of Company stock entitled to
vote or at least 25% of the total value of shares of all classes of Company
stock, a "Change in Control" shall also include any transaction described in the
first sentence of this subparagraph (2), determined by substituting "BJK&E" for
"Company" each time "Company" is mentioned in said first sentence, and by
disregarding the immediately preceding sentence.
d. Management of the Company. From and after the date hereof until
-------------------------
the earlier of (i) the occurrence of a Major Event or (ii) March 1, 1999, the
Optionee and his or her successors and assigns shall vote all of their
outstanding shares of Option Stock as directed by BJK&E.
e. Tag-Along Option. From and after the date hereof until the
----------------
earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, if the
Controlling Stockholder (as defined in paragraph (g)) enters into a binding
agreement (the "Sale Agreement") to sell any Common Stock pursuant to a Control
Offer (as defined in paragraph (g)) but excluding any Permitted Transfer (as
defined in paragraph (g)), it shall promptly forward a copy thereof to the
Company, which in turn shall promptly forward a copy to Optionee, and shall not
Transfer any outstanding Common Stock pursuant to the Sale Agreement unless (i)
in accordance with the terms hereof, the Sale Agreement extends the opportunity
to participate in such transaction to Optionee with respect to all of Optionee's
outstanding Common Stock, at the same price and on the same terms and conditions
as those on which the Controlling Stockholder is making a Transfer of its Common
Stock in such transaction, or (ii) if the Sale Agreement pertains to less than
100% of such outstanding Common Stock, Optionee is entitled to sell to the
offeror pursuant to the Sale Agreement up to the same percentage of outstanding
Common Stock of Optionee as is being sold by the Controlling Stockholder, at the
same price and on the same terms and conditions as those on which the
Controlling Stockholder is making a Transfer of its Common Stock in such
transaction. Each exercise notice evidencing Optionee's election to participate
in a Transfer pursuant to this paragraph (e) shall be delivered to the offeror,
the Controlling Stockholder and the Company before the later to occur of the
15th day after mailing of such offer by the Company and the last day for
acceptance of such offer as set forth in such notice.
f. Drag-Along Obligation. From and after the date hereof until the
---------------------
earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, in the event the
Controlling Stockholder proposes to make a Control Transfer (as defined in
paragraph (g)), the Controlling Stockholder may require
8
<PAGE>
Optionee to sell in such Control Transfer Optionee's proportionate percentage of
its Common Stock at the same price and on the same terms and conditions as those
on which the Controlling Stockholder is making a Transfer of its Common Stock in
such Control Transfer. Each exercise notice by the Controlling Stockholder
pursuant to this paragraph (f) shall be given to the Company, which shall
promptly forward copies to Optionee, promptly after the Controlling Stockholder
decides to make such a Control Transfer and shall include therein Optionee's
proportionate percentage of the Common Stock to be Transferred in the Control
Transfer. To the extent that in order to comply with the provisions of this
paragraph (f) it would be necessary for Optionee to exercise any options,
Optionee shall not be obligated to exercise any option and instead any option
which is not exercised no later than the consummation of the Control Transfer
shall terminate and be surrendered; provided, however, that Optionee may
Transfer any vested option as part of the Control Transfer and receive an amount
per such option equal to the excess of the amount to be received per share of
Common Stock in the Control Transfer over the exercise price of such option.
g. Additional Definitions. For purposes of paragraphs 10(e) and (f),
----------------------
the following terms shall have the following meanings:
(1) "Affiliate" has the meaning given to it in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(2) "Control" means, with respect to any person or entity, the
record ownership of more than fifty percent (50%) of the issued and outstanding
Common Stock.
(3) "Control Offer" means any offer to the Controlling
Stockholder by any person or entity (other than an Affiliate of the Controlling
Stockholder) to purchase any amount of Common Stock which would, either alone or
when aggregated with all other Common Stock then held or to be simultaneously
purchased by such offeror (or any Affiliate thereof), cause such offeror (or any
Affiliate thereof) to gain Control of the Company, provided that such
transaction also constitutes a "Change of Control" (as defined in paragraph (c))
of the Company.
(4) "Control Offeror" means any person or entity making a Control
Offer.
9
<PAGE>
(5) "Control Transfer" means any actual or proposed Transfer of
any Common Stock pursuant to a Control Offer.
(6) "Controlling Stockholder" means BJK&E and its Affiliates
(other than the Company), so long as, in the aggregate, they or any of their
Permitted Transferees hold at least twenty-five percent (25%) of the issued and
outstanding Common Stock; provided, however, that for purposes of paragraph (e),
the term "Controlling Stockholder" shall not include any individual stockholder
of BJK&E as such who does not hold at least twenty-five percent (25%) of the
issued and outstanding Common Stock of BJK&E.
(7) "Permitted Transfer" means any Transfer (i) by any person or
entity to any Affiliate of such person or entity, provided that any such
Permitted Transferee executes and delivers to the Company a written agreement
acceptable in form and content to the Company agreeing to be bound by paragraphs
10(e) and (f) of this Agreement, (ii) to the Company, (iii) pursuant to an
effective registration statement under the Securities Act of 1933, and (iv) at
any time concurrently with or after any sales of any Common Stock pursuant to an
IPO.
(8) "Transfer" means any outright sale of any Common Stock.
h. Piggyback Rights. On and after the expiration of the lock up
----------------
period required by the managing underwriters following an initial public
offering, Optionee shall have piggyback rights with respect to all (and not just
a pro rata portion) of the Option Stock on customary terms and conditions
(including payment by the Company of the expenses thereof other than
underwriting discounts and commissions with respect to the Option Stock) with
respect to any shares of Common Stock being sold by Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
11. Notice. Any notice to the Company provided for in the Option shall
------
be addressed to the Company in care of its Secretary, at the address set forth
above and any notice to the Optionee shall be addressed to the Optionee's
address now on file with the Company, or to such other address as either may
last have designated to the other by notice as provided herein. Any notice so
addressed shall be deemed to be given on the third business day after mailing,
by registered or certified mail, return receipt requested, at a post office or
branch office within the United States.
12. Adjustment. The number of shares of Common Stock subject to the
----------
Option and the price per share thereof shall be subject to adjustment, as set
forth in the Plan.
10
<PAGE>
The Company shall not be required to adjust the number of shares of Common Stock
subject to the Option or the price per share thereof for any reason not
specifically enumerated in the Plan.
13. No Stockholder Rights. The Optionee shall have no rights as a
---------------------
stockholder with respect to shares of Common Stock subject to the Option until
payment for such shares shall have been made in full and until the date of the
issuance of stock certificates for such shares.
14. No Employment Rights. Nothing herein contained shall restrict in any
--------------------
way the right of the Company or a Subsidiary to terminate the Optionee's
employment or authority to represent the Company or a Subsidiary at any time,
with or without cause.
15. Option Subject to Plan. The Option has been granted pursuant to the
----------------------
Plan. This Agreement is in all respects subject to the terms and conditions of
said Plan. In the event of any conflict between this Agreement and the Plan, the
terms of the Plan shall control.
16. Nontransferability.
------------------
a. Subject to paragraph (b), the Option is not transferable, other
than by will or the laws of descent and distribution, and may be exercised,
during the lifetime of the Optionee only by the Optionee, or the Optionee's
guardian or legal representative. The term "Optionee" shall include any person
having rights to exercise the Option under the Plan. In the event of any attempt
by the Optionee to transfer, assign, pledge, hypothecate or otherwise dispose of
the Option or of any right hereunder, except as provided for herein, or in the
event of the levy of any attachment, execution or similar process upon the
rights or interest hereby conferred, the Company may terminate the Option by
notice to the Optionee and it shall thereupon become null and void.
b. Notwithstanding paragraph (a), the Optionee shall be permitted to
transfer the Option to a member of Optionee's immediate family, to the spouse of
any such family member or to a trust established for the benefit of one or more
of such family members. Any transferees under the preceding sentence shall, upon
exercise of the Option, hold the Option Stock subject to all the provisions of
this Agreement in the same manner as the transferor and shall execute and
deliver to the Company such instruments as the Company shall require to evidence
the same; provided, however, that any registration statement covering securities
issued under the Plan need not cover shares of Option Stock issued to such
transferees.
11
<PAGE>
17. NSO. It is not intended that this Option shall constitute an
---
incentive stock option for purposes of Code Section 422.
18. Stock Option Committee Determinations. In the event that any
-------------------------------------
question or controversy shall arise with respect to the nature, scope or extent
of any one or more rights conferred by the Option, or any provision of this
Agreement, the determination by the Stock Option Committee of the rights of the
Optionee shall be conclusive, final and binding upon the Optionee and upon any
other person who shall assert any right pursuant to this Option.
IN WITNESS WHEREOF, the Company and the Optionee have entered into this
Agreement as of the day and year first above written.
POPPE TYSON, INC.
By: ____________________________________
________________________________________
Fergus O'Daly, Jr.,
Optionee
12
<PAGE>
EXHIBIT 10.18
THE 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 2nd day of March, 1996, by and
between POPPE TYSON, INC., a Delaware corporation with principal offices at 40
West 23rd Street, New York, New York (the "Company"), and DAVID SCOTT CARLICK,
an employee of the Company, residing at 20 Antonio Court, Portola Valley,
California 94028 (the "Optionee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has determined to grant stock options to attract and
retain the best available talent and to encourage the highest level of
performance, all in accordance with the 1996 Stock Option Plan of Poppe Tyson,
Inc. (the "Plan");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions of the Plan
---------------
and this Agreement, the Company hereby grants to the Optionee the right (the
"Option") to purchase all or any part of an aggregate of 12.8342245989 shares of
common stock of the Company, par value $0.10 per share ("Common Stock").
2. Vesting Schedule. This Option is exercisable as to all shares of
----------------
Common Stock subject to the Option as of the date hereof.
3. Exercise Price. The price of each share of Common Stock purchased
--------------
pursuant to this Option shall be $20,453.13.
4. Manner of Exercise. The Optionee may exercise the Option, in
------------------
whole or in part, with respect to any whole number of shares of Common Stock
subject to the Option. Prior to an IPO (as defined in paragraph 10(c)(i) hereof)
the Optionee may exercise the Option with respect to less than one share only if
the Option is then exercised as to all of the shares then purchasable hereunder.
On and after an IPO of the Common Stock, an Option may not be exercised with
respect to a fractional share; if the Option is exercised with respect to all of
the whole shares as to which the Option is then exercisable, and the Option
remains exercisable with respect to less than one share of Common
<PAGE>
Stock, the Company shall pay the Optionee the excess of (i) the fair market
value of such remaining fractional share, over (ii) the Option exercise price
for such remaining fractional share, and the Option shall terminate with respect
to such fractional share. The Optionee shall exercise the Option by giving the
Company written notice, in a form prescribed by the Company. Such notice shall
specify the number of shares of Common Stock to be purchased and shall be
accompanied by payment, in cash or certified check or by official bank check, of
an amount equal to the option price of such shares multiplied by the number of
shares as to which the Option is being exercised; provided, however, that the
purchase price may be paid, in whole or in part, by surrender or delivery to the
Company of Common Stock having a fair market value on the date of exercise equal
to the portion of the purchase price being so paid or other property acceptable
to the Stock Option Committee which administers the Plan.
5. Delivery of Stock Certificate. As soon as practicable after
-----------------------------
receipt of the notice and payment referred to in paragraph 4 above, the Company
shall deliver to the Optionee a certificate or certificates for such shares;
provided, however, that the time of such delivery may be postponed by the
Company for such period of time as the Company may require for compliance with
any law, rule or regulation applicable to the issuance or transfer of shares.
The certificate or certificates representing the shares as to which the Option
has been exercised shall bear an appropriate legend setting forth the
restrictions applicable to such shares, if any.
6. Withholding; Assurances. Prior to or concurrently with delivery
------------------------
by the Company to the Optionee of a certificate(s) representing such shares, the
Optionee shall (i) upon notification of the amount due, pay promptly, in cash,
any amount necessary to satisfy applicable tax requirements, and (ii) if such
shares are not then registered under the Securities Act of 1933 (the "Securities
Act"), give assurance satisfactory to the Company that such shares are being
purchased for investment (unless such assurance is not necessary, as reasonably
determined by the Company) and not with a view to the distribution thereof other
than in compliance with the registration provisions of the Securities Act of
1933 or any exemption therefrom, and the Optionee shall give such other
assurance and take such other action as the Company shall reasonably require to
secure compliance with any law, rule or regulation applicable to the issuance of
shares.
7. Termination of Option. The Option and all rights of the Optionee
---------------------
to purchase shares of Common Stock
2
<PAGE>
hereunder shall terminate on the tenth anniversary of the date hereof (the
"Expiration Date"); provided, however, that except as provided in paragraph 9,
the Option may not be exercised unless the Optionee has remained an employee of
the Company continuously from the date hereof.
8. Definition of Employment. As used herein, employment with the
------------------------
Company shall include employment with the Company and/or a "subsidiary
corporation" of Company, within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code")(a "Subsidiary"). A leave of
absence or an interruption in service (including an interruption during military
service) authorized by the Company, or the Subsidiary employing the Optionee, as
the case may be, shall not be deemed an interruption of employment.
9. Termination of Employment.
-------------------------
a. Termination Other Than Death or Permanent and Total
---------------------------------------------------
Disability. In the event that the Optionee ceases to be an employee of the
- ----------
Company other than by reason of death or "permanent and total disability" (in
the event that Optionee enters into an employment agreement with the Company on
or after this date, as such term or words to like effect are defined in the
first employment agreement which the Optionee enters into with the Company on or
after this date, whether or not such agreement is then still in effect, or, if
none, as otherwise defined in the Plan)("Disability"), the Option may be
exercised (to the extent that the Optionee is otherwise entitled to exercise
such Option at the termination of such employment) at any time within six months
after such termination, but not later than the Expiration Date; provided,
however, that if Optionee's employment with the Company shall be terminated
either (A) by the Company (or the Subsidiary employing the Optionee) for cause
(in the event that Optionee enters into an employment agreement with the Company
on or after this date, as such term is defined in the first employment agreement
which the Optionee enters into with the Company on or after this date, whether
or not such agreement is then still in effect, or, if none, as otherwise defined
in the Plan)("Cause") or (B) by the Optionee and without the consent of the
Company (or the Subsidiary employing the Optionee)(which consent shall be
presumed in the case of retirement on or after attainment of age 65) (other than
a termination by the Optionee which, pursuant to the following sentence, is
deemed to be a termination of employment by the Company without Cause) the
Option shall, to the extent not theretofore exercised, forthwith terminate.
Solely for purposes of this paragraph 9(a) and paragraph 10(b), in the event
that (A) the Company is in material breach of the Current or Renewed Employment
Agreement, (B) the Optionee
3
<PAGE>
gives written notice of such breach to the Company, (C) the Company does not
remedy such breach within 30 days of such notice, and (D) the Optionee
terminates his employment within 45 days of such notice, such termination of
employment shall be deemed to be a termination of employment by the Company
without Cause.
b. Death or Permanent and Total Disability. In the event that the
---------------------------------------
Optionee shall die or become Disabled while the Optionee is employed by the
Company, the Option may be exercised as set forth herein by the Optionee or by
the guardian or legal representative of the Optionee, at any time within one
year of the death or termination of employment for Disability of the Optionee,
as applicable, but not later than the Expiration Date.
10. Restrictions Applicable to Option Stock.
---------------------------------------
a. Transfer Restrictions. Unless and until the earlier of (i)
---------------------
the occurrence of a Major Event (as defined in paragraph 10(c)) or (ii) March 1,
1999, none of the shares of Common Stock which are sold to the Optionee (or to
the guardian or legal representative of the Optionee) upon exercise of the
Option ("Option Stock") may be sold, assigned, transferred, pledged,
hypothecated, or in any other way disposed of or encumbered (collectively,
"Transfer"), voluntarily or involuntarily, except as specifically provided
herein. No Transfer of Option Stock shall be valid for any purpose if made in
violation of this Agreement.
During the period commencing with the expiration of the lock up period
required by the managing underwriters following an IPO (as defined in paragraph
(c) of this paragraph 10) and ending with three (3) years from the closing of an
initial public offering, the Optionee may Transfer up to one-third (1/3) of the
total number of shares of Option Stock free of the restrictions set forth in
paragraph 10(a) hereof. In such event, unless with respect to such Transfer an
exemption to the registration requirements under the Securities Act is available
without a required holding period, at the request on one occasion only of
Optionee, Fergus O'Daly, Jr. and Thomas Wharton, Jr. (collectively, the
"Executives", and any request for registration under this Agreement and any
stock option agreement of any other Executive constituting a registration
request for purposes of this Agreement and such other agreements) the Company
shall use its reasonable best efforts to register such one-third (1/3) of the
total shares of Option Stock together with one-third (1/3) of the Option Stock
of the other Executives on customary terms and conditions, at Company's expense,
except that Optionee shall be obligated to pay any underwriter discount and
commission
4
<PAGE>
with respect to the Option Stock. During such period, the balance of the Option
Stock may not be Transferred, voluntarily or involuntarily, except as
specifically provided herein. To the extent that a Transfer of Option Stock
during such period exceeds one-third (1/3) of the total number of shares of
Option Stock, it shall not be valid for any purpose, unless it is otherwise made
in compliance with this Agreement.
To the extent that Optionee has not Transferred his Option Stock
within three (3) years from the closing of an initial public offering, Optionee
thereafter shall have the right to Transfer such shares, subject to applicable
securities law requirements. Furthermore, on or after the death of the Optionee
or the termination of Optionee's employment for Disability, Optionee (or in the
case of death or if otherwise applicable, his personal representative) shall
have the right to Transfer the Option Stock, subject to applicable securities
law requirements.
Notwithstanding anything to the contrary set forth in this Agreement,
the restrictions on Transfer of Option Stock set forth herein shall not apply to
any Transfer (i) in favor of one or more trusts established for the benefit of
the Optionee and/or his or her spouse and/or lineal descendants; provided, and
only for so long as, the Optionee retains the sole voting control over the
Option Stock, in a trustee capacity or otherwise, or (ii) to any IRA, Keogh or
custodial account for the benefit of the Optionee or any of the foregoing
persons; provided that no Transfer shall be valid until recorded on the books of
the Company. Any transferees under the preceding sentence shall hold the Option
Stock subject to all the provisions of this Agreement in the same manner as the
transferor and shall execute and deliver to the Company such instruments as the
Company shall require to evidence the same. Furthermore, the restrictions on
Transfer of Option Stock set forth herein shall not apply to any Transfer after
the occurrence of either of the following two events:
1. Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E") ceases to be
the beneficial owner of at least 50% of the voting rights of all outstanding
shares of common stock of the Company or any successor entity thereof.
2. The shareholders of BJK&E as of this date, as a group (the
"Current BJK&E Shareholders") cease to be the beneficial owners of at least 50%
of the voting rights of all outstanding shares of common stock of BJK&E in a
transaction (or series of related transactions) in which the Current BJK&E
Shareholders receive, in
5
<PAGE>
consideration of their shares of BJK&E common stock cash, cash equivalents
and/or freely tradeable securities.
If the Company files a registration statement on Form S-8 or any
successor form thereto with respect to the issuance of Common Stock under the
Plan and the Option Stock is eligible to be covered by such registration
statement, then if the Option Stock Transfer restrictions set forth in this
paragraph 10(a) lapse, such registration statement (whether filed before or
after the lapse of the Transfer restrictions) shall cover the Option Stock.
b. Put and Call. Subject to the immediately following
------------
sentence, if either (i) no IPO occurs by March 1, 1999, then from and after
March 1, 1999, or (ii) prior to the occurrence of an IPO the Optionee ceases to
be an employee of the Company for any reason other than either (A) the Company
terminating Optionee's employment for Cause or (B) Optionee terminating his
employment with Company for any reason other than death, Disability or a
termination which, pursuant to paragraph 9(a), is deemed to be a termination of
employment by the Company without Cause, the Optionee shall have the right and
option, upon 10 days written notice to the Company, to elect to sell to the
Company all Option Stock held by the Optionee at the Higher Buy Back Price
specified in the balance of this paragraph and the Company shall have the right
and option, upon 10 days written notice to the Optionee, to elect to purchase
all Option Stock held by the Optionee at the Higher Buy Back Price specified in
the balance of this paragraph. If at any time either (i) the Company terminates
Optionee's employment for Cause or (ii) the Optionee terminates his employment
with Company for any reason while Optionee is subject to an employment agreement
with the Company other than death, Disability or a termination which, pursuant
to paragraph 9(a), is deemed to be a termination of employment by the Company
without Cause, the Optionee shall have the right and option, upon 10 days
written notice to the Company, to elect to sell to the Company all Option Stock
held by the Optionee at the Lower Buy Back Price specified in the balance of
this paragraph and the Company shall have the right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Lower Buy Back Price specified in the balance of this
paragraph. For purposes of this paragraph, the term "Higher Buy Back Price"
means the greater of (i) the exercise price paid by the Optionee to acquire such
Option Stock, or (ii) the fair market value of the Option Stock on the date of
the receipt of any put or call notice pursuant to this paragraph, as reasonably
determined by the Company's board of directors (the "Board") in good faith, and
the term "Lower Buy Back Price" means the lesser of (i) the exercise price paid
by the Optionee to acquire such Option Stock, or (ii) the fair
6
<PAGE>
market value of the Option Stock on the date of the receipt of any put or call
notice pursuant to this paragraph, as reasonably determined by the Board in good
faith. The Higher or Lower Buy Back Price, as applicable, shall be paid by the
Company to the Optionee in a single lump sum cash payment at the time of its
purchase of the Option Stock.
c. Major Event. For all purposes of this Agreement other than
-----------
for purpose of paragraph 10(a), the term "Major Event" means either (i) the
consummation of an "IPO" (as hereinafter defined) or (ii) the occurrence of a
"Change in Control" (as hereinafter defined). Solely for purposes of paragraph
10(a), the term "Major Event" means either (i) the expiration of the lock up
period required by the managing underwriters following an IPO or (ii) the
occurrence of a Change in Control.
(1) An "IPO" is consummated the first time a
registration statement filed under the Securities Act of 1933 with the
Securities and Exchange Commission or any other Federal agency at the time
administering the Securities Act of 1933, or any similar Federal statute (other
than a registration statement filed on Form S-4 or any successor form thereto or
a registration statement filed on Form S-8 or any successor form thereto with
respect to the issuance of Common Stock, or securities convertible into or
exercisable or exchangeable for, Common Stock or rights to acquire Common Stock
or such securities, granted or to be granted to employees or directors of or
consultants to the Company or its subsidiaries) respecting an offering, whether
primary or secondary, of not less than 10% (or such lesser percentage as a lead
underwriter shall determine is the maximum amount to be offered and sold
pursuant to such registration statement) of the Common Stock then outstanding on
a fully-diluted basis is declared effective and the shares so registered are
offered and sold.
(2) A "Change in Control" shall mean the moment in time
immediately prior to the sale of all or substantially all the assets of the
Company or if any person or entity or a group (as defined under Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) becomes the beneficial owner
(within the meaning of Rule 13d-3 under said act), of shares of Common Stock of
the Company (or in the case of any merger, consolidation of reorganization, of
the surviving or new entity) constituting in excess of 50% of the voting rights
of all outstanding shares of common stock of the Company (or in the case of any
merger, consolidation or reorganization, of the surviving or new entity),
including for purposes of this calculation common stock as to which there is
then deemed to be a beneficial owner (within the meaning of said Rule 13d-3). At
any time when BJK&E either directly or indirectly owns at least 25%
7
<PAGE>
of the total combined voting power of all classes of Company stock entitled to
vote or at least 25% of the total value of shares of all classes of Company
stock, a "Change in Control" shall also include any transaction described in the
first sentence of this subparagraph (2), determined by substituting "BJK&E" for
"Company" each time "Company" is mentioned in said first sentence, and by
disregarding the immediately preceding sentence.
d. Management of the Company. From and after the date hereof
-------------------------
until the earlier of (i) the occurrence of a Major Event or (ii) March 1, 1999,
the Optionee and his or her successors and assigns shall vote all of their
outstanding shares of Option Stock as directed by BJK&E.
e. Tag-Along Option. From and after the date hereof until the
----------------
earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, if the
Controlling Stockholder (as defined in paragraph (g)) enters into a binding
agreement (the "Sale Agreement") to sell any Common Stock pursuant to a Control
Offer (as defined in paragraph (g)) but excluding any Permitted Transfer (as
defined in paragraph (g)), it shall promptly forward a copy thereof to the
Company, which in turn shall promptly forward a copy to Optionee, and shall not
Transfer any outstanding Common Stock pursuant to the Sale Agreement unless (i)
in accordance with the terms hereof, the Sale Agreement extends the opportunity
to participate in such transaction to Optionee with respect to all of Optionee's
outstanding Common Stock, at the same price and on the same terms and conditions
as those on which the Controlling Stockholder is making a Transfer of its Common
Stock in such transaction, or (ii) if the Sale Agreement pertains to less than
100% of such outstanding Common Stock, Optionee is entitled to sell to the
offeror pursuant to the Sale Agreement up to the same percentage of outstanding
Common Stock of Optionee as is being sold by the Controlling Stockholder, at the
same price and on the same terms and conditions as those on which the
Controlling Stockholder is making a Transfer of its Common Stock in such
transaction. Each exercise notice evidencing Optionee's election to participate
in a Transfer pursuant to this paragraph (e) shall be delivered to the offeror,
the Controlling Stockholder and the Company before the later to occur of the
15th day after mailing of such offer by the Company and the last day for
acceptance of such offer as set forth in such notice.
f. Drag-Along Obligation. From and after the date hereof
---------------------
until the earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, in the
event the Controlling Stockholder proposes to make a Control Transfer (as
defined in paragraph (g)), the Controlling Stockholder may require
8
<PAGE>
Optionee to sell in such Control Transfer Optionee's proportionate percentage of
its Common Stock at the same price and on the same terms and conditions as those
on which the Controlling Stockholder is making a Transfer of its Common Stock in
such Control Transfer. Each exercise notice by the Controlling Stockholder
pursuant to this paragraph (f) shall be given to the Company, which shall
promptly forward copies to Optionee, promptly after the Controlling Stockholder
decides to make such a Control Transfer and shall include therein Optionee's
proportionate percentage of the Common Stock to be Transferred in the Control
Transfer. To the extent that in order to comply with the provisions of this
paragraph (f) it would be necessary for Optionee to exercise any options,
Optionee shall not be obligated to exercise any option and instead any option
which is not exercised no later than the consummation of the Control Transfer
shall terminate and be surrendered; provided, however, that Optionee may
Transfer any vested option as part of the Control Transfer and receive an amount
per such option equal to the excess of the amount to be received per share of
Common Stock in the Control Transfer over the exercise price of such option.
g. Additional Definitions. For purposes of paragraphs 10(e)
----------------------
and (f), the following terms shall have the following meanings:
(1) "Affiliate" has the meaning given to it in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
(2) "Control" means, with respect to any person or
entity, the record ownership of more than fifty percent (50%) of the issued and
outstanding Common Stock.
(3) "Control Offer" means any offer to the Controlling
Stockholder by any person or entity (other than an Affiliate of the Controlling
Stockholder) to purchase any amount of Common Stock which would, either alone or
when aggregated with all other Common Stock then held or to be simultaneously
purchased by such offeror (or any Affiliate thereof), cause such offeror (or any
Affiliate thereof) to gain Control of the Company, provided that such
transaction also constitutes a "Change of Control" (as defined in paragraph (c))
of the Company.
(4) "Control Offeror" means any person or entity making
a Control Offer.
9
<PAGE>
(5) "Control Transfer" means any actual or proposed
Transfer of any Common Stock pursuant to a Control Offer.
(6) "Controlling Stockholder" means BJK&E and its
Affiliates (other than the Company), so long as, in the aggregate, they or any
of their Permitted Transferees hold at least twenty-five percent (25%) of the
issued and outstanding Common Stock; provided, however, that for purposes of
paragraph (e), the term "Controlling Stockholder" shall not include any
individual stockholder of BJK&E as such who does not hold at least twenty-five
percent (25%) of the issued and outstanding Common Stock of BJK&E.
(7) "Permitted Transfer" means any Transfer (i) by any
person or entity to any Affiliate of such person or entity, provided that any
such Permitted Transferee executes and delivers to the Company a written
agreement acceptable in form and content to the Company agreeing to be bound by
paragraphs 10(e) and (f) of this Agreement, (ii) to the Company, (iii) pursuant
to an effective registration statement under the Securities Act of 1933, and
(iv) at any time concurrently with or after any sales of any Common Stock
pursuant to an IPO.
(8) "Transfer" means any outright sale of any Common
Stock.
h. Piggyback Rights. On and after the expiration of the lock up
----------------
period required by the managing underwriters following an initial public
offering, Optionee shall have piggyback rights with respect to all (and not just
a pro rata portion) of the Option Stock on customary terms and conditions
(including payment by the Company of the expenses thereof other than
underwriting discounts and commissions with respect to the Option Stock) with
respect to any shares of Common Stock being sold by Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
11. Notice. Any notice to the Company provided for in the Option
------
shall be addressed to the Company in care of its Secretary, at the address set
forth above and any notice to the Optionee shall be addressed to the Optionee's
address now on file with the Company, or to such other address as either may
last have designated to the other by notice as provided herein. Any notice so
addressed shall be deemed to be given on the third business day after mailing,
by registered or certified mail, return receipt requested, at a post office or
branch office within the United States.
12. Adjustment. The number of shares of Common Stock subject to the
----------
Option and the price per share thereof shall be subject to adjustment, as set
forth in the Plan.
10
<PAGE>
The Company shall not be required to adjust the number of shares of Common Stock
subject to the Option or the price per share thereof for any reason not
specifically enumerated in the Plan.
13. No Stockholder Rights. The Optionee shall have no
---------------------
rights as a stockholder with respect to shares of Common Stock subject to the
Option until payment for such shares shall have been made in full and until the
date of the issuance of stock certificates for such shares.
14. No Employment Rights. Nothing herein contained shall
--------------------
restrict in any way the right of the Company or a Subsidiary to terminate the
Optionee's employment or authority to represent the Company or a Subsidiary at
any time, with or without cause.
15. Option Subject to Plan. The Option has been granted
----------------------
pursuant to the Plan. This Agreement is in all respects subject to the terms
and conditions of said Plan. In the event of any conflict between this
Agreement and the Plan, the terms of the Plan shall control.
16. Nontransferability.
------------------
a. Subject to paragraph (b), the Option is not
transferable, other than by will or the laws of descent and distribution, and
may be exercised, during the lifetime of the Optionee only by the Optionee, or
the Optionee's guardian or legal representative. The term "Optionee" shall
include any person having rights to exercise the Option under the Plan. In the
event of any attempt by the Optionee to transfer, assign, pledge, hypothecate or
otherwise dispose of the Option or of any right hereunder, except as provided
for herein, or in the event of the levy of any attachment, execution or similar
process upon the rights or interest hereby conferred, the Company may terminate
the Option by notice to the Optionee and it shall thereupon become null and
void.
b. Notwithstanding paragraph (a), the Optionee shall be
permitted to transfer the Option to a member of Optionee's immediate family, to
the spouse of any such family member or to a trust established for the benefit
of one or more of such family members. Any transferees under the preceding
sentence shall, upon exercise of the Option, hold the Option Stock subject to
all the provisions of this Agreement in the same manner as the transferor and
shall execute and deliver to the Company such instruments as the Company shall
require to evidence the same; provided, however, that any registration statement
covering securities issued under the Plan need not cover shares of Option Stock
issued to such transferees.
11
<PAGE>
17. NSO. It is not intended that this Option shall constitute an
---
incentive stock option for purposes of Code Section 422.
18. Stock Option Committee Determinations. In the event
-------------------------------------
that any question or controversy shall arise with respect to the nature, scope
or extent of any one or more rights conferred by the Option, or any provision of
this Agreement, the determination by the Stock Option Committee of the rights of
the Optionee shall be conclusive, final and binding upon the Optionee and upon
any other person who shall assert any right pursuant to this Option.
IN WITNESS WHEREOF, the Company and the Optionee have entered into
this Agreement as of the day and year first above written.
POPPE TYSON, INC.
By: _________________________
_____________________________
David Scott Carlick,
Optionee
FEJ21479.X05
12
<PAGE>
EXHIBIT 10.19
1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 2nd day of March, 1996, by and between
POPPE TYSON, INC., a Delaware corporation with principal offices at 40 West 23rd
Street, New York, New York (the "Company"), and THOMAS E. WHARTON, JR., an
employee of the Company, residing at 81 Moraine Road, Morris Plains, New Jersey
07950 (the "Optionee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has determined to grant stock options to attract and
retain the best available talent and to encourage the highest level of
performance, all in accordance with the 1996 Stock Option Plan of Poppe Tyson,
Inc. (the "Plan");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions
---------------
of the Plan and this Agreement, the Company hereby grants to the Optionee the
right (the "Option") to purchase all or any part of an aggregate of
12.8342245989 shares of common stock of the Company, par value $0.10 per share
("Common Stock").
2. Vesting Schedule. This Option is exercisable as to all
----------------
shares of Common Stock subject to the Option as of the date hereof.
3. Exercise Price. The price of each share of
--------------
Common Stock purchased pursuant to this Option shall be $20,453.13.
4. Manner of Exercise. The Optionee may exercise the
------------------
Option, in whole or in part, with respect to any whole number of shares of
Common Stock subject to the Option. Prior to an IPO (as defined in paragraph
10(c)(i) hereof) the Optionee may exercise the Option with respect to less than
one share only if the Option is then exercised as to all of the shares then
purchasable hereunder. On and after an IPO of the Common Stock, an Option may
not be exercised with respect to a fractional share; if the Option is exercised
with respect to all of the whole shares as to which the Option is then
exercisable, and the Option remains exercisable with respect to less than one
share of Common
<PAGE>
Stock, the Company shall pay the Optionee the excess of (i) the fair market
value of such remaining fractional share, over (ii) the Option exercise price
for such remaining fractional share, and the Option shall terminate with respect
to such fractional share. The Optionee shall exercise the Option by giving the
Company written notice, in a form prescribed by the Company. Such notice shall
specify the number of shares of Common Stock to be purchased and shall be
accompanied by payment, in cash or certified check or by official bank check, of
an amount equal to the option price of such shares multiplied by the number of
shares as to which the Option is being exercised; provided, however, that the
purchase price may be paid, in whole or in part, by surrender or delivery to the
Company of Common Stock having a fair market value on the date of exercise equal
to the portion of the purchase price being so paid or other property acceptable
to the Stock Option Committee which administers the Plan.
5. Delivery of Stock Certificate. As soon as practicable
-----------------------------
after receipt of the notice and payment referred to in paragraph 4 above, the
Company shall deliver to the Optionee a certificate or certificates for such
shares; provided, however, that the time of such delivery may be postponed by
the Company for such period of time as the Company may require for compliance
with any law, rule or regulation applicable to the issuance or transfer of
shares. The certificate or certificates representing the shares as to which the
Option has been exercised shall bear an appropriate legend setting forth the
restrictions applicable to such shares, if any.
6. Withholding; Assurances. Prior to or concurrently
------------------------
with delivery by the Company to the Optionee of a certificate(s) representing
such shares, the Optionee shall (i) upon notification of the amount due, pay
promptly, in cash, any amount necessary to satisfy applicable tax requirements,
and (ii) if such shares are not then registered under the Securities Act of 1933
(the "Securities Act"), give assurance satisfactory to the Company that such
shares are being purchased for investment (unless such assurance is not
necessary, as reasonably determined by the Company) and not with a view to the
distribution thereof other than in compliance with the registration provisions
of the Securities Act of 1933 or any exemption therefrom, and the Optionee shall
give such other assurance and take such other action as the Company shall
reasonably require to secure compliance with any law, rule or regulation
applicable to the issuance of shares.
7. Termination of Option. The Option and all rights of
---------------------
the Optionee to purchase shares of Common Stock
2
<PAGE>
hereunder shall terminate on the tenth anniversary of the date hereof (the
"Expiration Date"); provided, however, that except as provided in paragraph 9,
the Option may not be exercised unless the Optionee has remained an employee of
the Company continuously from the date hereof.
8. Definition of Employment. As used herein,
------------------------
employment with the Company shall include employment with the Company and/or a
"subsidiary corporation" of Company, within the meaning of Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code")(a "Subsidiary"). A leave
of absence or an interruption in service (including an interruption during
military service) authorized by the Company, or the Subsidiary employing the
Optionee, as the case may be, shall not be deemed an interruption of employment.
9. Termination of Employment.
-------------------------
a. Termination Other Than Death or Permanent and
---------------------------------------------
Total Disability. In the event that the Optionee ceases to be an employee of
- ----------------
the Company other than by reason of death or "permanent and total disability"
(in the event that Optionee enteres into an employment agreement with the
Company on or after this date, as such term or words to like effect are
defined in the first employment agreement which the Optionee enters into with
the Company on or after this date, whether or not such agreement is then still
in effect, or, if none, as otherwise defined in the Plan)("Disability"), the
Option may be exercised (to the extent that the Optionee is otherwise entitled
to exercise such Option at the termination of such employment) at any time
within six months after such termination, but not later than the Expiration
Date; provided, however, that if Optionee's employment with the Company shall be
terminated either (A) by the Company (or the Subsidiary employing the Optionee)
for cause (in the event that Optionee enteres into an employment agreement with
the Company on or after this date, as such term is defined in the first
employment agreement which the Optionee enters into with the Company on or after
this date, whether or not such agreement is then still in effect, or, if none,
as otherwise defined in the Plan)("Cause") or (B) by the Optionee and without
the consent of the Company (or the Subsidiary employing the Optionee)(which
consent shall be presumed in the case of retirement on or after attainment of
age 65) (other than a termination by the Optionee which, pursuant to the
following sentence, is deemed to be a termination of employment by the Company
without Cause) the Option shall, to the extent not theretofore exercised,
forthwith terminate. Solely for purposes of this paragraph 9(a) and paragraph
10(b), in the event that (A) the Company is in material breach of the Current or
Renewed Employment Agreement, (B) the Optionee gives written notice of such
breach to the Company, (C) the Company does not remedy such breach within 30
days of such notice, and (D) the Optionee terminates his employment within 45
days of such notice, such termination of employment shall be deemed to be a
termination of employment by the Company without Cause.
3
<PAGE>
b. Death or Permanent and Total Disability. In the event that
---------------------------------------
the Optionee shall die or become Disabled while the Optionee is employed by the
Company, the Option may be exercised as set forth herein by the Optionee or by
the guardian or legal representative of the Optionee, at any time within one
year of the death or termination of employment for Disability of the Optionee,
as applicable, but not later than the Expiration Date.
10. Restrictions Applicable to Option Stock.
---------------------------------------
a. Transfer Restrictions. Unless and until the
---------------------
earlier of (i) the occurrence of a Major Event (as defined in paragraph 10(c))
or (ii) March 1, 1999, none of the shares of Common Stock which are sold to the
Optionee (or to the guardian or legal representative of the Optionee) upon
exercise of the Option ("Option Stock") may be sold, assigned, transferred,
pledged, hypothecated, or in any other way disposed of or encumbered
(collectively, "Transfer"), voluntarily or involuntarily, except as specifically
provided herein. No Transfer of Option Stock shall be valid for any purpose if
made in violation of this Agreement.
During the period commencing with the expiration of the lock up period
required by the managing underwriters following an IPO (as defined in paragraph
(c) of this paragraph 10) and ending with three (3) years from the closing of an
initial public offering, the Optionee may Transfer up to one-third (1/3) of the
total number of shares of Option Stock free of the restrictions set forth in
paragraph 10(a) hereof. In such event, unless with respect to such Transfer an
exemption to the registration requirements under the Securities Act is available
without a required holding period, at the request on one occasion only of
Optionee, Fergus O'Daly, Jr. and David Carlick (collectively, the "Executives",
and any request for registration under this Agreement and any stock option
agreement of any other Executive constituting a registration request for
purposes of this Agreement and such other agreements) the Company shall use its
reasonable best efforts to register such one-third (1/3) of the total shares of
Option Stock together with one-third (1/3) of the Option Stock of the other
Executives on customary terms and conditions, at Company's expense, except that
Optionee shall be obligated to pay any underwriter discount and commission with
respect to the Option Stock. During such period, the balance of the Option Stock
may not be Transferred, voluntarily or involuntarily, except as specifically
provided herein. To the extent that a Transfer of Option Stock during such
period exceeds one-third (1/3) of the total number of shares of Option Stock, it
shall not be
4
<PAGE>
valid for any purpose, unless it is otherwise made in compliance with this
Agreement.
To the extent that Optionee has not Transferred his Option Stock
within three (3) years from the closing of an initial public offering, Optionee
thereafter shall have the right to Transfer such shares, subject to applicable
securities law requirements. Furthermore, on or after the death of the Optionee
or the termination of Optionee's employment for Disability, Optionee (or in the
case of death or if otherwise applicable, his personal representative) shall
have the right to Transfer the Option Stock, subject to applicable securities
law requirements.
Notwithstanding anything to the contrary set forth in this Agreement,
the restrictions on Transfer of Option Stock set forth herein shall not apply to
any Transfer (i) in favor of one or more trusts established for the benefit of
the Optionee and/or his or her spouse and/or lineal descendants; provided, and
only for so long as, the Optionee retains the sole voting control over the
Option Stock, in a trustee capacity or otherwise, or (ii) to any IRA, Keogh or
custodial account for the benefit of the Optionee or any of the foregoing
persons; provided that no Transfer shall be valid until recorded on the books of
the Company. Any transferees under the preceding sentence shall hold the Option
Stock subject to all the provisions of this Agreement in the same manner as the
transferor and shall execute and deliver to the Company such instruments as the
Company shall require to evidence the same. Furthermore, the restrictions on
Transfer of Option Stock set forth herein shall not apply to any Transfer after
the occurrence of either of the following two events:
1. Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E") ceases to be the
beneficial owner of at least 50% of the voting rights of all outstanding shares
of common stock of the Company or any successor entity thereof.
2. The shareholders of BJK&E as of this date, as a group (the
"Current BJK&E Shareholders") cease to be the beneficial owners of at least 50%
of the voting rights of all outstanding shares of common stock of BJK&E in a
transaction (or series of related transactions) in which the Current BJK&E
Shareholders receive, in consideration of their shares of BJK&E common stock
cash, cash equivalents and/or freely tradeable securities.
If the Company files a registration statement on Form S-8 or any
successor form thereto with respect to the issuance of Common Stock under the
Plan and the Option
5
<PAGE>
Stock is eligible to be covered by such registration statement, then if the
Option Stock Transfer restrictions set forth in this paragraph 10(a) lapse, such
registration statement (whether filed before or after the lapse of the Transfer
restrictions) shall cover the Option Stock.
b. Put and Call. Subject to the immediately
------------
following sentence, if either (i) no IPO occurs by March 1, 1999, then from and
after March 1, 1999, or (ii) prior to the occurrence of an IPO the Optionee
ceases to be an employee of the Company for any reason other than either (A) the
Company terminating Optionee's employment for Cause or (B) Optionee terminating
his employment with Company for any reason other than death, Disability or a
termination which, pursuant to paragraph 9(a), is deemed to be a termination of
employment by the Company without Cause, the Optionee shall have the right and
option, upon 10 days written notice to the Company, to elect to sell to the
Company all Option Stock held by the Optionee at the Higher Buy Back Price
specified in the balance of this paragraph and the Company shall have the right
and option, upon 10 days written notice to the Optionee, to elect to purchase
all Option Stock held by the Optionee at the Higher Buy Back Price specified in
the balance of this paragraph. If at any time either (i) the Company terminates
Optionee's employment for Cause or (ii) the Optionee terminates his employment
with Company for any reason while Optionee is subject to an employment agreement
with the Company other than death, Disability or a termination which, pursuant
to paragraph 9(a), is deemed to be a termination of employment by the Company
without Cause, the Optionee shall have the right and option, upon 10 days
written notice to the Company, to elect to sell to the Company all Option Stock
held by the Optionee at the Lower Buy Back Price specified in the balance of
this paragraph and the Company shall have the right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Lower Buy Back Price specified in the balance of this
paragraph. For purposes of this paragraph, the term "Higher Buy Back Price"
means the greater of (i) the exercise price paid by the Optionee to acquire such
Option Stock, or (ii) the fair market value of the Option Stock on the date of
the receipt of any put or call notice pursuant to this paragraph, as reasonably
determined by the Company's board of directors (the "Board") in good faith, and
the term "Lower Buy Back Price" means the lesser of (i) the exercise price paid
by the Optionee to acquire such Option Stock, or (ii) the fair market value of
the Option Stock on the date of the receipt of any put or call notice pursuant
to this paragraph, as reasonably determined by the Board in good faith. The
Higher or Lower Buy Back Price, as applicable, shall be paid
6
<PAGE>
by the Company to the Optionee in a single lump sum cash payment at the time of
its purchase of the Option Stock.
c. Major Event. For all purposes of this Agreement
-----------
other than for purpose of paragraph 10(a), the term "Major Event" means either
(i) the consummation of an "IPO" (as hereinafter defined) or (ii) the occurrence
of a "Change in Control" (as hereinafter defined). Solely for purposes of
paragraph 10(a), the term "Major Event" means either (i) the expiration of the
lock up period required by the managing underwriters following an IPO or (ii)
the occurrence of a Change in Control.
(1) An "IPO" is consummated the first time a registration statement
filed under the Securities Act of 1933 with the Securities and Exchange
Commission or any other Federal agency at the time administering the Securities
Act of 1933, or any similar Federal statute (other than a registration statement
filed on Form S-4 or any successor form thereto or a registration statement
filed on Form S-8 or any successor form thereto with respect to the issuance of
Common Stock, or securities convertible into or exercisable or exchangeable for,
Common Stock or rights to acquire Common Stock or such securities, granted or to
be granted to employees or directors of or consultants to the Company or its
subsidiaries) respecting an offering, whether primary or secondary, of not less
than 10% (or such lesser percentage as a lead underwriter shall determine is the
maximum amount to be offered and sold pursuant to such registration statement)
of the Common Stock then outstanding on a fully-diluted basis is declared
effective and the shares so registered are offered and sold.
(2) A "Change in Control" shall mean the moment in time immediately
prior to the sale of all or substantially all the assets of the Company or if
any person or entity or a group (as defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) becomes the beneficial owner
(within the meaning of Rule 13d-3 under said act), of shares of Common Stock of
the Company (or in the case of any merger, consolidation of reorganization, of
the surviving or new entity) constituting in excess of 50% of the voting rights
of all outstanding shares of common stock of the Company (or in the case of any
merger, consolidation or reorganization, of the surviving or new entity),
including for purposes of this calculation common stock as to which there is
then deemed to be a beneficial owner (within the meaning of said Rule 13d-3).
At any time when BJK&E either directly or indirectly owns at least 25% of the
total combined voting power of all classes of Company stock entitled to vote or
at least 25% of the total value of shares of all classes of Company stock, a
"Change in
7
<PAGE>
Control" shall also include any transaction described in the first sentence of
this subparagraph (2), determined by substituting "BJK&E" for "Company" each
time "Company" is mentioned in said first sentence, and by disregarding the
immediately preceding sentence.
d. Management of the Company. From and after the
-------------------------
date hereof until the earlier of (i) the occurrence of a Major Event or (ii)
March 1, 1999, the Optionee and his or her successors and assigns shall vote all
of their outstanding shares of Option Stock as directed by BJK&E.
e. Tag-Along Option. From and after the date hereof
----------------
until the earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, if the
Controlling Stockholder (as defined in paragraph (g)) enters into a binding
agreement (the "Sale Agreement") to sell any Common Stock pursuant to a Control
Offer (as defined in paragraph (g)) but excluding any Permitted Transfer (as
defined in paragraph (g)), it shall promptly forward a copy thereof to the
Company, which in turn shall promptly forward a copy to Optionee, and shall not
Transfer any outstanding Common Stock pursuant to the Sale Agreement unless (i)
in accordance with the terms hereof, the Sale Agreement extends the opportunity
to participate in such transaction to Optionee with respect to all of Optionee's
outstanding Common Stock, at the same price and on the same terms and conditions
as those on which the Controlling Stockholder is making a Transfer of its Common
Stock in such transaction, or (ii) if the Sale Agreement pertains to less than
100% of such outstanding Common Stock, Optionee is entitled to sell to the
offeror pursuant to the Sale Agreement up to the same percentage of outstanding
Common Stock of Optionee as is being sold by the Controlling Stockholder, at the
same price and on the same terms and conditions as those on which the
Controlling Stockholder is making a Transfer of its Common Stock in such
transaction. Each exercise notice evidencing Optionee's election to participate
in a Transfer pursuant to this paragraph (e) shall be delivered to the offeror,
the Controlling Stockholder and the Company before the later to occur of the
15th day after mailing of such offer by the Company and the last day for
acceptance of such offer as set forth in such notice.
f. Drag-Along Obligation. From and after the date
---------------------
hereof until the earlier of (i) the occurrence of an IPO or (ii) March 1, 1999,
in the event the Controlling Stockholder proposes to make a Control Transfer (as
defined in paragraph (g)), the Controlling Stockholder may require Optionee to
sell in such Control Transfer Optionee's proportionate percentage of its Common
Stock at the same
8
<PAGE>
price and on the same terms and conditions as those on which the Controlling
Stockholder is making a Transfer of its Common Stock in such Control Transfer.
Each exercise notice by the Controlling Stockholder pursuant to this paragraph
(f) shall be given to the Company, which shall promptly forward copies to
Optionee, promptly after the Controlling Stockholder decides to make such a
Control Transfer and shall include therein Optionee's proportionate percentage
of the Common Stock to be Transferred in the Control Transfer. To the extent
that in order to comply with the provisions of this paragraph (f) it would be
necessary for Optionee to exercise any options, Optionee shall not be obligated
to exercise any option and instead any option which is not exercised no later
than the consummation of the Control Transfer shall terminate and be
surrendered; provided, however, that Optionee may Transfer any vested option as
part of the Control Transfer and receive an amount per such option equal to the
excess of the amount to be received per share of Common Stock in the Control
Transfer over the exercise price of such option.
g. Additional Definitions. For purposes of
----------------------
paragraphs 10(e) and (f), the following terms shall have the following meanings:
(1) "Affiliate" has the meaning given to it in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(2) "Control" means, with respect to any person or entity, the
record ownership of more than fifty percent (50%) of the issued and outstanding
Common Stock.
(3) "Control Offer" means any offer to the Controlling Stockholder
by any person or entity (other than an Affiliate of the Controlling Stockholder)
to purchase any amount of Common Stock which would, either alone or when
aggregated with all other Common Stock then held or to be simultaneously
purchased by such offeror (or any Affiliate thereof), cause such offeror (or any
Affiliate thereof) to gain Control of the Company, provided that such
transaction also constitutes a "Change of Control" (as defined in paragraph (c))
of the Company.
(4) "Control Offeror" means any
person or entity making a Control Offer.
(5) "Control Transfer" means
any actual or proposed Transfer of any Common Stock pursuant to a Control Offer.
9
<PAGE>
(6) "Controlling Stockholder" means BJK&E and its Affiliates (other
than the Company), so long as, in the aggregate, they or any of their Permitted
Transferees hold at least twenty-five percent (25%) of the issued and
outstanding Common Stock; provided, however, that for purposes of paragraph (e),
the term "Controlling Stockholder" shall not include any individual stockholder
of BJK&E as such who does not hold at least twenty-five percent (25%) of the
issued and outstanding Common Stock of BJK&E.
(7) "Permitted Transfer" means any Transfer (i) by any person or
entity to any Affiliate of such person or entity, provided that any such
Permitted Transferee executes and delivers to the Company a written agreement
acceptable in form and content to the Company agreeing to be bound by paragraphs
10(e) and (f) of this Agreement, (ii) to the Company, (iii) pursuant to an
effective registration statement under the Securities Act of 1933, and (iv) at
any time concurrently with or after any sales of any Common Stock pursuant to an
IPO.
(8) "Transfer" means any outright sale of any Common Stock.
h. Piggyback Rights. On and after the expiration of the
----------------
lock up period required by the managing underwriters following an initial public
offering, Optionee shall have piggyback rights with respect to all (and not just
a pro rata portion) of the Option Stock on customary terms and conditions
(including payment by the Company of the expenses thereof other than
underwriting discounts and commissions with respect to the Option Stock) with
respect to any shares of Common Stock being sold by Bozell, Jacobs, Kenyon &
Eckhardt, Inc.
11. Notice. Any notice to the Company provided for in the
------
Option shall be addressed to the Company in care of its Secretary, at the
address set forth above and any notice to the Optionee shall be addressed to the
Optionee's address now on file with the Company, or to such other address as
either may last have designated to the other by notice as provided herein. Any
notice so addressed shall be deemed to be given on the third business day after
mailing, by registered or certified mail, return receipt requested, at a post
office or branch office within the United States.
12. Adjustment. The number of shares of Common Stock
----------
subject to the Option and the price per share thereof shall be subject to
adjustment, as set forth in the Plan. The Company shall not be required to
adjust the number of shares of Common Stock subject to the Option or the price
10
<PAGE>
per share thereof for any reason not specifically enumerated in the Plan.
13. No Stockholder Rights. The Optionee shall have no
---------------------
rights as a stockholder with respect to shares of Common Stock subject to the
Option until payment for such shares shall have been made in full and until the
date of the issuance of stock certificates for such shares.
14. No Employment Rights. Nothing herein contained shall
--------------------
restrict in any way the right of the Company or a Subsidiary to terminate the
Optionee's employment or authority to represent the Company or a Subsidiary at
any time, with or without cause.
15. Option Subject to Plan. The Option has been granted
----------------------
pursuant to the Plan. This Agreement is in all respects subject to the terms
and conditions of said Plan. In the event of any conflict between this
Agreement and the Plan, the terms of the Plan shall control.
16. Nontransferability.
------------------
a. Subject to paragraph (b), the Option is not
transferable, other than by will or the laws of descent and distribution, and
may be exercised, during the lifetime of the Optionee only by the Optionee, or
the Optionee's guardian or legal representative. The term "Optionee" shall
include any person having rights to exercise the Option under the Plan. In the
event of any attempt by the Optionee to transfer, assign, pledge, hypothecate or
otherwise dispose of the Option or of any right hereunder, except as provided
for herein, or in the event of the levy of any attachment, execution or similar
process upon the rights or interest hereby conferred, the Company may terminate
the Option by notice to the Optionee and it shall thereupon become null and
void.
b. Notwithstanding paragraph (a), the Optionee shall be
permitted to transfer the Option to a member of Optionee's immediate family, to
the spouse of any such family member or to a trust established for the benefit
of one or more of such family members. Any transferees under the preceding
sentence shall, upon exercise of the Option, hold the Option Stock subject to
all the provisions of this Agreement in the same manner as the transferor and
shall execute and deliver to the Company such instruments as the Company shall
require to evidence the same; provided, however, that any registration statement
covering securities issued under the Plan need not cover shares of Option Stock
issued to such transferees.
11
<PAGE>
17. NSO. It is not intended that this Option shall constitute an
---
incentive stock option for purposes of Code Section 422.
18. Stock Option Committee Determinations. In the event
-------------------------------------
that any question or controversy shall arise with respect to the nature, scope
or extent of any one or more rights conferred by the Option, or any provision of
this Agreement, the determination by the Stock Option Committee of the rights of
the Optionee shall be conclusive, final and binding upon the Optionee and upon
any other person who shall assert any right pursuant to this Option.
IN WITNESS WHEREOF, the Company and the Optionee have entered into
this Agreement as of the day and year first above written.
POPPE TYSON, INC.
By:
_________________________
_____________________________
Thomas E. Wharton, Jr.,
Optionee
12
<PAGE>
EXHIBIT 10.20
THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
AMENDED AND RESTATED STOCK OPTION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT, made as of the 16th day of July,
1996, by and between POPPE TYSON, INC., a Delaware corporation with principal
offices at 40 West 23rd Street, New York, New York (the "Company"), and STEVEN
M. BLONDY, an employee of the Company, residing at 46 East Lane, Madison, New
Jersey 07940 (the "Optionee"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, by action of its board of directors on May 16,
1996 (the "Original Effective Date"), has granted to Optionee the right (the
"Option") to purchase its common stock, the terms of which Option are set forth
in a stock option agreement between the Company and Optionee (the "Original
Stock Option Agreement"); and
WHEREAS, the Company and the Optionee desire to amend and restate such
Original Stock Option Agreement to reflect (i) the stock split of the Company's
common stock completed on June 25, 1996, (ii) a lowering of the Option exercise
price; and (iii) that the Option is subject to the Amended and Restated 1996
Stock Option Plan of Poppe Tyson, Inc. (the "Plan");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto hereby agree that the Original Stock Option Agreement be and it
hereby is amended and restated, so that as amended and restated, it reads in its
entirety as set forth in this Amended and Restated Stock Option Agreement.
1. Grant of Option. Subject to the terms and conditions of the Plan
---------------
and this Agreement, the Company hereby grants to the Optionee the Option to
purchase all or any part of an aggregate of one hundred sixteen thousand two
hundred fifty (116,250) shares of common stock of the Company, par value $.001
per share ("Common Stock").
2. Vesting Schedule. Subject to paragraph 9, this Option is
----------------
exercisable (i) as to 25% of all shares of Common Stock subject to the Option on
the business day immediately preceding May 16, 1997; (ii) as to 50% of all
shares of Common Stock subject to the Option on the business
<PAGE>
day immediately preceding May 16, 1998; (iii) as to 75% of all shares of Common
Stock subject to the Option on the business day immediately preceding May 16,
1999; and (iv) as to 100% of all shares of Common Stock subject to the Option on
the business day immediately preceding May 16, 2000. Notwithstanding the
preceding sentence, this Option shall be exercisable as to 100% of all shares of
Common Stock subject to the Option upon a Change in Control (as defined in
paragraph 10(c)(2) hereof). To the maximum extent permissible under Code
Section 422(d), the right granted hereunder to acquire a portion of the total
number of whole shares subject to this Option which first become exercisable in
any particular calendar year shall constitute an incentive stock option for
purposes of Code Section 422 ("ISO"); the right granted hereunder to acquire the
number of whole shares subject to this Option which first become exercisable in
such year which exceeds such limit shall constitute a nonqualifed stock option
("NSO").
3. Exercise Price. The price of each share of Common Stock purchased
--------------
pursuant to this Option shall be $7.25.
4. Manner of Exercise. The Optionee may exercise the Option, in whole
------------------
or in part, with respect to any whole number of shares of Common Stock subject
to the Option. Prior to an IPO (as defined in paragraph 10(c)(1) hereof) the
Optionee may exercise the Option with respect to less than one share only if the
Option is then exercised as to all of the shares then purchasable hereunder. On
and after an IPO, the Option may not be exercised with respect to a fractional
share; if the Option is exercised with respect to all of the whole shares as to
which the Option is then exercisable, and the Option remains exercisable with
respect to less than one share of Common Stock, the Company shall pay the
Optionee the excess of (i) the fair market value of such remaining fractional
share, over (ii) the Option exercise price for such remaining fractional share,
and the Option shall terminate with respect to such fractional share. The
Optionee shall exercise the Option by giving the Company written notice, in a
form prescribed by the Company. Such notice shall specify (i) the number of
shares of Common Stock to be purchased and (ii) the portion of the Option being
exercised which Optionee intends to constitute the exercise of an ISO (and the
Company shall designate the corresponding shares of Common Stock as ISO stock on
its stock transfer records to the extent such shares do not exceed the statutory
ISO limits) and the portion thereof which Optionee intends to constitute the
exercise of an NSO. Such notice shall be accompanied by payment, in cash or
certified check or by official bank check, of an amount equal to the option
price of such shares
2
<PAGE>
multiplied by the number of shares as to which the Option is being exercised;
provided, however, that the purchase price may be paid, in whole or in part, by
surrender or delivery to the Company of Common Stock having a fair market value
on the date of exercise equal to the portion of the purchase price being so paid
or other property acceptable to the Stock Option Committee which administers the
Plan.
5. Delivery of Stock Certificate. As soon as practicable after receipt
-----------------------------
of the notice and payment referred to in paragraph 4 above, the Company shall
deliver to the Optionee a certificate or certificates for such shares; provided,
however, that the time of such delivery may be postponed by the Company for such
period of time as the Company may require for compliance with any law, rule or
regulation applicable to the issuance or transfer of shares. The certificate or
certificates representing the shares as to which the Option has been exercised
shall bear an appropriate legend setting forth the restrictions applicable to
such shares, if any.
6. Withholding; Assurances. Prior to or concurrently with delivery by
-----------------------
the Company to the Optionee of a certificate(s) representing such shares, the
Optionee shall (i) upon notification of the amount due, pay promptly, in cash,
any amount necessary to satisfy applicable tax requirements, and (ii) if such
shares are not then registered under the Securities Act of 1933, give assurance
satisfactory to the Company that such shares are being purchased for investment
(unless such assurance is not necessary, as reasonably determined by the
Company) and not with a view to the distribution thereof other than in
compliance with the registration provisions of the Securities Act of 1933 or any
exemption therefrom, and the Optionee shall give such other assurance and take
such other action as the Company shall reasonably require to secure compliance
with any law, rule or regulation applicable to the issuance of shares.
7. Termination of Option. The Option and all rights of the Optionee to
---------------------
purchase shares of Common Stock hereunder shall terminate on May 16, 2006 (the
"Expiration Date"); provided, however, that except as provided in paragraph 9,
the Option may not be exercised unless the Optionee has remained an employee of
the Company continuously from the Original Effective Date.
8. Definition of Employment. As used herein, employment with the
------------------------
Company shall include employment with the Company and/or a "subsidiary
corporation" of Company, within the meaning of Section 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code") (a "Subsidiary"). A
3
<PAGE>
leave of absence or an interruption in service (including an interruption during
military service) authorized by the Company, or the Subsidiary employing the
Optionee, as the case may be, shall not be deemed an interruption of employment.
9. Termination of Employment.
-------------------------
a. Termination Other Than Death or Permanent and Total Disability.
--------------------------------------------------------------
(i) Except as expressly provided otherwise in subsequent clauses of
this paragraph 9(a), in the event that the Optionee's employment agreement with
the Company is not renewed or extended or if Optionee otherwise ceases to be an
employee of the Company other than by reason of death or "permanent and total
disability," as defined in the Plan (and as amplified by the last sentence of
this clause (i))("Disability"), the Option may be exercised (to the extent that
the Option is otherwise exercisable pursuant to paragraph 2 at the time of
Optionee's termination of employment) at any time (1) within three months after
such termination with respect to the portion of the Option which constitutes an
ISO and (2) within six months after such termination with respect to the portion
of the Option which constitutes an NSO, but in all events, not later than the
Expiration Date; provided, however, that if Optionee's employment with the
Company shall be terminated either (A) by the Company (or the Subsidiary
employing the Optionee) for cause (as defined in the Current Employment
Agreement (as hereinafter defined)) ("Cause") or (B) by the Optionee without the
consent of the Company (or the Subsidiary employing the Optionee) (which consent
shall be presumed in the case of retirement on or after attainment of age 65)
(other than a termination by the Optionee which, pursuant to paragraph 9(a)(v),
is deemed to be a termination of employment by the Company without Cause), the
Option shall, to the extent not theretofore exercised, forthwith terminate.
Solely with respect to that portion of the Option which constitutes an NSO, the
term "Disability" shall have the same meaning as it has under the current
employment agreement which the Optionee has entered into as of the Original
Effective Date with the Company (the "Current Employment Agreement") (whether or
not such agreement is then in effect).
(ii) In the event that the Optionee's employment with the Company
shall be terminated by the Company during the original term of the Current
Employment Agreement other than for Cause, the Option shall thereupon become
exercisable as to all shares of Common Stock subject to the Option which had
become or would otherwise have
4
<PAGE>
become exercisable one year following the expiration of the Current Employment
Agreement (calculated as if the Optionee had continued his employment with the
Company through such date) (i.e., the Option shall be 75% vested) and may to
such extent be exercised at any time within three months after the actual
termination of employment date with respect to the portion of the Option which
constitutes an ISO and within six months after the actual termination of
employment date with respect to the portion of the Option which constitutes an
NSO, but in all events, not later than the Expiration Date. In the event that
(A) the Optionee's Current Employment Agreement is renewed (the "Renewed
Employment Agreement") and (B) the Optionee's employment with the Company is
terminated by the Company during the term of such Renewed Employment Agreement,
other than for Cause, the Option shall thereupon become exercisable as to all
shares of Common Stock subject to the Option which had become or would otherwise
have become exercisable one year following the expiration of the Renewed
Employment Agreement (calculated as if the Optionee had continued his employment
with the Company through such date) (i.e., the Option shall be 100% vested), and
may to such extent be exercised at any time within three months after the actual
termination of employment date with respect to the portion of the Option which
constitutes an ISO and within six months after the actual termination of
employment date with respect to the portion of the Option which constitutes an
NSO, but in all events, not later than the Expiration Date.
(iii) In the event that (A) the Optionee's Current Employment
Agreement expires, (B) no more than six months and at least five months prior to
such expiration the Optionee delivers to the Company his binding written
agreement to renew such agreement with terms substantially the same in all
material respects to the terms of the Current Employment Agreement (other than
the term of such agreement, which new term shall be one year, unless the parties
otherwise agree) and (C) the Company does not agree in writing within three
months prior to such expiration to renew such agreement on such basis, the
Option shall become exercisable as of the date of the expiration of the Current
Employment Agreement as to all shares of Common Stock subject to the Option
which had become or would otherwise have become exercisable one year following
the expiration of the Current Employment Agreement (calculated as if the
Optionee had continued his employment with the Company through such date) (i.e.,
the Option shall be 75% vested), and may to such extent be exercised at any time
within three months after the expiration of such agreement, but not later than
the Expiration Date. In the event that (A) the Optionee's Current Employment
Agreement is renewed, (B) the Optionee's Renewed Employment Agreement expires
before the
5
<PAGE>
Option fully vests, (C) no more than six months and at least five months prior
to such expiration the Optionee delivers to the Company his binding written
agreement to renew such agreement with terms substantially the same in all
material respects to the terms of the Renewed Employment Agreement (other than
the term of such agreement, which new term shall be one year, unless the parties
otherwise agree) and (D) the Company does not agree in writing within three
months prior to such expiration to renew such agreement on such basis, the
Option shall become exercisable as of the date of the expiration of the Renewed
Employment Agreement as to all shares of Common Stock subject to the Option
which had become or would otherwise have become exercisable one year following
the expiration of the Renewed Employment Agreement (calculated as if the
Optionee had continued his employment with the Company through such date) (i.e.,
the Option shall be 100% vested), and may to such extent be exercised at any
time within three months after the expiration of such agreement with respect to
the portion of the Option which constitutes an ISO and within six months after
the expiration of such agreement with respect to the portion of the Option which
constitutes an NSO, but in all events, not later than the Expiration Date.
(v) Solely for purposes of this paragraph 9(a) and paragraph
10(b), in the event that the Executive terminates his employment for Good Reason
(as defined in the Current Employment Agreement) during the term of the Current
or Renewed Employment Agreement, such termination of employment shall be deemed
to be a termination of employment by the Company without Cause.
b. Death or Permanent and Total Disability. In the event that the
---------------------------------------
Optionee shall die or become Disabled while the Optionee is employed by the
Company, the Option may be exercised as set forth herein by the Optionee or by
the guardian or legal representative of the Optionee, at any time within one
year of the death or termination of employment for Disability of the Optionee,
as applicable, but not later than the Expiration Date. Notwithstanding the
provisions of paragraph 2 specifying the installments in which the Option shall
be exercisable, upon the Optionee's death or becoming Disabled, the Option
shall be exercisable (within the time periods set forth in this paragraph) as
to all shares of Common Stock remaining subject to the Option.
10. Restrictions Applicable to Option Stock.
---------------------------------------
a. Transfer Restrictions. Unless and until the earlier of (i) the
---------------------
occurrence of a Major Event (as defined in paragraph 10(c)) or (ii) March 1,
1999, none of the shares of Common Stock which are sold to the Optionee
6
<PAGE>
(or to the guardian or legal representative of the Optionee) upon exercise of
the Option ("Option Stock") may be sold, assigned, transferred, pledged,
hypothecated, or in any other way disposed of or encumbered (collectively,
"Transfer"), voluntarily or involuntarily, except as specifically provided
herein. No Transfer of Option Stock shall be valid for any purpose if made in
violation of this Agreement. Notwithstanding anything to the contrary set forth
in this Agreement, the restrictions on Transfer of Option Stock set forth herein
shall not apply to any Transfer (i) in favor of one or more trusts established
for the benefit of the Optionee and/or his or her spouse and/or lineal
descendants; provided, and only for so long as, the Optionee retains the sole
voting control over the Option Stock, in a trustee capacity or otherwise, or
(ii) to any IRA, Keogh or custodial account for the benefit of the Optionee or
any of the foregoing persons; provided that no Transfer shall be valid until
recorded on the books of the Company. Any transferees under the preceding
sentence shall hold the Option Stock subject to all the provisions of this
Agreement in the same manner as the transferor and shall execute and deliver to
the Company such instruments as the Company shall require to evidence the same.
b. Put and Call. Subject to the immediately following sentence, if
------------
either (i) no IPO occurs by March 1, 1999, then from and after March 1, 1999, or
(ii) prior to the occurrence of an IPO the Optionee ceases to be an employee of
the Company for any reason other than either (A) the Company terminating
Optionee's employment for Cause or (B) Optionee terminating his employment with
Company for any reason other than death, Disability or a termination which,
pursuant to paragraph 9(a)(v), is deemed to be a termination of employment by
the Company without Cause, the Optionee shall have the right and option, upon 10
days written notice to the Company, to elect to sell to the Company all Option
Stock held by the Optionee at the Higher Buy Back Price specified in the balance
of this paragraph and the Company shall have the right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Higher Buy Back Price specified in the balance of this
paragraph. If at any time either (i) the Company terminates Optionee's
employment for Cause or (ii) the Optionee terminates his employment with Company
for any reason other than death, Disability or a termination which, pursuant to
paragraph 9(a)(v), is deemed to be a termination of employment by the Company
without Cause, the Optionee shall have the right and option, upon 10 days
written notice to the Company, to elect to sell to the Company all Option Stock
held by the Optionee at the Lower Buy Back Price specified in the balance of
this paragraph and the Company shall have the right and option,
7
<PAGE>
upon 10 days written notice to the Optionee, to elect to purchase all Option
Stock held by the Optionee at the Lower Buy Back Price specified in the balance
of this paragraph. For purposes of this paragraph, the term "Higher Buy Back
Price" means the greater of (i) the exercise price paid by the Optionee to
acquire such Option Stock, or (ii) the fair market value of the Option Stock on
the date of the receipt of any put or call notice pursuant to this paragraph, as
reasonably determined by the Company's board of directors (the "Board") in good
faith, and the term "Lower Buy Back Price" means the lesser of (i) the exercise
price paid by the Optionee to acquire such Option Stock, or (ii) the fair market
value of the Option Stock on the date of the receipt of any put or call notice
pursuant to this paragraph, as reasonably determined by the Board in good faith.
The Higher or Lower Buy Back Price, as applicable, shall be paid by the Company
to the Optionee in a single lump sum cash payment at the time of its purchase of
the Option Stock.
c. Major Event. For all purposes of this Agreement other than for
-----------
purpose of paragraph 10(a), the term "Major Event" means either (i) the
consummation of an "IPO" or (ii) the occurrence of a "Change in Control" (as
hereinafter defined). Solely for purposes of paragraph 10(a), the term "Major
Event" means either (i) the expiration of the lock up period required by the
managing underwriters following an IPO or (ii) the occurrence of a Change in
Control.
(1) An "IPO" is consummated the first time a registration statement
filed under the Securities Act of 1933 with the Securities and Exchange
Commission or any other Federal agency at the time administering the Securities
Act of 1933, or any similar Federal statute (other than a registration statement
filed on Form S-4 or any successor form thereto or a registration statement
filed on Form S-8 or any successor form thereto with respect to the issuance of
Common Stock, or securities convertible into or exercisable or exchangeable for,
Common Stock or rights to acquire Common Stock or such securities, granted or to
be granted to employees or directors of or consultants to the Company or its
subsidiaries) respecting an offering, whether primary or secondary, of not less
than 10% (or such lesser percentage as a lead underwriter shall determine is the
maximum amount to be offered and sold pursuant to such registration statement)
of the Common Stock then outstanding on a fully-diluted basis is declared
effective and the shares so registered are offered and sold.
(2) A "Change in Control" shall mean (i) the approval by the Board
of the sale of all or
8
<PAGE>
substantially all the assets of the Company or (ii) the approval by the Board of
or the occurrence of a transaction or series of transactions which results in
any person or entity or a group (as defined under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) becoming the beneficial owner
(within the meaning of Rule 13d-3 under said act), of shares of Common Stock of
the Company (or in the case of any merger, consolidation of reorganization, of
the surviving or new entity) constituting in excess of 50% (or, in the event
that BJK&E ceases to hold any equity interest in the Company, 40% or more) of
the voting rights of all outstanding shares of common stock of the Company (or
in the case of any merger, consolidation or reorganization, of the surviving or
new entity), including for purposes of this calculation common stock as to which
there is then deemed to be a beneficial owner (within the meaning of said Rule
13d-3). At any time when BJK&E either directly or indirectly owns at least 25%
of the total combined voting power of all classes of Company stock entitled to
vote or at least 25% of the total value of shares of all classes of Company
stock, a "Change in Control" shall also include any transaction described in the
first sentence of this subparagraph (2), determined by substituting "BJK&E" for
"Company" each time "Company" is mentioned in said first sentence, and by
disregarding the immediately preceding sentence.
d. Management of the Company. From and after the date hereof until the
-------------------------
earlier of (i) the occurrence of a Major Event or (ii) March 1, 1999, the
Optionee and his or her successors and assigns shall vote all of their
outstanding shares of Option Stock as directed by BJK&E.
e. Tag-Along Option. From and after the date hereof until the earlier
----------------
of (i) the occurrence of an IPO or (ii) March 1, 1999, if the Controlling
Stockholder (as defined in paragraph (g)) enters into a binding agreement (the
"Sale Agreement") to sell any Common Stock pursuant to a Control Offer (as
defined in paragraph (g)) but excluding any Permitted Transfer (as defined in
paragraph (g)), it shall promptly forward a copy thereof to the Company, which
in turn shall promptly forward a copy to Optionee, and shall not Transfer any
outstanding Common Stock pursuant to the Sale Agreement unless (i) in accordance
with the terms hereof, the Sale Agreement extends the opportunity to participate
in such transaction to Optionee with respect to all of Optionee's outstanding
Common Stock, at the same price and on the same terms and conditions as those on
which the Controlling Stockholder is making a Transfer of its Common Stock in
such transaction, or (ii) if the Sale Agreement pertains to less than 100% of
9
<PAGE>
such outstanding Common Stock, Optionee is entitled to sell to the offeror
pursuant to the Sale Agreement up to the same percentage of outstanding Common
Stock of Optionee as is being sold by the Controlling Stockholder, at the same
price and on the same terms and conditions as those on which the Controlling
Stockholder is making a Transfer of its Common Stock in such transaction. Each
exercise notice evidencing Optionee's election to participate in a Transfer
pursuant to this paragraph (e) shall be delivered to the offeror, the
Controlling Stockholder and the Company before the later to occur of the 15th
day after mailing of such offer by the Company and the last day for acceptance
of such offer as set forth in such notice.
f. Drag-Along Obligation. From and after the date hereof until the
---------------------
earlier of (i) the occurrence of an IPO or (ii) March 1, 1999, in the event the
Controlling Stockholder proposes to make a Control Transfer (as defined in
paragraph (g)), the Controlling Stockholder may require Optionee to sell in such
Control Transfer Optionee's proportionate percentage of its Common Stock at the
same price and on the same terms and conditions as those on which the
Controlling Stockholder is making a Transfer of its Common Stock in such Control
Transfer. Each exercise notice by the Controlling Stockholder pursuant to this
paragraph (f) shall be given to the Company, which shall promptly forward copies
to Optionee, promptly after the Controlling Stockholder decides to make such a
Control Transfer and shall include therein Optionee's proportionate percentage
of the Common Stock to be Transferred in the Control Transfer. To the extent
that in order to comply with the provisions of this paragraph (f) it would be
necessary for Optionee to exercise any options, Optionee shall not be obligated
to exercise any option and instead any option which is not exercised no later
than the consummation of the Control Transfer shall terminate and be
surrendered; provided, however, that Optionee may Transfer any vested option as
part of the Control Transfer and receive an amount per such option equal to the
excess of the amount to be received per share of Common Stock in the Control
Transfer over the exercise price of such option.
g. Additional Definitions. For purposes of paragraphs 10 (e) and (f),
----------------------
the following terms shall have the following meanings:
(1) "Affiliate" has the meaning given to it in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(2) "Control" means, with respect to any person or entity, the
record ownership of more than
10
<PAGE>
fifty percent (50%) of the issued and outstanding Common Stock.
(3) "Control Offer" means any offer to the Controlling Stockholder
by any person or entity (other than an Affiliate of the Controlling Stockholder)
to purchase any amount of Common Stock which would, either alone or when
aggregated with all other Common Stock then held or to be simultaneously
purchased by such offeror (or any Affiliate thereof), cause such offeror (or any
Affiliate thereof) to gain Control of the Company, provided that such
transaction also constitutes a "Change of Control" (as defined in paragraph (c))
of the Company.
(4) "Control Offeror" means any person or entity making a Control
Offer.
(5) "Control Transfer" means any actual or proposed Transfer of any
Common Stock pursuant to a Control Offer.
(6) "Controlling Stockholder" means BJK&E and its Affiliates (other
than the Company), so long as, in the aggregate, they or any of their Permitted
Transferees hold at least twenty-five percent (25%) of the issued and
outstanding Common Stock; provided, however, that for purposes of paragraph (e),
the term "Controlling Stockholder" shall not include any individual stockholder
of BJK&E as such who does not hold at least twenty-five percent (25%) of the
issued and outstanding Common Stock of BJK&E.
(7) "Permitted Transfer" means any Transfer (i) by any person or
entity to any Affiliate of such person or entity, provided that any such
Permitted Transferee executes and delivers to the Company a written agreement
acceptable in form and content to the Company agreeing to be bound by paragraphs
10 (e) and (f) of this Agreement, (ii) to the Company, (iii) pursuant to an
effective registration statement under the Securities Act of 1933, and (iv) at
any time concurrently with or after any sales of any Common Stock pursuant to an
IPO.
(8) "Transfer" means any outright sale of any Common Stock.
11. Notice. Any notice to the Company provided for in the Option shall
------
be addressed to the Company in care of its Secretary, at the address set forth
above and any notice to the Optionee shall be addressed to the Optionee's
address now on file with the Company, or to such other address as either may
last have designated to the other by notice as provided herein. Any notice so
addressed shall be
11
<PAGE>
deemed to be given on the third business day after mailing, by registered or
certified mail, return receipt requested, at a post office or branch office
within the United States.
12. Adjustment. The number of shares of Common Stock subject to the
----------
Option and the price per share thereof shall be subject to adjustment, as set
forth in the Plan. The Company shall not be required to adjust the number of
shares of Common Stock subject to the Option or the price per share thereof for
any reason not specifically enumerated in the Plan.
13. No Stockholder Rights. The Optionee shall have no rights as a
---------------------
stockholder with respect to shares of Common Stock subject to the Option until
payment for such shares shall have been made in full and until the date of the
issuance of stock certificates for such shares.
14. No Employment Rights. Nothing herein contained shall restrict in
--------------------
any way the right of the Company or a Subsidiary to terminate the Optionee's
employment or authority to represent the Company or a Subsidiary at any time,
with or without cause.
15. Option Subject to Plan. The Option has been granted pursuant to
----------------------
the Plan. This Agreement is in all respects subject to the terms and conditions
of said Plan. In the event of any conflict between this Agreement and the Plan,
the terms of the Plan shall control.
16. Nontransferability.
------------------
a. Subject to paragraph (b), the Option is not transferable, other
than by will or the laws of descent and distribution, and may be exercised,
during the lifetime of the Optionee only by the Optionee, or the Optionee's
guardian or legal representative. The term "Optionee" shall include any person
having rights to exercise the Option under the Plan. In the event of any attempt
by the Optionee to transfer, assign, pledge, hypothecate or otherwise dispose of
the Option or of any right hereunder, except as provided for herein, or in the
event of the levy of any attachment, execution or similar process upon the
rights or interest hereby conferred, the Company may terminate the Option by
notice to the Optionee and it shall thereupon become null and void.
b. Notwithstanding paragraph (a), solely to the extent that the
Option shall constitute an NSO, the Optionee shall be permitted to transfer the
Option to a member of Optionee's immediate family, to the spouse of any such
family member or to a trust established for the benefit
12
<PAGE>
of one or more of such family members. Any transferees under the preceding
sentence shall, upon exercise of the Option, hold the Option Stock subject to
all the provisions of this Agreement in the same manner as the transferor and
shall execute and deliver to the Company such instruments as the Company shall
require to evidence the same; provided, however, that any registration statement
covering securities issued under the Plan need not cover shares of Option Stock
issued to such transferees.
17. ISO. While the Company does not warrant to the Optionee that any
---
portion of the Option shall constitute an ISO, it is intended that this Option
shall constitute an ISO for purposes of Code Section 422 and shall be construed
in a manner consistent therewith with respect to the total number of whole
shares of Common Stock subject to this Option (and all other ISOs issued under
the plans of the Company, its parent and subsidiaries) which first become
exercisable in any particular calendar year which do not have an aggregate fair
market value (determined as of the date of option grant) exceeding $100,000
(i.e., all of the shares if no event occurs which accelerates the 25% per year
vesting schedule).
18. Notice of Premature Disposition. The Optionee agrees to notify the
-------------------------------
Company upon the Optionee's sale or other disposition of any share issued to him
upon exercise of the Option before the second anniversary of this Amended and
Restated Agreement and one year after the Option is exercised (a "Premature
Disposition"), stating the date and manner of such Premature Disposition. The
Optionee agrees to pay the Company, or that the Company shall be entitled to
withhold from any amount due the Optionee from the Company, amounts required by
law to be withheld on account of such Premature Disposition.
19. Stock Option Committee Determinations. In the event that any
-------------------------------------
question or controversy shall arise with respect to the nature, scope or extent
of any one or more rights conferred by the Option, or any provision of this
Agreement, the determination by the Stock Option Committee of the rights of the
Optionee shall be conclusive, final and binding upon the Optionee and upon any
other person who shall assert any right pursuant to this Option.
13
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have entered into this
Amended and Restated Agreement as of the day and year first above written.
POPPE TYSON, INC.
By: _________________________
_____________________________
Steven M. Blondy, Optionee
FEJ21494.X05
14
<PAGE>
EXHIBIT 10.21
THE 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of this 2nd day of March, 1996, by and between
POPPE TYSON, INC., a Delaware corporation with principal offices at 40 West 23rd
Street, New York, New York (the "Company"), and _________________ (the
"Optionee") an employee of GREGORY & HOENEMEYER, INC., a consultant of the
Company ("G&H"), having an address at 666 Steamboat Road, Greenwich,
Connecticut 06830:
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has determined to grant stock options to attract
and retain the best available talent and to encourage the highest level of
performance, all in accordance with the 1996 Stock Option Plan of Poppe Tyson,
Inc. (the "Plan");
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained and other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions of the Plan
---------------
and this Agreement, the Company hereby grants to the Optionee the right (the
"Option") to purchase all or any part of an aggregate of ______________ shares
of common stock of the Company, par value $0.10 per share ("Common Stock").
2. Vesting Schedule. This Option is exercisable as to 100% of the
----------------
shares of Common Stock subject to the Option as of the date hereof.
3. Exercise Price. The price of each share of Common Stock purchased
--------------
pursuant to this Option shall be $20,453.13.
4. Manner of Exercise. The Optionee may exercise the Option, in whole
------------------
or in part, with respect to any whole number of shares of Common Stock subject
to the Option. Prior to an initial public offering (as defined in Section
9(c)(i) hereof) of the Common Stock the Optionee may exercise the Option with
respect to less than one share only if the Option is then exercised as to all of
the shares then purchasable hereunder. On and after an initial public offering
of the Common Stock, an Option may not be exercised with respect to a fractional
share; if the Option is
<PAGE>
exercised with respect to all of the whole shares as to which the Option is then
exercisable, and the Option remains exercisable with respect to less than one
share of Common Stock, the Company shall pay the Optionee the excess of (i) the
fair market value of such remaining fractional share, over (ii) the Option
exercise price for such remaining fractional share, and the Option shall
terminate with respect to such fractional share. The Optionee shall exercise
the Option by giving the Company written notice, in a form prescribed by the
Company. Such notice shall specify the number of shares of Common Stock to be
purchased and shall be accompanied by payment, in cash or certified check or by
official bank check, of an amount equal to the option price of such shares
multiplied by the number of shares as to which the Option is being exercised;
provided, however, that the purchase price may be paid, in whole or in part, by
surrender or delivery to the Company of Common Stock having a fair market value
on the date of exercise equal to the portion of the purchase price being so paid
or other property acceptable to the Stock Option Committee which administers the
Plan.
5. Delivery of Stock Certificate. As soon as practicable after receipt
-----------------------------
of the notice and payment referred to in paragraph 4 above, the Company shall
deliver to the Optionee a certificate or certificates for such shares; provided,
however, that the time of such delivery may be postponed by the Company for such
period of time as the Company may require for compliance with any law, rule or
regulation applicable to the issuance or transfer of shares. The certificate or
certificates representing the shares as to which the Option has been exercised
shall bear an appropriate legend setting forth the restrictions applicable to
such shares.
6. Withholding; Assurances. Prior to or concurrently with delivery by
-----------------------
the Company to the Optionee of a certificate(s) representing such shares, the
Optionee shall (i) upon notification of the amount due, pay promptly, in cash,
any amount necessary to satisfy applicable tax requirements, and (ii) if such
shares are not then registered under the Securities Act of 1933, give assurance
satisfactory to the Company that such shares are being purchased for investment
and not with a view to the distribution thereof, and the Optionee shall give
such other assurance and take such other action as the Company shall require to
secure compliance with any law, rule or regulation applicable to the issuance of
shares.
7. Termination of Option. Except as provided in the following
---------------------
sentence, the Option and all rights of the Optionee to purchase shares of Common
Stock hereunder shall
2
<PAGE>
terminate (i) in the event that no Major Event (as defined in Section 9(c)
hereof) occurs before the first anniversary of the date hereof, on the first
anniversary of the date hereof, and (ii) in the event that a Major Event occurs
before the first anniversary of the date hereof, on the fifth anniversary of the
date hereof (the applicable date being the "Expiration Date"). Notwithstanding
the preceding sentence, if (i) prior to the completion of a Major Event G&H
terminates its consultancy with the Company for any reason or (ii) at any time
G&H or Optionee fails to render its services as required pursuant to its
Engagement Letter, or the Company terminates G&H's consultancy with the Company
for G&H's or Optionee's gross negligence or willful misconduct in performing its
consultancy, the Option shall terminate on the date of the termination of G&H's
consultancy.
8. [Intentionally left blank]
9. Restrictions Applicable to Option Stock.
---------------------------------------
a. Transfer Restrictions. Unless and until the occurrence of the
---------------------
earlier of (i) a Major Event or (ii) the third anniversary hereof, none of the
shares of Common Stock which are sold to the Optionee (or to the guardian or
legal representative of the Optionee) upon exercise of the Option ("Option
Stock") may be sold, assigned, transferred, pledged, hypothecated, or in any
other way disposed of or encumbered (collectively, "Transfer"), voluntarily or
involuntarily, except as specifically provided herein. No Transfer of Option
Stock shall be valid for any purpose if made in violation of this Agreement.
Notwithstanding anything to the contrary set forth in this Agreement, the
restrictions on Transfer of Option Stock set forth above shall not apply to any
Transfer (i) in favor of one or more trusts established for the benefit of the
Optionee and/or his or her spouse and/or lineal descendants; provided, and only
for so long as, the Optionee retains the sole voting control over the Option
Stock, in a trustee capacity or otherwise, or (ii) to any IRA, Keogh or
custodial account for the benefit of the Optionee or any of the foregoing
persons; provided that no Transfer shall be valid until recorded on the books of
the Company. Any transferees under the preceding sentence shall hold the Option
Stock subject to all the provisions of this Agreement in the same manner as the
transferor and shall execute and deliver to the Company such instruments as the
Company shall require to evidence the same. In addition to any and all federal
and state securities laws or restrictions, subsequent to an initial public
offering: (i) none of the Option Stock may be sold for the immediately following
180 days, and (ii) no more than one-half (1/2) of the Option Stock may be sold
3
<PAGE>
prior to the first anniversary of the consummation of the initial public
offering.
b. Call. If (i) prior to the completion of a Major Event G&H
----
terminates its consultancy with the Company for any reason or (ii) at any time
G&H or Optionee fails to render its services as required pursuant to its
Engagement Letter, or the Company terminates G&H's consultancy with the Company
for G&H's or Optionee's gross negligence or willful misconduct in performing its
consultancy, the Option shall terminate on the date of the termination of G&H's
consultancy, the Company shall have the ongoing right and option, upon 10 days
written notice to the Optionee, to elect to purchase all Option Stock held by
the Optionee at the Buy Back Price specified in the following sentence. For
purposes of this paragraph, the term "Buy Back Price" means the lesser of (i)
the exercise price paid to acquire such Option Stock, or (ii) the fair market
value of the Option Stock on the date when the Company elects to purchase such
Option Stock pursuant to this paragraph, as determined by the Company in good
faith. The Buy Back Price shall be paid by the Company to the Optionee in a
single lump sum cash payment at the time of its purchase of the Option Stock.
c. Major Event. For purposes of paragraphs (a) and (b) of this
-----------
Section 9, the term "Major Event" means either (i) the consummation of an
"initial public offering" (as hereinafter defined) or (ii) the occurrence of a
"change in control" (as hereinafter defined).
(1) An "initial public offering" is consummated the first time a
registration statement filed under the Securities Act with the Securities and
Exchange Commission or any other Federal agency at the time administering the
Securities Act of 1933, or any similar Federal statute (other than a
registration statement filed on Form S-4 or any successor form thereto or a
registration statement filed on Form S-8 or any successor form thereto with
respect to the issuance of Common Stock, or securities convertible into or
exercisable or exchangeable for, Common Stock or rights to acquire Common Stock
or such securities, granted or to be granted to employees or directors of or
consultants to the Company or its subsidiaries respecting an offering, whether
primary or secondary, of not less than 10% (or such lesser percentage as a lead
underwriter shall determine is the maximum amount to be offered and sold
pursuant to such registration statement) of the Common Stock then outstanding on
a fully-diluted basis is declared effective and the shares so registered are
offered and sold.
4
<PAGE>
(2) A "change in control" shall mean the sale of all or
substantially all the assets of the Company or if any person or entity or a
group (as defined under Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) becomes the beneficial owner (within the meaning of Rule 13d-3 under
said act (but other than by virtue of ownership of stock of Bozell, Jacobs,
Kenyon & Eckhardt, Inc. ("BJK&E"))), of shares of Common Stock of the Company
(or in the case of any merger, consolidation of reorganization, of the surviving
or new entity) constituting in excess of 50% of the voting rights of all
outstanding shares of common stock of the Company (or in the case of any merger,
consolidation or reorganization, of the surviving or new entity), including for
purposes of this calculation common stock as to which there is then deemed to be
a beneficial owner (within the meaning of said Rule 13d-3). Notwithstanding the
preceding sentence, a "change in control" shall not include any transaction (x)
with Animated Systems & Design, Inc. or its affiliates, or (y) if immediately
subsequent thereto, BJK&E and/or its stockholders as of the date of this
Agreement directly or indirectly are the beneficial owners (within the meaning
of Rule 13d-3) of at least 25% of the voting rights of all outstanding Common
Stock of the entity (which may be the Company) which continues the Company's
business.
d. Management of the Company. From and after the date hereof until
-------------------------
the occurrence of the earlier of (i) a Major Event or (ii) the third anniversary
hereof, the Optionee and his or her successors and assigns shall vote all of
their outstanding shares of Option Stock as directed by BJK&E.
e. Tag-Along Option. From and after the date hereof until the
----------------
occurrence of the earlier of (i) a Major Event or (ii) the third anniversary
hereof, if the Controlling Stockholder (as defined in paragraph (g)) enters into
a binding agreement (the "Sale Agreement") to sell any Common Stock pursuant to
a Control Offer (as defined in paragraph (g)) but excluding any Permitted
Transfer (as defined in paragraph (g)), it shall promptly forward a copy thereof
to the Company, which in turn shall promptly forward a copy to Optionee, and
shall not Transfer any outstanding Common Stock pursuant to the Sale Agreement
unless (i) in accordance with the terms hereof, the Sale Agreement extends the
opportunity to participate in such transaction to Optionee with respect to all
of Optionee's outstanding Common Stock on the same terms as extended to the
Controlling Stockholder, or (ii) if the Sale Agreement pertains to less than
100% of such outstanding Common Stock, nevertheless Optionee is entitled to sell
to the offeror pursuant to the Sale Agreement all of Optionee's Common
5
<PAGE>
Stock on the same terms as otherwise extended to the Controlling Stockholder.
Each exercise notice evidencing Optionee's election to participate in a Transfer
pursuant to this paragraph (e) shall be delivered to the offeror, the
Controlling Stockholder and the Company before the later to occur of the 15th
day after mailing of such offer by the Company and the last day for acceptance
of such offer as set forth in such notice.
f. Drag-Along Obligation. From and after the date hereof until the
---------------------
occurrence of the earlier of (i) a Major Event or (ii) the third anniversary
hereof, in the event the Controlling Stockholder proposes to make a Control
Transfer (as defined in paragraph (g)), the Controlling Stockholder may require
Optionee to Transfer in such Control Transfer Optionee's proportionate
percentage of its Common Stock at the same price and on the same terms and
conditions as those on which the Controlling Stockholder is making a Transfer of
its Common Stock in such Control Transfer. Each exercise notice by the
Controlling Securityholder pursuant to this paragraph (f) shall be given to the
Company, which shall promptly forward copies to Optionee, promptly after the
Controlling Stockholder decides to make such a Control Transfer and shall
include therein Optionee's proportionate percentage of the Common Stock to be
Transferred in the Control Transfer. To the extent that in order to comply with
the provisions of this paragraph (f) it would be necessary for Optionee to
exercise any options, Optionee shall not be obligated to exercise any option and
instead any option which is not exercised no later than the consummation of the
Control Transfer shall terminate and be surrendered; provided, however, that
Optionee may Transfer any vested option as part of the Control Transfer and
receive an amount per such option equal to the excess of the amount to be
received per share of Common Stock in the Control Transfer over the exercise
price of such option.
g. Additional Definitions. For purposes of paragraphs (e) and (f)
----------------------
of this Section 9, the following terms shall have the following meanings:
(1) "Affiliate" has the meaning given to it in the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
(2) "Control" means, with respect to any person or entity, the
record ownership of more than fifty percent (50%) of the issued and outstanding
Common Stock.
(3) "Control Offer" means any offer to the Controlling
Stockholder by any person or entity (other
6
<PAGE>
than an Affiliate of the Controlling Stockholder) to purchase any amount of
Common Stock which would, either alone or when aggregated with all other Common
Stock then held or to be simultaneously purchased by such offeror (or any
Affiliate thereof), cause such offeror (or any Affiliate thereof) to gain
Control of the Company, provided that such transaction also constitutes a
"change of control" (as defined in paragraph (c)) of the Company.
(4) "Control Offeror" means any person or entity making a
Control Offer.
(5) "Control Transfer" means any actual or proposed Transfer of
any Common Stock pursuant to a Control Offer.
(6) "Controlling Stockholder" means BJK&E and its Affiliates
(other than the Company), so long as, in the aggregate, they or any of their
Permitted Transferees hold at least twenty-five percent (25%) of the issued and
outstanding Common Stock; provided, however, that for purposes of paragraph (e),
the term "Controlling Stockholder" shall not include any individual stockholder
of BJK&E as such who does not hold at least twenty-five percent (25%) of the
issued and outstanding Common Stock of BJK&E.
(7) "Permitted Transfer" means any Transfer (i) by any person or
entity to any Affiliate of such person or entity, provided that any such
Permitted Transferee executes and delivers to the Company a written agreement
acceptable in form and content to the Company agreeing to be bound by paragraphs
(e) and (f) of Section 9 of this Agreement, (ii) to the Company, (iii) pursuant
to an effective registration statement under the Securities Act of 1933, and
(iv) at any time concurrently with or after any sales of any Common Stock
pursuant to an initial public offering (as defined in paragraph (c) hereof).
(8) "Transfer" means any outright sale of any Common Stock.
h. The Company hereby grants to Optionee and any Designated
Transferee "piggyback registration rights" for the Option Shares on customary
terms and conditions, including cutbacks, on any selling stockholder
registration statement subsequent to the initial public offering.
10. Notice. Any notice to the Company provided for in the Option shall
------
be addressed to the Company in care of its Secretary, at the address set forth
above and any notice to the Optionee shall be addressed to the Optionee at
7
<PAGE>
the address set forth above, or to such other address as either may last have
designated to the other by notice as provided herein. Any notice so addressed
shall be deemed to be given on the third business day after mailing, by
registered or certified mail, return receipt requested, at a post office or
branch office within the United States.
11. Adjustment. The number of shares of Common Stock subject to the
----------
Option and the price per share thereof shall be subject to adjustment, as set
forth in the Plan. The Company shall not be required to adjust the number of
shares of Common Stock subject to the Option or the price per share thereof for
any reason not specifically enumerated in the Plan.
12. No Stockholder Rights. The Optionee shall have no rights as a
---------------------
stockholder with respect to shares of Common Stock subject to the Option until
payment for such shares shall have been made in full and until the date of the
issuance of stock certificates for such shares.
13. Consultancy. Nothing herein contained shall restrict in any way
-----------
the right of any entity to terminate G&H's or Optionee's consultancy or
authority to represent the Company or a Subsidiary or Affiliate at any time,
with or without cause.
14. Option Subject to Plan. The Option has been granted pursuant to
----------------------
the Plan. This Agreement is in all respects subject to the terms and conditions
of said Plan. In the event of any conflict between this Agreement and the Plan,
the terms of the Plan shall control.
15. Nontransferability. The Option is not transferable, other than by
------------------
will or the laws of descent and distribution, and may be exercised, during the
lifetime of the Optionee only by the Optionee, or the Optionee's guardian or
legal representative. The term "Optionee" shall include any person having rights
to exercise the Option under the Plan. In the event of any attempt by the
Optionee to transfer, assign, pledge, hypothecate or otherwise dispose of the
Option or of any right hereunder, except as provided for herein, or in the event
of the levy of any attachment, execution or similar process upon the rights or
interest hereby conferred, the Company may terminate the Option by notice to the
Optionee and it shall thereupon become null and void.
16. NSO. It is intended that this Option shall not constitute an
---
incentive stock option for purposes of Code Section 422 and shall be construed
in a manner consistent therewith.
8
<PAGE>
17. Stock Option Committee Determinations. In the event that any
-------------------------------------
question or controversy shall arise with respect to the nature, scope or extent
of any one or more rights conferred by the Option, or any provision of this
Agreement, the determination by the Stock Option Committee of the rights of the
Optionee shall be conclusive, final and binding upon the Optionee and upon any
other person who shall assert any right pursuant to this Option.
IN WITNESS WHEREOF, the Company and the Optionee have entered into
this Agreement as of the day and year first above written.
POPPE TYSON, INC.
By: _______________________________________
_________________________________, Optionee
Consented to as to
Section 9(e) only by
Bozell, Jacobs,
Kenyon & Eckhardt, Inc.
By:__________________________
Consented to by
Gregory & Hoenemeyer, Inc.
By:__________________________
W. Grant Gregory, Chairman
9
<PAGE>
EXHIBIT 10.22
AGREEMENT
AGREEMENT dated as of August 1, 1996 by and between Bozell, Jacobs,
Kenyon & Eckhardt, Inc., a Delaware corporation (including its subsidiaries
other than Poppe Tyson, Inc., "BJK&E"), and Poppe Tyson, Inc., a Delaware
corporation ("Poppe").
WHEREAS, Poppe is currently utilizing certain office equipment leased
to BJK&E and is currently paying BJK&E for the use of such equipment; and
WHEREAS, the parties wish to continue such arrangement pursuant to the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. Poppe shall be entitled to continue to utilize any and all office
equipment leased to BJK&E as is being utilized by Poppe as of the date hereof
for so long as such lease to BJK&E shall remain in effect.
2. A list of all the material pieces of equipment and related
underlying leases subject to this Agreement has been previously provided to and
agreed upon by the parties to this Agreement. Such list may be amended from time
to time to delete any piece of equipment as to which the applicable underlying
lease expires without renewal or is otherwise terminated and/or add or delete
any piece of equipment as to which Poppe and BJK&E mutually agree to make
subject to, or remove from, this Agreement, as the case may be.
3. Poppe shall pay to BJK&E a monthly rent of $56,156; provided,
--------
however, that such monthly rent shall be decreased by that amount attributable
- -------
to any piece of equipment as to which the applicable underlying lease expires
without renewal or is otherwise terminated and/or increased or decreased by that
amount attributable to any piece of equipment as to which Poppe and BJK&E
mutually agree to add to, or remove from, the list referred to in paragraph 2
above, as the case may be.
4. Poppe shall be entitled to enforce any rights of BJK&E under any
applicable underlying lease, including but not limited to, warranties,
termination rights, renewal
<PAGE>
rights or purchase rights, in the event BJK&E fails to exercise such rights;
Poppe to own all equipment as to which any purchase option is exercised so long
as such equipment is on the list referred to in paragraph 2 above at the time of
such exercise, whether exercised by Poppe or BJK&E.
5. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York, without giving effect to conflict of
laws principles.
6. This Agreement shall not be assignable by either party without the
prior written consent of the other party thereto.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date and year first above written.
Poppe Tyson, Inc.
By:____________________________________________
Name:
Title:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
By:____________________________________________
Name:
Title:
2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF POPPE TYSON, INC.
Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of Poppe Tyson, Inc.
<TABLE>
<CAPTION>
PERCENTAGE
OWNED BY JURISDICTION OF
NAME COMPANY INCORPORATION
---- ---------- ---------------
<S> <C> <C>
Animated Systems & Design, Inc. ..................... 100% Delaware
Accent Software, Inc. ............................... 100% California
</TABLE>
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
EXHIBIT 23.1-1
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors
Poppe Tyson, Inc.:
The audit referred to in our report dated May 17, 1996, included the related
financial statement schedule as of March 31, 1996, and for each of the years in
the three-year period ended March 31, 1996, included in the Registration
Statement. This financial statement schedule is the responsibility of Poppe
Tyson, Inc.'s management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Omaha, Nebraska
August 7, 1996
<PAGE>
EXHIBIT 23.1-2
POPPE TYSON, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT WRITE OFFS, BALANCE AT
BEGINNING BAD DEBT NET OF END
DESCRIPTION OF YEAR EXPENSE RECOVERIES OF YEAR
<S> <C> <C> <C> <C>
Allowance for doubtful accounts -
Year ended March 31, 1996 $ 70,000 2,386 2,386 70,000
========== ======== =========== ==========
Allowance for doubtful accounts -
Year ended March 31, 1995 $ 70,000 29,312 29,312 70,000
========== ======== =========== ==========
Allowance for doubtful accounts -
Year ended March 31, 1994 $110,000 -- 40,000 70,000
========== ======== =========== ==========
</TABLE>
<PAGE>
EXHIBIT 23.3
June 26, 1996
To The Board of Directors of
Poppe Tyson, Inc.
Gentlemen:
I consent to serve as a director of Poppe Tyson, Inc. (the "Company")
upon the effective date of the Company's Registration Statement on Form S-1
regarding the Company's initial public offering and confirm to you that the
information regarding myself and my employment history contained in the
Company's Registration Statement is complete and correct.
Very truly yours,
David E. Bell
<PAGE>
EXHIBIT 23.4
July __, 1996
To The Board of Directors of
Poppe Tyson, Inc.
Gentlemen:
I consent to serve as a director of Poppe Tyson, Inc. (the "Company")
upon the effective date of the Company's Registration Statement on Form S-1
regarding the Company's initial public offering and confirm to you that the
information regarding myself and my employment history contained in the
Company's Registration Statement is complete and correct.
Very truly yours,
Paul C. Schorr III
<PAGE>
EXHIBIT 23.5
July __, 1996
To The Board of Directors of
Poppe Tyson, Inc.
Gentlemen:
I consent to serve as a director of Poppe Tyson, Inc. (the "Company")
upon the effective date of the Company's Registration Statement on Form S-1
regarding the Company's initial public offering and confirm to you that the
information regarding myself and my employment history contained in the
Company's Registration Statement is complete and correct.
Very truly yours,
Thomas H. Stoner
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF MARCH 31, 1996 AND STATEMENT OF EARNINGS FOR THE
YEAR ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 26,500
<SECURITIES> 0
<RECEIVABLES> 14,107,458
<ALLOWANCES> 70,000
<INVENTORY> 0
<CURRENT-ASSETS> 14,710,723
<PP&E> 3,396,681
<DEPRECIATION> 1,859,038
<TOTAL-ASSETS> 17,887,465
<CURRENT-LIABILITIES> 15,433,103
<BONDS> 0
0
0
<COMMON> 13,521
<OTHER-SE> 1,807,188
<TOTAL-LIABILITY-AND-EQUITY> 17,887,465
<SALES> 18,963,490
<TOTAL-REVENUES> 18,963,490
<CGS> 0
<TOTAL-COSTS> 18,490,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 473,130
<INCOME-TAX> 227,000
<INCOME-CONTINUING> 246,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,130
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
