<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1996
REGISTRATION NO. 333-09791
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
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, JR.
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. LAWRENCE S. WITTENBERG, 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.
----------------
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.
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<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 NOVEMBER 7, 1996
PROSPECTUS
3,000,000 SHARES
POPPE TYSON, INC.
COMMON STOCK
-----------
All of the 3,000,000 shares of Common Stock offered hereby are being offered
by Poppe Tyson, Inc. (together with its subsidiaries, "Poppe" or the
"Company"). 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
$9.00 and $11.00 per share.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "POPT," subject to official notice of issuance.
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
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- --------------------------------------------------------------------------------
Total(3)..................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and its parent company, Bozell, Jacobs, Kenyon & Eckhardt, Inc.
(including subsidiaries other than Poppe, "BJK&E"), 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 $1,500,000, payable by the Company.
(3) The Company has granted the several Underwriters an option, exercisable
within 30 days after the date hereof, to purchase up to 450,000 additional
shares of Common Stock, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "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 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, as adjusted, of approximately 8,450-to-1 which the Company
completed prior to the date of this Prospectus. Unless otherwise indicated, all
information in this Prospectus assumes that the Underwriters' over-allotment
option described in "Underwriting" is not exercised. This Prospectus contains
certain statements of a forward-looking nature relating to future events or the
future financial performance of the Company. Prospective investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, prospective
investors should specifically consider the various factors identified in this
Prospectus, including the matters set forth under the caption "Risk Factors"
which could cause actual results to differ materially from those indicated by
such forward-looking statements.
THE COMPANY
Poppe is a full-service marketing communications company that develops and
implements marketing programs utilizing traditional media and interactive
applications of digital media 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 commencing its Web environment services
in fiscal 1994, 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 395 full-time
employees operate from offices in New York City; Morris Plains, New Jersey;
Pittsburgh, Pennsylvania; 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 interactive marketing communications products and services
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, data base driven sales support and Web site design,
development, launch and maintenance services. See "Business--Poppe's Products
and Services." The Company delivers its clients' marketing messages through
traditional media such as broadcast, print and direct mail, as well as digital
media.
The Company believes that there are significant factors and trends driving
change and creating opportunities in the marketing communications industry for
the use of digital media. These factors include the ability of marketers to use
digital 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
Netcraft, Ltd., the number of corporate Internet sites increased from
approximately 4,900 in August 1995 to approximately 171,000 in June 1996 and to
approximately 287,000 in October 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% and approximately 230% through 1997.
The Company's interactive marketing communications products and services
include Web environment services such as Web site design, development and
launch services, digital marketing, sales and training products
3
<PAGE>
delivered primarily through CD-ROMs and digital diskettes, and data base
marketing services such as processing, grading and tracking customer e-mail,
Web data collection systems, 1-800 telephone responses and business reply card
processing (collectively, "Interactive Products and Services"). The Company's
revenues from its Interactive Products and Services were approximately $813,000
and $4.8 million (approximately 7% and 28% of the Company's total revenues) for
the fiscal years ended March 31, 1995 and 1996, respectively, and approximately
$1.5 million and $5.8 million (approximately 23% and 38% of the Company's total
revenues) for the six months ended September 30, 1995 and 1996, respectively.
On June 27, 1996, Poppe acquired Animated Systems & Design, Inc. ("Animated
Systems"), which creates and develops 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 another marketing communications
company in fiscal 1996 as if they had occurred on April 1, 1995, the Company's
revenues from Interactive Products and Services were approximately $7.4 million
(approximately 34% of the Company's total revenues) for fiscal 1996 and giving
effect to the acquisition of Animated Systems as if it had occurred on April 1,
1995, the Company's revenues from Interactive Products and Services were
approximately $6.7 million (approximately 41% of the Company's total revenues)
for the six months ended September 30, 1996. The balance of the Company's
revenues were derived from marketing communications services utilizing
traditional media such as broadcast and print advertising and public relations.
Poppe's digital 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 BJK&E'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 BJK&E from February 1988 until
June 1996 and as of October 31, 1996, BJK&E owned approximately 88% of the
outstanding Common Stock, on a fully diluted basis. Immediately after the
completion of this offering, BJK&E will own approximately 63%, on a fully
diluted basis, of the outstanding Common Stock (61% 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........................... 3,000,000 shares
Common Stock to be outstanding
after this offering............... 10,288,700 shares(1)
Use of proceeds.................... Repayment of all of the intercorporate
borrowings to BJK&E, general corporate
purposes, including working capital, fund-
ing for the continued development of the
Company's interactive marketing communica-
tions business, for acquisition of prod-
ucts, technologies or businesses that of-
fer marketing communications products or
services and to expand operations and es-
tablish new domestic and international of-
fices
Nasdaq National Market symbol...... POPT
</TABLE>
- --------
(1) Does not include (i) 2,210,746 shares of Common Stock reserved for issuance
upon exercise of stock options pursuant to the Company's stock option plan
on October 31, 1996, of which on October 31, 1996 outstanding options to
purchase 750,295 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, and of which options to purchase an
additional 43,749 shares have been granted to nominees to the Company's
Board of Directors at an exercise price equal to the initial public
offering price effective at the closing of this offering, at a weighted
average exercise price of $6.16 per share (for purposes of options with an
exercise price equal to the initial public offering price, assuming an
initial offering price of $10.00 per share, the midpoint of the price range
set forth on the cover page of this Prospectus) or (ii) 174,165 shares of
Common Stock reserved for issuance pursuant to the Company's stock purchase
plan, none of which have been issued at October 31, 1996. See "Management--
Directors' Compensation," "--Stock Option Plan" and "--Stock Purchase
Plan."
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------------------------------------- -----------------------------
1996 1996
1992 1993 1994 1995 1996 PRO FORMA(1) 1995 1996 PRO FORMA(1)
------ ------ ------- ------- ------- ------------ ------ ------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Commissions and fees.... $7,332 $7,371 $10,585 $11,036 $17,077 $21,517 $6,371 $15,303 $16,203
Operating income
(loss)................. (503) (397) 560 163 847 927 (394) (944) (1,103)
Net earnings (loss)..... (236) (166) 313 36 496 309 (247) (676) (925)
Net earnings
(loss) per share....... $ (.03) $ (.02) $ .04 $ -- $ .06 $ .04 $ (.03) $ (.10) $ (.13)
Weighted average number
of shares
outstanding(2)......... 8,451 8,451 8,451 8,451 8,335 8,786 8,451 7,048 7,274
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1996
-------------------
AS
ACTUAL ADJUSTED(3)
------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................................................ $ 48 $18,820
Working capital (deficit)................................... (3,108) 23,292
Total assets................................................ 32,301 49,873
Long-term liabilities....................................... 834 834
Total liabilities........................................... 29,571 20,743
Total stockholders' equity.................................. 2,730 29,130
</TABLE>
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Notes on following page
5
<PAGE>
(1) The pro forma condensed consolidated financial data give effect to the
acquisition by Poppe of certain assets and the assumption of certain
liabilities of 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 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 for the year ended
March 31, 1996 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 statement of operations data for the six
months ended September 30, 1996 combine the results of operations of the
Company for the six months ended September 30, 1996 and the results of
operations for that period as if the Animated Acquisition had been
consummated at April 1, 1995. 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 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, WCP and
Animated Systems appearing elsewhere in this Prospectus.
(2) The weighted average number of shares outstanding included in the pro forma
columns includes the weighted average of common shares and common
equivalent shares adjusted for the 451,596 common shares and common share
equivalents issued in connection with the Animated Acquisition.
(3) As adjusted to give effect to the sale of the 3,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 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. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
NO ASSURANCE OF PROFITABILITY; INCREASED EXPENSES ANTICIPATED
The Company had net earnings of $313,238, $36,477 and $496,412 for the
fiscal years ended March 31, 1994, 1995 and 1996, respectively (net earnings
of $308,625 for the fiscal year ended March 31, 1996 on a Pro Forma Basis).
The Company reported net losses of $247,334 and $676,315 for the six months
ended September 30, 1995 and 1996, respectively (a net loss of $924,593 for
the six months ended September 30, 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 Interactive Products and Services
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 interactive marketing communications business, demand for the
Company's interactive marketing communications products and services, the
Company's ability to expand its interactive marketing communications product
and service offerings, the Company's ability to effectively use emerging
technologies in providing its interactive marketing communications 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 and one-half fiscal years has
primarily been due to its interactive marketing communications business and
acquisitions made by the Company. The Company did not recognize any revenue
from its interactive marketing communications business (other than certain
data base marketing services such as 1-800 telephone responses and business
reply card processing) until fiscal 1995, although in fiscal 1994 it did incur
start-up costs related to this business. The Company's revenues from its
Interactive Products and Services were approximately $813,000, or
approximately 7% of total revenues, in fiscal 1995, approximately $4.8
million, or approximately 28% of total revenues, in fiscal 1996 and
approximately $5.8 million, or approximately 38% of total revenues, in the six
months ended September 30, 1996. The number of the Company's full-time
employees has also grown rapidly, increasing from approximately 130 on March
31, 1995 to approximately 240 on March 31, 1996, and to approximately 395 on
October 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 four acquisitions in Silicon Valley, Pittsburgh
and New York City, since March 31, 1993. Most recently, the Company acquired
Animated Systems, which is engaged in the creation and development of 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, including cash management, accounts receivable collection,
accounting, payroll processing, employee benefit administration, internal
audit functions, facilities management and insurance coordination. Pursuant to
the
7
<PAGE>
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 agreement provides for payments by the Company to BJK&E equal to 3% of the
Company's commissions 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 commissions and fees with a reconciliation subsequent to each year
end based on the Company's actual commissions and fees. 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
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, or any change in ownership of BJK&E, 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%, 43% and
32% of the Company's revenues for the fiscal years ended March 31, 1994, 1995
and 1996, respectively (approximately 33% for fiscal 1996 on a Pro Forma
Basis) and for approximately 41% and 37% of the Company's revenues for the six
months ended September 30, 1995 and 1996, respectively (approximately 36% for
the six months ended September 30, 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 12% of the Company's revenues during that period
(approximately 9% 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
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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 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 interactive marketing
communications 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 employment
agreements with Messrs. O'Daly, Carlick and Wharton which have a three year
term commencing upon the consummation of this offering. There can be no
assurance, however, that any one of them will not voluntarily terminate their
employment with the Company. Subject to certain limitations, the employment
agreements prohibit each individual from soliciting or performing certain
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. There can be no assurance, however, that the Company will be able
to enforce such non-solicitation provisions. 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 digital 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,
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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. The Company generally requires its key employees to
enter into confidentiality and non-solicitation agreements with the Company
prohibiting solicitation of Company accounts and employees for a period of one
year following a termination of employment; however, there can be no assurance
as to the Company's ability to enforce such agreements. See "Business--
Competition," "--Employees" and "Management."
UNCERTAIN ADOPTION OF INTERNET AS MEDIUM OF COMMERCE AND COMMUNICATIONS
The Company's ability to derive revenues from its interactive marketing
communications business utilizing the Internet and the Web 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 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 Internet
sites, 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 DIGITAL 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 interactive marketing communications
products and services utilizing digital media. The market for digital 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 digital 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
digital media will continue to grow or that significant demand for the
Company's existing or future Interactive Products and Services utilizing
digital media will emerge or become sustainable. There can be no assurance
that the development or commercial use of additional digital media vehicles
will not adversely affect the demand for existing products and services
utilizing digital media provided by the Company, or in such event, that the
Company could successfully adapt its technologies and other capabilities to
such other digital media. The use of digital 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 digital media. Accordingly, there can be no assurance that the
digital 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 substantially all of the Company's revenues were derived
from traditional marketing products and services. Interactive Products and
Services were approximately $813,000 and $4.8 million (approximately 7% and
28% of the Company's total revenues) for the fiscal years ended March 31, 1995
and 1996, respectively (approximately $7.4 million, or 34% of the Company's
total revenues, for fiscal 1996 on a
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Pro Forma Basis) and approximately $1.5 million and $5.8 million
(approximately 23% and 38% of the Company's total revenues) for the six months
ended September 30, 1995 and 1996, respectively, (approximately $6.7 million
or 41% for the six months ended September 30, 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 its Interactive Products and Services
business, although there can be no assurance that the Company will be able to
do so. The Company's revenues from its traditional marketing business
increased 20% in fiscal 1996 as compared to fiscal 1995 and 2% 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 its
traditional marketing business.
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 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 to the client 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 digital media, the Company's competitors also include marketing
communications companies specializing in digital media marketing
communications products and services as well as digital media technology
companies. Many of these digital media boutiques are increasingly well-known
to current and potential clients. In addition, many traditional advertising
agencies are beginning to develop or acquire digital 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
digital 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.
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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. The Company's ability to make acquisitions now
and in the future may be adversely affected as a result of the requirement
that the Company account for acquisitions on a purchase basis due to BJK&E's
ownership of in excess of 50% of the Common Stock. In addition, if the 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 October 31, 1996, BJK&E continued to own approximately
88% of the outstanding Common Stock, on a fully diluted basis. Immediately
after the completion of this offering, BJK&E will own approximately 63%, on a
fully diluted basis, of the outstanding Common Stock (61% 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.
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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 Stockholders" and "Certain Transactions--Relationship with BJK&E."
VOTING CONTROL BY BJK&E
Upon completion of this offering, BJK&E will own approximately 63%, on a
fully diluted basis, of the outstanding Common Stock (61% 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 Stockholders" and "Certain Transactions--Relationship with BJK&E."
RISK OF CAPACITY CONSTRAINTS AND SYSTEM FAILURES
The performance of the Company's interactive marketing communications
products and services which utilize digital media is critical to the Company's
reputation, its ability to attract new clients and projects in the digital
media arena and market acceptance of any digital media products and services.
The success of the Company's interactive marketing communications business
with respect to Web environment services 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. The Company's servers, despite the implementation
of network security measures by the Company, and clients' Web site 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.
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RISKS ASSOCIATED WITH FIXED FEE CONTRACTS
The Company generates the substantial majority of its Interactive Products
and Services 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 digital media marketing communications 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.
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 11, 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
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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 3,350,000
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 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 10,288,700 shares of Common Stock
(10,738,700 shares outstanding if the Underwriters' over-allotment option is
exercised in full), 6,760,461 of which will be owned by BJK&E. In addition,
there are outstanding options to purchase 750,295 shares of Common Stock, of
which options to purchase 393,337 shares of Common Stock are currently
exercisable. See "Management--Stock Option Plan." Of such outstanding shares,
the 3,000,000 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 up to an additional 325,371
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
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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 a portion of the net proceeds of the sale by the
Company of Common Stock offered hereby for repayment of all of the
intercorporate borrowings to BJK&E which are estimated to be approximately
$7.7 million as of October 31, 1996, including approximately $2.4 million,
which bears interest from June 27, 1996 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, and which borrowings may increase prior
to the consummation of this offering depending upon the Company's working
capital needs. 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 interactive marketing
communications business. A portion of the proceeds may also be used to acquire
products, technologies or businesses that offer marketing communications
products or services and to expand operations and establish new domestic and
international offices, although there can be no assurance that the Company
will expand operations or complete any acquisitions. 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 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 between the
Company 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 $7.58 in net tangible book value per share of Common Stock as of
September 30, 1996 (assuming an initial offering price of $10.00 per share,
the midpoint of the price range set forth on the cover page of this
Prospectus). 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."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock being offered by it hereby (at an assumed initial public offering
price of $10.00 per share, the midpoint of the price range set forth on the
cover page of this Prospectus) are estimated to be approximately $26,400,000
($30,585,000 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 a portion of the net proceeds of this offering for
repayment of all of the intercorporate borrowings to BJK&E which are estimated
to be approximately $7.7 million as of October 31, 1996, including
approximately $2.4 million, which bears interest from June 27, 1996 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, and
which borrowings may increase prior to the consummation of this offering
depending upon the Company's working capital needs. 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 interactive marketing communications business. A portion of the net
proceeds may also be used to acquire products, technologies or businesses that
offer marketing communications products or services and to expand operations
and establish new domestic and international offices. Although the Company has
no present agreements or commitments and is not currently engaged in any
negotiations with respect to any such material acquisitions, 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 securities.
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
September 30, 1996, on an actual basis and as adjusted to reflect the sale by
the Company of 3,000,000 shares of Common Stock pursuant to this offering (at
an assumed initial public offering price of $10.00 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>
SEPTEMBER 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term obligations, including
amounts due to parent company........................ $ 9,322 $ 493
======= =======
Long-term debt........................................ $ 834 $ 834
Stockholders' equity:
Preferred Stock, $.001 par value; 3,350,000 shares
authorized;
no shares outstanding(1)........................... -- --
Common Stock, $.001 par value; 25,000,000 shares
authorized; 7,288,700 shares issued and
outstanding, actual; 10,288,700 shares issued and
outstanding, as adjusted(1)(2)..................... 7 10
Additional paid-in capital.......................... 6,471 32,868
Accumulated deficit................................. (3,748) (3,748)
------- -------
Total stockholders' equity........................ 2,730 29,130
------- -------
Total capitalization............................ $ 3,564 $29,964
======= =======
</TABLE>
- --------
(1) Gives effect to an amendment to the Company's Certificate of Incorporation
on October 1, 1996. See Note 10 to the Notes to the Company's Financial
Statements.
(2) Does not include (i) 2,210,746 shares of Common Stock reserved for
issuance upon exercise of stock options pursuant to the Company's stock
option plan on September 30, 1996, of which on September 30, 1996
outstanding options to purchase 676,795 shares had 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 $5.50 per share (for purposes of options with an
exercise price equal to the initial public offering price, assuming an
initial offering price of $10.00 per share, the midpoint of the price
range set forth on the cover page of this Prospectus), or (ii) 174,165
shares of Common Stock reserved for issuance pursuant to the Company's
stock purchase plan, none of which had been issued at September 30, 1996.
See "Management--Stock Option Plan" and "--Stock Purchase Plan."
18
<PAGE>
DILUTION
The net tangible book deficit of the Company at September 30, 1996 was
$1,488,841, or $0.20 per share of Common Stock. After giving effect to the
sale of the 3,000,000 shares of Common Stock offered by the Company hereby
(assuming an initial public offering price of $10.00 per share, the midpoint
of the price range set forth on the cover page of this Prospectus), the net
tangible book value of the Company at September 30, 1996, would have been
$24,911,159, or $2.42 per share. This represents an immediate increase in net
tangible book value of $2.62 per share to existing stockholders and an
immediate dilution of $7.58 per share to new investors purchasing shares in
this offering. 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. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share...................... $10.00
Net tangible per share book deficit before offering.......... $(0.20)
Increase per share attributable to new investors............. 2.62
------
Net tangible per share book value after offering............. 2.42
------
Dilution per share to new investors.......................... $ 7.58
======
</TABLE>
The following table summarizes, as of October 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 $10.00 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).. 7,288,700 70.8% $ 6,356,975 17.5% $ 0.87
New investors............. 3,000,000 29.2 30,000,000 82.5 10.00
---------- ----- ----------- -----
Total................... 10,288,700 100.0% $36,356,975 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Does not include (i) 2,210,746 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 750,295 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,
and of which outstanding options to purchase an additional 43,749 shares
have been granted to nominees to the Company's Board of Directors at an
exercise price equal to the initial public offering price effective at the
closing of this offering, at a weighted average exercise price of $6.16
per share (for purposes of options with an exercise price equal to the
initial public offering price, assuming an initial offering price of
$10.00 per share, the midpoint of the price range set forth on the cover
page of this Prospectus) or (ii) 174,165 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--Directors' Compensation," "--Stock Option Plan" and "--
Stock Purchase Plan."
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 March 31, 1992, 1993, 1994, 1995 and 1996 and the six months ended
September 30, 1995 and 1996 (historical and pro forma) and balance sheet data
as of March 31, 1992, 1993, 1994, 1995 and 1996 and as of September 30, 1996
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. In the opinion of management, the statement of operations data
for the six months ended September 30, 1995 and 1996 (historical) and balance
sheet data as of September 30, 1996 reflect all adjustments (consisting only
of normal recurring adjustments) necessary to fairly present the data for such
interim periods. Operating results for interim periods are not necessarily
indicative of the results that may be expected for a full year. 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 WCP and Animated Systems appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------- --------------------------------------
1996 1996
1992 1993 1994 1995 1996 PRO FORMA(1) 1995 1996 PRO FORMA(1)
------ ------ ------- ------- ------- ------------ --------- ---------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Commissions and fees.... $7,332 $7,371 $10,585 $11,036 $17,077 $21,517 $ 6,371 $ 15,303 $ 16,203
Salaries and employee
benefits............... 4,787 4,905 6,939 7,208 10,902 13,670 4,523 10,821 11,315
Operating and general... 3,048 2,863 3,086 3,665 5,328 6,920 2,242 5,426 6,018
------ ------ ------- ------- ------- ------- --------- ---------- ----------
Operating income
(loss)................. (503) (397) 560 163 847 927 (394) (944) (1,130)
Interest income
(expense), net......... 168 175 -- -- -- (193) -- -- (108)
------ ------ ------- ------- ------- ------- --------- ---------- ----------
Income (loss) before
income tax expense..... (335) (222) 560 163 847 734 (394) (944) (1,238)
Income tax expense
(benefit).............. (99) (56) 247 127 351 425 (147) (268) (313)
------ ------ ------- ------- ------- ------- --------- ---------- ----------
Net earnings (loss)..... $ (236) $ (166) $ 313 $ 36 $ 496 $ 309 $ (247) $ (676) $ (925)
====== ====== ======= ======= ======= ======= ========= ========== ==========
Net earnings (loss) per
share.................. $ (.03) $ (.02) $ .04 $ -- $ .06 $ .04 $ (.03) $ (.10) $ (.13)
Weighted average number
of shares
outstanding(2)......... 8,451 8,451 8,451 8,451 8,335 8,786 8,451 7,048 7,274
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------
AT SEPTEMBER 30,
1992 1993 1994 1995 1996 1996
----- ----- ----- ----- ------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash ................... $ 35 $ 30 $ 36 $ 36 $ 26 $ 48
Working capital
(deficit).............. (777) 479 455 329 (161) (3,108)
Total assets............ 5,794 6,847 8,928 9,338 16,766 32,301
Long-term liabilities... 339 367 396 443 634 834
Total liabilities....... 5,946 5,665 7,433 7,807 14,667 29,571
Total stockholders'
equity (deficit)....... (152) 1,182 1,495 1,531 2,099 2,730
</TABLE>
- -------
(1) The pro forma condensed consolidated financial data give effect to 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 for the year ended March 31,
1996 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 statement of operations data for the six months
ended September 30, 1996 combine the results of operations of the Company
for the six months ended September 30, 1996 and the results of operations
for that period as if the Animated Acquisition had been consummated at
April 1, 1995. 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 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, WCP and Animated Systems
appearing elsewhere in this Prospectus.
(2) The weighted average number of shares outstanding included in the pro
forma columns includes the weighted average of common shares and common
equivalent shares adjusted for the 451,596 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, except that the results of operations of the
Company for the six months ended September 30, 1996 do include the results of
operations of the Company's Animated Systems subsidiary for the three months
ended September 30, 1996. The following presentation contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under
"Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company is a full-service marketing communications company that develops
and implements marketing programs utilizing traditional media and interactive
applications of digital based media. 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, data base 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 and the six months
ending September 30, 1996, Poppe derived approximately $813,000, $4.8 million
and $5.8 million, respectively, or approximately 7%, 28% and 38%,
respectively, of its total revenues from Interactive Products and 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 and print advertising, as well as public relations,
including online public relations (referred to as "CyberPR").
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. Poppe charges a monthly fee for CyberPR.
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.
INTERACTIVE MARKETING COMMUNICATIONS PRODUCTS AND SERVICES
The Company's Interactive Products and Services revenues consist of revenues
derived from Web environment services such as Web site design, development and
launch services, digital marketing, sales and training products delivered
primarily through CD-ROMs and digital diskettes, and data base marketing
services such as processing, grading and tracking customer e-mail, Web data
collection systems, 1-800 telephone responses and business reply card
processing. The Company also derives ongoing revenues from Web site
maintenance and hosting.
21
<PAGE>
Substantially all of the Company's Interactive Products and 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 digital
media based 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 that it hosts. 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 Interactive
Products and 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>
YEARS ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------- -----------------------------------------
1996 1996
PRO PRO
1994 1995 1996 FORMA (1) 1995 1996 FORMA (1)
----------- ----------- ----------- ------------ ----------- ------------ ------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.. $10,585 100% $11,036 100% $17,077 100% $21,517 100% $6,371 100% $15,303 100% $16,203 100%
Salaries and employee
benefits............. 6,939 66 7,208 66 10,902 64 13,670 64 4,523 71 10,821 71 11,315 70
Operating and
general.............. 3,086 29 3,665 33 5,328 31 6,920 32 2,242 35 5,426 35 6,018 37
------- --- ------- --- ------- --- ------- --- ------ --- ------- --- ------- ---
Operating income
(loss)............... 560 5 163 1 847 5 927 4 (394) (6) (944) (6) (1,130) (7)
Interest expense,
net.................. -- -- -- -- -- -- (193) (1) -- -- -- -- (108) (1)
------- --- ------- --- ------- --- ------- --- ------ --- ------- --- ------- ---
Income (loss) before
income tax expense
(benefit)............ 560 5 163 1 847 5 734 3 (394) (6) (944) (6) (1,238) (8)
Income tax expense
(benefit)............ 247 2 127 1 351 2 425 2 (147) (2) (268) (2) (313) (2)
------- --- ------- --- ------- --- ------- --- ------ --- ------- --- ------- ---
Net earnings (loss)... $ 313 3% $ 36 -- % $ 496 3% $ 309 1% $ (247) (4)% $ (676) (4)% $ (925) (6)%
======= === ======= === ======= === ======= === ====== === ======= === ======= ===
</TABLE>
- --------
(1) The pro forma data for the year ended March 31, 1996 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 for the six months ended September 30, 1996 combine the results of
operations of the Company for the six months ended September 30, 1996 with
the results of the operations for that period as if the Animated
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 Condensed Financial Statements (including the notes thereto) of the
Company and the respective historical financial statements (including the
notes thereto) of the Company, WCP and Animated Systems appearing
elsewhere in this Prospectus.
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995
Revenues. The Company's commissions and fees increased by approximately $8.9
million (140%) to $15.3 million in the six months ended September 30, 1996
from $6.4 million in the six months ended September 30, 1995. The Company
recorded approximately $5.8 million of Interactive Products and Services
revenue in the six months ended September 30, 1996 compared to approximately
$1.5 of Interactive Products and Services revenue in the six months ended
September 30, 1995.
22
<PAGE>
Approximately one-third of the increased revenue is attributable to growth
in the Company's existing Interactive Products and Services business.
Approximately one-third of the increased revenue is attributable to the
acquisitions of WCP (effective January 1996) and Marshall Jaccoma Mitchell
Advertising Incorporated ("MJM") (effective April 1996). Approximately one-
sixth of the increased revenue is attributable to the acquisition of Animated
Systems (effective June 1996) and approximately one-sixth of the increased
revenue is attributable to growth of the Company's existing traditional
advertising and public relations businesses.
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 139% to approximately $10.8 million in the six months ended
September 30, 1996 from $4.5 million in the six months ended September 30,
1995. This increase resulted primarily from the additional employees resulting
from acquisitions of WCP, MJM and Animated Systems and to staff increases in
the Company's existing traditional business and interactive marketing
communications businesses. The Company's salaries and employee benefits
expenses as a percentage of revenues remained relatively constant at
approximately 71% in the six months ended September 30, 1996 and 1995.
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."
The Company's operating and general expenses increased by approximately 142%
to $5.4 million in the six months ended September 30, 1996 from $2.2 million
in the six months ended September 30, 1995. The acquisitions of WCP and
Animated Systems accounted for approximately one-third of this increase. In
addition, departmental and computer related expenses associated with increased
staff for the Company's Interactive Products and Services business accounted
for one-third of this increase. The Company's operating and general expenses
as a percentage of revenues remained relatively constant at approximately 35%
in the six months ended September 30, 1996 and 1995.
Income Taxes. The Company's effective tax benefit rate declined to 28% in
the six months ended September 30, 1996 from 37% in the six months ended
September 30, 1995. The decline in the effective tax benefit rate results
primarily from state income tax benefits recognized by the Company during the
six months ended June 30, 1995. The Company did not recognize a similar state
income tax benefit during the six months ended September 30, 1996.
FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995
Revenues. The Company's commissions and fees increased by approximately 55%
to $17.1 million in the fiscal year ended March 31, 1996 from $11.0 million in
the fiscal year ended March 31, 1995. Approximately 65% of this increase was
attributable to growth in revenues from the Company's Interactive Products and
Services, which increased significantly to approximately $4.8 million in
fiscal 1996 from approximately $813,000 in fiscal 1995. Increased traditional
marketing communications business, including WCP (acquired in January 1996),
during the fiscal year ended March 31, 1996 also contributed to the increased
revenues.
23
<PAGE>
Salaries and Employee Benefits. The Company's salaries and employee benefits
expenses increased by approximately 51% to $10.9 million in the fiscal year
ended March 31, 1996 from $7.2 million in the fiscal year ended March 31,
1995. This increase resulted primarily from additional employees hired to
service the growth in new business, including employees hired as part of the
WCP Acquisition. The Company's salaries and employee benefits expenses as a
percentage of revenues declined to approximately 64% in fiscal 1996 from
approximately 66% in fiscal 1995.
Operating and General. Operating and general expenses increased by
approximately 45% to $5.3 million in the fiscal year ended March 31, 1996 from
$3.7 million in the fiscal year ended March 31, 1995. Approximately half of
this increase represents the costs associated with setting up the Company's
interactive marketing communications operations in New York, including
increased rent expense and purchases of computer software and supplies. The
balance of this increase reflects the WCP Acquisition and the continued
development of the interactive marketing communications business. The
Company's operating and general expenses declined as a percentage of revenues
to 31% in fiscal 1996 from 33% in fiscal 1995.
Income Taxes. The Company's effective tax rate declined to 41% in the fiscal
year ended March 31, 1996 from 78% in the fiscal year ended March 31, 1995.
Nondeductible expenses for items such as life insurance premiums, club dues
and meals and entertainment decreased in fiscal 1996 from fiscal 1995, in both
amount and in relation to pretax operating income. Such nondeductible expenses
aggregated approximately $135,000 and $171,000 in fiscal 1996 and fiscal 1995,
respectively, and declined as a percentage of pretax operating income to 16%
in fiscal 1996 from 105% in fiscal 1995.
FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994
Revenues. The Company's commissions and fees increased by approximately 4%
to $11.0 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 $813,000
of Interactive Products and Services revenues in fiscal 1995 compared to no
Interactive Products and Services revenues in fiscal 1994, other than from
certain data base marketing services such as 1-800 telephone responses and
business reply card processing.
Salaries and Employee Benefits. The Company's salaries and employee benefits
expenses increased by approximately 4% to $7.2 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 interactive marketing communications
operations. The Company's salaries and employee benefits expenses as a
percentage of revenues remained relatively constant at approximately 66% in
fiscal 1995 and 1994.
Operating and General. Operating and general expenses increased by
approximately 19% 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
and related purchases of supplies and office and equipment maintenance.
Income Taxes. The Company's effective tax rate increased to 78% in the
fiscal year ended March 31, 1995 from 44% in the fiscal year ended March 31,
1994. This resulted largely because certain nondeductible expenses (primarily
life insurance premiums, club dues and meals and entertainment) increased 88%
while pretax operating income decreased 71% in fiscal 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 ("FASB 121"). The application of FASB 121, which
becomes effective for the Company's 1997 fiscal year, requires management to
review
24
<PAGE>
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 adoption of FASB 121 had
no effect on the Company's financial statements for the six months ended
September 30, 1996.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("FASB 123"). FASB 123, which
becomes effective for the Company's 1997 fiscal year, establishes a fair value
based method of recognizing compensation expense for stock-based compensation.
As permitted by FASB 123, the Company has continued to use the intrinsic value
based method of recognizing compensation expense for stock-based compensation
to employees. However, the Company will be required to disclose, beginning in
its fiscal 1997 annual financial statements, 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 fiscal 1995,
fiscal 1996 and fiscal 1997. 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
interactive marketing communications business during that quarter. The timing
of acquisitions also contributes to fluctuations in quarterly results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
FISCAL 1995 FISCAL 1996 FISCAL 1997
-------------------------------------- ------------------------------------- -------------------
JUNE '94 SEPT. '94 DEC. '94 MAR. '95 JUNE '95 SEPT. '95 DEC. '95 MAR. '96 JUNE '96 SEPT. '96
-------- --------- -------- -------- -------- --------- -------- -------- -------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... $2,451 $2,433 $2,920 $3,232 $2,761 $3,609 $4,628 $6,079 $6,666 $8,637
Salaries and employee
benefits............... 1,738 1,691 1,829 1,950 2,125 2,396 2,710 3,671 4,792 6,029
Operating and general... 811 915 975 964 1,020 1,223 1,441 1,644 2,472 2,954
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (98) (173) 116 318 (384) (10) 477 764 (598) (346)
Income tax expense
(benefit).............. (25) (53) 61 144 (143) (4) 195 303 (197) (71)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)..... $ (73) $ (120) $ 55 $ 174 $ (241) $ (6) $ 282 $ 461 $ (401) $ (275)
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net earnings (loss) per
share.................. $ (.01) $ (.01) $ .01 $ .01 $ (.03) $ -- $ .03 $ .06 $ (.06) $ (.04)
<CAPTION>
AS PERCENTAGE OF COMMISSIONS AND FEES
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions and fees.... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Salaries and employee
benefits............... 71 69 63 60 77 66 59 60 72 70
Operating and general... 33 38 33 30 37 34 31 27 37 34
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss)................. (4) (7) 4 10 (14) -- 10 13 (9) (4)
Income tax expense
(benefit).............. (1) (2) 2 4 (5) -- 4 5 (3) (1)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)..... (3)% (5)% 2% 6% (9)% -- % 6% 8% (6)% (3)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE>
ANIMATED SYSTEMS
Pursuant to the Company's strategy to grow through acquisitions, on June 27,
1996 Poppe acquired Animated Systems for consideration aggregating $1.5
million in cash and 451,596 shares of Common Stock. The acquisition has been
accounted for under the purchase method of accounting and the Company is
amortizing the resulting goodwill of approximately $2.7 million 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 three-year non-compete and five and three-year non-solicitation
agreements with the Company, respectively, which amounts are being amortized
over five years and three years, respectively. In connection with such
acquisition, outstanding options to purchase shares of Animated Systems' stock
were assumed under the Company's stock option plan as incentive stock options
to purchase an aggregate of 9,843 shares of Common Stock. Animated Systems'
business consists of the creation and development of interactive marketing and
sales presentations, sales information systems and computer based training
materials delivered through digital based media vehicles, primarily CD-ROMs
and digital diskettes.
Historically, Animated Systems recognized revenues on the percentage-of-
completion method which required revenues to be recorded over the term of a
client contract based on the percentage of work completed to date. For periods
subsequent to the Animated Acquisition on June 27, 1996, Animated Systems'
revenue recognition policy will be conformed to that of the Company's on an
ongoing basis.
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 financial
condition of the Company at September 30, 1996 reflects the Animated
Acquisition which was completed on June 27, 1996.
The Company's cash increased by approximately $23,000 during the six months
ended September 30, 1996 to $48,000. Working capital decreased by
approximately $2.9 million during the six months ended September 30, 1996 to a
deficit of $3.1 million as of September 30, 1996, reflecting short term
borrowings associated with the Animated Acquisition plus an increase in
amounts due to parent to fund increased accounts receivable balance. Accounts
receivable increased by approximately $9.6 million primarily due to billings
in September 1996 to one client of approximately $6.7 million. Accounts
payable increased by approximately $5.0 million in the six months ended
September 30, 1996. Prepaid expenses increased by approximately $1.2 million,
in large part reflecting deferred costs associated with the Company's initial
public offering.
Operating activities consumed net cash of approximately $1.1 million during
the six months ended September 30, 1996. Cash payments for the Animated
Acquisition, related non-solicitation agreements, retirement of Animated
Systems' bank debt and payments for previous acquisitions totaled $2.9 million
during the six months ended September 30, 1996.
During the six months ended September 30, 1996, the Company also invested
approximately $835,000 in computer and office equipment, in large part
financed by a three-year capital lease with a principal amount of
approximately $564,000. The Company did not make any other material capital
expenditures during the six months ended September 30, 1996. As the Company
continues to expand, in particular with respect to its interactive marketing
communications business, the Company will need to invest additional capital in
computer equipment and related supplies. Since September 30, 1996, the Company
has committed to purchase approximately $1.4 million of computer equipment.
As of October 31, 1996, the Company owed BJK&E approximately $7.7 million,
including approximately $2.4 million in loan payable, the proceeds of which
were used for the Animated Acquisition and related payments. The loan bears
interest from June 27, 1996 at the rate of the 30-day LIBOR plus 2 1/2%.
Intercorporate borrowings from BJK&E to the Company may increase prior to the
consummation of this offering depending on the Company's working capital
needs. The Company expects to repay BJK&E for all amounts owed out of the
proceeds of the Company's initial public offering.
26
<PAGE>
The Company expects that the net proceeds of its initial public offering
(estimated to be $26.4 million or $30.6 million if the Underwriters' over-
allotment option is exercised in full) together with funds from operations,
will be sufficient to meet the Company's capital requirements for at least the
next 12 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 and to establish new
domestic and international offices. 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 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 the Company's 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.
The Company's cash decreased by approximately $10,000 during fiscal 1996 to
$25,500. Working capital decreased by approximately $490,000 during fiscal
1996 to a deficit of approximately $161,000 as of March 31, 1996. The
Company's cash remained relatively constant during fiscal 1995 at
approximately $36,000. Working capital decreased by approximately $126,000
during fiscal 1995 to approximately $329,000 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 $603,000 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 $5.9
million and accounts payable increased by approximately $5.5 million during
fiscal 1996, primarily due to increased business following the WCP
Acquisition, as well as growth in the Company's interactive marketing
communications business.
During fiscal 1996, the Company invested approximately $770,000 in property
and equipment compared to approximately $239,000 during fiscal 1995.
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 interactive marketing
communications 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 Company's costs of providing interactive marketing communications
products and services have been increasing, and the Company anticipates that
these costs will continue to increase, as clients' digital media based
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 fund its working capital requirements.
27
<PAGE>
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 with a modest overall rent increase.
The Company has also recently entered into a seven year lease agreement for
new offices in Pittsburgh, Pennsylvania which is expected to commence in
February 1997. The Company is seeking additional space for its Silicon Valley
operations. See "Business--Facilities."
Effective January 1996, the Company acquired the business of WCP by
acquiring certain assets of WCP for approximately $58,000 plus additional cash
consideration contingent upon continued gross income from WCP clients during
the year following the consummation of such acquisition. WCP provided
traditional marketing communications services from its base in Pittsburgh,
Pennsylvania. Effective April 1996, the Company acquired the business of 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 five years following the consummation of such acquisition. MJM
provided traditional marketing communications services from its base in New
York City which has been integrated into the Company's New York operations.
Effective June 1996, the Company acquired Animated Systems. See"--Animated
Systems."
The Company has made four acquisitions in Silicon Valley, Pittsburgh and New
York City since March 1993 and expects 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 the continuing revenues of
the accounts of the acquired business so that the Company pays for only those
accounts that are actually retained following the acquisition. There can be no
assurance that these acquisitions will be successful, that these objectives
will be achieved or that the Company will be able to so structure any future
acquisitions that it may make. The Company made contingent payments relating
to acquisitions of approximately $0, $273,000 and $259,000 during fiscal 1994,
1995 and 1996, respectively. The Company estimates that additional contingent
consideration relating to the acquisitions of WCP and MJM will aggregate
approximately $2.6 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. The
Animated Acquisition did not include any contingent consideration.
INFLATION
In the opinion of the Company's management, inflation has not had a material
impact on the Company's financial position or results of operations.
28
<PAGE>
BUSINESS
OVERVIEW
Poppe is a full-service marketing communications company that develops and
implements marketing programs utilizing traditional media and interactive
applications of digital media 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 commencing its Web environment services in fiscal 1994,
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 395 full-time
employees operate from offices in New York City; Morris Plains, New Jersey;
Pittsburgh, Pennsylvania; 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 digital 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 digital 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 digital 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 Netcraft, Ltd., the number of corporate Internet sites increased
from approximately 4,900 in August 1995 to approximately 171,000 in June 1996
and to approximately 287,000 in October 1996. Many businesses are concluding
that an Internet marketing plan, including Web sites and their promotion,
should be an integral part of their overall marketing communications strategy
for both the business as a whole and for various products and services they
offer. The Company believes that the growth rate of digital 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 $15.5
billion to approximately $27.2
29
<PAGE>
billion between 1985 and 1993, resulting in a compounded annual growth rate of
7.3% while the total expenditures for all advertising media increased from
approximately $94.7 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 digital 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 digital 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 interactive marketing
communications products and services utilizing digital 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 Digital Media
Vehicles. The Company believes that the emergence of digital 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 digital media
marketing communications generally and in particular, the creation and
development of interactive 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 digital media vehicles
and the advantages of including digital media in their marketing programs,
including the interactive capabilities of digital media, 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 digital media capabilities and
applications as they are developed, as well as to expand into other digital
media vehicles.
30
<PAGE>
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 provide interactive marketing communications products and
services, as well as developing interactive applications using digital media.
Poppe's ability to integrate Internet-related business into its existing mix
of advertising, public relations and data base 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 35 Web sites
developed by the Company through October 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 by customers for its
clients through its data base 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, "virtual stores," to businesses selling products and services on the
Web. In August 1996, the Company created a virtual store for a client and
commenced providing transactional processing services through this virtual
store. In October 1996, the Company created, and is currently providing
transactional processing for, a second virtual store. 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
operations, have utilized the Company's
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<PAGE>
interactive marketing communications products or services 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 63% of the outstanding Common Stock on a fully
diluted basis (61% 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, Weber and the Milk Board. 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, including cash
management, accounts receivable collection, accounting, payroll processing,
employee benefit administration, internal audit functions, facilities
management and insurance coordination. 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. Four acquisitions by the Company of marketing communications
companies since March 31, 1993 have resulted in the Company expanding into
Pittsburgh and Silicon Valley. Management intends to continue to evaluate the
need for additional domestic offices and international offices and strategic
acquisitions presenting opportunities to expand its geographic presence,
although there can be no assurance that the Company will open any new offices
or consummate any strategic acquisitions.
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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Marketing 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 data base 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 data base
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
available 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. At October 1, 1996, Poppe provided
hosting services for approximately 15 Web sites for which it provided design
or development services. 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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<PAGE>
Digital Marketing, Sales and Training. The Company's newly-acquired Animated
Systems subsidiary 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.
Data Base Marketing Services. Through the application of various interactive
media, including digital media, 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.
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.
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
digital media, as well as to provide other interactive marketing communications
products and services. Clients who have retained Poppe to provide Web site
design and development services since 1994 include:
AT&T Software Solutions E*Trade Nokia Display Products,
Bell Communications Hewlett-Packard Co. Inc.
Research, Inc. IBM Business Information PSINet Inc.*
The Better Hong Kong Services* Raychem Corporation*
Foundation* The Republic of Robert Half
Cadillac* Indonesia*+ International*
The Chase Manhattan Kawasaki Motors Corp., Siemens Components Inc.*
Bank, N.A.* U.S.A.*+ Silicon Graphics, Inc.
Chrysler+ LensCrafters* Sony Corporation
Chrysler's Eagle Vehicles+ Merrill Lynch+ T. Rowe Price
Chrysler's Jeep Vehicles+ Milk Board+ Associates, Inc.*
Cirrus Logic Inc. Nation's Restaurant News* Taylor-Made*+
ComputerWorld Magazine Netscape Valvoline*+
Dean Witter, Discover Network General Weber*+
& Co. Corporation
The Dow Chemical Company*+
- --------
* Poppe clients as of October 1, 1996 for which Poppe provides on-going Web
site maintenance or hosting services.
+ Companies using BJK&E for traditional advertising services as of October 1,
1996.
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<PAGE>
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
IBM Group Hewlett-Packard Co.
Visa International Network Server
Division
Poppe currently provides traditional marketing communications services for a
wide range of clients including:
American Isuzu Motors Matsushita Electric Works State of New Jersey
Inc. Inc. (Panasonic brand) (Department of
Banfi Vintners Mellon Bank, N.A. Commerce and Economic
Charles Schwab & Company, NEC Technologies, Inc. Development) ("New
Inc. Pennsylvania Brewing Jersey Tourism")
Cirrus Logic Inc. Company Synopsys Inc. Logic
Commonwealth of Public Service Electric & Modeling Group
Pennsylvania (Department Gas Company ("PSE&G") 3Com Corp.
of Commerce) PSINet Inc. Toshiba
("Pennsylvania Tourism") Raychem Corporation VocalTec Inc.
GAF Materials Corporation Siemens Components Inc.
IBM Servicemaster Ltd.
IPC Information Systems, Partnership
Inc.
Johnson & Johnson Health
Care Systems
In fiscal 1996, Toshiba accounted for approximately 12% of the Company's net
revenues (9% 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% 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% 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 its brand equity and create a closer relationship with its 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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<PAGE>
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 data base 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 data base 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, a 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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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 data base 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 digital media, the Company's competitors also include marketing
communications companies specializing in digital media marketing
communications products and services as well as digital media technology
companies. Many of these digital media boutiques are increasingly well-known
to current and potential clients. In addition, many traditional advertising
agencies are beginning to develop or acquire digital 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 digital 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 digital 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.
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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 digital 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 interactive marketing
communications products and 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 interactive digital marketing communications 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 11, 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 October 15, 1996, the Company employed a total of approximately 395
persons on a full-time basis in the following offices: Los Angeles,
California, 40; Mountain View, California, 55; Palo Alto, California, 80;
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Morris Plains, New Jersey, 65; New York City, 115; and Pittsburgh,
Pennsylvania, 40. 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 October 31, 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 space
for each of its offices is adequate for its current needs except in the case
of the New York, Mountain View and Palo Alto offices. The Company is in the
process of building out office space in New York which it believes will be
available for occupancy in December 1996 and will be adequate for its current
needs. The Company is seeking additional space for its Silicon Valley
operations. 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(1)................. 29,700 January 2001
New York, New York(2)........................ 20,000 September 2004
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 with a modest overall rent
increase which is currently expected to be completed in December 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 expected in
February 1997 to an approximately 10,000 square foot facility with respect
to which the Company has executed a lease.
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.
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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 October 31,
1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Fergus O'Daly, Jr.(4)(5)......... 53 Chairman of the Board and Chief Executive
Officer
David S. Carlick(4).............. 46 Executive Vice President and Director
Thomas E. Wharton, Jr.(4)(5)..... 35 Senior Vice President and Director
Steven M. Blondy................. 37 Executive Vice President--Finance and
Administration
David E. Bell(1)(2)(5)........... 47 Director
Kevin C. Clark(3)(4)(5).......... 36 Director
Michael D. Drexler............... 57 Director
Charles D. Peebler, Jr.(3)....... 60 Director
Paul C. Schorr III(1)(3)(6)...... 59 Director
Thomas H. Stoner(1)(2)(6)........ 61 Director
Valentine J. Zammit(2)(4)(5)..... 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,
an independent producer and distributor of television programming, 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).
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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 currently serves on its Board of
Directors and had previously served as its Chairman from February 1994 to
August 1996 and 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.
41
<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 and
compensation policy for employees generally. 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, among other
things, 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, excluding Mr.
Clark and excluding 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 and $1,000 per Committee of the Board
meeting attended. Outside Directors will also receive an initial grant of
options to purchase 14,583 shares of Common Stock under the stock option plan
and thereafter, an annual grant of options to purchase 3,646 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)(2) 108,457 $12,255(2)(3)
Chief Executive Officer
David S. Carlick........ 1996 175,000 -- 108,457 12,157(2)(4)
Executive Vice
President
Thomas E. Wharton, Jr... 1996 106,667 7,000(1)(2) 108,457 7,866(2)(5)
Senior Vice President
</TABLE>
- --------
(1) Consists of payments made in fiscal 1996 pursuant to bonuses previously
awarded under BJK&E's management incentive plan. All such bonus payments
were allocated to the Company.
(2) Upon consummation of this offering, executives of the Company generally
will continue to be eligible to participate in employee benefit plans of
BJK&E in their capacities as executives of the Company and at Company
expense, other than BJK&E's stock bonus 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 $4,763
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 $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.
(5) 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 $2,201
representing a charge to the Company in respect of such individual
pursuant to BJK&E's executive wealth accumulation plan.
43
<PAGE>
The following table sets forth information regarding individual grants of
stock options to purchase Common Stock made by the Company to the named
executive officers pursuant to the Company's stock option plan during fiscal
1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF SHARES POTENTIAL REALIZABLE
SECURITIES SUBJECT TO VALUE AT ASSUMED ANNUAL
UNDERLYING OPTIONS MARKET RATES OF STOCK PRICE
OPTIONS GRANTED TO EXERCISE PRICE ON APPRECIATION FOR OPTION TERM
GRANTED EMPLOYEES IN PRICE DATE OF GRANT EXPIRATION -----------------------------
EXECUTIVE OFFICER(1) (# OF SHARES)(2) FISCAL YEAR ($ PER SHARE) ($ PER SHARE) DATE 0% ($) 5% ($) 10% ($)
-------------------- ---------------- ------------ ------------- ------------- ---------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fergus O'Daly, Jr..... 108,457 33.3% $2.42 $2.75 3/2/06 $ 35,791 $ 223,362 $ 511,135
David S. Carlick...... 108,457 33.3% 2.42 2.75 3/2/06 35,791 223,362 511,135
Thomas E. Wharton,
Jr................... 108,457 33.3% 2.42 2.75 3/2/06 35,791 223,362 511,135
</TABLE>
- --------
(1) The named executive officers together have a demand registration right
with respect to one-third of the shares of Common Stock 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 of Common Stock held 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.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with Messrs. O'Daly,
Carlick and Wharton, commencing upon the consummation of this offering and
having terms expiring on the third anniversary of this offering, and an
employment agreement with Steven M. Blondy, Executive Vice President--Finance
and Administration, which commenced in May 1996 and has 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 stock options to purchase an aggregate of 68,125 shares of Common
Stock under the Company's stock option plan at an exercise price equal to the
initial public offering price which vest at the rate of 25% each year from May
1996 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.
44
<PAGE>
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 2,287,389
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 1,372,433. At October
31, 1996, 76,643 shares had been issued pursuant to exercises of options
granted under the Plan, options for 750,295 shares were outstanding and
options for an additional 43,749 have been granted to nominees to the
Company's Board of Directors effective at the closing of this offering and
options for 1,416,702 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.
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. (The term of 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
174,165 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
45
<PAGE>
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 December 31, 1998 and the initial purchase period will begin on the
effective date of this offering and will end on June 30, 1997. As of the date
of this Prospectus, 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.
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 October 31, 1996, BJK&E continued to own approximately 88%
of the outstanding Common Stock, on a fully diluted basis, and, immediately
after the completion of this offering, BJK&E will own approximately 63% of the
outstanding Common Stock on a fully diluted basis (61% 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, 1996 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 to date. 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
Stockholders."
OPERATING SERVICES AGREEMENT
The Company currently uses certain administrative and support services
provided by BJK&E, including cash management, accounts receivable collection,
accounting, payroll processing, employee benefit administration, internal
audit functions, facilities management and insurance coordination. 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
46
<PAGE>
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% of the Company's
commissions 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 commissions
and fees with a reconciliation subsequent to each year end based on the
Company's actual commissions 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 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
December 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 subsidiary of BJK&E for which the Company has
billed approximately $73,000 to date.
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
47
<PAGE>
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
67,966 shares of Common Stock at an exercise price of $2.42 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
76,643 shares of Common Stock at an exercise price of $2.42 per share pursuant
to the Company's stock option plan. Of such options, options to purchase
76,643 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.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of October 31, 1996 and as
adjusted to reflect the sale of the 3,000,000 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; and (iv) by all
directors and executive officers of the Company as a group. 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>
PERCENT OF PERCENT OF
NUMBER OF SHARES BENEFICIALLY SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER OFFERING
- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Fergus O'Daly, Jr.(1)... 108,457 1.5% 1.0%
David S. Carlick(1)..... 108,457 1.5% 1.0%
Thomas E. Wharton,
Jr.(1)................. 108,457 1.5% 1.0%
David E. Bell........... -- -- --
Kevin C. Clark.......... 67,966 * *
Michael D. Drexler(2)... 6,760,461 92.8% 65.7%
Charles D. Peebler,
Jr.(2)................. 6,760,461 92.8% 65.7%
Paul C. Schorr III...... -- -- --
Thomas H. Stoner........ -- -- --
Valentine J. Zammit(2).. 6,760,461 92.8% 65.7%
Bozell, Jacobs, Kenyon &
Eckhardt, Inc.(2)(3)... 6,760,461 92.8% 65.7%
All Officers and
Directors as a Group (8
Persons)(4)............ 7,153,798 94.0% 66.8%
</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 does not attribute to such persons beneficial
ownership of 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, Peebler 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 does not attribute to such
persons beneficial ownership of 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 constitute 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 of BJK&E
and certain other major corporate actions.
(3) 40 West 23rd Street, New York, New York 10010-5201 with respect to BJK&E.
(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, Peebler, Wharton and Zammit
disclaim beneficial ownership.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.001 per share, and 3,350,000 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
50
<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 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
51
<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, who is 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
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "POPT," subject to official notice of issuance.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,288,700 shares of
Common Stock issued and outstanding plus up to an additional 393,337 shares in
the event that certain executives of, and an advisor to, the Company exercise
currently exercisable options. Of these shares, the 3,000,000 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 7,288,700 shares of Common Stock that will be issued and
outstanding at such time will be held by BJK&E, Kevin C. Clark, who is a
director of the Company, one employee of G&H, and former shareholders of
Animated Systems (plus an additional 393,337 shares by certain executives of,
and an advisor to, the Company in the event they exercise currently
exercisable options) 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. 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.
52
<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 up to 325,371 shares of Common Stock 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. The Company also intends to file a registration
statement on Form S-8 to register shares of Common Stock issued or reserved
for issuance under the stock purchase plan, thus permitting the resale of such
shares in the public market without restriction under the Securities Act. It
is intended that such registration statement will be effective on
approximately the same date as 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.
53
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and each of the Underwriters named
below (the "Underwriters"), the Company has 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>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Dean Witter Reynolds Inc. .........................................
---------
Total......................................................... 3,000,000
=========
</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.
At the request of the Company, the Underwriters have reserved 150,000 of the
above shares of Common Stock (the "Reserved Shares") for sale to certain
directors and employees of the Company and to certain other persons associated
with the Company who have expressed an interest in purchasing such shares. The
Reserved Shares will be sold at the initial public offering price set forth on
the cover page of this Prospectus. The number of shares available for sale to
the public will be reduced to the extent such individuals purchase such
Reserved Shares. Any Reserved Shares not so purchased will be offered by the
Underwriters to the public on the same terms as the other shares offered
hereby.
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 has granted the Underwriters an option to purchase up to an
additional 450,000 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. To the extent that the Underwriters exercise such option, 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 3,000,000 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.
54
<PAGE>
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, 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 BJK&E 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.
Merrill Lynch has 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 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.
55
<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.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C>
THE COMPANY
Independent Auditors' Report............................................. F-2
Balance Sheets as of March 31, 1995 and 1996 and September 30, 1996...... F-3
Statements of Operations for the years ended March 31, 1994, 1995 and 1996
and for the six months ended September 30, 1995 and 1996................. F-4
Statements of Stockholders' Equity for the years ended March 31, 1994,
1995 and 1996 and for the six months ended September 30, 1996............ F-5
Statements of Cash Flows for the years ended March 31, 1994, 1995 and 1996
and for the six months ended September 30, 1995 and 1996................. F-6
Notes to Financial Statements............................................ F-7
ACQUIRED COMPANIES
Animated Systems & Design, Inc. and Subsidiary
Independent Auditors' Report.............................................. F-16
Consolidated Balance Sheets as of December 31, 1993 and 1994 and March
31, 1995 and 1996 ....................................................... F-17
Consolidated Statements of Operations for the years ended December 31,
1993 and 1994, the period from January 1, 1995 through March 31, 1995 and
March 31, 1996 and for the three months ended June 30, 1995 and 1996..... F-18
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993 and 1994, the period from January 1, 1995 through
March 31, 1995, the year ended March 31, 1996 and for the three months
ended June 30, 1996...................................................... F-19
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994, the period from January 1, 1995 through March 31, 1995,
the year ended March 31, 1996, and for the three months ended June 30,
1995 and 1996............................................................ F-20
Notes to Consolidated Financial Statements............................... F-21
Werner Chepelsky & Partners, Inc.
Independent Auditors' Report.............................................. F-28
Statement of Operations and Retained Earnings for the years ended December
31, 1993, 1994 and 1995.................................................. F-29
Statement of Cash Flows for the years ended December 31, 1993, 1994 and
1995..................................................................... F-30
Notes to Financial Statements............................................. F-31
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation of Pro Forma Financial Statements................... F-33
Pro Forma Condensed Consolidated Statement of Operations for the year
ended March 31, 1996 and for the six months ended September 30, 1996..... F-34
Notes to Pro Forma Condensed Consolidated Financial Statements............ F-35
</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 operations,
stockholders' 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 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 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.
KPMG Peat Marwick LLP
Omaha, Nebraska
May 17, 1996, except as to note 10, which
is as of October 1, 1996 and the second
paragraph of note 11 which is as of June
27, 1996.
F-2
<PAGE>
POPPE TYSON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------ SEPTEMBER 30,
ASSETS 1995 1996 1996
------ ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash................................. $ 35,894 $ 25,500 $ 48,470
Receivables, less allowance for
doubtful receivables of $70,000 at
March 31, 1995 and 1996 and $144,000
at September 30, 1996............... 7,299,484 13,248,014 22,839,321
Billable production expenditures..... 195,396 436,548 1,279,087
Prepaid expenses..................... 64,763 138,040 1,354,402
Deferred income taxes (note 5)....... 24,000 24,000 93,350
Due from parent company (note 4)..... 72,722 -- --
Other -- -- 15,049
----------- ----------- -----------
Total current assets............... 7,692,259 13,872,102 25,629,679
----------- ----------- -----------
Property and equipment, at cost:
Furniture, fixtures and equipment.... 2,236,975 3,032,532 4,296,681
Leasehold improvements............... 175,758 209,450 238,668
----------- ----------- -----------
2,412,733 3,241,982 4,535,349
Less accumulated depreciation and
amortization........................ 1,547,986 1,839,285 2,424,549
----------- ----------- -----------
Net property and equipment......... 864,747 1,402,697 2,110,800
----------- ----------- -----------
Other assets:
Deferred income taxes (note 5)....... 103,000 24,000 14,950
Excess of purchase price over fair
value of net assets acquired, net of
accumulated amortization of $18,182
and $55,862 at March 31, 1995 and
1996, respectively, and $177,032 at
September 30, 1996 (note 3)......... 513,700 1,172,446 3,743,931
Covenants not-to-compete, net of
accumulated amortization of $25,000
at June 30, 1996.................... -- -- 475,000
Other................................ 164,422 294,771 326,999
----------- ----------- -----------
Total other assets................. 781,122 1,491,217 4,560,880
----------- ----------- -----------
Total assets....................... $ 9,338,128 $16,766,016 $32,301,359
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Book overdraft....................... $ 2,287,472 $ 1,765,213 $ 3,456,532
Accounts payable..................... 4,075,752 9,609,198 14,637,792
Acquisition price payable (note 3)... 259,146 338,372 238,101
Accrued expenses..................... 253,179 384,241 442,482
Advance billings..................... 487,919 1,406,146 879,146
Current portion of capital lease
obligation.......................... -- -- 254,951
Loan payable to parent company (notes
4 and 11)........................... -- -- 2,430,921
Due to parent company (note 4)....... -- 529,788 6,397,777
----------- ----------- -----------
Total current liabilities.......... 7,363,468 14,032,958 28,737,702
Acquisition price payable (note 3)..... -- 408,054 229,163
Capital lease obligation............... -- -- 368,097
Other.................................. 443,167 225,599 236,307
----------- ----------- -----------
Total liabilities.................. 7,806,635 14,666,611 29,571,269
----------- ----------- -----------
Stockholders' equity (notes 4, 7 and
10):
Preferred stock, $.001 par value:
authorized 3,350,000 shares, no
outstanding shares (note 10)........
Common stock, $.001 par value:
authorized 25,000,000 shares,
outstanding 8,450,576 and 6,760,461
shares at March 31, 1995 and 1996,
respectively, and 7,288,700 shares
at September 30, 1996 (1,690,115
shares and 1,161,876 shares held in
treasury at March 31, 1996 and at
June 30, 1996, respectively)........ 8,451 6,760 7,289
Additional paid-in capital........... 5,091,549 5,164,740 6,471,211
Accumulated deficit.................. (3,568,507) (3,072,095) (3,748,410)
----------- ----------- -----------
Total stockholders' equity......... 1,531,493 2,099,405 2,730,090
----------- ----------- -----------
Commitments and contingent liabilities
(notes 9 and 11)
Total liabilities and stockholders'
equity............................ $ 9,338,128 $16,766,016 $32,301,359
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
----------------------------------- -----------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Commissions and fees.... $10,585,275 $11,036,050 $17,077,349 $6,370,649 $15,303,066
----------- ----------- ----------- ---------- -----------
Operating expenses (note
4)
Salaries and employee
benefits (note 6).... 6,938,809 7,208,450 10,902,110 4,523,120 10,821,218
Operating and
general.............. 3,086,228 3,664,123 5,327,827 2,241,863 5,426,163
----------- ----------- ----------- ---------- -----------
Total operating
expenses........... 10,025,037 10,872,573 16,229,937 6,764,983 16,247,381
----------- ----------- ----------- ---------- -----------
Operating income
(loss)............. 560,238 163,477 847,412 (394,334) (944,315)
----------- ----------- ----------- ---------- -----------
Income tax expense
(benefit) (note 5)..... 247,000 127,000 351,000 (147,000) (268,000)
----------- ----------- ----------- ---------- -----------
Net earnings
(loss)............. $ 313,238 $ 36,477 $ 496,412 (247,334) (676,315)
=========== =========== =========== ========== ===========
Earnings (loss) per
share.................. $ .04 $ -- $ .06 $ (.03) $ (.10)
=========== =========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1993........ $8,451 $5,091,549 $(3,918,222) $1,181,778
Net earnings................... -- -- 313,238 313,238
------ ---------- ----------- ----------
Balance at March 31, 1994........ 8,451 5,091,549 (3,604,984) 1,495,016
Net earnings................... -- -- 36,477 36,477
------ ---------- ----------- ----------
Balance at March 31, 1995........ 8,451 5,091,549 (3,568,507) 1,531,493
Net earnings................... -- -- 496,412 496,412
Issuance of stock options (note
7)............................ -- 71,500 -- 71,500
Treasury stock purchased....... (1,691) 1,691 -- --
------ ---------- ----------- ----------
Balance at March 31, 1996........ 6,760 5,164,740 (3,072,095) 2,099,405
Issuance of common stock in
connection with acquisition,
451,596 shares (note 11)...... 452 1,099,548 -- 1,100,000
Issuance of common stock under
stock options, 76,643 shares,
net of tax (note 7)........... 77 206,923 -- 207,000
Net loss....................... -- -- (676,315) (676,315)
------ ---------- ----------- ----------
Balance at September 30, 1996.... $7,289 $6,471,211 $(3,748,410) $2,730,090
====== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
POPPE TYSON, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------------------- ----------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows provided by
operating activities:
Net earnings (loss).... $ 313,238 $ 36,477 $ 496,412 $ (247,334) $ (676,315)
Adjustments to
reconcile net earnings
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization.......... 263,474 336,409 328,978 196,454 469,170
Provision for expense
on stock options...... -- -- 71,500 -- --
Changes in assets and
liabilities:
Receivables........... (729,100) (1,592,727) (5,948,530) (345,625) (8,730,376)
Billable production
expenditures......... 313,895 110,999 (241,152) (493,634) (842,539)
Prepaid expenses...... 16,353 -- (73,277) -- (1,106,051)
Other assets.......... (136,179) (24,029) (130,349) 629 (18,525)
Accounts payable...... 1,101,225 (464,834) 5,533,446 (1,085,289) 4,813,438
Due to and from
Parent Company....... (2,022,795) 1,281,574 602,510 1,833,857 5,542,621
Accrued expenses...... 308,207 (121,019) 131,062 (168,833) 120,893
Deferred income
taxes................ (27,000) (23,000) 79,000 -- (60,300)
Advance billings...... 391,568 242,594 918,227 372,559 (614,350)
Other liabilities..... 395,852 47,315 (168,674) -- 36,058
----------- ----------- ----------- ---------- ----------
Net cash provided by
(used in) operating
activities......... 188,738 (170,241) 1,599,153 62,784 (1,066,276)
----------- ----------- ----------- ---------- ----------
Cash flows used in
investing activities:
Payments for purchases
of property and
equipment, net........ (36,995) (239,359) (770,452) (428,674) (270,487)
Payment for contingent
consideration......... -- (272,736) (259,146) (166,390) (339,473)
Payments for property
and equipment from
acquisitions.......... (266,430) -- (57,690) -- (50,000)
Cash paid in
acquisition of
subsidiary (note 11).. -- -- -- -- (2,009,061)
Payments for covenants
not-to-compete........ -- -- -- -- (500,000)
----------- ----------- ----------- ---------- ----------
Net cash used in
investing
activities......... (303,425) (512,095) (1,087,288) (595,064) (3,169,021)
----------- ----------- ----------- ---------- ----------
Cash flows provided by
(used in) financing
activities:
Change in book
overdraft............. 119,783 682,713 (522,259) 519,886 1,691,319
Proceeds from loan
payable to parent
company (note 11)..... -- -- -- -- 2,430,921
Payments of obligations
under capital leases.. -- -- -- -- (49,473)
Proceeds from the
exercise of stock
options............... -- -- -- -- 185,500
----------- ----------- ----------- ---------- ----------
Net cash provided by
(used in) financing
activities......... 119,783 682,713 (522,259) 519,886 4,258,267
----------- ----------- ----------- ---------- ----------
Net increase (decrease)
in cash................ 5,096 377 (10,394) (12,394) 22,970
Cash at beginning of
period................. 30,421 35,517 35,894 35,894 25,500
----------- ----------- ----------- ---------- ----------
Cash at end of period... $ 35,517 $ 35,894 $ 25,500 $ 23,500 $ 48,470
----------- ----------- ----------- ---------- ----------
A summary of
supplemental
disclosures of cash
flow information
follows:
Cash paid during the
period for
income taxes...... $ 274,000 $ 150,000 $ 272,000 $ -- $ --
=========== =========== =========== ========== ==========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
In June 1996, the Company paid cash of $2,009,061 and issued 451,596 shares
of its common stock to acquire Animated Systems & Design, Inc. and subsidiary.
As a result of the transaction, the Company acquired assets of approximately
$3,750,000 and assumed liabilities of approximately $1,050,000.
In June 1996, the Company entered into a capital lease for equipment in the
amount of $564,032.
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 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 from 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) Basis of Presentation
The unaudited consolidated balance sheet as of September 30, 1996 includes
the accounts of the Company and its subsidiary, Animated Systems & Design,
Inc. ("Animated Systems"). Animated Systems was acquired on June 27, 1996 in
an acquisition accounted for using the purchase method of accounting (see also
note 11). 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 purchase price over the fair values of net
assets acquired was approximately $2,700,000.
The financial information as of September 30, 1996 and for the six months
ended September 30, 1995 and 1996 is unaudited and has been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary to a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal, recurring nature.
(b) 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.
(c) Revenue Recognition
Revenues from commissions, fees and hourly charges are recognized when media
placements appear, when production costs are incurred and when services are
rendered. The Company does not have any significant service obligations
related to post contract customer support under any of its service contracts.
(d) 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.
(e) 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 generally 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).
The excess of purchase price over the fair value of net assets acquired of
approximately $2,700,000 resulting from the acquisition of Animated Systems is
being amortized over 10 years.
F-7
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(f) 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 for Federal income taxes in the
accompanying financial statements and makes payment to the Parent Company 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.
(g) 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 (8,450,576, 8,450,576,
and 8,334,673 in 1994, 1995 and 1996, respectively, and 8,450,576 and
7,047,748 for the six months ended September 30, 1995 and 1996, respectively).
(h) Fair Values of Financial Instruments
Fair values of cash, receivables, book overdrafts, accounts payable,
acquisition price payable, loan payable to Parent Company and amounts due to
and due from Parent Company are estimated to approximate carrying values due
to the short maturities of these financial instruments.
(i) 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, requires 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, measurement of the impairment loss is based on the fair value of the
asset. There was no effect from the adoption of FASB 121, which was
implemented by the Company on April 1, 1996 for the six months ended September
30, 1996.
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 with its 1997 annual financial
statements, 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
businesses 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 businesses. 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 $273,000, $259,000 and $59,000 in 1994, 1995 and 1996,
respectively, and has been reported as an increase in excess of purchase price
over fair value of net assets acquired.
F-8
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 January 1, 1996, the Company acquired the business of Werner Chepelsky
& Partners, Inc. ("WCP") in Pittsburgh, Pennsylvania.
The following table summarizes the amounts paid for the Company's
acquisitions:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash paid for assets at closing..................... $266,430 $ -- $57,690
Additional consideration allocated to excess of
purchase price over fair value of net assets
acquired-contingent consideration(1)............... 272,736 259,146 59,210
Fixed consideration for Carlick, payable through
fiscal 1999........................................ -- -- 637,217
-------- -------- --------
$539,166 $259,146 $754,117
======== ======== ========
</TABLE>
--------
(1) Includes amounts paid for WCP 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 employee benefits expenses are also
charged to the Company based on the actual use of those resources. Total
allocated expenses were $979,338, $1,131,946 and $1,413,427 in 1994, 1995 and
1996, respectively, and $606,479 and $1,187,002 for the six months ended
September 30, 1995 and 1996, respectively. Management believes that these
allocation methods are reasonable.
F-9
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Amounts due from (to) the Parent Company represent unsecured advances of
cash between the Company and its Parent Company. Interest is not accrued on
these advances. Amounts due from (to) the Parent Company as unsecured
operating advances reflect the following activities:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED
--------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
---------- ---------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of peri-
od.......................... $ (424,548) $1,354,296 $ 72,722 $ (529,788)
Administrative and support
service charges............. (317,558) (331,082) (512,320) (459,092)
Occupancy.................... (341,550) (313,200) (489,000) (385,661)
Employee benefits............ (207,837) (309,760) (335,290) (139,109)
Media service center
charges..................... (112,393) (177,904) (76,817) (203,140)
Net cash advances to (from)
the Parent Company.......... 2,758,182 (149,628) 810,917 (4,680,987)
---------- ---------- --------- -----------
Balance at end of period..... $1,354,296 $ 72,722 $(529,788) $(6,397,777)
========== ========== ========= ===========
Average quarterly balance
during the period........... $ 466,539 $ 729,386 $(199,679) $(2,452,542)
========== ========== ========= ===========
</TABLE>
The loan payable to Parent Company of $2,430,921 at September 30, 1996
includes accrued interest of $47,500. See also note 11.
The Company leases office space under two noncancellable operating leases
with employees of the Company. The last of these leases expires 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, and approximately $90,000 and $157,000 for the
six months ended September 30, 1995 and 1996, respectively.
(5) INCOME TAXES
The provision for income tax expense (benefit) consists of the following for
the years ended March 31, 1994, 1995 and 1996 and for the six months ended
September 30, 1995 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------------------------------------
1994 1995 1996
--------------------------- --------------------------- --------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Federal................ $236,000 $(27,000) $209,000 $130,000 $(23,000) $107,000 $246,000 $79,000 $325,000
State & local.......... 38,000 -- 38,000 20,000 -- 20,000 26,000 -- 26,000
-------- -------- -------- -------- -------- -------- -------- ------- --------
$274,000 $(27,000) $247,000 $150,000 $(23,000) $127,000 $272,000 $79,000 $351,000
======== ======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------
1995 1996
----------------------------- ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
--------- -------- --------- --------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operations:
Federal................ $(134,100) -- $(134,100) $(203,850) $(64,150) $(268,000)
State & local.......... (12,900) -- (12,900) -- -- --
--------- ---- --------- --------- -------- ---------
$(147,000) -- $(147,000) $(203,850) $(64,150) $(268,000)
--------- ---- --------- --------- -------- ---------
Stockholders' equity:
Federal................ -- -- -- (25,350) 3,850 (21,500)
--------- ---- --------- --------- -------- ---------
$(147,000) -- $(147,000) $(229,200) $(60,300) $(289,500)
========= ==== ========= ========= ======== =========
</TABLE>
F-10
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1995 and 1996, and at September 30, 1996, the deferred tax
assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------- SEPTEMBER 30,
1995 1996 1996
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful
receivables.............. $ 24,000 $ 24,000 $ 49,000
Accrued liabilities....... 24,000 11,900 44,350
Deferred compensation..... 155,100 77,600 80,300
Post retirement benefits
other than pensions...... -- 6,200 9,000
Stock options............. -- 24,000 20,150
-------- -------- --------
Total deferred tax
assets................. 203,100 143,700 202,800
-------- -------- --------
Deferred tax liabilities:
Excess depreciation....... 76,100 95,700 94,500
-------- -------- --------
Net deferred tax
assets................. $127,000 $ 48,000 $108,300
======== ======== ========
</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> SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 30,
-------------------------- ---------------------
1994 1995 1996 1995 1996
-------- -------- -------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected Federal
income taxes... $191,000 $ 56,000 $288,000 $(134,000) $(321,000)
State and local
income taxes,
net of Federal
benefit........ 25,000 13,000 17,000 (18,500) --
Meals and
entertainment.. 8,000 22,000 31,000 6,500 23,200
Amortization of
intangible
assets......... -- -- -- -- 22,700
Officers life
insurance...... 17,000 31,000 (1,000) -- --
Other........... 6,000 5,000 16,000 (1,000) 7,100
-------- -------- -------- ---------- ----------
$247,000 $127,000 $351,000 $(147,000) $(268,000)
======== ======== ======== ========== ==========
</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 $95,939 in 1994, 1995
and 1996, respectively, and $44,299 and $68,596 for the six months ended
September 30, 1995 and 1996, respectively, to the employee savings plan. No
profit-sharing contributions were made or accrued in any of these periods.
Through March 31, 1996, the Company also joined the Parent Company and other
eligible affiliated companies in sponsoring a Stock Bonus Plan. The Company
discontinued its participation in the Stock Bonus
F-11
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plan following March 31, 1996. The Stock Bonus Plan primarily holds Class A
common stock of the Parent Company. Contributions to the Stock Bonus Plan were
made annually at the discretion of the Board of Directors of the Parent
Company. The Company recognized expense of $93,500, $128,000 and $134,000 in
1994, 1995 and 1996, respectively, and $66,998 for the six months ended
September 30, 1995 for contributions of Class A common stock and cash to the
Stock Bonus Plan for the benefit of the Company's participants. The Company
recognized no contribution expense for contributions to the Stock Bonus Plan
for the six months ended September 30, 1996.
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, and $15,877 and $36,713 for the six months
ended September 30, 1995 and 1996, respectively, for benefits accruing under
these plans.
(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 nonqualified stock options. The Plan provides for the
granting of a maximum of 2,287,389 options. The maximum term of an option may
not exceed ten years for both incentive and non-qualified options.
Information regarding the Plan is summarized as follows.
<TABLE>
OPTION PRICE
SHARES PER SHARE
<S> <C> <C>
Activity:
Outstanding, April 1, 1995................... -- --
Granted.................................... 469,980 $2.42
------- ------------
Outstanding, March 31, 1996.................. 469,980 2.42
Granted.................................... 283,458 3.42-10.00(/1/)
Exercised.................................. (76,643) 2.42
------- ------------
Outstanding, September 30, 1996.............. 676,795 $2.42-$10.00(/1/)
======= ============
Exercisable:
As of March 31, 1996......................... 469,980 2.42
As of September 30, 1996..................... 393,337 $2.42
======= ============
</TABLE>
- --------
(1) Options to purchase 273,615 shares have an exercise price equal to the IPO
price, estimated to be $10.00 per share for this purpose.
For the year ended March 31, 1996, the Company recognized expense of $71,500
for the difference between the estimated fair value of the Company's common
stock and the exercise price of the options granted. There was no expense
recognized in the six months ended September 30, 1995 or 1996.
F-12
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(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.
For the six-month periods ended September 30, 1995 and 1996, commissions and
fees from one major customer amounted to $794,000 and $2,676,000,
respectively.
(9) COMMITMENTS
Employment Contracts
At March 31, 1996, and at September 30, 1996, the Company was committed to
minimum annual payments for employment, consulting and noncompete agreements
as follows:
<TABLE>
<CAPTION>
MINIMUM PAYMENTS AS OF AS OF
BY FISCAL YEAR MARCH 31, SEPTEMBER 30,
ENDING MARCH 31, 1996 1996
---------------- --------- -------------
(UNAUDITED)
<S> <C> <C>
1997.............................................. $445,000 $1,050,000
1998.............................................. 290,000 1,030,000
1999.............................................. 290,000 830,000
2000.............................................. 290,000 425,000
2001 and thereafter............................... 217,500 217,500
</TABLE>
Concurrently with the completion of the Company's initial public offering,
the Company will be obligated under employment agreements for minimum payments
of $540,000 in each of 1997, 1998 and 1999. The amounts shown above as of
September 30, 1996 include these commitments.
Charges to expense under employment, consulting and noncompete agreements
approximated $292,000, $280,000 and $353,000 for 1994, 1995 and 1996,
respectively, and $279,500 and $429,600 for the six months ended September 30,
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, $1,132,000 and $1,399,000 in 1994, 1995 and 1996, respectively,
and $620,300 and $961,000 for the six months ended September 30, 1995 and
1996, respectively.
During the six months ended September 30, 1996, the Company entered into
lease commitments with the Parent Company for office space. At March 31, 1996
and September 30, 1996, the Company's minimum annual rentals under existing
noncancellable leases were approximately as follows:
<TABLE>
<CAPTION>
MINIMUM PAYMENTS AS OF AS OF
BY FISCAL YEAR MARCH 31, SEPTEMBER 30,
ENDING MARCH 31, 1996 1996
---------------- ---------- -------------
(UNAUDITED)
<S> <C> <C>
1997............................................. $1,033,000 $1,271,602
1998............................................. 982,000 2,070,569
1999............................................. 730,000 1,785,223
2000............................................. 712,000 1,773,385
2001 and thereafter.............................. 650,000 4,636,012
</TABLE>
F-13
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 Company will offer
shares of the Company's common stock to the public in fiscal year 1997. In
connection therewith, the Company effected a stock split, as adjusted, of
approximately 8,450-to-1, 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 25,000,000 shares, the 800 issued and
outstanding common shares were increased to 6,760,461 and the 200 treasury
shares were increased to 1,690,115. As a result, $10,040 was transferred from
additional paid-in capital to common stock. In addition, the Company is
authorized to issue up to 3,350,000 shares of preferred stock, $.001 par
value.
(11) OTHER EVENTS
Effective April 1, 1996, the Company completed an acquisition of the
business of Marshall Jaccoma Mitchell Advertising Incorporated ("MJM"). In
connection with the acquisition, the Company paid cash of $50,000 for the
tangible assets of MJM, with all of this purchase price having been allocated
to property and equipment, 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 acquired the common stock of Animated Systems.
Consideration paid by the Company for the acquisition was $2,600,000 to the
former shareholders of Animated Systems, consisting of cash of $1,500,000 and
451,596 shares of common stock of the Company (estimated fair value of
$1,100,000). The Company also incurred legal and accounting fees of $145,610
in connection with the acquisition which have been capitalized as part of the
purchase price. 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 $383,421 for Animated Systems due at
closing was provided by an advance from the Parent Company of $2,383,421. The
advance bears interest at the 30-day LIBOR rate plus 2 1/2% (equal to 7.97% at
March 31, 1996) and is payable from the proceeds of the Company's initial
public stock offering. The net purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 895,950
Property and equipment...................................... 192,907
Excess of purchase price over fair value of net assets ac-
quired..................................................... 2,692,656
Other assets................................................ 11,647
Current liabilities......................................... (974,931)
Noncurrent liabilities...................................... (72,619)
----------
Purchase price............................................ $2,745,610
==========
</TABLE>
F-14
<PAGE>
POPPE TYSON, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pro forma (unaudited) operating results of the Company for the years ended
March 31, 1995 and 1996, which assume the acquisitions of Animated Systems and
WCP were made as of April 1, 1994, are summarized below. The pro forma
(unaudited) results of operations of the Company for the six months ended
September 30, 1996, which assume the acquisition of Animated Systems was made
as of April 1, 1994, are also shown below. The operating results of MJM have
been excluded from unaudited pro forma information because this business is
not significant to the Company.
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, SIX MONTHS
---------------------- ENDED
1995 1996 SEPTEMBER 30, 1996
---------- ---------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Commissions and fees.................. $ 14,684 $ 21,517 $16,203
========== ========== =======
Net earnings (loss)................... $ (213) $ 309 $ (925)
========== ========== =======
Earnings (loss) per share............. $ (.02) $ .04 $ (.13)
========== ========== =======
</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-15
<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-16
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
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 (DEFICIT)
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
-------- -------- -------- ---------
Total liabilities................ 453,504 345,733 505,184 720,722
-------- -------- -------- ---------
Stockholders' equity (deficit):
Common stock no par value;
10,000,000 shares authorized,
1,880,000 shares issued and
outstanding at December 31,
1993 and 2,000,000 shares
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
(deficit)................... (81,013) 18,976 28,422 130,238
-------- -------- -------- ---------
Commitments and contingencies....
$372,491 $364,709 $533,606 $ 850,960
======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------- -------------------
PERIOD FROM
JANUARY 1, 1995 YEAR ENDED
TO MARCH 31, MARCH 31,
1993 1994 1995 1996 1995 1996
---------- ---------- ---------------- ---------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Fee revenue............. $1,112,634 $1,429,563 $430,354 $2,637,404 $626,886 $ 899,902
---------- ---------- -------- ---------- -------- ---------
Operating expenses:
Salaries and employee
benefits............. 745,115 861,070 254,529 1,592,433 271,708 493,308
Operating and
general.............. 401,355 426,647 157,927 860,541 143,717 503,412
---------- ---------- -------- ---------- -------- ---------
Total operating
expenses........... 1,146,470 1,287,717 412,456 2,452,974 415,425 996,720
---------- ---------- -------- ---------- -------- ---------
Operating income
(loss)............. (33,836) 141,846 17,898 184,430 211,461 (96,818)
---------- ---------- -------- ---------- -------- ---------
Other income (expense)
Interest income....... 281 560 421 712 393 --
Interest expense...... (17,320) (13,593) (1,537) (15,326) (3,186) (12,946)
---------- ---------- -------- ---------- -------- ---------
Other income
(expense).......... (17,039) (13,033) (1,116) (14,614) (2,793) (12,946)
---------- ---------- -------- ---------- -------- ---------
Income (loss) before
income taxes......... (50,875) 128,813 16,782 169,816 208,668 (109,764)
Income tax expense
(benefit)............ (20,686) 29,424 7,336 68,000 86,900 (3,611)
---------- ---------- -------- ---------- -------- ---------
Net earnings
(loss)............. $ (30,189) $ 99,389 $ 9,446 $ 101,816 $121,768 $(106,153)
========== ========== ======== ========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1994,
THE PERIOD FROM JANUARY 1, 1995 THROUGH
MARCH 31, 1995, AND THE YEAR ENDED MARCH 31, 1996 AND THE
THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<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 earnings..................... -- -- 99,389 99,389
Stock issued..................... 120,000 600 -- 600
--------- ------- -------- --------
Balances, December 31, 1994...... 2,000,000 10,000 8,976 18,976
Net earnings..................... -- -- 9,446 9,446
--------- ------- -------- --------
Balances, March 31, 1995......... 2,000,000 10,000 18,422 28,422
Net earnings..................... -- -- 101,816 101,816
--------- ------- -------- --------
Balances, March 31, 1996......... 2,000,000 10,000 120,238 130,238
Issuance of common stock under
stock options................... 65,000 48,750 -- 48,750
Net loss......................... -- -- (106,153) (106,153)
--------- ------- -------- --------
Balances, at June 30, 1996....... 2,065,000 $58,750 $ 14,085 $ 72,835
========= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
--------------------
YEARS ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995 YEAR ENDED 1995 1996
------------------ THROUGH MARCH 31, --------- ---------
1993 1994 MARCH 31, 1995 1996 (UNAUDITED)
-------- -------- --------------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss).... $(30,189) $ 99,389 $ 9,446 $ 101,816 $ 121,768 $(106,153)
Adjustments to
reconcile net earnings
(loss) to net cash
provided (used) 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 5,943 20,709
Deferred income
taxes............... 12,720 19,813 358 (10,384) 2,000 --
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) 44,445 (204,345)
(Increase) decrease
in cost in excess
of billings on
uncompleted
contracts......... -- -- -- (9,300) -- 9,300
(Increase) decrease
in other assets... -- -- -- 2,459 (4,830) (9,569)
Increase (decrease)
in accounts
payable........... (58,089) (29,797) (2,849) 107,121 53,662 76,486
Increase (decrease)
in billings in
excess of costs on
uncompleted
contracts......... (2,574) 13,502 119,758 (252,733) (211,207) (6,000)
Increase (decrease)
in accrued
expenses.......... 30,282 (14,568) 32,035 52,450 (34,365) 142,957
Increase (decrease)
in income taxes
payable........... (7,298) 6,967 (419) (2,230) 84,900 --
-------- -------- --------- --------- --------- ---------
Net cash provided
by (used in)
operating
activities...... 121,090 194,196 (50,435) (212,793) 62,316 (76,615)
-------- -------- --------- --------- --------- ---------
Cash flows from
investing activities:
Purchase of
equipment........... (47,672) (31,973) (10,934) (36,682) (16,535) --
Acquisition of Accent
Software, Inc....... -- -- -- (43,728) -- --
Proceeds received
(advances made) on
loan receivable from
officer............. (25,356) (8,473) (1,883) 43,228 (3,900) --
-------- -------- --------- --------- --------- ---------
Net cash used in
investing
activities...... (73,028) (40,446) (12,817) (37,182) (20,435) --
-------- -------- --------- --------- --------- ---------
Cash flows from
financing activities:
Proceeds received
(payments made) on
bank borrowings..... (62,000) (46,000) -- 260,000 (3,333) 100,000
Proceeds received
(payments made) on
note payable--bank.. 31,111 (13,333) (3,334) 9,449 -- (20,042)
Payments made on
capital leases...... -- (4,368) (1,188) (16,617) (1,233) (39,161)
Proceed from sale of
stock............... -- 600 -- -- -- 48,750
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 (4,566) 89,547
-------- -------- --------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents........... (967) 76,091 (67,774) (1,279) 37,315 12,932
Cash and cash
equivalents at
beginning of period... 967 -- 76,091 8,317 8,317 7,038
-------- -------- --------- --------- --------- ---------
Cash and cash
equivalents at end of
period................ $ -- $ 76,091 $ 8,317 $ 7,038 $ 45,632 $ 19,970
======== ======== ========= ========= ========= =========
Supplemental
disclosures of cash
flow information:
Cash paid for
interest............ $ 17,320 $ 13,593 $ 1,537 $ 15,326 $ 2,519 $ 12,779
======== ======== ========= ========= ========= =========
Cash paid for income
taxes............... $ -- $ 16,049 $ 419 $ 43,014 $ 4,830 $ 2,338
======== ======== ========= ========= ========= =========
Noncash financing
activities:
Equipment capital
leases.............. $ 21,235 $ -- $ 13,262 $ 64,682 $ 28,334 $ 74,644
======== ======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
ANIMATED SYSTEMS & DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
Animated Systems & Design, Inc., a California corporation, produces and
develops digital based marketing and training materials.
Principles of Consolidation and Basis of Presentation
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.
As discussed in note 12, the Company was purchased on June 27, 1996.
Accordingly, the statement of operations includes the results of the Company
through the date of acquisition.
The unaudited financial information for the three months ended June 30, 1995
and 1996 have been prepared in conformity with generally accepted accounting
principles and include all adjustments which are, in the opinion of
management, necessary to a fair presentation of the results for the interim
periods presented. All such adjustments, in the opinion of management, are of
a normal recurring nature.
Fiscal Year
Effective January 1, 1995 the Company changed its fiscal year end from
December 31 to March 31. The consolidated statements of operations,
stockholders' equity and cash flows are presented for the three months 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 consolidated 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 consolidated 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 consolidated 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-21
<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 occurred, then measurement of the impairment loss should be based on the
fair value of the asset. There was no effect from the adoption of FASB 121,
which was implemented by the Company on April 1, 1996 for the three months
ended June 30, 1996.
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 with its 1997 annual financial statements, 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-22
<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 1/4%
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 1/2% 9.0% 8 1/4%
Amounts used............ $46,000 -- -- $260,000
Collateral.............. All assets of
-- -- -- the Company
</TABLE>
F-23
<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 ended March 31, 1996,
respectively, and $17,457 and $23,826 for the three months ended June 30, 1995
and 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-24
<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 from January 1, 1995 through March 31, 1995, the year ended March 31,
1996 and for the three months ended June 30, 1995 and 1996 consists of the
following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- ------- --------
<S> <C> <C> <C>
Year ended December 31, 1993:
Current..................................... $ 443 $ 1,651 $ 2,094
Deferred.................................... (17,886) (4,894) (22,780)
-------- ------- --------
$(17,443) $(3,243) $(20,686)
======== ======= ========
Year ended December 31, 1994:
Current..................................... $ 7,564 $ 2,047 $ 9,611
Deferred.................................... 15,557 4,256 19,813
-------- ------- --------
$ 23,121 $ 6,303 $ 29,424
======== ======= ========
Period from January 1, 1995 through March 31,
1995:
Current..................................... $ 3,864 $ 3,114 $ 6,978
Deferred.................................... 280 78 358
-------- ------- --------
$ 4,144 $ 3,192 $ 7,336
======== ======= ========
Year ended March 31, 1996:
Current..................................... $ 58,572 $19,812 $ 78,384
Deferred.................................... (6,647) (3,737) (10,384)
-------- ------- --------
$ 51,925 $16,075 $ 68,000
======== ======= ========
Three months ended June 30, 1995 (unaudited):
Current..................................... $ 65,400 $19,500 $ 84,900
Deferred.................................... 2,000 -- 2,000
-------- ------- --------
$ 67,400 $19,500 $ 86,900
======== ======= ========
Three months ended June 30, 1996 (unaudited):
Current..................................... $ -- $(3,611) $ (3,611)
Deferred.................................... -- -- --
-------- ------- --------
$ -- $(3,611) $ (3,611)
======== ======= ========
</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, THREE MONTHS
ENDED 1995 YEAR ENDED
DECEMBER 31, THROUGH ENDED JUNE 30,
---------------- MARCH 31, MARCH 31, ---------------
1993 1994 1995 1996 1995 1996
------ ------ -------------- --------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rate...... (34)% 34% 34% 34% 34% (34)%
State taxes net of
Federal benefit........ (6) 6 6 6 6 2
Meals and
entertainment.......... -- 4 12 5 1 7
Graduated tax rates..... -- (20) (8) (3) -- 27
Other................... (1) (1) -- (2) -- 1
------ ------ --- --- ------ ------
Effective tax rate...... (41)% 23% 44% 40% 41% 3%
====== ====== === === ====== ======
</TABLE>
F-25
<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 had 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 had general business credits at March 31,
1996 of approximately $18,500 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, Inc. 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 contributions were $6,432 for the
year ended March 31, 1996 and $945 for the three months ended June 30, 1996.
The Company did not incur any expense for this plan prior to the year ended
March 31, 1996.
(10) STOCK OPTION PLAN
In 1996, the Company adopted a Stock Option Plan (the "Plan"). Under the
Plan, options may be granted to employees, nonemployee 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-26
<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 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 ten
percent 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. Commissions and fees from
major customers amounted to $400,389, $173,441, $54,610 and $1,089,000 for the
periods ended December 31, 1993, December 31, 1994, March 31, 1995 and March
31, 1996, respectively. For the three months ended June 30, 1995 and 1996,
commissions and fees from major customers amounted to $127,267 and $553,600,
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 consolidated 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-27
<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, PennsylvaniaJune 14, 1996
F-28
<PAGE>
WERNER, CHEPELSKY AND PARTNERS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE 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-29
<PAGE>
WERNER, CHEPELSKY AND PARTNERS, INC.
STATEMENT OF CASH FLOWS
FOR THE 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-30
<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-31
<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-32
<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 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:
. 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 September 30, 1996 and the
results of WCP's operations for the three-month period from January 1,
1996 to March 31, 1996 and for the six months ended September 30, 1996.
The unaudited pro forma condensed consolidated statement of operations
for the year ended March 31, 1996 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.
Consequently, the historical financial statements of the Company include
the financial position of Animated Systems as of September 30, 1996 and
the results of Animated Systems' operations for the three-month period
from July 1, 1996 to September 30, 1996.
The unaudited pro forma condensed consolidated statement of operations
for the year ended March 31, 1996 gives effect to Animated Systems'
results of operations for the (pre-acquisition) year ended March 31,
1996. The unaudited pro forma condensed consolidated statement of
operations for the six months ended September 30, 1996 gives effect to
Animated Systems' results of operations for the (pre-acquisition) three-
month period from April 1, 1996 to June 27, 1996.
The unaudited pro forma condensed consolidated financial statements are
based upon the historical financial statements of the Company, 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-33
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
----------------------------------------------------------------
ANIMATED PRO FORMA NOTE PRO FORMA
POPPE TYSON WCP SYSTEMS ADJUSTMENTS REF. POPPE TYSON
----------- ---------- ---------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Commission and fees..... $17,077,349 $1,801,769 $2,637,404 $ -- $21,516,522
----------- ---------- ---------- -------- -----------
Operating expenses:
Salaries and employee
benefits.............. 10,902,110 1,808,422 1,592,433 (632,850) 3 13,670,115
Operating and general.. 5,327,827 372,572 860,541 358,603 4 6,919,543
----------- ---------- ---------- -------- -----------
Total operating
expenses.............. 16,229,937 2,180,994 2,452,974 (274,247) 20,589,658
----------- ---------- ---------- -------- -----------
Operating income
(loss)................ 847,412 (379,225) 184,430 274,247 926,864
----------- ---------- ---------- -------- -----------
Other income (expense):
Interest income........ -- 11,407 712 -- 12,119
Interest expense....... -- -- (15,326) (189,959) 5 (205,285)
----------- ---------- ---------- -------- -----------
-- 11,407 (14,614) (189,959) (193,166)
----------- ---------- ---------- -------- -----------
Earnings (loss) before
income taxes.......... 847,412 (367,818) 169,816 84,288 733,698
----------- ---------- ---------- -------- -----------
Income tax expense
(benefit).............. 351,000 (106,557) 68,000 112,630 6 425,073
----------- ---------- ---------- -------- --- -----------
Net earnings (loss).... $ 496,412 $ (261,261) $ 101,816 $(28,342) $ 308,625
=========== ========== ========== ======== ===========
Earnings (loss) per
share.................. $ .06 $ .04
=========== ===========
Weighted average common
shares and common
equivalents............ 8,334,673 451,596 7 8,786,269
=========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------
POPPE ANIMATED PRO FORMA NOTE PRO FORMA
TYSON SYSTEMS ADJUSTMENTS REF. POPPE TYSON
----------- --------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C>
Commission and fees..... $15,303,066 $ 899,902 $ -- $16,202,968
----------- --------- --------- -----------
Operating expenses:
Salaries and employee
benefits.............. 10,821,218 493,308 -- 11,314,526
Operating and general.. 5,426,163 503,412 88,911 4 6,018,486
----------- --------- --------- -----------
Total operating ex-
penses................ 16,247,381 996,720 88,911 17,333,012
----------- --------- --------- -----------
Operating income
(loss)................ (944,315) (96,818) (88,911) (1,130,044)
----------- --------- --------- -----------
Other income (expense):
Interest income........ -- -- -- --
Interest expense....... -- (12,946) (94,622) 5 (107,568)
----------- --------- --------- -----------
-- (12,946) (94,622) (107,568)
----------- --------- --------- -----------
Earnings (loss) before
income taxes.......... (944,315) (109,764) (183,533) (1,237,612)
----------- --------- --------- -----------
Income tax expense (ben-
efit).................. (268,000) (3,611) (41,408) 6 (313,019)
----------- --------- --------- -----------
Net earnings (loss).... $ (676,315) $(106,153) $(142,125) $ (924,593)
=========== ========= ========= ===========
Earnings (loss) per
share.................. $ (.10) $ (.13)
=========== ===========
Weighted average common
shares and
common equivalents..... 7,047,748 225,798 7 7,273,546
=========== ========= ===========
</TABLE>
See accompanying notes to pro forma condensed consolidated financial
statements.
F-34
<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 451,596
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 $383,421 required to retire bank borrowings at closing was provided by a
loan of $2,383,421 from the Company's parent company. The loan bears interest
at the 30-day LIBOR rate plus 2 1/2% (equal to 7.97% and 7.94% at March 31,
1996 and September 30, 1996, respectively) and is payable from the proceeds of
the Company's initial public stock offering.
2. ACQUISITION OF WCP
The Company acquired the business of WCP through the purchase of certain
assets (effective January 1, 1996) in a transaction accounted for as a
purchase. Pursuant to the terms of the acquisition agreement, the Company paid
cash for the fixed assets of this business and is committed to pay contingent
consideration for the future gross income from the client accounts of WCP. The
contingent consideration is based upon a percentage of the gross income
generated by the business 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 $59,210 for the acquisition of 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 period. The Company estimates that additional contingent
consideration under this acquisition will be approximately $1,900,000, 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.
F-35
<PAGE>
POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. AMORTIZATION EXPENSE
For purposes of the pro forma condensed consolidated statements of
operations for the year ended March 31, 1996 and for the six months ended
September 30, 1996, adjustments have 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>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
<S> <C> <C>
Covenants not-to-compete.................... $108,667 $27,167
-------- -------
Excess of purchase price over fair value of
net assets acquired:
Animated Systems.......................... 246,976 61,744
WCP....................................... 2,960 --
-------- -------
249,936 61,744
-------- -------
Total adjustments....................... $358,603 $88,911
======== =======
</TABLE>
5. INTEREST EXPENSE
For purposes of the condensed consolidated statements of operations for the
year ended March 31, 1996 and for the six months ended September 30, 1996,
adjustments of $189,959, and $94,622, respectively, have been made to record
interest expense on the advance of $2,383,421 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 and for the six months ended September 30, 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
have been adjusted for 451,596 shares of common stock issued in connection
with the acquisition of Animated Systems in calculating pro forma earnings per
share.
F-36
<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................................................................. 29
Management............................................................... 40
Certain Transactions..................................................... 46
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Additional Information................................................... 56
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,000,000 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 Registrant 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............................... 43,222
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....................................... 20,000
Accounting fees and expenses..................................... 400,000
Transfer Agent and Registrar fees................................ 5,000
Legal fees and expenses.......................................... 400,000
Miscellaneous.................................................... 403,036
----------
Total.......................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended to date (the "Certificate of Incorporation") provides for the
Registrant to indemnify directors and officers to the maximum extent permitted
by the Delaware General Corporation law (the "Delaware GCL"). In addition, the
Registrant's Certificate of Incorporation limits the liability of directors to
the maximum extent permitted by the 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 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. 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 Registrant
has entered into employment agreements with certain of its executive officers
whereby the Registrant has agreed to indemnify them to the fullest extent
permitted under the Certificate of Incorporation and Bylaws.
Article TENTH of the Registrant'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
II-1
<PAGE>
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 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 October 1, 1993:
On March 2, 1996, options to purchase an aggregate of 469,980 shares of
Common Stock at an exercise price of $2.42 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 58,125 shares of Common
Stock at an exercise price equal to the initial public offering price 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 451,596 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 9,843 shares of Common Stock at an exercise price
of $3.42 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
76,643 shares of Common Stock were issued to two advisors to the Registrant
upon exercise of options at an exercise price of $2.42 per share. On July
16, 1996, options to purchase an aggregate of 229,893 shares of Common
Stock (options to purchase 14,403 shares of which have since been forfeited
pursuant to the terms of the Registrant's stock option plan) at an exercise
price equal to the initial public offering price were granted pursuant to
the Registrant's stock option plan to certain employees of the Registrant.
On October 10, 1996, options to purchase an aggregate of 73,500 shares of
Common Stock at an exercise price equal to the initial public offering
price were granted pursuant to the Registrant's stock option plan to
certain employees of the Registrant. Effective as of the effective date of
this Registration Statement, options to purchase an aggregate of 43,749
shares of Common Stock at an exercise price equal to the initial offering
price were granted pursuant to the Registrant's stock option plan to
nominees to the Registrant's Board of Directors.
II-2
<PAGE>
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 the rules thereunder and for the
sales of common stock referred to above in reliance upon the exemption
afforded by Section 4(2) of the Act and the rules thereunder 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.
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*
3.3 Amendment to Certificate of Incorporation of Registrant dated
October 1, 1996*
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 1996 Employee 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*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.*
10.23 Asset Purchase Agreement between Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc.*
10.24 Amendment to Employment Agreement between Registrant and Steven M.
Blondy
10.25 Amendment to and Confirmation of Amended and Restated Stock Option
Agreement between Registrant and Steven M. Blondy
10.26 Stock Option Agreement between Registrant and Steven M. Blondy
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)*
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 (Year Ended March 31, 1996)*
27.2 Financial Data Schedule (Three Months Ended June 30, 1996)*
27.3 Financial Data Schedule (Six Months Ended September 30, 1996)
</TABLE>
- --------
*Previously submitted.
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
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
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-5
<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 NOVEMBER 7, 1996.
Poppe Tyson, Inc.
/s/ Fergus O'Daly, Jr.
By: _________________________________
Fergus O'Daly, Jr.
Chairman of the Board and
Chief Executive Officer
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
/s/ Fergus O'Daly, Jr. Chairman of the Board and
_________________________________ Chief Executive Officer November 7,
Fergus O'Daly, Jr. (principal executive 1996
officer)
/s/ Steven M. Blondy Executive Vice President--
_________________________________ Finance and November 7,
Steven M. Blondy Administration (principal 1996
financial and accounting
officer)
*
_________________________________ Director November 7,
David S. Carlick 1996
* Director
_________________________________ November 7,
Thomas E. Wharton, Jr. 1996
* Director
_________________________________ November 7,
Kevin C. Clark 1996
*
_________________________________ Director November 7,
Michael D. Drexler 1996
*
_________________________________ Director November 7,
Charles D. Peebler, Jr. 1996
* Director
_________________________________ November 7,
Valentine J. Zammit 1996
* Executed pursuant to power of attorney.
/s/ Fergus O'Daly, Jr.
_________________________________
Fergus O'Daly, Jr.
as attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<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*
3.3 Amendment to Certificate of Incorporation of Registrant dated
October 1, 1996*
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 1996 Employee 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 the 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.*
10.23 Asset Purchase Agreement between Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc.*
10.24 Amendment to Employment Agreement between Registrant and Steven
M. Blondy
10.25 Amendment to and Confirmation of Amended and Restated Stock
Option Agreement between Registrant and Steven M. Blondy
10.26 Stock Option Agreement between Registrant and Steven M. Blondy
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
------- -----------
<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 (Year Ended March 31, 1996)*
27.2 Financial Data Schedule (Three Months Ended June 30, 1996)*
27.3 Financial Data Schedule (Six Months Ended September 30, 1996)
</TABLE>
- --------
*Previously submitted.
<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 home page
for the Cadillac Web site and a print ad for Banfi Vintners. The pictures in the
bottom row, from left to right, depict a page for the Charles Schwab interactive
disk, a print ad for Pennsylvania Tourism and a billboard for Mellon Bank.
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, the package design for
Pennsylvania Brewing and a print ad for PSE&G. The pictures in the bottom row,
from left to right, depict a print ad for Toshiba 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>
EXHIBIT 1.1
Draft of October 20, 1996
-------------------------
POPPE TYSON, INC.
(a Delaware corporation)
3,000,000 Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: __________ __, 1996
<PAGE>
Table of Contents
PURCHASE AGREEMENT
SECTION 1. Representations and Warranties.............................. 3
(a) Representations and Warranties by the Company........................ 3
(i) Compliance with Registration Requirements..................... 3
(ii) Independent Accountants....................................... 4
(iii) Financial Statements.......................................... 4
(iv) No Material Adverse Change in Business........................ 4
(v) Good Standing of the Company.................................. 4
(vi) Good Standing of Subsidiaries................................. 5
(vii) Capitalization................................................ 5
(viii) Authorization of Agreement.................................... 5
(ix) Authorization and Description of Securities................... 5
(x) Absence of Defaults and Conflicts............................. 6
(xi) Absence of Labor Dispute...................................... 6
(xii) Absence of Proceedings........................................ 6
(xiii) Accuracy of Exhibits.......................................... 7
(xiv) Possession of Intellectual Property........................... 7
(xv) Absence of Further Requirements............................... 7
(xvi) Possession of Licenses and Permits............................ 7
(xvii) Leasehold Interests and Title to Property..................... 8
(xviii) Compliance with Cuba Act...................................... 8
(xix) Investment Company Act........................................ 8
(xx) Environmental Laws............................................ 8
(xxi) Registration Rights........................................... 9
(xxii) Related Transactions.......................................... 9
(xxiii) Foreign Corrupt Practices Act................................. 9
(xxiv) Insurance..................................................... 9
(xxv) Taxes.........................................................10
(xxvi) Internal Controls.............................................10
(xxvii) Filings.......................................................10
(xxviii) Brokers.......................................................10
(xxix) Rights to Acquire Securities..................................10
(xxx) Compliance with Laws..........................................10
(xxxi) Absence of Manipulation.......................................10
(xxxii) Lock-Ups......................................................11
(xxxiii) Distribution of Prospectus....................................11
(xxxiv) Services Agreement............................................11
(b) Representations and Warranties by BJK&E..............................12
(i) Good Standing of BJK&E........................................12
(ii) Absence of Defaults and Conflicts.............................12
(iii) Beneficial Ownership..........................................12
(iv) Accurate Disclosure...........................................12
-i-
<PAGE>
(v) Authorization of Agreement....................................12
(vi) [Reserved.]...................................................13
(vii) Absence of Manipulation.......................................13
(viii) Absence of Further Requirements...............................13
(ix) Restriction on Sale of Securities.............................13
(x) [Reserved.]...................................................13
(xi) No Association with NASD......................................14
(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..............................................18
(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.......................................................20
(p) Compliance with NASD Rules...........................................20
SECTION 4. Payment of Expenses...........................................20
(a) Expenses.............................................................20
(b) Expenses of BJK&E....................................................21
(c) Termination of Agreement.............................................21
SECTION 5. Conditions of Underwriters' Obligations.......................21
(a) Effectiveness of Registration Statement..............................21
(b) Opinion of Counsel for Company.......................................21
(c) Opinion of Counsel for BJK&E.........................................21
(d) Opinion of Counsel for Underwriters..................................22
-ii-
<PAGE>
(e) Officer's Certificate................................................22
(f) Accountant's Comfort Letter..........................................22
(g) Bring-down Comfort Letter............................................22
(h) Approval of Listing..................................................23
(i) Certain Guaranties...................................................23
(j) Termination of Agreements............................................23
(k) No Objection.........................................................23
(l) Lock-up Agreements...................................................23
(m) Conditions to Purchase of Option Securities..........................23
(i) Officers' Certificate.........................................23
(ii) Opinion of Counsel for Company................................23
(iii) Opinion of Counsel for BJK&E..................................24
(iv) Opinion of Counsel for Underwriters...........................24
(v) Bring-down Comfort Letter.....................................24
(n) Additional Documents.................................................24
(o) Termination of Agreement.............................................24
SECTION 6. Indemnification...............................................24
(a) Indemnification of Underwriters......................................24
(b) Indemnification of the Company, Directors and
Officers, and BJK&E.................................................26
(c) Actions against Parties; Notification................................27
(d) Settlement without Consent if Failure to Reimburse...................27
(e) Indemnification for Reserved Securities..............................28
SECTION 7. Contribution..................................................28
SECTION 8. Representations, Warranties and Agreements
to Survive Delivery..........................................29
SECTION 9. Termination of Agreement......................................30
(a) Termination; General.................................................30
(b) Liabilities..........................................................30
SECTION 10. Default by One or More of the Underwriters...................30
SECTION 11. Default by the Company.......................................31
SECTION 12. Notices......................................................31
SECTION 13. Parties......................................................31
SECTION 15. Effect of Headings...........................................32
-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 BJK&E Opinion
Exhibit C Form of Lock-up
-iv-
<PAGE>
POPPE TYSON, INC.
(a Delaware corporation)
3,000,000 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 ("BJK&E"), 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 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 to the Underwriters, acting severally
and not jointly, of the option described in Section 2(b) hereof to purchase all
or any part of 450,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 3,000,000 shares of Common Stock (the
"Initial Securities") to be purchased by the Underwriters and all or any part of
the 450,000 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 BJK&E 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 and the Underwriters agree that up to 150,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. (the "NASD") and all other applicable
laws, rules and regulations. To the extent that such Reserved Securities are
not orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-09791) 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
-2-
<PAGE>
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:
(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
-3-
<PAGE>
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.
(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
bases 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 BJK&E.
(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
-4-
<PAGE>
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 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.
-5-
<PAGE>
(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 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 BJK&E or the Company,
threatened, against or affecting BJK&E 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 BJK&E, 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,
-6-
<PAGE>
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, 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
BJK&E, 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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 BJK&E, the Company's or BJK&E'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. BJK&E, 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 BJK&E 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
-9-
<PAGE>
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.
(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. BJK&E, 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).
-10-
<PAGE>
(xxxiv) Services Agreement. Each of the Operating Services Agreement
------------------
between BJK&E 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 BJK&E 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 the Company and BJK&E and is the
valid and binding agreement of the Company and BJK&E enforceable against each of
the Company and BJK&E 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 BJK&E . BJK&E represents and
warrants to each Underwriter as of the date hereof, as of the Closing Time, and
as of each Date of Delivery, and agrees with each Underwriter, as follows:
(i) Good Standing of BJK&E . BJK&E 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. BJK&E 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 BJK&E is a party or by which it
may be bound, or to which any of the property or assets of BJK&E is subject
(collectively, "BJK&E 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
-11-
<PAGE>
earnings, business affairs or business prospects of BJK&E and its subsidiaries
considered as one enterprise (a "BJK&E Material Adverse Effect").
(iii) Beneficial Ownership. BJK&E 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 BJK&E 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; BJK&E 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.
(v) Authorization of Agreement. BJK&E has the full right, power and
--------------------------
authority to enter into this Agreement. The execution, delivery and performance
of this Agreement by BJK&E and the consummation by BJK&E of the transactions
contemplated herein and in the Registration Statement and compliance by BJK&E
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 BJK&E Repayment Event (as defined below) under, BJK&E Agreements and
Instruments, nor will such action result in any violation of the provisions of
the charter or by-laws of BJK&E 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 BJK&E or
any of its assets or properties. As used herein, a "BJK&E 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 BJK&E, the Company or any Company subsidiary.
(vi) [Reserved.]
(vii) Absence of Manipulation. BJK&E 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 BJK&E of its
-12-
<PAGE>
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, BJK&E 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.
(x) [Reserved.]
(xi) No Association with NASD. Neither BJK&E 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.
(xii) Inter-corporate Agreements. Each of the Inter-corporate
--------------------------
Agreements to which BJK&E is a party has been duly and validly authorized,
executed and delivered by BJK&E and is the valid and binding agreement of BJK&E
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 BJK&E pursuant to, BJK&E Agreements and Instruments except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a BJK&E Material Adverse Effect, nor will such action result in any
violation of the provisions of the charter or by-laws of BJK&E 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 BJK&E or any of its assets or properties, except for such
violations that would not result in a BJK&E 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
BJK&E of the transactions contemplated by the Inter-corporate Agreements to
which BJK&E is a party, except such as have been obtained.
-13-
<PAGE>
(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 BJK&E 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 BJK&E 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 agrees to sell to each Underwriter and each Underwriter, severally and
not jointly, agrees to purchase from the Company, 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, 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.
(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 hereby grants an option to the Underwriters, severally
and not jointly, to purchase up to an additional 450,000 shares of Common Stock
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 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, at 10:00 A.M.
(Eastern Time) on the third (fourth, if the pricing occurs after 4:30 P.M.
-14-
<PAGE>
(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 (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, on each Date of Delivery as specified in the notice from the
Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company 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 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
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<PAGE>
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.
(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
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<PAGE>
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 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
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<PAGE>
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 and the Company's 1996 Employee Stock
Purchase Plan, each 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.
(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.
(1) 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
(other than a Form S-8 relating to the Company's 1996 Employee Stock Purchase
Plan) 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
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<PAGE>
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.
(p) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted as required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The Underwriters
will notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer agent to
place a stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions any of
the Reserved Securities, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses) they
incur in connection with such release.
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 NASD of the
terms of the sale of the Securities, (x) the fees and expenses incurred
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<PAGE>
in connection with the inclusion of the Securities on the Nasdaq National Market
and (xi) all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, in connection with matters
related to the Reserved Securities which are designated by the Company for sale
to employees and others having a business relationship with the Company.
(b) Expenses of BJK&E . BJK&E will pay the fees and disbursements of its
counsel and accountants, 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 BJK&E contained in Section 1
hereof or in certificates of any officer of BJK&E, the Company or any subsidiary
delivered pursuant to the provisions hereof, to the performance by BJK&E and the
Company of its covenants and other obligations hereunder, and to the following
further conditions:
(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 the 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 BJK&E . At the Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Loeb & Loeb LLP, counsel for BJK&E, 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
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<PAGE>
Exhibit B hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(d) Opinion of Counsel for Underwriters. At the 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 the 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 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 BJK&E and the Company and of the chief financial or chief
accounting officer of BJK&E 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) BJK&E 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 the 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
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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, BJK&E or any other person other than itself or the deferred
purchase price of any property acquired by BJK&E or any person other than
itself.
(j) Termination of Agreements. At the Closing Time, that certain Guarantee
dated June 22, 1994 together with any and all amendments thereto made by the
Company in favor of Citibank, N.A. 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.
(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 BJK&E and the Company contained herein and the statements in any certificates
furnished by BJK&E 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 BJK&E and the
Company and of the chief financial or chief accounting officer of BJK&E 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 BJK&E. The favorable opinion of Loeb &
----------------------------
Loeb LLP, counsel for BJK&E, in form and substance satisfactory to counsel
for the
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Underwriters, dated such Date and Delivery, substantially 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 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 BJK&E 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), BJK&E 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
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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 BJK&E; 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) 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 BJK&E, the indemnified parties may
proceed against either (i) the Company and BJK&E jointly or (ii) the Company
only, but may not proceed solely against BJK&E. 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 BJK&E (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 BJK&E without regard to
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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 BJK&E by making written demand directly on
BJK&E (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 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 BJK&E of its representations and warranties
contained in each of Section 1(b) (iii), (iv), or (vii).
In the event that BJK&E 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), BJK&E shall be entitled to
recover from the Company the entire amount of such Loss (other than in the case
of a Loss resulting from a breach by BJK&E of its representations and warranties
contained in each of Section 1(b) (iii), (iv), or (vii) hereof).
(b) Indemnification of the Company, Directors and Officers, and BJK&E.
Each Underwriter severally agrees to indemnify and hold harmless the Company,
its directors, each of the officers who signed the Registration Statement, BJK&E
and each person, if any, who controls the Company or BJK&E 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
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<PAGE>
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 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.
(e) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them a
result of the failure of eligible employees and other persons to pay for and
accept delivery of Reserved Securities which, by the end of the first
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<PAGE>
business day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase.
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 BJK&E 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 BJK&E 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.
The relative benefits received by BJK&E 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 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 BJK&E 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 BJK&E 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.
BJK&E 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.
-27-
<PAGE>
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
BJK&E 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 BJK&E. 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 BJK&E 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 BJK&E 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 BJK&E, 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
-28-
<PAGE>
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 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 Company 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.
-29-
<PAGE>
SECTION 11. Default by the Company. 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 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 BJK&E 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, BJK&E 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, BJK&E 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, BJK&E 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 14. 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 15. 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]
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to BJK&E and the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Underwriters, BJK&E 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.
-31-
<PAGE>
SCHEDULE A
Number of
Name of Underwriter Initial Securities
- ------------------- ------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................
Dean Witter Reynolds Inc.......................
Total......................................... 3,000,000
=========
<PAGE>
SCHEDULE B
Number of Initial Maximum Number of Option
Securities to be Sold Securities to be Sold
--------------------- ---------------------
450,000
POPPE TYSON, INC. 3,000,000
<PAGE>
SCHEDULE C
POPPE TYSON, INC.
3,000,000 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.
<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 BJK&E, the Company or any Company subsidiary
is a party, or to which the property of BJK&E, 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 BJK&E and the Company of its obligations thereunder;
(xiv) 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" and
"Business--Legal Proceedings" and in the Registration Statement under item 14
and item 15, to the extent that it constitutes matters of law, summaries of
legal matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
A-2
<PAGE>
(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, writ or decree, known to us, of any government,
government instrumentality or court, domestic
A-3
<PAGE>
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 BJK&E 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 BJK&E 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 BJK&E and the Company and
is the valid and binding agreement of each of BJK&E 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 BJK&E 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 BJK&E and the
Company, or any agreement, indenture or other instrument to which BJK&E 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 BJK&E 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 BJK&E 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 required in connection with the consummation of the transactions
contemplated by such Inter-corporate Agreements.
A-4
<PAGE>
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 BJK&E
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) BJK&E 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 BJK&E for the performance by BJK&E of its obligations hereunder 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 BJK&E.
(iv) [Reserved.]
(v) The execution, delivery and performance of the Purchase
Agreement, the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by BJK&E with its
obligations under the Purchase Agreement have been duly authorized by all
necessary action on the part of BJK&E 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 BJK&E pursuant to,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which BJK&E is a party
or by which it may be bound, or to which any of the property or assets of BJK&E
may be subject nor will such action result in any violation of the provisions of
the charter or by-laws of BJK&E, 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 BJK&E 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) BJK&E has the requisite corporate power and authority to enter
into 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 BJK&E 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
<PAGE>
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 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 exercise
its discretion in a manner such that Options which are granted to individuals
who are foreign nationals or are employed outside the United States contain
terms and conditions which are different from the provisions otherwise specified
in the Plan but which are consistent with the tax and other laws of foreign
jurisdictions applicable to the Optionee and which are designed to provide the
Optionee with benefits which are consistent with the Company's objectives in
establishing the Plan. 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 December 31, 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 mean the six month period
commencing on the Enrollment Date and ending 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 shall terminate on June 30, 1997.
(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 December 31, 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). Notwithstanding the foregoing, payroll
deductions for a participant for the Plan's first Enrollment Date shall commence
with the first full payroll period following the Enrollment Date (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 10.24
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 10th day of October, 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 "Executive"):
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and the Executive have entered in an employment
agreement dated as of May 15, 1996 (the "Employment Agreement"); and
WHEREAS, the Employment Agreement, for several purposes, refers to a
stock option which was granted by agreement between the Company and the
Executive dated as of May 15, 1996, which stock option was amended and restated
by agreement dated as of July 16, 1996, and which stock option was further
amended by agreement dated as of the date hereof (the "Original Stock Option");
and
WHEREAS, contemporaneously herewith, the Company is granting to the
Executive an additional stock option by agreement dated as of the date hereof
(the "Supplemental Stock Option"); and
WHEREAS, the parties hereto desire that the Employment Agreement be
amended so that all references therein to the "Stock Option" shall be read as
referring to both the Original Stock Option and the Supplemental Stock Option
and that references therein to the "Stock Option Agreement" shall be read as
referring to both the agreement for the Original Stock Option (the "Original
Stock Option Agreement") and the agreement for the Supplemental Stock Option
(the "Supplemental Stock Option Agreement").
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. All references in the Employment Agreement to the "Stock
Option" shall be read as referring to both the Original Stock Option and
the Supplemental Stock Option.
2. All references in the Employment Agreement to the "Stock
Option Agreement" shall be read as referring
<PAGE>
to both the Original Stock Option Agreement and the Supplemental Stock
Option Agreement.
IN WITNESS WHEREOF, the Company and the Executive have entered into
this Agreement as of the day and year first above written.
POPPE TYSON, INC.
By: _________________________
Name:
Title:
_____________________________
Steven M. Blondy
2
<PAGE>
EXHIBIT 10.25
THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
AMENDMENT TO AND CONFIRMATION OF INCENTIVE STOCK OPTION
AGREEMENT
THIS AMENDMENT AND CONFIRMATION, made as of this 10th day of October
1996, by and between POPPE TYSON, INC. (the "Company") and STEVEN M. BLONDY, an
employee of the Company (the "Optionee").
WITNESSETH:
----------
WHEREAS, the Company has previously granted an option (the "Option")
to Optionee under the Amended and Restated 1996 Stock Option Plan of Poppe
Tyson, Inc. (the "Plan"), the terms of which Option were originally contained in
agreement dated as of May 15, 1996, and which agreement was amended and restated
as of July 16, 1996 (the "Option Agreement"); and
WHEREAS, the Company completed a reverse stock split on October 1,
1996 and the parties hereto desire that, for the convenience of the parties, the
Option Agreement appropriately reflect said reverse stock split; and
WHEREAS, the Company's Board of Directors has taken action on the date
hereof to reduce the exercise price of the Option; and
WHEREAS, the Optionee understands that solely for purposes of the
federal income tax incentive stock option rules, the reduction of the exercise
price of the Option is treated as a grant of a new option and, therefore, if in
the future the Optionee exercises the Option and thereafter sells the underlying
shares of common stock, the two year from grant incentive stock option holding
period requirement will be measured from the date hereof rather than July 16,
1996.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree that the Option is amended as
follows:
1. Section 1 of the Option Agreement is amended to read as follows:
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 fifty eight thousand
one hundred twenty five
<PAGE>
(58,125) shares of common stock of the Company, par value $.001 per
share ("Common Stock").
2. Section 3 of the Option Agreement is amended to read as follows:
Exercise Price. The price of each share of Common Stock purchased
--------------
pursuant to this Option shall be the per share price to the public in
the Company's initial public offering as set forth on the cover page
of the related final prospectus or, if such initial public offering is
not consummated on or before December 31, 1996, $10 per share.
The Optionee hereby agrees that this Amendment and Confirmation may be
attached to the Option Agreement of Optionee.
IN WITNESS WHEREOF, the Company and the Optionee have entered into
this Amendment and Confirmation as of the date specified above.
POPPE TYSON, INC.
By: _________________________
_____________________________
, Optionee
<PAGE>
EXHIBIT 10.26
THE AMENDED AND RESTATED 1996 STOCK OPTION PLAN OF
POPPE TYSON, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of the 10th day of October, 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 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 ten thousand (10,000)
shares of common stock of the Company, par value $0.001 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 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
<PAGE>
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 the offering price to the public set forth in
the final prospectus for the initial public offering of the Company's Common
Stock; provided, however, that if no such initial public offering is consummated
on or before December 31, 1996, the exercise price shall be ten dollars ($10)
per share.
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 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
2
<PAGE>
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 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.
----------
3
<PAGE>
(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 May 16, 1996 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 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
4
<PAGE>
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 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
5
<PAGE>
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 (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
6
<PAGE>
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, 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
7
<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" 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 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
8
<PAGE>
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 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
9
<PAGE>
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 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
10
<PAGE>
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 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.
11
<PAGE>
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 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
12
<PAGE>
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 expiration of two years
after the Option was granted 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.
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: _________________________
_____________________________
Steven M. Blondy, Optionee
13
<PAGE>
Exhibit 11.1
------------
POPPE TYSON, INC.
EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
Years ended March 31, Six months ended September 30,
------------------------------ ------------------------------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net earnings <loss> $ 313,238 $36,477 $496,412 $(247,334) $(676,315)
========= ======= ======== ========= =========
Weighted common shares
and common equivalent
shares outstanding:
Common Stock 8,450,576 8,450,576 8,307,424 8,450,576 7,034,683
Stock Options -- -- 27,249 -- 13,065
---------- --------- --------- --------- ---------
Total weighted average
common shares and
common equivalent
shares 8,450,576 8,450,576 8,334,673 8,450,576 7,047,748
========= ========= ========= ========= =========
Earnings <loss>
per share-
on both a
primary and
a fully diluted
basis $.04 $ -- $.06 $<.03> $<.10>
========= ======== ======== ========== =========
</TABLE>
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
EXHIBIT 23.1-1
INDEPENDENT AUDITORS' REPORT AND CONSENT
The Board of Directors
Poppe Tyson, Inc.:
The audits referred to in our report dated May 17, 1996, except as to Note 10
which is as of October 1, 1996 and the second paragraph of Note 11 which is as
of June 27, 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 audits.
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 on the financial statements and schedule of
Poppe Tyson, Inc., our report on the consolidated financial statements of
Animated Systems & Design, Inc. and subsidiary, and our report on the financial
statements of Werner Chepelsky & Partners, Inc. 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
November 6, 1996
