<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1997
REGISTRATION NO. 333-15161
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TN TECHNOLOGIES HOLDING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 06-1464807
(STATE OR OTHER 7311
JURISDICTION OF (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
TN TECHNOLOGIES HOLDING INC.
228 SAUGATUCK AVENUE
WESTPORT, CT 06880
(203) 341-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
GREGORY W. BLAINE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TN TECHNOLOGIES HOLDING INC.
228 SAUGATUCK AVENUE
WESTPORT, CT 06880
(203) 341-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ALAN K. AUSTIN, ESQ. HOWARD S. LANZNAR, ESQ.
BRIAN C. ERB, ESQ. LAWRENCE D. LEVIN, ESQ.
ELIZABETH M. KURR, ESQ. TARA A. GOFF, ESQ.
MARK L. REINSTRA, ESQ. KAREN A. RUZIC, ESQ.
THOMAS I. SAVAGE, ESQ. KATTEN MUCHIN & ZAVIS
WILSON SONSINI GOODRICH & ROSATI 525 W. MONROE STREET, SUITE 1600
PROFESSIONAL CORPORATION CHICAGO, IL 60661-3693
650 PAGE MILL ROAD (312) 902-5200
PALO ALTO, CA 94304-1050
(415) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued January 8, 1997
Shares
[LOGO]
CLASS A COMMON STOCK
-----------
ALL OF THE SHARES OF CLASS A COMMON STOCK (THE "CLASS A COMMON STOCK")
BEING OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THE OFFERING,
THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. THE
COMPANY HAS TWO CLASSES OF AUTHORIZED COMMON STOCK, THE CLASS A COMMON STOCK
OFFERED HEREBY AND CLASS B COMMON STOCK (THE "CLASS B COMMON STOCK" AND,
COLLECTIVELY WITH THE CLASS A COMMON STOCK, THE "COMMON STOCK"). THE RIGHTS
OF HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK ARE IDENTICAL
EXCEPT FOR VOTING AND CONVERSION RIGHTS. HOLDERS OF THE CLASS A COMMON STOCK
ARE ENTITLED TO ONE VOTE PER SHARE, AND HOLDERS OF THE CLASS B COMMON STOCK
ARE ENTITLED TO FIVE VOTES PER SHARE ON MOST MATTERS SUBJECT TO STOCKHOLDER
VOTE. THE COMPANY IS A SUBSIDIARY OF TRUE NORTH COMMUNICATIONS INC. ("TRUE
NORTH"). UPON CONSUMMATION OF THE OFFERING, TRUE NORTH WILL BENEFICIALLY OWN
ALL OF THE OUTSTANDING CLASS B COMMON STOCK AND WILL HAVE APPROXIMATELY %
OF THE COMBINED VOTING POWER OF THE COMMON STOCK ( % IF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS EXERCISED IN FULL). APPLICATION HAS BEEN MADE TO
LIST THE CLASS A COMMON STOCK FOR QUOTATION ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "TNTI."
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 HEREOF.
-----------
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.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
---------- --------------- -----------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses estimated at $, all of which are payable by
the Company.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of additional
Shares of Class A Common Stock at the price to public less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $, $ and $, respectively. See "Underwriters."
-----------
The Shares of Class A Common Stock are offered, subject to prior sale, when,
as and if accepted by the Underwriters named herein and subject to approval of
certain legal matters by Katten Muchin & Zavis, counsel for the Underwriters.
It is expected that delivery of the Shares of Class A Common Stock will be made
on or about , 1997 at the office of Morgan Stanley & Co. Incorporated, New
York, New York, against payment therefor in immediately available funds.
-----------
MORGAN STANLEY & CO.
Incorporated
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
ROBERTSON, STEPHENS & COMPANY
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR
SUCH PERSON TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
----------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 3
Risk Factors....................... 6
The Company........................ 14
Use of Proceeds.................... 14
Dividend Policy.................... 14
Capitalization..................... 15
Dilution........................... 16
Selected Financial Data............ 17
Selected Financial Data of Modem
Media............................. 18
Pro Forma Financial Information.... 19
Management's Discussion and
Analysis
of Financial Condition and Results
of Operations..................... 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.......................... 34
Management........................ 47
Relationship With True North and
Certain Transactions............. 54
Principal Stockholders............ 58
Description of Capital Stock...... 59
Shares Eligible for Future Sale... 62
Underwriters...................... 64
Legal Matters..................... 65
Experts........................... 65
Additional Information............ 66
Index to Financial Statements..... F-1
</TABLE>
----------------
TN Technologies, Modem Media, R/GA Interactive, Northern Lights Interactive,
Cf2GS, Relationship Technology Group and Delivra are trademarks or tradenames
of the Company. This Prospectus also includes product names and other trade
names and trademarks of the Company and of other organizations.
----------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT 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.
2
<PAGE>
PROSPECTUS SUMMARY
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 under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information and the financial statements and notes thereto appearing
elsewhere in this Prospectus.
The Company was formed through the combination of businesses in a series of
transactions. In December 1996, True North Communications Inc. ("True North")
acquired certain partnership interests in Modem Media Advertising Limited
Partnership, a Connecticut limited partnership ("Modem Media"). TN Technologies
Holding Inc. was incorporated to convert all of the general and limited
partnership interests of Modem Media into Common Stock of TN Technologies
Holding Inc. (the "Conversion"). Following the Conversion, TN Technologies
Holding Inc. acquired certain businesses of True North (together with True
North's acquisition of the partnership interests in Modem Media, the
"Combination"). The Conversion and the Combination were consummated on December
31, 1996. Prior to the Offering, the Company will change its name to TN
Technologies Inc. See "The Company" and "Relationship With True North and
Certain Transactions." In this Prospectus, unless the context otherwise
indicates, the "Company" means TN Technologies Holding Inc. after the
Conversion and the Combination, and the "True North Units" means the businesses
acquired by the Company from True North in the Combination. Except as otherwise
indicated herein, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. See "Underwriters."
THE COMPANY
The Company is a leader in digital interactive marketing, having developed
over 500 marketing programs since 1987. The Company combines traditional
marketing skills with capabilities in digital media and communications
technologies to enable clients to more effectively reach and interact with
customers and other key constituents. The Company delivers a complete range of
digital interactive marketing products and services including: customized
product positioning; creation, production, updating and maintenance of World
Wide Web ("Web") sites and other interactive communications vehicles; analysis
of customer requests, purchases and behaviors; delivery of uniform and updated
information tools for sales forces; and technical consulting. Pro forma
revenues derived from digital interactive marketing activities accounted for
76.2% of the Company's total pro forma revenues in the nine months ended
September 30, 1996.
The Company's products and services link the two-way distribution
capabilities of digital communications networks (principally the Internet, the
Web, proprietary on-line services and corporate intranets) with fundamental
marketing strategies and digital design and production capabilities. Digital
interactive marketing applications developed by the Company permit the
Company's clients to target narrow market segments, supply detailed product and
service information on demand, obtain instant feedback, and update advertising,
marketing and customer service programs quickly and easily. The Company seeks
to strengthen and maintain long-term relationships with established
organizations, including AT&T, Delta Air Lines, Levi Strauss & Co., JC Penney,
Microsoft, Motorola, Royal Caribbean Cruises and S.C. Johnson, as well as with
emerging companies that are effecting change in digital media, such as i-
Village and PC Financial Network.
The Company was formed through the combination of businesses with substantial
creative, technological, and digital design and production expertise. In
December 1996, certain businesses of True North, including Northern Lights
Interactive, Inc., a strategic marketing organization ("Northern Lights
Interactive"), Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc., an
advertising agency specializing in database and integrated marketing ("Cf2GS"),
R/GA Interactive, Inc., a digital design and production company ("R/GA
Interactive"), and True North's technology development operations, were
combined with Modem Media, a leader in digital interactive marketing which has
been providing such services since 1987. Through the Combination, the Company
brought together substantial experience in digital interactive marketing and
the ability to offer comprehensive marketing solutions to its clients. In
addition, the Company believes that its ongoing relationship with True North
will provide it with additional opportunities to offer digital interactive
marketing products and services to True North's clients.
The Company's principal executive office is located at 228 Saugatuck Avenue,
Westport, Connecticut 06880, and its telephone number at that address is (203)
341-5200.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered.... shares
Common Stock to be outstanding
after the
Offering (1)(2):
Class A Common Stock.......... shares
Class B Common Stock (2)...... 5,093,800 shares
Total....................... shares
Voting rights:
Class A Common Stock.......... One vote per share
Class B Common Stock.......... Five votes per share
Use of Proceeds to the Company.. For repayment of $6.0 million of intercompany
obligations to True North and for general
corporate purposes, including working capital
and capital expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market
Symbol......................... TNTI
</TABLE>
- --------
(1) As of December 31, 1996. Excludes an aggregate of shares of Class A
Common Stock reserved for issuance upon exercise of options granted to
certain employees of Modem Media prior to the Conversion which were
converted into options to purchase Class A Common Stock of the Company in
connection with the Conversion. Also excludes an aggregate of
shares of Class A Common Stock reserved for issuance pursuant to the
Company's 1997 Stock Option Plan (the "Stock Option Plan"), of which the
Company intends to grant to certain officers and employees of the Company
options to purchase shares of Class A Common Stock at the
initial public offering price concurrently with the consummation of the
Offering, and 200,000 shares of Class A Common Stock reserved for issuance
pursuant to the Company's 1997 Employee Stock Purchase Plan ("the Purchase
Plan"). See "Management--Stock Plans," "Relationship With True North and
Certain Transactions" and "Description of Capital Stock."
(2) Each share of Class B Common Stock is convertible, at any time at the
option of the holder, into 1.015 shares of Class A Common Stock. In
addition, the Class B Common Stock will be automatically converted into
Class A Common Stock upon the occurrence of certain events. See
"Description of Capital Stock."
4
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial information of the True North Units should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this Prospectus. The summary statement of operations data for the
fiscal years ended December 31, 1994 and 1995 and for the nine months ended
September 30, 1996 is derived from audited financial statements of the True
North Units that are included elsewhere in this Prospectus. The True North
Units either had no operations or were not owned by True North prior to January
1, 1994.
The Company was formed in October 1996 for the purpose of converting all of
the general and limited partnership interests of Modem Media into common stock
of TN Technologies Holding Inc. Following the Conversion, the Company acquired
the True North Units, which included substantially all of the assets and
properties of Northern Lights Interactive (established by True North in the
fourth quarter of 1995), R/GA Interactive (acquired by True North in July 1995)
and Cf2GS (acquired by True North in April 1994), as well as True North's
technology development operations (established by True North in January 1995),
in exchange for the assumption by the Company of certain liabilities of True
North relating to the True North Units and the issuance to True North of all of
the Company's Class B Common Stock. See "Relationship With True North and
Certain Transactions." The summary pro forma information of the Company
presented is unaudited and gives effect to the Combination (assuming that the
Combination had occurred on January 1, 1995). The Combination has been
accounted for using the purchase method of accounting. The unaudited nine month
financial information reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the results of the interim periods. The historical results
are not necessarily indicative of the results of operations to be expected in
the future, and the results of operations for current interim periods are not
necessarily indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED SEPTEMBER
31, 30,
----------------------- ---------------------------------
PRO PRO FORMA
FORMA ----------------
1994 1995 1995 1995 1996 1995 1996
------ ------- ------- ------ ------- ------- -------
(UNAUDITED) (UNAUDITED)
--------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $4,020 $11,439 $24,541 $7,019 $14,367 $15,972 $26,794
Operating income (loss). 365 (1,855) (1,285) (732) (1,808) (610) (1,447)
Net income (loss)....... 256 (978) (1,939) (349) (1,008) (1,256) (1,743)
Net income (loss) per
share.................. -- -- -- --
Shares used to compute
net income (loss) per
share.................. -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------------
PRO PRO FORMA AS
ACTUAL FORMA ADJUSTED (1)
------- ------- ------------
(UNAUDITED)
--------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.............................................. $ 4 $ 3,909 $
Working capital................................... 3,846 5,511
Total assets...................................... 21,537 83,629
Capital lease obligations, less current portion... -- 225 225
Stockholders' equity (deficit).................... (1,692) 59,819
</TABLE>
- --------
(1) As adjusted to reflect the sale of the shares of Class A Common
Stock offered hereby at an assumed initial public offering price of $
per share and application of the net proceeds therefrom (after deducting
estimated underwriting discounts and commissions and estimated offering
expenses). In October 1996, certain employees of Modem Media were granted
options to purchase limited partnership interests in Modem Media which were
converted into options to purchase Class A Common Stock of the Company in
connection with the Conversion. The Company will incur, on a pre-tax, pro
forma basis, a one-time, non-cash charge of approximately $3.0 million in
the fourth quarter of 1996 relating to this grant. See "Pro Forma Financial
Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that 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. In evaluating the Company's business, prospective
investors should consider carefully the following risk factors in addition to
the other information set forth in this Prospectus.
Limited Operating History; History of Operating Losses; No Assurance of
Profitability. Prior to the Combination, the Company did not operate as a
combined business organization. The Company has experienced operating losses,
on a pro forma basis, in each of the quarters ended September 30, 1995,
December 31, 1995, March 31, 1996 and June 30, 1996, and had incurred net
losses, on a pro forma basis, in each of the six quarters ended June 30, 1996.
There can be no assurance that the Company will achieve or sustain
profitability in the future. In addition, the Company has incurred, and
anticipates that it will continue to incur, substantial costs to expand and
integrate its operations. Such costs have had, and could continue to have, a
material adverse effect on the operating results of the Company. Future
operating results will depend on many factors, including demand for the
Company's services, the Company's ability to successfully integrate its
business units, the Company's ability to maintain its client relationships and
obtain assignments from new clients, the Company's success in attracting and
retaining qualified personnel, the level of competition and the Company's
ability to respond to competitive developments. There can be no assurance that
the Company will be successful in addressing the risks presented by such
factors.
Variability of Operating Results. The Company's operating results have
fluctuated in the past, and may continue to fluctuate in the future, as a
result of a variety of factors, including the timing of any material
reduction, cancellation or completion of major projects, the loss of a major
client, the loss or hiring of personnel, the timing of the opening or closing
of an office, the relative mix of business, changes in the pricing strategies
of the Company or its competitors, fluctuations in working capital,
fluctuations in personnel and other costs relating to the expansion of
operations, and other factors that are outside of the Company's control. As a
result of these fluctuations, the Company believes that period to period
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 Class A Common Stock could likely be
materially and adversely affected.
The Company experiences some variation in operating results throughout the
year which results in part from timing of product introductions, business
cycles of the Company's clients and marketing communications spending patterns
in general. The Company's revenues have historically been higher during the
second half of the Company's fiscal year. The Company expects this variation
in operating results to continue in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Factors
Affecting Operating Results of the Company."
Competitive Marketplace; Low Barriers to Entry. The markets for the
Company's services are very competitive and are characterized by pressures to
incorporate new capabilities, accelerate job completion schedules and reduce
prices. The Company faces competition from a number of sources. These sources
include traditional advertising agencies as well as specialized marketing
communications firms. In addition, many advertising agencies have started to
develop internally or enter into business relationships to develop or acquire
new digital media and interactive communications capabilities. The Company
also competes with interactive marketing communications companies that provide
services (such as corporate identity and packaging, production, advertising
services or Web site design) and are technologically proficient in the digital
media and interactive communications fields. In addition, production houses,
software developers, in-house marketing and information systems departments of
organizations, interactive entertainment companies, and graphic design
companies compete with certain portions of the Company's business.
6
<PAGE>
Certain of the Company's competitors or potential competitors have longer
operating histories, longer client relationships and greater financial,
management, technology, development, sales, marketing and other resources than
the Company. Competition depends to a large extent on the clients' perception
of the quality and creativity as well as the technical proficiency of digital
interactive marketing products and services offered. The Company also competes
on the basis of price and the ability to serve clients on a broad geographic
basis. In order to compete successfully in each of these areas, the Company
must have access to adequate financial resources. Moreover, clients frequently
wish to have different products represented by different marketing companies.
To the extent the Company loses clients to its competitors because of
dissatisfaction with the Company's services or the Company's reputation is
adversely impacted for any other reason, the Company's business, financial
condition or operating results could be materially adversely affected.
There are relatively low barriers to entry in the digital interactive
marketing industry. The Company expects that it will face additional
competition from new market entrants. There can be no assurance that existing
or future competitors will not develop or offer digital interactive marketing
services and products that provide significant performance, price, creative or
other advantages over those offered by the Company, which could have a
material adverse effect on the Company's business, financial condition or
operating results. See "Business--Competition."
Risks Associated With Integration of Separate Businesses. The Company was
formed in October 1996 and acquired certain businesses of True North in
December 1996, including substantially all of the assets and properties of
Northern Lights Interactive, R/GA Interactive and Cf2GS, as well as True
North's technology development operations. The integration of the Company's
business units is expected to place a significant burden on the Company's
management. The Company's business units have historically operated
independently, and it is expected that the Company's management will integrate
certain aspects of the businesses into a single organization. Such integration
is subject to various risks and uncertainties and include: the inability to
effectively assimilate operations, products, technologies, personnel and
cultures of the business units involved; the potential disruption of the
Company's business; the potential deterioration of uniform standards,
controls, procedures and policies; and the impairment of relationships with
employees and clients as a result of the integration of new management
personnel. If the Company were to fail to integrate successfully its business
units, such failure could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Relationship With True North and Certain Transactions."
Dependence On and Relationship With True North. In 1995, True North
established Northern Lights Interactive to provide digital interactive
marketing services to True North's traditional marketing services clients.
Prior to the Combination, the business of Northern Lights Interactive was, and
the Company expects that Northern Lights Interactive will continue to be,
dependent on successful client referrals from True North. True North is not
obligated to refer clients to the Company, and there can be no assurance that
True North will continue to refer clients to the Company. In addition, even if
referred to the Company, True North's clients are not obligated to hire the
Company, and there can be no assurance that such referrals will be successful.
If True North were to be acquired by a company that competes with the Company,
or if True North were to acquire a business with a unit that competes with the
Company, True North could become a competitor of the Company and could reduce
the number of, or discontinue making, client referrals to the Company. In
addition, the number of client referrals the Company receives from True North
is dependent in part on True North's business. In the event of a reduction or
discontinuance of client referrals because of a decline in True North's
business, or for any other reason, the Company's business, financial position
or results of operations could be materially adversely affected. Moreover,
certain clients are jointly serviced by True North and the Company. To the
extent any such client elects to terminate their relationship with True North,
the Company's relationship with such client could be adversely effected.
The True North Units have historically depended on True North for a variety
of management and administrative services, including accounting, cash
management, tax and payroll administration, insurance and employee benefits
administration, and financing. In connection with the Combination, the Company
and True North have entered into certain intercompany agreements providing for
various interim and ongoing services and relationships between the two
companies, including an intercompany credit agreement, a tax matters
agreement,
7
<PAGE>
intellectual property agreements, an administrative services agreement and
various real estate space sharing agreements. True North will continue to
provide such services until termination of the agreements pursuant to their
respective terms. Any such termination would require the Company to
independently provide, or seek an alternative source of, 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 to a new service provider would not have a material adverse effect
on the Company's business, financial position or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Relationship With True North and Certain Transactions."
Dependence on Key Clients; Absence of Long-Term Contracts. The Company's
five largest clients accounted for 63.4% and 63.0% of the Company's revenues
(on a pro forma basis) for the fiscal year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively, with fluctuations in the
amount of revenue contribution from each such client from quarter to quarter.
AT&T accounted for 37.9% and 41.5% of the Company's revenues (on a pro forma
basis) for the fiscal year ended December 31, 1995 and for the nine months
ended September 30, 1996, respectively. AT&T accounted for 57.4%, 78.4%, and
82.0% of the revenues of Modem Media for fiscal years 1994 and 1995 and for
the nine months ended September 30, 1996. AT&T is also a client of certain of
the Company's other business units, and there can be no assurance that the
Company will be able to maintain the rate of growth or current level of
revenues derived from AT&T or from any other client in the future.
Because the Company's clients generally hire the Company on an assignment
basis rather than on a retainer basis, a client from whom the Company
generates substantial revenue in one period may not be a substantial source of
revenue in a subsequent period. In addition, the Company's clients generally
have the right to terminate their relationships with the Company without
penalty and on relatively short or no notice. As a result, the Company may
lose several significant clients each year, and there can be no assurance that
new clients will be obtained or, if obtained, will offset any client 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, the
Company's business, financial condition or results of operations could be
materially adversely effected. Once an assignment is completed there can be no
assurance that a client will engage the Company for further services. The
termination of the Company's business relationship with any of its significant
clients, including AT&T, 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 or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Company Clients."
Exposure to Fixed-Fee Assignments. A significant majority of the Company's
revenues are derived from fixed-fee based assignments. The Company recognizes
revenues from these assignments based on its estimate of the percentage of
each assignment completed in a reporting period. To the extent these estimates
prove to be inaccurate, the revenues and operating profits, if any, reported
for periods during which work on an assignment is ongoing may not accurately
reflect the final results of the assignment, which can only be determined upon
completion of the assignment. Failure to anticipate technical problems,
estimate costs accurately, control costs during performance of a fixed-fee
based assignment or obtain the client's consent to a fee adjustment in the
event costs are underestimated may have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Associated With Management of Growth and Potential Acquisitions. The
expansion of the Company's business and its customer base has resulted in a
corresponding growth in the demands on the Company's management, its operating
systems, internal controls, and financial and physical resources. The
Company's continued growth, if any, may strain existing management and human
resources, in particular, affecting its ability to attract and retain talented
personnel. Further, operational, financial and management information systems
and controls may not be adequate to support continued growth of the Company's
operations. Consequently, the Company may be required to increase expenditures
to hire new employees, open new offices and invest in new equipment or other
capital expenditures. Any failure to expand any of the foregoing areas in
8
<PAGE>
an efficient manner could have a material adverse effect on the Company's
business, financial condition or results of operations. The Company expects
that it will need to develop further its financial and management controls,
reporting systems and procedures to accommodate future growth, if any. There
can be no assurance that the Company will be able to develop such controls,
systems or procedures effectively or on a timely basis. The failure to do so
could have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company has made in the past, and may make in the future, acquisitions
of, or significant investments in, businesses, including those that offer
complementary marketing communications services, products and technologies, or
that expand the Company's geographic coverage. Any such future acquisitions or
investments would be accompanied by risks, including the difficulty of
assimilating the operations and personnel of the acquired businesses, the
potential disruption of the Company's ongoing business, the inability of
management to maximize the financial and strategic position of the Company
through the successful incorporation of acquired personnel and clients, the
maintenance of uniform standards, controls, procedures and policies, and the
impairment of relationships with employees and clients as a result of any
integration of new management personnel. These factors could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on Key Personnel. The Company's success will depend on the
ability of the Company's senior management, in particular, Gregory W. Blaine,
Chairman and Chief Executive Officer, Gerald M. O'Connell, President and Chief
Operating Officer, and Robert M. Greenberg, President, R/GA Interactive. The
Company's success also will depend to a significant degree on the continuing
contributions of other members of its senior management and its key account
management, marketing, creative and technology development personnel, as well
as its ability to attract and retain highly skilled personnel in all job
categories. Competition for qualified personnel in the digital interactive
marketing industry is intense. The Company has at times experienced, and
continues to experience, difficulty in recruiting sufficient numbers of
qualified personnel. Although certain members of the Company's senior
management have entered into employment agreements with the Company, there can
be no assurance that any of these executives will not voluntarily terminate
their employment with the Company. 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 or results of operations. The Company has
entered into employment allocation agreements with True North and each of
Messrs. Blaine and Greenberg and Martin F. Reidy, Executive Vice President of
the Company, pursuant to which each will devote a portion of his time to his
employment with the Company and the remainder to True North. In the case of
Mr. Blaine, substantially all of his time will be devoted to the Company. If
one or more of the Company's key employees resigns from the Company to join a
competitor or to form a competing company, the loss of such personnel could
have a material adverse effect on the Company's business, financial condition
or results of operations. In addition, the loss of existing or potential
clients as the result of the loss of any key employee to a competitor or
otherwise could have a material adverse effect on the Company's business,
financial condition or results of operations. In the event of the loss of any
key personnel, there can be no assurance that the Company would be able to
prevent the unauthorized disclosure or use of its technical knowledge,
practices, procedures or client lists. See "Business--Competition," "--
Employees" and "Management."
Uncertainties of Developing Market for Digital Interactive Marketing
Solutions. The market for digital
interactive marketing solutions has recently begun to develop, is evolving
rapidly and is characterized by an increasing number of market entrants. The
Company's future growth is dependent on its ability to create, develop and
deploy digital interactive marketing solutions that are accepted by the
Company's clients as an effective form of communication with their targeted
audiences. Demand for and market acceptance of recently introduced products
and services are subject to a high level of uncertainty and are dependent on a
number of factors, including the growth in consumer access to and acceptance
of new interactive technologies such as the Internet and the Web and the
development of technologies that facilitate interactive communication between
organizations and targeted audiences. Significant issues concerning the
commercial use of these technologies (including security, reliability, cost,
ease of use and quality of service) remain unresolved and may have a negative
impact on the growth of
9
<PAGE>
marketing activities that utilize these technologies. In addition, no
standards have yet been widely accepted for the measurement of the
effectiveness of interactive marketing, and there can be no assurance that
such standards will develop sufficiently to support interactive marketing as a
significant marketing medium. There can be no assurance that the market for
the Company's products and services will develop, that the Company's products
and services will be adopted or that individual personal computer users in
business or at home will continue to use the Internet, the Web or other
interactive media for commerce and communication. If the market for digital
interactive marketing solutions fails to develop, or develops more slowly than
expected, or if the Company's products do not achieve market acceptance, the
Company's business, financial condition or results of operations could be
materially and adversely affected. See "Business--Industry Background."
Dependence on Continued Growth in Use of the Internet and the World Wide
Web. The Company's future success is substantially dependent on continued
growth in the use of the Internet. Rapid growth in the use of and interest in
the Internet is a recent phenomenon and there can be no assurance that such
growth will continue at the same rate or at all or that communication or
commerce over the Internet will become widespread. The Web may not prove to be
a viable commercial marketplace for a number of reasons, including a
potentially inadequate infrastructure that could lead to periodic shutdowns or
the failure to develop performance improvements, including high speed modems.
In addition, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. The applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
Changes in or insufficient availability of telecommunications services to
support the Internet also could result in slower response times and adversely
affect usage of the Internet. If use of the Internet does not continue to
grow, or if the Internet infrastructure does not effectively support the
growth that may occur, the Company's business, financial condition or results
of operations could be materially and adversely affected. See "Business--
Industry Background."
Rapid Technological Change. The technologies used in digital interactive
marketing are developing rapidly and are characterized by evolving industry
standards as well as frequent new product and service introductions and
enhancements. There can be no assurance that the technologies utilized by the
Company and the expertise gained in those technologies will continue to be
applicable in the future. There can be no assurance that the Company can
correctly identify which technologies will achieve market acceptance, that
such new technologies will be made available to the Company or that such
technologies can be economically applied by the Company on a timely basis. The
inability to identify new and existing technologies and apply expertise in a
timely manner to subsequent projects and respond to both evolving demands of
the marketplace and competitive product and service offerings could have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Intellectual Property."
Conflicts of Interest. Conflicts of interest between clients are inherent in
certain segments of the marketing communications industry. In certain
circumstances, the Company has in the past been, and will in the future be,
unable to pursue potential digital interactive marketing and other
opportunities because such opportunities will require the Company to provide
services to direct competitors of existing Company clients. In addition, the
Company risks alienating or straining relationships with existing clients when
it agrees to provide 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 could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition,
prospective clients may choose not to retain the Company for reasons of actual
or perceived conflicts of interest. See "Business--Competition."
Uncertainties Regarding Intellectual Property Rights. The Company's success
and ability to compete is
dependent in part on its proprietary technology including those protections
provided under trademark, trade secret and copyright laws. In addition,
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are also important to establishing and
maintaining a technology leadership position. The Company presently has no
patents but has one patent application pending. There can be no assurance that
such patent application will be allowed or
10
<PAGE>
that, if allowed, the application will be issued. Despite the Company's
efforts to control access to its proprietary information, it may be possible
for a third party to copy or otherwise obtain and use the Company's products
or technologies without authorization, or to develop similar or superior
technologies independently. In addition, effective copyright, trade secret and
patent protection may be unavailable or limited in certain foreign countries.
Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others, or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company's strategy includes creating, developing and selling digital
interactive marketing products based in part on proprietary applications and
platforms. There can be no assurance that the Company will be able to develop
any such proprietary processes, or, if developed, will be able to retain
ownership rights of such processes. See "Business--Intellectual Property."
Control of the Company; Anti-Takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. True North owns all of the shares of
the Class B Common Stock, each share of which is entitled to five votes per
share, and will have approximately % of the combined voting power of both
classes of Common Stock after the Offering. The purchasers of the shares of
Class A Common Stock offered hereby will have one vote per share and
approximately % of the combined voting power. Accordingly, without the
approval of the Company's public stockholders, True North will be able to (i)
elect a majority of the Company's directors, (ii) amend the Company's
Certificate of Incorporation or effect a merger, sale of assets, or other
major corporate transaction, (iii) defeat any non-negotiated takeover attempt,
(iv) determine the amount and timing of dividends paid to itself and
purchasers of Class A Common Stock and (v) otherwise control the management
and operations of the Company and the outcome of virtually all matters
submitted for a stockholder vote.
Currently, five of the nine directors of the Company (Messrs. Mason, Engel,
Greenberg, Blaine and Reidy) are also members of management of True North and
are compensated by True North in connection with their employment by True
North. In addition, six of the current directors of the Company were selected
by True North. These directors may have conflicts of interest in addressing
certain business opportunities and strategies with respect to which the
Company's and True North's interests differ. The Company has not adopted any
formal plan or arrangement to address such potential conflicts of interest.
The Company's Board of Directors currently has two vacancies, which the
Company's bylaws authorize the Company's Board of Directors to fill. The
Company intends to appoint two persons who are not officers or employees of
the Company or True North to the Board of Directors within 90 days of the date
of the Prospectus and is required to do so to maintain its listing on the
Nasdaq National Market.
The Board of Directors of the Company has the authority to issue up to
5,000,000 shares of preferred stock of the Company ("Preferred Stock") and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of such stock without further stockholder approval.
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. Issuance of Preferred Stock could have the effect
of delaying, deferring or preventing a change in control of the Company.
Furthermore, certain provisions of the Company's Certificate of Incorporation,
Bylaws, and of Delaware law could have the effect of delaying, deferring or
preventing a change in control of the Company, which could adversely affect
the market price of the Company's Class A Common Stock. The Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law ("DGCL") which prohibits the Company 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. The application of Section 203 could have the effect of
delaying or preventing a change of control of the Company. See "Management,"
"Relationship With True North and Certain Transactions," "Principal
Stockholders" and "Description of Capital Stock."
Risks Associated with International Operations. Although the Company
currently has offices in Toronto, Hong Kong and London, to date the Company
has provided only limited services internationally to certain of its clients
headquartered in North America, and has only minimal direct international
experience. A component of the Company's long-term strategy is to expand its
operations in these and other international markets. The
11
<PAGE>
Company expects it will be subject to risks associated with international
operations, which may include tariff regulations, export license requirements,
political and economic instability, imposition of government controls and
imposition of withholding or other taxes on the Company's foreign income.
Agreements may also be more difficult to enforce and receivables more
difficult to collect through a foreign country's legal system. In addition,
the laws of certain countries protecting proprietary rights do not protect the
Company's products and intellectual property rights to the same extent as do
the laws of the United States. In addition, there can be no assurance that the
Company will be able to successfully market, sell and deliver its services in
these regions. See "Business--Core Competencies."
Risks Associated with Government Regulation. The marketing communications
industry is subject to extensive government regulation, both domestic and
foreign, with respect to the truth in 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. There can be no assurance that the Company will not be subject
to claims made against it or its clients by other companies or governmental
agencies or that any such claims, regardless of merit, would not have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Business--Government Regulation."
Susceptibility to General Economic Conditions. The Company's revenues and
results of operations, like those of other marketing companies, will be
subject to fluctuations based upon general economic conditions in the United
States. If there were to be a general economic downturn or a recession in the
United States, the Company expects its clients could substantially and
immediately reduce their marketing 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 interactive
marketing expenditures. Most of the factors that could influence clients and
prospective clients to reduce their marketing communications budgets under
these circumstances are beyond the Company's control. In the event of such an
economic downturn, the Company's business, financial condition or results of
operations could be materially and adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Pro
Forma Quarterly Results of Operations" and "--Factors Affecting Operating
Results of the Company."
Unallocated Net Proceeds. The Company intends to use $6.0 million of the net
proceeds from the Offering to repay certain intercompany obligations to True
North. The Company has not designated any specific use for the remaining net
proceeds of the Offering. The Company currently expects to use the remaining
net proceeds for general corporate purposes, including investments in working
capital and capital expenditures. Accordingly, management will have
significant discretion in applying the remaining net proceeds of the Offering.
See "Use of Proceeds" and "Relationship With True North and Certain
Transactions."
Benefits of Offering to Existing Stockholders. Upon consummation of the
Offering, True North will pay Gerald M. O'Connell, Douglas C. Ahlers and
Robert C. Allen, II, former limited partners of Modem Media and current
executive officers and stockholders of the Company, an aggregate of $16.0
million cash and $4.0 million of True North common stock as additional
consideration in connection with the acquisition by True North in December
1996 of certain partnership interests in Modem Media from Messrs. O'Connell,
Ahlers and Allen. True North has indicated to the Company that it intends to
use the $6.0 million of intercompany indebtedness to be repaid by the Company
from the net proceeds of the Offering to fund a portion of the $16.0 million
to be paid to Messrs. O'Connell, Ahlers and Allen. See "Use of Proceeds" and
"Relationship With True North and Certain Transactions."
Upon consummation of the Offering, Messrs. O'Connell, Ahlers and Allen will
own an aggregate of 2,513,723 shares of Class A Common Stock of the Company
(approximately % of the Common Stock of the Company outstanding). Prior to
the Offering there was no public market for the Class A Common Stock, and
therefore, the marketability of such Class A Common Stock was limited. If an
active trading market develops and is sustained, after expiration or waiver of
the restrictions on sale imposed by the Company and compliance with the
federal securities laws, the Limited Partners will have the ability to sell
such Class A Common Stock.
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<PAGE>
No Prior Market for the Shares; Possible Volatility of Share Price. Prior to
the Offering, there has been no public market for the Class A Common Stock.
There can be no assurance that an active trading market will develop after the
Offering or, if an active trading market does develop, that such market will
be sustained. The initial public offering price of the Class A Common Stock
will be determined by negotiation among the Company and the Representatives
and may not be indicative of the market price of the Class A Common Stock
after the Offering. See "Underwriters" for a discussion of the factors to be
considered in determining the initial public offering price.
The market price for the Class A Common Stock may be significantly affected
by factors such as the announcement of new products or services by the Company
or its competitors, technological innovation by the Company or its
competitors, quarterly variations in the Company's operating results or the
operating results of the Company's competitors, changes in earnings estimates
by analysts or reported results that vary materially from such estimates. In
addition, the stock market has experienced significant price fluctuations that
have particularly affected the market prices of equity securities of many high
technology and emerging growth companies and that often have been unrelated to
the operating performance of such companies. These broad market fluctuations
may materially and adversely affect the market price of the Class A Common
Stock. Following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against such a company and its officers and directors. Any such litigation
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse
effect on the Company's business, financial condition or results of
operations.
Shares Eligible for Future Sale. Upon consummation of the Offering, the
shares of Class A Common Stock ( shares if the Underwriters' over-
allotment option is exercised in full) offered hereby will be freely tradeable
without restriction. The Company intends to file a registration statement
approximately 90 days after the Offering to register the shares of Class A
Common Stock reserved for issuance under the Company's Stock Option Plan and
Purchase Plan and the shares of Class A Common Stock issuable upon the
exercise of options granted to certain employees of Modem Media in connection
with the Conversion. Upon the filing of such registration statement, an
additional shares of Class A Common Stock issuable upon exercise of
vested stock options will be freely tradeable without restriction. Sales of
substantial numbers of shares of Common Stock into the public market after the
Offering, or the perception that such sales could occur, could materially and
adversely affect the market price of the Class A Common Stock prevailing from
time to time or could impair the Company's future ability to obtain capital
through an offering of equity securities. See "Description of Capital Stock"
and "Shares Eligible for Future Sale."
Immediate and Substantial Dilution to New Investors; Potential Future
Dilution. The initial public offering price is substantially higher than the
pro forma net tangible book value per share of the Class A Common Stock
immediately after the Offering. Investors purchasing Class A Common Stock in
the Offering will, therefore, incur immediate and substantial dilution of
approximately $ in the pro forma net tangible book value per share of
Class A Common Stock from the initial public offering price. In addition, the
options to purchase limited partnership interests in Modem Media granted to
certain employees of Modem Media prior to the Conversion which were converted
into options to purchase Class A Common Stock of the Company are exercisable
for shares of Class A Common Stock. The Company seeks to attract and
retain employees in part by offering stock options and other rights to
purchase its Class A Common Stock. Concurrently with the Offering, the Company
will grant options to purchase an aggregate of shares of Class A
Common Stock to officers and employees of the Company under the Company's
Stock Option Plan at an exercise price equal to the initial public offering
price. Subsequently, the Company intends to grant stock options at an exercise
price equal to the fair market value of Class A Common Stock. Pursuant to the
Company's Certificate of Incorporation, in the event True North sells any of
its shares of Class B Common Stock to a third party, such shares shall
automatically convert into Class A Common Stock at a rate of 1.015 shares of
Class A Common Stock for each share of Class B Common Stock. shares
of Class A Common Stock are reserved for issuance under the Company's Stock
Option Plan, Purchase Plan, upon exercise of options granted to certain
employees of Modem Media in connection with the Conversion and upon conversion
of the Class B Common Stock into Class A Common Stock. The exercise of stock
options granted by the Company will result in additional dilution to new
investors of the Company. The issuance of shares of Class A Common Stock upon
conversion of the Class B Common Stock will have the effect of reducing the
percentage ownership in the Company of the then existing stockholders. See
"Capitalization," "Dilution," "Management--Stock Plans" and "Description of
Capital Stock."
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THE COMPANY
The Company was incorporated in Delaware in October 1996. Following the
Conversion, the Company acquired the True North Units, which included
substantially all of the assets and properties of Northern Lights Interactive,
R/GA Interactive and Cf2GS, as well as True North's technology development
operations. See "Relationships With True North and Certain Transactions."
In connection with the Combination, the Company and True North have entered
into certain intercompany agreements providing for various interim and ongoing
services and relationships between the two companies, including an
intercompany credit agreement, a tax matters agreement, intellectual property
agreements, an administrative services agreement and various real estate space
sharing agreements. See "Risk Factors--Dependence On and Relationship With
True North," "--Control of the Company; Anti-Takeover Effects of Certificate
of Incorporation, Bylaws and Delaware Law" and "Relationship With True North
and Certain Transactions."
The Company's principal executive office is located at 228 Saugatuck Avenue,
Westport, Connecticut 06880, and its telephone number at that address is (203)
341-5200. The Company maintains Web sites at http://www.modemmedia.com and
http://www.rga.com. Information contained in the Company's Web sites shall not
be deemed to be a part of this Prospectus.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Class
A Common Stock being offered hereby are estimated to be approximately $
million (approximately $ million if the Underwriters' over-allotment
option is exercised in full) at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses. The principal purposes of the
Offering are to obtain additional capital, to create a public market for the
Company's Class A Common Stock and to facilitate future access by the Company
to public equity markets. In addition, the Company is undertaking the Offering
because it believes that the availability of adequate financial resources is a
substantial competitive factor in its industry. The Company intends to use
$6.0 million of the net proceeds of this Offering to repay certain
intercompany indebtedness to True North. True North has indicated to the
Company that it intends to use the $6.0 million of intercompany indebtedness
to be repaid to fund a portion of certain payments due to Gerald M. O'Connell,
Douglas C. Ahlers, and Robert C. Allen, II, current executive officers and
stockholders of the Company, payable upon consummation of the Offering, in
connection with True North's acquisition of certain partnership interests in
Modem Media from Messrs. O'Connell, Ahlers and Allen in December 1996. The
Company expects to use the remaining net proceeds from the Offering for
general corporate purposes, including investments in working capital and
capital expenditures. A portion of the remaining net proceeds of the Offering
may also be used to acquire or invest in complementary businesses or products,
to obtain the right to use complementary technologies or to invest in
geographic expansion. The Company has no present plans, agreements or
commitments and is not currently engaged in any negotiations with respect to
any such transactions. Pending use of the remaining net proceeds for the above
purposes, the Company intends to invest such funds in short-term, interest-
bearing, investment grade obligations. See "Risk Factors--Benefits of Offering
to Existing Stockholders" and "Relationship With True North and Certain
Transactions."
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock or other
securities. The Company anticipates that it will retain any future earnings
for use in the expansion and operation of its business and does not anticipate
paying any cash dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth at September 30, 1996 the True North Units'
total capitalization on an historical basis and the Company's total
capitalization on a pro forma basis and as adjusted to give effect to the sale
of the shares of Class A Common Stock offered hereby and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------
PRO PRO FORMA
HISTORICAL FORMA (1) AS ADJUSTED (2)
---------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Intercompany loans payable.............. $14,074 $ 6,000(3) $ --
Capital lease obligations, less current
portion................................ -- 225 225
Stockholders' equity:
Common Stock, $0.001 par value; 6,250
shares of Class A Common Stock and no
shares of Class B Common Stock
authorized, 6,250 shares of Class A
Common Stock and no shares of Class B
Common Stock issued and outstanding,
actual; 39,906,200 shares of Class A
Common Stock and 5,093,800 shares of
Class B Common Stock authorized,
shares of Class A Common
Stock and 5,093,800 shares of Class B
Common Stock issued and outstanding,
as adjusted.......................... -- --
Additional paid-in capital............ 162 61,673
Accumulated deficit................... (1,854) (1,854)
------- ------- -------
Total stockholders' equity
(deficit).......................... (1,692) 59,819
------- ------- -------
Total capitalization................ $12,382 $66,044 $
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the Conversion and the Combination.
(2) As adjusted to reflect the sale of the shares of Class A Common
Stock offered hereby at an assumed initial public offering price of $
per share and application of the net proceeds therefrom (after deducting
estimated underwriting discounts and commissions and estimated offering
expenses). Excludes an aggregate of shares of Class A Common Stock
reserved for issuance upon exercise of options to purchase limited
partnership interests in Modem Media granted to certain employees of Modem
Media which were converted into options to purchase Class A Common Stock
of the Company in connection with the Conversion. Also excludes an
aggregate of shares of Class A Common Stock reserved for
issuance pursuant to the Company's Stock Option Plan, of which the Company
intends to grant to certain officers and employees of the Company options
to purchase shares of Class A Common Stock at the initial
public offering price concurrently with the consummation of the Offering,
and 200,000 shares of Class A Common Stock reserved for issuance pursuant
to the Company's Purchase Plan. See "Management--Stock Plans,"
"Relationship With True North and Certain Transactions" and "Description
of Capital Stock."
(3) Pro forma intercompany loans payable reflect the effect of the
contribution to additional paid-in capital of the True North Units by True
North of intercompany debt of approximately $8.1 million in connection
with the Combination.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was $3.0 million or $ per share of Common Stock. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the number of shares
of Common Stock outstanding. After giving effect to the sale by the Company of
the shares of Class A Common Stock offered hereby (at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses), the
Company's adjusted pro forma net tangible book value at September 30, 1996
would have been approximately $ or $ per share. This represents an
immediate increase in pro forma net tangible book value to existing
stockholders of $ per share and an immediate dilution to new investors of
$ per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
Pro forma net tangible book value per share as of September 30,
1996............................................................ $
Increase in net tangible book value per share attributable to new
investors.......................................................
------
Pro forma net tangible book value per share after the Offering...
------
Dilution per share to new investors.............................. $
======
</TABLE>
The following table sets forth on a pro forma basis as of September 30, 1996
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
existing stockholders and by the new investors (at an assumed initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION
-------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... % $ % $
New investors............... % %
----- --- ---------- --------
Total................... 100% $ 100%
===== === ========== ========
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option.
The above table gives effect to the Conversion and Combination. The table
above excludes an aggregate of shares of Class A Common Stock reserved for
issuance upon exercise of options granted to certain employees of Modem Media
prior to the Conversion which were converted into options to purchase Class A
Common Stock of the Company in connection with the Conversion. In the event
such options are exercised, new investors would incur additional dilution of
$ per share from the amount shown in the table above. Also excludes an
aggregate of shares of Class A Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan, of which the Company intends to
grant to certain officers and employees of the Company options to purchase
shares of Class A Common Stock at the initial public offering price
concurrently with the consummation of the Offering, and 200,000 shares of
Class A Common Stock reserved for issuance pursuant to the Company's Purchase
Plan. See "Management--Stock Plans," "Relationship With True North and Certain
Transactions" and "Description of Capital Stock."
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the True North Units should be read
in conjunction with the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The statement of operations data for
the fiscal years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996 and the balance sheet data as of December 31, 1994 and 1995
and September 30, 1996 are derived from financial statements of the True North
Units that have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere in this Prospectus. The True North
Units either had no operations or were not owned by True North prior to
January 1, 1994. The unaudited pro forma data presented is included elsewhere
in this Prospectus. The unaudited nine month selected financial data reflects
all adjustments (consisting only of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
of the interim period. The operating results for the nine months ended
September 30, 1995 and 1996 are not necessarily indicative of the results to
be expected for any other interim period or any other future fiscal year. The
historical results are not necessarily indicative of the results of operations
to be expected in the future, and the results of operations for current
interim periods are not necessarily indicative of results to be expected for
the entire year.
<TABLE>
<CAPTION>
PRO FORMA
NINE MONTHS NINE MONTHS
YEAR ENDED PRO FORMA ENDED ENDED SEPTEMBER
DECEMBER 31, YEAR ENDED SEPTEMBER 30, 30,
-------------- DECEMBER 31, --------------- ----------------
1994 1995 1995 1995 1996 1995 1996
------ ------- ------------ ------ ------- ------- -------
(UNAUDITED) (UNAUDITED)
------------------- ---------------- ---
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $4,020 $11,439 $24,541 $7,019 $14,367 $15,972 $26,794
Total operating
expenses............... 3,655 13,294 25,833 7,751 16,175 16,582 28,241
Operating income (loss). 365 (1,855) (1,292) (732) (1,808) (610) (1,447)
Net income (loss)....... 256 (978) (1,946) (349) (1,008) (1,256) (1,743)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
------ ------- ------------- -------------
(UNAUDITED)
-------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................... $ 236 $ 446 $ 4 $ 3,909
Working capital.................... 496 2,044 3,846 5,511
Total assets....................... 3,912 14,394 21,537 83,629
Capital lease obligations, less
current portion................... -- -- -- 225
Stockholders' equity (deficit)..... 418 (684) (1,692) 59,819
</TABLE>
17
<PAGE>
SELECTED FINANCIAL DATA OF MODEM MEDIA
The following selected financial data of Modem Media should be read in
conjunction with the financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The statement of operations data for the fiscal
years ended December 31, 1993, 1994 and 1995 and the nine months ended
September 30, 1996 and the balance sheet data as of December 31, 1994 and 1995
and September 30, 1996 are derived from financial statements of Modem Media
that have been audited by Arthur Andersen LLP, independent public accountants,
and are included elsewhere in this Prospectus. The statement of operations
data for the fiscal years ended December 31, 1991 and 1992 and the balance
sheet data as of December 31, 1991, 1992 and 1993 are derived from the
unaudited financial statements of Modem Media that are not included herein.
The unaudited nine month selected financial data reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods. The operating results for the nine months ended September 30, 1995
and 1996 are not necessarily indicative of the results to be expected for any
other interim period or any other future fiscal year. The historical results
are not necessarily indicative of the results of operations to be expected in
the future, and the results of operations for current interim periods are not
necessarily indicative of results to be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------- ----------- -------
(UNAUDITED) (UNAUDITED)
------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $1,190 $1,306 $1,221 $4,335 $11,719 $7,570 $12,427
Total operating
expenses............... 887 1,146 740 3,098 7,766 4,714 10,129
Operating income (loss). 303 160 481 1,237 3,953 2,856 2,298
Net income (loss) (1)... 303 155 484 1,241 3,960 2,860 2,292
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -------------
(UNAUDITED)
--------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................... $ 22 $ -- $ 1 $ 2 $ 184 $3,905
Working capital........... 349 249 402 1,034 2,698 3,652
Total assets.............. 473 350 565 1,854 7,463 12,784
Capital lease obligations,
less current portion..... -- -- -- -- 186 225
Partners' capital......... 372 295 472 1,327 3,762 5,235
</TABLE>
- --------
(1) No provision for income taxes was made by Modem Media for the fiscal years
ended December 31, 1991, 1992, 1993, 1994 and 1995 and for the nine month
periods ended September 30, 1995 and 1996 because Modem Media was a
partnership for all such periods.
18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is derived from the
combination of the financial statements of the True North Units and Modem
Media and, for the fiscal year ended December 31, 1995 and the nine month
period ended September 30, 1995, R/GA Interactive. The pro forma financial
information is intended to present the results of operations and financial
position of the Company as if the acquisition of R/GA Interactive by the True
North Units and the Conversion and the Combination had occurred on January 1,
1995. The Combination has been accounted for as a reverse acquisition using
the purchase method with the True North Units as the acquiror in accordance
with APB Opinion No. 16 and EITF 90-13. Accordingly, the purchase prices
related to these acquisitions have been preliminarily allocated to assets and
liabilities based on their estimated fair values as of the dates of the
acquisitions. The cost in excess of fair value of the net assets acquired in
the acquisitions was approximately $52,341,000, of which the $2,045,000
relating to the acquisition of R/GA Interactive is being amortized over ten
years and the $50,296,000 relating to the Conversion and the Combination is
being amortized over 20 years. The final purchase price allocations from the
acquisition by True North of the Modem Media partnership interests is not
expected to differ materially from this preliminary allocation, and there are
no material contingencies related to this acquisition as of the date of this
Prospectus.
In October 1996, certain employees of Modem Media were granted options to
purchase limited partnership interests in Modem Media which were converted
into options to purchase Class A Common Stock of the Company in connection
with the Conversion. The Company will incur, on a pre-tax, pro forma basis, a
one-time, non-cash charge of approximately $3,000,000 in the fourth quarter of
1996 relating to this grant. This charge will be treated as additional
salaries and benefits expenses in the Company's pro forma results of
operations for the fourth quarter and the full year ended December 31, 1996.
The pro forma financial information may not be indicative of the results
that actually would have occurred if the Conversion and the Combination had
occurred at the beginning of the period indicated or that may be obtained in
the future. The pro forma adjustments described in the accompanying notes to
these pro forma statements of operations and balance sheets are based on
available information and upon certain assumptions that management believes
are reasonable. The pro forma statements of operations and balance sheets and
notes thereto should be read in conjunction with the financial statements and
notes thereto of the True North Units, Modem Media and R/GA Interactive, all
of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
R/GA
TRUE NORTH MODEM INTERACTIVE PRO
UNITS (1) MEDIA PRE-ACQUISITION (2) ADJUSTMENTS FORMA
---------- ------- ------------------- ----------- --------
(UNAUDITED)
---------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $11,439 $11,719 $1,383 $ -- $24,541
Salaries and benefits
expenses............... 7,446 5,542 681 -- 13,669
Office and general
expenses............... 5,728 2,224 1,366 -- 9,318
Goodwill and other
intangibles
amortization........... 120 -- -- 2,726(3) 2,846
------- ------- ------ ------- --------
Total operating
expenses............. 13,294 7,766 2,047 2,726 25,833
------- ------- ------ ------- --------
Operating income (loss). (1,855) 3,953 (664) (2,726) (1,292)
Other, net.............. 4 7 -- -- 11
------- ------- ------ ------- --------
Income (loss) before
provision (benefit) for
income taxes........... (1,851) 3,960 (664) (2,726) (1,281)
Provision (benefit) for
income taxes........... (873) -- -- 1,538(4) 665
------- ------- ------ ------- --------
Net income (loss)....... $ (978) $ 3,960 $ (664) $(4,264) $ (1,946)
======= ======= ====== ======= ========
Loss per share.......... $
========
Shares used to compute
loss per share.........
========
</TABLE>
- --------
(1) Includes Northern Lights Interactive, Cf2GS and the technology development
operations of True North for the full year 1995 and R/GA Interactive for
the period July 1, 1995 to December 31, 1995.
(2) True North acquired R/GA Interactive on July 1, 1995. The transaction was
accounted for using the purchase method of accounting. As a result, the
True North Units' financial statements for 1995 include R/GA Interactive
from the date of purchase and do not include the results of R/GA
Interactive for the period January 1, 1995 to June 30, 1995.
(3) Represents six months amortization of R/GA Interactive goodwill totaling
$102,000 and the annual amortization of goodwill of $2,515,000 over a 20-
year period as a result of the Combination. Also, in 1996, management of
the True North Units modified the terms of an earnout agreement relating
to the 1994 acquisition of Cf2GS to guarantee annual minimum earnout
payments in 1996, 1997 and 1998 to the former shareholders of Cf2GS,
resulting in an adjustment to the Cf2GS goodwill amortization of $109,000.
(4) Reflects income taxes of $1,669,000 which would have been payable by Modem
Media if Modem Media had operated as a corporation rather than as a
partnership. Also reflects a tax benefit of $306,000 associated with R/GA
Interactive pre-acquisition. Also reflects adjustment to the True North
Units' tax benefit of $175,000 to reflect the effective tax rate.
19
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------
TRUE NORTH PRO
UNITS MODEM MEDIA ADJUSTMENTS FORMA
---------- ------------------- ---------------------- -------
(UNAUDITED)
--------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $14,367 $ 12,427 $ -- $26,794
Salaries and benefits
expenses............... 9,113 7,177 -- 16,290
Office and general
expenses............... 6,865 2,952 -- 9,817
Goodwill and other
intangibles
amortization........... 197 -- 1,937(1) 2,134
------- ------------------- ------------------- -------
Total operating
expenses............. 16,175 10,129 1,937 28,241
------- ------------------- ------------------- -------
Operating income (loss). (1,808) 2,298 (1,937) (1,447)
Other, net.............. -- (6) -- (6)
------- ------------------- ------------------- -------
Income (loss) before
provision (benefit) for
income taxes........... (1,808) 2,292 (1,937) (1,453)
Provision (benefit) for
income taxes........... (800) -- 1,090(2) 290
------- ------------------- ------------------- -------
Net income (loss)....... $(1,008) $ 2,292 $ (3,027) $(1,743)
======= =================== =================== =======
Loss per share.......... $
=======
Shares used to compute
loss per share.........
=======
</TABLE>
- --------
(1) Represents nine months of amortization of goodwill of $1,886,000 as a
result of the Combination and an adjustment to the Cf2GS goodwill
amortization of $51,000.
(2) Reflects income taxes of $966,000 which would have been paid by Modem
Media if Modem Media had operated as a corporation rather than as a
partnership. Also reflects an $124,000 adjustment to the True North Units'
tax benefit to reflect the effective tax rate.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
------------------------------------------------------
R/GA
INTERACTIVE
TRUE NORTH MODEM PRE-ACQUISITION PRO
UNITS (1) MEDIA (2) ADJUSTMENTS FORMA
---------- ------ --------------- ----------- -------
(UNAUDITED) (UNAUDITED)
----------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $7,019 $7,570 $1,383 $ -- $15,972
Salaries and benefits
expenses............... 4,301 3,326 681 -- 8,308
Office and general
expenses............... 3,385 1,388 1,366 -- 6,139
Goodwill and other
intangibles
amortization........... 65 -- -- 2,070(3) 2,135
------ ------ ------ ------- -------
Total operating
expenses............. 7,751 4,714 2,047 2,070 16,582
------ ------ ------ ------- -------
Operating income (loss). (732) 2,856 (664) (2,070) (610)
Other, net.............. -- 4 -- -- 4
------ ------ ------ ------- -------
Income (loss) before
provision (benefit) for
income taxes........... (732) 2,860 (664) (2,070) (606)
Provision (benefit) for
income taxes........... (383) -- -- 1,033(4) 650
------ ------ ------ ------- -------
Net income (loss)....... $ (349) $2,860 $ (664) $(3,103) $(1,256)
====== ====== ====== ======= =======
Loss per share.......... $
=======
Shares used to compute
loss per share.........
=======
</TABLE>
- --------
(1) Includes Cf2GS and the technology development operations of True North for
the full nine month period and R/GA Interactive from July 1, 1995 through
September 30, 1995.
(2) True North acquired R/GA Interactive on July 1, 1995. The transaction was
accounted for using the purchase method of accounting. As a result, the
True North Units' financial statements for 1995 include R/GA Interactive
from the date of purchase and do not include the results of R/GA
Interactive for the period January 1, 1995 to June 30, 1995.
(3) Represents six months amortization of R/GA Interactive goodwill totaling
$102,000, an $82,000 adjustment to the Cf2GS goodwill amortization and
nine months of amortization of goodwill of $1,886,000 as a result of the
Combination.
(4) Reflects income taxes of $1,205,000 which would have been paid by Modem
Media if Modem Media had operated as a corporation rather than as a
partnership. Also reflects a tax benefit of $306,000 associated with R/GA
Interactive pre-acquisition. Also reflects an adjustment of $134,000 to
the True North Units' tax benefit to reflect the effective tax rate.
20
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
TRUE NORTH MODEM PRO
UNITS MEDIA ADJUSTMENTS FORMA
---------- ------- ----------- -------
(UNAUDITED)
---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 4 $ 3,905 $ -- $ 3,909
Accounts receivable (including
accounts receivable from
Related Party)............... 5,822 4,575 -- 10,397
Accrued revenues.............. 2,448 597 -- 3,045
Unbilled charges.............. 719 1,852 -- 2,571
Income taxes receivable....... 1,052 -- (1,052)(1) --
Prepaid income taxes.......... 168 -- 64 (2) 232
Prepaid expenses and other
current assets............... 179 47 -- 226
------- ------- ------- -------
Total current assets........ 10,392 10,976 (988) 20,380
Property and equipment
--cost..................... 5,471 2,552 (764)(3) 7,259
--accumulated depreciation. (873) (764) 764 (3) (873)
------- ------- ------- -------
Total property and
equipment, net............. 4,598 1,788 -- 6,386
Goodwill and other
intangibles.................. 6,545 -- 50,296 (3) 56,841
Other assets.................. 2 20 -- 22
------- ------- ------- -------
Total assets................ $21,537 $12,784 $49,308 $83,629
======= ======= ======= =======
Accounts payable.............. $ 1,822 $ 4,151 -- $ 5,973
Other current liabilities..... 1,685 940 -- 2,625
Advanced billings............. 3,038 2,140 -- 5,178
Current portion of capital
lease obligations............ -- 93 -- 93
Income taxes payable.......... -- -- 999 (2) 999
------- ------- ------- -------
Total current liabilities... 6,545 7,324 999 14,868
Noncurrent earnout payable.... 1,967 -- -- 1,967
Deferred tax liability........ 643 -- 107 (2) 750
Intercompany loans payable.... 14,074 -- (8,074)(1) 6,000
Capital lease obligations,
less current portion......... -- 225 -- 225
Stockholders' equity/Partners'
capital(4)................... (1,692) 5,235 7,022 (1) 59,819
(1,042)(2)
50,296 (3)
------- ------- ------- -------
Total liabilities and
stockholders' equity....... $21,537 $12,784 $49,308 $83,629
======= ======= ======= =======
</TABLE>
- --------
(1) Represents the contribution of intercompany debt of $8,074,000 and income
taxes receivable ($1,052,000) by True North to the True North Units.
(2) Represents income taxes payable by Modem Media of $1,042,000 related to
the Conversion.
(3) Represents revaluation of assets and liabilities of Modem Media to fair
market value, based upon a purchase price of $55,531,000. The cost in
excess of fair value of the net assets acquired in the Combination has
been preliminarily allocated primarily to goodwill, as the value of
various non-compete agreements, client lists, the assembled workforce and
other like intangibles is not anticipated to be material.
(4) Pro forma stockholders' equity is comprised of Common Stock, $0.001 par
value; 39,906,200 shares of Class A Common Stock and 5,093,800 shares of
Class B Common Stock authorized, shares of Class A Common Stock and
5,093,800 shares of Class B Common Stock issued and outstanding.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that 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's revenues are derived principally from fees for interactive
marketing and digital design and production services rendered, and to a lesser
extent, fees for traditional advertising, direct marketing and database
management services rendered and commissions on media and production costs.
Interactive marketing operations include: customized product positioning;
creation, production, updating and maintenance of Web sites and other
communications; analysis of customer requests, purchases and behaviors;
delivery of uniform and updated information tools for sales forces; and
technical consulting. The Company's clients generally hire the Company on an
assignment basis rather than on a retainer basis. Except for services
performed by R/GA Interactive, revenues are recognized from clients on a
fixed-fee basis and, to a lesser extent, on a time-plus-cost of materials
basis, with pass through of third-party production and media costs, and are
stated net of such third-party costs. R/GA Interactive's revenues include
certain third-party production and media costs not separately recoverable from
clients. Revenues are recognized as services are performed (or, in the case of
fixed fee projects, on a percentage of completion method based on labor costs
incurred), and any payments received in advance of services performed are
recorded as advance billings. Provisions for losses on uncompleted contracts
are recognized in the period in which such losses are determined. Pro forma
revenues derived from digital interactive marketing activities accounted for
76.2% of total pro forma revenues in the first nine months of 1996.
Salaries and benefits represent a majority of the Company's operating
expenses. These expenses include compensation, bonus payments, payroll taxes,
employment insurance costs, temporary and freelance labor, and, with respect
to Modem Media, compensation payments to partners. Office and general expenses
are comprised of depreciation, office rent, office equipment and rental,
utilities, professional and consulting fees, R/GA Interactive's third-party
production expenses, travel and entertainment, office supplies and other
related expenses.
In connection with the Combination, the Company and True North have entered
into certain intercompany agreements providing for various interim and ongoing
services and relationships. The costs for such services are primarily
allocated to the Company based on the Company's pro rata share of the costs of
those services, or in some instances, the additional costs to True North for
providing such services to the Company. True North will continue to provide
certain of these services for a period of twelve months following the
Combination, and may terminate such services on six months' prior written
notice. In addition, income taxes were calculated as if the Company and True
North filed separate tax returns and True North's tax strategies may not
necessarily reflect the tax strategies of the Company. See "Relationship With
True North and Certain Transactions."
The True North Units have historically derived a portion of their revenues
from the provision of services to clients of True North. As such, a portion of
the revenues of True North are shared with the True North Units, based upon
the value of the services provided by the True North Units to True North's
clients on a time and materials basis. In addition, in the third quarter of
1996, the True North Units derived revenues from True North under an
intellectual property agreement for the operation of True North's intranet. On
a pro forma basis, the total revenues from the provision of services to
clients of True North and related to the intellectual property agreement with
True North represented approximately 4%, 2% and 13% of combined revenues of
the Company for 1995 and for the nine months ended September 30, 1995 and
1996, respectively. See "Relationship with True North and Certain
Transactions--Intercompany Agreements--Intellectual Property Agreement."
Because the Conversion and the Combination were effective following the
periods covered by the historical financial statements included herein, such
statements do not reflect the current composition of the Company. Management
believes that the pro forma statement of operations data presented in the pro
forma financial
22
<PAGE>
information and discussed below, which gives effect to the Conversion and the
Combination as if both had occurred at the beginning of the periods presented,
is useful in evaluating the effect of these transactions on the Company. Such
pro forma information may not, however, be indicative of the results of
operations of the Company that actually would have occurred had the Conversion
and the Combination occurred at the beginning of such periods, or of the
results of operations that may be obtained by the combined businesses in the
future.
The Company has incurred, on a pro forma basis, operating losses during most
of its limited operating history. The primary cause of these losses is the
start-up nature of the operations of the True North Units, the policy of the
True North Units to expense research and development costs as incurred, the
expansion of operations at certain acquired operations in late 1995 and early
1996, and the amortization of goodwill. During late 1995 and early 1996, the
Company added additional personnel, technology and overhead to support its
start-up operations and the anticipated revenue growth of its other
operations. Management believes that improved operating results will require
increased revenues to more efficiently utilize the personnel and other
resources added to support the Company's growth. The Company recorded
operating income, on a pro forma basis, for the quarter ended September 30,
1996. Revenues for the period increased principally due to increased business
with existing clients, seasonal trends in the Company's industry and initial
revenues from the Company's technology development operations. Revenues for
the period increased at a rate faster than operating expenses, certain of
which declined as a result of the closure of the Los Angeles office of R/GA
Interactive. There can be no assurance that the Company will be successful in
continuing to address its pro forma operating losses or that revenue growth
will continue at a rate exceeding the growth of operating expenses. See "--Pro
Forma Quarterly Results of Operations."
The Company will incur, on a pre-tax, pro forma basis, a one-time, non-cash
charge of approximately $3.0 million in the fourth quarter of 1996 relating to
the grant, in October 1996, to certain employees of Modem Media of options to
purchase limited partnership interests in Modem Media which were converted
into options to purchase Class A Common Stock of the Company in connection
with the Conversion. This charge will be treated as additional salaries and
benefits expenses in the Company's pro forma results of operations for the
fourth quarter and full year ended December 31, 1996. The $3.0 million charge
was based upon the percentage of the Modem Media partnership granted as
options to certain employees of Modem Media as compared to the total value of
the Modem Media partnership. The total value of the Modem Media partnership
was based on the consideration paid by True North in the Combination, a
privately-negotiated transaction. See "Risk Factors--Limited Operating
History; History of Operating Losses; No Assurance of Profitability" and "--
Variability of Operating Results."
23
<PAGE>
HISTORICAL AND PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain items from the True North Units'
historical and the Company's pro forma statements of operations included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------- ----------------------------------
1995 HISTORICAL PRO FORMA
-------------------- --------------- -----------------
1994 HISTORICAL PRO FORMA 1995 1996 1995 1996
------ ---------- --------- ------ ------- ------- --------
(UNAUDITED) (UNAUDITED)
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $4,020 $11,439 $24,541 $7,019 $14,367 $15,972 $ 26,794
Salaries and benefits
expenses............... 2,579 7,446 13,669 4,301 9,113 8,308 16,290
Office and general
expenses............... 1,060 5,728 9,318 3,385 6,865 6,139 9,817
Goodwill and other
intangibles
amortization........... 16 120 2,846 65 197 2,135 2,134
------ ------- ------- ------ ------- ------- --------
Operating income (loss). 365 (1,855) (1,292) (732) (1,808) (610) (1,447)
Other, net.............. (39) 4 11 -- -- 4 (6)
Provision (benefit) for
income taxes........... 70 (873) 665 (383) (800) 650 290
------ ------- ------- ------ ------- ------- --------
Net income (loss)....... $ 256 $ (978) $(1,946) $ (349) $(1,008) $(1,256) $ (1,743)
====== ======= ======= ====== ======= ======= ========
</TABLE>
The following table sets forth certain items from the True North Units'
historical and the Company's pro forma statements of operations as a
percentage of total revenues on an historical and a pro forma basis for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------------------
1995 HISTORICAL PRO FORMA
-------------------- ------------- -------------
1994 HISTORICAL PRO FORMA 1995 1996 1995 1996
----- ---------- --------- ----- ----- ----- -----
(UNAUDITED) (UNAUDITED)
--------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0 % 100.0% 100.0% 100.0%
Salaries and benefits
expenses............... 64.1 65.1 55.7 61.3 63.4 52.0 60.8
Office and general
expenses............... 26.4 50.1 38.0 48.2 47.8 38.4 36.6
Goodwill and other
intangibles
amortization........... 0.4 1.0 11.5 0.9 1.4 13.4 8.0
----- ----- ----- ----- ----- ----- -----
Operating income (loss). 9.1 (16.2) (5.2) (10.4) (12.6) (3.8) (5.4)
Other, net.............. (1.0) -- -- -- -- -- --
Provision (benefit) for
income taxes........... 1.7 (7.6) 2.7 (5.5) (5.6) 4.1 1.1
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 6.4% (8.6)% (7.9)% (4.9)% (7.0)% (7.9)% (6.5)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO PRO FORMA NINE
MONTHS ENDED SEPTEMBER 30, 1996
Revenues. Pro forma revenues increased $10.8 million, or 67.8%, from $16.0
million in the nine months ended September 30, 1995 to $26.8 million in the
same period in 1996. Revenues derived from Modem Media represented 47.4% and
46.4% of pro forma revenues for such periods in 1995 and 1996, respectively,
with the remainder from the True North Units (assuming the acquisition of R/GA
Interactive as of January 1, 1995). Pro forma revenues increased primarily as
a result of increased services provided to existing clients, principally AT&T,
the completion of certain projects for existing clients and, to a lesser
extent, services provided to new clients of the Company, partially offset by
reduced revenues received from certain other clients. Pro forma revenues from
services performed for AT&T represented 39.6% and 41.5% of the Company's pro
forma revenues for the nine months ended September 30, 1995 and 1996,
respectively.
Salaries and Benefits Expenses. Pro forma salaries and benefits expenses
increased $8.0 million, or 96.1%, from $8.3 million in the nine months ended
September 30, 1995 to $16.3 million in the same period in 1996. Salaries and
benefits expenses represented 52.0% and 60.8% of pro forma revenues in the
nine months ended September 30, 1995 and 1996, respectively. Of the $8.0
million increase, $5.3 million was attributable to
24
<PAGE>
an increase in personnel to better service and manage the growth and actively
pursue new business at Modem Media, Northern Lights Interactive and Cf2GS,
$1.7 million was attributable to the Company's technology development
operations and the remaining $1.0 million was attributable to the expansion of
R/GA Interactive's operations (including $570,000 attributable to the Los
Angeles office which opened in the fourth quarter of 1995 and was closed in
July 1996). The Company intends to add staff to meet its future growth, if
any, as well as to enhance its financial systems and to integrate the combined
businesses. As a result, the Company expects that salaries and benefits
expenses will continue to represent a significant percentage of the Company's
revenues. However, the Company does not expect the salaries and benefits
expenses incurred by the Los Angeles operation of R/GA Interactive to recur in
the future due to the closure of the Los Angeles office.
Office and General Expenses. Pro forma office and general expenses increased
$3.7 million, or 59.9%, from $6.1 million in the nine months ended September
30, 1995 to $9.8 million in the same period in 1996. Office and general
expenses represented 38.4% and 36.6% of pro forma revenues in the nine months
ended September 30, 1995 and 1996, respectively. The increase in pro forma
office and general expenses was due primarily to increased office rent,
principally as a result of Modem Media relocating to larger offices in the
second half of 1995; increased depreciation expense, resulting principally
from capital expenditures for equipment for new employees and the Company's
intranet products; and increased utility costs, resulting from the increased
number of employees and the cost of upgrading telecommunications equipment. In
addition, costs associated with the operations of Northern Lights Interactive
and increased fees and services from third-party providers used by R/GA
Interactive, as well as the opening of R/GA Interactive's Los Angeles office,
contributed to the increase in pro forma office and general expenses. The
Company anticipates that office and general expenses will continue to
represent a significant percentage of the Company's revenues. See "Business--
Facilities."
Goodwill and Other Intangibles Amortization. Goodwill and other intangibles
amortization is principally related to the Combination (amortized over a 20-
year period) and the acquisition of R/GA Interactive (amortized over a ten-
year period).
Operating Income (Loss). As a result of the foregoing, the pro forma
operating loss for the nine months ended September 30, 1995 was $610,000,
compared to $1.4 million for the nine months ended September 30, 1996.
Approximately $850,000 of the Company's pro forma operating loss for the nine
months ended September 30, 1996 is attributable to the Los Angeles office of
R/GA Interactive, which was closed in July 1996.
Income Taxes. The Company provided tax expense of $650,000 and $290,000 on
pre-tax losses of $610,000 and $1.4 million for the nine months ended
September 30, 1995 and 1996, respectively. The implied tax rates differ from
the federal statutory rate primarily due to the effect of non-deductible
goodwill amortization and the effect of state income taxes.
Net Income (Loss). The pro forma net loss was $1.3 million in the nine
months ended September 30, 1995 as compared to $1.7 million in the same period
of 1996.
25
<PAGE>
PRO FORMA QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited statements of operations data
on a pro forma basis for each of the seven fiscal quarters to September 30,
1996 as well as such data expressed as a percentage of the Company's total pro
forma revenues for the periods indicated. These data are based on unaudited
pro forma financial statements of the Company and have been prepared by the
Company on a basis consistent with the financial statements included elsewhere
in this Prospectus, after giving effect to the Conversion and the Combination.
These data include all adjustments that the Company considers necessary for a
fair presentation thereof.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
SEP.
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, 30,
1995 1995 1995 1995 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------
(UNAUDITED, IN THOUSANDS)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues................ $4,863 $5,170 $5,939 $8,569 $ 7,820 $ 8,173 $10,801
Salaries and benefits
expenses............... 2,204 2,786 3,318 5,361 5,581 5,470 5,239
Office and general
expenses............... 1,839 1,832 2,468 3,179 3,229 3,003 3,585
Goodwill and other
intangibles
amortization........... 712 711 712 711 712 711 711
------ ------ ------ ------ ------- ------- -------
Operating income (loss). 108 (159) (559) (682) (1,702) (1,011) 1,266
Other, net.............. 1 4 (1) 7 (2) (9) 5
Provision (benefit) for
income taxes........... 349 236 65 15 (422) (131) 843
------ ------ ------ ------ ------- ------- -------
Net income (loss)....... $ (240) $ (391) $ (625) $ (690) $(1,282) $ (889) $ 428
====== ====== ====== ====== ======= ======= =======
AS A PERCENTAGE OF
REVENUES:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and benefits
expenses............... 45.3 53.9 55.9 62.6 71.4 66.9 48.5
Office and general
expenses............... 37.8 35.4 41.5 37.1 41.3 36.8 33.2
Goodwill and other
intangibles
amortization........... 14.6 13.8 12.0 8.3 9.1 8.7 6.6
------ ------ ------ ------ ------- ------- -------
Operating income (loss). 2.3 (3.1) (9.4) (8.0) (21.8) (12.4) 11.7
Other, net.............. -- 0.1 -- 0.1 -- (0.1) 0.1
Provision (benefit) for
income taxes........... 7.2 4.6 1.1 0.2 (5.4) (1.6) 7.8
------ ------ ------ ------ ------- ------- -------
Net income (loss)....... (4.9)% (7.6)% (10.5)% (8.1)% (16.4)% (10.9)% 4.0%
====== ====== ====== ====== ======= ======= =======
</TABLE>
Revenues. Pro forma revenues increased from the third to fourth quarter of
1995 primarily as a result of increased business with the Company's existing
clients (principally the implementation of new programs for the Company's
major clients) as well as revenues derived from Northern Lights Interactive,
which was established by True North in the fourth quarter of 1995, and R/GA
Interactive. To a lesser extent, business from new clients contributed to the
increase in pro forma revenues in the fourth quarter. The decrease in pro
forma revenues from the fourth quarter of 1995 to the first and second
quarters of 1996 primarily reflects seasonal trends of the Company's industry.
The Company experiences some variation in operating results throughout the
year which result in part from timing of product introductions, business
cycles of the Company's clients and marketing communications spending patterns
in general. The Company's revenues have historically been higher during the
second half of the Company's fiscal year. Revenues in the third quarter of
1996 increased 32.1% compared to the second quarter of 1996 due principally to
increased business with existing clients, seasonal trends in the Company's
industry and initial revenues from the Company's technology development
operations.
Salaries and Benefits Expenses. Pro forma salaries and benefits expenses
generally increased over the five quarters ended March 31, 1996, increasing
from a low of 45.3% of pro forma revenues in the first quarter of 1995 to a
high of 71.4% of pro forma revenues in the first quarter of 1996. Salaries and
benefits expenses were 48.5% of pro forma revenues in the third quarter of
1996. During late 1995 and the first six months of 1996,
26
<PAGE>
Modem Media, as well as the True North Units, increased personnel to manage
growth and actively pursue new client business. In addition, certain of the
Company's digital interactive marketing and technology development operations
through June 1996 had incurred significant salaries and benefits expense, but
had not recorded significant revenues. The Company anticipates that it will
continue to incur substantial costs to hire and train personnel for these
operations for the foreseeable future. The expansion of the R/GA Interactive
operations to open a Los Angeles office in the fourth quarter of 1995, which
subsequently closed in July 1996, also contributed to the increase in pro
forma salaries and benefits expenses during the first half of 1996 as compared
to the last half of 1995.
Office and General Expenses. Pro forma office and general expenses have
increased over the seven quarters ended September 30, 1996 consistent with the
growth in revenues for these periods and, as a result, pro forma office and
general expenses as a percentage of pro forma revenues have remained
relatively stable, ranging from a low of 35.4% in the second quarter of 1995
to a high of 41.5% in the third quarter of 1995 and were 33.2% in the third
quarter of 1996. The expansion of the R/GA Interactive operations, and the
development of certain of the Company's digital interactive marketing
(Northern Lights Interactive) and technology development operations which have
incurred increased costs during the past seven quarters without generating a
significant increase in revenues, has resulted in pro forma office and general
expenses representing a relatively high percentage of the Company's pro forma
revenues.
Operating Income (Loss). Pro forma operating income for the five quarters
ended March 31, 1996 steadily declined. The operations of R/GA Interactive,
Northern Lights Interactive and the Company's technology group have resulted
in operating losses due to the expansion of R/GA Interactive's Los Angeles
office in the fourth quarter of 1995 and its closure in July 1996, as well as
the substantial start-up costs associated with the development of the
operations of Northern Lights Interactive and the Company's technology
development group. The operating loss declined in the second quarter of 1996
as compared to the first quarter of 1996. The effect of $350,000 of additional
revenues and a $340,000 reduction in operating expenses (principally office
and general expenses at Modem Media), resulted in the operating loss being
reduced from $1.7 million in the first quarter of 1996 to $1.0 million in the
second quarter of 1996. Operating income of $1.3 million on a pro forma basis
was generated by the Company in the third quarter of 1996, reversing the
operating loss trend experienced in the first two quarters of 1996. The
generation of $2.6 million in additional revenues ($2.2 million of which was
generated by the True North Units) as compared to the second quarter of 1996,
without substantial increases in operating expenses, led to the operating
improvement. The Company realized the benefit of its investment in additional
personnel in the last half of 1995 and the first half of 1996, which permitted
the Company to generate additional revenues without significantly changing its
cost structure.
TRUE NORTH UNITS HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues. Revenues increased $7.4 million, or 104.7%, from $7.0 million in
the nine months ended September 30, 1995 to $14.4 million in the same period
of 1996. The primary reason for this increase is the effect of $2.9 million of
revenues generated by the Northern Lights Interactive operations, which were
begun by True North in the fourth quarter of 1995. In addition, the first nine
months of 1996 include a full nine months of operations of R/GA Interactive,
which was acquired by True North in July 1995. The effect in 1996 is an
increase in revenues of $2.8 million from the inclusion of the additional six
months of operations and revenues from R/GA Interactive's Los Angeles location
during the first six months of 1996. In addition, Cf2GS experienced a $1.0
million, or 18.9%, increase in revenues during the first nine months of 1996
as compared to the same period of 1995. The growth in revenues for Cf2GS is
primarily attributable to increased services (principally the implementation
of new programs) provided to its existing client base. Finally, revenues were
recognized for the first time in the third quarter of 1996 for the technology
development operations, as the Company's intranet product, developed initially
for True North, became operational.
Salaries and Benefits Expenses. Salaries and benefits expenses increased
$4.8 million, or 111.9%, from $4.3 million in the nine months ended September
30, 1995 to $9.1 million in the same period of 1996. Salaries and
27
<PAGE>
benefits expenses represented 61.3% and 63.4% of revenues in the nine month
periods ended September 30, 1995 and 1996, respectively. The effect of the
start-up and recently acquired operations referred to above under revenues
also are the primary factors for the increase in salaries and benefit
expenses. The Northern Lights Interactive salaries and benefits expenses for
the first nine months of 1996 were $1.6 million compared to none in the first
nine months of 1995. The salaries and benefits expenses of R/GA Interactive
increased during the first nine months of 1996 by $1.7 million over the first
nine months of 1995 as a result of the inclusion of these operations for a
full nine month period in 1996 as compared to only three months in 1995 as
well as the expansion of the R/GA Interactive operations through the opening
of a Los Angeles office in the fourth quarter of 1995, which subsequently
closed in July 1996. The Cf2GS operations also experienced a $1.1 million, or
41.2%, increase in salaries and benefits expenses during the first nine months
of 1996 as compared to the same period of 1995. Cf2GS has increased personnel
to better service and manage the growth of its business and actively pursue
new business during the first nine months of 1996, resulting in increased
salaries and benefits costs. Finally, it is the policy of the True North Units
to expense research and development costs as incurred. The salaries and
benefits expenses incurred by the True North Units' technology development
operations have, accordingly, been expensed since inception.
Office and General Expenses. Office and general expenses increased $3.5
million, or 102.8%, from $3.4 million in the nine months ended September 30,
1995 to $6.9 million in the same period in 1996. Office and general expenses
represented 48.2% and 47.8% of revenues in the nine months ended September 30,
1995 and 1996, respectively. The increases in office and general expenses can
be attributed to the establishment of the Northern Lights Interactive
operations in the fourth quarter of 1995, which added $1.2 million of office
and general expenses in the first nine months of 1996. The acquisition of R/GA
Interactive in July 1995 and the subsequent operation of this business at an
expanded level of activity in 1996 increased office and general expenses by
$1.7 million in the first nine months of 1996 as compared to the same period
of 1995. The Cf2GS operations experienced a $320,000, or a 20.3%, increase in
office and general expenses, in line with the increase in revenues. The
technology development operations of the True North Units also experienced an
increase in office and general expenses, as depreciation expense related to
the capitalized portions of the intellectual property group's assets was
recognized for the first time in the third quarter of 1996, in line with the
recognition of revenues for this operation for the first time.
The True North Units have been charged for certain office and general
expenses through allocations from its parent, True North. Such items charged
include, but are not limited to, occupancy and services costs in shared
facilities, administrative costs for various benefit plans and accounting,
corporate and treasury services. Such allocations for shared facilities and
services are believed to be not materially different than the cost of
receiving these services from independent third parties. These costs are
expected to increase in the future, based upon the growth of the operations of
the True North Units. In addition, the Company expects that it may incur
additional costs associated with being a public company.
Amortization of Goodwill. Goodwill amortization increased significantly in
the first nine months of 1996 as compared to the same period of 1995. The
increase is due to the inclusion of the operations, and the related goodwill
amortization, of R/GA Interactive for a full nine month period in 1996 as
compared to the inclusion of only three months of such amortization in the
1995 period.
Operating Income (Loss). As a result of all of the foregoing, the operating
loss increased from $730,000 in the first nine months of 1995 to $1.8 million
in the first nine months of 1996.
Income Taxes. The effective income tax benefit rate was 52.4% and 44.2% for
the nine months ended September 30, 1995 and 1996, respectively. These rates
differ from the federal statutory rate primarily due to the effect of state
income taxes, which was partially offset by the effect of non-deductible
goodwill amortization.
Net Income (Loss). The net loss was $350,000 in the nine months ended
September 30, 1995 as compared to $1.0 million in the same period of 1996.
28
<PAGE>
TRUE NORTH UNITS HISTORICAL YEARS ENDED DECEMBER 31, 1994 AND 1995
The True North Units either had no operations or were not owned by True
North prior to January 1, 1994. Consequently, the only annual comparative
presented is for the full year 1994 compared to the full year 1995. During the
1994 and 1995 period, the True North Units were comprised of the database
marketing operations, which were begun by True North in January 1994, Cf2GS,
which was acquired by True North in April 1994, R/GA Interactive, which was
acquired by True North in July 1995, the technology development operations,
which were begun by True North in January 1995 and the operations of Northern
Lights Interactive, which were begun by True North in the fourth quarter of
1995.
Revenues. Revenues were $4.0 million and $11.4 million for the years ended
December 31, 1994 and 1995, respectively. The increase in revenues between
1994 and 1995 resulted principally from increased services to existing clients
of Cf2GS, which experienced an increase in revenues from $3.1 million in the
last nine months of 1994 (the date of acquisition was April 1994) to $7.6
million for all of 1995. In addition, R/GA Interactive, acquired by True North
in July 1995, added $2.1 million to revenues in 1995. The effect of the start-
up of the Northern Lights Interactive operations in the fourth quarter of 1995
contributed $550,000 to revenues in 1995.
Salaries and Benefits Expenses. Salaries and benefits expenses increased
from $2.6 million in 1994 to $7.4 million in 1995. As a percentage of
revenues, salaries and benefits expenses represented 64.1% and 65.1% of
revenues in 1994 and 1995, respectively. The increase in salaries and benefits
expenses was primarily due to the significant increase in personnel to
accommodate the growth of Cf2GS, which added $2.1 million to salaries and
benefits expenses in 1995. In addition, the effect of the acquisition of the
R/GA Interactive operations, which had salaries and benefits expenses of $1.4
million in 1995, and the start-up of the Northern Lights Interactive and
technology development operations during 1995, which together added $1.2
million to salaries and benefits expenses in 1995, comprise the major portion
of the remaining increase over 1994.
Office and General Expenses. Office and general expenses increased from $1.1
million in 1994 to $5.7 million in 1995. As a percentage of revenues, office
and general expenses were 26.4% and 50.1% of revenues in 1994 and 1995,
respectively. The principal reason for both the dollar and percentage increase
was due to the acquisition of R/GA Interactive. This operation has a high
percentage of office and general expenses associated with it because it
utilizes a large portion of outside contract work which is classified as an
office and general expense. The inclusion of R/GA Interactive for six months
of 1995 added $1.6 million to office and general expenses. The office and
general expenses of the Cf2GS operation increased by $1.4 million in 1995 as
compared to 1994, which was approximately in line with the increase in
revenues from 1994. Finally, the start-up of the Northern Lights Interactive
and technology development operations contributed $1.3 million to the
increased office and general expenses in 1995 as compared to 1994.
Amortization of Goodwill. Goodwill amortization increased significantly in
1995 as compared to 1994. The increase is due to the acquisition of R/GA
Interactive in July 1995 and the inclusion of the operations, and the related
goodwill amortization, since that date.
Operating Income (Loss). As a result of all of the foregoing, operating
income was $365,000 in 1994 compared to an operating loss of $1.9 million in
1995.
Income Taxes. The effective income tax rate was 21.5% in 1994 and the income
tax benefit rate was 47.1% for 1995. These rates differ from the federal
statutory rate primarily due to the effect of non-deductible goodwill
amortization in both 1994 and 1995. In addition, the effect of state income
taxes in 1995 and the effect of tax basis differentials resulting from the
acquisition of Cf2GS in 1994 also cause the effective tax rates in these
respective periods to differ from the federal statutory rate.
Net Income (Loss). Net income was $260,000 in 1994. The net loss was $1.0
million in 1995.
29
<PAGE>
MODEM MEDIA HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain items from Modem Media's historical
statements of operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
--------------------- -------------------
1993 1994 1995 1995 1996
------ ------ ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................ $1,221 $4,335 $11,719 $7,570 $12,427
Salaries and benefits expenses...... 406 2,239 5,542 3,326 7,177
Office and general expenses......... 334 859 2,224 1,388 2,952
Goodwill and other intangibles
amortization....................... -- -- -- -- --
------ ------ ------- ------ -------
Operations income (loss)............ 481 1,237 3,953 2,856 2,298
Other, net.......................... 3 4 7 4 (6)
Provision (benefit) for income
taxes.............................. -- -- -- -- --
------ ------ ------- ------ -------
Net income (loss)................... $ 484 $1,241 $ 3,960 $2,860 $ 2,292
====== ====== ======= ====== =======
</TABLE>
The following table sets forth certain items from Modem Media's historical
statements of operations as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and benefits expenses......... 33.2 51.7 47.3 43.9 57.7
Office and general expenses............ 27.4 19.8 19.0 18.4 23.8
Goodwill and other intangibles
amortization.......................... -- -- -- -- --
----- ----- ----- ----- -----
Operating income (loss)................ 39.4 28.5 33.7 37.7 18.5
Other, net............................. 0.2 0.1 0.1 0.1 (0.1)
Provision (benefit) for income taxes... -- -- -- -- --
----- ----- ----- ----- -----
Net income (loss)...................... 39.6% 28.6% 33.8% 37.8% 18.4%
===== ===== ===== ===== =====
</TABLE>
MODEM MEDIA HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1996
Revenues. Revenues increased $4.8 million, or 64.2%, from $7.6 million in
the nine months ended September 30, 1995 to $12.4 million in the same period
of 1996. The growth in revenues was attributed principally to increased
services provided to Modem Media's largest client, AT&T, which accounted for
74.5% and 82.0% of Modem Media's revenues for the nine month periods ended
September 30, 1995 and 1996, respectively.
Salaries and Benefits Expenses. Salaries and benefits expenses increased
$3.9 million, or 115.8%, from $3.3 million in the nine months ended September
30, 1995 to $7.2 million in the same period in 1996. Salaries and benefits
expenses represented 43.9% and 57.7% of revenues in the nine month periods
ended September 30, 1995 and 1996, respectively. Modem Media's rate of revenue
growth in 1995 substantially exceeded the rate of growth in the number of
personnel added to service the additional business. During the first half of
1996, Modem Media increased personnel to better service and manage the growth
of its business and actively pursue new client business. As a result of such
increase in personnel, salaries and benefits expenses as a percentage of
revenues increased in the nine month period ended September 30, 1996 compared
to the same period in 1995.
30
<PAGE>
Office and General Expenses. Office and general expenses increased $1.6
million, or 112.7%, from $1.4 million in the nine months ended September 30,
1995 to $3.0 million in the same period in 1996. Office and general expenses
represented 18.4% and 23.8% of revenues in the nine month periods ended
September 30, 1995 and 1996, respectively. In the first nine months of 1995,
Modem Media's rate of revenue growth significantly exceeded the rate of growth
in its physical operating facilities. Modem Media's office space and other
resources were constrained during this time period and, as a result, Modem
Media moved from its prior operating location in the third quarter of 1995 to
its current operating location. Office and general expenses represented a
higher percentage of Modem Media's revenues in 1996 primarily due to higher
expenses, including: office rent resulting from Modem Media's relocation to
larger facilities; depreciation expense, resulting from increased capital
expenditures for technology required to support the growth in Modem Media's
business, including the increase in employees; and increased utility costs and
costs necessary to upgrade Modem Media's telecommunications capabilities. In
addition, Modem Media incurred approximately $300,000 of expenses in the third
quarter of 1996 related to the Combination, which is reflected in office and
general expenses in the nine months ended September 30, 1996.
Operating Income. As a result of all of the foregoing, operating income was
$2.9 million in the first nine months of 1995 compared to $2.3 million in the
same period of 1996.
Income Taxes. No provision for income taxes was made in either the first
nine months of 1995 or the same period of 1996 because of Modem Media's
partnership structure.
MODEM MEDIA HISTORICAL YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Revenues. Revenues were $1.2 million, $4.3 million and $11.7 million for the
years ended December 31, 1993, 1994 and 1995, respectively. The increase in
revenues between 1993 and 1995 resulted principally from the increased
services provided to existing clients, and to a lesser extent new clients.
Revenues derived from AT&T grew from 29.0% of Modem Media's revenues in 1993
to 78.4% in 1995. The increase in revenues derived from AT&T was primarily
attributable to the implementation of several additional programs for various
units of AT&T. In addition, increased revenues derived from two other
significant clients were partially offset by reductions and cancellations of
services for other clients.
Salaries and Benefits Expenses. Salaries and benefits expenses, including
compensation payments to partners, increased from $410,000 in 1993 to $2.2
million in 1994 and $5.5 million in 1995. As a percentage of revenues,
salaries and benefits expenses represented 33.2%, 51.7% and 47.3% of revenues
in 1993, 1994 and 1995, respectively. The increase in salaries and benefits
expenses was primarily due to the significant increase in personnel and in
temporary and freelance labor to accommodate Modem Media's growth. In
addition, salaries and benefits expenses as a percentage of revenues increased
from 1993 to 1994 primarily as a result of Modem Media's growth and decreased
slightly from 1994 to 1995 due in part to a higher rate of growth in revenues
as compared to the rate of increase in personnel during 1995.
Office and General Expenses. Office and general expenses have increased from
$330,000 in 1993 to $860,000 in 1994 and $2.2 million in 1995. As a percentage
of revenues, office and general expenses decreased from 1993 to 1995 and
represented 27.4%, 19.8% and 19.0% of revenues in 1993, 1994 and 1995,
respectively. The spending increases resulted primarily from Modem Media's
efforts to build an infrastructure to support its growth. Such expenditures
included higher office rent, supplies and other office costs related to an
increased number of personnel; increased professional fees and placement fees;
higher depreciation expense resulting from new computers and equipment
purchased for new employees; and higher communication systems costs.
Operating Income. As a result of all of the foregoing, operating income
increased from $480,000 to $1.2 million in 1993 and 1994, respectively, and to
$4.0 million in 1995.
Income Taxes. No provision for income taxes was made in any of the fiscal
years ended December 31, 1993, 1994 or 1995 because of Modem Media's
partnership structure.
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FACTORS AFFECTING OPERATING RESULTS OF THE COMPANY
The Company has incurred, and anticipates that it will continue to incur,
substantial costs to expand and integrate its business. Such costs have had
and could continue to have, a material adverse effect on the operating results
of the Company. There can be no assurance that the Company will achieve or
sustain profitability in the future. The Company's operating results have
fluctuated in the past, and may continue to fluctuate in the future, as a
result of a variety of factors. As a result, the Company believes that period-
to-period comparisons cannot be relied upon as indicators of future
performance. 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 Class A Common Stock could likely be materially and
adversely affected.
Because the Company's clients generally hire the Company on an assignment
basis rather than on a retainer basis, a client from whom the Company
generates substantial revenue in one period may not be a substantial source of
revenue in a subsequent period. In addition, the Company's clients generally
have the right to terminate their relationships with the Company without
penalty and on relatively short or no notice. As a result, the Company may
gain or lose several significant clients each year, and there can be no
assurance that new clients will be obtained or, if obtained, will offset any
client 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, the Company's business, financial condition or results of operations
could be materially adversely effected. Once an assignment is completed there
can be no assurance that a client will engage the Company for further
services. The termination of the Company's business relationship with any of
its significant clients, including AT&T, 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 or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
True North Units. The True North Units historically have obtained their
financing from True North. At September 30, 1996, the True North Units had a
non-interest bearing intercompany account payable to True North of $14.1
million. As part of the Conversion and the Combination, all amounts due from
the True North Units to True North in excess of $6.0 million were contributed
by True North to the True North Units, and have become part of the True North
Units' additional paid-in-capital as of December 31, 1996.
Net cash used in operating activities was $30,000 and $2.3 million for the
years ended December 31, 1994 and 1995, respectively, and was $2.1 million for
the nine months ended September 30, 1996. The primary component of funds used
in operations was to finance working capital expansion of $440,000 and $1.8
million for the years ended December 31, 1994 and 1995, respectively, and $1.7
million for the nine months ended September 30, 1996. Funds were also used by
operations to finance the net loss from operations of $1.0 million for each of
the year ended December 31, 1995 and the nine months ended September 30, 1996.
The investment in working capital was partially offset by depreciation expense
and goodwill amortization, which totalled $120,000 and $550,000 in the years
ended December 31, 1994 and 1995, respectively, and was $620,000 for the nine
months ended September 30, 1996. In addition, net income in 1994 of $260,000
helped to reduce the amount of funds required by operations.
Net cash used in investing activities was $130,000, $3.6 million and $1.4
million for the years ended December 31, 1994 and 1995 and in the nine months
ended September 30, 1996, respectively. Investing activities reflect capital
expenditures, primarily to develop the intellectual property software in 1995,
and to purchase other computer software, computer hardware and office
equipment in all periods.
Net cash provided by financing activities was $250,000, $6.1 million and
$3.1 million in the years ended December 31, 1994 and 1995 and in the nine
months ended September 30, 1996. The primary source of cash flows from
financing activities was borrowings from True North of $690,000, $6.2 million
and $4.2 million in the years ended December 31, 1994 and 1995 and in the nine
months ended September 30, 1996. The borrowings from True North were also used
to finance external debt repayments of $440,000 in 1994 and to fund earn-out
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payments to the former stockholders of Cf2GS of $50,000 and $1.1 million in
1995 and the first nine months of 1996, respectively. There are no external
borrowings of the True North Units as of September 30, 1996.
Modem Media. Modem Media has financed its operations primarily from funds
generated from operations.
Net cash provided by operating activities was $660,000 and $2.5 million for
the years ended December 31, 1994 and 1995, respectively, and $5.7 million for
the nine months ended September 30, 1996. Cash provided by operating activities
included net earnings plus depreciation and amortization totaling $1.3 million,
$4.2 million and $2.7 million for the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996, respectively. During 1994 and
1995, Modem Media experienced increases in net working capital (excluding an
increase in the cash balance) of $640,000 and $1.7 million, respectively.
During the first nine months of 1996, Modem Media experienced a decline in net
working capital (excluding an increase in the cash balance) of approximately
$2.9 million resulting from an increase in current liabilities, primarily
advance billings and accounts payable, which exceeded the increase in current
assets.
Net cash used in investing activities was $270,000, $890,000 and $810,000 for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996, respectively. Investing activities reflect capital expenditures, net
of spending attributable to capital leases, primarily to purchase computer and
office equipment in all periods.
Net cash used in financing activities was $390,000, $1.4 million and $1.2
million for the years ended December 31, 1994 and 1995 and in the nine months
ended September 30, 1996, respectively, the primary component of which was cash
distributions made to the partners of Modem Media. In addition, in 1995 and in
the nine months ended September 30, 1996, Modem Media made principal payments
on capital lease obligations entered into during 1995 and 1996 totaling $30,000
and $180,000, respectively.
As a result of the foregoing, Modem Media's cash balance increased by
$180,000 during 1995 and $3.7 million in the first nine months of 1996 and at
September 30, 1996 was $3.9 million.
Capital Resources. In December 1996, True North extended a credit facility to
the Company allowing for revolving borrowings, letter of credit extensions and
guarantee obligations in the amount of up to $5.0 million to be outstanding at
any given time. The credit facility with True North expires one year from the
date of completion of the Offering, or sooner upon the occurrence of certain
events. The Company does not anticipate utilizing the True North credit
facility. See "Relationship With True North and Certain Transactions--
Intercompany Agreements."
The Company believes that the net proceeds from the Offering (estimated to be
$ million), together with funds available from operations, if any, will be
sufficient to meet the capital needs of the Company for at least the next
twelve months. The long-term capital needs of the Company will depend on
numerous factors, including the rate at which the Company is able to obtain new
business from clients, expand its personnel and infrastructure to accommodate
growth and invest 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. A portion
of the net proceeds of the Offering may also be used to acquire or invest in
complementary businesses or products, to obtain the right to use complementary
technologies or to expand operations internationally. The Company has no
present plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transactions.
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BUSINESS
The following Business section 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 leader in digital interactive marketing, having developed
over 500 marketing programs since 1987. The Company combines traditional
marketing skills with capabilities in digital media and communications
technologies to enable clients to more effectively reach and interact with
customers and other key constituents, including employees, stockholders,
suppliers and other business partners. The Company delivers a complete range
of digital interactive marketing products and services, including traditional
advertising and direct marketing services, through a combination of its
substantial expertise in strategic marketing, technology development and
digital design and production. These products and services include: customized
product positioning; creation, production, updating and maintenance of Web
sites and other interactive communications vehicles; analysis of customer
requests, purchases and behaviors; delivery of uniform and updated information
tools for sales forces; and technical consulting. The Company believes that by
offering comprehensive digital interactive marketing solutions, it can add
substantial value to organizations impacted by the challenges and
opportunities created by rapidly changing digital media and interactive
communications technologies. Pro forma revenues derived from digital
interactive marketing activities accounted for 76.2% of the Company's total
pro forma revenues in the first nine months of 1996.
The Company's products and services link the two-way distribution
capabilities of digital communications networks (principally the Internet, the
Web, proprietary on-line services and corporate intranets) with fundamental
marketing strategies and digital design and production capabilities. Digital
interactive marketing applications developed by the Company permit the
Company's clients to target narrow market segments, supply detailed product
and service information on demand, obtain instant feedback, and update
advertising, marketing and customer service programs quickly and easily. The
Company believes that interactive technologies are becoming an increasingly
important component of many organizations' marketing strategies, as these
technologies enhance the ability to communicate effectively and to establish
one-to-one relationships with current and potential customers and other key
constituents. The Company seeks to strengthen and maintain long-term
relationships with established organizations, including AT&T, Delta Air Lines,
Levi Strauss & Co., JC Penney, Microsoft, Motorola, Royal Caribbean Cruises
and S.C. Johnson, as well as with emerging companies that are effecting change
in digital media, such as i-Village and PC Financial Network.
The Company was formed through the combination of businesses with
substantial creative, technological, and digital design and production
expertise. Since 1995, True North, the seventh largest advertising company in
the world based on 1995 billings, with agency brands such as Foote, Cone &
Belding, has provided digital interactive marketing services to its clients.
These services are currently embodied in Northern Lights Interactive, one of
the Company's strategic marketing organizations. In April 1994, True North
acquired Cf2GS, an advertising agency with substantial database and integrated
marketing expertise. In July 1995, True North acquired R/GA Interactive, an
award-winning digital design and production business founded by Robert M.
Greenberg in 1993. In December 1996, these businesses (Northern Lights
Interactive, Cf2GS and R/GA Interactive, along with the technology development
operations of True North) were combined with Modem Media, a leader in digital
interactive marketing which has been providing such services since 1987.
Through the Combination, the Company brings together substantial experience in
digital interactive marketing and offers comprehensive solutions to its
clients. In addition, the Company believes that its ongoing relationship with
True North will provide it with additional opportunities to offer digital
interactive marketing products and services to True North's clients.
INDUSTRY BACKGROUND
The Company believes that the demand for digital interactive marketing has
evolved from the growing importance of target marketing and, more recently,
from the emergence of networked digital applications, services, communications
and distribution vehicles, including those utilizing the Internet.
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Growing Importance of Target Marketing
Companies increasingly desire the ability to segment their markets narrowly
and to measure the impact of their marketing expenditures more precisely.
However, the ability to direct traditional mass media communications, such as
broadcast television, radio and newspapers to specific target markets is
limited, and gathering relevant market feedback is difficult and expensive. As
a result, the Company believes media expenditures have increasingly flowed
from traditional mass media to new marketing channels such as cable
television, telemarketing, direct mail and specialized magazines. While these
channels can reach specific markets, they do not allow marketers to establish
immediate, interactive, one-to-one communications with consumers, where
consumers can respond to and shape the content they receive. As a result, such
channels do not enable marketers to obtain direct and immediate feedback from,
and detailed information about, consumers.
Growth of Digital Media and the Internet
The rapid development of technologies which facilitate the processing,
manipulation, transfer, storage and distribution of digitized images is having
a profound impact on the development and delivery of information. Digital
content, once created, can be easily stored, updated, manipulated and
distributed. New digital communications channels, such as the Internet, the
Web, proprietary on-line services, corporate intranets, CD-ROMs and
interactive kiosks, provide marketers with broad and rapid distribution
vehicles for detailed and measurable one-to-one communications with consumers.
Many of these digital channels are also global in reach, providing
particularly attractive outlets for multi-national marketers. With the
proliferation of modem-enabled personal computers and the development of easy-
to-use Web browsers, the Internet has emerged as a new form of mass media. IDC
Research forecasts that over 163 million people worldwide will use the Web by
2000, up from an estimated 16.1 million in 1995.
Emergence of Digital Interactive Marketing
Companies have begun to explore the marketing potential and interactive
capabilities of new digital media. Digital interactive marketing services
include: web site development and maintenance; interactive advertising;
deployment and development of corporate intranets; and electronic commerce
services via the Internet. IDC Research estimates that content on the Web, as
measured by number of Web pages, grew from 18.1 million pages in January 1995
to 71.9 million in December 1996. Furthermore, Jupiter Communications
estimates 1995 total on-line advertising revenue in the United States was $80
million and is expected to grow to $5 billion in 2000. Finally, Forrester
Research estimated that approximately $520 million worth of goods would be
sold via the Internet in 1996 and that such sales are expected to grow to $6.5
billion by 2000.
The Company believes that the foregoing industry trends have resulted in
heightened demand for digitally developed and distributed communications
campaigns, marketing services and business solutions. Interactive marketing
communications programs can distribute information effectively and
immediately, provide instant and measurable feedback, and facilitate
interaction between companies, their customers and other key constituents
through new Internet-based technologies. These technologies, in turn, enable
the development and delivery of marketing programs and communications services
that incorporate graphics, video and interactive features to inform, engage
and entertain the target audience. In addition, interactive marketing provides
for immediate feedback about the tastes and preferences of individual users or
targeted groups of users. This information can be used by marketers to quickly
improve the effectiveness of advertising messages or to modify products or
services.
The Company believes that new communications vehicles that deliver value-
added content and services for marketers will emerge, driven by the trend
toward one-to-one target marketing. Such value-added services include internal
corporate (both remote and on-site) communications, sales support services,
customer support and electronic customer care solutions, electronic commerce,
and other services that add value to the relationship between companies and
their customers and other key constituents. Developing and implementing
digital interactive communications solutions will require a combination of
fundamental marketing strategy, high-end
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digital design and production capabilities and technological expertise. The
Company believes that the successful application of these skills in the
emerging digital communications environment will increase the value of a
client's brands.
For many companies, interactive marketing requires the coordination of the
traditionally distinct functions of the marketing and the information systems
departments. Digital interactive marketing also requires the ability to adopt
a variety of digital communications platforms that are technologically
sophisticated, diverse, interdependent and rapidly evolving. The Company
believes that most client organizations and third-party suppliers are unable
to combine technological sophistication with the strategic expertise and
creative excellence required to capitalize fully on digital interactive
marketing opportunities.
THE COMPANY'S SOLUTION
The Company combines its core competencies in strategic marketing,
technology and digital design and production to develop comprehensive digital
interactive marketing solutions for its clients. These solutions include
advertising, custom publishing and other customized solutions delivered
through multiple digital communications media such as the Internet, the Web,
proprietary on-line services, corporate intranets and CD-ROMs. These solutions
permit a client to build global brand equity by (i) delivering its marketing
message consistently across multiple media, (ii) establishing one-to-one
relationships with targeted customers, and (iii) permitting prompt feedback
which can be used to improve the effectiveness of a Company's marketing
message or modify its products or services.
THE COMPANY'S STRATEGY
Key elements of the Company's strategy include:
Combining Expertise in Technology, Communications and Marketing to Provide
Comprehensive Interactive Solutions. The Company capitalizes on its expertise
in strategic marketing, interactive communications technology, and digital
design and production to address its clients' internal and external digital
interactive marketing needs. The Company focuses on providing clients with a
comprehensive range of digital interactive marketing, traditional advertising
and direct marketing services, including customized product positioning,
creation, production, updating and maintenance of Web sites and other
communications; analysis of customer requests, purchases and behaviors;
delivery of uniform and updated information tools for sales forces; and
technical consulting.
Capitalizing on and Developing Emerging Technologies. The Company intends to
build on its technological expertise to create, develop and market scalable,
cross-platform interactive marketing and communications services for its
clients. The Company's digital interactive marketing solutions and proprietary
applications capitalize on the increasing use of the Internet, corporate
intranets and future interactive technologies to provide clients with
increasingly effective marketing and communications tools. The Company intends
to retain ownership rights of these proprietary applications, which will
enable the Company to repurpose and reformat certain interactive products to
service the needs of multiple clients.
Building Upon Excellence in Creativity and Design. The Company is committed
to establishing and maintaining high-quality, creative and technical standards
for design and architecture that support digital interactive communications
services. Robert M. Greenberg, President of R/GA Interactive, has received the
Academy of Motion Pictures Arts and Sciences Scientific & Engineering Award in
1986, and together with R/GA Digital Studios, Inc., a business unit of True
North, has received numerous awards, including the Academy Award, the Chrysler
Award and the Cannes Gold Lion. In 1996, R/GA Interactive received numerous
awards for its interactive communications programs, including the
International Andy Award for interactive advertising and a Gold One Show Award
for Best Web Site. Modem Media has also earned numerous awards, including the
1994 COMDEX Innovation Award for its JC Penney interactive television
prototype and 1996 CASIE Awards for zima.com, a Web site of Coors Brewing
Company, and AT&T's Centennial Olympic Games intermercial
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campaign in 1996. The Company intends to continue to pursue, attract and retain
high-quality management, marketing, creative and technical personnel to build
upon this award-winning legacy.
Exploiting Multiple Branding Opportunities. The Company operates through five
distinct business units, or brands--Modem Media, Northern Lights Interactive
and Cf2GS (the "strategic marketing brands"), R/GA Interactive and the
Relationship Technology Group. Historically, each of the Company's brands has
operated as a standalone business unit, served its own client base and targeted
a niche within digital interactive marketing. While several of the Company's
existing clients, such as AT&T, Levi Strauss & Co. and Blue Cross/Blue Shield
of Illinois, have utilized the services of two or more of the Company's
business units, the Company believes that there is substantial opportunity for
cross-marketing and referrals among the business units. For example, if one of
the clients of R/GA Interactive needs strategic marketing assistance, R/GA
Interactive can refer the client to Modem Media, Northern Lights Interactive or
Cf2GS. By maintaining three strategic marketing brands, the Company is also
better able to manage potential conflicts and serve multiple clients within the
same industry.
Developing and Expanding Long-Term Relationships with Targeted Clients. The
Company intends to build long-term relationships with established and emerging
clients whose businesses impact or are impacted by rapidly changing digital
media and interactive communications technologies. In addition, by developing
long-term relationships, the Company believes that it can develop a deeper
understanding of a client's business needs and thereby offer more effective and
efficient marketing solutions. In addition, the Company's size and broad scope
of technical and marketing capabilities enable it to provide global marketers
with comprehensive solutions which can be adapted and integrated worldwide.
Leveraging Relationship with True North. The Company plans to continue to
leverage its relationship with True North, the seventh largest advertising
agency holding company in the world based on 1995 billings. The Company
believes that its relationship with True North and True North's familiarity
with the Company's capabilities provide the Company with additional
opportunities to work with True North's clients.
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CORE COMPETENCIES
Through its operating divisions, the Company combines its core competencies
in strategic marketing (Modem Media, Northern Lights Interactive and Cf2GS),
technology development (Relationship Technology Group) and digital design and
production (R/GA Interactive) to deliver comprehensive solutions which address
clients' digital interactive marketing and communications needs.
CORE COMPETENCIES AND BUSINESS UNITS
LOGO
Strategic Marketing: Modem Media, Northern Lights Interactive and Cf2GS
The Company's strategic marketing organizations provide a wide array of
interactive marketing services, including strategic consulting, concept
development, media research, creative development, interactive media selection
and placement, and design and production supervision. Certain clients of the
strategic marketing organizations utilize the expertise of the Company's
Relationship Technology Group or the digital design and production capabilities
of R/GA Interactive. The strategic marketing organizations integrate delivery
of the Company's strategic marketing, technology development and digital design
and production services and coordinate the traditionally distinct functions of
clients' marketing and information systems departments.
The Company provides strategic marketing services through account
representatives who utilize their creative and technological expertise to
design high-quality, creative digital interactive marketing programs and assist
in building long-term relationships with clients. The account representatives
identify and assess various traditional and interactive marketing and
communication techniques to improve clients' advertising, marketing and
customer service programs and recommend the most efficient and effective media
for the clients' businesses. In addition, account representatives specialize in
improving the performance of digital interactive programs by employing on-line
tracking and promotional services to develop database systems designed to
maximize the value of on-line transactions.
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Through its three distinct strategic marketing organizations, Modem Media,
Northern Lights Interactive and Cf2GS, the Company offers services to multiple
clients across targeted industries.
Modem Media. Modem Media, founded in 1987, has provided services to more
than 30 global marketers and since 1994 has completed more than 300 digital
interactive marketing campaigns for its clients. Modem Media focuses on
embedding internally-developed digital interactive marketing and sales
systems into all business functions of its clients' organizations in an
effort to promote long-term client relationships. For example, in 1995
Modem Media became AT&T's Interactive Agency of Record. Modem Media's
relationship with AT&T began in 1992 when it developed an electronic
ordering system and toll-free directory for AT&T on CompuServe. Modem Media
then developed a sales information platform for AT&T's globally-dispersed
sales force, performed a competitive analysis, executed a corporate-wide
education program, and created and managed AT&T's Centennial Olympic Games
Web site. Other clients of Modem Media include Delta Air Lines, Hasbro, JC
Penney and Reader's Digest. Modem Media also conducts marketing and media
research (quantitative and qualitative), plans and buys media, and conducts
performance analysis on the digital interactive marketing and sales
programs developed for the Company's clients. The Company believes that
Modem Media is one of the leading media buying agencies for digital
interactive marketing and sales. Modem Media is located in Westport,
Connecticut.
Northern Lights Interactive. Northern Lights Interactive, founded in 1995
as a division of True North, is a digital media communications company
designed to serve the digital interactive marketing needs of True North's
clients. Through its six offices, the Company provides multinational
clients with consistent strategy, quality, production, coordination and
measurement services worldwide, while responding quickly to local or
regional interactive marketing needs. In addition, the Company intends to
pursue clients outside of True North's traditional client base. Northern
Lights Interactive's clients include Blue Cross/Blue Shield of Illinois,
Fila, Levi Strauss & Co., Merck, Motorola, Nabisco, S.C. Johnson and the
United States Postal Service.
Cf2GS. Cf2GS, founded in 1988 and acquired by the Company in 1994,
develops and delivers database-driven marketing services and programs which
enable its clients to reach customers through traditional media vehicles
such as direct mail, print and television, and, increasingly, through
digital media vehicles such as Web sites and other content-based
interactive vehicles. Cf2GS's database services provide clients with
information to better understand their customers, build customer retention,
increase transaction frequency and locate high potential prospective
customers. Cf2GS's customers include Royal Caribbean Cruises, California
State Automobile Association, L.A. Cellular and U.S. Bancorp. Cf2GS has
offices in Seattle, Portland, Oregon and San Francisco.
Technology Development: The Relationship Technology Group
The Relationship Technology Group develops, builds and maintains digital
communications applications designed to enhance and improve the effectiveness
of the relationships between the Company's clients and their key constituents.
These platforms are designed to operate on multiple forms of communication
media such as the Internet, the Web, proprietary on-line services, corporate
intranets, CD-ROMs and interactive kiosks. The Relationship Technology Group
employs technology to maximize the Company's ability to provide high quality,
digital interactive marketing services to its clients in a timely and cost-
effective manner. The Relationship Technology Group also provides ongoing
maintenance, quality control and content updates for previously developed
client applications.
The Relationship Technology Group's technical expertise allows it to exploit
opportunities identified by the strategic marketing organizations to create
new technology platforms for clients. These technologies not only link
marketing departments with consumers, but also foster and enhance
relationships with other key constituents, including employees, shareholders,
suppliers and other business partners. The rights to these technologies are
generally owned by the Company. This enables the Company to repurpose and
reformat certain
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of these interactive products to service the needs of multiple clients.
Examples of the products developed by the Relationship Technology Group
include:
Customized Intranets. Customized intranets provide a cost-effective means
to deliver essential marketing and brand management information through
personal computers to users worldwide. Customized intranets enhance
internal communications by linking dispersed offices to a global network
allowing users to access, edit and share critical data, including current
sales and marketing materials and digital art, using commercial software
tools such as eMotion's Creative Partner and Adobe's Photoshop and Premier.
These intranets can also be used for more traditional communications such
as e-mail, corporate announcements and employee and other corporate
information. To date, the Company has developed customized marketing
intranets for True North and S.C. Johnson.
Delivra. Delivra is a communications platform developed by the Company to
deliver marketing materials electronically to large sales forces equipped
with laptop computers. Delivra permits timely, accurate and cost-effective
distribution of sales and marketing information, such as proposals,
contracts, marketing materials, pricing and competitive information, which
can then be downloaded, stored, managed and manipulated locally on personal
computers by members of geographically dispersed sales forces. The
Relationship Technology Group provides ongoing platform and operations
management services, including content creation and management, user
support, quality control, system usage reporting and file management.
The Company's Relationship Technology Group also provides database and
relationship marketing consulting services that focus on optimizing customer
contact strategies for its clients. These services enable the Company's
clients to assess and optimize information systems to target and contact
customers. In addition, the Relationship Technology Group provides statistical
modeling to help clients predict customer behavior. Through proprietary
decision support systems and customized software applications, the customer
data are compiled, categorized, stored and made accessible to clients.
The Relationship Technology Group employs software programmers, system
designers and quality assurance personnel with expertise in ActiveX, C/C++,
Java, HTML, Lingo, SGML, VRML and Visual Basic programming languages; CGI and
EDI technologies; and Microsoft, Netscape, Oracle and Sybase server and
database technologies. The Company's programming staff utilizes this expertise
to develop and distribute new forms of digital interactive marketing
solutions.
Digital Design and Production: R/GA Interactive
R/GA Interactive, incorporated in 1993, is a full-service digital design and
production studio that produces creative content for users across a broad
range of media. R/GA Interactive develops and applies proprietary technology
for real-time 3D computer graphics, image processing, compositing, digital
painting, object-relational databases and game engines to create Web sites and
other interactive marketing tools for its clients. R/GA Interactive's software
engineers are versed in C/C++, Java, Perl, Lingo and HTML programming
languages; CGI and Active Web technologies; Unix, WindowsNT and Windows95
operating systems; and relational database design and implementation. The
Company applies these software capabilities to customize integrated marketing
programs, such as Web-based advertising vehicles, corporate intranets,
interactive kiosks and games.
R/GA Interactive executes digital design and production projects on a
project basis for its clients and those of the Company's strategic marketing
organizations. R/GA Interactive's clients include Microsoft, AT&T, Fila,
Liberty Mutual and IBM. R/GA Interactive is located in New York City.
R/GA Interactive traces its creative roots to R/GA Digital Studios Inc., an
award-winning design and production company founded in 1977 by Robert M.
Greenberg, President of R/GA Interactive. R/GA Digital Studios, Inc., a
business unit of True North, has created visual effects for over 500
commercials and 250 feature films.
40
<PAGE>
Cross-Marketing Opportunities
The Company believes that its strategic marketing organizations, along with
the Relationship Technology Group and R/GA Interactive, are well-positioned to
realize economies of scale and other synergies in developing comprehensive
interactive marketing solutions for clients. The strategic marketing
organizations often require the customization of existing software or the
development of new digital marketing applications. The Relationship Technology
Group is especially well-suited to design, develop and maintain these
applications. In addition, clients of the Company's strategic marketing
organizations frequently require the execution of creative strategies through
the design and production of digital interactive marketing content which can
be supplied by R/GA Interactive.
The Relationship Technology Group provides its core consulting, technology
development and operations services for the customers of the strategic
marketing organizations, as well as for its own customers. R/GA Interactive
executes creative strategies for certain clients of the strategic marketing
organizations, performs custom development for independent clients on a for-
hire basis and develops and retains ownership stakes in entertainment and
edutainment titles.
Through its multiple brands, the Company intends to aggressively pursue
multiple segments of the emerging digital marketing communications industry,
while offering clients' marketing and information systems departments
coordinated solutions. The Company believes that each of its brands will
complement the others and does not expect the brands to compete for the same
customers for the foreseeable future.
COMPANY CLIENTS
The Company's clients consist primarily of organizations whose businesses
impact or are impacted by rapidly changing digital media and interactive
communications technologies. The Company's services range from execution of
discrete marketing projects, such as strategic marketing assignments, to
global digital interactive marketing and sales programs combining various
platforms and services. The Company's five largest clients accounted for 63.4%
and 63.0% of the Company's revenues (on a pro forma basis) for the fiscal year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively, with fluctuations in the amount of revenue contribution from
each such client from quarter to quarter. AT&T accounted for 37.9% and 41.5%,
of the Company's revenues (on a pro forma basis) for the fiscal year ended
December 31, 1995 and for the nine months ended September 30, 1996,
respectively. The Company provides services to AT&T pursuant to a one-year,
renewable contract. AT&T may terminate its agreement with the Company upon 90
days' prior written notice to the Company.
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<PAGE>
The following is a list of certain of the Company's clients who accounted for
more than $50,000 of the Company's pro forma revenues since January 1, 1995 and
the services the Company has performed for such clients.
<TABLE>
<CAPTION>
INTERACTIVE
STRATEGIC CONSUMER INFORMATION DIGITAL MEDIA DATABASE APPLICATION
CONSULTING, MEDIA AND INTERACTIVE ARCHITECTURE DESIGN PLANNING MEASUREMENT DESIGN TRADITIONAL
SOLUTIONS COMPETITOR CREATIVE AND DIGITAL AND AND AND AND MEDIA
CONCEPTION RESEARCH DEVELOPMENT DESIGN PRODUCTION BUYING MODELING MAINTENANCE EXECUTIONS
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMUNICATIONS
AT&T Corp. . . . . . . . .
Los Angeles
Cellular
Telephone Co. . .
-----------------------------------------------------------------------------------------------
COMPUTER
HARDWARE AND
SOFTWARE
International
Business
Machines Corp. . . .
Microsoft Corp. . . . . . .
Motorola Inc. . . . . . . . .
-----------------------------------------------------------------------------------------------
CONSUMER
PRODUCTS/RETAIL
Campbell Soup
Company . . . . .
Fila U.S.A.,
Inc. . . . . .
Hasbro, Inc. . . . . . . .
JC Penney
Company, Inc. . . . . . . . .
Johnson &
Johnson . . . .
Levi Strauss &
Co. . . . . . . .
Merck & Co.,
Inc. . . .
PaperDirect . . . . .
RJR Nabisco,
Inc. . . . . .
S.C. Johnson &
Sons, Inc. . . . . . . . .
-----------------------------------------------------------------------------------------------
ENTERTAINMENT/TRAVEL
Delta Air Lines,
Inc. . . . . . . . .
Jamaica Tourist
Board . . . .
Royal Caribbean
Cruises Ltd. . . . .
Washington State
Tourism .
-----------------------------------------------------------------------------------------------
SERVICES
BlueCross Blue
Shield
Association . . . . .
California State
Automobile
Association . . . . .
Citicorp .
i-Village . . . . . .
John Hancock
Mutual Life
Insurance Co. . . . . . . . .
Liberty Mutual
Insurance Co. . . . . . . .
PC Financial
Network . . . .
Prudential
Securities,
Inc. . . .
U.S. Bancorp . .
U.S. Postal
Service . . . . . . .
Washington
Forest
Protection
Association . .
</TABLE>
42
<PAGE>
The Company generally performs multiple projects for clients. Because the
Company's clients generally hire the Company on an assignment basis rather
than on a retainer basis, a client from whom the Company generates substantial
revenue in one period may not be a substantial source of revenue in a
subsequent period. In addition, the Company's clients generally have the right
to terminate their relationships with the Company without penalty and on
relatively short or no notice. Once an assignment is completed there can be no
assurance that a client will engage the Company for further services. While
the Company is not aware of plans by any of its significant clients to
terminate their use of the Company's services, the termination of the
Company's business relationship with any of its significant clients, including
AT&T, 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 or results of operations.
CLIENT CASE STUDIES
The following client case studies illustrate marketing solutions developed
for certain of the Company's key clients by each of the Company's strategic
marketing organizations.
AT&T
AT&T selected Modem Media as its Interactive Agency of Record in 1995. Modem
Media's primary responsibilities include creation and management of
interactive advertising and marketing campaigns; brand positioning; creative
standards development; media planning and buying; research; and competitive
analysis. Modem Media's responsibilities extend through several of AT&T's
business units. Modem Media's relationship with AT&T has included such
projects as developing an electronic toll-free directory in 1992, providing
strategic consulting for interactive television market research in 1993,
developing several fax-on-demand systems for AT&T's Business Marketing Unit in
1994, contributing to a market strategy for AT&T WorldNet Service launched in
1995 and establishing AT&T's Centennial Olympic Games Web site, CD-ROM and
intermercial campaign in 1996.
Levi Strauss & Co.
In 1995, Levi Strauss & Co. ("Levi Strauss") selected Northern Lights
Interactive and R/GA Interactive to assist Levi Strauss in developing an on-
line presence for Levi's(R) brand jeans. The Company's initial interactive
marketing efforts has led to subsequent and expanded assignments from Levi
Strauss to produce other digital media projects for Levi's(R), Docker's(R),
the Levi's Only Store (LOS), the Mega-Shop Youthwear Center as well as
implement on-line media partnership programs on behalf of Levi Strauss with
ESPNet Sports, Women's Wire, Internet Underground Music Association (IUMA),
and MTV. Levi Strauss chose the Company to develop a program to meet Levi
Strauss' objectives of communicating with young adults around the world,
developing one-to-one relationships with consumers through digital access,
building a global knowledge base of its products, providing localized versions
of global marketing programs and establishing a foundation for integrated
marketing and transactions. The Company's primary responsibilities included
strategic planning, content design, navigational architecture, digital
production, on/off-line media placement, technology/tools development, a
measurement program and global implementation. The United States and European
site was launched in October 1995. The Company expects to launch a site in
Asia in early 1997. In September 1996, the Company developed a separate Web
site for Docker's(R).
The Company also designed and implemented interactive kiosks for use in Levi
Strauss' stores. The kiosks use a menu-driven format, full-color graphics,
digital sound, full-motion video and four language options. These kiosks
enable shoppers to obtain product and fit information and can generate
graphical maps with locations of Levi Strauss' stores anywhere in the world.
Royal Caribbean Cruises Ltd.
Since September 1992, Cf2GS has helped Royal Caribbean Cruises Ltd. ("Royal
Caribbean") develop data-driven marketing strategies aimed at building
customer loyalty and frequency of use, as well as identifying
43
<PAGE>
prospective customers. In the past year, Cf2GS has provided a marketing
database solution with reporting and analysis tools designed to enable Royal
Caribbean to more accurately measure and predict market potential within
certain geographic areas. The system is intended to enable Royal Caribbean to
pursue more effective micro-market strategies with its retail channel and
manage database-driven prospecting programs that identify qualified customers
and provide these customers with personalized product information.
In 1996, the Company also combined customer and marketplace analysis with
insights relevant to customer acquisition and retention and cross-marketing to
support development of a communications plan for Royal Caribbean. Cf2GS
developed Royal Caribbean's Crown & Anchor Society relationship marketing
program, which is expected to improve Royal Caribbean's efforts to retain and
cross-sell past guests through an emphasis on recognition, service and
communication. In connection with this program, Cf2GS designs and produces
Crown & Anchor Magazine, a custom-published product.
COMPETITION
The principal factors upon which the Company competes are service, creative
quality, technological and new media expertise and price. Although the Company
believes that it is competitive with respect to each of these factors, the
markets for the Company's services are very competitive, and the Company faces
competition from a number of sources. These sources include traditional
advertising agencies as well as specialized marketing communications firms. In
addition, many advertising agencies have started to develop internally, or
enter into business relationships to develop or acquire, new digital media and
interactive communications capabilities. The Company also competes with
interactive marketing communications companies that provide services (such as
corporate identity and packaging, production, advertising services or Web site
design) and are technologically proficient in the digital media and
interactive communications fields. In addition, production houses, software
developers, in-house marketing and information systems departments of
companies, interactive entertainment companies and graphic design companies
compete with certain portions of the Company's business.
Certain of the Company's competitors or potential competitors have longer
operating histories, longer client relationships and greater financial,
management, technology, development, sales, marketing and other resources than
the Company. Competition depends to a large extent on the clients' perception
of the quality and creativity as well as the technical proficiency of digital
interactive marketing products and services offered. The Company also competes
on the basis of price and the ability to serve clients on a broad geographic
basis. In order to compete successfully in each of these areas, the Company
must have access to adequate financial resources. Moreover, clients frequently
wish to have different products represented by different marketing companies.
The Company expects that it will face additional competition from new market
entrants. There can be no assurance that existing or future competitors will
not develop or offer digital interactive marketing services and products that
provide significant performance, price, creative or other advantages over
those offered by the Company, which could have a material adverse effect on
the Company's business, financial condition or results of operations.
INTELLECTUAL PROPERTY
The Company's success and ability to compete is dependent in part upon its
proprietary technology, including those protections provided under trademark,
trade secret and copyright laws. In addition, factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product
maintenance are also important to establishing and maintaining a technology
leadership position. The Company presently has no patents but has one patent
application pending. There can be no assurance that such patent application
will be allowed or that, if allowed, the application will be issued. Despite
the Company's efforts to control access to its proprietary information, it may
be possible for a third party to copy or otherwise obtain and use the
Company's products or technologies without authorization, or to develop
similar or superior technologies independently. In addition, effective
copyright, trade secret and patent protection may be unavailable or limited in
certain foreign countries. Litigation
44
<PAGE>
may be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company's strategy includes creating, developing and selling digital
interactive marketing products based in part on proprietary applications and
platforms, which enable the Company to repurpose and reformat certain
interactive products to service the needs of multiple clients. Similar to the
traditional advertising and marketing industries, the Company's clients
generally retain ownership of content developed by the Company; however, the
Company generally retains ownership rights to the technology developed.
GOVERNMENT REGULATION
The marketing communications industry is subject to extensive government
regulation, both domestic and foreign, with respect to the truth in 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. There can be no assurance that the Company
will not be subject to claims made against it or its clients by other
companies or governmental agencies or that any such claims, regardless of
merit, would not have a material adverse effect on the Company's business,
financial condition or results of operations.
EMPLOYEES
In order to maintain high levels of creativity and quality, the Company
places great importance on recruiting and retaining talented employees. As of
December 31, 1996, the Company had 308 full-time employees. The Company also
hires temporary employees and contract service providers as necessary.
The Company's success will depend on the ability of the Company's senior
management, in particular, Gregory W. Blaine, Chairman and Chief Executive
Officer, Gerald M. O'Connell, President and Chief Operating Officer and Robert
M. Greenberg, President, R/GA Interactive. The Company's success also will
depend to a significant degree on the continuing contributions of other
members of its senior management and its key account management, marketing,
creative and technology development personnel, as well as its ability to
attract and retain highly skilled personnel in all job categories. Competition
for qualified personnel in the digital interactive marketing industry is
intense. The Company has at times experienced, and continues to experience,
difficulty in recruiting sufficient numbers of qualified personnel. Although
certain members of the Company's senior management have entered into
employment agreements with the Company, there can be no assurance that any of
these executives will not voluntarily terminate their employment with the
Company. 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 or
results of operations. If one or more of the Company's key employees resigns
from the Company to join a competitor or to form a competing company, the loss
of such personnel could have a material adverse effect on the Company's
business, financial condition or results of operations. In addition, the loss
of existing or potential clients as the result of the loss of any key employee
to a competitor or otherwise could have a material adverse effect on the
Company's business, financial condition or results of operations. In the event
of the loss of any key personnel there can be no assurance that the Company
would be able to prevent the unauthorized disclosure or use of its technical
knowledge, practices, procedures or client lists.
FACILITIES
The Company's headquarters and the operations of Modem Media are located in
Westport, Connecticut and utilize approximately 23,000 square feet of leased
office space. The lease expires July 31, 2000. The Company is currently
negotiating for an additional 30,000 square feet of office space.
45
<PAGE>
Cf2GS is based in Seattle and utilizes approximately 13,000 square feet of
leased office space. The lease expires November 30, 1998. Cf2GS also leases
approximately 2,600 square feet in Portland, Oregon, under a lease expiring
August 31, 1997 and approximately 2,600 square feet in San Francisco under a
lease expiring July 16, 1997. Cf2GS is currently negotiating for additional
office space in Seattle.
Northern Lights Interactive, the Relationship Technology Group and R/GA
Interactive share space with True North pursuant to an intercompany agreement.
See "Relationship With True North and Certain Transactions--Intercompany
Agreements--Space Sharing Agreement." That agreement provides for a total of
approximately 17,750 square feet for facilities in Chicago, New York, Toronto,
San Francisco, Hong Kong and London and is terminable by either party upon six
months' written notice beginning six months after the Combination.
The Company believes that its current facilities, along with facilities
currently subject to negotiation, will be adequate to meet the Company's
requirements for the foreseeable future. There can be no assurance that the
Company will be successful in obtaining any such additional space or if
obtained that it will be on terms acceptable to the Company.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information with respect to the
executive officers, directors and key employees of the Company as of the date
of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Gregory W. Blaine (1)... 48 Chairman of the Board and Chief Executive Officer
Gerald M. O'Connell (1). 35 President, Chief Operating Officer and Director
Robert M. Greenberg (1). 48 President, R/GA Interactive, and Director
Michael F. Bogacki (2).. 42 Executive Vice President, Chief Financial Officer, Secretary and Director
Douglas C. Ahlers....... 36 President, Relationship Technology Group, and Director
Robert C. Allen, II..... 29 President, Modem Media, and Director
Martin F. Reidy......... 39 Executive Vice President and Director
David E. Clauson........ 41 Senior Vice President and Managing Director,
Northern Lights Interactive
William H. Fritsch...... 45 President, Cf2GS
David A. Giersdorf...... 40 Chief Executive Officer, Cf2GS
Mitchell T. Engel....... 44 Director
Bruce Mason............. 56 Director
</TABLE>
- --------
(1) Member of the Nominating Committee of the Board of Directors of the
Company.
(2) Member of the Audit Committee of the Board of Directors of the Company.
Gregory W. Blaine has served as Chairman and Chief Executive Officer and a
Director of the Company since October 1996. Since 1993, Mr. Blaine has served
as Executive Vice President, Global Operating Systems, and a director for True
North. From 1990 to 1993, Mr. Blaine served as Executive Vice President of
True North. Mr. Blaine joined Foote, Cone & Belding, the predecessor of True
North, in 1979. See "--Executive Compensation and Employment Agreements." Mr.
Blaine received a B.A. in marketing from Ohio State University.
Gerald M. O'Connell has served as President and Chief Operating Officer and
a Director of the Company since October 1996. Mr. O'Connell was a Managing
Partner of Modem Media, which he co-founded in 1987. From 1986 to 1987, Mr.
O'Connell was Product Manager of CUC International, a consumer services
company, where he was responsible for Comp-u-mall--an electronic shopping
mall. Mr. O'Connell received a B.A. in English and history from Middlebury
College. Mr. O'Connell is a director for the National Fragile X Foundation.
Robert M. Greenberg has served as President of R/GA Interactive, a business
unit of R/GA Digital Studios, Inc., since R/GA Digital Studios, Inc. was
acquired by True North in July 1995. Mr. Greenberg has served as Director of
the Company since October 1996. Mr. Greenberg is Chairman and Chief Executive
Officer of R/GA Digital Studios, Inc., a digital design production company
which he founded in 1977. Mr. Greenberg received a B.S. in radio and TV
advertising and mass communications from Arizona State University, completed
graduate courses in business management at DePaul University, and in 1996 Mr.
Greenberg received an Honorary Doctor of Fine Arts degree from the University
of the Arts/Philadelphia College of Art and Design. See "--Executive
Compensation and Employment Agreements."
Michael F. Bogacki has served as Executive Vice President, Chief Financial
Officer, Secretary and a Director of the Company since October 1996. Prior to
joining the Company, Mr. Bogacki was Vice President and Controller of Fruit of
the Loom, Inc., a global manufacturer and marketer of consumer soft goods.
During a portion of 1995, Mr. Bogacki also served as Chief Financial Officer
of Fruit of the Loom, Inc.'s European
47
<PAGE>
operations. Mr. Bogacki held various positions at Fruit of the Loom, Inc.
between February 1984 and August 1996 when he joined the Company, and served
as Vice President and Controller for various public and privately held
entities including Farley Inc., a manufacturer and distributor of industrial
products; Acme Boot Company, Inc., a manufacturer and marketer of footwear and
apparel; and Farley Industries, Inc., a management services company, all of
which are affiliated or had common management with Fruit of the Loom, Inc. In
July 1991, an involuntary petition under Chapter 7 of the U.S. Bankruptcy Code
was filed against Farley Inc. which was subsequently converted to a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code in September
1991. A final order was entered in December 1992. In September 1992, West
Point Acquisition Corp. filed a voluntary petition for relief under Chapter 11
of the U.S. Bankruptcy Code for which a final order was entered in December
1992. Mr. Bogacki served as Vice President and Controller of both of these
companies. Mr. Bogacki received a B.S.C. in accounting from DePaul University
and an M.B.A. from the University of Chicago. Mr. Bogacki is a certified
public accountant.
Douglas C. Ahlers has served as President, Relationship Technology Group,
and a Director of the Company since October 1996. Mr. Ahlers was a Managing
Partner and co-founder of Modem Media. From 1983 to 1987, Mr. Ahlers served as
Manager of Product Development of CUC International, a consumer services
company. Mr. Ahlers received a B.A. in sociology and theater from the
University of Rhode Island and an M.J. in journalism and communications from
Louisiana State University.
Robert C. Allen, II has served as President, Modem Media, and a Director of
the Company since October 1996. Mr. Allen has served as a Managing Partner of
Modem Media since 1992. From 1989 to 1992, Mr. Allen was the Director of
Business Development at Modem Media. Mr. Allen received a B.A. in English from
Gettysburg College.
Martin F. Reidy has served as Executive Vice President of True North and
Chief Operating Officer, R/GA Media Group, Inc., and as Executive Vice
President and a Director of the Company since November 1996. From January 1995
to May 1996, Mr. Reidy served as Vice President--Marketing and Business
Development of Silicon Studio, Inc., a subsidiary of Silicon Graphics, Inc., a
leading computer hardware and software company. From 1991 through 1994, Mr.
Reidy served as Senior Vice President of EMI Music, a leading global recorded
music and publishing company. Prior to joining EMI, Mr. Reidy was a partner
with Bain & Company, Inc. Mr. Reidy received a B.S. in finance and marketing
from the University of California at Berkeley and an M.B.A. from Wharton.
David E. Clauson has served as Senior Vice President and Managing Director,
Northern Lights Interactive since September 1996. Mr. Clauson joined Foote,
Cone & Belding in March 1991 as Senior Vice President, General Manager of
Foote, Cone & Belding Technology Group. Mr. Clauson has held several positions
at True North, most recently as General Manager of True North's Technology
Group. Mr. Clauson received a B.A. in American urban history from U.C.L.A.
William H. Fritsch has served as President of Cf2GS, a subsidiary of the
Company, since 1996. Mr. Fritsch founded Cf2GS in 1988 and served as its
Managing Director until 1996. Cf2GS was acquired by True North in 1994. Mr.
Fritsch received a B.A. in accounting from the University of Akron Business
School.
David A. Giersdorf has served as Chief Executive Officer of Cf2GS since
October 1996 and has served as Managing Director of Cf2GS since 1991. Before
joining Cf2GS, Mr. Giersdorf was the Vice President of Windstar Cruises, the
luxury subsidiary of Holland America Line/Carnival Cruises. Mr. Giersdorf
attended the University of Washington.
Mitchell T. Engel has served as a Director of the Company since October
1996. From 1995 to present, Mr. Engel has served as President, Associated
Communications Companies and Corporate Operations of True North. From 1989 to
1995, Mr. Engel served as the Executive Vice President and Managing Director
of True North's Chicago office of Foote, Cone & Belding. Mr. Engel received a
B.S. in communications from Miami University (Ohio) and an M.S.J. in
advertising from Northwestern University.
Bruce Mason has been a Director of the Company since October 1996. Since
1991, Mr. Mason has served as Chairman and Chief Executive Officer of True
North and has been a director of True North since 1986. Mr. Mason received a
B.A. in philosophy from St. John's University and an M.B.A. from the
University of Chicago.
48
<PAGE>
Messrs. Ahlers, Allen and O'Connell were elected to the Board of Directors
of the Company in connection with the Conversion. The Company and True North
have agreed to cause each of Messrs. Ahlers, Allen and O'Connell to be elected
to the Company's Board of Directors, as long as each serves as an executive
officer of the Company and until the collective ownership of the Company's
Class A Common Stock by Messrs. O'Connell, Ahlers and Allen falls below
certain levels, See "Description of Capital Stock--Delaware Anti-takeover Law
and Certain Charter and Bylaw Provisions."
Each officer serves at the discretion of the Company's Board of Directors.
The Company and True North have agreed to cause Mr. O'Connell to succeed Mr.
Blaine as Chief Executive Officer of the Company at such time as Mr. Blaine no
longer serves in such capacity. See "--Executive Compensation and Employment
Agreements." There are no family relationships among any of the directors or
officers of the Company.
The Company's Board of Directors currently has two vacancies, which the
Company's Bylaws authorize the Company's Board of Directors to fill. The
Company intends to appoint two persons who are not officers or employees of
the Company or True North to the Board of Directors within 90 days of the date
of the Prospectus and is required to do so to maintain its listing on the
Nasdaq National Market. In the event the Company does not add such independent
directors within 90 days following the Offering, the Company could be delisted
from the Nasdaq National Market, which could have an adverse effect on the
liquidity and price of the Class A Common Stock. The Company has agreed to
appoint such directors as are mutually agreeable to the Company and Messrs.
Ahlers, Allen and O'Connell.
DIRECTOR COMPENSATION
Effective upon consummation of the Offering, the Company's Directors who are
not also employees of the Company or True North will be paid an annual
retainer of $6,000 and a fee of $1,000 for each meeting of the Company's Board
of Directors or of a committee of the Company's Board of Directors attended.
The Company has recently established the Stock Option Plan which provides for
automatic grants of options to purchase Class A Common Stock to nonemployee
Directors commencing upon consummation of the Offering. See "--Stock Plans--
1997 Stock Option Plan." Directors who are also employees of the Company or
True North will not receive any additional compensation for serving on the
Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has standing Audit and Nominating
Committees, which assist the Board in the discharge of its responsibilities.
Members of each such Committee are elected by the Board and serve for one-year
terms. The Company intends to create a Compensation Committee of the Board of
Directors shortly after the Offering.
The Audit Committee reports to the Board regarding the appointment of the
independent public accountants of the Company, the scope and fees of
prospective annual audits and the results thereof, compliance with the
Company's accounting and financial policies and management's procedures and
policies relative to the adequacy of the Company's internal accounting
controls. The members of the Audit Committee will consist of a minimum of two
outside directors, neither of whom will be an officer or employee of the
Company. In addition, Mr. Bogacki has been appointed to this Committee.
The Compensation Committee will review and approve the annual salary and
bonus for each executive officer (consistent with the terms of any applicable
employment agreement), review, approve and recommend terms and conditions for
all employee benefit plans (and changes thereto) and administer the Company's
Stock Option Plan and Purchase Plan and such other employee benefit plans as
may be adopted by the Company from time to time. The members of the
Compensation Committee will consist of a minimum of two nonemployee directors.
The Nominating Committee reports to the Board regarding nominees for
directors to be presented to the Company's stockholders for election. The
members of the Nominating Committee will consist of a minimum of two non-
employee directors. In addition, Messrs. Blaine, O'Connell and Greenberg have
been appointed to this Committee.
49
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this Offering, decisions regarding salary and bonus of employees
and other employee benefit plans have been made by the Company's Board of
Directors and executive officers. No interlocking relationship exists between
the Company's Board of Directors and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director 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 repurchases or redemptions as provided in Section
174 of the DGCL, or (iv) for any transaction from which the director derived
an improper personal benefit. See "Description of Capital Stock--Limitation of
Liability; Indemnification."
The Company's Bylaws provide that the Company shall indemnify its directors
and officers and may indemnify its employees and agents to the fullest extent
permitted by Delaware law. See "Description of Capital Stock--Limitation of
Liability; Indemnification."
The Company intends to enter into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by or in the right of
the Company, arising out of such person's services as a director or officer of
the Company, any subsidiary of the Company or any other company or enterprise
to which the person provides services at the request of the Company. The
Company believes that these provisions and agreements are necessary to attract
and retain qualified individuals to serve as directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened
litigation or proceeding that might result in a claim for such
indemnification.
EXECUTIVE COMPENSATION AND EMPLOYMENT AGREEMENTS
The Company commenced operations in its current form in December 1996. The
Company has entered into employment agreements with Gregory W. Blaine, its
Chief Executive Officer, and certain executive officers providing for annual
compensation in excess of $100,000 as set forth below.
In addition to his position with the Company, Mr. Blaine currently serves as
Executive Vice President, Global Operating Systems, for True North pursuant to
an employment agreement with True North. In connection with the Combination,
the Company entered into an employment allocation agreement with True North
and Mr. Blaine, pursuant to which Mr. Blaine will devote substantially all of
his time to his employment with the Company. The employment allocation
agreement provides that the Company will pay $250,000 of Mr. Blaine's total
annual salary for services rendered to the Company. In addition, Mr. Blaine is
eligible to receive from the Company (i) an annual cash bonus equal to up to
30% of his salary and (ii) a grant of options to purchase shares of Class A
Common Stock of the Company. Mr. Blaine will also continue to receive a
portion of his salary and other benefits from True North.
In addition to his position with the Company, Mr. Greenberg currently serves
as Chairman and Chief Executive Officer of R/GA Digital Studios, Inc.,
pursuant to an employment agreement with True North entered
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into in connection with the acquisition of R/GA Digital Studios, Inc. by True
North. In connection with the Combination, the Company entered into an
employment allocation agreement with True North and Mr. Greenberg relating to
Mr. Greenberg's employment with the Company. Pursuant to such agreement, Mr.
Greenberg is expected to divide his time between the Company and True North.
The employment allocation agreement provides that the Company will pay
$250,000 of Mr. Greenberg's total annual salary for services rendered to the
Company. In addition, Mr. Greenberg is eligible to receive from the Company
(i) an annual cash bonus equal to up to 30% of his salary and (ii) options to
purchase shares of Class A Common Stock of the Company. Mr. Greenberg will
also continue to receive a portion of his salary and other benefits from True
North.
In addition to his position with the Company, Mr. Reidy currently serves as
Executive Vice President of True North and Chief Operating Officer, R/GA Media
Group, Inc., pursuant to an employment agreement with True North. Prior to the
Offering, the Company intends to enter into an employment allocation agreement
with Mr. Reidy and True North, pursuant to which Mr. Reidy will devote
approximately one-half of his time to his employment with the Company and the
remainder to True North. The employment allocation agreement will provide that
Mr. Reidy's base salary and other compensation and benefits will be paid by
the Company and True North.
The Company has entered into five-year employment agreements with each of
Messrs. O'Connell, Ahlers and Allen providing for an initial annual base
salary of $300,000 each, subject to increases at the discretion of the
Company's Board of Directors. Pursuant to the agreements, if the Company
terminates any executive's employment without cause, the executive is entitled
to receive severance benefits equal to salary plus profit sharing for a period
equal to the lesser of three years after such termination or the initial term
of employment. In addition, each of Messrs. O'Connell, Ahlers and Allen has
agreed to certain confidentiality, noncompetition and nonsolicitation
provisions. In connection with the Combination, the Company and True North
have agreed to cause Mr. O'Connell to succeed Mr. Blaine as Chief Executive
Officer of the Company at such time as Mr. Blaine no longer serves in such
capacity.
The Company did not grant stock options to any executive officer during
1996, and no options were exercised during 1996 or were outstanding as of
December 31, 1996. Concurrently with the consummation of the Offering, the
Company will grant options to purchase 67,000 shares of Class A Common Stock
to each of Messrs. Blaine and Greenberg and options to purchase 10,000 shares
of Class A Common Stock to each of Messrs. O'Connell, Ahlers and Allen, at an
exercise price equal to the initial public offering price. One-fifth of these
options will be vested immediately with an additional one-fifth of such
options to vest annually over four years.
STOCK PLANS
1997 Stock Option Plan
Concurrently with the Offering, the Company intends to establish the 1997
Stock Option Plan (the "Stock Option Plan") to provide additional incentive to
its employees, officers, directors and consultants pursuant to which a total
of shares of Class A Common Stock will be reserved for issuance.
Pursuant to the Stock Option Plan, the Company may grant incentive stock
options, nonstatutory stock options and stock purchase rights to the Company's
employees, officers, directors and consultants. The Company's Board of
Directors, or a committee to whom the Board has delegated authority (the "Plan
Administrator"), selects the Company's employees, officers, directors and
consultants to whom options and stock purchase rights are granted (provided
that incentive stock options may only be granted to employees of the Company,
and, as described below, outside directors receive automatic grants of
options), interprets and adopts rules for the operation of the Stock Option
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<PAGE>
Plan and specifies other terms of such options and stock purchase rights.
Concurrently with the consummation of the Offering, the Company intends to
grant options to purchase shares of Class A Common Stock at the initial
public offering price to certain officers and employees of the Company.
Subject to the terms and conditions of the Stock Option Plan, the terms and
conditions of each individual option grant will be evidenced by an agreement
("Agreement") between the Company and the optionee. Options granted under the
Stock Option Plan (other than to outside directors) vest as determined by the
Plan Administrator and as set forth in an Agreement. The maximum term of a
stock option under the Stock Option Plan will be stated in the relevant
Agreement, provided that the maximum term of an incentive stock option is ten
years (if the optionee at the time of grant has voting power over more than
10% of the Company's capital stock outstanding, the maximum term is five
years). If an optionee terminates his or her service to the Company, the
optionee generally may exercise only those option shares vested as of the date
of termination and, unless otherwise specified in the relevant Agreement, must
effect such exercise within three months of termination of service for any
reason other than death or disability and one year after termination due to
disability or death. The exercise price of incentive stock options granted
under the Stock Option Plan must be at least equal to the fair market value of
the Class A Common Stock of the Company on the date of grant. The exercise
price of stock options granted to an optionee who owns stock possessing more
than 10% of the voting power of the Company's outstanding capital stock must
equal at least 110% of the fair market value of the Class A Common Stock on
the date of grant. Payment of the exercise price may be made in such methods
as determined by the Plan Administrator (which in the case of an incentive
stock option shall be set out in the Agreement) and may include cash, check, a
promissory note or shares of the Company's Class A Common Stock valued at the
fair market value on the date of exercise or certain other methods of payment.
In addition, the Stock Option Plan provides that each Director that is not
also an officer or employee of the Company or True North shall be
automatically granted an option to purchase 4,000 shares of Class A Common
Stock on the later of the effective date of the plan or the date on which such
person first becomes an outside Director. Each nonemployee Director shall also
be automatically granted an option to purchase 2,000 shares on February 1st of
each year provided he or she is then a nonemployee Director and if, as of such
date, he or she shall have served on the Company's Board of Directors for at
least the preceding six months. Options granted to nonemployee Directors vest
ratably over two years, with one-third of the options being vested on the date
of grant, and have a term of ten years. The exercise price of options granted
to nonemployee Directors shall be 100% of the fair market value per share of
Class A Common Stock on the date of grant.
Terms of any stock purchase rights granted under the Stock Option Plan shall
be determined by the Plan Administrator at the time such rights are issued.
Unless the Plan Administrator determines otherwise, the Company shall have a
repurchase option at the original price paid by the purchaser exercisable upon
the voluntary or involuntary termination of the purchaser's service with the
Company.
In the event the Company is acquired or merges into or with another entity
or transfers or otherwise disposes of all or substantially all of its assets,
then each outstanding option and stock purchase right shall automatically vest
and become fully exercisable unless the successor entity assumes such option
or stock purchase right or replaces it with a comparable option or right.
1997 Employee Stock Purchase Plan
Concurrently with the Offering, the Company intends to establish the 1997
Employee Stock Purchase Plan (the "Purchase Plan") under which a maximum of
200,000 shares of Class A Common Stock will be made available for sale. The
Purchase Plan, which is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended, will be administered by the Board of Directors or by a committee
appointed by the Board. Employees are eligible to participate if they are
customarily employed by the Company or a subsidiary of the Company designated
by the Board for at least 20 hours per week and for more than five months in
any calendar year. The Purchase Plan permits eligible employees to purchase
Class A Common Stock through payroll deductions, which may not exceed 15% of
an
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<PAGE>
employee's compensation, subject to certain limitations. The Purchase Plan
will be implemented in a series of consecutive, overlapping offering periods,
each of approximately 24 months in duration. Offering periods will begin on
the first trading day on or after August 1 and February 1 of every other year
and terminate on the last trading day in the period 24 months later. However,
the first offering period shall be the period of approximately 26 months
commencing on the date upon which the registration statement of which this
Prospectus is a part is declared effective by the Securities and Exchange
Commission (the "Commission") and terminating on the last trading day in the
period ending January 31, 1999. Each participant will be granted an option on
the first day of the six-month purchase period and such option will be
automatically exercised on the last date of each offering period. The purchase
price of each share of Class A Common Stock under the Purchase Plan will be
equal to 85% of the lesser of the fair market value per share of Class A
Common Stock on the start date of that offering period or on the date of
purchase. Employees may modify or end their participation in the offering at
any time during the offering period subject to the Purchase Plan's procedures
and the Board's discretion to enact changes; participation ends automatically
on termination of employment with the Company. The Purchase Plan will
terminate in 2006 unless sooner terminated by the Company's Board of
Directors.
401(k) Profit Sharing Plan
The Company plans to adopt a 401(k) Profit Sharing Plan effective January 1,
1997.
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<PAGE>
RELATIONSHIP WITH TRUE NORTH AND CERTAIN TRANSACTIONS
RELATIONSHIP WITH TRUE NORTH
In December 1996, True North acquired approximately 49% of the limited
partnership interests in Modem Media from Gerald M. O'Connell, Douglas C.
Ahlers, Robert C. Allen, II and Kraft Enterprises LTD (the "Limited Partners")
and shares of capital stock of Modem Media, Inc., the general partner of Modem
Media, in exchange for $25.0 million of common stock of True North, plus an
additional $4.0 million of common stock of True North and $16.0 million cash
payable upon consummation of the Offering as additional consideration.
Following the acquisition and in connection with the Conversion, True North
converted all of its interests in Modem Media into 2,802,114 shares of Class A
Common Stock of the Company. In addition, the Limited Partners and the other
stockholders of Modem Media, Inc. (Messrs. O'Connell and Ahlers) converted all
of their partnership interests in Modem Media and all of their shares of
capital stock of Modem Media, Inc. into an aggregate of 2,542,785 shares of
Class A Common Stock of the Company. Following the Conversion, True North sold
to the Company the True North Units, which included substantially all of the
assets and properties of Northern Lights Interactive, R/GA Interactive and
Cf2GS, as well as True North's technology development operations, in exchange
for (i) the issuance to True North of 2,291,686 shares of Class B Common Stock
of the Company and (ii) the assumption by the Company of certain liabilities,
including purchase orders payable, liabilities in connection with the
acquisition of Cf2GS, liabilities relating to certain potential unasserted
intellectual property claims, intercompany liabilities, including those
relating to the transfer of employees to the Company, real and personal
property leases, future goods and services to be covered by certain
intercompany agreements, and goods and services relating to the transferred
business arising in the ordinary course of business, taxes and obligations of
True North relating to the True North Units. In connection with the
Combination, True North also exchanged all of its shares of Class A Common
Stock for an equal number of shares of Class B Common Stock of the Company.
Subsequent to the Conversion and the Combination, True North owned Class B
Common Stock of the Company representing approximately 63.7% of the Company's
Common Stock outstanding (approximately 89.8% of the total voting power), and
the Limited Partners and former stockholders of Modem Media, Inc. owned
approximately 36.3% of the Company's Common Stock outstanding.
Upon completion of the Offering, True North will own approximately % of
the Common Stock outstanding ( % if the Underwriters' over-allotment option
is exercised in full), representing % ( % if the Underwriter's over-
allotment option is exercised in full) of the total voting power of the
Company's voting stock. As long as True North controls a majority of the
voting power of the voting stock of the Company, it will be able, acting
alone, to (i) elect at least a majority of the Board of Directors of the
Company, (ii) amend the Company's Certificate of Incorporation or effect a
merger, sale of assets or other major corporate transaction, (iii) defeat any
non-negotiated takeover attempt, (iv) determine the amount and timing of
dividends paid to itself and holders of Class A Common Stock and (v) otherwise
control the management and operations of the Company and the outcome of
virtually all matters submitted for a stockholder vote.
Currently, five of the nine directors of the Company (Messrs. Mason, Engel,
Greenberg, Blaine and Reidy) are also members of management of True North and
are compensated by True North in connection with their employment by True
North. In addition, six of the current directors of the Company were selected
by True North. These directors may have conflicts of interest in addressing
certain business opportunities and strategies in circumstances where the
Company's and True North's interests differ. The Company has not adopted any
formal plan or arrangement to address such potential conflicts of interest.
REORGANIZATION AGREEMENT
The Conversion was effected pursuant to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement"). The Reorganization Agreement provides for True North, the Limited
Partners and the stockholders of Modem Media, Inc. to contribute their
partnership interests in Modem Media and shares of capital stock of Modem
Media, Inc., the general partner of Modem Media, to the Company in exchange
for shares of the Company's Class A Common Stock. The purpose of the
Conversion was to change the form of Modem Media from a partnership to a
corporation.
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In connection with the Conversion, the Company and True North have agreed to
cause each of Messrs. Ahlers, Allen and O'Connell, as long as each serves as
an executive officer of the Company and continues to maintain specific
ownership percentages of the Company, to be elected to the Company's Board of
Directors. The Company and True North have also agreed to cause Mr. O'Connell
to succeed Mr. Blaine as Chief Executive Officer of the Company at such time
as Mr. Blaine no longer serves in such capacity. See "Management--Executive
Officers, Directors and Key Employees" and "Description of Capital Stock--
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions."
The Limited Partners made certain representations and warranties to the
Company and True North relating to the business conducted by Modem Media prior
to the Conversion. Each party to the Reorganization Agreement has agreed to
indemnify the other parties for any breach by such party of any
representation, warranty or covenant contained in such agreement.
ACQUISITION AGREEMENT
The Amended and Restated Acquisition Agreement, dated as of December 31,
1996 (the "Acquisition Agreement"), sets forth the agreement between the
Company and True North with respect to the Combination and certain other
agreements governing the relationship among the parties following the
Combination.
Pursuant to the Acquisition Agreement, True North and certain of its
subsidiaries transferred to the Company the True North Units, which included
Cf2GS, R/GA Interactive, Northern Lights Interactive and True North's
technology development operations. The Company has assumed or agreed to assume
certain liabilities relating to such businesses. Except as expressly set forth
in the Acquisition Agreement, True North made no representations or warranties
to the Company (i) as to the value or freedom from encumbrances of, or any
other matter concerning, any of the assets of the True North Units or (ii) as
to the legal sufficiency of the attempt to convey title to any of the assets
of the True North Units, or of the execution, delivery and filing of any
conveyancing and assumption instruments. All of the assets of the True North
Units were transferred on an "as is," "where is" basis, and the Company has
agreed to bear the economic and legal risks that the conveyance of such assets
is insufficient or that the Company's title to any such assets shall be other
than good and marketable and free from encumbrances.
The Company has agreed to indemnify, defend and hold harmless True North,
and each of its directors, officers and employees, from and against all
liabilities relating to, arising out of or due to, directly or indirectly, (i)
any breach by the Company of any representations or warranties made by the
Company in the Acquisition Agreement, (ii) any of the liabilities assumed by
the Company, (iii) any claim that the information included in this Prospectus
or the registration statement of which this Prospectus is a part (other than
information provided by True North) is false and misleading with respect to
any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or (iv) any failure
to perform or violation of any provision of the Acquisition Agreement.
True North has agreed to indemnify, defend and hold harmless the Company and
each of its directors, officers and employees from and against all liabilities
relating to, arising out of or due to, directly or indirectly, (i) any breach
by True North of any representations or warranties made by True North in the
Acquisition Agreement, (ii) any of the liabilities retained by True North,
(iii) any claim that the information included in this Prospectus or the
registration statement of which this Prospectus is a part which has been
provided specifically by True North for the purpose of inclusion in this
Prospectus and the registration statement is false and misleading with respect
to any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iv) any
failure to perform or violation of any provision of the Acquisition Agreement.
The Acquisition Agreement provides that for a period of three years after
the Combination, True North will not compete with the Company with respect to
advertising services delivered through the Internet or corporate intranets and
digital communications services dedicated to marketing purposes, provided that
(i) True North may
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acquire another business with certain limited interactive marketing operations
and (ii) True North may acquire another business that engages in a significant
amount of interactive marketing operations if less than one-half of
such business' operations are interactive marketing operations and True North
has offered the Company a reasonable opportunity to purchase the interactive
marketing operations of such business on terms and conditions that are
consistent with the agreement to purchase such business by True North and at a
purchase price that reasonably reflects the relative value of such business.
INTERCOMPANY AGREEMENTS
In the normal course of business, the Company and True North have from time-
to-time entered into various business transactions and agreements, and the
Company and True North may enter into additional transactions in the future.
The following is a summary of each of the material agreements that the Company
and True North have entered into in connection with the Combination. Such
summaries are qualified in their entirety by those agreements which are filed
as exhibits to the registration statement of which this Prospectus is a part.
Administrative Services Agreement. Under the Administrative Services
Agreement, True North will provide various administrative functions and other
services to the Company, including accounting, internal audit, tax
preparation, consulting, studio use, employee benefits and administration,
insurance, travel services, office supplies and equipment rental, media
services, payroll, and voice and data network access. During the period that
True North performs administrative functions for the Company, expenses
associated with such functions will be charged to the Company based primarily
on either an allocation of salaries and overhead for time expended by True
North personnel on Company matters or a ratio of the salaries of Company
employees serviced by True North to the total salaries of all True North and
Company employees serviced by True North plus out-of-pocket expenses, and in
certain circumstances hourly rates or the increased costs to True North for
providing the service. The Administrative Services Agreement also provides
that the Company will pay to True North a referral fee equal to 1.5% of
revenues received by the Company from projects for which True North or its
affiliates referred the clients to the Company. The Company may terminate this
agreement at any time upon 90 days' prior written notice, and True North may
terminate the agreement 12 months following the Combination, but must give 180
days' prior written notice of such intent to terminate. The referral fee is
also reciprocal with True North, providing for payments from True North upon
the same terms and conditions upon the performance of work completed, based
upon referrals from the Company.
Intercompany Credit Agreement. The Intercompany Credit Agreement provides
that True North will make available a $5.0 million working capital credit
facility to the Company at an interest rate equal to LIBOR plus 75 basis
points. The credit facility will terminate the earlier of one year from the
date of the Combination or 90 days after receipt by the Company of notice from
True North that True North no longer owns 50% of the voting power of the
Company and is demanding payment of any amounts owed under the credit
facility. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Intellectual Property Agreement. The Intellectual Property Agreement
provides for the licensing of certain intellectual property from the Company
to True North. Specifically, the Company will license its corporate intranet
product to True North for use by True North and certain clients of True North.
All licenses are non-exclusive and non-transferrable. The True North intranet
license has a five-year initial term and can be renewed annually thereafter.
The True North intranet license cannot be sublicensed. Payments by True North
for the True North intranet are based on associated research and development
expenditures.
Maintenance and Enhancement Agreement. The Maintenance and Enhancement
Agreement provides that the Company will furnish installation, technical
support and enhancement services to True North for the software licensed under
the Intellectual Property Agreement. The Maintenance and Enhancement Agreement
has a one-year initial term, and can be renewed annually thereafter. Payments
by True North consist of a fixed annual fee, which may be adjusted in mid-1997
based on Company's costs of providing the maintenance and enhancement
services.
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Space Sharing Agreements. The Company has entered into various Space Sharing
Agreements with True North and certain of its subsidiaries pursuant to which
the Company will lease office space in Chicago, New York, San Francisco, Los
Angeles, Toronto and Hong Kong. The rent per square foot under each space
sharing agreement is based on the average monthly rent per square foot and
other related costs under the underlying lease. Either party may terminate any
of such agreements upon six months' written notice beginning June 30, 1996.
The Company also has the right to terminate the Space Sharing Agreement
covering the San Francisco office at any time upon one-month's notice. The
Company will also, pursuant to an assignment of lease with a subsidiary of
True North, lease office space in London.
Tax Matters Agreement. Pursuant to the Tax Matters Agreement, True North
will indemnify the Company for tax liabilities attributable to periods ending
on or prior to the date of the Combination, including costs associated with
audits. It is expected that the Company will be part of True North's unitary
group for certain states' income taxes. Accordingly, in years when the Company
has taxable income, a pro forma calculation will be made of each state income
tax that the Company would have owed had it not been a member of the True
North unitary group, and the Company will pay such amount to True North. In
years in which the Company has a taxable loss or a tax credit, a pro forma
calculation of each state income tax benefit which is realized by the True
North unitary group as a result of the Company's taxable loss or tax credit
will be made, and True North will pay the Company such amount.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested directors of the Board, and
will be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 1, 1997, and
as adjusted to reflect the sale of shares of Class A Common Stock by the
Company and the Selling Stockholders offered hereby, by (i) each person or
entity who is known by the Company to beneficially own five percent or more of
the outstanding shares of either class of Common Stock of the Company, (ii)
each Director, (iii) each executive officer and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
CLASS B
CLASS A COMMON STOCK COMMON STOCK COMMON STOCK
------------------------------ ------------ -----------------
PERCENT OF PERCENT OF TOTAL
OWNERSHIP VOTING POWER (2)
SHARES ----------------- SHARES -----------------
BENEFICIALLY BEFORE AFTER BENEFICIALLY BEFORE AFTER
NAME OWNED (1) OFFERING OFFERING OWNED (1) OFFERING OFFERING
- ---- ------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
True North -- % % 5,093,800 % %
Communications Inc.....
101 East Erie Street
Chicago, Illinois 60611
Gregory W. Blaine (3)... 13,400 --
Gerald M. O'Connell
(4)(5)................. 1,113,551 --
Michael F. Bogacki (3).. 12,800 --
Robert M. Greenberg (3). 13,400 --
Douglas C. Ahlers
(4)(5)................. 1,113,552 --
Robert C. Allen, II
(4)(5)................. 292,620 --
Martin F. Reidy (3)..... 12,800 --
Mitchell T. Engel....... -- --
Bruce Mason............. -- --
All directors and
executive officers
as a group (9 persons)
(6).................... 2,601,185 --
</TABLE>
- --------
*Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Class A
Common Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 1, 1997 are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Represents shares of Class A Common Stock subject to options which are
exercisable as of the date of this Prospectus.
(4) The address of each of Messrs. O'Connell, Ahlers and Allen is c/o TN
Technologies Inc., 228 Saugatuck Avenue, Westport, Connecticut 06880.
(5) Includes 2,000 shares of Class A Common Stock subject to options, which
are exercisable as of the date of this Prospectus.
(6) Includes an aggregate of 58,400 shares of Class A Common Stock subject to
options held by directors and executive officers of the Company, which are
exercisable as of the date of this Prospectus.
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DESCRIPTION OF CAPITAL STOCK
Pursuant to the Company's Certificate of Incorporation, the Company has
authority to issue an aggregate of 50,000,000 shares of capital stock,
consisting of 39,906,200 shares of Class A Common Stock, par value $0.001 per
share, 5,093,800 shares of Class B Common Stock, par value $0.001 per share,
and 5,000,000 shares of Preferred Stock, par value $0.001 per share.
Set forth below is a description of the Common Stock and the Preferred Stock
that may be issued under the Company's Certificate of Incorporation.
COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical in
all respects, except for voting rights and certain conversion rights, as
described below.
Voting Rights. Each share of Class A Common Stock outstanding is entitled to
one vote on all matters submitted to a vote of the Company's stockholders,
including the election of directors, and each share of Class B Common Stock
entitles the holder to five votes on each such matter. Except as required by
applicable law, holders of the Class A Common Stock and Class B Common Stock
vote together as a single class on all matters submitted to a vote of the
stockholders of the Company. There is no cumulative voting in the election of
directors. See "Risk Factors--Control of the Company; Anti-Takeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law."
For so long as there are any shares of Class B Common Stock outstanding, any
action that may be taken at a meeting of the stockholders may be taken by
written consent in lieu of a meeting if the Company receives consents signed
by stockholders having the minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present and voted. This could permit the holders of Class B Common
Stock to take action regarding certain matters without providing other
stockholders the opportunity to voice dissenting views or raise other matters.
The right to take such action by written consent of stockholders will expire
at such time as all outstanding shares of Class B Common Stock cease to be
outstanding.
Dividends, Distributions and Stock Splits. Holders of Class A Common Stock
and Class B Common Stock are entitled to receive dividends at the same rate
as, if, and when such dividends are declared by the Company's Board of
Directors out of assets legally available therefor after payment of dividends
required to be paid on shares of Preferred Stock, if any.
In the case of dividends or distributions payable in Class A Common Stock or
Class B Common Stock, only shares of Class A Common Stock will be distributed
with respect to the Class A Common Stock and only shares of Class B Common
Stock will be distributed with respect to the Class B Common Stock. In the
case of dividends or other distributions consisting of other voting shares of
the Company, the Company will declare and pay such dividends in two separate
classes of such voting securities, identical in all respects, except that the
voting rights of each such security paid to the holders of the Class A Common
Stock shall be one-fifth of the voting rights of each such security paid to
the holders of Class B Common Stock. In the case of dividends or other
distributions consisting of non-voting securities convertible into, or
exchangeable for, voting securities of the Company, the Company will provide
that such convertible or exchangeable securities and the underlying securities
be identical in all respects, except that the voting rights of each security
underlying the convertible or exchangeable security paid to the holders of the
Class A Common Stock shall be one-fifth of the voting rights of each security
underlying the convertible or exchangeable security paid to the holders of
Class B Common Stock, and such underlying securities paid to the holders of
Class B Common Stock shall convert into the security paid to the holders of
the Class A Common Stock upon the same terms and conditions applicable to the
conversion of Class B Common Stock into Class A Common Stock.
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Neither the Class A Common Stock nor the Class B Common Stock may be
subdivided or combined in any manner unless the other class is subdivided or
combined in the same proportion.
Conversion. The shares of Class A Common Stock are not convertible.
The Class B Common Stock is convertible into Class A Common Stock, in whole
or in part, at any time and from time to time at the option of the holder, on
the basis of 1.015 shares of Class A Common Stock for each share of Class B
Common Stock converted. Each share of Class B Common Stock will also
automatically convert into 1.015 shares of Class A Common Stock upon the sale
or transfer of such share of Class B Common Stock to any person other than a
nominee of such holder (without a change in beneficial ownership) or any
parent corporation or wholly-owned subsidiary of such holder. The holders of
Class B Common Stock shall have, upon conversion of their shares of Class B
Common Stock into shares of Class A Common Stock, one vote per share of Class
A Common Stock held on all matters submitted to a vote of the Company's
stockholders.
Liquidation. In the event of any dissolution, liquidation, or winding up of
the affairs of the Company, whether voluntary or involuntary, after payment of
the debts and other liabilities of the Company and making provision for the
holders of Preferred Stock, if any, the remaining assets of the Company will
be distributed ratably among the holders of the Class A Common Stock and the
Class B Common Stock, treated as a single class.
Mergers and Other Business Combinations. Upon a merger, combination, or
other similar transaction of the Company in which shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, holders of the Class A Common Stock and Class B Common Stock will be
entitled to receive an equal per share amount (assuming conversion of the
Class B Common Stock into Class A Common Stock on the basis set forth above)
of stock, securities, cash, and/or any other property, as the case may be,
into which or for which each share of any other class of Common Stock is
exchanged or changed; provided that in any transaction in which shares of
capital stock are distributed, such shares so exchanged for or changed into
may differ as to voting rights and certain conversion rights to the extent and
only to the extent that the voting rights and certain conversion rights of
Class A Common Stock and Class B Common Stock differ at that time.
Other Provisions. The holders of the Class A Common Stock and Class B Common
Stock are not entitled to preemptive rights. There are no redemption
provisions or sinking fund provisions applicable to the Class A Common Stock
or the Class B Common Stock.
All shares of Class A Common Stock and Class B Common Stock outstanding are
fully paid and nonassessable, and all the shares of Class A Common Stock and
Class B Common Stock to be outstanding upon completion of this Offering will
be fully paid and nonassessable.
PREFERRED STOCK
Upon consummation of the Offering, 5,000,000 shares of undesignated
Preferred Stock will be authorized, and no shares will be outstanding. The
Company's Board of Directors has the authority to issue Preferred Stock in one
or more series and to establish the rights, preferences, privileges and
restrictions granted to or imposed on any unissued shares of Preferred Stock
and to fix the number of shares constituting any series and the designations
of such series, without any further vote or action by the stockholders. The
Company's Board of Directors will have authority, without approval of the
stockholders, to issue Preferred Stock that has voting and conversion rights
superior to the Common Stock which may affect the voting power of the holders
of Class A Common Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company. The Company currently has no
plans to issue any shares of Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is subject to the provisions of Section 203 of the DGCL, an
anti-takeover 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. A "business
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combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. For purposes of Section 203, an
"interested stockholder" is defined to include any person that is (i) the
owner of 15% or more of the voting stock outstanding of the corporation, (ii)
an affiliate or associate of that corporation and was the owner of 15% or more
of the voting stock outstanding of the corporation, at any time within three
years immediately prior to the relevant date, and (iii) an affiliate or
associate of the persons described in the foregoing clauses (i) or (ii). Under
certain circumstances, Section 203 of the DGCL makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by
adopting an amendment to the corporation's certificate of incorporation or
bylaws, elect for the corporation not to be governed by Section 203, effective
12 months after adoption. Neither the Company's Certificate of Incorporation
nor the Bylaws exempt the Company from the restrictions imposed under Section
203 of the DGCL. It is anticipated that the provisions of Section 203 of the
DGCL may encourage companies interested in acquiring the Company to negotiate
in advance with the Board of Directors of the Company because the stockholder
approval requirement would be avoided if a majority of the directors then in
office approve either the business combination or the transaction that results
in the stockholder becoming an interested stockholder.
Annual meetings of stockholders shall be held to elect the Board of
Directors of the Company and transact such other business as may be properly
brought before the meeting. Special meetings of stockholders may be called by
the Chairman, Chief Executive Officer or a majority of the Board of Directors
of the Company. The stockholders may act by written consent in lieu of a
meeting of stockholders until such time as all shares of Class B Common Stock
cease to be outstanding.
The Certificate of Incorporation may be amended with the approval of a
majority of the Board of Directors of the Company and the holders of a
majority of the Company's voting securities outstanding.
The number of Directors which shall constitute the whole Board of Directors
of the Company shall be fixed by resolution of the Board of Directors of the
Company. The size of the initial Board is fixed at eleven members. The
Directors shall be elected at the annual meeting of the stockholders, except
for filling vacancies. Directors may be removed with the approval of the
holders of a majority of the Company's voting power present and entitled to
vote at a meeting of stockholders. Vacancies and newly created directorships
on the Board of Directors of the Company resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in
office, although less than a quorum, a sole remaining Director, or the holders
of a majority of the voting power present and entitled to vote at a meeting of
stockholders. In connection with the Conversion, the Company and True North
have agreed to cause the election of the following individuals to the Board of
Directors of the Company, subject to certain conditions: (i) each of the
Limited Partners so long as they collectively own at least 61% of the
aggregate amount of Class A Common Stock received pursuant to the Conversion;
(ii) Mr. O'Connell and either Mr. Ahlers or Mr. Allen, so long as the Limited
Partners collectively own at least 45% of the aggregate amount of the Class A
Common Stock received pursuant to the Conversion; and (iii) Mr. O'Connell, so
long as the Limited Partners collectively own at least 30% of the aggregate
amount of Class A Common Stock received pursuant to the Conversion.
The presence, in person or by proxy, of the holders of a majority of the
votes entitled to be cast by the stockholders entitled to vote generally shall
constitute a quorum for stockholder action at any meeting.
LIMITATION OF LIABILITY; INDEMNIFICATION
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. These
provisions eliminate a Director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, including (i) for any breach of the
Director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director derives an improper personal benefit.
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-
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monetary relief, such as an injunction or rescission, in the event of a breach
of a Director's fiduciary duty. These provisions will not alter a Director's
liability under federal securities laws. The Company's Bylaws also contains
provisions indemnifying the Directors and officers of the Company to the
fullest extent permitted by DGCL. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors and officers. See "Management--Limitation of Liability and
Indemnification Matters."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is First
Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Class A
Common Stock of the Company. Sales of substantial numbers of shares of Common
Stock into the public market after the Offering, or the perception that such
sales could occur, could materially and adversely affect the market price of
the Class A Common Stock prevailing from time to time or could impair the
Company's future ability to obtain capital through an offering of equity
securities. The Company cannot predict the effect, if any, that sales of
shares of Common Stock, or the availability of such shares for future sales,
will have on future market prices of the Common Stock. Such sales also may
make it more difficult for the Company to sell equity securities or equity-
related securities in the future at the time and price it deems appropriate.
Upon completion of the Offering, the Company will have an aggregate of
shares of Class A Common Stock outstanding ( if the
Underwriters over-allotment option is exercised in full) and 5,093,800 shares
of Class B Common Stock outstanding. Of these shares, only the
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act
("Affiliates"). The remaining shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act ("Restricted Shares"). Restricted Shares may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below. As a result of the
contractual restrictions described below and the provisions of Rules 144,
144(k) and 701, no shares of Common Stock will be available for sale in the
public market prior to expiration of the lock-up agreements 180 days after the
date of this Prospectus.
All Directors, officers and existing stockholders of the Company have agreed
that they will not (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 shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (provided
that such shares or any securities are either now owned by the undersigned or
are hereafter acquired prior to or in connection with the Offering), or (ii)
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of such shares of
Common Stock, whether any such 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 other than (x) as a bona fide gift or gifts; provided the
donee or donees thereof agree to be bound by the lock-up agreement or (y) a
transfer to employees of Modem Media made in connection with the Combination
provided such transferees thereof agree to be bound by the lock-up, for a
period ending 180 days after the date of this Prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co.
Incorporated currently has no plans to release any portion of the securities
subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least two years (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any
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three-month period a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding (which
will equal approximately shares immediately after this offering) or
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to
the availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an Affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least three years (including the holding
period of any prior owner except an Affiliate), is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. In general, under Rule 701 of the
Securities Act as currently in effect, any employee, consultant or advisor of
the Company who purchased shares from the Company in connection with a
compensatory stock or option plan or other written agreement is eligible to
resell such shares 90 days after the effective date of the Offering in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
The Commission has recently proposed reducing the initial Rule 144 holding
period to one year and the Rule 144(k) holding period to two years. There can
be no assurance as to when or whether such rule changes will be enacted. If
enacted, such modifications will have a material effect on the times when
shares of the Company's Common Stock become eligible for resale.
The Company intends to file a registration statement approximately 90 days
after the Offering to register the shares of Class A Common Stock reserved
for issuance under the Company's Stock Option Plan and the Company's Purchase
Plan and the shares of Class A Common Stock issuable upon the exercise of
options granted to certain employees of Modem Media in connection with the
Conversion. Based on the number of shares reserved for issuance as of the date
of this Prospectus under such plan, such registration statement would cover
approximately shares. See "Management--Stock Plans." Accordingly,
shares registered under such registration statement will be available for sale
in the open market, unless such shares are subject to vesting restrictions
with the Company or the lock-up agreements described above. As of the date of
this Prospectus, no options were outstanding under the Company's Stock Option
Plan. Concurrently with the consummation of the Offering, the Company intends
to grant options to purchase an aggregate of shares of Class A Common
Stock pursuant to the Stock Option Plan to certain Directors, officers and
employees of the Company at an exercise price equal to the initial public
offering price, of which will be vested immediately. See "Management--
Stock Plans."
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UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Robertson, Stephens &
Company LLC are serving as representatives for the Underwriters (the
"Representatives"), have severally agreed to purchase, and the Company agreed
to sell to them severally, the respective number of shares of Class A Common
Stock set forth opposite the name of each Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Donaldson, Lufkin & Jenrette Securities Corporation................
Robertson, Stephens & Company LLC..................................
---------
Total........................................................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Class A Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Class A Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are taken.
The Underwriters initially propose to offer part of the shares of Class A
Common Stock directly to the public at the price to public set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ per share under the price to public. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Class A Common Stock, the offering
price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to additional shares of Class A Common Stock at the price to
public set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose
of covering over-allotments, if any, incurred in the sale of the shares of
Class A Common Stock offered hereby. To the extent that such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares to be purchased and offered by such Underwriter
in the above table bears to the total number of shares to be purchased by the
Underwriters.
Application has been made to list the Class A Common Stock for quotation on
the Nasdaq National Market under the symbol "TNTI."
The Company and its Directors and officers, and all stockholders of the
Company, have agreed that they will not (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
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indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (provided that such shares or any
securities are either now owned by the undersigned or are hereafter acquired
prior to or in connection with the Offering), or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of such shares of Common Stock, whether any
such 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 other
than (w) as a bona fide gift or gifts, provided the donee or donees thereof
agree to be bound by the lock-up agreement, (x) a transfer to employees of
Modem Media made in connection with the Combination provided such transferees
thereof agree to be bound by the lock-up, (y) the sale to the Underwriters of
any shares of Class A Common Stock pursuant to the Underwriting Agreement or
(z) the grant of options or issuance of stock upon the exercise of outstanding
stock options pursuant to the Company's stock option plans, for a period
ending 180 days after the date of this Prospectus, without the prior written
consent of Morgan Stanley & Co. Incorporated. See "Shares Eligible for Future
Sale."
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company, True North and the Underwriters have agreed to indemnify each
other against certain liabilities, including liabilities under the Securities
Act.
From time to time Morgan Stanley & Co. Incorporated has provided, and
continues to provide, investment banking services to the Company and True
North. In connection with the Conversion and Combination, Morgan Stanley & Co.
Incorporated has performed certain financial advisory services, including the
issuance of a fairness opinion, to True North, and has received aggregate fees
from True North during the past year of approximately $1.3 million in
connection with all such services.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock. Consequently, the initial public offering price will be
determined by negotiation between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the future prospects of the Company and its industry in general,
sales, earnings and certain other financial and operating information of the
Company in recent periods, and the price-earnings ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. There can be no
assurance that a regular trading market for the shares of Class A Common Stock
will develop after this offering or, if developed, that a public trading
market can be sustained. There can be no assurance that the prices at which
the Class A Common Stock will sell in the public market after the Offering
will not be lower than the price at which it is issued by the Underwriters in
the Offering.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Class A Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with the Offering will
be passed upon for the Underwriters by Katten Muchin & Zavis, Chicago,
Illinois.
EXPERTS
The audited combined financial statements of the True North Units as of
December 31, 1994 and 1995 and September 30, 1996, and for the years ended
December 31, 1994 and 1995 and the nine months ended September 30, 1996,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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The audited financial statements of Modem Media Advertising Limited
Partnership as of December 31, 1994 and 1995 and September 30, 1996, and for
each of the three years in the period ended December 31, 1995 and for the nine
months ended September 30, 1996, included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
The audited financial statements of R/GA Interactive, Inc. as of December
31, 1993 and 1994 and June 30, 1995 and for the period from inception through
December 31, 1993, the year ended December 31, 1994 and the six months ended
June 30, 1995 included in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The audited financial statements of Christiansen, Fritsch, Giersdorf, Grant
& Sperry, Inc. as of December 31, 1993 and March 31, 1994 and for the year
ended December 31, 1993 and the three months ended March 31, 1994 included in
this Prospectus and elsewhere in the Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to
the shares of Class A Common Stock offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Class A Common Stock offered hereby, reference
is made to the Registration Statement and the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's regional offices located at the Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment
of the fees prescribed by the Commission. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRUE NORTH UNITS
Report of Independent Public Accountants................................ F-3
Combined Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996............................................................... F-4
Combined Statements of Income (Loss) and Retained Earnings (Deficit) for
the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1995 (unaudited) and 1996................................ F-5
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1995 and the nine months ended September 30, 1995 (unaudited) and
1996................................................................... F-6
Notes to Combined Financial Statements.................................. F-7
</TABLE>
<TABLE>
<S> <C>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
Report of Independent Public Accountants................................ F-13
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996.. F-14
Statements of Income for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1995 (unaudited) and 1996. F-15
Statements of Partners' Capital for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1996............. F-16
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the nine months ended September 30, 1995 (unaudited) and 1996. F-17
Notes to Financial Statements........................................... F-18
R/GA INTERACTIVE, INC.
Report of Independent Public Accountants................................ F-22
Balance Sheets as of December 31, 1993, December 31, 1994, and June 30,
1995................................................................... F-23
Statements of Operations and Retained Deficit for the Period from
Inception through December 31, 1993, the year ended December 31, 1994
and the six months ended June 30, 1995................................. F-24
Statements of Cash Flows for the Period from Inception through December
31, 1993, the year ended December 31, 1994 and the six months ended
June 30, 1995.......................................................... F-25
Notes to Financial Statements........................................... F-26
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
Report of Independent Public Accountants................................ F-29
Balance Sheets as of December 31, 1993 and March 31, 1994............... F-30
Statements of Loss and Retained Deficit for the year ended December 31,
1993 and the three months ended March 31, 1994......................... F-31
Statements of Cash Flows for the year ended December 31, 1993 and the
three months ended March 31, 1994...................................... F-32
Notes to Financial Statements........................................... F-33
</TABLE>
F-1
<PAGE>
TRUE NORTH UNITS
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
TOGETHER WITH AUDITOR'S REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
True North Communications Inc.:
We have audited the accompanying combined balance sheets of the True North
Units, consisting of the businesses described in Note 1 to the combined
financial statements, as of December 31, 1994 and 1995 and September 30, 1996,
and the related combined statements of income (loss) and retained earnings
(deficit) and cash flows for the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1996. These financial statements are the
responsibility of the management of True North Communications Inc. 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 audits 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 combined statements referred to above present fairly, in
all material respects, the financial position of the True North Units as of
December 31, 1994 and 1995 and September 30, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 15, 1996
(except for the matters discussed
in Notes 10 and 11, to which the
date is December 31, 1996)
F-3
<PAGE>
TRUE NORTH UNITS
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
----------------------- 30,
ASSETS 1994 1995 1996
------ ---------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ 236,141 $ 446,229 $ 3,661
Accounts Receivable, net of reserve for
doubtful accounts of $87,710 in 1994,
$102,998 in 1995 and $202,873 in 1996. 2,399,412 4,540,255 5,153,789
Accounts Receivable from Related Party. -- 79,403 667,978
Accrued Revenues....................... 113,511 566,477 2,448,258
Unbilled Charges....................... -- 205,069 718,315
Income Taxes Receivable................ 111,914 1,173,573 1,052,550
Prepaid Income Taxes................... -- -- 168,118
Prepaid Expenses and Other Current
Assets................................ 8,478 61,424 178,929
---------- ----------- -----------
Total Current Assets................. 2,869,456 7,072,430 10,391,598
---------- ----------- -----------
PROPERTY AND EQUIPMENT:
Computers and Software................. 201,534 3,740,679 5,093,544
Leasehold Improvements, Furniture and
Other................................. 140,501 250,846 377,474
---------- ----------- -----------
Total Property and Equipment......... 342,035 3,991,525 5,471,018
Less: Accumulated Depreciation and
Amortization.......................... (25,680) (465,043) (873,367)
---------- ----------- -----------
Total Property and Equipment, net.... 316,355 3,526,482 4,597,651
---------- ----------- -----------
GOODWILL, net of accumulated amortization
of $16,301 in 1994, $136,737 in 1995 and
$333,731 in 1996........................ 723,733 3,792,391 6,545,598
---------- ----------- -----------
OTHER ASSETS............................. 2,384 2,384 2,384
---------- ----------- -----------
Total Assets......................... $3,911,928 $14,393,687 $21,537,231
========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable....................... $ 310,861 $ 891,557 $ 1,822,370
Earnout Payable........................ 54,118 1,143,626 983,400
Advance Billings....................... 1,721,281 2,419,649 3,038,192
Income Taxes Payable................... 181,932 -- --
Accrued Compensation................... 84,276 307,641 410,090
Other Current Liabilities.............. 21,133 265,763 291,274
---------- ----------- -----------
Total Current Liabilities............ 2,373,601 5,028,236 6,545,326
---------- ----------- -----------
DEFERRED TAX LIABILITY................... -- 250,808 642,589
---------- ----------- -----------
NONCURRENT EARNOUT PAYABLE............... -- -- 1,966,800
---------- ----------- -----------
INTERCOMPANY LOANS PAYABLE............... 1,120,286 9,798,261 14,074,190
---------- ----------- -----------
STOCKHOLDER'S EQUITY
Common Stock, authorized, issued and
outstanding 6,250 shares for
Christiansen, Fritsch, Giersdorf,
Grant & Sperry, Inc. in 1994, 1995 and
1996.................................. 162,000 162,000 162,000
Retained Earnings (Deficit)............ 256,041 (845,618) (1,853,674)
---------- ----------- -----------
Total Stockholder's Equity........... 418,041 (683,618) (1,691,674)
---------- ----------- -----------
Total Liabilities and Stockholder's
Equity.............................. $3,911,928 $14,393,687 $21,537,231
========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-4
<PAGE>
TRUE NORTH UNITS
COMBINED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- ------------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES..................... $4,019,724 $11,438,904 $7,018,442 $14,366,889
---------- ----------- ---------- -----------
OPERATING EXPENSES:
Salaries, Outside Services
and Employee Benefits
Expenses.................. 2,578,875 7,445,129 4,300,518 9,112,310
Office and General
Expenses.................. 1,059,658 5,728,138 3,385,301 6,865,193
Amortization of Goodwill... 16,301 120,436 64,708 196,994
---------- ----------- ---------- -----------
Total Operating Expenses. 3,654,834 13,293,703 7,750,527 16,174,497
---------- ----------- ---------- -----------
OPERATING INCOME (LOSS)...... 364,890 (1,854,799) (732,085) (1,807,608)
Other Income (Expense),
net....................... (38,831) 3,908 -- --
---------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
PROVISION (BENEFIT) FOR
INCOME TAXES................ 326,059 (1,850,891) (732,085) (1,807,608)
PROVISION (BENEFIT) FOR
INCOME TAXES................ 70,018 (872,641) (383,455) (799,552)
---------- ----------- ---------- -----------
NET INCOME (LOSS)............ 256,041 (978,250) (348,630) (1,008,056)
DIVIDENDS.................... -- (123,409) (123,409) --
RETAINED EARNINGS (DEFICIT),
beginning of period......... -- 256,041 256,041 (845,618)
---------- ----------- ---------- -----------
RETAINED EARNINGS (DEFICIT),
end of period............... $ 256,041 $ (845,618) $ (215,998) $(1,853,674)
========== =========== ========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-5
<PAGE>
TRUE NORTH UNITS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ ------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss)......... $ 256,041 $ (978,250) $ (348,630) $(1,008,056)
Adjustments to reconcile
net income (loss)
to net cash used in
operating activities--
Depreciation............ 99,410 429,205 235,936 420,092
Amortization of
Goodwill............... 16,301 120,436 64,708 196,994
Loss on Sale of
Equipment.............. 43,091 -- -- 14,588
Changes in Assets and
Liabilities
Accounts Receivable... (1,594,042) (1,870,341) (925,437) (613,534)
Accounts Receivable
from Related Party... -- (79,403) -- (588,575)
Accrued Revenues...... -- (83,265) -- (1,881,781)
Unbilled Charges...... 24,295 (202,817) 87,045 (513,246)
Prepaid Income Taxes.. -- -- -- (168,118)
Prepaid Expenses and
Other Current Assets. 24,451 (52,894) (83,844) (117,505)
Accounts Payable...... (248,851) 577,976 490,712 930,813
Advance Billings...... 1,280,313 647,708 58,451 618,543
Income Taxes
Payable/Receivable... 70,018 (1,243,591) (467,820) 121,023
Accrued Compensation.. 70,251 229,635 -- 102,449
Other Current
Liabilities.......... (67,632) 3,641 377,909 25,511
Deferred Tax
Liability............ -- 250,808 -- 391,781
----------- ----------- ---------- -----------
Net Cash Used in
Operating
Activities......... (26,354) (2,251,152) (510,970) (2,069,021)
----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Property and
Equipment................ (133,838) (3,595,122) (2,947,163) (1,425,753)
----------- ----------- ---------- -----------
Net Cash Used in In-
vesting
Activities......... (133,838) (3,595,122) (2,947,163) (1,425,753)
----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Loans From Parent Company. 690,010 6,233,889 4,115,557 4,195,832
Dividends Paid to Parent
Company.................. -- (123,409) (123,409) --
Payment of Earnout........ -- (54,118) (54,118) (1,143,626)
Net Repayment of Short-
term Borrowings.......... (258,379) -- -- --
Repayments of Long-term
Debt..................... (180,907) -- -- --
----------- ----------- ---------- -----------
Net Cash Provided by
Financing Activi-
ties............... 250,724 6,056,362 3,938,030 3,052,206
----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN
CASH....................... 90,532 210,088 479,897 (442,568)
CASH, beginning of period... 145,609 236,141 236,141 446,229
----------- ----------- ---------- -----------
CASH, end of period......... $ 236,141 $ 446,229 $ 716,038 $ 3,661
=========== =========== ========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-6
<PAGE>
TRUE NORTH UNITS
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION--The combined financial statements include the
accounts of various businesses owned and operated by True North Communications
Inc. ("TNC") (together, the "True North Units"). These operations include:
. Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc. ("Cf2GS") which
TNC acquired effective April 1, 1994,
. R/GA Interactive, Inc. which TNC acquired effective July 1, 1995,
. Northern Lights Interactive which commenced operations in 1995 as
divisions of various subsidiary companies of TNC, and
. Relationship Technology Group which commenced operations in 1994 as a
division of TNC.
The results of operations and cash flows of Cf2GS and R/GA Interactive, Inc.
are included from their respective dates of acquisition (see also Note 2).
None of the True North Units either were owned by TNC in 1993 or had
operations in 1993.
All significant intercompany transactions have been eliminated.
DESCRIPTION OF BUSINESSES--The True North Units consist primarily of digital
marketing communications businesses which provide their clients with
technology-based marketing solutions as well as direct mail, media and general
advertising services. The operations of the True North Units are subject to
certain risks and uncertainties, including dependence on its relationship with
TNC for client referrals as well as management and administrative services;
limited operating history of certain businesses; dependence on key clients
(see Significant Customers below) and an absence of long-term contracts with
all clients; management of growth and the related strain on management and
human resources; dependence on key management personnel for certain
businesses; competition and low barriers to entry; uncertainty of market
potential for digital interactive marketing solutions; dependence on continued
growth in use of the Internet and the World Wide Web; rapid technological
change; conflicts of interests between clients; uncertainties regarding
intellectual property rights; risks associated with expanding operations
internationally in 1996; government regulation of the marketing communications
industry; and susceptibility to general economic conditions. See also the
"Risk Factors" Section of this Form S-1 for additional information.
UNAUDITED FINANCIAL STATEMENTS--The unaudited statements of income (loss)
and retained earnings (deficit) and cash flows for the nine months ended
September 30, 1995 reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation of the results of the interim period. The operating
results for the nine months ended September 30, 1995 and 1996 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenue and expenses during the reported
period. Actual results could differ from these estimates.
SIGNIFICANT CUSTOMERS--One customer, a financial institution, accounted for
approximately 18%, 18%, 18% (unaudited) and 11% of combined revenues in 1994,
1995 and the nine months ended September 30, 1995 and 1996, respectively.
Another customer, a government agency, accounted for approximately 12%, 15%
(unaudited) and 8% of combined revenues in 1995 and the nine months ended
September 30, 1995 and 1996, respectively. A third customer, in the
entertainment industry, accounted for approximately 17%, 20% (unaudited) and
2.0% of combined revenues in 1995 and the nine months ended September 30, 1995
and 1996, respectively. Another customer, in the software and entertainment
industry, accounted for approximately 4%, 4% (unaudited) and 12% of combined
revenues in 1995 and the nine months ended September 30, 1995 and 1996,
respectively.
F-7
<PAGE>
TRUE NORTH UNITS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
REVENUE RECOGNITION--Revenues represent fees for services rendered as well
as commissions on media and production costs. Such services are generally
completed within three to twelve months. Fees are recognized as earned based
principally on labor costs incurred using the percentage-of-completion method.
Commissions are recognized as revenue when earned, which is generally when
such amounts are billable. Advance billings represent billings in excess of
costs incurred and estimated earnings for services. Accrued revenues represent
labor costs incurred and estimated earnings in excess of billings. Unbilled
charges represent third-party media, production and other client reimbursable
out-of-pocket costs. Revenue is reported net of such reimbursable costs.
Provisions for any estimated losses on uncompleted projects are made in the
period in which such losses are determinable. There are no contract retainages
and all amounts are expected to be collected within one year.
The True North Units derive a portion of their revenues from the provision
of services to clients of TNC. As such, a portion of the revenues of TNC are
shared with the True North Units, based upon the value of the services
provided by the True North Units to TNC's clients on a time and materials
basis. In addition, in the third quarter of 1996, the True North Units derived
revenues from TNC under an intellectual property agreement for the operation
of TNC's intranet. The total of all revenues described above represented
approximately 13%, 8%, 4% (unaudited) and 24% of combined revenues of the True
North Units for 1994, 1995, and the nine months ended September 30, 1995 and
1996, respectively.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost and are
depreciated principally using the straight line method over their estimated
useful lives ranging from three to eight years. Purchased software and third-
party costs incurred to develop software for internal company use are
capitalized and amortized over five years. Leasehold improvements are
amortized over the lesser of the estimated useful life of the asset or the
life of the lease. Recorded fixed assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Indicated impairments would be provided for
currently.
GOODWILL--Goodwill is amortized over periods from ten to 40 years. Carrying
values are periodically reviewed for impairment and adjusted, if necessary,
based upon current facts and circumstances and management's estimates of
undiscounted future operating earnings of the related businesses.
INCOME TAXES--The True North Units are parties to a tax sharing arrangement
with TNC whereby the True North Units provide for, and pay or receive, federal
and state taxes on a separate return basis based upon pretax income excluding
goodwill amortization expense. The True North Units' results are included in
the consolidated federal and state tax returns of TNC. The settlement of tax
provisions or benefits with TNC occurs in the subsequent year at the time TNC
files its related consolidated tax returns. Income taxes receivable or payable
therefore represent amounts due from or to TNC.
The True North Units provide for federal and state income taxes on earnings
regardless of the period in which such taxes are payable. Deferred income
taxes are recognized for temporary differences between financial and income
tax reporting based on enacted tax laws and rates.
2. ACQUIRED COMPANIES
Effective April 1, 1994, TNC acquired all of the outstanding common stock of
Cf2GS for $275,000, and assumed borrowings, debt and capital notes totaling
$414,286. The acquisition was accounted for using the purchase method of
accounting. The excess of the initial cost of the acquisition over the fair
market value of net assets acquired was $685,916. Under the original terms of
the acquisition agreement, the former stockholders of Cf2GS were due annual
earnout payments based upon a percentage of revenues through 1998. In August
1996, management modified the terms of the earnout arrangement to guarantee
annual minimum earnout payments of $983,400 in 1996, 1997 and 1998. Earnout
amounts of $54,118, $1,143,626 and $2,950,200 have been capitalized as
goodwill in 1994, 1995 and at September 30, 1996, respectively. This portion
of goodwill is being amortized over 40 years.
Effective July 1, 1995, TNC acquired certain assets and assumed certain
liabilities of various entities owned by Robert M. Greenberg. In addition, TNC
acquired from Robert M. Greenberg the common stock of R/GA Interactive, Inc.
The consideration paid was allocated to each of the operations acquired,
including R/GA
F-8
<PAGE>
TRUE NORTH UNITS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Interactive, Inc., by TNC which resulted in goodwill of $2,045,468. This
portion of goodwill is being amortized over ten years.
The following unaudited pro forma summary presents the combined results of
operations of the True North Units as if the acquisitions of Cf2GS and R/GA
Interactive, Inc. had occurred on January 1, 1994 and, therefore, includes the
amortization of goodwill from this date:
<TABLE>
<CAPTION>
1994 1995
---------- -----------
<S> <C> <C>
Revenues......................................... $5,697,690 $12,822,244
Net Loss......................................... $ (593,466) $(1,376,086)
</TABLE>
These pro forma results do not necessarily represent results which would
have occurred if these acquisitions had occurred on the date indicated or
which may be obtained in the future.
3. COSTS SHARED WITH PARENT COMPANY
As discussed in Note 1, the True North Units are divisions or subsidiaries
of TNC. TNC provides a wide range of services to the True North Units
including participation in and administration of certain employee benefit
plans (see also Note 6), accounting and treasury services, use of advertising
personnel to assist in the completion of marketing projects, and use of office
facilities and services for certain operations.
TNC charges for these services based on its estimated cost to provide these
services to the True North Units. Management of the True North Units and TNC
believe that the amounts charged for these services are not materially
different than the cost of obtaining these services from independent parties.
Charges amounted to $41,800, $861,442, $446,740 (unaudited) and $1,966,468 in
1994, 1995 and the nine months ended September 30, 1995 and 1996,
respectively, and are included in office and general expenses in the combined
statements of income (loss) and retained earnings (deficit).
4. HOME OFFICE ALLOCATIONS
TNC also charges each of its operating units (including the True North
Units) for general corporate expenses incurred at the parent company level.
These costs include the costs of the corporate offices, primarily as they
relate to the administration of a public company. In addition, the Company
expects that it may incur increased expenses associated with the Company being
a public company. The amount of the charge is based on the percentage of the
operating unit's salaries to the total salaries of all TNC operating units. It
is TNC's policy to not assess its acquired operating units this charge in the
first year after the acquisition. Charges amounted to $45,300, $432,286,
$301,500 (unaudited) and $467,208 in 1994, 1995 and the nine months ended
September 30, 1995 and 1996, respectively, and are included in office and
general expenses in the combined statements of income (loss) and retained
earnings (deficit).
5. LEASE OBLIGATIONS
The True North Units lease all of their office facilities as well as certain
equipment and vehicles under operating leases. All of the True North Units,
except for Cf2GS, lease their office facilities from various subsidiary
companies of TNC under month-to-month lease terms. Rental rates are determined
based upon the actual amounts paid by TNC under the third-party lease.
Management of the True North Units and TNC believe that the amounts charged
for rent by TNC are not materially different than the rental cost which would
be charged by a third party. Rent expense was $260,014, $394,741, $258,716
(unaudited) and $483,000 in 1994, 1995 and the nine months ended September 30,
1995 and 1996, respectively.
Minimum future lease payments under noncancelable operating leases with
third parties with lease terms in excess of one year as of December 31, 1995
and September 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
1996.............. $306,645 $ 70,702
1997.............. 252,576 285,860
1998.............. 207,159 240,125
1999.............. 18,360 51,960
2000.............. 9,180 34,640
-------- --------
Total........... $793,920 $683,287
======== ========
</TABLE>
F-9
<PAGE>
TRUE NORTH UNITS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. RETIREMENT BENEFIT PLANS
Cf2GS maintains a profit sharing plan with a 401(k) feature for the benefit
of eligible employees. Cf2GS makes matching contributions equal to 25% of
employee deferrals up to 6% of an employee's salary. Matching contributions of
$13,771, $17,864, $13,303 (unaudited) and $25,117 were made in 1994, 1995 and
the nine months ended September 30, 1995 and 1996, respectively. All of the
other True North Units participate in retirement benefit plans offered by TNC
and are charged for such costs as described in Note 3 above.
7. RESERVE FOR DOUBTFUL ACCOUNTS
The reserve for doubtful accounts and related activity is as follows:
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
OF PERIOD EXPENSES (DEDUCTIONS) OTHER PERIOD
---------- --------- ------------ ------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1994..................... -- $ 10,590 $(10,590) $87,710 $ 87,710
Year Ended December 31,
1995..................... $ 87,710 $ 90,631 $(75,343) $ -- $102,998
Nine Months Ended
September 30, 1996....... $102,998 $112,242 $(12,367) $ -- $202,873
</TABLE>
The Other column represents amounts arising from the acquisition of Cf2GS in
1994.
8. UNUSUAL ITEMS
In July 1996, management elected to discontinue the operations of the Los
Angeles office of R/GA Interactive, Inc. A charge of $17,865, primarily
related to severance, was recorded during 1996 to recognize the costs
associated with the discontinuance. Net losses for the Los Angeles office of
R/GA Interactive, Inc. for the first nine months of 1996 were approximately
$850,000 (unaudited).
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
--------- ----------- -------------
<S> <C> <C> <C>
Current provision (benefit):
Federal................................ $ 170,259 $ (872,641) $ (590,068)
State.................................. 11,673 (333,387) (462,482)
--------- ----------- -----------
Deferred provision (benefit): 181,932 (1,206,028) (1,052,550)
--------- ----------- -----------
Federal................................ (96,094) 270,096 171,020
State.................................. (15,820) 63,291 81,978
--------- ----------- -----------
(111,914) 333,387 252,998
--------- ----------- -----------
$ 70,018 $ (872,641) $ (799,552)
========= =========== ===========
</TABLE>
Components of the deferred provision (benefit) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
--------- -------- -------------
<S> <C> <C> <C>
Amortization................................. $ -- $249,500 $391,781
Bonus accrued, not paid...................... (17,500) (38,301) (21,007)
Deferred income.............................. (86,000) 47,821 (47,064)
Advance billing.............................. -- 53,145 (830)
Other........................................ (8,414) 21,222 (69,882)
--------- -------- --------
$(111,914) $333,387 $252,998
========= ======== ========
</TABLE>
F-10
<PAGE>
TRUE NORTH UNITS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
Differences between the effective income tax rate and the U.S. statutory
rate were as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
----------- SEPTEMBER 30,
1994 1995 1996
----- ---- -------------
<S> <C> <C> <C>
Statutory federal tax rate........................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit.................. 1.3 14.6 13.7
Tax basis in excess of book basis.................... (14.3) -- --
Goodwill amortization................................ 1.7 (1.9) (3.8)
Other................................................ (2.2) (0.6) (0.7)
----- ---- ----
Effective rate..................................... 21.5% 47.1% 44.2%
===== ==== ====
</TABLE>
The deferred tax assets and liabilities included in the combined financial
statements as of December 31, 1994 and 1995 and September 30, 1996 consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------------------- ------------------------------ ------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
-------- ----------- -------- -------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current:
Bonus accrued, not
paid................. $ 17,500 $-- $ 17,500 $ 55,801 $ -- $ 55,801 $ 77,853 $ -- $ 77,853
Deferred income....... 86,000 -- 86,000 38,179 -- 38,179 85,243 -- 85,243
Advance billing....... -- -- -- -- 53,145 (53,145) -- 52,315 (52,315)
Other................. 5,897 -- 5,897 67,201 78,701 (11,500) 136,038 78,701 57,337
-------- ---- -------- -------- -------- --------- -------- -------- ---------
109,397 -- 109,397 161,181 131,846 29,335 299,134 131,016 168,118
-------- ---- -------- -------- -------- --------- -------- -------- ---------
Noncurrent:
Accelerated
amortization......... -- -- -- -- 249,500 (249,500) -- 641,281 (641,281)
Other................. 2,517 -- 2,517 -- 1,308 (1,308) -- 1,308 (1,308)
-------- ---- -------- -------- -------- --------- -------- -------- ---------
2,517 -- 2,517 -- 250,808 (250,808) -- 642,589 (642,589)
-------- ---- -------- -------- -------- --------- -------- -------- ---------
$111,914 $-- $111,914 $161,181 $382,654 $(221,473) $299,134 $773,605 $(474,471)
======== ==== ======== ======== ======== ========= ======== ======== =========
</TABLE>
Management of the True North Units believes that the deferred tax assets are
fully realizable, therefore no valuation allowances for deferred tax assets
has been provided.
The True North Units made payments for income taxes of $0, $138,845 and $0
in 1994, 1995 and 1996, respectively.
10. INTERCOMPANY LOANS
Intercompany loans represent cash funding provided by TNC to finance the
True North Units' operations. TNC does not charge interest on these loans. In
December 1996, TNC agreed to contribute the outstanding intercompany loans in
excess of $6,000,000 to the True North Units' capital accounts.
11. SUBSEQUENT EVENT--SALE OF BUSINESSES
In December 1996, TNC agreed to sell the True North Units to TN Technologies
Inc. (formerly Modem Media Advertising Limited Partnership) for approximately
14.5% of TN Technologies Inc.'s common stock.
F-11
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
True North Communications Inc.:
We have audited the accompanying balance sheets of Modem Media Advertising
Limited Partnership (a Connecticut limited partnership) as of December 31,
1994 and 1995 and September 30, 1996, and the related statements of income,
partners' capital and cash flows for each of the three years in the period
ended December 31, 1995 and the nine months ended September 30, 1996. These
financial statements are the responsibility of the management of Modem Media
Advertising Limited Partnership. 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 Modem Media Advertising
Limited Partnership as of December 31, 1994 and 1995 and September 30, 1996,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 and the nine months ended
September 30, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 15, 1996
(Except for the matter discussed
in Note 8, to which the date
is December 31, 1996)
F-13
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
ASSETS 1994 1995 1996
------ ---------- ---------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash.................................... $ 2,091 $ 184,041 $ 3,904,649
Accounts receivable, net of reserve for
doubtful accounts of $21,321 in 1994,
$262,139 in 1995 and $382,416 in 1996.. 889,479 4,933,515 4,574,678
Accrued revenues........................ 133,049 315,594 597,259
Unbilled charges........................ 520,904 758,520 1,852,375
Prepaid expenses........................ 15,510 22,329 47,201
---------- ---------- -----------
Total current assets.................. 1,561,033 6,213,999 10,976,162
---------- ---------- -----------
PROPERTY AND EQUIPMENT:
Computers and software.................. 263,914 1,048,595 1,714,023
Equipment under capital leases.......... -- 302,322 530,018
Leasehold improvements, furniture and
other.................................. 58,159 167,464 307,821
---------- ---------- -----------
Total property and equipment.......... 322,073 1,518,381 2,551,862
Less: Accumulated depreciation.......... (58,876) (311,801) (763,796)
---------- ---------- -----------
Total property and equipment, net..... 263,197 1,206,580 1,788,066
---------- ---------- -----------
OTHER ASSETS.............................. 29,895 42,731 20,013
---------- ---------- -----------
Total assets.......................... $1,854,125 $7,463,310 $12,784,241
========== ========== ===========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................ $ 268,440 $2,550,593 $ 4,150,673
Accrued compensation.................... 152,344 319,671 892,185
Other current liabilities............... 3,729 52,547 48,553
Bank overdrafts......................... -- 157,557 --
Advance billings........................ 103,000 353,288 2,140,181
Current portion of capital lease
obligations............................ -- 82,235 92,679
---------- ---------- -----------
Total current liabilities............. 527,513 3,515,891 7,324,271
CAPITAL LEASE OBLIGATIONS, LESS CURRENT
PORTION.................................. -- 185,706 225,166
---------- ---------- -----------
Total liabilities..................... 527,513 3,701,597 7,549,437
---------- ---------- -----------
PARTNERS' CAPITAL
General partner's interest.............. 1,050,929 2,028,646 3,087,830
Limited partners' interest.............. 275,683 1,733,067 2,146,974
---------- ---------- -----------
Total partners' capital............... 1,326,612 3,761,713 5,234,804
---------- ---------- -----------
Total liabilities and partners'
capital.............................. $1,854,125 $7,463,310 $12,784,241
========== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-14
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $1,221,347 $4,334,604 $11,718,433 $7,570,160 $12,427,143
---------- ---------- ----------- ---------- -----------
OPERATING EXPENSES:
Salaries, outside
services and employee
benefits expenses.... 245,471 1,910,608 4,913,378 2,912,328 6,518,092
Guaranteed payments to
partners............. 160,241 328,345 628,750 413,750 658,333
Office and general
expenses............. 334,674 858,449 2,223,913 1,388,083 2,952,277
---------- ---------- ----------- ---------- -----------
Total operating
expenses........... 740,386 3,097,402 7,766,041 4,714,161 10,128,702
---------- ---------- ----------- ---------- -----------
OPERATING INCOME........ 480,961 1,237,202 3,952,392 2,855,999 2,298,441
Interest income....... 2,531 4,154 20,114 12,124 18,386
Interest expense...... -- -- (12,645) (8,402) (24,558)
---------- ---------- ----------- ---------- -----------
NET INCOME.............. $ 483,492 $1,241,356 $ 3,959,861 $2,859,721 $ 2,292,269
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-15
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER'S PARTNERS' PARTNERS'
INTEREST INTEREST CAPITAL
---------- ---------- ----------
<S> <C> <C> <C>
Partners' Capital, January 1, 1993.......... $ 299,265 $ -- $ 299,265
Net Income................................ 390,428 93,064 483,492
Distributions............................. (303,374) (10,000) (313,374)
Contributions............................. -- 2,345 2,345
Contributions Receivable (Payable)........ 299,265 (299,265) --
---------- ---------- ----------
Partners' Capital, December 31, 1993........ 685,584 (213,856) 471,728
Net Income................................ 633,092 608,264 1,241,356
Distributions............................. (267,747) (118,725) (386,472)
---------- ---------- ----------
Partners' Capital, December 31, 1994........ 1,050,929 275,683 1,326,612
Net Income................................ 2,019,529 1,940,332 3,959,861
Distributions............................. (1,041,812) (482,948) (1,524,760)
---------- ---------- ----------
Partners' Capital, December 31, 1995........ 2,028,646 1,733,067 3,761,713
Net Income................................ 1,169,056 1,123,213 2,292,269
Distributions............................. (109,872) (716,961) (826,833)
Contributions............................. -- 7,655 7,655
---------- ---------- ----------
Partners' Capital, September 30, 1996....... $3,087,830 $2,146,974 $5,234,804
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-16
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------------- -----------------------
1993 1994 1995 1995 1996
-------- ---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income........... $483,492 $1,241,356 $ 3,959,861 $2,859,721 $2,292,269
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Depreciation and
amortization...... 7,939 53,767 252,925 118,402 451,995
Increase in
accounts
receivable........ (143,452) (451,682) (4,044,036) (1,874,178) 358,837
(Increase) decrease
in accrued
revenue........... 37,020 (88,304) (182,545) (100,226) (281,665)
(Increase) decrease
in unbilled
charges........... -- (520,904) (237,616) 88,298 (1,093,855)
Increase in prepaid
expenses.......... (11,762) (3,748) (6,819) (29,885) (24,872)
Increase in other
assets............ (17,715) (6,478) (12,836) (32,425) 22,718
Increase (decrease)
in accounts
payable and other
current
liabilities....... (22,403) 368,916 2,498,298 1,140,533 2,168,600
Increase (decrease)
in advance
billings.......... (30,000) 65,500 250,288 580,980 1,786,893
-------- ---------- ----------- ---------- ----------
Net cash provided
by operating
activities...... 303,119 658,423 2,477,520 2,751,220 5,680,920
-------- ---------- ----------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment....... (31,059) (270,674) (893,986) (389,888) (805,785)
Retirement of
property and
equipment........... 12,783 -- -- -- --
-------- ---------- ----------- ---------- ----------
Net cash used in
investing
activities...... (18,276) (270,674) (893,986) (389,888) (805,785)
-------- ---------- ----------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Bank overdrafts...... -- -- 157,557 -- (157,557)
Principal payments
under capital lease
obligations......... -- -- (34,381) (35,152) (177,792)
Partners'
distributions, net.. (311,029) (386,472) (1,524,760) (355,123) (819,178)
-------- ---------- ----------- ---------- ----------
Net cash used in
financing
activities...... (311,029) (386,472) (1,401,584) (390,275) (1,154,527)
-------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH............... (26,186) 1,277 181,950 1,971,057 3,720,608
CASH, at beginning of
period................ 27,000 814 2,091 2,091 184,041
-------- ---------- ----------- ---------- ----------
CASH, at end of period. $ 814 $ 2,091 $ 184,041 $1,973,148 $3,904,649
======== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest. $ -- $ -- $ 12,645 $ 8,402 $ 24,558
======== ========== =========== ========== ==========
SUPPLEMENTAL DISCLOSURE
OF NONCASH FINANCING
ACTIVITIES:
Investment in
property and
equipment through
incurrence of
capitalized lease
obligations......... $ -- $ -- $ 302,322 $ 258,755 $ 227,696
======== ========== =========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-17
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995 AND SEPTEMBER 30, 1996
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Modem Media Advertising Limited Partnership, a Connecticut limited
partnership (the "Company"), was founded as Interactive Response Media, a
Connecticut General Partnership, in 1987. In June 1993 Interactive Response
Media reorganized as a Connecticut Limited Partnership and changed its name to
Modem Media Advertising Limited Partnership. The Company is a technology-based
marketing communications firm which provides interactive marketing solutions
to its customers. The Company's operations are subject to certain risks and
uncertainties including dependence on key clients (see Significant Customers
below) and an absence of long-term contracts with all clients; management of
growth and the related strain on management and human resources; dependence on
key management personnel; competition and low barriers to entry; uncertainty
of market potential for digital interactive marketing solutions; dependence on
continued growth in use of the Internet and the World Wide Web; rapid
technological change; conflicts of interests between clients; uncertainties
regarding intellectual property rights; government regulation of the marketing
communications industry; and susceptibility to general economic conditions.
See also the "Risk Factors" section of this Form S-1 for additional
information.
UNAUDITED FINANCIAL STATEMENTS
The unaudited statements of income and cash flows for the nine months ended
September 30, 1995 reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
a fair presentation of the results of the interim period. The operating
results for the nine months ended September 30, 1995 and 1996 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year.
SIGNIFICANT CUSTOMERS
The Company's services have been provided to a limited number of customers
located in the United States in a variety of industries. The Company generally
does not require collateral and maintains a reserve for potential customer
account adjustments. One telecommunications industry customer accounted for
approximately 29%, 57%, 78%, 75% (unaudited) and 82% of the Company's revenues
in the years ended December 31, 1993, 1994, 1995, and the nine months ended
September 30, 1995 and 1996, respectively. Combined revenue from two customers
in the retail and beverage industries represented 36%, 27%, 12%, 16%
(unaudited) and 7% of the Company's revenues in the years ended December 31,
1993, 1994, 1995, and the nine months ended September 30, 1995 and 1996,
respectively.
Subsequent to December 31, 1995, the Company substantially completed all
contract work in progress for a significant customer which comprised 15%, 15%,
6%, 7% (unaudited) and 0% of total Company revenue for the years ended
December 31, 1993, 1994, 1995 and the nine months ended September 30, 1995 and
1996, respectively. No significant future contract work is in progress for
this customer. Management believes that the absence of further contract work
with this customer will not have a material adverse effect on the operations
of the Company.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenue represents fees for marketing services rendered as well as
commissions on media and production costs. Such services are generally
completed within three to twelve months. The Company recognizes revenue for
fees as they are earned based principally on labor costs incurred using the
percentage of completion method.
F-18
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Commissions on media and production costs are recognized as revenue when
earned, which generally is when such amounts are billable. Advance billings
represent billings in excess of costs incurred and estimated earnings for
advertising services. Accrued revenues represent costs incurred and estimated
earnings in excess of billings. Unbilled charges consist of third-party media,
production and other client reimbursable out-of-pocket costs. Revenue is
reported net of such reimbursable costs. Losses on customer work are
recognized when known. There are no contract retainages and all amounts are
expected to be collected within one year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over their
estimated useful lives ranging from three to eight years using both straight-
line and accelerated methods. Leasehold improvements are amortized over the
lesser of their useful lives or the remaining term of the related lease. The
Company reviews its recorded fixed assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable and provides currently for any indicated impairments.
INCOME TAXES
The Company is a limited partnership pursuant to the provisions of the
Internal Revenue and Connecticut State Tax Codes. Consequently, any federal
and state income taxes applicable to the Company's income are payable directly
by its partners. Taxable income to the partners was $464,784, $1,465,334 and
$3,158,033 for the years ended December 31, 1993, 1994 and 1995, respectively.
2. RESERVE FOR DOUBTFUL ACCOUNTS
The Company's reserve for doubtful accounts and related activity is as
follows:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AT TO COSTS AT END
BEGINNING AND OF
OF PERIOD EXPENSES (DEDUCTIONS) PERIOD
--------- --------- ------------ --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993...... $ -- $ 42,779 $ -- $ 42,779
Year Ended December 31, 1994...... $ 42,779 $ 22,421 $(43,879) $ 21,321
Year Ended December 31, 1995...... $ 21,321 $258,273 $(17,455) $262,139
Nine Months Ended September 30,
1996 ............................ $262,139 $194,299 $(74,022) $382,416
</TABLE>
3. LEASE COMMITMENTS
The Company leases office space in Westport and Norwalk, Connecticut and
equipment under capital and operating leases expiring in various years through
2000. The total rent expense related to operating leases totaled $40,025,
$74,086, $295,940 and $348,359 in the years ended December 31, 1993, 1994,
1995 and the nine months ended September 30, 1996, respectively.
Minimum future lease payments under noncancelable capital and operating
leases with lease terms in excess of one year as of December 31, 1995 and
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
-------------------- --------------------
CAPITAL OPERATING CAPITAL OPERATING
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
1996............ $100,629 $ 444,510 $ 49,598 $ 127,781
1997............ 58,809 511,124 83,308 511,124
1998............ 58,809 487,922 83,308 487,922
1999............ 57,598 464,720 81,694 464,720
2000............ 35,581 271,087 55,828 271,087
Thereafter...... -- -- 9,441 --
-------- ---------- -------- ----------
311,426 $2,179,363 363,177 $1,862,634
========== ==========
Less: amount
representing
interest....... (43,485) (45,332)
-------- --------
$267,941 $317,845
======== ========
</TABLE>
F-19
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
The Company's obligations under the office space lease were guaranteed as of
December 31, 1995 by a $160,000 stand by letter of credit secured by accounts
receivable and other assets. Effective September 30, 1996, the assets which
secured the line of credit were no longer guaranteed by the limited partners
of the Company. In April 1996, the Company obtained an additional $100,000
standby letter of credit to guarantee certain vendor payables.
The Company entered into two sublease agreements on October 1, 1995 and May
1, 1996, respectively, on the Norwalk, Connecticut locations. Total additional
revenues to be received in future years pursuant to these sublease agreements
which will offset the Company's obligation approximate $87,600 as of December
31, 1995 and $67,200 as of September 30, 1996.
4. RETIREMENT BENEFIT PLAN
Since January 1, 1994, the Company has maintained a profit sharing plan with
a 401(k) feature for the benefit of eligible employees. The Company made
discretionary matching contributions of $93,150, $60,000, $0 (unaudited) and
$75,000 in the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1995 and 1996, respectively.
5. LINE OF CREDIT
At December 31, 1995, the Company had confirmed a $250,000 bank line of
credit secured by accounts receivable and other assets (which in turn are
guaranteed by the limited partners of the Company). In April 1996, the bank
line of credit was increased to $1,000,000. Effective September 30, 1996, the
assets which secured the line of credit were no longer guaranteed by the
limited partners of the Company. There were no borrowings under bank lines
during the years ended December 31, 1993, 1994 or 1995 or the nine months
ended September 30, 1995 or 1996.
6. TRANSACTIONS WITH PARTNERS
The Company's partners are also employees of the Company and their
compensation is included in the accompanying statements of income and
partners' capital as "Guaranteed payments to partners." Distributions of the
Company's net income to the partners are included in the financial statements
as "Partners' distributions." The Company had a loan receivable from one
partner with a balance of $21,751 and $22,496, as of December 31, 1994 and
1995, respectively. This loan receivable is included in Other Assets in the
accompanying balance sheets.
7. SUBSEQUENT EVENT--1996 OPTION PLAN
In October 1996, the Company established the Modem Media Advertising Limited
Partnership 1996 Option Plan and granted fully vested options to purchase
Modem Media Advertising Limited Partnership interests to certain employees.
These options will result in a pre-tax, one-time, non-cash charge against
income in the fourth quarter of 1996 of approximately $3,000,000.
8. SUBSEQUENT EVENT--SALE OF PARTNERSHIP INTERESTS
In December 1996, True North Communications Inc. acquired 49.1% ownership of
the Company directly from the partners. Subsequently, the Company incorporated
as a C corporation under the name TN Technologies Inc. As of the time of the
incorporation, the Company will record tax amounts primarily related to
changing from a cash basis taxpayer to an accrual basis taxpayer. Based on the
Company's September 30, 1996 financial position, the Company would record a
charge against income of $1,041,314 (unaudited), a current deferred tax asset
of $64,263 (unaudited), a currently payable income tax liability of $998,900
(unaudited) and noncurrent deferred tax liabilities of $106,677 (unaudited).
Additionally, in connection with the acquisition and incorporation, an
incentive compensation arrangement is expected to be established that will
provide for payments to the partner employees in the event that certain annual
operating results are achieved in 1997 and future years.
F-20
<PAGE>
R/GA INTERACTIVE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1994 AND JUNE 30, 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
True North Communications Inc.:
We have audited the accompanying balance sheets of R/GA Interactive, Inc. (a
New York corporation) as of December 31, 1993 and 1994 and June 30, 1995, and
the related statements of operations and retained deficit and cash flows for
the period from inception through December 31, 1993, the year ended December
31, 1994, and the six months ended June 30, 1995. These financial statements
are the responsibility of the management of R/GA Interactive, Inc. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 R/GA Interactive, Inc. as
of December 31, 1993 and 1994 and June 30, 1995, and the results of its
operations and its cash flows for the period from inception through December
31, 1993, the year ended December 31, 1994, and the six months ended June 30,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 2, 1996
F-22
<PAGE>
R/GA INTERACTIVE, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1994 AND JUNE 30, 1995
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
------ ---------------------- JUNE 30,
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Accounts receivable..................... $ -- $ 25,649 $ 270,538
Accrued revenues........................ -- 111,670 371,953
Prepaids expenses and other current
assets................................. -- 1,699 52
--------- ----------- -----------
Total current assets.................. -- 139,018 642,543
--------- ----------- -----------
FURNITURE AND EQUIPMENT:
Furniture and equipment................. -- 7,337 54,371
Less: Accumulated depreciation.......... -- (736) (10,197)
--------- ----------- -----------
Total furniture and equipment, net.... -- 6,601 44,174
--------- ----------- -----------
Total assets.......................... $ -- $ 145,619 $ 686,717
========= =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................ $ -- $ 16,418 $ 235,690
Advance billings........................ 117,422 77,160 50,660
Accrued expenses........................ -- 18,804 148,492
Accrued compensation.................... 13,722 30,756 33,730
Other current liabilities............... -- 25,000 52,497
--------- ----------- -----------
Total current liabilities............. 131,144 168,138 521,069
--------- ----------- -----------
NONCURRENT LIABILITIES:
Payable to related party................ 281,863 1,358,540 2,210,616
--------- ----------- -----------
STOCKHOLDER'S EQUITY:
Common stock, 200 shares authorized, 50
shares issued and outstanding.......... 500 500 500
Retained deficit........................ (413,507) (1,381,559) (2,045,468)
--------- ----------- -----------
Total stockholder's equity............ (413,007) (1,381,059) (2,044,968)
--------- ----------- -----------
Total liabilities and stockholder's
equity............................... $ -- $ 145,619 $ 686,717
========= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-23
<PAGE>
R/GA INTERACTIVE, INC.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1993, THE YEAR ENDED
DECEMBER 31, 1994, AND THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
REVENUES................................ $ 99,411 $ 972,525 $ 1,383,340
--------- ----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits
expenses............................. 299,918 870,997 681,373
Office and general expenses........... 213,000 1,069,580 1,365,876
--------- ----------- -----------
Total operating expenses............ 512,918 1,940,577 2,047,249
--------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES.. (413,507) (968,052) (663,909)
PROVISION FOR INCOME TAXES.............. -- -- --
--------- ----------- -----------
NET LOSS................................ (413,507) (968,052) (663,909)
RETAINED DEFICIT, beginning of period... -- (413,507) (1,381,559)
--------- ----------- -----------
RETAINED DEFICIT, end of period......... $(413,507) $(1,381,559) $(2,045,468)
========= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-24
<PAGE>
R/GA INTERACTIVE, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1993, THE YEAR ENDED
DECEMBER 31, 1994, AND THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PERIOD FROM SIX
INCEPTION MONTHS
THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
------------ ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(413,507) $ (968,052) $(663,909)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities--
Depreciation.......................... -- 736 9,461
Changes in assets and liabilities--
Accounts receivable................. -- (25,649) (244,889)
Accrued revenues.................... -- (111,670) (260,283)
Prepaid expenses and other current
assets............................. -- (1,699) 1,647
Accounts payable.................... -- 16,418 219,272
Advance billings.................... 117,422 (40,262) (26,500)
Accrued expenses.................... -- 18,804 129,688
Accrued compensation................ 13,722 17,034 2,974
Other current liabilities........... -- 25,000 27,497
Payable to related party............ 281,863 1,076,677 852,076
--------- ---------- ---------
Net cash provided by (used in)
operating activities............. (500) 7,337 47,034
--------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment.... -- (7,337) (47,034)
--------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issuances.................. 500 -- --
--------- ---------- ---------
NET INCREASE (DECREASE) IN CASH........... -- -- --
CASH, at beginning of period.............. -- -- --
--------- ---------- ---------
CASH, at end of period.................... $ -- $ -- $ --
========= ========== =========
</TABLE>
The accompany notes to financial statements are an integral part of these
statements.
F-25
<PAGE>
R/GA INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994 AND JUNE 30, 1995
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
R/GA Interactive, Inc., a New York corporation ("R/GA Interactive" or the
"Company"), was incorporated on July 14, 1993. Of the 200 shares of common
stock (no par value) authorized, fifty shares were issued. All fifty shares
were owned by Robert M. Greenberg.
The Company designs and creates interactive games and marketing applications
for use through a variety of interactive media including the World Wide Web,
information kiosks and CD-ROMs. The Company's primary locations are in New
York and (prior to July 1996) Los Angeles.
R/GA Interactive has historically shared certain services with related
parties. These services, provided by R/Greenberg Associates, include sharing
of rent, accounting, financial and executive management and other services.
Charges for these services were $117,000 and $413,058 for the period from
inception through December 31, 1993 and the year ended December 31, 1994,
respectively, and have been included in office and general expenses. Charges
for these services were $667,500 for the six months ended June 30, 1995, of
which $565,500 has been included in office and general expenses and $102,000
has been included in direct salaries and related expenses. Management believes
that these charges have been allocated to the Company in a reasonable and
consistent manner.
In the normal course of business, the Company purchases production and
design services from a related party, R/GA Digital Studios, Inc. Services
purchased totaled $187,459 and $184,337 for the year ended December 31, 1994,
and the six months ended June 30, 1995, respectively. Management believes that
services purchased from related parties are at reasonable prices.
The Company has incurred losses since its inception and has a retained
deficit of $2,045,468 at June 30, 1995. The Company's operations are subject
to certain risks and uncertainties including, among others, a limited
operating history, substantial operating losses, rapidly changing
technologies, current reliance on a limited number of customers and potential
competitors with greater financial, technical and marketing resources.
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SIGNIFICANT CUSTOMERS
The Company had one advertising customer which accounted for approximately
all revenue in the period from inception through December 31, 1993. The
Company had four principal customers which accounted for approximately 35%,
25%, 11% and 10% of revenues for the year ended December 31, 1994. Significant
customers in 1994 were engaged in the software development, advertising and
telecommunications industries. The Company had two principal software
development customers which accounted for approximately 68% and 13% of
revenues for the six months ended June 30, 1995.
DEPRECIATION
The Company depreciates its furniture, computer and office equipment on a
straight line basis over estimated useful lives ranging from three to five
years. The Company reviews its recorded fixed assets for
F-26
<PAGE>
R/GA INTERACTIVE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and provides currently for
any indicated impairments.
REVENUE RECOGNITION
The Company's revenues are derived primarily from contracts to provide
design and production services for its products. These contracts vary in
length from less than one month to more than a year in duration. Revenue is
recognized straight line over the estimated length of the project which
approximates the percentage of completion method. Advance billings represent
billings in excess of costs incurred and estimated earnings for services.
Accrued revenues represent costs incurred and estimated earnings in excess of
billings. Contract costs include all direct and indirect costs related to
contract performance. Provisions for any estimated losses on uncompleted
contracts are recognized in the period in which such losses are determinable.
There are no contract retainages and all amounts are expected to be collected
within one year.
INCOME TAXES
Effective July 1, 1995, the Company was purchased by True North
Communications Inc. As a result of certain change in control limitations, the
realizability of future benefits does not meet the more likely than not
criteria for recognition prescribed by Statement of Financial Accounting
Standards No. 109. Accordingly, a valuation allowance of $941,938 has been
recorded to fully reserve the tax benefit of the net operating loss
carryforward.
2. SUBSEQUENT EVENTS
CHANGE IN CONTROL
On May 15, 1995, True North Communications Inc. purchased all outstanding
stock of R/GA Interactive as well as the assets of certain other entities
owned directly by Mr. Greenberg. The purchase became effective on July 1,
1995. The stock purchase was effected through the assumption of R/GA
Interactive liabilities as of the effective date of the purchase.
DISCONTINUED OPERATIONS
In July 1996, the Company discontinued the operations of the Los Angeles,
California division of R/GA Interactive. A charge of $17,865, primarily
related to severance, was recorded during 1996 to recognize the costs
associated with the discontinuance. Net losses of the division for the first
six months of 1996 were approximately $850,000 (unaudited).
SIGNIFICANT CUSTOMER
Subsequent to June 30, 1995, the Company substantially completed all
contract work in progress for a significant customer which comprised 35% and
68% of revenues for the year ended December 31, 1994, and the six months ended
June 30, 1995, respectively. No significant further contract work is in
progress for this customer. Management believes that the current absence of
further contract work with this customer will not have a material adverse
effect on the operations of the Company.
F-27
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND MARCH 31, 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
True North Communications Inc.:
We have audited the accompanying balance sheets of Christiansen, Fritsch,
Giersdorf, Grant & Sperry, Inc. (a Washington corporation) as of December 31,
1993 and March 31, 1994, and the related statements of loss and retained
deficit and cash flows for the year ended December 31, 1993 and the three
months ended March 31, 1994. These financial statements are the responsibility
of the management of Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc..
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 audits 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 Christiansen, Fritsch,
Giersdorf, Grant & Sperry, Inc. as of December 31, 1993 and March 31, 1994,
and the results of its operations and its cash flows for the year ended
December 31, 1993 and the three months ended March 31, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 23, 1996
F-29
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND MARCH 31, 1994
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1993 1994
------ ------------ ----------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................ $ 22,946 $ 145,609
Accounts receivable, net of reserve for doubtful
accounts of $102,998 in 1993 and $87,710 in 1994... 1,140,715 805,370
Accrued revenues.................................... 106,612 137,806
Prepaid expenses and other current assets........... 16,805 35,313
---------- ----------
Total current assets.............................. 1,287,078 1,124,098
---------- ----------
PROPERTY AND EQUIPMENT:
Computers and software.............................. 312,105 314,832
Leasehold improvements, furniture, and other........ 303,494 300,808
---------- ----------
Total property and equipment...................... 615,599 615,640
Less Accumulated depreciation and amortization...... (317,165) (335,309)
---------- ----------
Total property and equipment, net................. 298,434 280,331
---------- ----------
Total assets...................................... $1,585,512 $1,404,429
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings............................... $ 400,000 $ 150,000
Notes payable to stockholders....................... 332,379 108,379
Current portion of long-term debt................... 46,901 47,294
Accounts payable.................................... 200,653 559,712
Advance billings.................................... 392,895 440,968
Other current liabilities........................... 34,869 64,666
---------- ----------
Total current liabilities......................... 1,407,697 1,371,019
---------- ----------
NONCURRENT LIABILITIES:
Long-term debt...................................... 145,588 133,613
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, 6,250 shares authorized, issued and
outstanding........................................ 162,000 162,000
Retained deficit.................................... (129,773) (262,203)
---------- ----------
Total stockholders' equity........................ 32,227 (100,203)
---------- ----------
Total liabilities and stockholders' equity........ $1,585,512 $1,404,429
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-30
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
STATEMENTS OF LOSS AND RETAINED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1993 AND
THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DEC. 31, 1993 MARCH 31, 1994
------------- --------------
<S> <C> <C>
REVENUES.......................................... $3,348,653 $ 705,441
---------- ---------
OPERATING EXPENSES:
Salaries, outside services and employee benefits
expenses....................................... 2,124,982 524,885
Office and general expenses..................... 1,259,722 302,627
---------- ---------
Total operating expenses...................... 3,384,704 827,512
---------- ---------
OPERATING LOSS.................................... (36,051) (122,071)
Interest expense................................ (28,472) (11,006)
Other income, net............................... 10,846 647
---------- ---------
NET LOSS.......................................... (53,677) (132,430)
RETAINED DEFICIT, beginning of period............. (76,096) (129,773)
---------- ---------
RETAINED DEFICIT, end of period................... $ (129,773) $(262,203)
========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-31
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993 AND THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DEC. 31, 1993 MARCH 31, 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................... $(53,677) $(132,430)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization.................. 137,454 20,196
Gain (loss) on sale of equipment............... (4,019) 38,708
Changes in assets and liabilities--
Accounts receivable.......................... 415,186 335,345
Accrued revenues............................. (106,612) (31,194)
Prepaid expenses and other current assets.... 35,037 (18,508)
Accounts payable............................. 10,187 359,059
Advance billings............................. (641,709) 48,073
Other current liabilities.................... 16,995 29,797
-------- ---------
Net cash provided by (used in) operating
activities................................ (191,158) 649,046
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............... (111,065) (40,801)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of short-term borrowings.......... (50,000) (250,000)
Repayment of notes to stockholders............... -- (224,000)
Additions to notes to stockholders............... 229,221 --
Repayments of long-term debt..................... (39,147) (11,582)
Additions to long-term debt...................... 144,930 --
-------- ---------
Net cash provided by (used in) financing
activities................................ 285,004 (485,582)
-------- ---------
NET INCREASE (DECREASE) IN CASH.................... (17,219) 122,663
CASH, beginning of period.......................... 40,165 22,946
-------- ---------
CASH, end of period................................ $ 22,946 $ 145,609
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.......... $ 26,705 $ 9,016
======== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-32
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND MARCH 31, 1994
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc., a Washington
corporation ("Cf2GS" or the "Company"), is an advertising firm which provides
direct mail, media, database and general advertising services. The Company
earns the majority of its revenues from direct mail services.
SIGNIFICANT CUSTOMERS
One customer accounted for approximately 73% and 71% of the Company's net
revenues for the periods ended December 31, 1993 and March 31, 1994,
respectively.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from these estimates.
REVENUE RECOGNITION
Revenue represents fees for advertising services rendered as well as
commissions on media and production costs. Such services are generally
completed within three to twelve months. The Company recognizes revenue for
fees as they are earned based principally on labor costs incurred. This method
approximates the percentage-of-completion method. Commissions on media and
production costs are recognized as revenue when earned, which is generally
when such amounts are billable. Advance billings represent billings in excess
of costs incurred and estimated earnings for advertising services. Accrued
revenues represent costs incurred and estimated earnings in excess of
billings. Revenue is reported net of third-party, client reimbursable costs.
Losses on customer work are recognized when known. There are no contract
retainages and all amounts are expected to be collected within one year.
PROPERTY AND EQUIPMENT
Depreciation is provided on both straight-line and accelerated methods over
the estimated useful lives of furniture and equipment. Significant external
software costs are capitalized and amortized over five years. Leasehold
improvements are amortized over the lesser of the estimated useful life of the
asset or the life of the lease. The Company reviews its recorded fixed assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable and provides currently for any
indicated impairment.
INCOME TAXES
For the periods ended December 31, 1993 and March 31, 1994, the stockholders
of the Company elected S Corporation status for federal income tax purposes.
Accordingly, taxable income or loss of the Company has been included with that
of its stockholders and the operating results for the periods ended December
31, 1993 and March 31, 1994, do not include a provision or benefit for federal
income taxes.
2. LEASE COMMITMENTS
The Company leases office space, vehicles and equipment under operating
leases expiring in various years through 2000. The total rent expense related
to these operating leases totaled $262,265 and $42,126 for the year ended
December 31, 1993 and the three months ended March 31, 1994, respectively.
F-33
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Minimum future lease payments under noncancelable operating leases as of
March 31, 1994, were as follows:
<TABLE>
<S> <C>
1994.......................... $ 116,088
1995.......................... 248,081
1996.......................... 306,645
1997.......................... 252,576
1998-2000..................... 234,699
----------
$1,158,089
==========
</TABLE>
3. RETIREMENT BENEFIT PAN
The Company maintains a profit sharing plan with a 401(k) feature for the
benefit of eligible employees. The Company makes matching contributions equal
to 25% of employee deferrals up to 6% of an employee's salary. Matching
contributions of $5,403 and $2,786 were made in the periods ended December 31,
1993 and March 31, 1994, respectively. Though the Company has not elected to
do so in the periods being reported, additional profit sharing contributions
may be made at the discretion of the Company's Board of Directors.
4. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings represent a line of credit to finance working capital
needs. The line of credit had an interest rate of prime plus 1% and a term of
one year. Average borrowings under the line of credit were $103,000 and
$96,000 for the year ended December 31, 1993 and the three months ended March
31, 1994, respectively. The average interest rate under the line credit was
7.0% for each of the year ended December 31, 1993 and the three months ended
March 31, 1994. Total unused borrowings under the line of credit was $300,000
and $50,000 as of December 31, 1993 and March 31, 1994, respectively.
Long-term debt consists of the following obligations:
<TABLE>
<CAPTION>
DEC. 31, 1993 MAR. 31, 1994
------------- -------------
<S> <C> <C>
Term note--Seafirst Bank...................... $120,000 $112,500
Loans for leasehold improvements.............. 72,489 68,407
-------- --------
192,489 180,907
Less--Current portion......................... 46,901 47,294
-------- --------
$145,588 $133,613
======== ========
</TABLE>
The term note was incurred for the purchase of equipment and is payable in
monthly installments of $2,500 plus interest at prime plus 1.5%.
The loans for leasehold improvements relate to improvements in the Seattle
and Portland facilities in 1993 and 1991, respectively. The loans are payable
in monthly installments of $905 at 8% interest and $1,017 at 12% interest.
5. NOTES PAYABLE TO STOCKHOLDERS
The notes payable to stockholders represent interest bearing notes, due on
demand, to two stockholders to finance operating cash flow needs as follows:
<TABLE>
<CAPTION>
DEC. 31, 1993 MAR. 31, 1994
------------- -------------
<S> <C> <C>
Promissory Notes, due on demand, interest at
7%......................................... $224,000 $ --
Capital notes, due on demand, interest at
8%......................................... 108,379 108,379
-------- --------
$332,379 $108,379
======== ========
</TABLE>
F-34
<PAGE>
CHRISTIANSEN, FRITSCH, GIERSDORF, GRANT & SPERRY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
6. SUBSEQUENT EVENT
Effective April 1, 1994, the Company became a wholly-owned subsidiary of
True North Communications Inc. ("True North"). True North paid $275,000 for
all of the outstanding common stock and assumed all borrowings, debt and
capital notes totaling $439,286. The Company is required to make earnout
payments to the former stockholders based on a percentage of revenue through
1998. In August 1996, True North management modified the terms of its earnout
arrangement with the former stockholders of Cf2GS. The new terms guarantee
annual minimum earnout payments of $983,400 in 1996, 1997 and 1998.
F-35
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Class A Common Stock being registered. All amounts
are estimates except the SEC registration fee, the NASD filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC registration fee........................................... $ 9,091
NASD filing fee................................................ 3,500
Nasdaq National Market listing fee............................. *
Printing and engraving expenses................................ 350,000
Legal fees and expenses........................................ 500,000
Accounting fees and expenses................................... *
Blue Sky qualification fees and expenses....................... 5,575
Transfer agent and registrar fees.............................. 15,000
Miscellaneous fees............................................. *
--------
Total...................................................... $ *
========
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Thirteenth of the Registrant's Certificate of Incorporation (Exhibit
3.1 hereto) and Article VI of the Registrant's Bylaws (Exhibit 3.2 hereto)
provide for mandatory indemnification of its directors and officers, and
permissible indemnification of employees and other agents, to the maximum
extent permitted by the Delaware General Corporation Law. In addition, the
Registrant intends to enter into Indemnification Agreements (Exhibit 10.13
hereto) with its officers and directors. Reference is also made to Section 10
of the Underwriting Agreement contained in Exhibit 1.1 hereto, which provides
for the indemnification of officers and directors of the Registrant against
certain liabilities.
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Form of Underwriting Agreement................................... 1.1
Certificate of Incorporation..................................... 3.1
Bylaws........................................................... 3.2
Form of Indemnification Agreement to be entered into by the
Registrant with each of its directors and officers.............. 10.13
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From the Registrant's inception through January 6, 1996, the Registrant has
issued and sold or has agreed to issue and sell, subject to certain
conditions, the following securities:
II-1
<PAGE>
(1) In December 1996, the Registrant issued an aggregate of 2,542,785
shares of its Class A Common Stock to Gerald M. O'Connell, Douglas C.
Ahlers, Robert C. Allen, II and Kraft Enterprises LTD, the limited partners
of Modem Media Advertising Limited Partnership ("Modem Media") and Messrs.
O'Connell and Ahlers, the stockholders of Modem Media, Inc., the general
partner of Modem Media, in exchange for a portion of their respective
limited and general partnership interests in Modem Media and all of the
capital stock of Modem Media Inc.
(2) In December 1996, the Registrant issued 2,802,114 shares of its Class
A Common Stock to True North Communications Inc. ("True North") in exchange
for all of its limited and general partnership interests in Modem Media.
(3) In December 1996, the Registrant issued 5,093,800 shares of its Class
B Common Stock to True North in connection with the transfer and assignment
to the Registrant of substantially all of the assets and properties of True
North's existing digital marketing communications business (representing
2,291,686 shares of the Registrant's Class A Common Stock) and the exchange
of the Registrant's Class A Common Stock held by True North for Class B
Common Stock.
The issuances of the securities described above were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of such
Act as transactions by an issuer not involving any public offering. All of the
securities were acquired by the recipients for investment and with no view
toward the resale or distribution thereof. In each instance, the recipient was
an employee of the Company or a sophisticated investor, the offer and sales
were made without any public solicitation and the stock certificates bear
restrictive legends. No underwriter was involved in the transactions and no
commissions were paid. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1 Amended and Restated Acquisition Agreement dated as of
December 31, 1996 among Registrant, True North
Communications Inc. and Douglas C. Alhers, Robert C. Allen,
II, Gerald M. O'Connell and Kraft Enterprises LTD.
3.1 Form of Certificate of Incorporation of Registrant to be
effective upon consummation of the Offering.
3.2 Bylaws of Registrant.
4.1 Form of Registrant's Class A Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being
issued.
10.1 Amended and Restated Reorganization Agreement dated as of
December 31, 1996 among Registrant, True North
Communications Inc. and Douglas C. Ahlers, Robert C. Allen,
II, Gerald M. O'Connell and Kraft Enterprises LTD.
10.2 Administrative Services Agreement between Registrant and
True North Communications Inc.
10.3(a) Space Sharing Agreement between Registrant and Foote, Cone &
Belding Limited, a Hong Kong Company.
10.3(b) Space Sharing Agreement between Registrant and Foote, Cone &
Belding, Inc., a Delaware Corporation.
10.3(c) Space Sharing Agreement between Northern Lights Interactive
Inc., an Ontario corporation and FCB Canada Ltd., an Ontario
Corporation.
10.3(d) Space Sharing Agreement between the Registrant and True
North Communications Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.3(e) Space Sharing Agreement between Registrant and Foote, Cone
& Belding Advertising, Inc., a Delaware corporation.
10.3(f) Assignment of License between FCB Consulting Limited, a
United Kingdom Company and TN Technologies Limited, a
United Kingdom Company.
10.3(g)* Space Sharing Agreement between Registrant and RGA Media
Group, Inc., a New York corporation.
10.3(h) Space Sharing Agreement between Registrant and Foote, Cone
& Belding, Inc., a Delaware corporation.
10.4 Intercompany Credit Agreement between Registrant and True
North Communications Inc.
10.5 Intellectual Property Agreement between Registrant and True
North Communications Inc.
10.6 Tax Matters Agreement between Registrant and True North
Communications Inc.
10.7** Lease between Lennar Northeast Partners Limited Partnership
and Modem Media Advertising Limited Partnership dated June
1995.
10.8(a) Form of Employment Agreement between Registrant and Gerald
M. O'Connell.
10.8(b) Form of Employment Agreement between Registrant and Douglas
C. Ahlers.
10.8(c) Form of Employment Agreement between Registrant and Robert
C. Allen, II.
10.9(a) Form of Covenant Not to Compete or Solicit Business between
Registrant and Gerald M. O'Connell.
10.9(b) Form of Covenant Not to Compete or Solicit Business between
Registrant and Douglas C. Ahlers.
10.9(c) Form of Covenant Not to Compete or Solicit Business between
Registrant and Robert C. Allen, II.
10.10* Form of Employment Agreement between Registrant and Michael
F. Bogacki.
10.11* Form of Employment Allocation Agreement among Registrant,
True North Communications Inc. and Robert M. Greenberg.
10.12* Form of Employment Allocation Agreement among Registrant,
True North Communications Inc. and Gregory W. Blaine.
10.13** Form of Indemnification Agreement.
10.14* 1997 Stock Option Plan.
10.15* 1997 Employee Stock Purchase Plan.
10.16 Software Maintenance and Enhancement Agreement between the
Registrant and True North Communications Inc.
11.1* Statement re computation of per share earnings.
21.1 List of subsidiaries.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public
Accountants (see page II-6).
24.1** Power of Attorney (included on page II-4).
27.1 December 31, 1995 Financial Data Schedule.
27.2 September 30, 1996 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
**Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting 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, 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
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM S-1
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF WESTPORT, STATE OF CONNECTICUT, ON THIS 7TH DAY OF JANUARY 1997.
TN Technologies Holding Inc.
/s/ Gregory W. Blaine
By:__________________________________
Gregory W. Blaine
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gregory W. Blaine Chairman of the Board, Chief January 7, 1997
____________________________________ Executive Officer and
Gregory W. Blaine Director (Principal
Executive Officer)
* President, Chief Operating January 7, 1997
____________________________________ Officer and Director
Gerald M. O'Connell
* Executive Vice President, January 7, 1997
____________________________________ Chief Financial Officer
Michael F. Bogacki and Director (Principal
Financial and Accounting
Officer)
* Director January 7, 1997
____________________________________
Robert M. Greenberg
* Director January 7, 1997
____________________________________
Douglas C. Ahlers
* Director January 7, 1997
____________________________________
Robert C. Allen, II
* Director January 7, 1997
____________________________________
Martin F. Reidy
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director January 7, 1997
____________________________________
Mitchell T. Engel
* Director January 7, 1997
____________________________________
Bruce Mason
*/s/ Gregory W. Blaine
____________________________________
Power of Attorney
</TABLE>
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports, as listed below, and to all references to our Firm included in or made
a part of this Registration Statement.
a. Report dated November 15, 1996 (except for the matters discussed in Notes
10 and 11, to which the date is December 31, 1996) for the Combined True North
Units, consisting of the businesses described in Note 1 to the combined
financial statements, balance sheets as of December 31, 1994 and 1995 and
September 30, 1996, and the related statements of income (loss) and retained
earnings (deficit) and cash flows for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996,
b. Report dated November 15, 1996 (except for the matter discussed in Note 8,
to which the date is December 31, 1996) for the Modem Media Advertising Limited
Partnership balance sheets as of December 31, 1994 and 1995 and September 30,
1996, and the related statements of income, partners' capital and cash flows
for each of the three years in the period ended December 31, 1995 and the nine
months ended September 30, 1996,
c. Report dated October 2, 1996 for the R/GA Interactive, Inc. balance sheets
as of December 31, 1993 and 1994 and June 30, 1995, and the related statements
of operations and retained deficit and cash flows for the period from inception
through December 31, 1993, the year ended December 31, 1994, and the six months
ended June 30, 1995, and
d. Report dated September 23, 1996 for the Christiansen, Fritsch, Giersdorf,
Grant & Sperry, Inc. balance sheets as of December 31, 1993 and March 31, 1994
and the related statements of loss and retained deficit and cash flows for the
year ended December 31, 1993 and the three months ended March 31, 1994.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January , 1997
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
2.1 Amended and Restated Acquisition Agreement dated as of December
31, 1996 among Registrant, True North Communications Inc. and
Douglas C. Alhers, Robert C. Allen, II, Gerald M. O'Connell and
Kraft Enterprises LTD.
3.1 Form of Certificate of Incorporation of Registrant to be
effective upon consummation of the Offering.
3.2 Bylaws of Registrant.
4.1 Form of Registrant's Class A Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued.
10.1 Amended and Restated Reorganization Agreement dated as of
December 31, 1996 among Registrant, True North Communications
Inc. and Douglas C. Ahlers, Robert C. Allen, II, Gerald M.
O'Connell and Kraft Enterprises LTD.
10.2 Administrative Services Agreement between Registrant and True
North Communications Inc.
10.3(a) Space Sharing Agreement between Registrant and Foote, Cone &
Belding Limited, a Hong Kong Company.
10.3(b) Space Sharing Agreement between Registrant and Foote, Cone &
Belding, Inc., a Delaware Corporation.
10.3(c) Space Sharing Agreement between Northern Lights Interactive
Inc., an Ontario corporation and FCB Canada Ltd., an Ontario
Corporation.
10.3(d) Space Sharing Agreement between the Registrant and True North
Communications Inc.
10.3(e) Space Sharing Agreement between Registrant and Foote, Cone &
Belding Advertising, Inc., a Delaware corporation.
10.3(f) Assignment of License between FCB Consulting Limited, a United
Kingdom Company and TN Technologies Limited, a United Kingdom
Company.
10.3(g)* Space Sharing Agreement between Registrant and RGA Media Group,
Inc., a New York corporation.
10.3(h) Space Sharing Agreement between Registrant and Foote, Cone &
Belding, Inc., a Delaware corporation.
10.4 Intercompany Credit Agreement between Registrant and True North
Communications Inc.
10.5 Intellectual Property Agreement between Registrant and True
North Communications Inc.
10.6 Tax Matters Agreement between Registrant and True North
Communications Inc.
10.7** Lease between Lennar Northeast Partners Limited Partnership and
Modem Media Advertising Limited Partnership dated June 1995.
10.8(a) Form of Employment Agreement between Registrant and Gerald M.
O'Connell.
10.8(b) Form of Employment Agreement between Registrant and Douglas C.
Ahlers.
10.8(c) Form of Employment Agreement between Registrant and Robert C.
Allen, II.
10.9(a) Form of Covenant Not to Compete or Solicit Business between
Registrant and Gerald M. O'Connell.
10.9(b) Form of Covenant Not to Compete or Solicit Business between
Registrant and Douglas C. Ahlers.
10.9(c) Form of Covenant Not to Compete or Solicit Business between
Registrant and Robert C. Allen, II.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.10* Form of Employment Agreement between Registrant and Michael F.
Bogacki.
10.11* Form of Employment Allocation Agreement among Registrant, True
North Communications Inc. and Robert M. Greenberg.
10.12* Form of Employment Allocation Agreement among Registrant, True
North Communications Inc. and Gregory W. Blaine.
10.13** Form of Indemnification Agreement.
10.14* 1997 Stock Option Plan.
10.15* 1997 Employee Stock Purchase Plan.
10.16 Software Maintenance and Enhancement Agreement between the
Registrant and True North Communications Inc.
11.1* Statement re computation of per share earnings.
21.1 List of subsidiaries.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
(see page II-6).
24.1** Power of Attorney (included on page II-4).
27.1 December 31, 1995 Financial Data Schedule.
27.2 September 30, 1996 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
**Previously filed.
<PAGE>
Exhibit 2.1
===============================================================================
AMENDED AND RESTATED ACQUISITION AGREEMENT
Dated as of December 31, 1996
among
TN TECHNOLOGIES HOLDING INC., and
TRUE NORTH COMMUNICATIONS INC.,
FOOTE, CONE & BELDING ADVERTISING, INC.,
FOOTE, CONE & BELDING, INC., and
R/GA MEDIA GROUP, INC.,
and
DOUGLAS C. AHLERS,
ROBERT C. ALLEN, II,
GERALD M. O'CONNELL, and
KRAFT ENTERPRISES LTD
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I - DEFINITIONS...................................................... 2
Section 1.1 General................................................... 2
ARTICLE II - ACQUISITION AND RELATED TRANSACTIONS............................ 6
Section 2.1 Acquisition and Exchange.................................. 6
Section 2.2 Closing; Closing Date..................................... 6
Section 2.3 Consideration............................................. 6
Section 2.4 Assumption of Assumed Liabilities......................... 6
Section 2.5 Retained Liabilities...................................... 6
Section 2.6 Additional Deliveries of TN Technologies Holding.......... 6
Section 2.7 Additional Deliveries of True North....................... 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF TN TECHNOLOGIES
HOLDING................................................................. 8
Section 3.1 Good Standing; Authority.................................. 8
Section 3.2 No Conflicts; Consents.................................... 8
Section 3.3 TN Technologies Holding Capital Structure................. 8
Section 3.4 Title..................................................... 9
Section 3.5 Organization and Standing................................. 9
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF TRUE NORTH
TO TN TECHNOLOGIES HOLDING.............................................. 9
Section 4.1 Good Standing; Authority.................................. 9
Section 4.2 No Additional Representations or Warranties............... 10
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF TRUE NORTH
TO THE LIMITED PARTNERS................................................. 11
Section 5.1 Good Standing; Authority.................................. 11
Section 5.2 No Conflicts; Consents.................................... 11
Section 5.3 [Intentionally Left Blank]................................ 12
Section 5.4 Title..................................................... 12
Section 5.5 [Intentionally Left Blank]................................ 12
Section 5.6 Financial Statements...................................... 12
Section 5.7 Taxes..................................................... 12
Section 5.8 Assets Other than Real Property Interests................. 14
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.9 Real Property............................................ 14
Section 5.10 Intellectual Property.................................... 15
Section 5.11 Contracts................................................ 16
Section 5.12 Litigation............................................... 19
Section 5.13 Insurance................................................ 19
Section 5.14 Environmental............................................ 19
Section 5.15 Benefit Plans............................................ 20
Section 5.16 Compliance with Applicable Laws.......................... 20
Section 5.17 Employee and Labor Matters............................... 20
Section 5.18 Customer Accounts Receivable............................. 21
Section 5.19 Licenses; Permits........................................ 21
Section 5.20 Equipment................................................ 21
Section 5.21 Sufficiency of Transferred Business...................... 22
Section 5.22 Effect of Transaction.................................... 22
Section 5.23 Disclosure............................................... 22
Section 5.24 Finders Fees............................................. 22
Section 5.25 Certain Intercompany Arrangements........................ 22
Section 5.26 Events Subsequent to Most Recent Audited
Financial Statements of the Transferred Business......... 22
ARTICLE VI - COVENANTS OF TRUE NORTH; INITIAL PUBLIC OFFERING............... 23
Section 6.1 Ordinary Conduct......................................... 23
Section 6.2 Other Transactions....................................... 25
Section 6.3 Supplemental Disclosure.................................. 26
Section 6.4 Code Section 351......................................... 26
Section 6.5 Consummation of the IPO.................................. 26
Section 6.6 Lock-up Agreements....................................... 26
Section 6.7 Conditions Precedent to Consummation of the IPO.......... 26
Section 6.8 Certificate of Incorporation............................. 27
ARTICLE VII - CONDITIONS TO CLOSING......................................... 27
Section 7.1 Obligations of True North and the Transferring Entities.. 27
Section 7.2 Obligations of TN Technologies Holding................... 28
Section 7.3 Frustration of Closing Conditions........................ 28
ARTICLE VIII - INDEMNIFICATION.............................................. 29
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.1 Survival of Representations and Warranties; Liability
Threshold; Limitation on Recovery........................ 29
Section 8.2 Indemnification.......................................... 30
Section 8.3 Insurance................................................ 31
Section 8.4 Losses Net of Taxes, Etc................................. 31
Section 8.5 Procedures Relating to Indemnification................... 31
Section 8.6 Other Claims............................................. 33
Section 8.7 Termination of Indemnification........................... 33
Section 8.8 Mitigation............................................... 34
Section 8.9 Dispute Resolution....................................... 34
ARTICLE IX - CERTAIN ADDITIONAL MATTERS..................................... 34
Section 9.1 Conveyancing and Assumption Instruments.................. 34
Section 9.2 Further Assurances; Subsequent Transfers................. 34
Section 9.3 Certain Intercompany Arrangements........................ 36
Section 9.4 Other Agreements......................................... 36
Section 9.5 Sales and Transfer Taxes................................. 36
Section 9.6 Proration of Taxes, Lease and Utility Payments........... 36
Section 9.7 Real Estate.............................................. 37
Section 9.8 Plant Closings and Layoffs............................... 37
Section 9.9 Non-Competition.......................................... 37
ARTICLE X - ACCESS TO INFORMATION AND SERVICES.............................. 38
Section 10.1 Provision and Retention of Corporate Records............. 38
Section 10.2 Access to Information.................................... 38
Section 10.3 Production of Witnesses and Individuals.................. 38
Section 10.4 Confidentiality.......................................... 39
Section 10.5 Publicity................................................ 39
Section 10.6 Privileged Matters....................................... 39
ARTICLE XI - EMPLOYEE MATTERS: LABOR MATTERS............................... 40
Section 11.1 Employment............................................... 40
Section 11.2 Welfare Plans............................................ 40
Section 11.3 Preservation of Rights to Amend or Terminate Plans....... 40
</TABLE>
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.4 Reimbursement............................................................................. 41
Section 11.5 Limitation on Enforcement................................................................. 41
Section 11.6 Employment Solicitation................................................................... 41
ARTICLE XII - INSURANCE....................................................................................... 41
[Section 12.1 General................................................................................... 41
Section 12.2 Certain Insured Claims.................................................................... 42
ARTICLE XIII - TERMINATION.................................................................................... 42
Section 13.1 Termination............................................................................... 42
Section 13.2 Return of Documents and Other Material.................................................... 43
Section 13.3 Survival.................................................................................. 43
ARTICLE XIV - DISPUTE RESOLUTION.............................................................................. 43
Section 14.1 Binding Arbitration....................................................................... 43
Section 14.2 Injunctive Relief......................................................................... 44
ARTICLE XV - GENERAL PROVISIONS............................................................................... 44
Section 15.1 Complete Agreement........................................................................ 44
Section 15.2 Expenses.................................................................................. 44
Section 15.3 Governing Law............................................................................. 45
Section 15.4 Notices................................................................................... 45
Section 15.5 Amendment and Modification................................................................ 46
Section 15.6 Successors and Assigns.................................................................... 46
Section 15.7 No Third Party Beneficiaries.............................................................. 46
Section 15.8 Counterparts.............................................................................. 46
Section 15.9 Interpretation............................................................................ 46
Section 15.10 Annexes, Etc.............................................................................. 46
Section 15.11 Legal Enforceability...................................................................... 47
</TABLE>
-iv-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
<S> <C>
SCHEDULES
Schedule 2.3(c) Annual Repurchase Payment
Schedule 2.3(e) Consideration
Schedule 3.3 Equity Interests
Schedule 5.2 Conflicts, Necessary Consents, etc.
Schedule 5.3(b) Unpaid Dividends and Distributions
Schedule 5.5 Qualifications to do Business
Schedule 5.6 TNT Financial Statements
Schedule 5.8 Assets Other than Real Property
Schedule 5.9 Real Property
Schedule 5.10 Intellectual Property
Schedule 5.11 Contracts
Schedule 5.12 Litigation
Schedule 5.13 Insurance Policies
Schedule 5.14 Environmental
Schedule 5.15 Benefit Plans
Schedule 5.17 Employee and Labor Matters
Schedule 5.18 Customer Accounts Receivable
Schedule 5.19 Licenses; Permits
Schedule 5.20 Equipment
Schedule 5.22 Effect of Transaction
Schedule 5.24 Finders Fees
Schedule 5.25 Certain Intercompany Arrangements
Schedule 5.26 Subsequent Events
Schedule 6.1(b) Distributions
Schedule 6.1(c) Issuance, Delivery and Sale of Shares
Schedule 6.1(e) Benefit Plans
Schedule 6.1(f) Compensation
Schedule 6.1(g) Assumption of Liabilities
Schedule 6.1(i) Revaluation
Schedule 6.1(j) Payment, Loans and Advances
Schedule 6.1(n) Taxes
Schedule 6.1(o) Strategic Alliances
Schedule 6.1(p) Transactions with Affiliates
Schedule 6.1(s) Capital Expenditures
Schedule 9.7 Real Estate
Schedule 11.1 Transferred Employees
</TABLE>
-v-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
ANNEXES
<S> <C>
Annex I - Assumed Liabilities
Annex II - Transferred Assets
EXHIBITS
Exhibit A - Administrative Services Agreement
Exhibit B - Intellectual Property Agreement
Exhibit C - Intercompany Revolving Loan Agreement
Exhibit D - Space Sharing Agreements
Exhibit E - Tax Sharing Agreement
Exhibit F - Employment Solicitation Policy of True North
Exhibit G - Form of Certificate of Incorporation to be in effect
upon the Closing
Exhibit H - Form of Certificate of Incorporation to be in effect
upon consummation of the IPO
</TABLE>
<PAGE>
AMENDED AND RESTATED ACQUISITION AGREEMENT
AMENDED AND RESTATED ACQUISITION AGREEMENT, dated as of December 31,
1996, among TN TECHNOLOGIES HOLDING INC., a Delaware corporation ("TN
Technologies Holding"), TRUE NORTH COMMUNICATIONS INC., a Delaware corporation
("True North"), Foote, Cone & Belding Advertising, Inc., a Delaware corporation
("FCB Advertising"), Foote, Cone & Belding, Inc., a Delaware corporation
("Foote, Cone & Belding"), and R/GA Media Group, Inc., a Delaware corporation
("RGA", and collectively with FCB Advertising and Foote, Cone & Belding, the
"Transferring Entities"), and each of Douglas C. Ahlers, a resident of Norwalk,
Connecticut, Robert C. Allen, II, a resident of Danbury, Connecticut, Gerald M.
O'Connell, a resident of Wilton, Connecticut, and Kraft Enterprises LTD, an
Illinois general partnership (Douglas C. Ahlers and Gerald M. O'Connell being
herein referred to collectively as the "Stockholders" and the Stockholders,
Robert C. Allen, II, and Kraft Enterprises LTD being herein referred to
collectively as "the Limited Partners").
WHEREAS, True North is a global communications company specializing in
advertising, direct marketing, sales promotion, programming content, directory
advertising services and interactive media service;
WHEREAS, TN Technologies Holding wishes to acquire from True North and
the Transferring Entities, and True North and the Transferring Entities wish to
transfer and assign to TN Technologies Holding, the Transferred Business as
specified in this Agreement in exchange for (i) the assumption by TN
Technologies Holding of certain of the liabilities and obligations relating to
the Transferred Business as specified in this Agreement, and (ii) the issuance
to True North and the Transferring Entities by TN Technologies Holding of an
aggregate of 2,291,686 shares (the "TN Technologies Holding Shares") of its
Class B Common Stock, par value $0.001 per share (the "Class B Common Stock");
WHEREAS, In connection with the acquisition of the Transferred
Business, True North will exchange 2,802,114 shares of TN Technologies Holding
Class A Common Stock, par value $0.001 per share (the "Class A Common Stock"),
for 2,802,114 shares of Class B Common Stock; and
WHEREAS, TN Technologies Holding is willing to assume such liabilities
and obligations and issue the Class B Common Stock to True North and the
Transferring Entities in exchange for such assets and properties and to exchange
such Class B Common Stock for Class A Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 General. As used in this Agreement, capitalized terms
defined immediately after their use shall have the respective meanings thereby
provided, and the following terms shall have the following meanings:
Acquired Entities: Cf2GS and TN Technologies Inc.
Acquisition: the transfer of the Transferred Business to TN Technologies
Holding and the assumption by TN Technologies Holding of the Assumed
Liabilities, all as more fully described in this Agreement and the Related
Agreements.
Administrative Services Agreement: the Administrative Services Agreement,
substantially in the form set forth as Exhibit A hereto, pursuant to which True
North and TN Technologies Holding will provide certain corporate services
specified therein to each other.
Affiliate: with respect to any specified person, a person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person; provided, however, that
True North and TN Technologies Holding shall not be deemed to be Affiliates of
each other for purposes of this Agreement,
Agreement: this Acquisition Agreement, including all of the Annexes,
Schedules and Exhibits hereto.
Assumed Liabilities: collectively, the Liabilities and other obligations
listed on Annex I hereto.
Bids, Quotations and Proposals: the bids, quotations or proposals which
have been submitted or made by True North or the Transferring Entities relating
to the Transferred Business on behalf of the Transferred Business which are
outstanding as of the Closing Date.
Books and Records: the books and records of True North or the Transferring
Entities (or true and complete copies thereof), including all computerized books
and records owned by True North or the Transferring Entities, which relate
principally to the Transferred Business or are necessary for TN Technologies
Holding to operate the Transferred Business, including, without limitation, all
such books and records relating to Transferred Employees, the purchase of
materials, supplies and services, the manufacture and sale of products by the
Transferred Business or dealings with customers of the Transferred Business and
all files relating to any action being assumed by TN Technologies Holding as
part of the Assumed Liabilities.
Cf2GS: Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc., a
Washington corporation.
-2-
<PAGE>
Code: the Internal Revenue Code of 1986, as amended.
Committee: the Compensation Committee of the Board of Directors of True
North.
Conveyancing and Assumption Instruments: collectively, the various
agreements, instruments and other documents to be entered into in order to
effect the transfer to TN Technologies Holding of the Transferred Assets, and
the assumption by TN Technologies Holding of the Assumed Liabilities in the
manner contemplated by this Agreement.
Defense: the plan for or state of defending.
Effective Time: means 5:00 p.m., Central Time on the Closing Date.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
Exchange Act: the Securities Exchange Act of 1934, as amended.
Final Determination: as defined in the Tax Sharing Agreement.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Indemnifiable Losses: with respect to any claim by an Indemnitee for
indemnification authorized pursuant to Article 8 hereof, any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and expenses in connection therewith) suffered
by such Indemnitee with respect to such claim.
Indemnifying Party: any party who is required to pay any other person
pursuant to Article 8 hereof.
Indemnitee: any party who is entitled to receive payment from an
Indemnifying Party pursuant to Article 8 hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay
an Indemnitee pursuant to Article 8 hereof.
Insurance Program: collectively, the series of policies pursuant to
which various insurance carriers provide insurance coverage to True North in
respect of claims or occurrences relating to, without limitation, property
damage, business interruption, transit, fire, extended coverage, fiduciary,
fidelity, environmental impairment, employee crime, general liability, product
liability, automobile liability and employer's liability.
-3-
<PAGE>
Intercompany Revolving Loan Agreement: the agreement, substantially in the
form of Exhibit C hereto, pursuant to which True North will make available funds
for working capital purposes.
Intellectual Property Agreement: the agreement, substantially in the form
of Exhibit B hereto, pursuant to which True North and TN Technologies Holding
are providing for certain matters involving intellectual property.
IPO Registration Statement: the registration statement on Form S-1 to be
filed under the Securities Act, pursuant to which shares of TN Technologies
Holding Class A Common Stock to be issued in the IPO will be registered,
together with all amendments thereto.
Knowledge of True North: as it relates to the Transferred Business, shall
include the knowledge of the Transferring Entities, with respect to the
Transferred Business of such Transferring Entities.
Liabilities: any and all debts, liabilities and obligations, whether
accrued, contingent or reflected on a balance sheet, including, without
limitation, those arising under any law, rule, regulation, Action, order or
consent decree of any governmental entity or any judgment of any court of any
kind or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
Material Adverse Effect: a material adverse effect on the business, assets,
condition (financial or otherwise), results of operations or business prospects
of a party, or on the ability of a party to consummate the transactions or
complete the performance of the activities contemplated by this Agreement and
the other Related Agreements.
Modem Media Advertising Limited Partnership Agreement: the First Amended
and Restated Agreement of Limited Partnership of Modem Media Advertising Limited
Partnership.
Modem Media Partnership Interests: the limited and general partnership
interests in Modem Media Advertising Limited Partnership to be purchased by True
North pursuant to the Amended and Restated Partnership Interest and Stock
Purchase Agreement, dated as of December 31, 1996, by and between True North and
the Limited Partners and Stockholders.
Option: an option to purchase shares of True North common stock under
any of the Stock Option Plans.
Prospectus: each preliminary, final or supplemental prospectus forming
a part of the IPO Registration Statement.
Recovery: the amount obtained pursuant to a claim under an insurance
policy in the Insurance Program.
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Related Agreements: Administrative Services Agreement, Intellectual
Property Agreement, Tax Sharing Agreement, Intercompany Revolving Loan Agreement
and Space Sharing Agreements.
Reorganization Agreement: The Amended and Restated Reorganization
Agreement dated as of December 31, 1996, among TN Technologies Holding, True
North, each of the Limited Partners and the Stockholders.
Retained Liabilities: collectively, all of the Liabilities of the
Transferred Business not listed on Annex I hereto.
Return or Returns: all returns, declarations of estimated tax payments,
reports, estimates, information returns and statements with respect to Taxes,
including any related or supporting information with respect to any of the
foregoing, filed or required to be filed with any taxing authority.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Space Sharing Agreements: the several agreements substantially in the form
of Exhibit D hereto, between TN Technologies Holding and True North or its
affiliates pursuant to which True North or its affiliates will provide for
office space to TN Technologies Holding after the Closing.
Stock Option Plan: the TN Technologies 1996 Stock Option Plan.
Tax, Taxable or Taxes: all Federal, state, local, foreign and other taxes
and assessments, duties or charges of any kind, including all payroll,
employment or other withholding taxes, and including all interest, penalties and
additions imposed with respect to such amounts and penalties for late filing or
nonfiling of Returns.
Tax Sharing Agreement: the Tax Sharing Agreement, substantially in the form
of Exhibit E hereto, pursuant to which True North and TN Technologies Holding
have provided for certain tax matters.
Transferred Assets: collectively, all of the assets and properties of True
North and the Transferring Entities identified on Annex II hereto.
Transferred Business: the interactive media services, properties and
businesses of True North and the Transferring Entities comprising the Acquired
Entities, Transferred Assets and Assumed Liabilities or, where the context
otherwise requires, means True North or a Transferring Entity, as applicable,
with regard to the Transferred Business.
Transferred Employee: any employee of True North or a Transferring Entity
or any of its affiliates listed on Schedule 11.1 hereto.
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Underwriters: the managing underwriters for the IPO.
Underwriting Agreement: the underwriting agreement to be entered into among
TN Technologies Holding and the Underwriters with respect to the IPO.
ARTICLE II
ACQUISITION AND RELATED TRANSACTIONS
Section 2.1 Acquisition and Exchange. At the Closing (as defined in
Section 2.2) and subject to the terms and conditions of this Agreement, (a) True
North and the Transferring Entities shall sell and TN Technologies Holding shall
acquire (i) all title and interest of True North and the Transferring Entities
in and to the Acquired Entities and the Transferred Assets, as the case may be,
to be conveyed, assigned, transferred and delivered to TN Technologies Holding,
and (ii) all obligations and responsibilities of TN Technologies or a
Transferring Entity under the Assumed Liabilities to be assumed by TN
Technologies Holding and (b) True North shall exchange 2,802,114 shares of Class
A Common received in connection with the Reorganization Agreement for 2,802,114
shares of Class B Common Stock of TN Technologies Holding.
Section 2.2 Closing; Closing Date. Unless this Agreement is earlier
terminated pursuant to Article 13, the closing of the Acquisition (the
"Closing") shall take place two business days following the date on which all of
the conditions to Closing set forth in Article 7 have been satisfied or waived,
at the offices of True North, 101 E. Erie Street, Chicago, Illinois 60611,
unless another place or time is agreed to in writing by the parties hereto. The
date upon which the Closing actually occurs is herein referred to as the
"Closing Date."
Section 2.3 Consideration. On the Closing Date, TN Technologies
Holding shall deliver or cause to be delivered to True North and the
Transferring Entities certificates representing an aggregate of 5,093,800 shares
of Class B Common Stock of TN Technologies Holding (2,802,114 of which shall be
delivered to True North pursuant to Section 2.1(b) above), in the amounts and
registered in the names set forth on Schedule 2.3 hereto. TN Technologies
Holding agrees that it will reissue such shares of Class B Common Stock in
accordance with directions provided by True North and the Transferring Entities
in a written notice provided to TN Technologies Holding within 60 days of the
Closing.
Section 2.4 Assumption of Assumed Liabilities. In consideration for the
conveyance, assignment, transfer and delivery of the Transferred Assets being
made pursuant to Section 2.1 hereof, TN Technologies Holding agrees to assume
the Assumed Liabilities.
Section 2.5 Retained Liabilities. Upon the terms and subject to the
conditions set forth in this Agreement, True North and the Transferring Entities
hereby agree with TN Technologies Holding that True North or a Transferring
Entity shall retain, pay, perform and discharge in due course any and all
Retained Liabilities.
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Section 2.6 Additional Deliveries of TN Technologies Holding. Subject to
fulfillment or waiver of the conditions set forth in Article 7, at the Closing
TN Technologies Holding shall deliver to True North and the Transferring
Entities all of the following:
(a) Copies of the Certificate of Incorporation of TN Technologies
Holding certified as of a recent date by the Secretary of State of the State of
Delaware;
(b) Certificate of good standing of TN Technologies Holding issued as
of a recent date by the Secretary of State of the State of Delaware;
(c) Certificate of the Secretary of TN Technologies Holding, dated the
Closing Date, in form and substance reasonably satisfactory to True North, as to
(i) no amendments to the Certificate of Incorporation of TN Technologies Holding
since a specified date; (ii) the By-laws of TN Technologies Holding; (iii) the
resolutions of the Board of Directors of TN Technologies Holding authorizing the
execution and performance of this Agreement, the Related Agreements and the
transactions contemplated hereby and thereby and electing certain officers and
directors of TN Technologies Holding; and (iv) incumbency and signatures of the
officers of TN Technologies Holding executing this Agreement and the Related
Agreements; and
(d) The certificates contemplated by Sections 7.2(a) duly executed by
authorized officers of TN Technologies Holding.
Section 2.7 Additional Deliveries of True North. Subject to fulfillment or
waiver of the conditions set forth in Article 7, at the Closing True North shall
deliver to TN Technologies Holding:
(a) Copies of the Certificate of Incorporation of True North certified
as of a recent date by the Secretary of State of the State of Delaware;
(b) Certificate of good standing of True North issued as of a recent
date by the Secretary of State of the State of Delaware;
(c) Certificate of an Assistant Secretary of True North, dated the
Closing Date, in form and substance reasonably satisfactory to the Modem Media
Parties and TN Technologies Holding, as to (i) no amendments to the Certificate
of Incorporation of True North since a specified date; (ii) the By-laws of True
North; (iii) the resolutions of the Board of Directors of True North authorizing
the execution and performance of this Agreement, the Related Agreements and the
transactions contemplated hereby and thereby; and (iv) incumbency and signatures
of the officers of True North executing this Agreement and the Related
Agreements;
(d) The certificates contemplated by Sections 7.1(a) and (b) duly
executed by authorized officers of True North; and
(e) The certificates or other evidence of ownership of the 2,802,114
shares of Class A Common Stock to be exchanged pursuant to Section 2.1 above.
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Section 2.8 Additional Agreements of True North. True North shall
take all actions necessary to cause the Transferring Entities to comply with the
Transferring Entities' obligations hereunder and to effect the general
intentions of the parties in connection with the transfer of the Transferred
Business to TN Technologies Holding. The fact that the Transferring Entities are
transferring certain of the Transferred Assets shall not otherwise limit the
right of TN Technologies or the Limited Partners to seek the recourse intended
thereby. In addition, True North hereby agrees to guarantee all obligations of
the Transferring Entities to TN Technologies Holding and the Limited Partners
under this Agreement. The Limited Partners shall not be bound to exhaust their
recourse against any Transferring Entity or any other person or entities or
resort to any other means of obtaining payment or performance before being
entitled to seek payment from or recourse to True North of the obligations
hereby guaranteed. True North does furthermore bind its successors and assigns
to the obligations set forth in this Section 2.7.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TN TECHNOLOGIES HOLDING
TN Technologies Holding hereby represents and warrants to True North
and the Transferring Entities as follows:
Section 3.1 Good Standing; Authority. TN Technologies Holding is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. TN Technologies Holding has all requisite corporate
power and authority to enter into this Agreement and each of the Related
Agreements to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
All corporate acts and other proceedings required to be taken by TN Technologies
Holding to authorize the execution, delivery and performance of this Agreement,
the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and properly taken.
This Agreement and each of the Related Agreements has been duly executed and
delivered by TN Technologies Holding and constitutes a legal, valid and binding
obligation of True North, enforceable against TN Technologies Holding in
accordance with its terms.
Section 3.2 No Conflicts; Consents. The execution and delivery of
this Agreement and each of the other Related Agreements to which TN Technologies
Holding is a party by TN Technologies Holding do not, and the consummation of
the transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or to materially increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any material lien, claim, encumbrance,
security interest, option, charge or restriction of any kind upon TN
Technologies Holding under, any provision of (a) the Certificate of
Incorporation or By-laws of TN Technologies Holding, (b) any material note,
bond, mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which TN Technologies Holding is a party or by which
any of its properties or assets are bound or (c) any judgment, order or decree,
or statute, law, ordinance, rule or regulation
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applicable to TN Technologies Holding or its properties or assets. No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any governmental entity is required to be obtained
or made by or with respect to TN Technologies Holding in connection with the
execution, delivery and performance of this Agreement or any Related Agreement
or the consummation of the transactions contemplated hereby or thereby (other
than compliance with any filings under the HSR Act, if applicable).
Section 3.3 TN Technologies Holding Capital Structure.
(a) Except as disclosed on Schedule 3.3, other than True North
and the Limited Partners, no other person or entity owns any equity interest in
TN Technologies Holding. Other than as contemplated by the terms of this
Agreement and the Reorganization Agreement, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral other
than arising hereunder, to which TN Technologies Holding is a party or by which
such party is bound obligating TN Technologies Holding to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed any equity interest in TN Technologies Holding or to grant, or enter
into any such option, warrant, call, right, commitment or agreement.
(b) Other than as contemplated by the terms of this Agreement and
the Reorganization Agreement, the TN Technologies Holding common stock is not
subject to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the TN Technologies Holding common stock. All
of the dividends and other distributions declared by the Board of Directors of
TN Technologies Holding have been paid as of the date hereof.
Section 3.4 Title. Upon transfer to True North at the Closing of
certificates representing the Class B Common Stock, True North will receive good
and valid title, free and clear of any liens, claims, encumbrances, security
interests, option, charges and restrictions of any kind.
Section 3.5 Organization and Standing. TN Technologies Holding has
full corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold its properties and assets and to carry on its business
as presently conducted. TN Technologies Holding is duly qualified and in good
standing to do business as a foreign corporation in each jurisdiction in which
the conduct or nature of its business or the ownership, leasing or holding of
its properties makes such qualification necessary, except such jurisdictions
where the failure to be so qualified or in good standing, individually or in the
aggregate, would not have a Material Adverse Effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRUE NORTH
TO TN TECHNOLOGIES HOLDING
True North hereby represents and warrants to TN Technologies Holding
as follows:
Section 4.1 Good Standing; Authority. (a) True North is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. True North has all requisite corporate power and authority to
enter into this Agreement and each of the Related Agreements, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. All corporate acts and other proceedings
required to be taken by True North to authorize the execution, delivery and
performance of this Agreement, the Related Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly and properly
taken. This Agreement and each of the Related Agreements has been duly executed
and delivered by True North and constitutes a legal, valid and binding
obligation of True North, enforceable against True North in accordance with its
terms.
(b) Each of the Transferring Entities is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Transferring Entities has all requisite corporate power
and authority to enter into this Agreement to perform its obligations hereunder
and to consummate the transactions contemplated hereby. All corporate acts and
other proceedings required to be taken by each of the Transferring Entities to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by each of the
Transferring Entities and constitutes a legal, valid and binding obligation of
each of the Transferring Entities, enforceable against each of the Transferring
Entities in accordance with its terms.
Section 4.2 No Additional Representations or Warranties. TN
Technologies Holding understands and agrees that neither True North nor any of
the Transferring Entity is, in this Agreement or in any other agreement or
document contemplated by this Agreement, representing and warranting to TN
Technologies Holding in any way (i) as to the value or freedom from encumbrances
of, or any other matter concerning, any Transferred Assets or (ii) as to the
legal sufficiency of the attempt to convey title to any Transferred Assets or of
the execution, delivery and filing of the Conveyancing and Assumption
Instruments, IT BEING UNDERSTOOD AND AGREED THAT ALL SUCH ASSETS ARE BEING
TRANSFERRED "AS IS, WHERE IS" and that subject to Section 9.2, neither True
North nor any of the Transferring Entities shall bear the economic and legal
risk that (x) any conveyance of such assets shall prove to be insufficient or
(y) TN Technologies Holding title to any such assets shall be other than good
and marketable and free from encumbrances. Similarly, TN Technologies Holding
understands and agrees that neither True North nor any of the Transferring
Entities is, in this Agreement or in any other agreement or document
contemplated by this Agreement, representing or warranting to TN Technologies
Holding in any way that the obtaining of the consents or approvals, the
execution and delivery of any amendatory agreements and the
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making of the filings and applications contemplated by this Agreement shall
satisfy the provisions of all applicable agreements or the requirements of all
applicable laws or judgments, it being understood and agreed that, subject to
Section 9.2 hereof, neither True North nor any of the Transferring Entities
shall bear the economic and legal risk that any necessary consent or approvals
are not obtained or that any requirements of law or judgments are not complied
with.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TRUE NORTH
TO THE LIMITED PARTNERS
True North hereby represents and warrants solely to the Limited
Partners as follows:
Section 5.1 Good Standing; Authority. (a) True North is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. True North has all requisite corporate power and authority to
enter into this Agreement and each of the Related Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by True North to authorize the execution,
delivery and performance of this Agreement, the Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and properly taken. This Agreement and each of the
Related Agreements to which True North is a party has been duly executed and
delivered by True North and constitutes a legal, valid and binding obligation of
True North, enforceable against True North in accordance with its terms.
(b) True North owns 100% of the outstanding capital stock of each
Transferring Entity. Each of the Transferring Entities is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Transferring Entities has all requisite corporate power
and authority to enter into this Agreement to perform its obligations hereunder
and to consummate the transactions contemplated hereby. All corporate acts and
other proceedings required to be taken by each of the Transferring Entities to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by each of the
Transferring Entities and constitutes a legal, valid and binding obligation of
each of the Transferring Entities, enforceable against each of the Transferring
Entities in accordance with its terms.
Section 5.2 No Conflicts; Consents. Except as disclosed on Schedule
5.2, the execution and delivery of this Agreement and each of the other Related
Agreements to which True North is a party by True North, and the execution and
delivery of this Agreement by the Transferring Entities, do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of,
any material obligation or to loss of a material benefit under, or to materially
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increased, additional, accelerated or guaranteed rights or entitlements of any
person under, or result in the creation of any material lien, claim,
encumbrance, security interest, option, charge or restriction of any kind upon
the Transferred Business under, any provision of (a) the Certificate of
Incorporation or By-laws of True North or any Transferring Entities, (b) any
material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which True North, a
Transferring Entity or the Transferred Business is a party or by which any of
their respective properties or assets are bound or (c) any judgment, order or
decree, or statute, law, ordinance, rule or regulation applicable to True North,
a Transferring Entity or the Transferred Business or their respective properties
or assets. Except as disclosed on Schedule 5.2, no consent, approval, license,
permit, order or authorization of, or registration, declaration or filing with,
any governmental entity is required to be obtained or made by or with respect to
True North, a Transferring Entity or the Transferred Business in connection with
the execution, delivery and performance of this Agreement or any Related
Agreement or the consummation of the transactions contemplated hereby or thereby
(other than compliance with any filings under the HSR Act, if applicable).
Section 5.3 [Intentionally Left Blank]
Section 5.4 Title. True North or a Transferring Entity, as the case
may be, has good and valid title to the Transferred Business and, at the
Acquisition, good and valid title will pass to TN Technologies Holding, free and
clear of any liens, claims, encumbrances, security interests, option, charges
and restrictions of any kind.
Section 5.5 [Intentionally Left Blank]
Section 5.6 Financial Statements.
(a) Schedule 5.6(a) sets forth the consolidated balance sheets of
the Transferred Business as of September 30, 1996 and December 31, 1995, and the
consolidated statements of income and cash flows of the Transferred Business for
each of the three years ended on December 31, 1995, together with all the notes
that have been prepared to such financial statements, if any (collectively, the
"TNT Financial Statements"). The TNT Financial Statements are complete and
accurate and fairly present the consolidated financial condition and results of
operations of the Transferred Business in accordance with generally accepted
accounting principles consistently applied, in each case as of the respective
dates thereof and for the respective periods indicated.
(b) Except as disclosed on Schedule 5.6(b), there are no
liabilities or obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise) relating to the Transferred Business except (i) as
specifically disclosed, reflected or fully reserved against as part of the
balance sheet of the Transferred Business as of December 31, 1995 (the "TNT
Balance Sheet") and (ii) for liabilities and obligations incurred in the
ordinary course of business of TN Technologies Holding consistent with past
practice since the date of the TNT Balance Sheet.
Section 5.7 Taxes. All Tax Returns, statements, reports and forms
(including estimated Tax returns and reports and information Returns and
reports) required to be filed with any Taxing
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Authority with respect to any Taxable period ending on or before the Closing
Date, by or on behalf of True North and/or its subsidiaries, including the
Transferred Business (collectively, the "True North Returns"), have been or will
be filed when due in accordance with all applicable laws (including any
extensions of such due date), and all amounts shown due thereon have been paid
or have been fully accrued on the consolidated balance sheets of True North as
of [September] 30, 1996 and December 31, 1995 (the "True North Financial
Statements") in accordance with generally accepted accounting principles. Except
to the extent disclosed on Schedule 5.7 or provided for or disclosed in the True
North Financial Statements (including notes thereto), the True North Returns
correctly reflect (and, as to any True North Returns not filed as of the date
hereof but filed on or prior to the Closing Date, will correctly reflect) the
Tax liability of True North and its Subsidiaries, including the Transferred
Business. True North and its subsidiaries, including the Transferred Business,
have withheld and paid to the applicable financial institution or Taxing
Authority all amounts required to be withheld including, without limitation, all
amounts required to be withheld with respect to employees of the Transferred
Business. All True North Returns pertaining to federal income tax filed with
respect to Taxable years of True North through the Taxable year ended December
31, 1992 have been examined and closed or are True North Returns with respect to
which the applicable period for assessment under applicable law, after giving
effect to extensions or waivers, has expired. Neither True North nor any of its
subsidiaries, including the Transferred Business, has granted any extension or
waiver of the limitation period applicable to any True North Returns involving a
Tax issue with respect to or otherwise affecting the Transferred Business.
Except as disclosed on Schedule 5.7, there is no claim, audit, action, suit,
proceeding, or investigation now pending or (to the best knowledge of True
North) threatened against or with respect to True North or any of its
subsidiaries, including the Transferred Business, in respect of any Tax
deficiency or assessment relating to or otherwise affecting the Transferred
Business. No notice of deficiency or similar document of any Tax Authority
relating to or otherwise affecting the Transferred Business has been received by
True North or any of its subsidiaries, including the Transferred Business, and
there are no liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax Authority
relating to the Transferred Business that could, if determined adversely to True
North or any of its subsidiaries, including the Transferred Business,
materially affect the liability of True North or any of its subsidiaries,
including the Transferred Business, for Taxes with respect to or otherwise
affecting the Transferred Business in other Taxable periods. To the knowledge of
True North, there are no liens for Taxes on the assets included in or otherwise
affecting the Transferred Business other than liens for Taxes which are not yet
due and payable. Neither True North nor any of its subsidiaries has been or will
be required to include any material adjustment in Taxable income for any Tax
period (or portion thereof) ending on or prior to the Closing Date pursuant to
Sections 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed in respect of the Transferred Business prior to the Closing Date. There
is no contract, agreement, plan or arrangement, including, but not limited to,
the provisions of this Agreement, covering any employee or former employee of
True North or any of its subsidiaries assigned to the Transferred Business that,
individually or collectively, will give rise to the payment of any amount that
will not be deductible pursuant to Section 162 (as unreasonable compensation) or
pursuant to Section 280G of the Code. True North has provided or made available
to the Limited Partners and Stockholders or their designated representatives
true and correct copies of all material
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True North Returns relating to the Transferred Business, and, as reasonably
requested by the Limited Partners and Stockholders prior to or following the
date hereof, information statements, reports, work papers, Tax opinions and
memoranda and other Tax data and documents relating to or otherwise affecting
the Transferred Business. Neither True North nor any of its subsidiaries is a
party to (or obligated under) any Tax allocation, Tax distribution, Tax sharing,
Tax indemnity or similar agreement or arrangement with respect to any Tax
relating to or otherwise affecting the Transferred Business (including, without
limitation, any such agreement or arrangement imposed by operation of law).
Section 5.8 Assets Other than Real Property Interests.
(a) True North or the Transferring Entities have good and valid
title to all assets (other than real property) reflected on the TNT Balance
Sheet or thereafter acquired, except those sold or otherwise disposed of since
the date of the TNT Balance Sheet in the ordinary course of business of the
Transferred Business consistent with past practice, in each case free and clear
of all mortgages, liens, security interests or encumbrances of any kind other
than (i) mechanics', carriers', workmen's, repairmen's or other like liens
arising or incurred in the ordinary course of business, liens arising under
original purchase price conditional sales contracts and equipment leases with
third parties entered into in the ordinary course of business and liens for
Taxes which are not due and payable or which may thereafter be paid without
penalty or premium, (ii) mortgages, liens, security interests and encumbrances
which secure debt that is reflected as a liability on the TNT Balance Sheet and
(iii) other imperfections of title or encumbrances, if any, which do not,
individually or in the aggregate, materially impair the continued use, operation
or value of the assets to which they relate in the Transferred Business (the
mortgages, liens, security interests, encumbrances and imperfections of title
described in clauses (i), (ii) and (iii) above are hereinafter referred to
collectively as "TNT Permitted Liens").
(b) All the tangible assets of the Transferred Business have been
maintained in all material respects in accordance with the past practice of the
Transferred Business. Each of the tangible assets of the Transferred Business
and each item of material tangible personal property of the Transferred Business
is in all material respects in good operating condition and repair, ordinary
wear and tear excepted. All leased personal property of the Transferred Business
is in all material respects in the condition required of such property by the
terms of the lease applicable thereto during the term of the lease and upon the
expiration thereof.
Section 5.9 Real Property.
(a) Schedule 5.9 sets forth a complete list of all leased and
other interests in real property of any kind leased or held by True North or the
Transferring Entities (individually, a "TNT Leased Property") and further
identifies any material agreements relating to said interests in real property.
True North and the Transferring Entities have good, valid, and subsisting title
to the leasehold estates in all TNT Leased Property, in each case free and clear
of all leasehold mortgages, leasehold liens, leasehold security interests,
leasehold encumbrances, leases, assignments, subleases, easements, covenants,
rights-of-way, rights of refusal, and other restrictions of any nature
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whatsoever, except (a) such as are set forth on Schedule 5.9, (b) zoning,
building and similar restrictions, or (c) easements, covenants, rights-of-way,
rights of first refusal and other similar restrictions that affect the fee title
to the TNT Leased Property, none of which items set forth in clauses (b) or (c),
individually or in the aggregate, materially impair the continued use, operation
or value of the property to which they relate individually or in the aggregate,
materially impair the continued use of the property to which they relate in the
Transferred Business. The current use by the Transferred Business of the offices
and other facilities located on TNT Leased Property does not violate any local
zoning ordinance and, to the knowledge of True North, there is no proposed
change in any local zoning ordinance that would have a material adverse effect
on the Transferred Business.
(b) Neither the whole nor any part of the TNT Leased Property is
subject to any pending suit for condemnation or other taking by any public
authority, and, to the knowledge of True North, no such condemnation or other
taking is threatened or contemplated.
Section 5.10 Intellectual Property.
(a) Schedule 5.10 sets forth a true and complete list of all
Intellectual Property owned, used, filed by or licensed to the Transferred
Business (the "TNT Intellectual Property"). With respect to patents, copyrights,
trademarks and other TNT Intellectual Property, Schedule 5.10 also sets forth
lists of such TNT Intellectual Property and of all jurisdictions in which such
TNT Intellectual Property is issued, registered or applied for and all
registration and application numbers. Except as expressly set forth on Schedule
5.10, True North owns the freely transferable right to make, use, sell, have
made, lease, export, execute, reproduce, display, perform, modify, enhance,
distribute, prepare derivative works of and sublicense, without payment to any
other person, all TNT Intellectual Property, and the consummation of the
transactions contemplated hereby will not conflict with, alter or impair any
such rights. The Transferred Business owns or licenses under valid agreements
all TNT Intellectual Property as is necessary to conduct its business as is
presently conducted which is also set forth on Schedule 5.10.
(b) The Transferred Business has not granted any options,
licenses or agreements of any kind relating to TNT Intellectual Property or the
marketing or distribution thereof, except non-exclusive licenses to end users in
the ordinary course of business. The Transferred Business is not bound by or a
party to any options, licenses or agreements of any kind relating to the TNT
Intellectual Property of any other person, except as expressly set forth on
Schedule 5.10. Except as set forth in the Intellectual Property Agreement,
neither True North nor any Transferring Entity will hold any interest in the TNT
Intellectual Property after the Acquisition. Except as set forth on Schedule
5.10, all TNT Intellectual Property is free and clear of the claims of others
and of all liens, security interests and encumbrances whatsoever. Except as set
forth on Schedule 5.10, the Transferred Business' conduct of its business as
presently conducted does not, and the conduct of such business as proposed to be
conducted by TN Technologies Holding (as described in its business plan) will
not, violate, conflict with or infringe the Intellectual Property of any other
person. Except as set forth on Schedule 5.10, (i) no claims are pending or, to
the knowledge of True North, threatened, against the Transferred Business by any
person with respect to the ownership, validity, enforceability, effectiveness or
use of any TNT Intellectual Property, and, to the knowledge of True North, there
are
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no reasonable grounds existing to support the commencement or assertion of any
such claims which such claims would be of a material nature and (ii) none of
True North, the Transferring Entities, the Transferred Business or any of their
Affiliates has received any written communications alleging that any such party
has violated any rights relating to Intellectual Property of any person.
(c) The TNT Intellectual Property has been maintained in
confidence in accordance with protection procedures customarily used in the
industries of the Transferred Business to protect rights of like importance.
Except as disclosed on Schedule 5.10, all former and current members of
management and key personnel of the Transferred Business, including all current
employees, agents, consultants and independent contractors who have contributed
to or participated in the conception and development of software or other TNT
Intellectual Property (collectively, "TNT Personnel"), have executed and
delivered to the Transferred Business a proprietary information agreement
restricting such person's right to disclose proprietary information of the
Transferred Business and its clients. Except as disclosed on Schedule 5.10, all
former and current TNT Personnel either (i) have been party to a "work-for-hire"
arrangement or agreement with the Transferred Business, in accordance with
applicable Federal and state law, that has accorded the Transferred Business
full, effective, exclusive and original ownership of all tangible and intangible
property thereby arising or (ii) have executed appropriate instruments of
assignment in favor of the Transferred Business as assignee that have conveyed
to the Transferred Business full, effective and exclusive ownership of all
tangible and intangible property thereby arising. None of the current or former
officers or employees of the Transferred Business have any patents issued or
applications pending for any device, process, design or invention of any kind
now used in its business.
Section 5.11 Contracts. Except as set forth on Schedule 5.11, the
Transferred Business is not a party to nor is it bound by any:
(a) employment agreement that represents an aggregate future
liability in excess of $50,000 and is not terminable by the Transferred Business
by notice of not more than sixty (60) days for a cost of less than $10,000;
(b) employee collective bargaining agreement or other contract
with any labor union;
(c) covenant of the Transferred Business not to compete or other
covenant of the Transferred Business restricting in any material respect the
development, manufacture, marketing or distribution of the Transferred Business'
products and services;
(d) agreement or other material arrangement with any current or
former officer, director or employee of the Transferred Business;
(e) lease, sublease or similar agreement with any person (other
than True North) under which the Transferred Business is a lessor or sublessor
of, or makes available for use to any person, (A) any TNT Leased Property or (B)
any portion of any premises otherwise occupied by the Transferred Business;
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(f) lease, sublease or similar agreement with any person (other
than True North or a Modem Media Party) under which (A) the Transferred Business
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by any person or (B) the Transferred Business
is a lessor or sublessor of, or makes available for use by any person, any
tangible personal property owned or leased by the Transferred Business, in any
such case which represents an aggregate future liability or receivable, as the
case may be, in excess of $50,000 and is not terminable by the Transferred
Business by notice of not more than 60 days for a cost of less than $10,000;
(g) (A) continuing contract or arrangement with a stated term
(including permitted renewals) of more than 180 days for the future purchase of
materials, supplies or equipment, (B) management service, consulting or other
similar type of contract or arrangement or (C) advertising agreement or
arrangement, in any such case which represents an aggregate future liability to
any person (other than True North) in excess of $50,000 and is not terminable by
the Transferred Business by notice of not more than 60 days for a cost of less
than $50,000;
(h) license, option or other agreement relating in whole or in
part to the TNT Intellectual Property set forth on Schedule 5.10 (including any
license or other agreement under which True North, the Transferred Business or
any of its Affiliates is licensee or licensor of any such TNT Intellectual
Property) or to trade secrets, confidential information or proprietary rights
and processes of the Transferred Business or any other person to which the
Transferred Business is a party;
(i) agreement, contract or other instrument under which the
Transferred Business has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any person or any other note,
bond, debenture or other evidence of indebtedness issued to any person;
(j) agreement or other arrangement (including so-called take-or-
pay or keepwell agreements) under which (A) any person (including the
Transferred Business) has directly or indirectly effectively guaranteed
indebtedness, liabilities or obligations of True North or (B) the Transferred
Business has directly or indirectly effectively guaranteed indebtedness,
liabilities or obligations of any person (in each case other than endorsements
for the purpose of collection in the ordinary course of business);
(k) agreement or arrangement under which the Transferred
Business has, directly or indirectly, made any advance, loan, extension of
credit or capital contribution to, or other investment in, any person;
(l) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any real and personal
property of the Transferred Business (other than such that fall within clauses
(a) and (c) of the definition of TNT Permitted Liens), except as set forth on
Schedule 5.9;
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(m) agreement or instrument providing for indemnification of any
person with respect to liabilities relating to any current or former business of
the Transferred Business or any predecessor person;
(n) other agreement, contract, lease, sublease, license,
commitments or instrument to which the Transferred Business is a party or by or
to which it or any of its assets or business is bound or subject which
represents an aggregate future liability to any person (other than an Acquired
Entity) in excess of $50,000 and is not terminable by the Transferred Business
by notice of not more than 60 days for a cost of less than $10,000; or
(o) group of agreements, contracts, leases, subleases, licenses,
commitments or instruments falling within subparagraphs (a), (f), (g) and (n) of
this Section 5.11 that collectively represent future aggregate liabilities in
excess of $100,000 or that are not terminable by the Transferred Business by
notice of not more than sixty (60) days for an aggregate cost of less than
$10,000; except as specifically contemplated by this Agreement, any contract not
made in the ordinary course of business; or any other contract, agreement,
commitment or understanding that is material to the Transferred Business.
Except as expressly set forth on Schedule 5.11, all agreements, contracts,
leases, subleases, licenses, commitments or instruments of the Transferred
Business listed in the Schedules hereto (collectively, the "TNT Contracts") are
valid, binding and in full force and effect and are enforceable by the
Transferred Business in accordance with their terms (except as against third
parties that properly invoke the protection of applicable bankruptcy laws of
which, to the knowledge of True North, there are currently none) and, to the
knowledge of True North, the consummation of the transactions contemplated
hereby will not affect the validity or enforceability of the TNT Contracts.
Except as set forth on Schedule 5.11, the Transferred Business has performed all
material obligations required to be performed by it to date under the TNT
Contracts and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder and, to
the knowledge of True North and/or TN Technologies Holding, no other party to
any of the TNT Contracts is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder.
Complete copies of all TNT Contracts have been made available to the Modem Media
Parties. Neither True North nor TN Technologies Holding is currently
renegotiating any of the TNT Contracts or paying liquidated damages in lieu of
performance.
Section 5.12 Litigation. Schedule 5.12 sets forth a list of all
pending lawsuits, and of all claims with respect to which an officer of the
Transferred Business has been contacted in writing, against or affecting the
Transferred Business or any of its properties, assets, operations or businesses
and which (a) relate to or involve a claim for more than $10,000 either on the
face of the claim or in the reasonable judgment of True North, (b) seek any
injunctive relief or (c) relate to or may give rise to any legal restraint on or
prohibition against the transactions contemplated by this Agreement. None of the
lawsuits or claims listed on Schedule 5.12 could reasonably be expected to have,
if so determined, individually or in the aggregate, a Material Adverse Effect.
Except as set forth on Schedule 5.12, to the knowledge of True North, there are
no unasserted claims of the type that would be required to be disclosed on
Schedule 5.12 if counsel for the claimant had contacted the Transferred
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Business which if asserted could reasonably be expected to have a Material
Adverse Effect. The Transferred Business is not a party or subject to or in
default under any judgment, order, injunction or decree of any Governmental
Entity or arbitration tribunal applicable to the Transferred Business or any of
its properties, assets, operations or business. Except as set forth on Schedule
5.12, there is no lawsuit or claim by the Transferred Business pending, or which
such claim the Transferred Business intends to initiate, against any other
person involving a claim in excess of $10,000. To the knowledge of True North,
there is no pending or threatened investigation of the Transferred Business by
any Governmental Entity.
Section 5.13 Insurance. The insurance policies maintained by the Transferred
Business are listed on Schedule 5.13. All such policies are in full force and
effect, all premiums due and payable thereon have been paid (other than
retroactive or retrospective premium adjustments that are not yet, but may be,
required to be paid with respect to any period ending prior to the Closing Date
under comprehensive general liability and workmen's compensation insurance
policies), and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced on substantially similar
terms prior to the date of such cancellation. In addition, to True North's
knowledge, the transactions contemplated hereby will not affect the validity or
enforceability of any of such policies. To the knowledge of True North, the
Transferred Business has been conducted in a manner so as to conform in all
material respects to all applicable provisions of such insurance policies.
Section 5.14 Environmental.
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(a) For the purposes of this Agreement, the following terms shall have
the following definitions:
(i) "Environmental Claim" means any notice, claim, act, cause of
action or investigation by any Person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from (A) the presence, or
release into the environment, of any Hazardous Materials (as hereinafter
defined) or (B) any violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all Federal, state, local and foreign
laws and regulations relating to pollution or protection of the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata) or the protection of human health, including laws and regulations
relating to emissions, discharges, releases or threatened releases of Hazardous
Materials, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.
(iii) "Hazardous Materials" means chemicals, pollutants, contaminants,
wastes, toxic substances, radioactive and biological materials, asbestos
containing materials (ACM), hazardous substances, petroleum and petroleum
products or any fraction thereof.
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(b) To True North's knowledge, the Transferred Business has been and
is in compliance (which compliance includes, but is not limited to, the
possession of all permits and other governmental authorizations required under
applicable Environmental Laws and compliance with the terms and conditions
thereof) in all material respects with all Environmental Laws and the
Transferred Business has not received any notice of any alleged claim, violation
of or liability under any Environ mental Law which has not heretofore been cured
or for which there is any remaining liability.
(c) Neither True North nor the Transferred Business have received
notice of any Environmental Claim filed or threatened against the Transferred
Business or relating to the Trans ferred Business, or against any person or
entity whose liability for any Environmental Claim the Transferred Business has
retained or assumed either contractually or by operation of law and there are no
past or present actions, activities, circumstances, conditions, events or
incidents, that could reasonably be expected to form the basis of any
Environmental Claim against the Transferred Business or against any person or
entity whose liability for any Environmental Claim the Transferred Business has
retained or assumed either contractually or by operation of law.
(d) To True North's knowledge, the Transferred Business has not
disposed of, emitted, discharged, handled, stored, transported, used or released
any Hazardous Materials, arranged for the disposal, discharge, storage or
release of any Hazardous Materials, or exposed any employee or other individual
to any Hazardous Materials so as to give rise to any material liability or
corrective or remedial obligation under any Environmental Laws.
(e) To True North's knowledge, no Hazardous Materials are present in,
on, under or adjacent to any properties owned, leased or used at any time
(including both land and improve ments thereon) by the Transferred Business or
for its business so as to give rise to any material liability or corrective or
remedial obligation under any Environmental Laws.
Section 5.15 Benefit Plans. Except as disclosed on Schedule 5.15, the
Transferred Business does not maintain or contribute to, or is not required to
maintain or contribute to an "employee pension plan" (as defined in Section 3(2)
of ERISA) or an "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA) and neither the Transferred Business nor any benefit plan maintained by
the Transferred Business is subject to ERISA.
Section 5.16 Compliance with Applicable Laws. The Transferred Business is
in compliance in all material respects with all Applicable Laws, including those
relating to occupational health and safety. Neither True North nor the
Transferred Business has received any order or communication during the past
three years from a Governmental Entity that alleges that the Transferred
Business is not in compliance in any respect with any Applicable Laws.
Section 5.17 Employee and Labor Matters. Except as set forth on Schedule
5.17, (a) there is, and during the past three years there has been, no labor
strike, dispute, work stoppage or lockout pending, or, to the knowledge of True
North, threatened, against the Transferred Business, (b) to the knowledge of
True North, no union organizational campaign is in progress with respect to the
employees of the Transferred Business and no question concerning representation
exists respecting
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such employees; (c) the Transferred Business is not engaged in any unfair labor
practice; (d) there is no unfair labor practice charge or complaint against the
Transferred Business pending, or, to the knowledge of True North, threatened,
before the National Labor Relations Board; (e) there are no pending, or, to the
knowledge of True North, threatened, union grievances against the Transferred
Business; (f) there are no pending, or, to the knowledge of True North,
threatened, charges against the Transferred Business or any current or former
employee of the Transferred Business before the Equal Employment Opportunity
Commission or any state or local agency responsible for the prevention of
unlawful employment practices; (g)neither True North nor any Tranferring Entity
has not received written notice during the past three years of the intent of any
Governmental Entity responsible for the enforcement of labor or employment laws
to conduct an investigation of or affecting the Transferred Business and, to the
knowledge of True North, no such investigation is in progress; and (h) the
Transferred Business is not liable for any arrears of wages, penalties or taxes
with respect to the foregoing.
No officer or director of the Transferred Business is, and, to the
knowledge of True North, no other employee of the Transferred Business is a
party to or bound by any contract, license, covenant or agreement of any nature,
or subject to any judgment, decree or order of any Governmental Entity, that
would conflict with the Transferred Business or the transactions contemplated
hereby or by the Related Agreements or have a Material Adverse Effect. To the
knowledge of True North, no activity of any employee of the Transferred Business
as or while an employee of True North or the Transferred Business has caused a
violation of any employment contract, confidentiality agreement, patent
disclosure agreement, or other contract or agreement. To the knowledge of True
North, the execution and delivery of this Agreement and the Related Agreements
will not conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any such employees are now obligated.
Section 5.18 Customer Accounts Receivable. All customer accounts
receivable of the Transferred Business, whether reflected on the TNT Balance
Sheet or subsequently created, have arisen from bona fide transactions in the
ordinary course of business. To the knowledge of True North, all accounts
receivable reflected in the TNT Balance Sheet are good and collectible in the
ordinary course of business. Set forth on Schedule 5.18 is a list of the names
of the ten largest customers of the Transferred Business and the percentage of
the Transferred Business' total revenues that each customer represented during
the fiscal year ended December 31, 1995 and the seven months ended July 31,
1996. Except as set forth on Schedule 5.18, there exists no actual or threatened
termination, cancellation or limitation of, or any material modification of or
change in, the business relationship of the Transferred Business with any
customer or group of customers listed on Schedule 5.18 and, to the knowledge of
the True North, the consummation of the transactions contemplated hereby will
not result in the termination, cancellation or limitation of, or any material
change in, the business relationship of the Transferred Business with any
customer or group of customers listed on Schedule 5.18 for the seven month
period ended July 31, 1996.
Section 5.19 Licenses; Permits. Schedule 5.19 sets forth a true and
complete list of all licenses, permits and authorizations issued or granted to
the Transferred Business by Governmental Entities which are necessary for the
conduct of the Transferred Business. All such licenses, permits
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and authorizations are validly held by the Transferred Business, the Transferred
Business has complied in all material respects with all terms and conditions
thereof and, the same will not be subject to suspension, modification,
revocation or nonrenewal as a result of the execution and delivery of this
Agreement, the Acquisition or the consummation of the transactions contemplated
hereby.
Section 5.20 Equipment. Schedule 5.20 sets forth a list of each material
item of machinery, furniture, computer equipment or other equipment used in
connection with the Transferred Business, indicating in each case the owner and
the lessee or sublessee, if any.
Section 5.21 Sufficiency of Transferred Business. The assets of the
Transferred Business comprise all of the business, properties, assets (including
Intellectual Property) and goodwill necessary for, and are sufficient for, the
conduct of the Transferred Business by TN Technologies in the same manner as
conducted by True North, the Transferring Entities and their Affiliates
immediately prior to the Closing.
Section 5.22 Effect of Transaction. Except as set forth on Schedule 5.22,
no creditor, employee, client, customer or other person having a material
business relationship with the Transferred Business has informed True North, the
Transferring Entities or the Transferred Business in writing, that such person
intends to change such relationship because of the consummation of any other
transaction contemplated hereby.
Section 5.23 Disclosure. No representation or warranty of True North
contained in this Agreement, and no statement contained in any document,
certificate, Schedule, Annex or Exhibit furnished or to be furnished by or on
behalf of True North to any of the Limited Partners or any of their
representatives pursuant to this Agreement or any Related Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in the light of the circumstances under which
it was or will be made, in order to make the statements herein or therein not
misleading or necessary in order to fully and fairly provide the information
required to be provided in any such document, certificate, Schedule or Exhibit.
Section 5.24 Finders Fees. True North has retained the investment bankers,
brokers and finders listed on Schedule 5.24; and no other investment bankers or
finders have been retained by True North or the Transferring Entities. True
North represents and warrants that it is solely responsible for any and all fees
associated with the parties identified on Schedule 5.24 and will not charge such
fees to the Transferred Business or the Limited Partners or Stockholders.
Section 5.25 Certain Intercompany Arrangements. Schedule 5.25 sets forth a
description of the amounts and terms of all intercompany receivables, payables
and loans outstanding as of the date hereof between True North, the Transferring
Entities, the Transferred Business, any Acquired Entity and/or any employee of
True North, the Transferring Entities, the Transferred Business and any Acquired
Entity.
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Section 5.26 Events Subsequent to Most Recent Audited Financial Statements
of the Transferred Business. Since December 31, 1995, there has not been any
material adverse change in the business, assets, condition (financial or
otherwise), results of operations or business prospects of the Transferred
Business and, except as set forth on Schedule 5.26, since September 30, 1996,
the Transferred Business has not taken any action specified in Section 6.1
below.
ARTICLE VI
COVENANTS OF TRUE NORTH; INITIAL PUBLIC OFFERING
True North covenants and agrees with TN Technologies Holding and the
Limited Partners and TN Technologies Holding covenants and agrees with the
Limited Partners as follows:
Section 6.1 Ordinary Conduct. Except as otherwise expressly permitted or
required by the terms of this Agreement, from the date hereof to the Closing
Date, True North shall cause the Transferred Business to be conducted in the
ordinary course in substantially the same manner as presently conducted
(including, without limitation, with respect to research and development
efforts, advertising, promotions and capital expenditures), and shall make all
commercially reasonable efforts consistent with past practices to preserve its
relationships with employees, customers, suppliers and others with whom the
Transferred Business deals. True North shall not, and shall not permit any
Transferring Entities, Acquired Entity or the Transferred Business to, (i) take
any action that would, or that could reasonably be expected to, result in any of
the material conditions to the Acquisition not being satisfied or (ii) do any of
the following without the prior written consent of the Limited Partners, which
consent shall not be unreasonably withheld:
(a) amend the Certificate of Incorporation or By-laws of any Acquired
Entity;
(b) except as disclosed on Schedule 6.1(b), declare or pay any
dividend, declare or make any distributions (whether in cash or other property)
in respect of any Acquired Entity's ownership interests in the Transferred
Business;
(c) except as disclosed on Schedule 6.1(c), issue, deliver or sell or
otherwise authorize or propose the issuance, delivery or sale of, any shares of
capital stock or other ownership interests of the Transferred Business or any
Acquired Entity or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating the Transferred Business or any Acquired Entity to issue,
any such ownership interests;
(d) redeem or otherwise acquire, directly or indirectly, any
ownership interests, or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for an ownership interest of the
Transferred Business or any Acquired Entity;
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(e) except as disclosed on Schedule 6.1(e), adopt or amend in any
material respect or terminate any benefit plan or collective bargaining
agreement relating to or otherwise affecting the Transferred Business, except as
required by law;
(f) except as disclosed on Schedule 6.1(f), grant to any Transferred
Employee or any officer or employee of the Transferred Business or any Acquired
Entity any increase in compensation or benefits, except as may be required under
existing agreements;
(g) except as disclosed on Schedule 6.1(g), incur or assume any
liabilities, obligations or indebtedness for borrowed money or guarantee any
such liabilities, obligations or indebtedness, other than in the ordinary course
of business consistent with past practice;
(h) permit, allow or suffer any of their/its respective assets to
become subjected to any mortgage, lien, security interest, encumbrance,
easement, covenant, right-of-way or other similar restriction which would have
been required to be set forth on Schedule 5.9 or disclosed pursuant to Section
5.8 if existing on the date of this Agreement other than in the ordinary course
of business consistent with past practice;
(i) except as disclosed on Schedule 6.1(i), revalue any of its assets
or cancel any receivables or indebtedness owed to the Transferred Business or
waive any claims or rights of value exceeding $10,000 in the aggregate;
(j) except as disclosed on Schedule 6.1(j), except as specifically
contemplated hereby, pay, loan or advance any amount to, or sell, transfer,
lease or sublease any of its assets to, or enter into any agreement or
arrangement with True North or any of its affiliates or related parties;
(k) transfer to any person or entity any rights to TNT Intellectual
Property, except to customers in the ordinary course of its business consistent
with past practices;
(l) amend or modify a material term of, or violate any term of, any
of the agreements set forth or described on Schedule 5.11;
(m) initiate any litigation, other than collection actions in the
ordinary course of business;
(n) except as disclosed on Schedule 6.1(n), make or change any
material election in respect of Taxes, adopt or change any accounting method in
respect of Taxes, enter into any closing agreement, settle any material claim or
assessment in respect of Taxes, or consent to any material extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes (except to the extent that any liability for Taxes associated with any of
the foregoing shall be solely the liability of True North);
(o) except as disclosed on Schedule 6.1(o), enter into any strategic
alliance or joint marketing arrangement or agreement that is material to the
Transferred Business;
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(p) except as disclosed on Schedule 6.1(p), except as specifically
permitted by the other terms of this Agreement, enter into any transaction with
any Affiliate of True North or the Transferred Business with respect to the
assets or liabilities constituting any portion of the Transferred Business, make
any payment or transfer any article of tangible or intangible property to any
such party, or permit any such party to receive any payment or any article of
tangible or intangible property from any third party doing business, seeking
business, or desiring to do business with True North or the Transferred
Business;
(q) make any change in any method of accounting or accounting practice
or policy other than those required by generally accepted accounting principles
in effect on the date of this Agreement ("GAAP");
(r) acquire or agree to acquire by merging or consolidating with, or
by purchasing any portion of the assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
Transferred Business;
(s) except as disclosed on Schedule 6.1(s), make or incur any capital
expenditure which, individually, is in excess of $15,000 or make or incur any
such expenditures which, in the aggregate, are in excess of $75,000;
(t) sell, lease, license or otherwise dispose of any of its assets or
properties, except in the ordinary course of business and consistent with past
practice;
(u) enter into any lease of real property, except in the ordinary
course of business and consistent with past practice;
(v) modify, amend, terminate or permit the lapse of any lease of, or
reciprocal easement agreement, operating agreement or other material agreement
relating to, real property;
(w) delay or accelerate the payment of any account payable or other
liability of any Acquired Entity or the Transferred Business beyond or in
advance of its due date or the date when such liability would have been paid in
the ordinary course of business consistent with past practice;
(x) delay or accelerate collection of notes or accounts receivable in
advance or beyond their regular due dates or the dates when the same would have
been collected in the ordinary course of business consistent with past practice;
(y) except as specifically permitted by this Agreement, enter into any
agreements that extend for a period exceeding one year from the date hereof or
require a payment in aggregate of more than $25,000; or
(z) agree, whether in writing or otherwise, to do any of the
foregoing.
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Section 6.2 Other Transactions. From the date of this Agreement to the
Closing, True North shall not, directly or indirectly, encourage, solicit,
initiate or participate in discussions or negotiations with, or provide any
information or assistance to, any person or group (other than TN Technologies
Holding, the Limited Partners and their representatives) concerning any merger,
sale of securities, sale of substantial assets or similar transaction involving
the Transferred Business.
Section 6.3 Supplemental Disclosure. True North shall promptly notify TN
Technologies Holding and the Limited Partners in writing of, and furnish TN
Technologies Holding and the Limited Partners any information it may reasonably
request with respect to, the receipt by any party, either written or oral, of a
proposal to enter into a transaction contemplated by Section 6.2 or of the
occurrence to such party's knowledge of any event or condition or the existence
to such party's knowledge of any fact that would cause any of the conditions to
the obligation of True North to consummate the Acquisition not to be fulfilled.
Section 6.4 Code Section 351. True North and the Transferring Entities
agree that they shall not, within one year after the Closing, sell, transfer or
otherwise dispose of the shares of TN Technologies Holding Common Stock received
by them pursuant to this Agreement, or any interest therein, in such a manner or
to the extent that any such sale, transfer or other disposition could adversely
affect the qualification of the transactions described in the Reorganization
Agreement as transfers to a controlled corporation under Section 351 of the
Code.
Section 6.5 Consummation of the IPO. Subject to the conditions specified
in Section 6.7, True North and TN Technologies Holding shall use their best
efforts to consummate the IPO as promptly as practicable following the Closing
on a valuation agreed upon by the Limited Partners, True North and TN
Technologies Holding, which agreement shall not be unreasonably withheld.
Section 6.6 Lock-up Agreements. The parties hereto hereby agree to enter
into lock-up agreements reasonably requested by the underwriters in connection
with the IPO.
Section 6.7 Conditions Precedent to Consummation of the IPO. The parties
hereto acknowledge that, the obligations of the parties to consummate the IPO
shall be conditioned on the satisfaction, or waiver by True North, of the
following conditions:
(a) True North shall be satisfied in its sole discretion that it,
together with its Affiliates, will own at least 70% of the voting control of TN
Technologies Holding following the IPO on a fully diluted basis, after giving
effect to the issuance of any shares of restricted stock or employee stock
options to any employees of TN Technologies Holding.
(b) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Acquisition or the IPO or any of the other transactions
contemplated by this Agreement or any Related Agreement shall be in effect; the
parties hereto hereby agree to use commercially reasonable efforts to have such
order, injunction or decree removed or lifted.
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(c) A committee of TN Technologies Holding designated by the Board of
Directors of TN Technologies Holding shall have determined that the terms of the
IPO are acceptable to TN Technologies Holding.
Section 6.8 Certificate of Incorporation. Prior to consummation of the
IPO, True North and TN Technologies Holding shall cause the Certificate of
Incorporation in the form of Exhibit H hereto to be filed with the Secretary of
State of the State of Delaware.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Obligations of True North and the Transferring Entities. The
obligations of True North and the Transferring Entities under this Agreement are
subject to the satisfaction (or waiver by True North) as of the Closing of the
following conditions:
(a) The representations and warranties of TN Technologies Holding made
in this Agreement qualified as to materiality shall be true and correct, and
those not so qualified shall be true and correct in all material respects, as of
the Closing Date. TN Technologies Holding shall have performed or complied with
in all material respects all obligations and covenants required by this
Agreement and the Related Agreements to be performed or complied with by TN
Technologies by the time of the Closing. TN Technologies Holding shall have
delivered to True North certificates dated the Closing Date and signed by an
authorized officer of TN Technologies confirming the foregoing.
(b) Between the date hereof and the Closing Date, there shall have
been (i) no Material Adverse Change in the assets, business, operations,
liabilities, profits, prospects or condition (financial or otherwise) of TN
Technologies Holding; (ii) no material adverse federal or state legislative or
regulatory change affecting TN Technologies Holding; and (iii) no material
damage to the assets or properties of TN Technologies Holding by fire, flood,
casualty, act of God or the public enemy or other cause, regardless of insurance
coverage for such damage. TN Technologies Holding and the Limited Partners shall
have delivered to True North a certificate dated the Closing Date and signed by
the Limited Partners and by an authorized officer of TN Technologies Holding
confirming the foregoing.
(c) The parties shall have received all approvals and actions of or by
all Governmental Entities which are necessary to consummate the transactions
contemplated hereby.
(d) TN Technologies Holding shall have received consents, in form and
substance reasonably satisfactory to True North, to the transactions
contemplated hereby from the other parties to all contracts, leases, agreements
and permits to which TN Technologies Holding is a party or by which TN
Technologies Holding or any of their respective assets or properties is affected
and which
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are necessary to prevent a Material Adverse Change in the assets, business,
operations, liabilities, profits, prospects or condition (financial or
otherwise) of TN Technologies Holding.
(e) No action, suit or proceeding by any Governmental Entity shall
have been instituted or threatened to restrain, prohibit or otherwise challenge
the legality or validity of the transactions contemplated hereby or by any of
the Related Agreements.
(f) Each of the Related Agreements to which TN Technologies Holding is
a party shall have been executed by such party and shall not have been amended
or terminated.
(g) The Certificate of Incorporation of TN Technologies Holding in the
form of Exhibit G hereto shall have been filed with the Secretary of State of
the State of Delaware.
Section 7.2 Obligations of TN Technologies Holding. The obligations of TN
Technologies Holding under this Agreement are subject to the satisfaction (or
waiver by TN Technologies Holding) as of the Closing of the following
conditions:
(a) The representations and warranties of True North made in this
Agreement and the Related Agreements qualified as to materiality shall be true
and correct, and those not so qualified shall be true and correct in all
material respects, as of the Closing Date. True North and the Transferring
Entities shall have performed or complied with in all material respects all
obligations and covenants required by this Agreement and the Related Agreements
to be performed or complied with by True North and the Transferring Entities by
the time of the Closing. True North shall have delivered to TN Technologies
Holding and the Limited Partners a certificate dated the Closing Date and signed
by authorized officers of True North confirming the foregoing.
(b) The parties shall have received all approvals and actions of or by
all Governmental Entities necessary to consummate the transactions contemplated
hereby.
(c) True North, the Transferring Entities and each Acquired Entity, as
the case may be, shall have received consents, in form and substance reasonably
satisfactory to TN Technologies Holding and the Limited Partners, necessary to
consummate the transactions contemplated hereby.
(d) No action, suit or proceeding by any Governmental Entity shall
have been instituted or threatened to restrain, prohibit or otherwise challenge
the legality or validity of the transactions contemplated hereby or of any of
the Related Agreements.
(e) True North shall have delivered an opinion of Houlihan Lokey
Howard & Zukin, investment bankers, that the value of the Transferred Business
is not less than $11,000,000.
Section 7.3 Frustration of Closing Conditions. None of TN Technologies
Holding, True North, the Transferring Entities or any of the Limited Partners
may rely on the failure of any
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condition set forth in Section 7.1 or 7.2, as the case may be, to be satisfied
if such failure was caused by such party's failure to act in good faith or to
use its commercially reasonable efforts to cause the Closing to occur.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations and Warranties; Liability
Threshold; Limitation on Recovery.
(a) All representations, warranties, covenants and agreements of the
parties contained in this Agreement shall survive the Closing Date.
(b) Except as specifically provided herein, the provisions of this
Article 8 shall terminate and be of no further force and effect on the third
anniversary of the Closing Date. Such termination shall in no way limit the
obligations of TN Technologies Holding with respect to the Assumed Liabilities
or the obligations of True North and the Transferring Entities with respect to
the Retained Liabilities and related indemnification rights under this
Agreement, which shall survive indefinitely. Notwithstanding the foregoing, (a)
the representations and warranties of True North to the Limited Partners
contained in Sections 5.7 and 5.14 shall survive the Acquisition and shall
continue in full force and effect without limit as to time (subject to any
applicable statutes of limitations) and (b) the representations and warranties
of True North to the Limited Partners contained in Section 5.21 shall survive,
with respect to physical assets, for a period of 120 days.
(c) Except as provided in Section 8.9 hereof, TN Technologies
Holdings, the Transferring Entities and the Limited Partners shall not be
entitled to indemnification for any loss contemplated by this Article 8 until
the aggregate of all indemnified or indemnifiable losses, damages or expenses
suffered by such party or its successors and assigns, pursuant to this
Agreement, the Partnership Interest and Stock Purchase Agreement and the
Reorganization Agreement, exceeds $375,000 (the "Initial Threshold"). If such
losses, damages or expenses exceed the Initial Threshold, the applicable
indemnifying party shall be obligated to pay the entire amount of such losses,
damages or expenses suffered by the other, less $100,000.
(d) The obligations under this Article 8 of TN Technologies Holding to
True North and the Transferring Entities and of True North to TN Technologies
Holding shall survive the sale or other transfer by either of them of any assets
or businesses or the assignment by either of them of any Liabilities. To the
extent that True North or the Transferring Entities assigns any of its Retained
Liabilities (except for such amounts of Retained Liabilities which are not
material individually or in the aggregate), True North and the Transferring
Entities shall cause such transferee of such Retained Liabilities to assume
specifically its obligations with respect thereto under this Agreement and to
fulfill its obligations related to such Retained Liabilities. To the extent TN
Technologies Holding transfers to another party other than a subsidiary of TN
Technologies
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Holding any of the Assumed Liabilities (except for such amounts of Assumed
Liabilities which are not material individually or in the aggregate), TN
Technologies Holding will cause the transferee of such Assumed Liabilities to
assume specifically its obligations with respect thereto under this Agreement
and will cause such transferee to fulfill its obligations related to such
Assumed Liabilities. In the event the transferee of the Retained Liabilities or
Assumed Liabilities does not fulfill its obligations with respect thereto, True
North, the Transferring Entities and TN Technologies Holding, as the case may
be, shall fulfill their obligations with respect thereto.
Section 8.2 Indemnification.
---------------
(a) True North shall indemnify, defend and hold harmless TN
Technologies Holding, each of its directors, officers, employees and agents and
each Affiliate of TN Technologies Holding from and against any and all
Indemnifiable Losses of TN Technologies Holding or any of its Affiliates arising
out of or due to, directly or indirectly, (i) any breach by True North of any
representation or warranty of True North given for the benefit of TN
Technologies Holding contained in Article IV of this Agreement or in any
certificate or Schedule delivered pursuant hereto, (ii) any of the Retained
Liabilities and (iii) any breach of any covenant of True North or a Transferring
Entity contained in this Agreement.
(b) True North shall indemnify the Limited Partners their Affiliates
and each of their respective officers, directors, employees, stockholders and
control persons against and hold them harmless from any loss, liability, claim,
damage or expense (including legal fees and expenses reasonably incurred)
suffered or incurred by any such indemnified party arising from, relating to or
otherwise in respect of any pollution or threat to human health or the
environment that is related in any way to True North's, any Transferring
Entities, or the Transferred Business' management, use, control, ownership or
operation of any properties owned, leased or used at any time by True North, a
Transferring Entity or the Transferred Business, that occurred or existed, or
was caused, in whole or in part, on or before the Closing Date, and any
Environmental Claim True North, a Transferring Entity or the Transferred
Business has assumed or retained either contractually or by operation of law.
(c) True North shall indemnify the Limited Partners and the
Stockholders, their Affiliates and each of their respective officers, directors,
employees, stockholders and control persons against and hold each of them
harmless from any loss, liability, claim, damage or expense (including legal
fees and expenses reasonably incurred) suffered or incurred by any such
indemnified party (other than any loss, liability, claim, damage or expense, for
which exclusive indemnification is provided under Section 8.2(b)) arising from,
relating to or otherwise in respect of (a) any breach of any representation or
warranty of True North contained in Article V of this Agreement and (b) any
breach of any covenant of True North, a Transferring Entity or TN Technologies
Holding contained in Article VI or Section 9.2 of this Agreement.
Notwithstanding the foregoing, Kraft Enterprises LTD shall have no right to seek
indemnification from True North or any Transferring Entities pursuant to this
Section 8.2 or otherwise unless at least one other Limited Partner also seeks
such indemnification pursuant to this Section 8.2 for the same alleged breach of
a representation, warranty or covenant of True North or any Transferring
Entities
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(d) TN Technologies Holding shall indemnify, defend and hold harmless
True North and each of the Transferring Entities, each of their respective
directors, officers, employees and agents and each Affiliate of True North and
each of the Transferring Entities from and against any and all Indemnifiable
Losses of True North or any Transferring Entity or any of their respective
Affiliates arising out of or due to, directly or indirectly, (i) any breach by
TN Technologies Holding of any representations or warranties of TN Technologies
Holding contained in Article III of this Agreement, or in any certificate or
Schedule delivered pursuant hereto, (ii) any of the Assumed Liabilities, (iii)
any claim that the information provided by TN Technologies in the IPO
Registration Statement or the Prospectus is false and misleading with respect to
any material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iv) any breach
of any covenant of TN Technologies Holding contained in this Agreement.
Section 8.3 Insurance. Amounts required to be paid pursuant to this
Article 8 are hereafter sometimes collectively called "Indemnity Payments" and
are individually called an "Indemnity Payment." The amount which any party (an
"Indemnifying Party") is required to pay to any other party (an "Indemnitee")
pursuant to Section 8.2 shall be reduced (including, without limitation,
retroactively) by any insurance proceeds and other amounts actually recovered by
such Indemnitee in reduction of the related Indemnifiable Loss. If an
Indemnitee shall have received an Indemnity Payment in respect of an
Indemnifiable Loss and shall subsequently actually receive insurance proceeds or
other amounts in respect of such Indemnifiable Loss, then such Indemnitee shall
pay to such Indemnifying Party a sum equal to the lesser of (a) the amount of
such insurance proceeds or other amounts or (b) such Indemnity Payment actually
received previously. The Indemnitee agrees that the Indemnifying Party shall be
subrogated to such Indemnitee under any insurance policy.
Section 8.4 Losses Net of Taxes, Etc. The amount of any loss, liability,
claim, damage, expense or Tax (collectively, a "Loss") for which indemnification
is provided under this Article 8 shall be (a) increased to take account of any
net Tax cost incurred by the indemnified party arising from the receipt of
indemnity payments hereunder (i.e. grossed up for such increase) and (b) reduced
to take account of any net Tax benefit realized by the indemnified party arising
from the incurrence or payment of any such Loss. In computing the amount of any
such Tax cost or Tax benefit, the indemnified party shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt of any indemnity payment hereunder
or the incurrence or payment of any indemnified Loss. Any indemnification
payment hereunder shall initially be made without regard to this paragraph and
shall be increased or reduced to reflect any such net Tax cost (including gross-
up) or net Tax benefit only after the indemnified party has actually realized
such cost or benefit. For purposes of this Agreement, an indemnified party shall
be deemed to have "actually realized" a net Tax cost or a net Tax benefit to the
extent that, and at such time as, the amount of Taxes payable by such
indemnified party is increased above or reduced below, as the case may be, the
amount of Taxes that such indemnified party would be required to pay but for the
receipt of the indemnity payment or the incurrence or payment of such Loss, as
the case may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any Final Determination (which shall include the execution
of Form 870-AD or any successor form) with respect to the indemnified
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party's liability for Taxes and payments between the parties to this Agreement
to reflect such adjustment shall be made if necessary.
Section 8.5 Procedures Relating to Indemnification. In order for
a party (the "indemnified party") to be entitled to any indemnification provided
for under this Agreement in respect of, arising out of or involving a claim or
demand made by any person against the indemnified party (a "Third Party Claim"),
such indemnified party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim within twenty (20) business days
after receipt by such indemnified party of written notice of the Third Party
Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
failure (except that the indemnifying party shall not be liable for any expenses
incurred by the indemnified party during the period in excess of twenty (20)
days in which the indemnified party failed to give such notice). Thereafter,
the indemni fied party shall deliver to the indemnifying party, within ten (10)
business days after the indemnified party's receipt thereof, copies of all
notices and documents (including court papers) received by the indemnified party
relating to the Third Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges its obligation to indemnify the indemnified
party therefor, to assume the defense thereof at its sole expense with counsel
selected by the indemnifying party and reasonably acceptable to the indemnified
party; provided, however, that the indemnified party shall have the right to
employ separate counsel to represent itself in connection with any claim in
respect of which indemnity may be sought hereunder if the defendants in respect
of any such claim reasonably conclude that there may be legal defenses available
to them or another indemnified party that are different from or additional to
those available to the indemnifying party or that there exists some other
conflict of interest between the interests of the indemnified parties and the
indemnifying party with respect to such claim that makes separate representation
desirable in the reasonable judgment of the indemnified parties, and, in the
event of the foregoing, the fees and expenses reasonably incurred by such
separate counsel shall be paid by the indemnifying party. It is understood,
however, in connection with the proviso in the preceding sentence that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel for all the indemnified parties (together with not more than
one local counsel in each jurisdiction in which any claim or action is brought).
Should the indemnifying party elect to assume the defense of a Third Party
Claim, except where it may not so elect pursuant to the proviso in the second
preceding sentence, in accordance with the second preceding sentence the
indemnifying party shall not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has failed to assume the defense thereof (other
than during any period during which the indemnified party shall have failed to
give timely notice of the Third Party Claim as provided above).
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If the indemnifying party elects to assume the defense of any Third Party
Claim in accordance with the provisions of this Section 8.5, all of the
indemnified parties shall cooperate with the indemni fying party in the defense
or prosecution thereof. Such cooperation shall include the retention and (upon
the indemnifying party's request) the provision to the indemnifying party of
records and infor mation which are reasonably relevant to such Third Party
Claim, and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the indemnifying party shall have assumed the defense of a Third
Party Claim, the indemnified party shall not settle, compromise or discharge
such Third Party Claim without the indemnifying party's prior written consent
(which consent shall not be unreasonably withheld). If the indemnifying party
shall have assumed the defense of a Third Party Claim, the indemnified party
shall agree to any settlement, compromise or discharge of a Third Party Claim
which the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim and which would not otherwise adversely
affect the indemnified party.
Notwithstanding the foregoing, the indemnifying party shall not be entitled
to assume the defense of any Third Party Claim (and shall be liable for the fees
and expenses of counsel incurred by the indemnified party in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the indemnified
party which the indemnified party reasonably determines cannot be separated from
any related claim for money damages. If such equitable relief or other relief
portion of the Third Party Claim can be so separated from that for money
damages, the indemnifying party shall be entitled to assume the defense of the
portion relating to money damages. The indemnification required hereunder shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or loss, liability,
claim, damage or expense is incurred. All claims under Section 8.2 other than
Third Party Claims shall be governed by Section 8.6.
Section 8.6 Other Claims. Subject to Section 8.9 below, in the event any
indemnified party should have a claim against any indemnifying party under
Section 8.2 that does not involve a Third Party Claim being asserted against or
sought to be collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the indemnifying
party. The failure by any indemnified party so to notify the indemnifying party
shall not relieve the indemnifying party from any liability which it may have to
such indemnified party under Section 8.2. If the indemnifying party does not
notify the indemnified party within twenty (20) business days following its
receipt of such notice that the indemnifying party disputes its liability to the
indemnified party under Section 8.2, such claim specified by the indemnified
party in such notice shall be conclusively deemed a liability of the
indemnifying party under Section 8.2 and the indemnifying party shall pay the
amount of such liability to the indemnified party on demand or, in the case of
any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if
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not resolved through negotiations, such dispute shall be resolved by litigation
in an appropriate court of competent jurisdiction.
Section 8.7 Termination of Indemnification. The obligations to indemnify
and hold harmless a party hereto pursuant to Section 8.2 shall not terminate
except as provided in Section 8.1 hereof.
Section 8.8 Mitigation. The parties hereto shall cooperate with each other
with respect to resolving any claim or liability with respect to which one party
is obligated to indemnify any other party hereunder, including by making
commercially reasonable efforts to mitigate or resolve any such claim or
liability; provided, that an indemnified party shall not be required to make
such efforts if they would be detrimental in any material respect to such party.
Section 8.9 Dispute Resolution.
(a) TN Technologies Holding and the Limited Partners acknowledge and
agree that in the event that TN Technologies Holding or the Limited Partners
determine that the representations and warranties contained in Section 5.21
shall not be true and correct as of the Closing, the parties shall attempt to
resolve any such dispute in accordance with the provisions of this Section 8.9.
(b) In the event of any such dispute, TN Technologies Holding or the
Limited Partners shall deliver, within 120 days of the Closing, a certificate of
the Limited Partners or the President or Chief Executive Officer of TN
Technologies Holding a notice (a "Deficiency Notice") describing, in reasonable
detail, (i) the manner in which the assets of the Transferred Business were
deficient at the time of Closing, and (ii) an identification of the additional
assets that are necessary to make Section 5.21 true and correct as of the
Closing Date; provided however, that TN Technologies Holding and the Limited
Partners shall be entitled to provide no more than three Deficiency Notices
pursuant to this Section 8.9. The Limited Partners acknowledge and agree that
the Dispute Resolution mechanism of this Section 8.9 is for the benefit of TN
Technologies Holding. The Limited Partners further acknowledge and agree that
the resolutions of any claim or controversy pursuant to Section 8.9 shall
satisfy the obligations of True North to the Limited Partners pursuant to the
Representations and Warranties contained in Section 5.21 with respect to
physical assets.
(c) The Chief Financial Officer of True North shall respond to the
Deficiency Notice within 10 days of receipt of such notice. True North and TN
Technologies Holding agree to to cause their respective Chief Financial Officers
(i) to reach a good faith settlement regarding the issues raised in such
Deficiency Notice and (ii) to collect a transfer of such additional assets to TN
Technologies Holding as is agreed upon by such Chief Financial Officers. In the
event that the Chief Financial Officers are unable to agree, the President of
each of True North and TN Technologies Holding shall meet to resolve such
dispute. In the event that a dispute still exists, TN Technologies Holding
shall be entitled to seek arbitration pursuant to Section 14.1 hereof.
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ARTICLE IX
CERTAIN ADDITIONAL MATTERS
Section 9.1 Conveyancing and Assumption Instruments. In connection with
the transfer, conveyance, assignment and delivery of the Transferred Assets and
the assumption of Liabilities contemplated by this Agreement, True North, the
Transferring Entities and TN Technologies Holding agree that, on or before the
Closing Date, each shall execute or cause to be executed by the appropriate
parties and deliver to each other, as appropriate, the Conveyancing and
Assumption Instruments.
Section 9.2 Further Assurances; Subsequent Transfers.
(a) Each of True North, the Transferring Entities and TN Technologies
Holding will execute and deliver such further instruments of conveyance,
transfer and assignment and will take such other actions as each of them may
reasonably request of the other in order to effectuate the purposes of this
Agreement and to carry out the terms hereof. Without limiting the generality of
the foregoing but subject to Section 4.2, at any time and from time to time
after the Closing Date, at the request of any of the Limited Partners and TN
Technologies Holding and without further consideration, True North and the
Transferring Entities will execute and deliver to TN Technologies Holding such
other instruments of transfer, conveyance, assignment and confirmation and take
such action as the Limited Partners or TN Technologies Holding may reasonably
deem necessary or desirable in order to more effectively transfer, convey and
assign to TN Technologies Holding and to confirm TN Technologies Holding's title
to all of the Transferred Assets, to put TN Technologies Holding in actual
possession and operating control thereof and to permit TN Technologies Holding
to exercise all rights with respect thereto (including, without limitation,
rights under contracts and other arrangements as to which the consent of any
third party to the transfer thereof shall not have previously been obtained) and
TN Technologies Holding will execute and deliver to True North and the
Transferring Entities all instruments, undertakings or other documents and take
such other action as True North and the Transferring Entities may reasonably
deem necessary or desirable in order to have TN Technologies Holding fully
assume and discharge the Assumed Liabilities and relieve True North and the
Transferring Entities of any Liability or obligations with respect thereto and
evidence the same to third parties. Notwithstanding the foregoing, True North
and the Transferring Entities and TN Technologies Holding shall not be
obligated, in connection with the foregoing, to expend monies other than their
respective reasonable out-of-pocket expenses and attorneys' fees.
(b) True North, the Transferring Entities and TN Technologies Holding
will use their commercially reasonable efforts to obtain any consent, approval
or amendment required to novate and/or assign all agreements, leases, licenses
and other rights of any nature whatsoever relating to the Transferred Business
to TN Technologies Holding; provided, however, that True North and the
Transferring Entities shall not be obligated to pay any consideration therefor
(except for filing fees and other administrative charges) to the third party
from whom such consents, approvals and amendments are requested. To the extent
that the novation or assignment of any contract or agreement (or their proceeds)
pursuant to this Section 9.2 is prohibited by law or not
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obtainable through such commercially reasonable efforts, the assignment
provisions of this Section 9 shall operate to create a subcontract with TN
Technologies Holding to perform each relevant unassignable contract or agreement
at a subcontract price equal to the monies, rights and other consi derations
received by True North or the Transferring Entities, as the case may be, with
respect to the performance by TN Technologies Holding under such subcontract.
True North or the Transferring Entities, as the case may be, shall and the
Transferring Entities, as the case may be, shall, without further consideration
therefor, pay and remit to TN Technologies Holding promptly all monies, rights
and other considerations received in respect of such performance. True North
and the Transferring Entities shall exercise or exploit their rights and options
under all such agreements, leases, licenses and other rights and commitments
referred to in this Section 9.2(b) only as reasonably directed by TN
Technologies Holding and at TN Technologies Holding's expense. If and when any
such consent shall be obtained or such agreement, lease, license or other right
shall otherwise become assignable or able to be novated, True North or the
Transferring Entities, as the case may be, shall promptly assign and novate all
its rights and obligations thereunder to TN Technologies Holding without payment
of further consideration and TN Technologies Holding shall, without the payment
of any further consideration therefor, assume such rights and obligations.
(c) All Bids, Quotations and Proposals included in the Transferred
Assets shall be transferred to TN Technologies Holding to the extent permitted
by law. True North, the Transferring Entities and TN Technologies Holding shall
work together and use their commercially reasonable efforts to preserve such
Bids, Quotations and Proposals and facilitate the award of contracts pursuant
thereto consistent with applicable laws and regulations. Any contracts awarded
pursuant to an outstanding Bid, Quotation or Proposal shall be considered an
agreement and treated in the same manner as provided for in the last two
sentences of Section 9.2(b) hereof.
Section 9.3 Certain Intercompany Arrangements.
(a) Except as specifically provided by this Agreement or the Related
Agreements, to the extent that True North, on the one hand, and the Transferred
Business, on the other hand, are providing or selling at the Closing Date to the
other, or charging each other for, any services or products, pursuant to any
written agreement or arrangement, then such agreement or arrangement shall not
be deemed altered, amended or terminated as a result of this Agreement or the
consumma tion of the transactions contemplated hereby; provided, however, that
following the Closing Date any services and products to be provided which were
not subject to a written agreement or arrangement shall be provided only on an
arm's length basis. Nothing in this Section 9.3 shall require or authorize True
North or TN Technologies Holding to provide and charge each other for any
services other than on the terms and conditions specified in the Administrative
Services Agreement.
(b) Except as otherwise provided herein, any intercompany receivable,
payable or loan between True North and TN Technologies Holding outstanding on
the Closing Date shall not be deemed altered, amended or terminated as a result
of this Agreement or the consummation of the transactions contemplated hereby.
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Section 9.4 Other Agreements. As of the Closing Date, True North and TN
Technologies Holding shall enter into the Related Agreements.
Section 9.5 Sales and Transfer Taxes. TN Technologies Holding and True
North agree to cooperate to determine the amount of sales, transfer or other
taxes or fees (including, without limita tion, all real estate, patent,
copyright and trademark transfer taxes and recording fees) payable in connection
with the transactions contemplated by this Agreement (the "Transaction Taxes").
True North agrees to file promptly and timely the returns for such Transaction
Taxes with the appropriate taxing authorities and remit payment of the
Transaction Taxes and TN Technologies Holding will, if required, join in the
execution of any such tax returns or other documentation. Payment of all such
Transaction Taxes shall be the responsibility of True North.
Section 9.6 Proration of Taxes, Lease and Utility Payments. All real
property, personal property and similar taxes and installments of general and
special assessments, if any, with respect to the Transferred Assets shall be
prorated on the basis of actual days elapsed between the commence ment of the
relevant fiscal tax year and the Closing Date, based on a 365-day year and the
most recent tax statements or bills applicable thereto, without later
adjustment. Any installment of rental payments with respect to leases that are
part of the Transferred Assets or utility or similar periodic charges incurred
by the Transferred Business which are payable with respect to the current period
in which the Closing Date occurs shall be prorated between True North and TN
Technologies Holding on the basis of actual days elapsed from the first day of
the relevant period to the Closing Date. True North shall be responsible for all
such taxes, payments and charges allocable to all times prior to and including
the Closing Date and TN Technologies Holding shall be responsible for all such
taxes, payments and charges allocable to all times after the Closing Date.
Following the Closing Date, each party shall, upon request of the other party,
immediately reimburse the other party for any such taxes, payments and charges
or other expenses for which said party is responsible but have been paid by or
are owed by the other party and for allocations made by one party on behalf of
the other party.
Section 9.7 Real Estate. Schedule 9.7 indicates the locations for which TN
Technologies Holding and True North will enter into Space Sharing Agreements
prior to the Acquisition.
Section 9.8 Plant Closings and Layoffs. TN Technologies Holding agrees
that it shall not, at any time during the ninety (90) day period following the
Closing Date, effectuate (i) a "plant closing" as defined in the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act") affecting
any site of employment or operating units within any site of employment of the
Transferred Business or (ii) take any action to precipitate a "mass layoff" as
defined in the WARN Act affecting any site of employment of the Transferred
Business, except, in either case, after complying fully with the
notice and other requirements of the WARN Act.
Section 9.9 Non-Competition. For a period of three (3) years after the
Closing Date, True North shall not directly or indirectly engage in the
Restricted Business (as hereinafter defined); provided, however, that True North
or any of its subsidiaries may acquire other businesses or entities that are
deemed to be engaging in the Restricted Business so long as such activity
constitutes less than 15% of such business' or entity's revenues and such
revenues associated with the Restricted
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Business are less than $3,000,000. If True North or any of its subsidiaries
(other than TN Technologies Holding) shall acquire any business or entity that
is engaging in the Restricted Business and such business or entity has revenues
from the Restricted Business in excess of 15%, but less than 50% of such
business' or entity's aggregate revenues, True North shall offer to TN
Technologies Holding the reasonable opportunity to purchase the business or
entity engaged in the Restricted Business (i) on terms and conditions that are
consistent with the agreement to purchase such business or entity by True North
and (ii) at a purchase price that reasonably reflects the relative value of the
business conducting the Restricted Business. If TN Technologies Holding elects
not to purchase such business or entity, True North may retain and operate such
business or entity. If True North or any of its subsidiaries (other than TN
Technologies Holding) shall acquire any business or entity that is engaging in
the Restricted Business and such business or entity has revenues from the
Restricted Business in excess of 50% of such business' or entity's aggregate
revenues, True North shall offer to TN Technologies Holding the reasonable
opportunity to purchase the business or entity engaged in the Restricted
Business on terms and conditions that are consistent with the purchase of the
business or entity by True North. If TN Technologies Holding elects not to
purchase such business or entity, True North shall sell or otherwise dispose of
the business unit or units of such business or entity that are engaging in the
Restricted Business within a reasonable time. Notwithstanding the foregoing,
neither True North nor any of its subsidiaries shall use any confidential or
other proprietary information of TN Technologies Holding for competitive
purposes, nor shall True North or any of its subsidiaries furnish any such
information to any business or entity that is engaging in the Restricted
Business without the prior written consent of TN Technologies Holding. For
purposes of this Agreement, "Restricted Business" shall mean advertising
services delivered through the Internet or corporate Intranets and digital
communications services dedicated to marketing purposes.
ARTICLE X
ACCESS TO INFORMATION AND SERVICES
Section 10.1 Provision and Retention of Corporate Records. As soon as
practicable after the Closing Date, True North and the Transferring Entities
shall deliver to TN Technologies Holding all Books and Records and all material
information relating to the Transferred Business (collectively, the
"Information"). Such documents shall be retained for a period of at least eight
years following the Closing Date. Notwithstanding the foregoing, in lieu of
retaining any specific Information (as defined below), True North or TN
Technologies Holding may offer in writing to deliver such Information to the
other and, if such offer it not accepted within ninety (90) days, the offered
Information may be destroyed or otherwise disposed of. If a recipient of such
offer shall request in writing prior to the scheduled date for such destruction
or disposal that any of the Information proposed to be destroyed or disposed of
be delivered to such requesting party, the party proposing the destruction or
disposal shall promptly arrange for the delivery of such of the Information as
was requested (at the cost of the requesting party).
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Section 10.2 Access to Information. From and after the Closing Date, True
North, TN Technologies Holding and the Transferring Entities shall afford to
each other and to each other's authorized accountants, counsel and other
designated representatives reasonable access and duplicating rights (with
copying costs to be borne by the requesting party) during normal business hours
to all Books and Records and documents, communications, items and matters
(collectively, "Information") within each other's knowledge, possession or
control relating to the Transferred Assets, the Transferred Business and the
Transferred Employees, insofar as such access is reasonably required by True
North or TN Technologies Holding, as the case may be (and shall use reasonable
efforts to cause persons or firms possessing relevant Information to give
similar access). Information may be requested under this Article 10 for, without
limitation, audit, accounting, claims, Actions, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations and
other business purposes.
Section 10.3 Production of Witnesses and Individuals. From and after the
Closing Date, True North, TN Technologies Holding and the Transferring Entities
shall use reasonable efforts to make available to each other, upon written
request, its officers, directors, employees and agents for fact finding,
consultation and interviews and as witnesses to the extent that any such person
may reasonably be required in connection with any actions in which the
requesting party may from time to time be involved relating to the conduct of
the Transferred Business prior to the Closing Date. Except as otherwise agreed
between the parties, True North and TN Technologies Holding agree to reimburse
each other for reasonable out-of-pocket expenses (but not labor charges or
salary payments) incurred by the other in connection with providing individuals
and witnesses pursuant to this Section 10.3.
Section 10.4 Confidentiality. Each of True North and TN Technologies
Holding shall hold, and shall cause its officers, employees, agents, consultants
and advisors to hold, in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its independent, legal
counsel, by other requirements of law, all confidential Information concerning
the other party furnished it by such other party or its representatives pursuant
to this Agreement (except to the extent that such Information can be shown to
have been (a) available to such party on a non-confidential basis prior to its
disclosure by the other party, (b) in the public domain through no fault of such
party or (c) later lawfully acquired from other sources by the party to which it
was furnished), and each party shall not release or disclose such Information to
any other person, except its auditors, attorneys, financial advisors, bankers
and other consultants and advisors who shall be bound by the provisions of this
Section 10.4; provided, however, that after the Acquisition, True North (subject
to Section 9.9) and TN Technologies Holding may use or disclose any confidential
Information related to the Transferred Business. Each party shall be deemed to
have satisfied its obligation to hold confidential Information concerning or
supplied by the other party if it exercises the same care as it takes to
preserve confidentiality for its own similar information.
Section 10.5 Publicity. The parties hereto agree that, from the date
hereof through the Closing Date, no public release or announcement concerning
the transactions contemplated hereby shall be issued by any party without the
prior consent of True North; provided, however, that True
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North and TN Technologies Holding may make internal announcements to its
employees regarding the transactions contemplated hereby.
Section 10.6 Privileged Matters.
------------------
(a) True North and TN Technologies Holding agree that TN Technologies
Holding will maintain, preserve and assert all privileges arising under or
relating to the attorney-client relationship, including but not limited to the
attorney-client and work product privileges, that relate exclusively to the
Retained Liabilities ("Privilege" or Privileges"). True North shall be entitled
to control the assertion or waiver of any and all Privileges in perpetuity. TN
Technologies Holding shall not waive any Privilege which could be asserted under
applicable law without the prior written consent of True North. The rights and
obligations created by this paragraph shall apply to all information as to
which, but for the Acquisition, True North would have been entitled to assert or
did assert the protection of a Privilege ("Privileged Information"), including,
but not limited to, (i) any and all information generated prior to the Closing
Date but which, after the Acquisition, is in the possession of TN Technologies
Holding; (ii) all communications subject to a privilege occurring prior to the
Closing Date between counsel for True North and any person who, at the time of
the communications, was an employee of True North, regardless of whether such
employee is or becomes a TN Technologies Holding employee; and (iii) all
information generated, received or arising after the Closing Date that refers or
relates to Privileged Information generated, received or arising prior to the
Closing Date.
(b) Upon receipt by TN Technologies Holding of any subpoena, discovery
or other request which arguably calls for the production or disclosure of
Privileged Information or if TN Technologies Holding obtains knowledge that any
current or former employee of TN Technologies Holding has received any subpoena,
discovery or other request which arguably calls for the production or disclosure
of Privileged Information, TN Technologies Holding shall promptly notify True
North of the existence of the request and shall provide True North a reasonable
opportunity to review the Privileged Information and at True North's cost and
expense to assert any rights it may have under this Section 10.5 or otherwise to
prevent the production or disclosure of Privileged Information. TN Technologies
Holding will not produce or disclose any information arguably covered by a
Privilege under this Section 10.5 unless (a) True North has provided its express
written consent to such production or disclosure or (b) a court of competent
jurisdiction has entered a final, nonappealable order finding that the
information is not entitled to protection under any applicable privilege.
(c) True North's transfer of Books and Records and other information
to TN Technologies Holding, and True North's agreement to permit TN Technologies
Holding to possess Privileged Information occurring or generated prior to the
formation of TN Technologies Holding, are made in reliance on TN Technologies
Holding's agreement, as set forth in this Section 10.5, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Section 10.2 hereof, the agreement to provide witnesses and individuals pursuant
to Section 10.3 hereof and the transfer of Privileged Information to TN
Technologies Holding pursuant to this Agreement shall not be deemed
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a waiver of any Privilege that has been or may be asserted under this Section
10.5 or otherwise. Nothing in this Agreement shall operate to reduce, minimize
or condition the rights granted to True North in, or the obligations imposed
upon TN Technologies Holding by, this Section 10.5.
ARTICLE XI
EMPLOYEE MATTERS: LABOR MATTERS
Section 11.1 Employment. Schedule 11.1 lists the Transferred Employees.
Section 11.2 Welfare Plans. TN Technologies anticipates adopting an
employee stock option plan, an employee stock purchase plan and a 401(k) plan.
Section 11.3 Preservation of Rights to Amend or Terminate Plans. No
provisions of this Agreement, including, without limitation, the agreement of
True North or TN Technologies Holding that it will make a contribution or
payment to or under any plan referred to herein for any period, shall be
construed as a limitation on the right of True North or TN Technologies Holding
to amend such plan or terminate its participation therein which True North or TN
Technologies Holding would otherwise have under the terms of such plan or
otherwise.
Section 11.4 Reimbursement. TN Technologies Holding and True North
acknowledge that each may incur costs and expenses (including, without
limitation, contributions to plans and the payment of insurance premiums)
pursuant to any of the employee benefit or compensation plans, programs or
arrangements which are, as set forth in this Agreement, the responsibility of
the other party. Accordingly, True North and TN Technologies Holding agree to
reimburse each other, as soon as practicable but in any event within thirty (30)
days of receipt from the other party of appropriate verification, for all such
costs and expenses reduced by the amount of any tax reduction or recovery of tax
benefit realized by True North or TN Technologies Holding, as the case may be,
as an indemnitee in respect of the corresponding payment made by it, as
determined pursuant to Section 8.4 hereof. All liabilities and obligations
retained, assumed or indemnified by TN Technologies Holding pursuant to this
Agreement shall in each case be deemed to be Assumed Liabilities and all
liabilities and obligations retained, assumed or indemnified by True North
pursuant to this Agreement shall in each case be deemed to be Retained
Liabilities and, in each case, shall be subject to the indemnification
provisions set forth in Article 8 hereof.
Section 11.5 Limitation on Enforcement. This Article 11 is an agreement
solely between True North and TN Technologies Holding. Nothing in this Article
11, whether express or implied, confers upon any employee of True North or TN
Technologies Holding, any Transferred Employee, any Employee, any collective
bargaining representative of any such person, any former employee of True North,
any beneficiary of an Employee, Transferred Employee or former employee of True
North or any other person, any rights or remedies, including, but not limited to
(a) any right to employment or recall, (b) any right to continued employment for
any specified period or (c) any right
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to claim any particular compensation, benefit or aggregation of benefits, of any
kind or nature whatsoever, as a result of this Article 11.
Section 11.6 Employment Solicitation. True North and TN Technologies
Holding acknowledge and agree that both such parties shall adhere to the
Employment Solicitation Policy of True North, a copy of which is attached hereto
as Exhibit F.
ARTICLE XII
INSURANCE
Section 12.1 General. True North shall keep in effect all policies under
its Insurance Program in effect as of the date hereof insuring the Transferred
Assets and operations of the Transferred Business until the end of the day on
the Closing Date, unless TN Technologies Holding shall have earlier obtained
appropriate coverage and notified True North in writing to that effect. TN
Technologies Holding understands that True North is terminating coverage under
its Insurance Program with respect to the Transferred Assets and Transferred
Business as of such time and that it is the responsibility of TN Technologies
Holding to obtain insurance policies which will allow TN Technologies Holding to
make claims for any occurrence (an "Occurrence" as defined in the applicable
insurance policy or policies in the Insurance Program) on or prior to the
Closing Date. True North shall, if so requested by TN Technologies Holding, use
reasonable efforts to assist TN Technologies Holding in obtaining its own
initial insurance coverage, but shall not be obligated to obtain or pay for such
insurance, and if TN Technologies Holding is unable to obtain its own policies,
True North will use reasonable efforts to obtain coverage for TN Technologies
Holding, at TN Technologies Holding's expense, under the Insurance Program
maintained by True North for claims made for Occurrences relating to the
Transferred Business on or prior to the Closing Date ("TN Technologies Holding
Paid Coverage"). Following the Closing Date, each of True North and TN
Technologies Holding shall cooperate with and assist the other party in making
claims under insurance policies and collecting recoveries.
Section 12.2 Certain Insured Claims. True North agrees that with respect
to (a) claims made prior to the Closing Date by True North and (b) claims for
Occurrences which are covered by TN Technologies Holding Paid Coverage, it will
use its reasonable efforts to obtain Recoveries for TN Technologies Holding and
that it will reimburse TN Technologies Holding for any Recovery obtained by it
pursuant to such claims; provided, however, that notwithstanding the foregoing,
if True North has made a claim or claims under an insurance policy which is not
to be paid to TN Technologies Holding pursuant to this Section 12.2 and a claim
or claims which are to be paid to TN Technologies Holding pursuant to this
Section 12.2 and the amount of the Recovery for such claims is limited by the
amount of coverage provided by such policy, True North may use its reasonable
discretion in allocating the Recovery between it and TN Technologies Holding for
such claims. TN Technologies Holding shall pay all costs incurred by True North
after the Closing Date in making any claim pursuant to this Section 12.2,
including the salaries of its officers and employees based on the portion of
time spent on such claims and that such costs incurred in pursuing a claim
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may be deducted from any Recovery for such claim and TN Technologies Holding
agrees to make available to True North such of its employees as True North may
reasonably request as witnesses or deponents in connection with True North's
management of claims, at TN Technologies Holding's sole cost and expense.
ARTICLE XIII
TERMINATION
Section 13.1 Termination. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the parties hereto;
(b) by TN Technologies Holding or the Limited Partners, if they
are not in material breach of its obligations under this Agreement and there has
been a breach of any representation, warranty, covenant or agreement contained
or incorporated by reference in this Agreement on the part of True North or the
Transferring Entities and such breach has not been cured within ten (10)
business days after written notice to True North or the Transferring Entities,
as the case may be (provided that no cure period shall be required for a breach
which by its nature cannot be cured);
(c) by True North or the Transferring Entities, as the case may
be, if it is not in material breach of its respective obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement included in this Agreement on the part of TN Technologies Holding
or the Limited Partners and such breach has not been cured within ten (10)
business days after written notice to the Limited Partners, the Stockholders and
TN Technologies Holding (provided that no cure period shall be required for a
breach which by its nature cannot be cured); or
(d) by any party hereto, if the Closing does not occur on or
prior to January 15, 1997.
Section 13.2 Return of Documents and Other Material. In the event of
termination pursuant to Section 13(b), (c) or (d), written notice thereof shall
forthwith be given by the terminating party to the other parties hereto and the
transactions contemplated by this Agreement shall be terminated, without further
action by any party. If the transactions contemplated by this Agreement are
terminated as provided herein, the parties shall at the written request of any
other party hereto return all documents and other material and all copies
thereof received from any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to such party.
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Section 13.3 Survival. If this Agreement is terminated and the
transactions contemplated hereby are abandoned as described in this Section 13,
this Agreement shall become void and of no further force or effect, except for
the provisions of, (a) Section 5.24 relating to finder's fees and broker's fees,
(b) Sections 10.4 and 10.5 relating to confidentiality and publicity,
respectively, (c) Section 15.2 relating to expenses and (d) this Article 13.
Nothing in this Article 13 shall be deemed to release either party from any
liability for any breach by such party of the terms and provisions of this
Agreement or to impair the right of any party to compel specific performance by
any other party of its obligations under this Agreement.
ARTICLE XIV
DISPUTE RESOLUTION
Section 14.1 Binding Arbitration.
(a) Except as set forth in Section 14.2, (a) any dispute,
controversy or claim arising in connection with this Agreement, shall be settled
by binding arbitration if so requested by any party hereto pursuant to paragraph
(b) below. The arbitration shall be conducted by three arbitrators, who shall be
appointed pursuant to the rules of the American Arbitration Association (the
"AAA"). The arbitration shall be held in Chicago, Illinois and shall be
conducted in accordance with the commercial arbitration rules of the AAA, except
that the rules set forth in this Section 14.1 shall govern such arbitration to
the extent they conflict with the rules of the AAA.
(b) Upon written notice by a party to the other parties of a
request for arbitration hereunder, the parties shall use their commercially
reasonable efforts to cause the arbitration to be conducted in an expeditious
manner. All other procedural matters shall be within the discretion of the
arbitrators. In the event a party fails to comply with the procedures in any
arbitration in a manner deemed material by the arbitrators, the arbitrators
shall fix a reasonable period of time for compliance and, if the party does not
comply within said period, a remedy deemed just by the arbitrators, including an
award of default, may be imposed.
(c) The determination of the arbitrators shall be final and
binding on the parties. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction. The parties shall each be
responsible for their own expenses in connection with such arbitration,
including, without limitation, counsel fees and fees of experts; provided,
however, that the parties shall share equally in the expense of the arbitrators
and of the AAA.
(d) Notwithstanding anything contained herein to the contrary,
the arbitrators shall not be limited as to the form of relief or remedy provided
pursuant to this Section 14.1.
Section 14.2 Injunctive Relief. The parties hereto acknowledge that
should they breach any of their respective obligations under Sections 10.4, 10.5
and 10.6 such other parties hereto may suffer irreparable injury for which money
damages may be inadequate, and therefore consent to the
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enforcement of such obligations by means of temporary or permanent injunction of
any court having jurisdiction thereof, and each party hereto shall be entitled
to assert any claim it may have for damages resulting from breach of such
obligations in addition to seeking injunctive relief. In addition, if True North
is in violation of its Non-Competition Agreement pursuant to Section 9.9, TN
Technologies Holding may suffer irreparable injury for which money damages may
be inadequate, and therefore consent to the enforcement of such obligations by
means of temporary or permanent injunction of any court having jurisdiction
thereof, and each party hereto shall be entitled to assert any claim it may have
for damages resulting from breach of such obligations in addition to seeking
injunctive relief.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Complete Agreement. This Agreement, including the
Related Agreements, Schedules and Exhibits and the agreements and other
documents referred to herein and other writings exchanged between the parties
hereto, shall constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter.
Section 15.2 Expenses. Except as otherwise provided in this
Agreement, any Related Agreement or any other agreement being entered into by
the parties hereto pursuant to this Agreement, the parties hereto shall pay
their own costs and expenses incurred in connection with the Reorganization
(whether or not payable as of the Closing Date) and in connection with the
consummation of the transactions contemplated by this Agreement. Such costs and
expenses shall include, without limitation, investment banking, legal,
accounting and printing costs and expenses and transfer taxes.
Section 15.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, regardless of
the laws that might otherwise govern after applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the
nonexclusive jurisdiction and venue of any court within Chicago, State of
Illinois, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of Illinois for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction, venue and such process.
Section 15.4 Notices. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (a) on the date of service if served personally on the
party to whom notice is given, (b) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(c) on the business day after delivery to an overnight courier service or the
Express mail service maintained by the United States Postal
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Service, provided receipt of delivery has been confirmed, or (d) on the fifth
day after mailing, provided receipt of delivery is confirmed, if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, properly addressed and return-receipt requested, to
the party as follows:
If to True North True North Communications Inc.
or a Transferring Entity: 101 E. Erie Street
Chicago, Illinois 60611
Attn: Judith D. Shultz,
Director of Corporate Development
Telecopy: (312) 425-6353
If to TN Technologies Holding: TN Technologies Holding Inc.
101 E. Erie Street
Chicago, Illinois 60611
Attn: Gregory W. Blaine,
Chairman and Chief Executive Officer
Telecopy: (312) 425-6353
If to the Limited Partners: Douglas C. Ahlers: 37 Grumman Avenue
Norwalk, CT
Robert C. Allen, II: 20 Harwood Drive
Danbury, CT
Gerald M. O'Connell: 37 Old Kings Highway
Wilton, CT
Kraft Enterprises LTD: 230 W. Superior Street
Chicago, IL
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 15.5 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
Section 15.6 Successors and Assigns. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by the parties
hereto (including by operation of law in connection with a merger, or sale of
substantially all the assets, of True North, a Transferring Entity or TN
Technologies Holding); provided, however, that True North, a Transferring Entity
and TN Technologies Holding may assign their rights hereunder to a majority-
owned subsidiary of True North, a Transferring Entity or TN Technologies Holding
without the prior written consent of the
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Limited Partners; provided, further, however, that no such assignment shall be
permitted if it results in a violation of Section 6.4 Any attempted assignment
in violation of this Section 15.6 shall be void.
Section 15.7 No Third Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.
Section 15.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and same instrument.
Section 15.9 Interpretation. The Article and Section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. Whenever any words are used herein in the
masculine gender, they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply.
Section 15.10 Annexes, Etc. The Schedules and Exhibits shall be construed
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.
Section 15.11 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first above written.
TN TECHNOLOGIES HOLDING INC.
By:
------------------------------------
Name:
Title:
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TRUE NORTH COMMUNICATIONS INC.
By:
----------------------------------
Name:
Title:
--------------------------------------
Douglas C. Ahlers
--------------------------------------
Robert C. Allen, II
--------------------------------------
Gerald M. O'Connell
KRAFT ENTERPRISES LTD
By:
----------------------------------
Name:
Title:
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FOOTE, CONE & BELDING ADVERTISING, INC.
By:
-----------------------------------
Name:
Title:
FOOTE, CONE & BELDING, INC.
By:
-----------------------------------
Name:
Title:
R/GA MEDIA GROUP, INC.
By:
-----------------------------------
Name:
Title:
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SCHEDULE 2.3
<TABLE>
<CAPTION>
CONTRIBUTION NUMBER OF SHARES
- ------------------------------------------------------- ----------------
<S> <C>
True North Communications Inc. ........................ 1,326,728
Transferring Entities
Foote, Cone & Belding Advertising, Inc. ............... 178,740
Foote, Cone & Belding, Inc. ........................... 298,258
R/GA Media Group, Inc. ................................ 487,960
EXCHANGE
True North Communications Inc. 2,802,114
---------
Total............................................. 5,093,800
=========
</TABLE>
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EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
TN TECHNOLOGIES HOLDING INC.
A DELAWARE CORPORATION
FIRST: The name of this corporation is TN Technologies Holding Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware ("Delaware Law").
FOURTH: This Corporation is authorized to issue two classes of stock to be
designated, respectively, "common stock" and "preferred stock." The total number
of shares which this Corporation is authorized to issue is fifty million
(50,000,000) shares. Forty-five million (45,000,000) shares shall be designated
common stock (the "Common Stock"), of which thirty-nine million nine hundred six
thousand two hundred (39,906,200) shares shall be designated Common Stock, Class
A (the "Class A Common"), and five million ninety-three thousand eight hundred
(5,093,800) shares shall be designated Common Stock, Class B (the "Class B
Common"). Five million (5,000,000) shares shall be undesignated preferred stock
(the "Preferred Stock"). Each share of Preferred Stock shall have a par value of
$0.001, and each share of Common Stock shall have a par value of $0.001.
Any Preferred Stock not previously designated as to series may be
issued from time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board), and such
resolution or resolutions shall also set forth the voting powers, full or
limited or none, of each such series of Preferred Stock and shall fix the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of each such series of
Preferred Stock. The Board of Directors is authorized to alter the designation,
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock,
<PAGE>
to increase or decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any such series subsequent to the
issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if reacquired
by the Corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series and
available for designation and issuance by the Corporation in accordance with the
immediately preceding paragraph.
Each share of Class B Common issued by the Corporation, if reacquired
by the Corporation (whether by repurchase, conversion into Class A Common or
other means) shall upon such reacquisition be retired and may not be reissued
thereafter.
FIFTH: The shares of Class A Common and Class B Common shall be identical
in all respects and shall have equal rights and privileges, except as expressly
set forth in this Article FIFTH.
1. Dividends. Subject to any preferential dividend rights of any
series of Preferred Stock as may then be outstanding, dividends or distributions
upon the Class A Common and Class B Common may be declared by the Board of
Directors and paid by the Board of Directors of the Corporation from time to
time in such amounts as the Board shall determine, out of any source at the time
lawfully available therefor, provided that identical dividends or distributions
per share are declared and paid concurrently upon the shares of each such class.
In the case of dividends or other distributions payable in Class A Common or
Class B Common, only shares of Class A Common shall be distributed with respect
to Class A Common and only shares of Class B Common shall be distributed with
respect to Class B Common. In the case of dividends or other distributions
consisting of other voting securities of the Corporation, the Corporation shall
declare and pay such dividends in two separate classes of such voting
securities, identical in all respects, except that the voting rights of each
such security paid to the holders of Class A shall be one-fifth of the voting
rights of each such security paid to the holders of Class B Common. In the case
of dividends or other distributions consisting of non-voting securities
convertible into, or exchangeable for, voting securities of the Corporation, the
Corporation shall provide that such convertible or exchangeable securities and
the underlying securities be identical in all respects (including, without
limitation, the conversion or exchange rate), except that the voting rights of
each security paid to the holders of Class A Common shall be one-fifth of the
voting rights of each security underlying the convertible or exchangeable
security paid to the holders of Class B Common, and such underlying securities
paid to the holders of Class B Common shall convert into the underlying
securities paid to the holders of Class A Common upon the same terms and
conditions applicable to the Class B Common.
2. Stock Splits, Combinations and the Like. Neither the Class A
Common nor the Class B Common shall be split, combined or subdivided unless at
the same time there shall be a proportionate split, combination or subdivision
of such other class of Common Stock.
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<PAGE>
3. Rights Upon Liquidation or Dissolution. Subject to any
preferential liquidation rights of any series of Preferred Stock as may then be
outstanding, the holders of the Class A Common and the holders of the Class B
Common shall be entitled to share ratably in the assets of the Corporation
available for distribution to the holders of Common Stock upon any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for the payment of the debts and
other liabilities of the Corporation.
4. Voting. Except as otherwise required by law, on all matters on
which the holders of Common Stock shall be entitled to vote, each holder of
Class A Common shall be entitled to one (1) vote for each share of Class A
Common held by such holder, and each holder of Class B Common shall be entitled
to five (5) votes for each share of Class B Common held by such holder. Except
as otherwise required by applicable law, the holders of shares of Class A Common
and Class B Common shall vote together as one class on all matters submitted to
a vote of stockholders of the Corporation.
5. Conversion.
(a) Optional Conversion. Subject to the provisions of this
subparagraph 5, each holder of record of Class B Common may, at the sole
discretion and option of such holder, convert any whole number or all of such
holder's shares of Class B Common into fully paid and nonassessable shares of
Class A Common at the rate of one and fifteen thousandths (1.015) shares of
Class A Common for each share of Class B Common surrendered for conversion;
provided, however, that such conversion shall not be effective unless and until
any consents or approvals required under applicable securities laws shall have
been obtained.
(b) Automatic Conversion. The outstanding shares of Class B Common
shall automatically be converted into Class A Common at the conversion rate
specified in paragraph (a) above, without further action by the respective
holder or holders of such shares, at the times and in the manner specified as
follows: each share of Class B Common shall automatically convert into Class A
Common immediately upon any sale, pledge, conveyance, hypothecation, assignment
or other transfer of such share, whether or not for value, or attempt thereof,
by the initial registered holder thereof, other than any such transfer by such
holder to a nominee of such holder (without any change in beneficial ownership,
as such term is defined under Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")); provided that any transfer by the
initial registered holder to any corporation owning not less than seventy-five
percent (75%) of the equity interests of the initial registered holder, or
majority-owned subsidiary of the initial registered holder, shall not give rise
to automatic conversion hereunder unless and until such transferee ceases to be
either (i) a corporation owning at least seventy-five percent (75%) of the
equity interests of the initial registered holder or (ii) a majority-owned
subsidiary of the initial registered holder; and further provided that in the
event any pledge, conveyance, hypothecation, assignment or other transfer shall
not give rise to automatic conversion hereunder, then any subsequent transfer or
attempt thereof by the holder (other than any such transfer by such holder to a
nominee of such
-3-
<PAGE>
holder (without any change in beneficial ownership, as such term is defined
under Section 13(d) of the Exchange Act)) shall be subject to automatic
conversion upon the terms and conditions set forth herein other than any
transfer by such holder to any corporation owning not less than seventy-five
percent (75%) of the equity interests of the initial registered holder or
majority-owned subsidiary of the initial registered holder.
(c) Mechanics of Conversion. No fractional shares of Class A Common
shall be issued upon conversion of Class B Common. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to the fair market value of such fraction, rounded to the nearest
dollar. To exercise the optional conversion privilege set forth herein, the
holder of shares of Class B Common shall surrender the shares to be converted,
accompanied by instruments of transfer satisfactory to the Corporation and the
payment in cash of any amount required pursuant to subparagraph 5(e) below and
sufficient to transfer the Class B Common being converted to the Corporation
free of any adverse interest, at the principal offices of the Corporation or any
of the offices or agencies maintained for such purpose by the Corporation
("Conversion Agent") and shall give written notice (by registered or certified
mail, overnight courier or hand delivery) to the Corporation at such Conversion
Agent that the holder elects to convert such shares. Such notice shall also
state the name or names, together with the address or addresses, in which the
certificate or certificate for Class A Common which shall be issuable upon such
conversion shall be issued. As promptly as practicable after the surrender of
such shares of Class B Common as aforesaid, the Corporation shall issue and
deliver at such Conversion Agent to such holder, or on the holder's written
order, a certificate or certificates for the number of full shares of Class A
Common issuable upon the conversion of such shares in accordance with the
provisions hereof. Certificates will be issued for the balance of the shares of
Class B Common in any case in which fewer than all of the shares of Class B
Common represented by a certificate are converted.
Each conversion pursuant to paragraph 5(b) shall be deemed to have
been effected immediately prior to the close of business on the date the share
is transferred or proposed to be transferred. In each such case the person or
persons in whose name or names any certificate of certificates for Class A
Common shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the Class A Common represented thereby at the
effective date of such conversion, unless the stock transfer books of the
Corporation shall be closed on such date, in which event such conversion shall
be deemed to have been effected immediately following the opening of business on
the next day on which the stock transfer books of the Corporation shall be open.
Following any such automatic conversion, the share or shares of Class B Common
so converted shall cease to be outstanding, notwithstanding the fact that the
holder or holders may not have surrendered the certificate or certificates
representing such Class B Common for conversion, and such certificate or
certificates shall thereafter represent solely the right to receive a
certificate or certificates for Class A Common issuable upon conversion of the
Class B Common so converted, upon surrender of such certificate or certificates
to the Corporation or its Conversion Agent, of the certificate or certificates
for Class B Common so converted.
-4-
<PAGE>
(d) Reservation of Shares. The Corporation shall at all times
reserve and keep available out of the authorized and unissued shares of Class A
Common, solely for the purposes of effecting the conversion of the outstanding
Class B Common, such number of shares of Class A Common as shall from time to
time be sufficient to effect conversion of all outstanding Class B Common.
(e) Payment of Transfer Taxes. The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Class A Common on conversion of the Class B
Common pursuant hereto; provided however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issue or delivery of shares of Class A Common in a name other that of the
original holder of the Class B Common to be converted and no such issue or
delivery shall be made unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(f) Additional Rights of Class B Common. In the event that the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which shares of any class of Common Stock are exchanged for or
changed into other stock or securities, then, and in such event, the shares of
each class of Common Stock (assuming conversion of the Class B Common into Class
A Common at the rate specified in subparagraph 5(a) above) shall be exchanged
for or changed into an amount per share equal to the amount of stock,
securities, cash and/or any other property, as the case may be, into which or
for which each share of the other class of Common Stock is exchanged or changed;
provided, however, that if shares of Class A Common and Class B Common are
exchanged for or changed into shares of capital stock, such shares so exchanged
for or changed into may differ to the extent and only to the extent that the
Class A Common and Class B Common differ as provided herein.
In the event of a reclassification, change of outstanding shares
(other than a change in par value or as a result of any subdivision or
combination) or other similar transaction as a result of which the shares of
Class A Common are converted into another security, then a holder of Class B
Common shall be entitled to receive upon conversion the amount of such security
that such holder would have received if such conversion had occurred immediately
prior to the record date of such reclassification or other similar transaction.
If a share of Class B Common shall be converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common but prior to such payment, then the registered holder of such
share at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on such share on such date
notwithstanding the conversion thereof.
SIXTH: For so long as any shares of Class B Common are outstanding, any
action required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation
-5-
<PAGE>
may be taken without a meeting, by written consent setting forth the action to
be taken signed by the holders of outstanding capital stock entitled to vote
thereon having not less than the minimum number of votes that would be necessary
to authorize or take such action at a stockholders' meeting at which all shares
entitled to vote thereon were present and voted. Commencing at such time as
there are no shares of Class B Common outstanding, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken only upon the vote of stockholders at an annual or special meeting duly
noticed and called in accordance with Delaware Law and may not be taken by
written consent of stockholders without a meeting.
SEVENTH: The name and mailing address of the incorporator are:
NAME MAILING ADDRESS
---- ---------------
Thomas I. Savage Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
EIGHTH: The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted from time to time by the Board of
Directors.
NINTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
TENTH: The directors of the Corporation need not be elected by written
ballot unless a stockholder or stockholders holding a majority of the voting
power of the outstanding capital stock entitled to vote demands election by
written ballot at the meeting and before voting.
ELEVENTH: Advance notice of stockholder nomination for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
TWELFTH: Special meetings of the stockholders of the Corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or (iii) the Board of Directors.
THIRTEENTH:
1. To the fullest extent permitted by the Delaware Law as the same
exists or as may hereafter be amended, a director of the Corporation shall not
be personally liable to the Corporation or its stockholders for monetary damages
for a breach of fiduciary duty as a director.
-6-
<PAGE>
2. The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
3. Neither any amendment nor repeal of this Article THIRTEENTH, nor
the adoption of any provision of the Corporation's Certificate of Incorporation
inconsistent with this Article THIRTEENTH, shall eliminate or reduce the effect
of this Article THIRTEENTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article THIRTEENTH, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
FOURTEENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained under Delaware Law) outside of the
State of Delaware at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Corporation.
FIFTEENTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed herein and under Delaware Law, except as
otherwise provided in article THIRTEENTH, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-7-
<PAGE>
THE UNDERSIGNED acknowledges that the foregoing Certificate of
Incorporation is the act and deed of such incorporator and that the facts stated
therein are true.
By: ______________________________
Michael F. Bogacki
Secretary
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
TN TECHNOLOGIES HOLDING INC.
(A Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CORPORATE OFFICES..................................................1
1.1 REGISTERED OFFICE..................................................1
1.2 OTHER OFFICES......................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS..........................................1
2.1 PLACE OF MEETINGS..................................................1
2.2 ANNUAL MEETING.....................................................1
2.3 SPECIAL MEETING....................................................3
2.5 NOTICE OF STOCKHOLDERS' MEETINGS...................................4
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.......................4
2.7 QUORUM.............................................................4
2.8 ADJOURNED MEETING; NOTICE..........................................5
2.9 VOTING.............................................................5
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT..................6
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING..................................................6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS....................................................7
2.13 PROXIES............................................................7
2.14 INSPECTORS OF ELECTION.............................................8
ARTICLE III - DIRECTORS........................................................8
3.1 POWERS.............................................................8
3.2 NUMBER AND TERM OF OFFICE..........................................9
3.3 BOARD REPRESENTATION...............................................9
3.4 RESIGNATION AND VACANCIES..........................................9
3.5 REMOVAL...........................................................11
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................11
3.7 FIRST MEETINGS....................................................11
3.8 REGULAR MEETINGS..................................................11
3.9 SPECIAL MEETINGS; NOTICE..........................................11
3.10 QUORUM............................................................12
3.11 WAIVER OF NOTICE..................................................12
3.12 ADJOURNMENT.......................................................12
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.13 NOTICE OF ADJOURNMENT.............................................13
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.................13
3.15 ORGANIZATION......................................................13
3.16 FEES AND COMPENSATION OF DIRECTORS................................13
3.17 APPROVAL OF LOANS TO OFFICERS.....................................13
ARTICLE IV - COMMITTEES.......................................................14
4.1 COMMITTEES OF DIRECTORS...........................................14
4.2 MEETINGS AND ACTION OF COMMITTEES.................................14
ARTICLE V - OFFICERS..........................................................15
5.1 OFFICERS..........................................................15
5.2 ELECTION OF OFFICERS..............................................15
5.3 SUBORDINATE OFFICERS..............................................15
5.4 REMOVAL AND RESIGNATION OF OFFICERS...............................15
5.5 VACANCIES IN OFFICES..............................................15
5.6 CHAIRMAN OF THE BOARD.............................................16
5.7 CHIEF EXECUTIVE OFFICER...........................................16
5.9 VICE PRESIDENTS...................................................16
5.10 SECRETARY.........................................................17
5.11 CHIEF FINANCIAL OFFICER...........................................17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS.............................................18
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................18
6.2 INDEMNIFICATION OF OTHERS.........................................18
6.3 INSURANCE.........................................................19
6.4 EXPENSES..........................................................19
6.5 NON-EXCLUSIVITY OF RIGHTS.........................................19
6.6 SURVIVAL OF RIGHTS................................................20
6.7 AMENDMENTS........................................................20
ARTICLE VII - RECORDS AND REPORTS.............................................20
7.1 MAINTENANCE AND INSPECTION OF RECORDS.............................20
7.2 INSPECTION BY DIRECTORS...........................................21
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................21
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................21
ARTICLE VIII - GENERAL MATTERS..............................................22
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............22
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................22
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED ..............22
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES...........................23
8.5 SPECIAL DESIGNATION ON CERTIFICATES..............................23
8.6 LOST CERTIFICATES................................................24
8.7 CONSTRUCTION; DEFINITIONS........................................24
ARTICLE IX - AMENDMENTS.....................................................24
ARTICLE X - DISSOLUTION.....................................................24
ARTICLE XI - CUSTODIAN......................................................25
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................25
11.2 DUTIES OF CUSTODIAN..............................................26
-iii-
<PAGE>
BYLAWS
OF
TN TECHNOLOGIES HOLDING INC.
(A DELAWARE CORPORATION)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the Certificate
of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Thursday in May of each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
<PAGE>
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the board of directors, (B) otherwise properly brought before the meeting by
or at the direction of the board of directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date specified in the corporation's proxy
statement released to stockholders in connection with the previous year's annual
meeting of stockholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be so received a reasonable time before the solicitation is made. A
stockholder's notice to the secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice
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<PAGE>
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for elections of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 2.2. At the request of the board of directors,
any person nominated by a stockholder for election as a director shall furnish
to the secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer, but such special meetings
may not be called by any other person or persons.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, chief executive
officer, president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.5
and 2.6, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than ten (10) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after the receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing, or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.
2.4 ORGANIZATION
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Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the vice chairman of the board, if any, or
in his absence by the chief executive officer, if any, or in his absence by the
president, if any, or in his absence a vice president, or in the absence of the
foregoing persons by a chairman designated by the board of directors, or in the
absence of such designation by a chairman chosen at the meeting. The secretary
shall act as secretary of the meeting, but in his absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of stockholders
shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws
not less than ten (10) nor more than sixty (60) days before the date of the
meeting. The notice shall specify the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who, at the time of
the notice, the board intends to present for election.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The presence in person or by proxy of the holders of a majority the voting
power of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings
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of stock holders; provided, however, that in the case of any vote to be taken by
classes, the holders of a majority of the votes entitled to be cast by the
stockholders of a particular class shall constitute a quorum for the transaction
of business by such class. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the voting power of the shares required to constitute a
quorum.
2.8 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
voting power of the shares represented at that meeting, either in person or by
proxy. In the absence of a quorum, no other business may be transacted at that
meeting except as provided in Section 2.7 of these Bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than thirty (30) days from the date set for the original
meeting, then notice of the adjourned meeting shall be given. Notice of any
such adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting in accordance with the provisions of Sections 2.5
and 2.6 of these Bylaws. At any adjourned meeting the corporation may transact
any business which might have been transacted at the original meeting.
2.9 VOTING
Voting at any meeting of stockholders need not be by ballot; provided,
however, that elections for directors shall be by written ballot, unless
otherwise provided for in the Certificate of Incorporation.
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Each stockholder shall be entitled to that number of votes for each share
held as it set forth in the Certificate of Incorporation of the corporation, as
amended or restated, or in the resolution or resolutions adopted by the board of
directors providing for the issuance of such stock, except as may otherwise be
required by law.
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Any stockholder entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or, except
when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the
stockholder is entitled to vote.
If a quorum is present, the affirmative vote of the voting power of the
shares represented, in person or by proxy, and voting at a duly held meeting
(which shares voting affirmatively also constitute at least a majority of the
voting power of the required quorum) shall be the act of the stockholders,
unless the vote of a greater number or a vote by classes is required by law or
by the Certificate of Incorporation.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, for so long
as any shares of Class B Common are outstanding, any action which may be taken
at any annual or special meeting of stockholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take that action
at a meeting at which all shares entitled to vote on that action were present
and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under
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any section of the General Corporation Law of Delaware if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written notice and written consent
have been given as provided in Section 228 of the General Corporation Law of
Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date:
(a) the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board of directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action by the board of
directors has been taken, shall be at the close of business on the day on which
the board of directors adopts the resolution relating to that action.
The record date for any other purpose shall be as provided in Article VIII
of these Bylaws.
2.13 PROXIES
Every person entitled to vote for Directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an
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irrevocable power. A stockholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date
with the secretary of the corporation.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more stockholders
or proxies, then the holders of a majority of the voting power of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, then the chairman of the meeting may, and
upon the request of any stockholder or a stockholder's proxy shall, appoint a
person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
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3.1 POWERS
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Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number of directors shall be eleven (11). An indefinite
number of directors may be fixed, or the definite number of directors may be
changed, by a duly adopted amendment to the Certificate of Incorporation or by
an amendment to this bylaw adopted by the vote or written consent of holders of
a majority of the voting power of the outstanding shares entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
3.3 BOARD REPRESENTATION
The corporation shall cause the election of the following individuals to
the board of directors: (i) so long as Gerald M. O'Connell, Douglas C. Ahlers,
and Robert C. Allen, II (the "Limited Partners") (including spouses, members of
their immediate family or their estate, heirs and intestate successors)
collectively own at least sixty-one percent (61%) of the aggregate number of the
corporation's common stock held on December 31, 1996 (the "Limited Partner
Shares"), each of the Limited Partners who continues to serve as a senior
executive of the corporation; (ii) so long as the Limited Partners (including
spouses, members of their immediate family or their estate, heirs and intestate
successors) collectively own less than sixty-one percent (61%), but at least
forty-five percent (45%) of the Limited Partner Shares, Gerald M. O'Connell and
one of the other Limited Partners (designated by the Limited Partners) who
continues to serve as a senior executive of the corporation; and (iii) so long
as the Limited Partners (including spouses, members of their immediate family or
their estate, heirs and intestate successors) collectively own less than forty-
five percent (45%), but at least thirty percent (30%) of the aggregate
number of Limited Partner Shares, Gerald M. O'Connell (so long as he continues
to serve as a senior executive officer of the corporation). The Corporation and
the Limited Partners shall mutually agree upon two individuals to serve on the
board of directors. The balance of the board of directors shall be elected by
the stockholders of the corporation, or to the extent necessary to fill a
vacancy on the board of directors, by the balance of the board of directors.
3.4 RESIGNATION AND VACANCIES
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Any director may resign effective on giving written notice to the chairman
of the board, the chief executive officer, the secretary or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws, vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the voting power of shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
written consent of a majority of the voting power of shares entitled to vote
thereon. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the then outstanding shares
having the right to vote for such directors, summarily order an election to be
held to fill any such
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vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 REMOVAL
Subject to Section 3.3 and any limitations imposed by law, and unless
otherwise provided in the Certificate of Incorporation, the board of directors,
or any individual director, may be removed from office at any time by the
affirmative vote of the holders of at least a majority of the voting power of
the then outstanding shares of the capital stock of the corporation entitled to
vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board of directors. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated in the notice
of the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer or any four directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least seven (7) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least seventy-two (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these Bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.12 ADJOURNMENT
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A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given if announced unless the meeting is adjourned for more than twenty-four
(24) hours. If the meeting is adjourned for more than twenty-four (24) hours,
then notice of the time and place of the adjourned meeting shall be given before
the adjourned meeting takes place, in the manner specified in Section 3.9 of
these Bylaws, to the directors who were not present at the time of the
adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board of directors
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.15 ORGANIZATION
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his absence by the vice chairman of the board, if
any, or in his absence by the chief executive officer, or in their absence by a
chairman chosen at the meeting. The secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
3.16 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.16 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.17 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The
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loan, guaranty or other assistance may be with or without interest and may be
unsecured, or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing contained in this section shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the corporation at common law or under any
statute.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one (1) or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any committee, to the extent provided in the resolution of the board, shall have
all the authority of the board, but no such committee shall have the power or
authority to (i) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under Sections
251, 252, 255, 256, 257, 258, 263 or 264 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the Bylaws of the corporation; and, unless the board
resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.6
(place of meetings), Section 3.8 (regular meetings), Section 3.9 (special
meetings and notice), Section 3.10 (quorum), Section 3.11 (waiver of notice),
Section 3.12 (adjournment), Section 3.13 (notice of adjournment), and Section
3.14 (action without meeting), with such changes in the context of
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those Bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors, and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
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5.1 OFFICERS
The officers of the corporation shall be a chairman of the board, a chief
executive officer, a president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, one or
more vice presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
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Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve as
the corporation's general manager, and shall have general supervision, direction
and control of the corporation's business and its officers, and, if present,
preside at meetings of the stockholders and the board of directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him by the board of directors or as may be prescribed by these Bylaws. If there
is no chief executive officer, then the chairman of the board shall also be the
chief executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these Bylaws. The chairman of the board shall
report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the chief
executive officer of the corporation shall, subject to the control of the board
of directors, have general supervision, direction, and control of the business
and the officers of the corporation. He shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the chief executive officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or these Bylaws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or whenever
the office of the chief executive officer is vacant. The president of the
corporation shall exercise and perform such powers and duties as may from time
to time be assigned to him by the board of directors or as may be prescribed by
these Bylaws. The president shall have authority to execute in the name of the
corporation bonds, contracts, deeds, leases and other written instruments to be
executed by the corporation. In the
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<PAGE>
absence or nonexistence of the chairman of the board and chief executive
officer, he shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board and the chief executive
officer, at all meetings of the board of directors and shall perform such other
duties as the board of directors may from time to time determine.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these Bylaws, the
chairman of the board or the chief executive officer.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of
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the corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers and, provided, further, that the corporation shall not be
required to indemnify any director or officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
board of directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the General Corporation Law of Delaware or (iv) such
indemnification is required to be made pursuant to an individual contract. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents
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(other than directors and officers) against expenses (including attorneys'
fees), judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding, arising by reason of the fact that
such person is or was an agent of the corporation. For purposes of this Section
6.2, an "employee" or "agent" of the corporation (other than a director or
officer) includes any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.4 EXPENSES
The corporation shall advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer, of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation
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<PAGE>
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Bylaw shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding office.
The corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
General Corporation Law of Delaware.
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
6.7 AMENDMENTS
Any repeal or modification of this Bylaw shall only be prospective and
shall not affect the rights under this Bylaw in effect at the time of the
alleged occurrence of any action or omission to act that is the cause of any
proceeding against any agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or
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<PAGE>
other agent to so act on behalf of the stockholder. The demand under oath shall
be directed to the corporation at its registered office in Delaware or at its
principal place of business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records,
the stock ledger, and the stock list and to make copies or extracts therefrom.
The Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president, any
vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
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ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
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<PAGE>
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairman or vice-chairman
of the board of directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer, the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he or
she were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board of directors may require;
the board of directors may require indemnification of the corporation secured by
a bond or other adequate security sufficient to protect the corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of the certificate or the
issuance of the replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
----------
Subject to Section 6.7 hereof the Bylaws of the corporation may be adopted,
amended or repealed and new Bylaws adopted by the affirmative vote of
stockholders holding a majority of the voting power of stock entitled to vote or
by the board of directors.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the voting power of the outstanding stock of the
corporation entitled to vote thereon votes for the
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proposed dissolution, then a certificate stating that the dissolution has been
authorized in accordance with the provisions of Section 275 of the General
Corporation Law of Delaware and setting forth the names and residences of the
directors and officers shall be executed, acknowledged, and filed and shall
become effective in accordance with Section 103 of the General Corporation Law
of Delaware. Upon such certificate's becoming effective in accordance with
Section 103 of the General Corporation Law of Delaware, the corporation shall be
dissolved.
Whenever stockholders holding a majority of the voting power of stock
entitled to vote on a dissolution consent in writing, either in person or by
duly authorized attorney, to a dissolution, no meeting of directors or
stockholders shall be necessary. The consent shall be filed and shall become
effective in accordance with Section 103 of the General Corporation Law of
Delaware. Upon such consent's becoming effective in accordance with Section 103
of the General Corporation Law of Delaware, the corporation shall be dissolved.
If the consent is signed by an attorney, then the original power of attorney or
a photocopy thereof shall be attached to and filed with the consent. The consent
filed with the Secretary of State shall have attached to it the affidavit of the
secretary or some other officer of the corporation stating that the consent has
been signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
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11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE>
Exhibit 4.1
NUMBER SHARES
CLASS A COMMON STOCK CLASS A COMMON STOCK
[LOGO]
TN TECHNOLOGIES,INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
PAR VALUE $.001 CUSIP 87259W 104
This Certifies that SEE REVERSE FOR
CERTAIN DEFINITIONS
SPECIMEN
in the names of
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK OF
TN Technologies Inc. transferable in person or by duly authorized Attorney upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be subject to the provisions of
the Certificate of Incorporation and By Laws of the Corporation, as amended
(copies of which are on file with the Secretary of the Corporation and are
available upon request to the Corporation), to all of which the holder by
acceptance hereof assents. This Certificate is not valid unless countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile Seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
SPECIMEN [TN TECHNOLOGIES, INC. SPECIMEN
CORPORATE SEAL
CHIEF FINANCIAL OFFICER OCT. 10, 1996 CHAIRMAN OF THE BOARD
AND SECRETARY DELAWARE] AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
TRANSFER AGENT AND REGISTRAR,
SPECIMEN
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ____________Custodian_________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
ATTEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act__________________________________
in common (Sign)
UNIF TRF MIN ACT -- ___________ Custodian (until age ____)
(Cust)
______________under Uniform Transfers
(Minor)
to Minors Act _______________________
(Sign)
</TABLE>
Additional abbreviation may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
------------------------------------
| |
------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the class A common stock represented by the within Certificate, and does
hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
X _________________________________________
X _________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENTS, OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY
ELIGIBLE GUARANTOR INSTITUTION SUCH AS
A SECURITIES BROKER/DEALER, COMMERCIAL
BANK, TRUST COMPANY, SAVINGS ASSOCIATION OR
A CREDIT UNION PARTICIPATING IN A MEDALLION
PROGRAM.
<PAGE>
Exhibit 10.1
================================================================================
AMENDED AND RESTATED REORGANIZATION AGREEMENT
Dated as of December 31, 1996
among
TN TECHNOLOGIES HOLDING INC.,
TRUE NORTH COMMUNICATIONS INC.
and
DOUGLAS C. AHLERS,
ROBERT C. ALLEN, II,
GERALD M. O'CONNELL, and
KRAFT ENTERPRISES LTD
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
ARTICLE 1 - CERTAIN DEFINITIONS..................................................... 2
ARTICLE 2 - REORGANIZATION.......................................................... 5
2.1 Reorganization............................................................ 5
2.2 Closing; Closing Date..................................................... 5
2.3 Consideration............................................................. 5
2.4 Taking of Necessary Action; Further Action................................ 6
2.5 Additional Deliveries of True North and TN Technologies Holding........... 6
2.6 Additional Deliveries of the Limited Partners and the Stockholders........ 7
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF THE LIMITED PARTNERS
AND THE STOCKHOLDERS................................................... 9
3.1 Authority................................................................. 9
3.2 No Conflicts; Consents.................................................... 9
3.3 MMLP Capital Structure.................................................... 10
3.4 Modem Media Capital Structure............................................. 11
3.5 Title..................................................................... 11
3.6 Organization and Standing, Books and Records.............................. 12
3.7 Ownership Interests....................................................... 12
3.8 Financial Statements; Undisclosed Liabilities............................. 12
3.9 Taxes..................................................................... 13
3.10 Assets Other than Real Property Interests................................. 14
3.11 Real Property............................................................. 15
3.12 Intellectual Property..................................................... 16
3.13 Contracts................................................................. 17
3.14 Litigation................................................................ 19
3.15 Insurance................................................................. 20
3.16 Environmental............................................................ 20
3.17 Benefit Plans............................................................ 21
3.18 Compliance with Applicable Laws.......................................... 21
3.19 Employee and Labor Matters............................................... 22
3.20 Customer Accounts Receivable............................................. 22
3.21 Licenses; Permits........................................................ 23
3.22 Equipment................................................................ 23
3.23 Sufficiency of MMLP Business.............................................. 23
3.24 Accounts, Safe Deposit Boxes, Powers of Attorney.......................... 23
3.25 Effect of Transaction..................................................... 23
3.26 Disclosure................................................................ 23
3.27 Securities Act............................................................ 24
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
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3.28 Finders Fees................................................... 24
3.29 [Intentionally Left Blank.].................................... 24
3.30 Events Subsequent to Most Recent Audited Financial
Statements of MMLP and Modern Media............................ 24
3.31 Representations of Kraft Enterprises LTD; Several
Representations and Warranties................................. 24
ARTICLE 4 - COVENANTS OF THE LIMITED PARTNERS, STOCKHOLDERS AND
PRINCIPALS..................................................... 25
4.1 Access......................................................... 25
4.2 Ordinary Conduct............................................... 25
4.3 Insurance...................................................... 28
4.4 Other Transactions............................................. 28
4.5 Supplemental Disclosure........................................ 28
4.6 Code Section 351. ............................................. 28
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF TRUE NORTH AND
TN TECHNOLOGIES HOLDING........................................ 28
5.1 Representations and Warranties of True North................... 28
5.2 Representations and Warranties of TN Technologies.............. 30
ARTICLE 6 - COVENANTS OF TRUE NORTH AND TN TECHNOLOGIES HOLDING........... 32
6.1 Access......................................................... 32
6.2 [Intentionally Left Blank]..................................... 32
6.3 Board Size; Board Representation............................... 32
6.4 Headquarters................................................... 33
6.5 Stock Issuances................................................ 33
6.6 Supplemental Disclosure........................................ 33
6.7 Chief Executive Officer........................................ 34
6.8 [Intentionally Left Blank]..................................... 34
6.9 Certificate of Incorporation and By-laws....................... 34
6.10 Commercially Reasonable Efforts by TN Technologies Holding..... 34
6.11 Code Section 351............................................... 34
6.12 Annual Earnout Payments........................................ 34
6.13 MMLP Option Plan............................................... 35
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ARTICLE 7 - MUTUAL COVENANTS.............................................. 36
7.1 Cooperation.................................................... 36
7.2 Confidentiality................................................ 36
7.3 Publicity...................................................... 36
7.4 Records........................................................ 37
7.5 Consents....................................................... 37
7.6 Transfer Restrictions and Buyout............................... 37
ARTICLE 8 - [INTENTIONALLY LEFT BLANK].................................... 40
ARTICLE 9 - CONDITIONS TO CLOSING......................................... 41
9.1 Obligations of True North and TN Technologies Holding.......... 41
9.2 Obligations of the Limited Partners and the Stockholders....... 42
9.3 Frustration of Closing Conditions.............................. 43
9.4 Simultaneous Closings.......................................... 43
ARTICLE 10 - INDEMNIFICATION.............................................. 43
10.1 Survival of Representations and Warranties; Liability Threshold;
Limitation on Recovery......................................... 43
10.2 Environmental Indemnification.................................. 44
10.3 Other Indemnification by the Limited Partners and the
Stockholders................................................... 44
10.4 Other Indemnification by True North and TN Technologies
Holding........................................................ 45
10.5 Insurance...................................................... 45
10.6 Losses Net of Taxes, etc....................................... 45
10.7 Termination of Indemnification................................. 46
10.8 Procedures Relating to
Indemnification................................................ 46
10.9 Other Claims................................................... 48
10.10 Mitigation..................................................... 48
ARTICLE 11 - TAX MATTERS.................................................. 48
11.1 Termination of S Status........................................ 48
11.2 Distribution and Tax Sharing Agreements........................ 49
11.3 Tax Returns.................................................... 49
11.4 Corporate Liability for Taxes.................................. 49
11.5 Modem Media Party Indemnification for Certain Taxes............ 50
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11.6 Audit and Contest Rights.......................................................................................... 50
11.7 Payments.......................................................................................................... 52
11.8 Stockholders' Representatives..................................................................................... 52
11.9 Section 751 Allocation............................................................................................ 52
ARTICLE 12 - TERMINATION..................................................................................................... 53
12.1 Termination....................................................................................................... 53
12.2 Return of Documents and Other Material............................................................................ 53
12.3 Survival.......................................................................................................... 54
ARTICLE 13 - DISPUTE RESOLUTION.............................................................................................. 54
13.1 Binding Arbitration............................................................................................... 54
13.2 Injunctive Relief................................................................................................. 54
ARTICLE 14 - GENERAL PROVISIONS.............................................................................................. 55
14.1 Complete Agreement................................................................................................ 55
14.2 Expenses.......................................................................................................... 55
14.3 Governing Law..................................................................................................... 55
14.4 Notices........................................................................................................... 55
14.5 Amendment and Modification........................................................................................ 56
14.6 Successors and Assigns............................................................................................ 56
14.7 No Third Party Beneficiaries...................................................................................... 57
14.8 Counterparts...................................................................................................... 57
14.9 Interpretation.................................................................................................... 57
14.10 Annexes, Etc...................................................................................................... 57
14.11 Legal Enforceability.............................................................................................. 57
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(continued)
Schedules
- ---------
Schedule 3.2 Conflicts, Necessary Consents, etc.
Schedule 3.3(b) Partnership Interests
Schedule 3.3(c) Outstanding Options, etc.
Schedule 3.4 Unpaid Dividends and Distributions
Schedule 3.6 Qualifications to do Business
Schedule 3.8 MMLP Financial Statements
Schedule 3.9 Taxes
Schedule 3.11 Real Property
Schedule 3.12 Intellectual Property
Schedule 3.13 Contracts
Schedule 3.14 Litigation
Schedule 3.15 Insurance Policies
Schedule 3.16 Environmental
Schedule 3.17 Benefit Plans
Schedule 3.19 Employee and Labor Matters
Schedule 3.20 Customer Accounts Receivable
Schedule 3.21 Licenses; Permits
Schedule 3.22 Equipment
Schedule 3.24 Accounts, Safe Deposit Boxes, Powers of Attorney
Schedule 3.28 Finders Fees
Schedule 3.30 Subsequent Events
Schedule 4.2(b) Distributors
Schedule 4.2(c) Securities
Schedule 4.2(e) Benefit Plans
Schedule 4.2(f) Compensation
Schedule 4.2(i) Revaluation
Schedule 4.2(s) Capital Expenditures
Exhibits
- --------
Exhibit A-1 Employment Agreement for Douglas C. Ahlers
Exhibit A-2 Employment Agreement for Robert C. Allen, II
Exhibit A-3 Employment Agreement for Gerald M. O'Connell
Exhibit B-1 Non-Competition Agreement for Douglas C. Ahlers
Exhibit B-2 Non-Competition Agreement for Robert C. Allen, II
Exhibit B-3 Non-Competition Agreement for Gerald M. O'Connell
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Exhibit C-1 Form of Amended and Restated Modem Media Advertising Limited
Partnership Agreement
Exhibit D Form of Opinion of Counsel to True North and TN Technologies
Holding
Exhibit E Form of Opinion of Counsel to Modem Media, MMLP, the
Stockholders and the Limited Partners
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AMENDED AND RESTATED REORGANIZATION AGREEMENT
AMENDED AND RESTATED REORGANIZATION AGREEMENT (the "Agreement"), dated as
of December 31, 1996, among TRUE NORTH COMMUNICATIONS INC., a Delaware
corporation ("True North"), TN TECHNOLOGIES HOLDING INC., a Delaware corporation
("TN Technologies Holding"), and each of Douglas C. Ahlers, a resident of
Norwalk, Connecticut, Robert C. Allen, II, a resident of Danbury, Connecticut,
and Gerald M. O'Connell, a resident of Wilton, Connecticut, and Kraft
Enterprises LTD, an Illinois general partnership (Douglas C. Ahlers and Gerald
M. O'Connell being herein referred to collectively as the "Stockholders" and the
Stockholders, Kraft Enterprises LTD and Robert C. Allen, II being herein
referred to collectively as the "Limited Partners").
WHEREAS, Modem Media Advertising Limited Partnership, a Connecticut limited
partnership ("MMLP"), is a limited partnership specializing in interactive media
services;
WHEREAS, the Stockholders, the Limited Partners and True North have
determined that the interests of MMLP would be best served by (i) the
Stockholders and the Limited Partners contributing all of their respective
shares of the capital stock of Modem Media, Inc., a Connecticut corporation
("Modem Media"), and all of their respective limited partnership interests of
MMLP, respectively, to TN Technologies Holding for the issuance to the
Stockholders and the Limited Partners by TN Technologies Holding of an aggregate
of 2,542,785 shares of Class A Common Stock, par value $0.001 per share (the "TN
Technologies Holding Class A Common Stock," which together with the TN
Technologies Holding Class B Common Stock, par value $0.001 per share (the "TN
Technologies Holding Class B Common Stock"), shall be referred to as the "TN
Technologies Holding Common Stock") and (ii) True North contributing its shares
of the capital stock of Modem Media and its partnership interests in MMLP (the
"True North MMLP Interests") to be acquired by True North pursuant to the
Partnership Interest and Stock Purchase Agreement in exchange for the issuance
to True North by TN Technologies Holding of 2,802,114 shares of TN Technologies
Holding Class A Common Stock (the "Reorganization"); and
WHEREAS, it is appropriate and desirable to set forth the principal
transactions required to effect the Reorganization and certain other agreements
that will govern certain matters relating to the Reorganization;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
The following terms shall have the meanings assigned below for all purposes
of this Agreement:
<PAGE>
Action: any action, claim, suit, arbitration, inquiry, subpoena, discovery
request, proceeding or investigation by or before any court or grand jury, any
governmental or other regulatory or administrative agency or commission or any
arbitration tribunal involving or related to a party or its business.
Acquisition Agreement: the Amended and Restated Acquisition Agreement
dated as of December 31, 1996 among True North, TN Technologies Holding, the
Limited Partners and the Stockholders.
Affiliate: with respect to any specified person, a person that, directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person.
AT&T Agreement: the Interactive Advertising/Marketing Agreement effective
as of May 1, 1995, between AT&T Corp. and MMLP, as amended by the letter dated
April 1, 1996, from MMLP to AT&T Corp.
Books and Records: the books and records of a party (or true and complete
copies thereof), including all computerized books and records owned by such
party, including, without limitation, all such books and records relating to the
purchase of materials, supplies and services, the provision of services by the
MMLP Business or dealings with customers of the MMLP Business.
Code: the Internal Revenue Code of 1986, as amended.
Defend: address or respond in any manner to any Action brought, asserted,
commenced or pursued by any person or entity that is not a party to this
Agreement.
Defense: the plan for or state of defending.
Employment Agreements: the respective employment agreements between TN
Technologies Holding and each of the Principals in the forms attached hereto as
Exhibits A-1, A-2 and A-3.
ERISA: the Employee Retirement Income Security Act of 1974, as amended.
GAAP: generally accepted accounting principles in the United States as set
forth and in effect on the date hereof.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
Insurance Program: collectively, all of the policies pursuant to which
various insurance carriers provide insurance coverage to a party in respect of
claims or occurrences relating to property damage, business interruption,
transit, fire, extended coverage, fiduciary, fidelity, environmental
2
<PAGE>
impairment, employee crime, general liability, product liability, automobile
liability and employer's liability.
Intellectual Property: of a person means all rights, title and interest in
and to all intellectual and similar property of every kind and nature (including
discoveries, concepts, inventions, designs, processes, ideas, plans,
copyrightable materials, names, trademarks, copyrights, licenses, trade secrets,
patents, trade dress, confidential or proprietary technical or business
information, know-how, show-how, other data or information, software and
databases and all embodiments and fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
and books and records describing or used in connection with, any of the
foregoing) used, made, discovered, conceived, invented or improved by such
person.
IPO: a firm commitment underwritten public offering of Class A Common
Stock of TN Technologies Holding pursuant to the IPO Registration Statement.
IPO Registration Statement: the registration statement on Form S-1 to be
filed under the Securities Act, pursuant to which shares of TN Technologies
Holding Class A Common Stock to be issued in the IPO will be registered,
together with all amendments thereto.
Liabilities: any and all debts, liabilities and obligations, whether
accrued, contingent or reflected on a balance sheet, including, without
limitation, those arising under any law, rule, regulation, Action, order or
consent decree of any governmental entity or any judgment of any court of any
kind or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
Limited Partnership Interests: all of the respective limited partnership
interests in and to MMLP held by the Limited Partners.
Material Adverse Effect: a material adverse effect on the business,
assets, condition (financial or otherwise), results of operations or business
prospects of a specified party hereto or on the ability of a party to consummate
the transactions or complete the performance of the activities contemplated by
this Agreement and the Related Agreements.
Modem Media Parties: MMLP, Modem Media and each of the Stockholders and the
Limited Partners.
MMLP Business: all business operations conducted by MMLP and Modem Media as
of the Closing Date.
Non-Competition Agreements: the respective Covenants Not to Compete or
Solicit Business dated as of the Closing Date between TN Technologies Holding
and each of the Principals in the forms attached hereto as Exhibits B-1, B-2 and
B-3.
3
<PAGE>
Partnership Agreement: the Second Amended and Restated Modem Media
Advertising Limited Partnership Agreement in the form attached hereto as Exhibit
C-1.
Partnership Interests: all of the general partnership interests in and to
MMLP held by Modem Media and the Limited Partnership Interests.
Partnership Interest and Stock Purchase Agreement: the Amended and
Restated Partnership Interest and Stock Purchase Agreement dated as of December
31, 1996, between True North and the Limited Partners.
Person or person: includes an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization or a government or any
department or agency thereof.
Principals: Douglas C. Ahlers, Robert C. Allen, II, and Gerald M.
O'Connell.
Recovery: the amount obtained pursuant to a claim under an insurance
policy in the Insurance Program.
Registration Rights Agreement: the registration rights agreement between
True North and the Limited Partners in the form attached as Exhibit B to the
Partnership Interest and Stock Purchase Agreement.
Related Agreements: the following agreements: the Employment Agreements,
the Non-Competition Agreements, the Partnership Interest and Stock Purchase
Agreement, the Registration Rights Agreement and the Partnership Agreement.
Return or Returns: all returns, declarations of estimated tax payments,
reports, estimates, information returns and statements with respect to Taxes,
including any related or supporting information with respect to any of the
foregoing, filed or required to be filed with any taxing authority.
SEC: the Securities and Exchange Commission.
Securities Act: the Securities Act of 1933, as amended.
Tax, Taxable or Taxes: means (A) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to Tax or additional amount imposed by any governmental agency or
entity (a "Taxing Authority") responsible for the imposition of any such Tax
(domestic or foreign), (B) any liability for the payment of any amounts of the
type described in (A) as a result of being a member of an affiliated,
consolidated, combined or unitary
4
<PAGE>
group for any Taxable period, and (c) any liability for the payment of any
amounts of the type described in (A) or (B) as a result of any express or
implied obligation to indemnify any other person.
Transferred Business: the interactive media services, properties and
businesses of True North identified as the Transferred Business in the
Acquisition Agreement
ARTICLE 2
REORGANIZATION
2.1 Reorganization. At the Closing (as defined in Section 2.2) and subject
to the terms and conditions of this Agreement (a) the Stockholders shall
contribute to TN Technologies Holding all of the shares of capital stock of
Modem Media held by such Stockholders (the "Stockholder Shares"), free and clear
of all encumbrances, in exchange for the consideration set forth in Section 2.3
below, (b) the Limited Partners shall contribute to TN Technologies Holding all
of the Limited Partnership Interests of MMLP held by the Limited Partners in
exchange for the consideration set forth in Section 2.3 below and (c) True North
shall contribute to TN Technologies Holding all of the True North MMLP Interests
and all of the shares of capital stock of Modem Media held by True North (the
"True North Shares"), free and clear of all encumbrances, in exchange for the
consideration set forth in Section 2.3 below.
2.2 Closing; Closing Date. Unless this Agreement is earlier terminated
pursuant to Article 12, the closing of the Reorganization (the "Closing") shall
take place on the second business day following the date on which all of the
conditions to Closing set forth in Article 9 have been satisfied or waived, at
the offices of True North, 101 E. Erie Street, Chicago, Illinois 60611, unless
another place or time is agreed to in writing by the parties hereto. The date
upon which the Closing actually occurs is herein referred to as the "Closing
Date."
2.3 Consideration.
-------------
(a) On the Closing Date (i) the Stockholders and True North shall
deliver to TN Technologies Holding stock certificates representing the
Stockholder Shares and the True North Shares, respectively, with all transfer
stamps required under the laws of the State of Connecticut and Illinois affixed
thereto and all transfer taxes thereon paid, accompanied by duly executed and
witnessed stock powers transferring the Stockholder Shares and the True North
Shares to TN Technologies Holding, and (ii) the Limited Partners and True North
shall deliver such assignment and transfer documents of the Limited Partnership
Interests and the True North MMLP Interests, respectively, to TN Technologies
Holding and such other documents as TN Technologies Holding may reasonably
request to demonstrate compliance with this Agreement.
(b) On the Closing Date, TN Technologies Holding shall deliver or
cause to be delivered to the Stockholders and the Limited Partners certificates
representing that number of shares of TN Technologies Holding Class A Common
Stock as set forth on Schedule 2.3(b) hereto.
5
<PAGE>
(c) On the Closing Date, TN Technologies Holding shall deliver or
cause to be delivered to True North certificates representing that number of
Shares of TN Technologies Holding Class A Common Stock as is set forth on
Schedule 2.3(c) hereto.
2.4 Taking of Necessary Action; Further Action. If, at any time after the
Closing, any further action by any of the Limited Partners, the Stockholders or
True North is necessary or desirable to carry out the purposes of this Agreement
and to vest TN Technologies Holding with full right, title and possession to all
of the Limited Partnership Interests in MMLP, to vest TN Technologies Holding
with full right, title and interest in all Stockholder Shares or to vest TN
Technologies Holding with full right, title and possession to the True North
MMLP Interests, the Modem Media Parties and True North shall take, and will
take, all such lawful and necessary and/or desirable action.
2.5 Additional Deliveries of True North and TN Technologies Holding.
---------------------------------------------------------------
(a) Subject to fulfillment or waiver of the conditions set forth in
Article 9, at the Closing TN Technologies Holding shall deliver to the Modem
Media Parties and True North all of the following:
(i) Copies of the Certificate of Incorporation of TN Technologies
Holding certified as of a recent date by the Secretary of State of the State of
Delaware;
(ii) Certificate of good standing of TN Technologies Holding
issued as of a recent date by the Secretary of State of the State of Delaware;
(iii) Certificate of the Secretary of TN Technologies Holding,
dated the Closing Date, in form and substance reasonably satisfactory to the
Modem Media Parties and True North, as to (i) no amendments to the Certificate
of Incorporation of TN Technologies Holding since a specified date; (ii) the By-
laws of TN Technologies Holding; (iii) the resolutions of the Board of Directors
of TN Technologies Holding authorizing the execution and performance of this
Agreement, the Related Agreements and the transactions contemplated hereby and
thereby and electing certain officers and directors of TN Technologies Holding;
and (iv) incumbency and signatures of the officers of TN Technologies Holding
executing this Agreement and the Related Agreements; and
(iv) The certificate contemplated by Section 9.2(a) duly executed
by authorized officers of TN Technologies Holding.
(b) Subject to fulfillment or waiver of the conditions set forth in
Article 9, at the Closing True North shall deliver to the Modem Media Parties
and TN Technologies Holding:
(i) Copies of the Certificate of Incorporation of True North
certified as of a recent date by the Secretary of State of the State of
Delaware;
6
<PAGE>
(ii) Certificate of good standing of True North issued as of a
recent date by the Secretary of State of the State of Delaware;
(iii) Certificate of an Assistant Secretary of True North, dated
the Closing Date, in form and substance reasonably satisfactory to the Modem
Media Parties and TN Technologies Holding, as to (i) no amendments to the
Certificate of Incorporation of True North since a specified date; (ii) the By-
laws of True North; (iii) the resolutions of the Board of Directors of True
North authorizing the execution and performance of this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby; and (iv)
incumbency and signatures of the officers of True North executing this Agreement
and the Related Agreements;
(iv) Opinion of counsel to TN Technologies Holding and True North
substantially in the form attached hereto as Exhibit D; and
(v) The certificate contemplated by Section 9.2(b) duly executed
by authorized officers of True North.
2.6 Additional Deliveries of the Limited Partners and the Stockholders.
Subject to fulfillment or waiver of the conditions set forth in Article 9, at
Closing the Limited Partners and the Stockholders shall deliver to True North
and TN Technologies Holding all of the following:
(a) Copies of the Certificate of Incorporation of Modem Media
certified as of a recent date by the Secretary of State of the State of
Connecticut;
(b) Certificate of good standing of Modem Media issued as of a recent
date by the Secretary of State of the State of Connecticut;
(c) Certificate of the Secretary (or other officer) of Modem Media,
dated the Closing Date, in form and substance reasonably satisfactory to True
North and TN Technologies Holding, as to (i) no amendments to the Certificate of
Incorporation of Modem Media since a specified date; (ii) the By-laws of Modem
Media; (iii) the resolutions of the Board of Directors of Modem Media and of the
Stockholders, authorizing the execution and performance of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby; and
(iv) incumbency and signatures of the officers of Modem Media executing this
Agreement and the Related Agreements;
(d) Copies of the Certificate of Limited Partnership of MMLP certified
as of a recent date by the Secretary of State of the State of Connecticut;
(e) Certificate of good standing of MMLP issued as of a recent date by
the Secretary of State of the State of Connecticut;
7
<PAGE>
(f) Certificate of the general partner of MMLP, dated the Closing
Date, in form and substance reasonably satisfactory to True North and TN
Technologies Holding, as to (i) no amendments to the Certificate of Limited
Partnership since a specified date; (ii) the Agreement of Limited Partnership,
as amended, of MMLP; (iii) the resolutions of Modem Media and the Limited
Partners, authorizing the execution and performance of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby, by
MMLP; and (iv) incumbency and signatures of the officers of MMLP executing this
Agreement and the Related Agreements;
(g) Opinion of counsel to the Modem Media Parties substantially in the
form attached as Exhibit E;
(h) All consents, waivers or approvals with respect to Modem Media or
MMLP or the consummation of the transactions contemplated by this Agreement;
(i) The certificates contemplated by Sections 9.1(a) and (b), duly
executed by the Modem Media Parties;
(j) The Employment Agreements duly executed by each of Douglas C.
Ahlers, Robert C. Allen, II and Gerald M. O'Connell;
(k) The Non-Competition Agreements duly executed by each of Douglas C.
Ahlers, Robert C. Allen, II and G.M. O'Connell;
(l) The Partnership Interest and Stock Purchase Agreement duly
executed by the Limited Partners; and
(m) The Partnership Agreement duly executed by Modem Media and the
Limited Partners.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE LIMITED PARTNERS AND THE STOCKHOLDERS
Except as set forth in Section 3.31 of this Article 3, the Limited Partners
and the Stockholders jointly and severally hereby represent and warrant to True
North and TN Technologies Holding as follows:
3.1 Authority.
---------
(a) MMLP is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of Connecticut.
8
<PAGE>
(b) Modem Media is a corporation duly organized, validly existing and
in good standing under the laws of Connecticut.
(c) Each of Modem Media and MMLP has all requisite power and authority
to enter into each of the Related Agreements to which it is a party, to perform
its respective obligations thereunder and to consummate the transactions
contemplated thereby.
(d) Each Limited Partner has all power and authority to enter into
this Agreement and each of the Related Agreements to which it is a party, to
perform his respective obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby.
(e) All corporate acts and other proceedings required to be taken by
the Modem Media Parties to authorize the execution, delivery and performance of
this Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly and properly taken.
(f) Each of this Agreement and the Related Agreements has been duly
executed and delivered by each of the Limited Partners and the Stockholders who
are parties thereto and constitutes a legal, valid and binding obligation of
such Limited Partners and Stockholders enforce able against such Limited
Partners and Stockholders in accordance with its terms.
3.2 No Conflicts; Consents. Except as disclosed on Schedule 3.2, the
execution and delivery of this Agreement and each of the Related Agreements by
the Limited Partners and the Stockholders do not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of, any material
obligation or to loss of a material benefit under, or to materially increased,
additional, accelerated or guaranteed rights or entitlement of any person under,
or result in the creation of any material lien, claim, encumbrance, security
interest, option, charge or restriction of any kind upon the Partnership
Interests or any of the properties or assets of Modem Media, MMLP or any of the
Limited Partners and the Stockholders under, any provision of (a) in the case of
Modem Media, the Certificate of Incorporation or By-laws of Modem Media, and in
the case of MMLP, the Agreement of Limited Partnership or any other
organizational document of MMLP, (b) any material note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment, agreement or
arrangement to which any Modem Media Party is a party or by which any of their
respective properties or assets (including the Partnership Interests) are bound
or (c) any judgment, order or decree, or statute, law, ordinance, rule or
regulation applicable to any Modem Media Party or their respective properties or
assets (including the Partnership Interests). Except as disclosed on Schedule
3.2, no consent, approval, license, permit, order or authorization of, or
registration, declara tion or filing with, any governmental entity is required
to be obtained or made by or with respect to any Modem Media Party or their
respective affiliates or in connection with (x) the execution, delivery and
performance of this Agreement or any Related Agreement or the consummation of
the trans actions contemplated hereby or thereby or (y) to the knowledge of the
Principals, the conduct by
9
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MMLP of the MMLP Business following the Reorganization as conducted by the Modem
Media Parties immediately prior to the Closing (other than compliance with any
filings under the HSR Act).
3.3 MMLP Capital Structure.
(a) As of the date hereof, except as disclosed on Schedule 3.3(b) or
Schedule 3.3(c), the partnership interests of MMLP consist of general partner
interests, all of which are held by Modem Media, and Limited Partnership
Interests, all of which are held by the Limited Partners. All of the general
partnership interests of Modem Media and all of the Limited Partnership
Interests are being transferred to TN Technologies Holding pursuant to this
Agreement and the Partnership Interest and Stock Purchase Agreement.
(b) Except as disclosed on Schedule 3.3(b) or Schedule 3.3(c), other
than Modem Media and the Limited Partners, no other person or entity owns any
partnership interest or any other type of ownership interest in MMLP.
(c) Except as disclosed on Schedule 3.3(c) or provided in Schedule
4.2, there are no options, warrants, calls, rights, commitments or agreements of
any character, written or oral, to which any of the Modem Media Parties is a
party or by which such party is bound obligating any such party to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed any partnership interest or other type of ownership
interest in MMLP or to grant, or enter into any such option, warrant, call,
right, commitment or agreement. Except as disclosed on Schedule 3.3(c) or
provided in Schedule 4.2, all distributions of cash or property approved by
Modem Media and the Limited Partners with respect to MMLP have been distributed
as of the date hereof.
3.4 Modem Media Capital Structure.
(a) The Stockholders have good and valid title to the Stockholder
Shares, free and clear of any liens, claims, encumbrances, security interests,
options, charges and restrictions of any kind. The authorized capital stock of
Modem Media consists of 20,000 shares of common stock, of which 10,000 shares
are issued and outstanding on the date hereof.
(b) Other than the Stockholders, no other person or entity owns any
equity interest in Modem Media. There are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral other than arising
hereunder, to which any of the Modem Media Parties is a party or by which such
party is bound obligating such party to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed any
equity interest in Modem Media or to grant, or enter into any such option,
warrant, call, right, commitment or agreement.
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(c) Other than this Agreement, the Stockholder Shares are not subject
to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the Stockholder Shares. Except as disclosed
in Schedule 3.4 or provided in Schedule 4.2, all of the dividends and other
distributions declared by the Board of Directors of Modem Media hav been paid as
of the date hereof.
3.5 Title.
-----
(a) The Limited Partners have good and valid title to their respective
Limited Partnership Interests and at the Closing good and valid title will pass
to TN Technologies Holding (other than the Limited Partnership Interests
transferred to True North pursuant to the Partnership Interest and Stock
Purchase Agreement), free and clear of any liens, claims, encumbrances, security
interests, options, charges and restrictions of any kind.
(b) Modem Media has good and valid title to its Partnership Interests,
free and clear of any liens, claims, encumbrances, security interests, options,
charges and restrictions of any kind.
(c) Each of the Stockholders has full power and authority to convey
good and valid title to such Stockholder's Stockholder Shares, free and clear of
any encumbrance, and upon transfer to TN Technologies Holding at the Closing of
certificates representing the Stockholder Shares (other than the Stockholder
Shares transferred to True North pursuant to the Partnership Interest and Stock
Purchase Agreement), TN Technologies Holding will receive good and valid title,
free and clear of any liens, claims, encumbrances, security interests, option,
charges and restrictions of any kind.
3.6 Organization and Standing, Books and Records. Except as disclosed in
Schedule 3.6:
(a) each of Modem Media and MMLP has full power and authority and
possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to own, lease or otherwise hold its respective
properties and assets and to carry on its respective business as presently
conducted. Each of Modem Media and MMLP is duly qualified and in good standing
to do business in each jurisdiction in which the conduct or nature of its
business or the ownership, leasing or holding of its properties makes such
qualification necessary, except such juris dictions where the failure to be so
qualified or in good standing, individually or in the aggregate, would not have
a Material Adverse Effect. A list of the jurisdictions in which Modem Media and
MMLP are so qualified is set forth in Schedule 3.6.
(b) the Modem Media Parties have prior to the execution of this
Agreement made available to True North and TN Technologies Holding true and
complete copies of the organizational documents, each as amended to date, of
Modem Media and MMLP. The stock transfer books and the minute books of Modem
Media (which have been made available for inspection by True North
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and TN Technologies Holding prior to the date hereof) are true and complete in
all material respects. The records of MMLP (which have been made available for
inspection by True North and TN Technologies Holding prior to the date hereof)
are the only records of MMLP and contain an accurate summary in all material
respects of all actions taken by Modem Media as general partner and all actions
of meetings of limited partners or actions by written consent since the
inception of MMLP.
3.7 Ownership Interests. MMLP and Modem Media do not have and have never
had any subsidiaries or affiliated companies and, except as disclosed on
Schedule 3.7, do not otherwise own and have never otherwise owned any shares of
capital stock or any interest in, or control, directly or indirectly, any other
corporation, partnership (other than MMLP), association, joint venture or other
business entity.
3.8 Financial Statements; Undisclosed Liabilities.
---------------------------------------------
(a) Schedule 3.8(a) sets forth the consolidated balance sheets of MMLP
as of September 30, 1996 and December 31, 1995, and the consolidated statements
of income and cash flows of MMLP for each of the three (3) years ended December
31, 1995, together with all the notes that have been prepared to such financial
statements, if any (collectively, the "MMLP Financial Statements"). The MMLP
Financial Statements are complete and accurate and fairly present the
consolidated financial condition and results of operations of MMLP in accordance
with generally accepted accounting principles consistently applied, in each case
as of the respective dates thereof and for the respective periods indicated.
(b) Except as disclosed in Schedule 3.8(b), there are no liabilities
or obligations of any nature (whether accrued, absolute, contingent, unasserted
or otherwise) relating to MMLP except (i) as specifically disclosed, reflected
or fully reserved against on the balance sheet of MMLP as of December 31, 1995
(the "MMLP Balance Sheet") and (ii) for liabilities and obligations incurred in
the ordinary course of business of MMLP consistent with past practice since the
date of the MMLP Balance Sheet. Except as stated on Schedule 3.8(b) or a
Schedule provided in Section 4.2, Modem Media and MMLP have not declared or paid
any dividend, declared or made any distributions (whether in cash or other
property) to any Modem Media Party, any Affiliate of a Modem Media Party or any
relative of any Modem Media Party since the date of the MMLP Balance Sheet.
(c) Except for its holding of the General Partnership Interests, Modem
Media does not conduct any business activities or operations.
3.9 Taxes. Except as disclosed on Schedule 3.9:
-----
MMLP is classified and Taxable as a partnership for federal and
applicable state Tax purposes, and has been since the date of its initial
formation. Modem Media is an S Corporation for federal and applicable state Tax
purposes (but only to the extent Modem Media elected or was deemed to have
elected to be treated as an S Corporation under any such applicable state law),
and has been since the date of its initial formation. All Tax Returns, required
to be filed, on or prior to the
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Closing Date, with any Taxing Authority with respect to any Taxable period
ending on or before the Closing Date, by or on behalf of MMLP (collectively, the
"MMLP Returns"), have been or will be filed when due in accordance with all
applicable laws (including any extensions of such due date), and all amounts
shown due thereon have been paid or have been fully accrued on the MMLP
Financial Statements in accordance with generally accepted accounting
principles. All Tax Returns, required to be filed, on or prior to the Closing
Date, with any Taxing Authority with respect to any Taxable period ending on or
before the Closing Date, by or on behalf of Modem Media (collectively, the
"Modem Media Returns"), have been or will be filed when due in accordance with
all applicable laws (including any extensions of such due date), and all amounts
shown due thereon have been paid. Except to the extent provided for or disclosed
in the MMLP Financial Statements (including notes thereto), the MMLP Returns
correctly reflect (and, as to any MMLP Returns not filed as of the date hereof
but filed on or prior to the Closing Date, will correctly reflect) the Tax
liability and status of MMLP (including MMLP's status as a partnership within
the meaning of Section 7701 of the Code or any comparable provision under state
law). Except to the extent disclosed on Schedule 3.9, or otherwise disclosed in
writing to True North and TN Technologies Holding, the Modem Media Returns
correctly reflect (and, as to any Modem Media Returns not filed as of the date
hereof but filed on or prior to the Closing Date, will correctly reflect) the
Tax liability and status of Modem Media (including Modem Media's status as an S
Corporation within the meaning of Section 1361 of the Code or any comparable
provision under state law). Each of MMLP and Modem Media have withheld and paid
to the applicable financial institution or Taxing Authority all amounts required
to be withheld, including, without limitation, all amounts required to be
withheld with respect to employees of MMLP or Modem Media. All MMLP Returns
pertaining to Federal income tax filed with respect to Taxable years of MMLP
through the Taxable year ended on or before December 31, 1992 have been examined
and closed or are MMLP Returns with respect to which the applicable period for
assessment under applicable law, after giving effect to extensions or waivers,
has expired. All Modem Media Returns pertaining to federal income tax with
respect to Taxable years of Modem Media through the Taxable year ended on or
before December 31, 1992 have been examined and closed or are Modem Media
Returns with respect to which the applicable period for assessment under
applicable law, after giving effect to extensions and waivers, has expired.
Neither MMLP nor Modem Media has granted any extension or waiver of the
limitation period applicable to any MMLP Returns or Modem Media Returns. There
is no claim, audit, Action, suit, proceeding, or investigation now pending or
(to the knowledge of the Principals) threatened against or with respect to MMLP
or Modem Media in respect of any Tax. No notice of deficiency or similar
document of any Tax Authority has been received by MMLP or Modem Media, and
there are no liabilities for Taxes (including liabilities for interest,
additions to Tax and penalties thereon and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Tax Authority
that could, if determined adversely to MMLP or Modem Media, materially affect
the liability of MMLP or Modem Media for Taxes in other Taxable periods.
Neither Modem Media, nor any other person on behalf of Modem Media, has entered
into nor will any such person enter into any agreement or consent pursuant to
Section 341(f) of the Code. Neither MMLP nor Modem Media, as the general
partner or Tax matters partner of MMLP, has made (nor will any such person make)
an election under Section 754 of the Code or any comparable provision of
applicable state law, except as may be requested by True North. To the
knowledge of the Principals, there are no liens for Taxes on the
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assets of MMLP or Modem Media other than liens for Taxes not yet due and
payable. Neither MMLP nor Modem Media has been or will be required to include
any material adjustment in Taxable income for any Tax period (or portion
thereof) ending on or prior to the Closing Date pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Closing Date. There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of MMLP or Modem Media that, individually or collectively, will
give rise to the payment of any amount that will not be deductible pursuant to
Section 162 (as unreasonable compensation) or pursuant to Section 280G of the
Code. Each of MMLP and Modem Media have provided or made available to TN
Technologies Holding and True North or their designated representatives true and
correct copies of all material Tax Returns of MMLP and Modem Media, and, as
reasonably requested by TN Technologies Holding and True North prior to the date
hereof, information statements, reports, work papers, Tax opinions and memoranda
and other Tax data and documents. Modem Media has not been within the five (5)
year period preceding the date hereof a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code. Except as
provided in connection with this Agreement, neither MMLP nor Modem Media is a
party to (or obligated under) any Tax allocation, Tax distribution, Tax sharing,
Tax indemnity or similar agreement or arrangement with respect to any Tax
(including without limitation any such agreement or arrangement imposed by
operation of law).
3.10 Assets Other than Real Property Interests.
-----------------------------------------
(a) Except as disclosed on Schedule 3.10(a), MMLP has good and valid
title to all assets (other than real property) reflected on its balance sheets
or thereafter acquired, except those sold or otherwise disposed of since the
date of their respective balance sheets in the ordinary course of business
consistent with past practice, in each case free and clear of all mortgages,
liens, security interests or encumbrances of any kind other than (i) mechanics',
carriers', workmen's, repairmen's or other like liens arising or incurred in the
ordinary course of business, liens arising under original purchase price
conditional sales contracts and equipment leases with third parties entered into
in the ordinary course of business and liens for Taxes which are not due and
payable or which may there after be paid without penalty or premium, (ii)
mortgages, liens, security interests and encumbrances which secure debt that is
reflected as a liability on the MMLP balance sheet and (iii) other imper
fections of title or encumbrances, if any, which do not, individually or in the
aggregate, materially impair the continued use, operation or value of the assets
to which they relate in Modem Media or the MMLP Business (the mortgages, liens,
security interests, encumbrances and imperfections of title described in clauses
(i), (ii) and (iii) above are hereinafter referred to collectively as "Modem
Media Permitted Liens"). Modem Media has no material assets (other than General
Partnership Interests).
(b) Except as disclosed on Schedule 3.10(b), all the tangible personal
property of Modem Media and MMLP has been maintained in all material respects in
accordance with the respective past practices of Modem Media and MMLP. The
tangible personal property of each of Modem Media and MMLP is in all material
respects in good operating condition and repair, ordinary wear and tear
excepted. Except as disclosed on Schedule 3.10(b), all leased personal property
of
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Modem Media and MMLP is in all material respects in the condition required of
such property by the terms of the lease applicable thereto during the term of
the lease and upon the expiration thereof.
3.11 Real Property. Neither Modem Media nor MMLP owns any interest in
real property. Schedule 3.11 sets forth a complete list of all leased and other
interests in real property of any kind held by Modem Media and MMLP
(individually, a "Modem Media Leased Property") and further identifies any
material agreements relating to said interests in real property. Modem Media
and MMLP have good, valid, and subsisting title to the leasehold estates in all
Modem Media Leased Property, in each case free and clear of all leasehold
mortgages, leasehold liens, leasehold security interests, leasehold
encumbrances, assignments, subleases, easements, covenants, rights-of-way,
rights of refusal, and other restrictions of any nature whatsoever, except (a)
such as are set forth in Schedule 3.11, (b) zoning, building and similar
restrictions, or (c) easements, covenants, rights-of-way, rights of first
refusal and other similar restrictions which affect the fee title to the Modem
Media Leased Property, none of which items set forth in clauses (b) or (c),
individually or in the aggregate, materially impair the continued use of the
property to which they relate. The current use by MMLP of the plants, offices
and other facilities located on Modem Media Leased Property relating to the MMLP
Business does not violate any local zoning ordinance and, to the knowledge of
the Principals, there is no proposed change in any local zoning ordinance that
would have a material adverse effect on the MMLP Business.
Neither the whole nor any part of the Modem Media Leased Property is
subject to any pending suit for condemnation or other taking by any public
authority, and, to the knowledge of the Principals, no such condemnation or
other taking is threatened of contemplated.
3.12 Intellectual Property.
(a) Schedule 3.12(a) sets forth a true and complete list of all
Intellectual Property owned, used, filed by or licensed to Modem Media or MMLP
(the "MMLP Intellectual Property"). With respect to patents, copyrights,
trademarks and other Intellectual Property, Schedule 3.12 also sets forth lists
of such Intellectual Property and of all jurisdictions in which such
Intellectual Property is issued, registered or applied for and all patent,
registration and application numbers. Except as expressly set forth in Schedule
3.12(a), Modem Media or MMLP owns, and one of such parties has the freely
transferable right to make, use, sell, have made, lease, export, execute,
reproduce, display, perform, modify, enhance, distribute, prepare derivative
works of and sublicense, without payment to any other person, all MMLP
Intellectual Property and the consummation of the transactions contem plated
hereby will not conflict with, alter or impair any such rights. Except as
specifically disclosed on Schedule 3.12(a), Modem Media and MMLP (i) own or
license under valid agreements all Intellectual Property as is necessary in
connection with the MMLP Business as currently conducted which is also set forth
on Schedule 3.12(a) and (ii) to the knowledge of the Principals, the
consummation of the transactions contemplated hereby will not give rise to any
royalty obligation or other charge with respect to the MMLP Intellectual
Property.
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(b) Except as set forth in Schedule 3.12(b), none of the Modem Media
Parties have granted any options, licenses or agreements of any kind relating to
MMLP Intellectual Property or the marketing or distribution thereof, except non-
exclusive licenses to end users in the ordinary course of business. No such
Modem Media Party is bound by or a party to any options, licenses or agreements
of any kind relating to the Intellectual Property of any other person, except as
expressly set forth in Schedule 3.12(b). Except as described in Schedule
3.12(b), none of the Limited Partners or Stockholders holds any interest in the
MMLP Intellectual Property. Except as set forth in Schedule 3.12(b), all MMLP
Intellectual Property is free and clear of the claims of others and of all
liens, security interests and encumbrances whatsoever. Except as disclosed on
Schedule 3.12(b), the conduct of Modem Media, MMLP and the MMLP Business as
presently conducted does not and, to the knowledge of the Principals, the
conduct of such business as proposed to be conducted by TN Technologies Holding
(as described in its business plan) will not, violate, conflict with or infringe
the Intellectual Property of any other person. Except as set forth in Schedule
3.12(b), (i) no claims are pending or, to the knowledge of the Principals,
threatened, against any Modem Media Party by any person with respect to the
ownership, validity, enforceability, effectiveness or use of any Intellectual
Property, and, to the knowledge of the Principals, there are no reasonable
grounds existing to support the commencement or assertion of any such claims
which such claims would be of a material nature and (ii) none of the Modem Media
Parties have received any written communications alleging that any such party
has violated any rights relating to Intellectual Property of any person.
(c) Except as set forth in Schedule 3.12(c), the MMLP Intellectual
Property has been maintained in confidence in accordance with protection
procedures customarily used in the industry of MMLP to protect rights of like
importance. The MMLP Intellectual Property that is necessary to the operation
of the MMLP Business has been maintained in confidence in accordance with
protection procedures customarily used in the industry of MMLP to protect rights
of like importance. Except as set forth in Schedule 3.12(c), all former and
current members of management and key personnel of Modem Media and MMLP,
including the Principals, and all current and former employees, agents,
consultants and independent contractors who have contributed to or participated
in the conception and development of software or other MMLP Intellectual
Property (collectively, "Modem Media Personnel"), have executed and delivered to
MMLP a proprietary information agreement restricting such person's right to
disclose proprietary information of Modem Media and MMLP. Except as set forth
in Schedule 3.12(c), all former and current Modem Media Personnel either (i)
have been party to a "work-for-hire" arrangement or agreement with Modem Media
and MMLP, in accordance with applicable Federal and state law, that has accorded
MMLP full, effective, exclusive and original ownership of all tangible and
intangible property thereby arising or (ii) have executed appropriate
instruments of assignment in favor of the MMLP as assignee that have conveyed to
MMLP full, effective and exclusive ownership of all tangible and intangible
property thereby arising. None of the current or former officers or employees
of Modem Media or MMLP have any patents issued or applications pending for any
device, process, design or invention of any kind now used in the MMLP Business.
3.13 Contracts. Except as set forth in Schedule 3.13, neither Modem
Media nor MMLP is a party to nor is it bound by any:
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(a) employment agreement that represents an aggregate future liability
in excess of $50,000 and is not terminable by Modem Media or MMLP by notice of
not more than sixty (60) days for a cost of less than $10,000;
(b) employee collective bargaining agreement or other contract with
any labor union;
(c) covenant not to compete or other covenant restricting in any
material respect the development, manufacture, marketing or distribution of the
products and services of the MMLP Business;
(d) agreement or other material arrangement with any current or former
officer, director or employee of Modem Media or MMLP;
(e) lease, sublease or similar agreement with any person under which a
Modem Media Party is a lessor or sublessor of, or makes available for use to any
person, (i) any MMLP Leased Property or (ii) any portion of any premises
otherwise occupied by Modem Media or MMLP;
(f) lease, sublease or similar agreement with any person under which
(i) Modem Media or MMLP is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by any person or
(ii) Modem Media or MMLP is a lessor or sublessor of, or makes available for use
by any person, any tangible personal property owned or leased by Modem Media or
MMLP, in any such case which represents an aggregate future liability or
receivable, as the case may be, in excess of $50,000 and is not terminable by
Modem Media or MMLP by notice of not more than sixty (60) days for a cost of
less than $10,000;
(g) (i) continuing contract or arrangement with a stated term
(including permitted renewals) of more than one hundred eighty (180) days for
the future purchase of materials, supplies or equipment, (ii) management
service, consulting or other similar type of contract or arrangement or (iii)
advertising agreement or arrangement, in any such case which represents an
aggregate future liability to any person in excess of $50,000 and is not
terminable by Modem Media or MMLP by notice of not more than sixty (60) days for
a cost of less than $10,000;
(h) license, option or other agreement relating in whole or in part to
the Intellectual Property set forth in Schedule 3.12 (including any license or
other agreement under which Modem Media or MMLP is licensee or licensor of any
such Modem Media Intellectual Property) or to trade secrets, confidential
information or proprietary rights and processes of the MMLP Business or any
other person to which Modem Media or MMLP is a party;
(i) agreement, contract or other instrument under which Modem Media or
MMLP has borrowed any money from, or issued any note, bond, debenture or other
evidence of indebtedness to, any person or any other note, bond, debenture or
other evidence of indebtedness issued to any person;
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(j) agreement or other arrangement under which (i) any person
(including Modem Media or MMLP) has directly or indirectly effectively
guaranteed indebtedness, liabilities or obliga tions of any Modem Media Party or
(ii) Modem Media or MMLP has directly or indirectly effectively guaranteed
indebtedness, liabilities or obligations of any person (in each case other than
endorsements for the purpose of collection in the ordinary course of business);
(k) agreement or arrangement under which Modem Media or MMLP has,
directly or indirectly, made any advance, loan, extension of credit or capital
contribution to, or other investment in, any person;
(l) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any properties, business
operations or assets (either tangible or intangible) of Modem Media or MMLP
(other than such that fall within clauses (a) and (c) of the definition of Modem
Media Permitted Liens);
(m) agreement or instrument providing for indemnification of any
person with respect to liabilities relating to any current or former business of
any of the Modem Media Parties, or any predecessor person;
(n) other agreement, contract, lease, sublease, license, commitments
or instrument to which Modem Media or MMLP is a party or by or to which it or
any of its assets or business is bound or subject which represents an aggregate
future liability to any person in excess of $50,000 and is not terminable by
Modem Media or MMLP by notice of not more than sixty (60) days for a cost of
less than $10,000;
(o) any group of agreements, contracts, leases, subleases, licenses,
commitments or instruments falling within subparagraphs (a), (f), (g) and (n) of
this paragraph 3.13 that collectively represent future aggregate liabilities in
excess of $100,000 or that are not terminable by MMLP by notice of not more than
sixty (60) days for an aggregate cost of less than $10,000;
(p) except as specifically contemplated by this Agreement, any
contract not made in the ordinary course of business; or
(q) any other contract, agreement, commitment or understanding that is
material to the MMLP Business.
Except as expressly set forth in Schedule 3.13, all agreements, contracts,
leases, subleases, licenses, commitments or instruments of Modem Media or MMLP
listed in the Schedules hereto (collectively, the "Modem Media Contracts") are
valid, binding and in full force and effect and are enforceable by Modem Media
or MMLP in accordance with their terms (except as against third parties that
properly invoke the protection of applicable bankruptcy laws of which, to the
knowledge of the Principals, there are currently none) and, to the knowledge of
the Principals, the consummation of the transactions contemplated hereby will
not affect the validity or enforceability of the Modem
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Media Contracts. Except as set forth in Schedule 3.13, Modem Media and MMLP
have performed all material obligations required to be performed by them to date
under the Modem Media Contracts and they are not (with or without the lapse of
time or the giving of notice, or both) in breach or default in any material
respect thereunder and, to the knowledge of the Principals, no other party to
any of the Modem Media Contracts is (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder. Complete copies of all Modem Media Contracts have been made
available to True North and TN Technologies Holding. No Modem Media Party is
currently renegotiating any of the Modem Media Contracts or paying liquidated
damages in lieu of performance.
3.14 Litigation. Schedule 3.14 sets forth a list of all pending
lawsuits, and of all claims with respect to which either a Principal or any
officer of Modem Media or MMLP has been contacted in writing, against or
affecting any Modem Media Party or any of their respective properties, assets or
operations or the MMLP Business and which (a) relate to or involve a claim for
more than $10,000 either on the face of the claim or in the reasonable judgment
of any Modem Media Party, (b) seek any injunctive relief or (c) relate to or may
give rise to any legal restraint on or prohibition against the transactions
contemplated by this Agreement. None of the lawsuits or claims listed in
Schedule 3.14 could reasonably be expected to have, if adversely determined,
individually or in the aggregate, a Material Adverse Effect. Except as set
forth in Schedule 3.14, to the knowledge of the Principals, there are no
unasserted claims of the type that would be required to be disclosed in Schedule
3.14 if counsel for the claimant had contacted the Modem Media Parties which if
asserted could reasonably be expected to have a Material Adverse Effect. None
of the Modem Media Parties is a party or subject to or in default under any
judgment, order, injunction or decree of any Governmental Entity or arbitration
tribunal applicable to any such party or any of their respective properties,
assets, operations or business. Except as set forth in Schedule 3.14, there is
no lawsuit or claim by any of the Modem Media Parties pending, or which any of
the Modem Media Parties intends to initiate, against any other person involving
a claim in excess of $10,000. To the knowledge of the Principals, there is no
pending or threatened investigation of any of the Modem Media Party by any
Governmental Entity.
3.15 Insurance. The insurance policies maintained by any person with
respect to Modem Media or MMLP and their respective assets and properties are
listed in Schedule 3.15. All such policies are in full force and effect, all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to be
paid with respect to any period ending prior to the Closing Date which have been
identified on Sche dule 3.15 under comprehensive general liability and workmen's
compensation insurance policies), and no notice of cancellation or termination
has been received with respect to any such policy which has not been replaced on
substantially similar terms prior to the date of such cancellation. In addition
to the knowledge of the Principals, the transactions contemplated hereby will
not affect the validity or enforceability of any of such policies. To the
knowledge of the Principals, the activities and operations of Modem Media or
MMLP have been conducted in a manner so as to conform in all material respects
to all applicable provisions of such insurance policies.
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3.16 Environmental.
(a) For the purposes of this Agreement, the following terms shall have
the following definitions:
(i) "Environmental Claim" means any notice, claim, act, cause
of action or investigation by any Person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries
or penalties) arising out of, based on or resulting from (A) the presence, or
release into the environment, of any Hazardous Materials (as hereinafter
defined) or (B) any violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all Federal, state, local and
foreign laws and regulations relating to pollution or protection of the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata) or the protection of human health, including laws and
regulations relating to emissions, discharges, releases or threatened releases
of Hazardous Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials.
(iii) "Hazardous Materials" means chemicals, pollutants,
contaminants, wastes, toxic substances, radioactive and biological materials,
asbestos containing materials (ACM), hazardous substances, petroleum and
petroleum products or any fraction thereof.
(b) To the Principals' knowledge, except as disclosed on Schedule
3.16, Modem Media and MMLP have been and are in compliance (which compliance
includes, but is not limited to, the possession of all material permits and
other governmental authorizations required under applicable Environmental Laws
and compliance with the terms and conditions thereof) in all material respects
with all Environmental Laws and, except as disclosed on Schedule 3.16, neither
Modem Media nor MMLP have received any notice of any alleged claim, violation of
or liability under any Environmental Law which has not heretofore been cured or
for which there is any remaining liability;
(c) Except as disclosed on Schedule 3.16, neither Modem Media nor MMLP
has received notice of any Environmental Claim filed or threatened against
either of them, or against any person or entity whose liability for any
Environmental Claim Modem Media and/or MMLP have retained or assumed either
contractually or by operation of law and, except as disclosed on Schedule 3.16,
there are no past or present actions, activities, circumstances, conditions,
events or incidents, that could reasonably be expected to form the basis of any
Environmental Claim against Modem Media and/or MMLP, the business thereof, or
against any person or entity whose liability for any Environmental Claim the
Modem Media and/or MMLP have retained or assumed either contractually or by
operation of law;
(d) Except as disclosed on Schedule 3.16, to the Principals'
knowledge, neither Modem Media nor MMLP has disposed of, emitted, discharged,
handled, stored, transported, used or
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released any Hazardous Materials, arranged for the disposal, discharge, storage
or release of any Hazardous Materials, or exposed any employee or other
individual to any Hazardous Materials so as to give rise to any material
liability or corrective or remedial obligation under any Environmental Laws; and
(e) To the Principals' knowledge, except as disclosed on Schedule
3.16, no Hazardous Materials are present in, on, under or adjacent to any
properties owned, leased or used at any time (including both land and
improvements thereon) by MMLP or for its business so as to give rise to any
material liability or corrective or remedial obligation under any Environmental
Laws.
3.17 Benefit Plans. Schedule 3.17 is a complete list of each plan,
arrangement or policy (written or oral) relating to stock options, stock
purchases, compensation, deferred compensation, severance, fringe benefits or
other employee benefits, in each case maintained or contributed to, or required
to be maintained or contributed to, by Modem Media or MMLP. Except as set forth
in Schedule 3.17, neither Modem Media nor MMLP maintains or contributes to, or
is required to maintain or contribute to an "employee pension plan" (as defined
in Section 3(2) of ERISA) or an "employee welfare benefit plan" (as defined in
Section 3(l) of ERISA). Except as set forth in Schedule 3.17, neither Modem
Media or MMLP nor any benefit plan maintained by either such party is subject to
ERISA.
3.18 Compliance with Applicable Laws. Except as disclosed on Schedule
3.18, Modem Media and MMLP are in compliance in all material respects with all
applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity ("Applicable Laws"), including those relating to
occupational health and safety. Neither Modem Media nor MMLP has received any
order or communication during the past three years from a Governmental Entity
that alleges that Modem Media or MMLP is not in compliance in any respect with
any Applicable Laws.
3.19 Employee and Labor Matters. Except as set forth in Schedule 3.19, (a)
there is, and during the past three (3) years there has been, no labor strike,
dispute, work stoppage or lockout pending, or, to the knowledge of the
Principals, threatened, against Modem Media or MMLP; (b) to the knowledge of the
Principals, no union organizational campaign is in progress with respect to the
employees of Modem Media or MMLP and no question concerning representation
exists respecting such employees; (c) neither Modem Media nor MMLP is engaged in
any unfair labor practice; (d) there is no unfair labor practice charge or
complaint against Modem Media or MMLP pending, or, to the knowledge of the
Principals, threatened, before the National Labor Relations Board; (e) there are
no pending, or, to the knowledge of the Principals, threatened, union grievances
against Modem Media or MMLP; (f) there are no pending, or, to the knowledge of
the Principals, threatened, charges against Modem Media or MMLP or any current
or former employee of Modem Media or MMLP before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices; (g) neither Modem Media nor MMLP
has received written notice of the intent of any Governmental Entity responsible
for the enforcement of labor or employment laws to conduct an investigation of
or affecting Modem Media or MMLP and, to the
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knowledge of the Principals no such investigation is in progress; and (h)
neither Modem Media nor MMLP is liable for any arrears of wages, penalties or
taxes with respect to the foregoing.
No officer or director of Modem Media or MMLP is, and, to the knowledge of
the Principals, no other employee of Modem Media or MMLP is, a party to or bound
by any contract, license, covenant or agreement of any nature, or subject to any
judgment, decree or order of any Governmental Entity, that would conflict with
the MMLP Business or the transactions contemplated hereby or by the Related
Agreements or have a Material Adverse Effect. To the knowledge of the
Principals, no activity of any employee of Modem Media or MMLP as or while an
employee of Modem Media or MMLP has caused a violation of any employment
contract, confidentiality agreement, patent disclosure agreement, or other
contract or agreement. To the knowledge of the Principals, the execution and
delivery of this Agreement and the other Related Agreements will not conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
such employees are now obligated.
3.20 Customer Accounts Receivable. All customer accounts receivable of the
MMLP Business, whether reflected on the MMLP Balance Sheet or subsequently
created, have arisen from bona fide transactions in the ordinary course of
business. Except as disclosed on Schedule 3.20, to the knowledge of the
Principals, all accounts receivable reflected in the MMLP Balance Sheet are good
and collectible in the ordinary course of business. Set forth in Schedule 3.20
is a list of the names and addresses of the eight largest customers of MMLP and
the percentage of MMLP's total revenues that each customer represented during
the fiscal year ended December 31, 1995 and the six months ended June 30, 1996.
Except as set forth in Schedule 3.20, there exists no actual or threatened
termination, cancellation or limitation of, or any material modification of or
change in, the business relationship of any Modem Media Party with any customer
or group of customers listed on Schedule 3.20 and, to the knowledge of the
Principals, the consummation of the transactions contemplated hereby will not
result in the termination, cancellation or limitation of, or any material change
in, the business relationship of any Modem Media Party with any customer or
group of customers listed on Schedule 3.20 as customers during the six months
ended June 30, 1996.
3.21 Licenses; Permits. Schedule 3.21 sets forth a true and complete list
of all licenses, permits and authorizations issued or granted to Modem Media or
MMLP by Governmental Entities which are necessary for the conduct of the MMLP
Business. All such licenses, permits and authorizations are validly held by
Modem Media or MMLP. Modem Media and MMLP have complied in all material respects
with all terms and conditions thereof and the same will not be subject to
suspension, modification, revocation or nonrenewal as a result of the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
3.22 Equipment. Schedule 3.22 sets forth a list of each material item of
machinery, furniture, computer equipment or other equipment used in connection
with the MMLP Business, indicating in each case the owner and location and the
lessee or sublessee, if any.
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3.23 Sufficiency of MMLP Business. The MMLP Business comprises all the
business, properties, assets (including Intellectual Property) and goodwill used
by MMLP and required for the conduct of the MMLP Business by MMLP.
3.24 Accounts, Safe Deposit Boxes, Powers of Attorney. Schedule 3.24 sets
forth (a) a true and correct list of all bank and savings accounts, certificates
of deposit and safe deposit boxes of Modem Media or MMLP and those persons
authorized to sign thereon and (b) a true and correct list of all powers of
attorney granted by Modem Media or MMLP and those persons authorized to act
thereunder.
3.25 Effect of Transaction. No creditor, employee, client, customer or
other person having a material business relationship with Modem Media or MMLP
has informed Modem Media or MMLP in writing that such person intends to
materially change such relationship. Other than as set forth on Schedule 3.25,
there exists no correspondence between officers of Modem Media and MMLP, on the
one hand, and AT&T Corp. on the other, relating to the interpretation,
enforcement, validity or modification of the AT&T Agreement.
3.26 Disclosure. No representation or warranty of the Limited Partners and
the Stockholders contained in this Agreement, and no statement contained in any
document, certificate, Schedule or Exhibit furnished or to be furnished by or on
behalf of the Limited Partners or the Stockholders to True North and TN
Technologies Holding or any of their representatives pursuant to this Agreement
or any Related Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in the
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading or necessary in order to fully
and fairly provide the information required to be provided in any such document,
certificate, Schedule or Exhibit.
3.27 Securities Act. The Common Stock Holding received by the Stockholders
and the Limited Partners pursuant to this Agreement is being acquired for
investment purposes only and not with a view to any public distribution thereof,
and the Stockholders and the Limited Partners shall not offer to sell or
otherwise dispose of the Common Stock so acquired by them in violation of any of
the requirements of the Securities Act.
3.28 Finders Fees. The Limited Partners and the Stockholders have retained
the investment bankers, brokers and finders listed in Schedule 3.28; no other
investment bankers or finders have been retained by the Modem Media Parties. The
Principals represent and warrant that, except as disclosed on Schedule 3.28,
they are solely responsible for any and all fees associated with the parties
identified on Schedule 3.28 and will not charge such fees to the MMLP Business,
True North or TN Technologies Holding.
3.29 [Intentionally Left Blank.]
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3.30 Events Subsequent to Most Recent Audited Financial Statements of MMLP
and Modem Media. Since December 31, 1995, there has not been any Material
Adverse Change in the business, assets, condition (financial or otherwise),
results of operations or business prospects of MMLP or Modem Media, as the case
may be, and, except as set forth in Schedule 3.30, since September 30, 1996, no
Modem Media Party has taken any action specified in Section 4.2 below.
3.31 Representations of Kraft Enterprises LTD; Several Representations and
Warranties. Notwithstanding the preamble of this Article 3 to the contrary,
Kraft Enterprises LTD shall make only those representations and warranties set
forth in Section 3.1(d), (e) and (f), Section 3.26 and Section 3.27, which such
representations and warranties shall be made severally and not jointly.
Notwithstanding the preamble of this Article 3 to the contrary, the following of
the foregoing representations and warranties of each Limited Partner or
Stockholder, as the case may be, are made severally and not jointly with respect
to the indicated matter(s): Section 3.1(d) as it relates to such Limited
Partner's specified power and authority; Section 3.2(b) as it relates to any
material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which any individual Modem
Media Party is a party and which is not applicable or does not relate to the
MMLP Business; Section 3.2(c) as it relates to any judgment, order or decree
applicable to any individual Modem Media Party or such party's properties or
assets which is not applicable or does not relate to the MMLP Business; Section
3.3(c) as it relates to any options, warrants, calls, rights commitments or
agreements entered into to which such Limited Partner is a party or by which
such Limited Partner is bound; Section 3.4(a) as it relates to such
Stockholder's title to his Stockholder Shares; Section 3.4(b) as it relates to
any options, warrants, calls, rights or commitments entered into to which such
Stockholder is a party or by which such Stockholder is bound; Section 3.4(c) as
it relates to any contract, agreement, arrangement, commitment or understanding
to which such Stockholder's Stockholder Shares are subject; Section 3.5(a) as it
relates to such Limited Partner's title to his Partnership Interests; and
Section 3.5(c) as it relates to such Stockholder's power and authority to convey
good and marketable title to his Stockholder Shares.
ARTICLE 4
COVENANTS OF THE LIMITED PARTNERS, STOCKHOLDERS AND PRINCIPALS
4.1 Access. Prior to the Closing, the Principals shall, and shall cause
Modem Media and MMLP to, give True North, TN Technologies Holding and their
representatives, employees, counsel and accountants reasonable access, during
normal business hours and upon reasonable notice, to the personnel, properties
and Books and Records of Modem Media and MMLP.
4.2 Ordinary Conduct. Except as otherwise expressly permitted or required
by the terms of this Agreement, from the date hereof to the Closing Date, the
Principals shall cause the respective businesses of Modem Media and MMLP to be
conducted in the ordinary course in substantially the same manner as presently
conducted (including, without limitation, with respect to research and
development efforts, advertising, promotions and capital expenditures), and
shall make all commercially reasonable efforts consistent with past practices to
preserve their relationships with
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employees, customers, suppliers and others with whom Modem Media and MMLP deal.
The Principals shall not, and shall not permit Modem Media or MMLP to, (i) take
any action that would, or that could reasonably be expected to, result in any of
the material conditions to the Reorganization not being satisfied or (ii) do any
of the following without the prior written consent of True North and TN
Technologies Holding which consent shall not be unreasonably withheld:
(a) amend its Certificate of Incorporation, By-laws, Partnership
Agreement or other organizational documents of Modem Media or MMLP, as
applicable;
(b) except as disclosed on Schedule 4.2(b), declare or pay and
dividend, declare or make any distributions (whether in cash or other property)
in respect of any partnership interest or ownership interest in Modem Media or
MMLP;
(c) except as disclosed on Schedule 4.2(c), issue, deliver or sell or
otherwise authorize or propose the issuance, delivery or sale of, any shares of
capital stock or partnership interests or other ownership interests of Modem
Media or MMLP or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating Modem Media or MMLP to issue any such partnership interests or other
ownership interests of Modem Media or MMLP, as the case may be;
(d) repurchase, redeem or otherwise acquire, directly or indirectly,
any partnership interest or ownership interest, or any option, warrant or right
relating thereto or any securities convertible into or exchangeable for any
partnership interest or ownership interest, of Modem Media or MMLP;
(e) except as disclosed on Schedule 4.2(e), adopt or amend in any
material respect or terminate any benefit plan or collective bargaining
agreement relating to or otherwise affecting Modem Media or MMLP, except as
required by law;
(f) except as disclosed on Schedule 4.2(f), grant to any officer or
employee of Modem Media or MMLP any increase in compensation or benefits, except
as may be required under existing agreements;
(g) other than the Principals acting in their individual capacities,
incur or assume any liabilities, obligations or indebtedness for borrowed money
or guarantee any such liabilities, obligations or indebtedness, other than in
the ordinary course of business consistent with past practice;
(h) other than the Principals acting in their individual capacities,
permit, allow or suffer any of their/its respective assets to become subjected
to any mortgage, lien, security interest, encumbrance, easement, covenant,
right-of-way or other similar restriction which would have been required to be
set forth in Schedule 3.10 or 3.11 if existing on the date of this Agreement
other than in the ordinary course of business consistent with past practice;
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(i) except as disclosed on Schedule 4.2(i), revalue any of its assets
or cancel any receivables or indebtedness owed to Modem Media or MMLP or waive
any claims or rights of value, exceeding $10,000 in the aggregate;
(j) other than the Limited Partners acting in their individual
capacities, pay, loan or advance any amount to, or sell, transfer, lease or
sublease any of its assets to, or enter into any agreement or arrangement with
any other Modem Media Party or any of their respective Affiliates or related
parties.
(k) transfer to any person or entity any rights to any MMLP
Intellectual Property, except to customers in the ordinary course of its
business consistent with past practices;
(l) amend or modify a material term of, or violate any term of, any of
the agreements set forth or described in Schedule 3.13.
(m) initiate any litigation other than collection actions in the
ordinary course of business;
(n) except as requested by True North, make or change any material
election in respect of Taxes, adopt or change any accounting method in respect
of Taxes, enter into any closing agreement, settle any material claim or
assessment in respect of Taxes, or consent to any material extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes (except to the extent that any liability for Taxes associated with any of
the foregoing shall be solely the liability of the Stockholders and/or the
Principals);
(o) enter into any strategic alliance or joint marketing arrangement
or agreement that is material to Modem Media or MMLP;
(p) except as specifically permitted by the other terms of this
Agreement, enter into any transaction with any other Modem Media Party, make any
payment or transfer any article of tangible or intangible property to any such
party, or permit any such party to receive any payment or any article of
tangible or intangible property from any third party doing business, seeking
business, or desiring to do business with Modem Media or MMLP;
(q) except as requested by True North, make any change in any method
of accounting or accounting practice or policy other than those required by
GAAP;
(r) acquire or agree to acquire by merging or consolidating with, or
by purchasing any portion of the assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to
Modem Media, MMLP or the MMLP Business;
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(s) except as disclosed on Schedule 4.2(s), make or incur any capital
expenditure which, individually, is in excess of $15,000 or make or incur any
such expenditures which, in the aggregate, are in excess of $75,000;
(t) sell, lease, license or otherwise dispose of any of its assets or
properties, except in the ordinary course of business and consistent with past
practice;
(u) enter into any lease of real property;
(v) modify or amend in a material manner, terminate or permit the
lapse of any lease of, or reciprocal easement agreement, operating agreement or
other material agreement relating to, real property;
(w) delay or accelerate the payment of any account payable or other
liability of the Company beyond or in advance of its due date or the date when
such liability would have been paid in the ordinary course of business
consistent with past practice;
(x) delay or accelerate collection of notes or accounts receivable in
advance or beyond their regular due dates or the dates when the same would have
been collected in the ordinary course of business consistent with past practice;
(y) except as specifically permitted in this Agreement, enter into any
agreements that extend for a period exceeding one (1) year from the date hereof
or require a payment in aggregate of more than $25,000; or
(z) agree, whether in writing or otherwise, to do any of the
foregoing.
4.3 Insurance. The Principals shall cause Modem Media and MMLP to keep
all insurance policies currently in effect, which are set forth in Schedule
3.15, or suitable replacements therefor, in full force and effect through the
close of business on the Closing Date. As of the Closing, the Limited Partners
and the Stockholders shall assign to TN Technologies Holding any and all rights
that Modem Media or MMLP may have under such insurance policies covering claims
relating to periods ending on or prior to the Closing Date.
4.4 Other Transactions. From the date of this Agreement to the Closing,
none of the Limited Partners or the Stockholders shall, directly or indirectly,
encourage, solicit, initiate or participate in discussions or negotiations with,
or provide any information or assistance to, any person or group (other than
True North, TN Technologies Holding and their representatives) concerning any
merger, sale of securities, sale of substantial assets or similar transaction
involving Modem Media, MMLP or the MMLP Business.
4.5 Supplemental Disclosure. The Limited Partners and the Stockholders
shall promptly notify True North and TN Technologies Holding in writing of, and
furnish True North and TN
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Technologies Holding any information it may reasonably request with respect to,
the receipt by any party, either written or oral, of a proposal to enter into a
transaction contemplated by Section 4.4 or the occurrence to such party's
knowledge of any event or condition or the existence to such party's knowledge
of any fact that would cause any of the conditions to the obligation of True
North or TN Technologies Holding to consummate the Reorganization not to be
fulfilled.
4.6 Code Section 351. Each of the Stockholders and the Limited Partners
agree that they shall not, individually or collectively, within one year after
the Closing, sell, transfer or otherwise dispose of the shares of TN
Technologies Holding Class A Common Stock received by them pursuant to this
Agreement, or any interest therein, in such a manner or to the extent that any
such sale, transfer or disposition could adversely affect the qualification of
the transactions described in Section 2.1 of this Agreement or in Article II of
the Acquisition Agreement as transfers to a controlled corporation under Section
351 of the Code.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TRUE NORTH
AND TN TECHNOLOGIES HOLDING
5.1 Representations and Warranties of True North. True North hereby
represents and warrants to the Limited Partners, Stockholders and TN
Technologies Holding as follows:
(a) Good Standing; Authority. True North is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. True North has all requisite corporate power and authority to enter
into this Agreement and each of the Related Agreements to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by True North to authorize the execution,
delivery and performance of this Agreement and the Related Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and properly taken. This Agreement has been duly executed
and delivered by True North and constitutes a legal, valid and binding
obligation of True North enforceable against True North in accordance with its
terms. Each Related Agreement to which True North is a party has been duly
executed and delivered by True North and constitutes a legal, valid and binding
obligation of True North, enforceable against True North in accordance with its
terms.
(b) No Conflicts; Consents. Except as disclosed on Schedule 5.2, the
execution and delivery of this Agreement and each of the other Related
Agreements to which True North is a party by True North do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or to materially
increased, additional, accelerated or guaranteed rights or entitlements of any
person under, or result in the creation of any material lien, claim,
encumbrance, security interest,
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option, charge or restriction of any kind upon True North under, any provision
of (a) the Certificate of Incorporation or By-laws of True North, (b) any
material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which True North is a party or
by which any of its properties or assets are bound or (c) any judgment, order
or decree, or statute, law, ordinance, rule or regulation applicable to True
North or its properties or assets. Except as disclosed on Schedule 5.2, no
consent, approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made by or with respect to True North in connection with the execution,
delivery and performance of this Agreement or any Related Agreement or the
consummation of the transactions contemplated hereby or thereby (other than
compliance with any filings under the HSR Act, if applicable).
(c) Title.
(i) Upon transfer to TN Technologies Holding at the Closing of
certificates representing the True North MMLP Interests, TN Technologies Holding
will receive good and valid title, free and clear of any liens, claims,
encumbrances, security interests, option, charges and restrictions of any kind.
(ii) As of the Closing, the True North MMLP Interests will not be
subject to any lien, claim, encumbrance, security interest, option, charge or
restriction of any kind resulting from or as a consequence of True North's
ownership thereof.
(d) Disclosure. No representation or warranty of True North contained
in this Agreement, and no statement contained in any document, certificate,
Schedule, Annex or Exhibit furnished or to be furnished by or on behalf of True
North to any of the Limited Partners, the Stockholders or TN Technologies
Holding or any of their representatives pursuant to this Agreement or any
Related Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in the light of
the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading or necessary in order to fully and
fairly provide the information required to be provided in any such document,
certificate, Schedule or Exhibit.
5.2 Representations and Warranties of TN Technologies. TN Technologies
Holding hereby represents and warrants to the Limited Partners, the Stockholders
and True North as follows:
(a) Good Standing; Authority. TN Technologies Holding is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. TN Technologies Holding has all requisite corporate
power and authority to enter into this Agreement and each of the Related
Agreements to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
All corporate acts and other proceedings required to be taken by TN Technologies
Holding to authorize the execution, delivery and performance of this Agreement,
the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and properly
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taken. This Agreement has been duly executed and delivered by TN Technologies
Holding and constitutes a legal, valid and binding obligation of TN Technologies
Holding enforceable against TN Technologies Holding in accordance with its
terms. Each Related Agreement to which TN Technologies Holding is a party has
been duly executed and delivered by TN Technologies Holding and constitutes a
legal, valid and binding obligation of TN Technologies Holding, enforceable
against TN Technologies Holding in accordance with its terms.
(b) No Conflicts; Consents. The execution and delivery of this
Agreement and each of the other Related Agreements to which TN Technologies
Holding is a party by TN Technologies Holding do not, and the consummation of
the transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any material
obligation or to loss of a material benefit under, or to materially increased,
additional, accelerated or guaranteed rights or entitlements of any person
under, or result in the creation of any material lien, claim, encumbrance,
security interest, option, charge or restriction of any kind upon TN
Technologies Holding under, any provision of (a) the Certificate of
Incorporation or By-laws of TN Technologies Holding, (b) any material note,
bond, mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which TN Technologies Holding is a party or by which
any of its properties or assets are bound or (c) any judgment, order or decree,
or statute, law, ordinance, rule or regulation applicable to TN Technologies
Holding or its properties or assets. No consent, approval, license, permit,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with respect to TN
Technologies Holding in connection with the execution, delivery and performance
of this Agreement or any Related Agreement or the consummation of the
transactions contemplated hereby or thereby (other than compliance with any
filings under the HSR Act, if applicable).
(c) TN Technologies Holding Capital Structure.
(A) Other than True North and the Limited Partners, no other
person or entity owns any equity interest in TN Technologies Holding. Other than
as contemplated by this Agreement and the Acquisition Agreement, there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral other than arising hereunder, to which TN Technologies Holding
is a party or by which such party is bound obligating TN Technologies Holding to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed any equity interest in TN Technologies Holding or
to grant, or enter into any such option, warrant, call, right, commitment or
agreement.
(B) Other than as contemplated by this Agreement and the
Acquisition Agreement, the TN Technologies Holding Common Stock is not subject
to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the TN Technologies Holding Common Stock. All
of the
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dividends and other distributions declared by the Board of Directors of TN
Technologies Holding have been paid as of the date hereof.
(d) Title. Upon transfer to True North, the Limited Partners and the
Stockholders at the Closing of certificates representing the TN Technologies
Holding Common Stock, such parties will receive good and valid title, free and
clear of any liens, claims, encumbrances, security interests, option, charges
and restrictions of any kind.
(e) Organization and Standing. TN Technologies Holding has full
corporate power and authority and possesses all governmental franchises,
licenses, permits, authorizations and approvals necessary to enable it to own,
lease or otherwise hold its properties and assets and to carry on its business
as presently conducted. TN Technologies Holding is duly qualified and in good
standing to do business as a foreign corporation in each jurisdiction in which
the conduct or nature of its business or the ownership, leasing or holding of
its properties makes such qualification necessary, except such jurisdictions
where the failure to be so qualified or in good standing, individually or in the
aggregate, would not have a Material Adverse Effect. A list of the
jurisdictions in which TN Technologies Holding is so qualified is set forth in
Schedule 5.2.
(f) Disclosure. No representation or warranty of TN Technologies
Holding contained in this Agreement, and no statement contained in any document,
certificate, Schedule, Annex or Exhibit furnished or to be furnished by or on
behalf of TN Technologies Holding to any of the Limited Partners, the
Stockholders or True North or any of their representatives pursuant to this
Agreement or any Related Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in the light of the circumstances under which it was or will be made,
in order to make the statements herein or therein not misleading or necessary in
order to fully and fairly provide the information required to be provided in any
such document, certificate, Schedule or Exhibit.
ARTICLE 6
COVENANTS OF TRUE NORTH AND TN TECHNOLOGIES HOLDING
True North and TN Technologies Holding covenant and agree as follows:
6.1 Access. Prior to the Closing, True North and TN Technologies Holding
shall, and shall cause each Acquired Entity to, give the Modem Media Parties and
their representatives, employees, counsel and accountants reasonable access,
during normal business hours and upon reasonable notice, to the properties and
Books and Records of the Transferred Business.
6.2 [Intentionally Left Blank].
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6.3 Board Size; Board Representation.
(a) Board Size and Authority. Until the earlier to occur of (i) the
consummation of the IPO and (ii) the date on which the Limited Partners
(including spouses, members of their immediate family or their estate, heirs and
interstate successors) collectively own less than 61% of the aggregate number of
TN Technologies Holding Common Stock received by the Limited Partners hereby,
True North and TN Technologies Holding shall use commercially reasonable efforts
to cause (A) the TN Technologies Holding Board of Directors to consist of no
more than 11 directors and (B) the By-laws of TN Technologies Holding to provide
that the approval of more than two-thirds of the then appointed Board of
Directors shall be necessary to approve (w) any dividend on shares of TN
Technologies Common Stock, (x) any acquisition by TN Technologies Holding, (y)
the merger or consolidation of TN Technologies Holding with or into any other
corporation or corporations or the merger of any other corporation or
corporations into TN Technologies Holding, or (z) the sale of all or
substantially all of the assets of TN Technologies Holding or the sale of any
portion of TN Technologies Holding's business that accounts for 25% or more of
TN Technologies Holding's revenues. If required to effect any proposal
consistent with this Section 6.3(a), True North shall vote its shares of TN
Technologies Holding Common Stock in favor of such proposal.
(b) Board Representation by Principals. True North and TN
Technologies Holding shall use commercially reasonable efforts to cause the
election of the following individuals to the Board of Directors of TN
Technologies Holding (it being understood that, to effect any proposal
consistent with this Section 6.3(b), True North shall vote its shares of TN
Technologies Holding Common Stock in favor of such proposal):
(i) so long as the Limited Partners (including spouses, members
of their immediate family or their estate, heirs and intestate successors)
collectively own at least 61% of the aggregate number of TN Technologies Holding
Common Stock received by the Limited Partners hereby, each of the Principals who
continues to serve as a senior executive of TN Technologies Holding shall be a
director of TN Technologies Holding;
(ii) so long as the Limited Partners (including spouses, members
of their immediate family or their estate, heirs and intestate successors)
collectively own less than 61%, but at least 45% of the aggregate number of TN
Technologies Holding Common Stock received by the Limited Partners hereby, then
Gerald M. O'Connell and one of the other Principals (designated by the Limited
Partners) who continues to serve as a senior executive of TN Technologies
Holding shall be directors of TN Technologies Holding; and
(iii) so long as the Limited Partners (including spouses, members
of their immediate family or their estate, heirs and intestate successors)
collectively own less than 45%, but at least 30% of the aggregate number of TN
Technologies Holding Common Stock received by the Limited Partners hereby, then
Gerald M. O'Connell (so long as he continues to serve as a senior executive
officer of TN Technologies Holding) shall be a director of TN Technologies
Holding.
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(c) Board Representation by Independent Directors. True North, TN
Technologies Holding and the Principals shall mutually agree upon two
individuals who are deemed independent of True North, TN Technologies Holding
and the Principals to serve on the Board of Directors of TN Technologies
Holding.
(d) Balance of Board of Directors. The balance of the board of
directors of TN Technologies Holding shall be elected by the stockholders of TN
Technologies Holding, or to the extent necessary to fill a vacancy on the Board
of Directors, by the balance of the Board of Directors.
6.4 Headquarters. So long as one of the Principals is an executive
officer of TN Technologies Holding or unless otherwise agreed to by the Limited
Partners, True North and TN Technologies Holding shall cause the headquarters of
TN Technologies Holding to be located in Connecticut, in the vicinity of
Westport.
6.5 Stock Issuances. Except as provided herein, TN Technologies Holding
shall not issue any equity securities, options, warrants or other securities
convertible or exchangeable into equity securities of TN Technologies Holding
prior to the Closing Date without the written consent of the Principals, which
consent shall not be unreasonably withheld.
6.6 Supplemental Disclosure. True North and TN Technologies Holding shall
promptly notify the Principals of, and furnish the Principals any information
they may reasonably request with respect to, the occurrence to the knowledge of
True North or TN Technologies Holding of any event or condition or the existence
to the knowledge of True North or TN Technologies Holding of any fact that would
cause any of the conditions to the obligations of the Modem Media Parties to
consummate the Reorganization not to be fulfilled.
6.7 Chief Executive Officer. TN Technologies Holding shall use
commercially reasonable efforts to cause Gerald M. O'Connell to succeed Gregory
W. Blaine as Chief Executive Officer of TN Technologies Holding in the event
that Mr. Blaine no longer serves in such capacity. If required to effect any
proposal consistent with this Section 6.7, True North shall vote its shares of
TN Technologies Holding Common Stock in favor of such proposal.
6.8 [Intentionally Left Blank]
6.9 Certificate of Incorporation and By-laws. On or prior to the date
hereof, TN Technologies Holding shall have delivered to the Modem Media Parties
true and correct copies of its Certificate of Incorporation and By-laws.
6.10 Commercially Reasonable Efforts by TN Technologies Holding. TN
Technologies Holding hereby covenants and agrees to use commercially reasonable
efforts to pursue any claim which it may have from time to time against True
North under this Agreement or the Acquisition Agreement, and not to waive any
such claim without the prior written consent of the Principals, and
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True North hereby covenants and agrees that it shall not cause, or take any
action that would reasonably be likely to cause, TN Technologies Holding not to
comply with this Section 6.10.
6.11 Code Section 351. True North agrees that it shall not sell, transfer
or otherwise dispose of the shares of TN Technologies Holding Common Stock
received by it pursuant to this Agreement or the Acquisition Agreement, or any
interest therein, in such a manner or to the extent that any such sale, transfer
or other disposition could adversely affect the qualification of the
transactions described in Section 2.1 of this Agreement or in Article II of the
Acquisition Agreement as transfers to a controlled corporation under Section 351
of the Code.
6.12 Annual Earnout Payments. True North, TN Technologies Holding and
the Modem Media Parties agree that the Annual Earnout Payments pursuant to the
Partnership Interest and Stock Purchase Agreement are intended to constitute
consideration for the acquisition of the Stockholder Shares and the Limited
Partner Interests from the Stockholders and the Limited Partners, respectively,
and are not intended to constitute the payment of compensation for services
rendered or to be rendered by the Stockholders or Limited Partners. Except as
required by law, True North and TN Technologies Holding shall not take any
position on any Tax Return inconsistent with the preceding sentence. In the
event of a final determination that is inconsistent with the foregoing
characterization of the Annual Earnout Payments and with True North's or TN
Technologies Holding's reported Tax position, the Stockholders and Limited
Partners, jointly and severally, agree to indemnify and hold True North and TN
Technologies Holding harmless from loss in respect of any withholding Taxes,
employee portion of employment Taxes, or interest and/or penalties imposed on or
assessed against True North or TN Technologies Holding by any Tax authority as a
result of such reported Tax position. The foregoing indemnification shall be
governed by the indemnification procedures set forth in Sections 10.6, 10.7 and
10.8 of this Agreement.
6.13 MMLP Option Plan.
(a) At the Closing, each outstanding MMLP Option shall be canceled and
substituted with an option (a "TN Option") to acquire TN Technologies Holding
Class A Common Stock, as provided in Section 6.13(b).
(b) The cancellation of the MMLP Options by substituting TN Options shall
comply in all material respects with, and shall be performed in accordance with,
Section 6.8 of the 1996 Option Plan of Modem Media Advertising Limited
Partnership. The parties hereto agree that (i) the number of shares of TN
Technologies Holding Class A Common Stock subject to such TN Options (including
TN Options exchanged for MMLP Options described in Section 6.13(e) below) shall
be equal to 363,415, the number of such shares of TN Technologies Holding Class
A Common Stock having a value (as of the Closing) determined by the Limited
Partners to be equal to the value (as of such date) of the units purchasable
pursuant to the canceled MMLP Options (including MMLP Options described in
Section 6.13(e) below), and (ii) the exercise price under such TN Options will
be equal to the exercise price of such MMLP Options, subject to rounding of the
exercise price thus determined to the nearest whole cent (a half-cent shall be
rounded to the next higher whole cent).
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(c) After the Closing Date, TN Technologies Holding shall issue to each
holder of an outstanding MMLP Option a document evidencing the foregoing
cancellation and substitution by TN Technologies Holding.
(d) TN Technologies Holding agrees to register pursuant to a registration
statement on Form S-8 or any successor form, the TN Options upon the initial
registration of stock options granted to employees pursuant to TN Technologies
Holding's employee stock option plan.
(e) Notwithstanding anything to the contrary contained herein or in the
MMLP Option Plan, with respect to any MMLP Option exercised between the date
hereof and the Closing Date, for purposes of this Agreement, the parties hereto
agree to treat any units or other interests purchased pursuant to such exercise
in the same manner as such MMLP Option would have been treated pursuant to this
Agreement if such exercise had not occurred.
(f) Notwithstanding anything to the contrary contained herein or in the
MMLP Option Plan, any shares of TN Technologies Common Stock issued pursuant to
exercise of any TN Option shall be subject to the provisions of Sections 7.6(d)
and (f) hereto.
6.14 Certain Guaranties. TN Technologies Holding shall, promptly after
the Closing, obtain the termination and release of the obligations of each of
the Limited Partners, or provide each Limited Partner with reasonably
satisfactory indemnity with respect to such Limited Partner's guarantee
obligations, in favor of AT&T Capital Corporation pursuant to the Guarantees
dated May 31, 1994 between each of the Limited Partners and AT&T Capital
Corporation.
ARTICLE 7
MUTUAL COVENANTS
Each party hereto covenants and agrees as follows:
7.1 Cooperation. Each party hereto shall cooperate with each other, and
shall cause their officers, employees, agents, auditors and representatives to
cooperate with each other, after the Closing to ensure the orderly transition of
the MMLP Business to TN Technologies Holding and to minimize any disruption to
the MMLP Business that might result from the transactions contemplated hereby.
After the Closing, upon reasonable written notice, each of True North and TN
Technologies Holding, on the one hand, and each Limited Partner and Stockholder
hereto, on the other, shall furnish or cause to be furnished to each other and
their employees, counsel, auditors and representatives access, during normal
business hours, to such information and assistance relating to the MMLP Business
as is reasonably necessary for financial reporting and accounting matters, the
preparation and filing of any Tax Returns, reports or forms or the defense of
any Tax claim or assessment. No party shall be required by this Section 7.1 to
take any action that would unreasonably interfere with the conduct of its
business or unreasonably disrupt its normal operations.
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7.2 Confidentiality. Each party agrees that it will treat in confidence
all documents, materials and other information which it shall have obtained
regarding the other party during the course of the negotiations leading to the
consummation of the transactions contemplated hereby (whether obtained before or
after the date of this Agreement), the investigation provided for herein and the
preparation of this Agreement and other related documents, and in the event the
transactions contemplated hereby shall not be consummated, at the request of the
other party each party will return to the other party all copies of nonpublic
documents and materials which have been furnished in connection therewith. Such
documents, materials and information shall not be communicated to any third
party (other than, in the case of True North or TN Technologies Holding, to its
counsel, accountants, financial advisors or lenders, and in the case of the
Limited Partners and the Stock holders, to their counsel, accountants or
financial advisors). No other party shall use any confidential information in
any manner whatsoever except solely for the purpose of evaluating the
transactions contemplated by this Agreement; provided, however, that after the
Closing True North and TN Technologies Holding may use or disclose any
confidential information as contemplated by the Acquisition Agreement and
subject to Section 9.9 thereof. The obligation of each party to treat such
documents, materials and other information in confidence shall not apply to any
information which (a) is or becomes available to such party from a source other
than such other party, (b) is or becomes available to the public other than as a
result of disclosure by such party or its agents, (c) is required to be
disclosed under applicable law or judicial process, but only to the extent it
must be disclosed, or (d) such party reasonably deems necessary to disclose to
obtain any of the consents or approvals contemplated hereby.
7.3 Publicity. The parties hereto agree that, from the date hereof
through the Closing Date, no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the prior
consent of True North and TN Technologies Holding; provided, however, that True
North, TN Technologies Holding and the Limited Partners and the Stockholders may
make internal announcements to its employees regarding the transactions
contemplated hereby.
7.4 Records. On the Closing Date, the Limited Partners and the
Stockholders shall deliver to TN Technologies Holding or make available at the
offices of MMLP all agreements, documents, books, records and files, including
records and files stored on computer disks or tapes or any other storage medium,
if any, in the possession of any Modem Media Party relating to the MMLP
Business.
7.5 Consents. Each party hereto shall promptly apply for or otherwise
seek, or use commercially reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the
Reorganization and the transactions contemplated by this Agreement, and the
Limited Partners and the Stockholders shall use commercially reasonable efforts
to obtain all consents, waivers and approvals under any agreements, contracts,
licenses or leases of the MMLP Business to preserve the benefits thereunder for
TN Technologies Holding.
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7.6 Transfer Restrictions and Buyout.
(a) General. Until the earlier to occur of (i) the closing of the IPO
or (ii) the consummation of the buyout contemplated by Section 7.6(d) hereof,
without the prior written consent of True North and all of the Limited Partners
who are holders of shares of Capital Stock (as defined below), neither True
North nor any of the Limited Partners shall sell, assign or otherwise transfer
(a "Transfer") shares of TN Technologies Holding Class A Common Stock or TN
Technologies Holding Class B Common Stock (hereinafter referred to individually
and collectively as "Capital Stock") except as permitted by this Agreement.
Prior to any such Transfer (including a Permitted Transfer, as defined below),
each transferee of shares of Capital Stock shall agree in writing to be bound by
the provisions of this Agreement affecting the shares of Capital Stock to be
trans ferred. Notwithstanding anything to the contrary herein, (x) shares of
Capital Stock transferred to any immediate or successive transferee of True
North or any of the Limited Partners, and the rights of such transferee with
respect to such shares, shall remain and be subject to the restrictions set
forth in this Section 7.6, and (y) no Transfer (including a Permitted Transfer)
of Capital Stock by True North or any Limited Partner shall relieve such person
of its obligations under this Agreement or under any of the other agreements
executed in connection herewith or contemplated hereby.
(b) Permitted Transfers. The transfer restrictions contained in this
Section 7.6 shall not apply with respect to any of the following Transfers
(which shall be referred to herein as "Permitted Transfers," and the transferees
of such shares shall be referred to herein as a "Permitted Transferee") of
shares of Capital Stock:
(i) in the case of True North and its Permitted Transferees, to
and among majority-owned subsidiaries of True North;
(ii) in the case of any Limited Partner and his Permitted
Transferees, to and among (A) members of such Limited Partner's Family Group (as
defined below) by sale, gift, pursuant to applicable laws of descent and
distribution or otherwise or (B) to other Limited Partners. For purposes hereof,
"Family Group" means any natural person's spouse and natural descendants and any
trust solely for the benefit of such natural person or such natural person's
spouse or descendants; or
(iii) any transaction, proceeding or action by or in which any
holder of shares of Capital Stock is deprived or divested of any right, title or
interest in or to any shares of Capital Stock and such right title or interest
is transferred to a person other than a transferee permitted by any other
provision of this Agreement, such transactions, proceedings and actions to
include: any seizure under levy of attachment or execution; any transfer, in
connection with a bank ruptcy or other court proceeding, to a trustee in
bankruptcy, receiver or other officer or agency; any transfer in connection with
a divorce (including a legal separation) or dissolution with respect to a holder
of shares of Capital Stock and such holder's spouse; any transfer in connection
with the incompetence of a holder of shares of Capital Stock; and any transfer
to a personal representative, executor, or administrator following the death of
a holder of shares of Capital Stock.
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(c) Right of First Refusal. Until the closing of the IPO:
(i) If True North, any Limited Partner or their respective
Permitted Transferees desire to Transfer any shares of Capital Stock (other than
pursuant to a Permitted Transfer or a Transfer to be effected pursuant to
Section 7.6(d)), such holder (the "Transferring Stockholder") shall, at least
thirty (30) days prior to the proposed date of Transfer, deliver a written
notice (the "Offer Notice") to the other holders of Capital Stock (the "Other
Stockholders") and TN Technologies Holding. The Offer Notice shall disclose in
reasonable detail the proposed number of shares of Capital Stock to be
transferred (the "Offered Shares"), the per share price therefor and the
identity of the proposed purchaser.
(ii) In the case of a proposed Transfer by True North or one of
its transferees, the Other Stockholders who are Limited Partners may elect to
purchase any or all of the Offered Shares upon the same terms and conditions (or
in the case of a stock-for-stock transaction, upon terms and conditions
reflecting comparable value) as those set forth in the Offer Notice by
delivering a written notice of such election (the "Election Notice") to the
Transferring Stockholder within twenty (20) days after delivery of the Offer
Notice. If more than one such Other Stockholder elects to purchase the Offered
Shares, then each such Other Stockholder shall be entitled to purchase the
number of shares equal to such Other Stockholder's proportion of the total
number of shares of Capital Stock held by all of the electing Other
Stockholders, or such other number as the electing Other Stockholders reasonably
agree in writing. In the case of a proposed Transfer by a Limited Partner or one
of its Permitted Transferees, True North may elect to purchase any or all of the
Offered Shares upon the same terms and conditions (or in the case of a
stock-for-stock transaction, upon terms and conditions reflecting comparable
value) as those set forth in the Offer Notice by delivering an Election Notice
in the above described manner.
(iii) If the Other Stockholders who are Limited Partners or True
North, as the case may be, do not elect to purchase any of the Offered Shares,
TN Technologies Holding may elect to purchase any or all of the Offered Shares
to be transferred upon the same terms and conditions as those set forth in the
Offer Notice by delivering an Election Notice to the Transferring Stockholder
within thirty (30) days after delivery of the Offer Notice.
(iv) If True North, a Limited Partner or TN Technologies Holding
elects to purchase Offered Shares from the Transferring Stockholder, the
transfer of such shares shall be consummated as soon as practical after the
delivery of the Election Notice, but in any event, within thirty-five (35) days
after delivery of the Offer Notice; provided, however, that if such transfer is
not consummated within such thirty-five (35) day period, the Offered Shares
shall thereafter be subject to this Section 7.6 as if no Offer Notice had been
given.
(d) Buyout Options. If the IPO has not closed prior to the fifth
anniversary of the Closing Date (the "Determination Date"):
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(i) Unless True North and the Limited Partners holding at least a
majority in interest of the shares then held by the Limited Partners (the
"Majority Limited Partners") otherwise agree in writing, True North and the
Majority Limited Partners shall use their good faith efforts to agree upon an
investment banking or appraisal firm to perform the appraisal described in
Section 7.6(e). In the event that True North and the Majority Limited Partners
are unable to reach such agreement within thirty (30) days following the
Determination Date, each of True North and the Majority Limited Partners shall,
within ten (10) days following the expiration of such period, select one
investment banking firm, which investment banking firms shall jointly select an
investment banking or valuation firm to conduct such appraisal. True North, TN
Technologies Holding and each Majority Limited Partner agree to use reasonable
efforts to cooperate and to ensure that such appraisal is completed as
expeditiously as possible under the circumstances.
(ii) Within thirty (30) days following True North's and the
Majority Limited Partner's receipt of such appraiser's written determination of
"Fair Market Value" (as hereinafter defined), True North shall in writing
either:
(A) notify the Majority Limited Partners of its intention to
purchase, at the Fair Market Value, all of the shares of Capital Stock held by
the Limited Partners and their transferees (the "True North Buyout"), in which
case, the True North Buyout shall be consummated within thirty (30) days
following the date of receipt of such notice from True North by the Majority
Limited Partners; or
(B) offer to sell to the Limited Partners (the "True North
Offer to Sell"), at the Fair Market Value, all of the shares of Capital Stock
held by True North and its transferees (the "Limited Partner Buyout"), in which
case, the Majority Limited Partners shall have five (5) days following the
expiration of such thirty (30) day period to accept or reject, in writing, the
True North Offer to Sell; if the Majority Limited Partners accept the True North
Offer to Sell, the Limited Partner Buyout shall be consummated within thirty
(30) days following True North's receipt of such acceptance.
(iii) If the Majority Limited Partners reject the True North
Offer to Sell, then all of the holders of shares of Capital Stock shall use
their best efforts (including the retention and utilization of an investment
banker to assist with such transaction) to effect, in one or more arm's-length
transactions, a sale of all of such shares, or of substantially all of the
assets of TN Technologies Holding, to an unrelated third party or parties, on
such terms and conditions as True North and the Majority Limited Partners shall
reasonably agree.
(iv) In the event that either True North or the Majority Limited
Partners fail to give their respective designation notices described in the
foregoing subparagraph 7.6(d)(i) within the applicable time period prescribed
therein (such party, the "Non-notifying Party"), and after reasonable notice of
such party's failure to give notice, the other party shall have the right to
specify both of the initial investment bankers to be designated pursuant to such
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subparagraph, which specification shall be made in writing to the Non-notifying
Party within ten (10) days following the expiration of such time period.
(v) True North and the Limited Partners shall bear their pro rata
share (based on the number of shares of Capital Stock held) of the costs
reasonably incurred with respect to any sale or purchase of the Capital Stock
provided for in this Section 7.6(d).
(e) Determination of Fair Market Value. For purposes of this Section
7.6, "Fair Market Value" shall be the fair market value of a share of Capital
Stock as of the Determination Date as determined by the appraiser selected
pursuant to the foregoing subparagraph 7.6(d)(i). In performing such appraisal,
such appraiser shall not take into account the fact that the shares of Capital
Stock being appraised constitute a minority interest or that the holder or
holders thereof lack the ability to control the affairs of TN Technologies
Holding as factors in determining Fair Market Value.
(f) Restrictive Legend. The parties hereto agree that TN Technologies
Holding may place restrictive legends referring to this Section 7.6 on the
shares of TN Technologies Holding Common Stock that the Stockholders, the
Limited Partners and True North receive in connection with the transactions
contemplated hereby.
ARTICLE 8
[INTENTIONALLY LEFT BLANK]
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Obligations of True North and TN Technologies Holding. The
obligations of True North and TN Technologies Holding under this Agreement are
subject to the satisfaction (or waiver by True North and TN Technologies
Holding) as of the Closing of the following conditions:
(a) The representations and warranties of the Limited Partners and the
Stockholders made in this Agreement qualified as to materiality shall be true
and correct, and those not so qualified shall be true and correct in all
material respects, as of the Closing Date. The Limited Partners and the
Stockholders shall have performed or complied with in all material respects all
obli gations and covenants required by this Agreement and the Related Agreements
to be performed or complied with by the Limited Partners and the Stockholders by
the time of the Closing. The Limited Partners and the Stockholders shall have
delivered to True North and TN Technologies Holding certificates dated the
Closing Date and signed by the Stockholders, the Limited Partners and by an
authorized officer of Modem Media confirming the foregoing.
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(b) Between the date hereof and the Closing Date, there shall have
been (i) no Material Adverse Change in the assets, business, operations,
liabilities, profits, prospects or condition (financial or otherwise) of Modem
Media or MMLP; (ii) no material adverse Federal or state legis lative or
regulatory change affecting Modem Media or MMLP or the MMLP Business; and (iii)
no material damage to the assets or properties of Modem Media or MMLP by fire,
flood, casualty, act of God or the public enemy or other cause, regardless of
insurance coverage for such damage. The Limited Partners and the Stockholders
shall have delivered to True North and TN Technologies Holding a certificate
dated the Closing Date and signed by the Stockholders, the Limited Partners and
by an authorized officer of Modem Media confirming the foregoing.
(c) Each of the Principals shall have executed and delivered the
respective Employment Agreements and Non-Competition Agreements.
(d) The parties shall have received all approvals and actions of or by
all Governmental Entities which are necessary to consummate the transactions
contemplated hereby.
(e) The Modem Media Parties shall have received consents, in form and
substance reasonably satisfactory to True North and TN Technologies Holding, to
the transactions contemplated hereby from the other parties to all contracts,
leases, agreements and permits to which Modem Media or MMLP is a party or by
which Modem Media or MMLP or any of their respective assets or properties is
affected and which are specified in Schedule 3.2 or are otherwise necessary to
prevent a Material Adverse Change in the assets, business, operations,
liabilities, profits, prospects or condition (financial or otherwise) of Modem
Media or MMLP.
(f) No action, suit or proceeding by any Governmental Entity shall
have been instituted or threatened to restrain, prohibit or otherwise challenge
the legality or validity of the transactions contemplated hereby or by any of
the Related Agreements.
(g) The Partnership Interest and Stock Purchase Agreement shall not
have been terminated; no party to such agreement shall be in breach thereof; and
all conditions to closing identified therein shall have been satisfied or
waived.
(h) Each of the Related Agreements to which any of the Modem Media
Parties is a party shall have been executed by such party and shall not have
been amended or terminated.
(i) Modem Media and the Limited Partners shall have executed and
delivered the Second Amended and Restated Agreement of Limited Partnership of
Modem Media Advertising Limited Partnership in form and substance reasonably
satisfactory to True North for purposes of admitting True North as a limited
partner.
(j) If requested by True North in writing and permitted by the Code,
Modem Media and the Limited Partners shall have consented to, and caused MMLP to
prepare, execute and deliver, a Statement of Election under Section 754 of the
Code.
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(k) True North shall have received a copy of the amended agreement
relating to MMLP's sales automation product currently sold to AT&T as MyPartner.
9.2 Obligations of the Limited Partners and the Stockholders. The
obligations of the Limited Partners and the Stockholders under this Agreement
are subject to the satisfaction (or waiver by the Stockholders) as of the
Closing of the following conditions:
(a) The representations and warranties of TN Technologies Holding made
in this Agreement qualified as to materiality shall be true and correct, and
those not so qualified shall be true and correct in all material respects, as of
the Closing Date. TN Technologies Holding shall have performed or complied with
in all material respects all obligations and covenants required by this
Agreement and the Related Agreements to be performed or complied with by TN
Technologies Holding by the time of the Closing. TN Technologies Holding shall
have delivered to the Limited Partners and the Stockholders certificates dated
the Closing Date and signed by authorized officers of TN Technologies Holding
confirming the foregoing.
(b) The representations and warranties of True North made in this
Agreement qualified as to materiality shall be true and correct, and those not
so qualified shall be true and correct in all material respects, as of the
Closing Date. True North shall have performed or complied with in all material
respects all obligations and covenants required by this Agreement and the
Related Agreements to be performed or complied with by True North by the time of
the Closing. True North shall have delivered to the Limited Partners and the
Stockholders certificates dated the Closing Date and signed by authorized
officers of True North confirming the foregoing.
(c) The parties shall have received all approvals and actions of or by
all Governmental Entities necessary to consummate the transactions contemplated
hereby.
(d) True North, TN Technologies Holding and each Acquired Entity, as
the case may be, shall have received consents, in form and substance reasonably
satisfactory to the Limited Partners and the Stockholders, necessary to
consummate the transactions contemplated hereby.
(e) No Action, suit or proceeding by any Governmental Entity shall
have been instituted or threatened to restrain, prohibit or otherwise challenge
the legality or validity of the transactions contemplated hereby or of any of
the Related Agreements.
(f) TN Technologies Holding shall have executed and delivered the
Employment Agreements.
(g) Each of the Principals shall have been elected to the Board of
Directors of TN Technologies Holding.
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(h) The Partnership Interest and Stock Purchase Agreement shall not
have been terminated; no party to such agreement shall be in breach thereof; and
all conditions to closing identified therein shall have been satisfied or
waived.
9.3 Frustration of Closing Conditions. None of TN Technologies Holding,
True North or any of the Limited Partners or the Stockholders may rely on the
failure of any condition set forth in Section 9.1 or 9.2, as the case may be, to
be satisfied if such failure was caused by such party's failure to act in good
faith or to use its commercially reasonable efforts to cause the Closing to
occur.
9.4 Simultaneous Closings. The parties hereto agree that the Closing of
the Reorganization shall be deemed to occur only upon the consummation of the
transactions contemplated by the Partnership Interest and Stock Purchase
Agreement and that if the transactions contemplated by such agreement are not
consummated the obligations of the parties hereto to effect the Reorganization
shall be terminated; provided, however, that nothing in this Section 9.4 shall
be deemed to limit (a) the liability of any party hereto for such party's breach
of a provision of this Agreement or (b) the rights of any party to legal or
equitable relief for such breach.
ARTICLE 10
INDEMNIFICATION
10.1 Survival of Representations and Warranties; Liability Threshold;
Limitation on Recovery.
(a) All of the representations and warranties of the Limited Partners
and the Stockholders (except for those contained in Sections 3.9 and 3.16)
contained herein or in any document, certificate, Schedule, Exhibit or other
instrument required to be delivered hereunder shall survive the Closing and
continue in full force and effect until three (3) years after Closing, after
which such representations and warranties shall terminate. The representations
and warranties of the Limited Partners and the Stockholders contained in
Sections 3.9 and 3.16 shall survive the Closing and shall continue in full force
and effect without limit as to time (subject to any applicable statutes of
limitations).
(b) All of the representations and warranties of True North and TN
Technologies Holding contained herein or in any document, certificate, Schedule,
Exhibit or other instrument required to be delivered hereunder shall survive the
Closing and continue in full force and effect until three (3) years after
Closing, after which such representations and warranties shall terminate.
(c) True North and TN Technologies Holding, on the one hand, and the
Limited Partners and the Stockholders, on the other, shall not be entitled to
indemnification for any loss contemplated by this Article 10 until the aggregate
of all indemnified or indemnifiable losses, damages or expenses suffered by such
party, or its successors and assigns pursuant to this Agreement, the Partnership
Interest and Stock Purchase Agreement and the Acquisition Agreement, exceeds
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$375,000 (the "Initial Threshold"). If such losses, damages or expenses exceed
the Initial Threshold, the applicable indemnifying party shall be obligated to
pay the entire amount of such losses, damages or expenses suffered by the other,
less $100,000.
10.2 Environmental Indemnification. Each of the Principals shall jointly
and severally indemnify True North and TN Technologies Holding, their
affiliates and each of their respective officers, directors, employees,
stockholders and control persons against and hold them harmless from any loss,
liability, claim, damage or expense (including legal fees and expenses
reasonably incurred) suffered or incurred by any such indemnified party arising
from, relating to or otherwise in respect of any pollution or threat to human
health or the environment that is related in any way to the Modem Media Parties
management, use, control, ownership or operation of any properties owned, leased
or used at any time by the Modem Media Parties, that occurred or existed, or was
caused, in whole or in part, on or before the Closing Date, and any
Environmental Claim the Modem Media Parties have assumed or retained either
contractually or by operation of law.
10.3 Other Indemnification by the Limited Partners and the Stockholders.
Each of the Principals shall jointly and severally indemnify True North and TN
Technologies Holding, their affiliates and each of their respective officers,
directors, employees, stockholders and control persons against and hold each of
them harmless from any loss, liability, claim, damage or expense (including
legal fees and expenses reasonably incurred) suffered or incurred by any such
indemnified party (other than any loss, liability, claim, damage or expense for
which exclusive indemnification is provided under Section 10.2 and Article 11)
arising from, relating to or otherwise in respect of (a) any breach of any
representation or warranty of any Limited Partner or Stockholder contained in
this Agreement or in any certificate or Schedule delivered pursuant hereto and
(b) any breach of any covenant of any Limited Partner or Stockholder contained
in this Agreement or in any certificate or Schedule.
10.4 Other Indemnification by True North and TN Technologies Holding.
(a) True North shall indemnify the Limited Partners or Stockholders
against and hold each of them harmless from any loss, liability, claim, damage
or expense (including legal fees and expenses reasonably incurred), suffered or
incurred by any such indemnified party (other than any loss, liability, claim,
damage or expense, for which exclusive indemnification is provided under Article
11) arising from, relating to, or otherwise in respect of (i) any breach of any
representation or warranty of True North contained in this Agreement or in any
certificate or Schedule delivered pursuant hereto and (ii) any breach of any
covenant of True North contained in this Agreement or in any certificate or
Schedule. Notwithstanding the foregoing, Kraft Enterprises LTD shall have no
right to seek indemnification from True North pursuant to this Section 10.4 or
otherwise unless at least one other Limited Partner also seeks such
indemnification pursuant to this Section 10.4 for the same alleged breach of a
representation, warranty or covenant of True North.
(b) TN Technologies Holding shall indemnify the Limited Partners and
the Stockholders against and hold each of them harmless from any loss,
liability, claim, damage or expense (including legal fees and expenses
reasonably incurred), suffered or incurred by any such
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indemnified party (other than any loss, liability, claim, damage or expense, for
which exclusive indemnification is provided under Article 11) arising from,
relating to, or otherwise in respect of (i) any breach of any representation or
warranty of TN Technologies Holding contained in this Agreement or in any
certificate or Schedule delivered pursuant hereto and (ii) any breach of any
covenant of TN Technologies Holding contained in this Agreement or in any
certificate or Schedule. Notwithstanding the foregoing, Kraft Enterprises LTD
shall have no right to seek indemnification from TN Technologies Holding
pursuant to this Section 10.4 or otherwise unless at least one other Limited
Partner also seeks such indemnification pursuant to this Section 10.4 for the
same alleged breach of a representation, warranty or covenant of TN Technologies
Holding.
10.5 Insurance. Amounts required to be paid pursuant to this Article
10 are hereafter sometimes collectively called "indemnity payments" and are
individually called an "indemnity payment." The amount which any indemnifying
party is required to pay to any indemnified party pursuant to Sections 10.2,
10.3 or 10.4 shall be reduced (including, without limitation, retroactively) by
any insurance proceeds and other amounts actually recovered by such indemnified
party in reduction of the related Loss (as defined below). If an indemnified
party shall have received an indemnity payment in respect of an Loss (as defined
herein) and shall subsequently actually receive insurance proceeds or other
amounts in respect of such Loss, then such indemnified party shall pay to such
indemnifying party a sum equal to the lesser of the amount of such insurance
proceeds or such other amounts actually received previously. The indemnified
party agrees that the indemnifying party shall be subrogated to such indemnified
party under any insurance policy.
10.6 Losses Net of Taxes, etc. The amount of any loss, liability,
claim, damage, expense or Tax for which indemnification is provided under this
Article 10 or under Article 11 (each a "Loss") shall be (a) increased on a full
gross-up basis to take account of any net Tax cost incurred by the indemnified
party arising from the receipt of indemnity payments hereunder and (b) reduced
to take account of any net Tax benefit realized by the indemnified party arising
from the incurrence or payment of any such Loss. In computing the amount of any
such Tax cost or Tax benefit, the indem nified party shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt of any indemnity payment hereunder
or the incurrence or payment of any indemnified Loss. Any indemnification
payment hereunder shall initially be made without regard to this paragraph and
shall be increased or reduced to reflect any such net Tax cost (including gross-
up) or net Tax benefit only after the indemnified party has actually realized
such cost or benefit. For purposes of this Agreement, an indemnified party
shall be deemed to have "actually realized" a net Tax cost or a net Tax benefit
to the extent that, and at such time as, the amount of Taxes payable by such
indemnified party is increased above or reduced below, as the case may be, the
amount of Taxes that such indemnified party would be required to pay but for the
receipt of the indemnity payment or the incurrence or payment of such Loss, as
the case may be. The amount of any increase or reduction hereunder shall be
adjusted to reflect any final determination (which shall include the execution
of Form 870-AD or any successor form) with respect to the indemnified party's
liability for Taxes and payments between the Modem Media Parties, on the one
hand, and True North and TN Technologies Holding, on the other, to reflect such
adjustment shall be made if necessary.
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10.7 Termination of Indemnification. The obligations to indemnify and
hold harmless a party hereto pursuant to Sections 10.2, 10.3 and 10.4 shall not
terminate except as provided in Section 10.1 hereof.
10.8 Procedures Relating to Indemnification. In order for a party
(the "indemnified party") to be entitled to any indemnification provided for
under this Agreement (other than under Section 10.2) in respect of, arising out
of or involving a claim or demand made by any person against the indemnified
party (a "Third Party Claim"), such indemnified party must notify the
indemnifying party in writing, and in reasonable detail, of the Third Party
Claim within twenty (20) business days after receipt by such indemnified party
of written notice of the Third Party Claim; provided, however, that failure to
give such notification shall not affect the indemnification provided hereunder
except to the extent the indemnifying party shall have been actually and
materially prejudiced as a result of such failure (except that the indemnifying
party shall not be liable for any expenses incurred by the indemnifying party
during the period in excess of twenty (20) days in which the indemnified party
failed to give such notice). Thereafter, the indemnified party shall deliver to
the indemnifying party, within ten (10) business days after the indemnified
party's receipt thereof, copies of all notices and documents (including court
papers) received by the indemnified party relating to the Third Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges its obligation to indemnify the indemnified
party therefor, to assume the defense thereof at its sole expense with counsel
selected by the indemnifying party and reasonably acceptable to the indemnified
party; provided, however, that the indemnified party shall have the right to
employ separate counsel to represent itself in connection with any claim in
respect of which indemnity may be sought hereunder if the defendants in respect
of any such claim reasonably conclude that there may be legal defenses available
to them or another indemnified party that are different from or additional to
those available to the indemnifying party or that there exists some other
conflict of interest between the interests of the indemnified parties and the
indemnifying party with respect to such claim that makes separate representation
desirable in the reasonable judgment of the indemnified parties, and, in the
event of the foregoing, the fees and expenses reasonably incurred by such
separate counsel shall be paid by the indemnifying party. It is understood,
however, in connection with the proviso in the preceding sentence that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel for all the indemnified parties (together with not more than
one local counsel in each juris diction in which any claim or action is
brought). Should the indemnifying party elect to assume the defense of a Third
Party Claim, except where it may not so elect pursuant to the proviso in the
second preceding sentence, in accordance with the second preceding sentence the
indemnifying party shall not be liable to the indemnified party for legal
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the
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indemnifying party has failed to assume the defense thereof (other than during
any period during which the indemnified party shall have failed to give timely
notice of the Third Party Claim as provided above).
If the indemnifying party elects to assume the defense of any Third Party
Claim in accordance with the provisions of this Section 10.8, all of the
indemnified parties shall cooperate with the indem nifying party in the defense
or prosecution thereof. Such cooperation shall include the retention and (upon
the indemnifying party's request) the provision to the indemnifying party of
records and infor mation which are reasonably relevant to such Third Party
Claim, and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Whether or not the indemnifying party shall have assumed the defense of a Third
Party Claim, the indemnified party shall not settle, compromise or discharge
such Third Party Claim without the indemnified party's prior written consent
(which consent shall not be unreasonably withheld). If the indemnifying party
shall have assumed the defense of a Third Party Claim, the indemnified party
shall agree to any settlement, compromise or discharge of a Third Party Claim
which the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim and which would not otherwise adversely
affect the indemnified party.
Notwithstanding the foregoing, the indemnifying party shall not be entitled
to assume the defense of any Third Party Claim (and shall be liable for the fees
and expenses of counsel incurred by the indemnified party in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the indemnified
party which the indemnified party reasonably determines cannot be separated from
any related claim for money damages. If such equitable relief or other relief
portion of the Third Party Claim can be so separated from that for money
damages, the indemnifying party shall be entitled to assume the defense of the
portion relating to money damages. The indemnification required by Section 10.1,
10.2, 10.3 or 10.4 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or loss, liability, claim, damage or expense is incurred. All claims
under Section 10.2, 10.3 or 10.4 other than Third Party Claims shall be governed
by Section 10.9.
10.9 Other Claims. In the event any indemnified party should have a claim
against any indemnifying party under Section 10.2 and 10.3 that does not involve
a Third Party Claim being asserted against or sought to be collected from such
indemnified party, the indemnified party shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any indemnified
party so to notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have to such indemnified party under
Section 10.3 or 10.4. If the indemnifying party does not notify the indemnified
party within twenty (20) business days following its receipt of such notice that
the indemnifying party disputes its liability to the indemnified party under
Section 10.2, 10.3 or 10.4, such claim specified by the indemnified party in
such notice shall be conclusively deemed a liability of the indemnifying party
under Section 10.2, 10.3 and 10.4 and the
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indemnifying party shall pay the amount of such liability to the indemnified
party on demand or, in the case of any notice in which the amount of the claim
(or any portion thereof) is estimated, on such later date when the amount of
such claim (or such portion thereof) becomes finally determined. If the
indemnifying party has timely disputed its liability with respect to such claim,
as provided above, the indemnifying party and the indemnified party shall
proceed in good faith to negotiate a resolution of such dispute and, if not
resolved through negotiations, such dispute shall be resolved by litigation in
an appropriate court of competent jurisdiction.
10.10 Mitigation. True North, TN Technologies Holding, the Limited
Partners and the Stockholders shall cooperate with each other with respect to
resolving any claim or liability with respect to which one party is obligated to
indemnify any other party hereunder, including by making commercially reasonably
efforts to mitigate or resolve any such claim or liability; provided, that an
indemnified party shall not be required to make such efforts if they would be
detrimental in any material respect to such party.
ARTICLE 11
TAX MATTERS
11.1 Termination of S Status. The Stockholders, jointly and severally, and
True North and TN Technologies Holding hereby agree to any actions reasonably
required to elect to employ the "closing of the books" method under Section
1362(e)(3) of the Code and any comparable provision of state law (but only to
the extent Modem Media elected or was deemed to have elected to be treated as an
S Corporation for any such applicable state law) for purposes of allocating
income, loss, deduction or credit of Modem Media for the S Termination Year
between the S Short Year and C Short Year. Each of True North, TN Technologies
Holding and Modem Media agrees to cooperate in effecting the actions required
under the preceding sentence.
11.2 Distribution and Tax Sharing Agreements. Except as otherwise provided
in connection with this Agreement, the Stockholders, jointly and severally,
hereby represent and warrant that they are not a party to and do not claim any
rights under any Tax indemnity, Tax sharing, Tax allocation agreement with MMLP
or Modem Media or under any agreement obligating MMLP or Modem Media to make any
distribution or payment of cash or property to the Stockholders or Limited
Partners in respect of, or in connection with, their ownership of shares of
capital stock of Modem Media or of Limited Partnership Interests in MMLP
(collectively, "Tax Sharing Agreements"). Except as otherwise provided in this
Agreement, to the extent any such Tax Sharing Agreements have existed or
currently exist, the Stockholders, Limited Partners, Modem Media and MMLP hereby
agree to terminate any and all such Tax Sharing Agreements effective as of the
Closing Date and hereby agree to waive effective as of the Closing Date any
rights they may have under such Tax Sharing Agreements as of or following the
Closing Date.
11.3 Tax Returns. The Limited Partners and the Stockholders hereby
covenant and agree on behalf of Modem Media and MMLP that Modem Media and MMLP
shall be responsible for and
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shall cause the filing of all Tax Returns which Modem Media or MMLP is required
to file, on or prior to the Closing Date, with respect to all taxable years (or
portions thereof) ending on or prior to the Closing Date ("Pre-Closing Period
Tax Returns"). With respect to any of the Pre-Closing Period Tax Returns which
are to be filed after the Closing Date, Modem Media shall provide to the
Stockholders' Representative not less than forty-five (45) days prior to the
proposed filing date a copy of each Pre-Closing Period Tax Return which will
impose a Tax liability on the Stockholders or Limited Partners; the
Stockholders' Representative shall within twenty (20) days approve or specify
any changes that should be made to such Pre-Closing Period Tax Return and,
subject to the approval of Modem Media (which approval shall not be unreasonably
withheld), such change shall be made by Modem Media in connection with the final
preparation and filing of such Pre-Closing Tax Return.
Except as otherwise provided in the preceding paragraph, TN Technologies
Holding hereby covenants and agrees that it shall be responsible for and cause
the filing of all Tax Returns which TN Technologies Holding, Modem Media, MMLP,
or any other subsidiaries of TN Technologies Holding are required to file, or in
which any of the foregoing is to be included (including any combined, unitary or
consolidated returns).
11.4 Corporate Liability for Taxes.
-----------------------------
(a) Except as otherwise provided in Section 11.5 hereof, Modem Media
and MMLP shall pay or cause to be paid any and all Taxes required to be paid by
Modem Media or MMLP in respect of the Pre-Closing Period Returns as required by
applicable law, and shall indemnify and hold harmless the Stockholders and
Limited Partners from any liability for such Taxes.
(b) Except as otherwise provided in Section 11.5 hereof, TN
Technologies Holding shall pay or cause to be paid any and all Taxes required to
be paid by TN Technologies Holding, Modem Media, MMLP or any of their
subsidiaries with respect to Post-Closing Period Returns as required by
applicable law, and shall indemnify and hold harmless the Stockholders and
Limited Partners from any liability for such Taxes.
(c) In the event an assessment of additional foreign or state income
Taxes by a foreign or state Taxing Authority is made against and is paid by
Modem Media or MMLP with respect to any Taxable year ending on or prior to the
Closing Date and results in the Stockholders or Limited Partners having a claim
for additional credits or deductions for foreign or state income taxes, then
each Stockholder or Limited Partner shall apply for a refund of income Taxes to
the fullest extent allowed by law in order to realize the greatest refund of
income Taxes available on account of such additional credits or deductions and
shall pay to TN Technologies Holding the amount thereof resulting from such
additional credits or deductions (plus any interest received) immediately upon
receipt of such refund of income Taxes without regard to any other adjustments
to such Stockholder's or Limited Partner's Tax Return for the taxable year for
which such refund of income Taxes was received, provided, however, the amount to
be paid hereunder shall be reduced by the reasonable fees, expenses and costs
directly or indirectly associated with such Stockholder's claim for refund and
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any taxes paid in respect of such refund. The liability of each Stockholder and
Limited Partner to TN Technologies Holding under this Section 11.4(c) shall be
several and not joint.
11.5 Modem Media Party Indemnification for Certain Taxes. Each Principal,
jointly and severally, hereby indemnifies and agrees to hold each of True North,
TN Technologies Holding, Modem Media, MMLP, and each of their respective
subsidiaries harmless from, against and in respect of the following: (i) and
Taxes imposed on MMLP as a result of failing to qualify as a partnership under
Code Section 7701 or under applicable state law for any period prior to the
Closing; (ii) any Taxes imposed on Modem Media as a result of failing to qualify
as an S Corporation under Code Section 1361(a)(1) or under applicable state law
(but only to the extent Modem Media elected or was deemed to have elected to be
treated as an S Corporation under any such applicable state law) for any period;
(iii) any Taxes imposed on Modem Media for any Pre-Closing period, or (iv) a
breach of any representation or warranty made by the Limited Partners in
Sections 3.9 (without regard to any matter disclosed or referenced in Schedule
3.9 hereof), 11.1 or 11.2 of this Agreement.
11.6 Audit and Contest Rights.
(a) The parties hereto shall cooperate fully with each other in the
conduct of any audit or other proceeding relating to Taxes of MMLP or Modem
Media and/or relating to Taxes of the Stockholders or Limited Partners and shall
make available to each other such Tax data and other information as may be
reasonably required with respect to any Tax audit. Within twenty (20) days
following notice of any proposed adjustment which would give rise to a claim for
indemnification under Section 11.5, TN Technologies Holding shall notify the
Stockholders' Representative of such proposed adjustment and thereafter, the
Stockholders' Representative shall have the right to control the portion of any
proceedings relating to such proposed adjustment and to determine when, whether
and to what extent to settle any such claim, assessment or dispute; provided,
however, that TN Technologies Holding shall have the right to control the
conduct of any such audit or proceeding for which TN Technologies Holding waives
its rights to indemnification under Section 11.5 hereof.
(b) Within twenty (20) days following notice of any proposed
adjustment that would not in any way adversely affect TN Technologies Holding,
Modem Media, MMLP or any of their subsidiaries (as determined in good faith by
TN Technologies Holding) but that could have the effect of increasing the
Stockholders' or Limited Partners' Tax liability for any period, TN Technologies
Holding shall notify the Stockholders' Representative of such proposed
adjustment and thereafter the Stockholders' Representative shall have the right
to control any proceedings relating to such proposed adjustment and to determine
when, whether and to what extent to settle any such claim, assessment or
dispute. The Stockholders' Representative shall notify TN Technologies Holding
within twenty (20) days with respect to the intent of the Stockholders'
Representative to assume control of such proceeding. If the Stockholders elect
not to assume control of such proceeding or fail to respond by written notice
within such twenty (20) day period, the provisions of Section 11.6(c) shall
apply.
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(c) (i) Except as provided in Section 11.6(c)(iii) below, neither
TN Technologies Holding, Modem Media, MMLP nor any subsidiary shall make any
election, take any Tax Return position, or agree to any Tax adjustment or
adjustments that would have the effect of increasing the Stockholders' or
Limited Partners' Tax liability with respect to any period ending on or prior to
the Closing Date ("Company Action"), without first obtaining the prior written
consent of the Stockholders' Representative, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, the affected entity may
take the Company Action without the consent of the Stockholders' Representative
provided the affected company indemnifies the Stockholders or Limited Partners
against any increase in the Stockholders' or Limited Partners' Tax liability
resulting from the Company Action.
(ii) An entity desiring to take a Company Action shall notify
the Stockholders' Representative in writing of the proposed Company Action, and
shall provide an estimate to the Stockholders' Representative of the aggregate
increase in the Stockholders' and/or Limited Partners' taxable income arising
out of the Company Action. The Stockholders' Represen tative shall have sixty
(60) days from the date of the request for consent in which to notify the
affected entity in writing whether the Stockholders' Representative consents to
the Company Action. If the Stockholders' Representative does not respond within
the sixty (60) day period, the Stock holders' Representative shall be
conclusively deemed to have consented to the Company Action.
(iii) Action by the Stockholders' Representative to withhold
consent with respect to any proposed Tax Return position or Tax adjustment shall
be conclusively presumed to be reasonable if the aggregate increase in the
Stockholders' and/or Limited Partners' Taxable income resulting therefrom, when
added to any and all prior approved Tax adjustments or Tax Return positions
subject to this Section 11.6, would be to increase the Stockholders' and/or
Limited Partners' aggregate Taxable income by $200,000; provided, however, that
if TN Technologies Holding provides to the Stockholders' Representative a
written opinion of Tax counsel (approved by the Stockholders' Representative
which approval shall not be unreasonably withheld) that it is more likely than
not that the proposed Company Action is required by law, then the Stockholders'
Representative shall be conclusively presumed to have given consent to such Tax
adjustment or Tax Return position, notwithstanding the Stockholders'
Representative's prior disapproval, if any. The sixty (60) day period provided
in Section 11.6(c)(ii) for action by the Stockholders' Representative shall be
extended as necessary so that the Stockholders' Representative has no less than
ten (10) days after receipt of the Tax opinion to review and approve the form of
the Tax opinion. If a proposed adjustment is not consented to pursuant to this
Section 11.6(c)(iii), then TN Technologies Holding shall be obligated to pursue
the proceedings in a manner consistent with the Stockholders' best interest and,
if the refusal to consent is unreasonable, the Stockholders shall reimburse TN
Technologies Holding for all reasonable fees and costs associated with such
proceedings. No action by TN Technologies Holding pursuant to this Section
11.6(c)(iii) shall preclude the Stockholders from contesting any proposed audit
adjustment affecting their individual returns under the Code.
(d) For purposes of this Section 11.6, an adjustment shall be deemed
to be proposed (and TN Technologies Holding, Modem Media and MMLP shall be
deemed to have
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received notice of such proposal) as of the first date that TN Technologies
Holding, Modem Media or MMLP receives written advice from an applicable Taxing
Authority (or agent thereof) to the effect that such Taxing Authority is
proposing to make an adjustment to the Tax liability or Tax Return of Modem
Media, MMLP or of any Stockholder or Limited Partner.
11.7 Payments. The party or parties required to make any payment under
Section 11.1, 11.2 or 11.3 shall make such payment within thirty (30) days after
the Final Determination of any Tax liability resulting in a claim for
indemnification hereunder. For purposes hereof, "Final Determination" shall have
the meaning set forth in Section 1313(a) of the Code.
11.8 Stockholders' Representatives. In order to facilitate the resolution
of any Tax audit issues between TN Technologies Holding, Modem Media and MMLP on
the one hand, and the Stockholders and Limited Partners on the other, each
Stockholder hereby designates and appoints Gerald M. O'Connell as his
representative hereunder (acting jointly, the "Stockholders' Representa tive")
and authorizes such person to take all actions on his behalf under Article 11 of
this Agreement. TN Technologies Holding, Modem Media and MMLP shall be entitled
to rely on all actions, decisions and representations of the Stockholders'
Representative as if the same had been made by each Stockholder and Limited
Partner personally, without any obligation to verify, authenticate or seek
confirmation of any other facts from the Stockholders, Limited Partners or from
any other person. Upon the death or legal incapacity of the individual named
above, the executor or guardian of the estate of such individual shall succeed
him as the Stockholders' Representative.
11.9 Section 751 Allocation. The parties agree that for purposes of
Section 751 of the Code, the portion of MMLP's "unrealized receivables" and
"inventory items of the partnership which have appreciated substantially in
value" (within the meaning of Section 751 of the Code) that are allocable to the
Limited Partnership Interests have an aggregate value, as of the Closing Date,
equal to $946,394.80. The parties shall not take any position on any Tax Return
inconsistent with the foregoing allocation.
ARTICLE 12
TERMINATION
12.1 Termination. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the parties hereto;
(b) by the Limited Partners and the Stockholders, if they are not in
material breach of their respective obligations under this Agreement and there
has been a breach of any representation, warranty, covenant or agreement
contained or incorporated by reference in this Agreement on the part of True
North or TN Technologies Holding and such breach has not been
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cured within ten (10) business days after written notice to True North or TN
Technologies Holding (provided that no cure period shall be required for a
breach which by its nature cannot be cured); or
(c) by True North or TN Technologies Holding if they are not in
material breach of their respective obligations under this Agreement and there
has been a breach of any representation, warranty, covenant or agreement
included or incorporated by reference in this Agreement on the part of the
Limited Partners and the Stockholders and such breach has not been cured within
ten (10) business days after written notice to the Limited Partners and the
Stockholders (provided that no cure period shall be required for a breach which
by its nature cannot be cured); or
(d) by any party hereto, if the Closing does not occur on or prior to
January 15, 1997.
provided, however, that the party seeking termination pursuant to clause (b),
(c) or (d) is not in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this
Agreement.
12.2 Return of Documents and Other Material. In the event of termination
pursuant to Section 12.1(b),(c) or (d), written notice thereof shall forthwith
be given by the terminating party to the other parties hereto and the
transactions contemplated by this Agreement shall be terminated, without further
action by any party. If the transactions contemplated by this Agreement are
terminated as provided herein, the parties shall at the written request of any
other party hereto return all documents and other material and all copies
thereof received from any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to such party.
12.3 Survival. If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 12, this
Agreement shall become void and of no further force or effect, except for the
provisions of, (a) Section 3.28 relating to finder's fees and broker's fees, (b)
Sections 7.2 and 7.3 relating to confidentiality and publicity, respectively,
(c) Section 14.2 relating to expenses and (d) this Article 12. Nothing in this
Article 12 shall be deemed to release either party from any liability for any
breach by such party of the terms and provisions of this Agreement or to impair
the right of any party to compel specific performance by any other party of its
obligations under this Agreement.
ARTICLE 13
DISPUTE RESOLUTION
13.1 Binding Arbitration.
(a) Except as set forth in Section 13.2, any dispute, controversy or
claim arising in connection with this Agreement, shall be settled by binding
arbitration if so requested by any party
53
<PAGE>
hereto pursuant to paragraph (b) below. The arbitration shall be conducted by
three arbitrators, who shall be appointed pursuant to the rules of the American
Arbitration Association (the "AAA"). The arbitration shall be held in Chicago,
Illinois and shall be conducted in accordance with the commercial arbitration
rules of the AAA, except that the rules set forth in this Section 13.1 shall
govern such arbitration to the extent they conflict with the rules of the AAA.
(b) Upon written notice by a party to the other parties of a request
for arbitration hereunder, the parties shall use commercially reasonable efforts
to cause the arbitration to be conducted in an expeditious manner. All other
procedural matters shall be within the discretion of the arbitrators. In the
event a party fails to comply with the procedures in any arbitration in a manner
deemed material by the arbitrators, the arbitrators shall fix a reasonable
period of time for compliance and, if the party does not comply within said
period, a remedy deemed just by the arbitrators, including an award of default,
may be imposed.
(c) The determination of the arbitrators shall be final and binding on
the parties. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction. The parties shall each be responsible for
their own expenses in connection with such arbitration, including without
limitation, counsel fees and fees of experts; provided, however, that the
parties shall share equally in the expense of the arbitrators and of the AAA.
(d) Notwithstanding anything contained herein to the contrary, the
arbitrators shall not be limited as to the form of relief or remedy provided
pursuant to this Section 13.1.
13.2 Injunctive Relief. Notwithstanding Section 13.1, the parties
hereto acknowledge that should any of them breach any of their respective
obligations, the other parties hereto may suffer irreparable injury for which
money damages may be inadequate, and therefore consent to the enforcement of
such obligations by means of temporary or permanent injunction of any court
having jurisdiction thereof, and each party hereto shall be entitled to assert
any claim it may have for damages resulting from breach of such obligations in
addition to seeking injunctive relief.
ARTICLE 14
GENERAL PROVISIONS
14.1 Complete Agreement. This Agreement, including the Related
Agreements, Schedules and Exhibits and the agreements and other documents
referred to herein and other writings exchanged between the parties, shall
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter.
14.2 Expenses. Except as otherwise provided in this Agreement, any
Related Agreement or any other agreement being entered into by the parties
hereto pursuant to this Agreement, the parties hereto shall pay their own costs
and expenses incurred in connection with the Reorganization
54
<PAGE>
(whether or not payable as of the Closing Date) and in connection with the
consummation of the transactions contemplated by this Agreement. Such costs and
expenses shall include, without limitation, investment banking, legal,
accounting and printing costs and expenses and transfer taxes. The parties
hereto agree that the costs and expenses of any third party retained to
determine the value, if any, of the control premium associated with the Class B
Common Stock of TN Technologies Holding shall be paid by True North. Any such
costs and expenses incurred by the Modem Media Parties shall be borne by the
Limited Partners and not by Modem Media or MMLP.
14.3 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, regardless of the laws
that might otherwise govern after applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the nonexclusive
jurisdiction and venue of any court within Chicago, State of Illinois, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Illinois for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
14.4 Notices. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) on the date of service if served personally on the party to whom
notice is given, (b) on the day of transmission if sent via facsimile
transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(c) on the business day after delivery to an overnight courier service or the
Express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed, or (d) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by first class mail, registered or certified, postage prepaid,
properly addressed and return-receipt requested, to the party as follows:
If to True North: True North Communications Inc.
101 E. Erie Street
Chicago, Illinois 60611
Attn: Judith D. Shultz,
Director of Corporate Development
Telecopy: (312) 425-6353
If to TN Technologies Holding: TN Technologies Holding Inc.
101 E. Erie Street
Chicago, Illinois 60611
Attn: Gregory W. Blaine,
Chairman and Chief Executive
Officer
Telecopy: (312) 425-6350
55
<PAGE>
If to the Limited Partners/
Stockholders: Douglas C. Ahlers: 37 Grumman Avenue
Norwalk, CT
Robert C. Allen, II: 20 Harwood Drive
Danbury, CT
Gerald M. O'Connell: 37 Old Kings Highway
Wilton, CT
Kraft Enterprises LTD: 230 W. Superior
Street
Chicago, IL
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
14.5 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of the parties.
14.6 Successors and Assigns. This Agreement and the rights and
obligations hereunder shall not be assignable or transferable by the parties
hereto (including by operation of law in connection with a merger, or sale of
substantially all the assets, of True North, TN Technologies Holding, Modem
Media or MMLP); provided, however, that True North and TN Technologies Holding
may assign their rights hereunder to a majority-owned subsidiary of True North
or TN Technologies Holding without the prior written consent of the Limited
Partners or the Stockholders; provided, further, however, that no such
assignment shall be permitted if it results in a violation of Section 6.11. Any
attempted assignment in violation of this Section 14.6 shall be void.
14.7 No Third Party Beneficiaries. Except for the provisions of
Article 11, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.
14.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and same instrument.
14.9 Interpretation. The Article and Section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. Whenever any words are used herein in the
masculine gender, they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply.
56
<PAGE>
14.10 Annexes, Etc. The Schedules and Exhibits shall be construed with
and as an integral part of this Agreement to the same extent as if the same had
been set forth verbatim herein.
14.11 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
TRUE NORTH COMMUNICATIONS INC.
By: _____________________________________
Name:
Title:
TN TECHNOLOGIES HOLDING INC.
By: _____________________________________
Name:
Title:
Douglas C. Ahlers
Robert C. Allen, II
Gerald M. O'Connell
KRAFT ENTERPRISES LTD
By: _____________________________________
Name:
Title:
58
<PAGE>
SCHEDULE 2.3(b)
CONSIDERATION
-------------
<TABLE>
<CAPTION>
LIMITED PARTNERS:
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Douglas C. Ahlers 278
Robert C. Allen, II 290,620
Gerald M. O'Connell 278
Kraft Enterprises LTD 29,062
STOCKHOLDERS:
NAME NUMBER OF SHARES
---- ----------------
Douglas C. Ahlers 1,111,274
Gerald M. O'Connell 1,111,273
</TABLE>
<PAGE>
SCHEDULE 2.3(c)
NUMBER OF SHARES
----------------
TRUE NORTH COMMUNICATIONS INC. 2,802,114
<PAGE>
Exhibit 10.2
ADMINISTRATIVE SERVICES AGREEMENT
by and between
TRUE NORTH COMMUNICATIONS INC.
and
TN TECHNOLOGIES HOLDING INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - DEFINITIONS....................................................... 1
1.1 ACCOUNTING SERVICES................................................. 1
1.2 AGENCY SERVICES..................................................... 1
1.3 ADDITIONAL SERVICES................................................. 1
1.4 CORPORATE SUPPORT SERVICES.......................................... 2
1.5 CONSULTING SERVICES................................................. 2
1.6 EMPLOYEE BENEFITS AND ADMINISTRATION SERVICES....................... 2
1.7 EXPIRATION DATE..................................................... 2
1.8 HUMAN RESOURCES AND PAYROLL SERVICES................................ 2
1.9 IMPRACTICABLE....................................................... 2
1.10 INITIAL SERVICES.................................................... 2
1.11 MEDIA SERVICES...................................................... 2
1.12 PROVIDING COMPANY................................................... 2
1.13 RECEIVING COMPANY................................................... 2
1.14 REPRESENTATIVE...................................................... 2
1.15 SERVICE............................................................. 2
1.16 STUDIO SERVICES..................................................... 2
1.17 TERMINATION DATE.................................................... 2
1.18 REFERRAL SERVICES................................................... 2
1.19 VOICE AND DATA NETWORKS............................................. 2
1.20 VOICE AND DATA NETWORKS SERVICES.................................... 2
ARTICLE II - SERVICES......................................................... 3
2.1 SERVICES............................................................ 3
2.2 TERM................................................................ 4
2.3 CHARGES AND PAYMENT................................................. 5
2.4 GENERAL OBLIGATIONS; STANDARD OF CARE............................... 6
2.5 CERTAIN LIMITATIONS................................................. 6
2.6 CONFIDENTIALITY..................................................... 7
2.7 TERMINATION......................................................... 8
2.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY OR
LIABILITIES AND INDEMNIFICATION................................... 8
2.9 REPRESENTATIVE...................................................... 9
2.11 BINDING ARBITRATION................................................. 9
2.12 INJUNCTIVE RELIEF...................................................10
ARTICLE III - MISCELLANEOUS...................................................10
3.1 TAXES...............................................................10
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
3.2 LAWS AND GOVERNMENTAL REGULATIONS...................................10
3.3 RELATIONSHIP OF PARTIES.............................................11
3.4 INCORPORATION OF PROVISIONS OF THE ACQUISITION AGREEMENT............11
3.5 EXPENSES............................................................11
3.6 REFERENCES..........................................................11
3.7 MODIFICATION AND AMENDMENT..........................................11
3.8 INCONSISTENCY.......................................................12
</TABLE>
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<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT, dated as of December 31, 1996 (the
"Effective Date"), is by and between True North Communications Inc., a Delaware
corporation ("TNC"), and TN Technologies Holding Inc., a Delaware corporation
("TNT"). Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Acquisition Agreement (as defined
below).
WHEREAS, the Board of Directors of TNC has determined that it is in the
best interests of TNC and its stockholders to transfer and assign to TNT
substantially all of the assets and properties of TNC's existing businesses
relating to digital interactive services (the "Transferred Business") in
exchange for the assumption of certain liabilities and obligations of TNC
relating to the Transferred Business by TNT and the issuance of 2,291,686 shares
of Class B Common Stock, par value $.001 per share, of TNT (the "TN Technologies
Shares") to TNC;
WHEREAS, to effectuate the foregoing, TNC and TNT have entered into an
Amended and Restated Acquisition Agreement, along with certain other parties,
dated as of December 31, 1996 (the "Acquisition Agreement"), which provides,
among other things, subject to the terms and conditions thereof, for the
Acquisition of the Transferred Business, the issuance of the TN Technologies
Holding Shares and the execution and delivery of certain other agreements in
order to facilitate and provide for the foregoing; and
WHEREAS, to ensure an orderly transition under the Acquisition Agreement it
will be necessary for one or both of the parties to provide to the other party
the Services described herein for a transitional period.
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1 ACCOUNTING SERVICES shall have the meaning set forth in Subsection
2.1(a)(i).
1.2 AGENCY SERVICES shall have the meaning set forth in Subsection
2.1(a)(vii).
1.3 ADDITIONAL SERVICES shall have the meaning set forth in Subsection
2.1(c).
<PAGE>
1.4 CORPORATE SUPPORT SERVICES shall have the meaning set forth in
Subsection 2.1(a)(v).
1.5 CONSULTING SERVICES shall have the meaning set forth in Subsection
2.1(a)(ii).
1.6 EMPLOYEE BENEFITS AND ADMINISTRATION SERVICES shall have the meaning
set forth in Subsection 2.1(a)(iv).
1.7 EXPIRATION DATE shall have the meaning set forth in Section 2.2.
1.8 HUMAN RESOURCES AND PAYROLL SERVICES shall have the meaning set forth
in Subsection 2.1(a)(viii).
1.9 IMPRACTICABLE (and words of similar import) shall have the meaning
set forth in Subsection 2.5(a).
1.10 INITIAL SERVICES shall have the meaning set forth in Subsection
2.1(a).
1.11 MEDIA SERVICES shall have the meaning set forth in Subsection
2.1(a)(vi).
1.12 PROVIDING COMPANY shall mean, with respect to any particular
Services, the entity or entities identified on the applicable Exhibit as the
party to provide such Services.
1.13 RECEIVING COMPANY shall mean, with respect to any particular
Services, the entity or entities identified on the applicable Exhibit as the
party to receive such Services.
1.14 REPRESENTATIVE of any party shall mean a managerial level employee
appointed by such party to have the responsibilities and authority set forth in
Section 2.9.
1.15 SERVICES shall have the meaning set forth in Subsection 2.1(c).
1.16 STUDIO SERVICES shall have the meaning set forth in Subsection
2.1(a)(iii).
1.17 TERMINATION DATE shall have the meaning set forth in Section 2.2.
1.18 REFERRAL SERVICES shall have the meaning set forth in Subsection
2.1(a)(x).
1.19 VOICE AND DATA NETWORKS shall mean the software, hardware and
circuits necessary to deliver voice and data messages as identified in Exhibit I
hereto.
1.20 VOICE AND DATA NETWORKS SERVICES shall have the meaning set forth
in Subsection 2.1(a)(ix).
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<PAGE>
ARTICLE II
SERVICES
2.1 SERVICES.
(a) INITIAL SERVICES. Except as otherwise provided herein, for the
term determined pursuant to Section 2.2 hereof, Providing Company shall provide
or cause to be provided to Receiving Company, in each case as identified in the
Exhibits attached hereto or subsequently agreed to prior to the Closing Date in
accordance with the procedures set fort herein, the following "Initial
Services":
(i) ACCOUNTING SERVICES described in Exhibit A attached
hereto;
(ii) CONSULTING SERVICES described in Exhibit B attached
hereto;
(iii) STUDIO SERVICES described in Exhibit C attached hereto;
(iv) EMPLOYEE BENEFITS AND ADMINISTRATION SERVICES described in
Exhibit D attached hereto;
(v) CORPORATE SUPPORT SERVICES described in Exhibit E attached
hereto;
(vi) MEDIA SERVICES described in Exhibit F attached hereto;
(vii) AGENCY SERVICES described in Exhibit G attached hereto;
(viii) HUMAN RESOURCES AND PAYROLL SERVICES described in Exhibit
H attached hereto;
(ix) VOICE AND DATA NETWORK SERVICES described in Exhibit I
attached hereto; and
(x) REFERRAL SERVICES described in Exhibit J attached hereto.
(b) FINAL EXHIBITS. The parties have made good faith efforts as of
the date hereof to identify each Initial Service and complete the content of
each Exhibit pertaining to the Initial Services. To the extent an Exhibit has
not been prepared for an Initial Service or an Exhibit is otherwise incomplete
as of the date hereof, the parties shall use good faith efforts to prepare or
complete Exhibits by the Closing Date. Any services reflected on any such
additional or amended Exhibit shall be deemed an "Initial Service" as if set
forth on such Exhibit as of the date hereof.
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<PAGE>
(c) ADDITIONAL SERVICES. From time to time after the Closing Date,
the parties may identify additional services that one or both of the parties
will provide to the other party in accordance with the terms of this Agreement
(the "Additional Services" and, together with the Initial Services, the
"Services"). The parties shall create an Exhibit for each Additional Service
setting forth the identities of the Providing Company and the Receiving Company,
a description of the Service, the time period during which the Service will be
provided, the charge, if any, for the Service and any other terms applicable
thereto and obtain the approval of each party's Representative (set forth on in
Schedule 1 attached hereto). Any such Exhibit shall be agreed upon by the
parties prior to the performance of such Services.
(d) SERVICES PERFORMED BY OTHERS. At its option, Providing Company
may cause any Service it is required to provide hereunder to be provided by any
other person that is providing, or may from time to time provide, the same or
similar services for the Providing Company or its subsidiaries or business
units. The Providing Company shall remain responsible, in accordance with the
terms of this Agreement, for performance of any Services it causes to be so
provided and Receiving Party shall not be liable to any other person that is
providing any Services pursuant hereto for charges relating to the performance
of such Services, unless Providing Party assigns its right to payment for such
Services to such other person pursuant to Section 2.3(c) hereof.
(e) SERVICES NOT INCLUDED. Initial Services shall not include:
(i) Legal;
(ii) Corporate Secretarial Services;
(iii) Corporate Development Advice;
(iv) Investor Relations;
(v) Public Relations; and
(vi) Governmental Affairs.
2.2 TERM. The term of this Agreement shall commence on the Effective Date
and shall remain in effect through one year from the Effective Date ("Expiration
Date"), unless terminated on an earlier date under Section 2.7 ("Termination
Date"). This Agreement may be extended by the parties in writing either in whole
or with respect to one or more of the Services, provided, however, that such
extension shall only apply to the Service for which the Agreement was extended.
The parties shall be deemed to have extended this Agreement with respect to a
specific Service if the Exhibit for such Service specifies a completion date
beyond the aforementioned Expiration Date. The parties may agree on an earlier
expiration date for a specific Service by specifying such date on the Exhibit
for that Service. Services shall be provided up to and including the date set
forth in the applicable Exhibit, subject to earlier termination as provided
herein.
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<PAGE>
2.3 CHARGES AND PAYMENT.
(a) CHARGES FOR INITIAL SERVICES. Receiving Company shall pay
Providing Company the charges, if any, set forth on the Exhibit for each of the
Services listed therein as adjusted, from time to time, by TNC as budgeted or
estimated costs are reconciled to actual incurred costs. Wherever practical,
charges shall be based on actual incurred costs, not budgeted or estimated. The
parties also intend for charges to be easy to administer and justify and,
therefore, they hereby acknowledge it may be counterproductive to try to recover
every cost, charge or expense, particularly those that are insignificant or de
minimis. The parties shall use good faith efforts to discuss any situation in
which the actual charge for a Service is reasonably expected to exceed the
estimated charge, if any, set forth on an Exhibit for a particular Service,
provided, however, that the incurrence of charges in excess of any such estimate
shall not justify stopping the provision of, or payment for, Services under this
Agreement.
(b) CHARGES FOR ADDITIONAL SERVICES. Receiving Company shall pay
Providing Company the charges, if any, set forth on each Exhibit hereafter
created for each of the Additional Services listed therein.
(c) PAYMENT TERMS. Providing Company shall bill Receiving Company
monthly for all charges pursuant to this Agreement. Such bills shall be
accompanied by reasonable documentation or other reasonable explanation
supporting such charges. Receiving Company shall pay Providing Company for all
Services provided hereunder within thirty (30) days after receipt of an invoice
therefor.
(d) PRICING ADJUSTMENTS. In the event of a tax audit adjustment
relating to the pricing of any or all Services provided pursuant to this
Agreement in which it is determined by a taxing authority that any of the
charges, individually or in combination, did not result in an arm's-length
payment, as determined under applicable law or, in the absence thereof,
internationally accepted arm's-length standards, then the parties, including a
Providing Company subcontractor providing or receiving Services hereunder, shall
agree to make corresponding adjustments to the charges in question for such
period to the extent necessary to achieve arm's-length pricing. Any adjustment
made pursuant to this Subsection 2.3(e) shall be reflected in the parties'
official books and records, and the resulting overpayment or underpayment shall
create an obligation to be paid in the manner specified in Subsection 2.3(c).
2.4 GENERAL OBLIGATIONS; STANDARD OF CARE.
(a) TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties acknowledge
the transitional nature of the Services and that Providing Company may make
changes from time to time in the manner of performing the Services if Providing
Company is making similar changes in performing similar services for itself and
if Providing Company furnishes to Receiving Company at least 30 days prior
written notice.
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<PAGE>
(b) RESPONSIBILITY FOR ERRORS; DELAYS. Providing Company's sole
responsibility to Receiving Company:
(i) for errors or omissions in Services, shall be to furnish
correct information, payment and/or adjustment in the Services, at no additional
cost or expense to Receiving Company; provided, Receiving Company must promptly
advise Providing Company of any such error or omission of which it becomes aware
after having used reasonable efforts to detect any such errors or omissions.
(ii) for failure to deliver any Service because of
Impracticability, shall be to use reasonable efforts, subject to Subsection
2.5(b), to make the Services available and/or to resume performing the Services
as promptly as reasonably practicable;
(c) GOOD FAITH COOPERATION; CONSENTS. The parties will use good faith
efforts to cooperate with each other in all matters relating to the provision
and receipt of Services. Such cooperation shall include exchanging information,
performing adjustments to costs of Services and obtaining all necessary consents
or approvals. The parties will maintain documentation supporting the information
contained in the Exhibits and cooperate with each other in making such
information available as needed in the event of a tax audit, whether in the
United States or any other country.
(d) ALTERNATIVES. If Providing Company reasonably believes it is
unable to provide any Service because of a failure to obtain necessary consents
or approvals pursuant to Subsection 2.4(c) or because of Impracticability, the
parties shall cooperate to determine the best alternative approach. Until such
alternative approach is found or the problem otherwise resolved to the
satisfaction of the parties, the Providing Party shall use reasonable efforts,
subject to Section 2.5(a) and Section 2.5(b), to continue providing the Service.
To the extent an agreed upon alternative approach requires payment above and
beyond that which is included in the Providing Company's charge for the Service
in question, the parties shall share equally in making any such payment unless
they otherwise agree in writing.
2.5 CERTAIN LIMITATIONS.
(a) IMPRACTICABILITY. Providing Company shall not be required to
provide any Service to the extent the performance of such Service becomes
"Impracticable" as a result of a cause or causes outside the reasonable control
of Providing Company including unfeasible technological requirements, or to the
extent the performance of such Services would require Providing Company to
violate any applicable laws, rules or regulations or would result in the breach
of any software license or other applicable contract.
(b) ADDITIONAL RESOURCES. Except as provided in an Exhibit for a
specific Service, in providing the Services, Providing Company shall not be
obligated to: (i) hire any additional employees; (ii) maintain the employment of
any specific employee; (iii) purchase, lease or
-6-
<PAGE>
license any additional equipment or software; or (iv) pay any costs related to
the transfer or conversion of Receiving Company's data to Receiving Company or
any alternate supplier of Services.
(c) NO SALE, TRANSFER, ASSIGNMENT. Receiving Company may not sell,
transfer, assign or otherwise use the Services provided hereunder, in whole or
in part, for the benefit of any person other than Receiving Company except for
Voice and Data Networks Services, which Receiving Company and its clients may
use.
II.6 CONFIDENTIALITY.
(a) INFORMATION SUBJECT TO OTHER OBLIGATIONS. Providing Company and
Receiving Company agree that all information regarding the Services, including
but not limited to, price, costs, methods of operation, and software, shall be
maintained in confidence and shall be subject to Article X of the Acquisition
Agreement, relating to preservation and exchange of information and protection
of confidential information.
(b) ALL INFORMATION CONFIDENTIAL. Any information used to perform or
receive the Services provided hereunder is confidential and proprietary to the
party or third party providing such information. The party who receives such
information shall treat such information and all related procedures and
documentation as confidential and proprietary to the party or third party
vendors providing such information.
(c) INTERNAL USE; TITLE, COPIES, RETURN. Receiving Company agrees
that:
(i) all Voice and Data Networks, procedures and related
materials provided to Receiving Company are for Receiving Company's internal use
and use of Receiving Company's clients;
(ii) title to all Voice and Data Networks used in performing the
Services provided hereunder shall remain in Providing Company or its third party
vendors;
(iii) Upon the termination of any of the Services, Receiving
Company shall return to Providing Company, as soon as practicable, all equipment
or other property of Providing Company relating to the Services which is owned
or leased by it and is or was in Receiving Company's possession or control.
II.7 TERMINATION. TNT may terminate this Agreement either with respect to
all, or with respect to any one or more, of the Services provided hereunder at
any time from time to time, for any reason or no reason, by giving written
notice to TNC at least ninety (90) days prior to the date of such termination.
TNC may terminate this Agreement with respect to all, or with respect to any one
or more, of the Services provided hereunder at any time from time to time
beginning, with
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<PAGE>
respect to any such Service, the later of (i) one year from the Effective Date;
or (ii) the Expiration Date of such Service, for any reason or no reason, by
giving written notice to TNT at least one hundred eighty (180) days prior to the
date of such termination. In the event of any termination with respect to one or
more, but less than all, Services, this Agreement shall continue in full force
and effect with respect to any Services not terminated hereby.
II.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY OR LIABILITIES AND
INDEMNIFICATION.
(a) DISCLAIMER OF WARRANTIES. PROVIDING COMPANY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE SERVICES. PROVIDING COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES AS TO
THE QUALITY, SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY PURPOSE OR USE.
(b) LIMITATION OF LIABILITY OR LIABILITIES; INDEMNIFICATION OF
RECEIVING COMPANY. Providing Company shall have no liability or liabilities to
Receiving Company with respect to its furnishing any of the Services hereunder
except for liability or liabilities arising out of the gross negligence or
willful misconduct of Providing Company. Providing Company will indemnify,
defend and hold harmless Receiving Company in respect of all liability or
liabilities related to, arising from, asserted against or associated with such
gross negligence or willful misconduct. Except as provided in the preceding
sentence, in no event shall Providing Company have any liability or liabilities
for any incidental, indirect special or consequential damages, whether or not
caused by or resulting from negligence or breach of obligations hereunder and
whether or not informed of the possibility of the existence of such damages.
(c) LIMITATION OF LIABILITY OR LIABILITIES; INDEMNIFICATION OF
PROVIDING COMPANY. Receiving Company shall indemnify and hold harmless the
Providing Company in respect of all liability or liabilities related to, arising
from, asserted against or associated with Providing Company's furnishing the
Services provided for in this Agreement, other than liability or liabilities
arising out of the gross negligence or willful misconduct of Providing Company.
The provisions of this indemnity shall apply only to losses which relate
directly to the provision of Services. In no event shall Receiving Company have
any liability or liabilities for any incidental, indirect, special or
consequential damages, whether or not caused by or resulting from negligence or
breach of obligations hereunder and whether or not informed of the possibility
of the existence of such damages.
(d) SUBROGATION OF RIGHTS VIS-A-VIS THIRD PARTY CONTRACTORS. In the
event any liability or liabilities arise from the performance of Services
hereunder by a third party contractor, the Receiving Company shall be subrogated
to such rights, if any, as the Providing Company may have against such third
party contractor with respect to the Services provided by such third party
contractor to or on behalf of the Receiving Company.
-8-
<PAGE>
II.9 REPRESENTATIVE. The parties shall each appoint a Representative to
facilitate communications and performance under this Agreement. Each party may
treat an act of a Representative of the other party as being authorized by such
other party without inquiring behind such act or ascertaining whether such
Representative had authority to so act. The initial Representatives are named on
Schedule 1. Each party shall have the right at any time and from time to time to
replace its Representative by giving notice in writing to the other party
setting forth the name of (i) the Representative to be replaced and (ii) the
replacement, and certifying that the replacement Representative is authorized to
act for the party giving the notice in all matters relating to this Agreement.
Each Representative is hereby authorized by the party he or she represents to
approve the establishment of new, or modifications to existing, Exhibits for
Initial Services before or after the Closing Date and the addition of new
Exhibits for Additional Services after the Closing Date.
II.10 DISPUTE RESOLUTION. In the event a dispute arises over the terms of
this agreement in an amount over $50,000 (a "Dispute"), the Representatives of
each party shall make a good faith effort to resolve the Dispute within fifteen
(15) days. If the Representatives cannot resolve the Dispute, the Chief
Financial Officers of each party shall make a good faith effort to resolve the
Dispute within fifteen (15) days. If the Chief Financial Officers of each party
cannot resolve the Dispute, then the Chief Executive Officers of each party
shall make a good faith effort to resolve the Dispute within fifteen (15) days.
If the Chief Executive Officers cannot resolve the Dispute, then the parties
hereby agree to settle such Dispute in arbitration pursuant to the terms set
forth in Section 2.11.
II.11 BINDING ARBITRATION.
(a) Except as set forth in Section 2.10 and 2.12, (a) any dispute,
controversy or claim arising in connection with this Agreement shall be settled
by binding arbitration if so requested by any party hereto pursuant to paragraph
(b) below. The arbitration shall be conducted by three arbitrators, who shall be
appointed pursuant to the rules of the American Arbitration Association (the
"AAA"). The arbitration shall be held in Chicago, Illinois and shall be
conducted in accordance with the commercial arbitration rules of the AAA, except
that the rules set forth in this Section 2.11 shall govern such arbitration to
the extent they conflict with the rules of the AAA.
(b) Upon written notice by a party to the other parties of a request
for arbitration hereunder, the parties shall use their commercially reasonable
efforts to cause the arbitration to be conducted in an expeditious manner. All
other procedural matters shall be within the discretion of the arbitrators. In
the event a party fails to comply with the procedures in any arbitration in a
manner deemed material by the arbitrators, the arbitrators shall fix a
reasonable period of time for compliance and, if the party does not comply
within said period, a remedy deemed just by the arbitrators, including an award
of default, may be imposed.
(c) The determination of the arbitrators shall be final and binding
on the parties.
-9-
<PAGE>
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction. The parties shall each be responsible for their own
expenses in connection with such arbitration, including, without limitation,
counsel fees and fees of experts; provided, however, that the parties shall
share equally in the expense of the arbitrators and of the AAA.
(d) Notwithstanding anything contained herein to the contrary, the
arbitrators shall not be limited as to the form of relief or remedy provided
pursuant to this Section 2.11.
II.12 INJUNCTIVE RELIEF. The parties hereto acknowledge that should they
breach any of their respective obligations under Section 2.6 such other parties
hereto may suffer irreparable injury for which money damages may be inadequate,
and therefore consent to the enforcement of such obligations by means of
temporary or permanent injunction of any court having jurisdiction thereof, and
each party hereto shall be entitled to assert any claim it may have for damages
resulting from breach of such obligations in addition to seeking injunctive
relief.
ARTICLE III
MISCELLANEOUS
III.1 TAXES. Receiving Company shall bear all taxes, duties and other
similar charges (and any related interest and penalties), imposed as a result of
its receipt of Services under this Agreement, including any tax which Receiving
Company is required to withhold or deduct from payments to Providing Company,
except (a) any tax allowable as a credit against the U.S. Federal income tax of
the Providing Company, and (b) any net income tax imposed upon Providing Company
by the country of its incorporation or any governmental entity within its
country of incorporation. To assist Providing Company in obtaining the credit
identified in Subsection (b) of this Section 3.1, Receiving Company shall
furnish Providing Company with such evidence as may be required by the relevant
taxing authorities to establish that any such tax has been paid.
III.2 LAWS AND GOVERNMENTAL REGULATIONS. Receiving Company shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its business and (ii) any use Receiving Company may make of the
Services to assist it in complying with such laws and governmental regulations.
While Providing Company shall not have any responsibility for Receiving
Company's compliance with the laws and regulations referred to above, Providing
Company agrees to use reasonable efforts, subject to Subsection 2.5(b), to cause
the Services to be designed in such manner that such Services shall be able to
assist Receiving Company in complying with applicable legal and regulatory
responsibilities. The Providing Company's charge, if any, for such Service may
reflect its efforts under this Section 3.2. In no event, however, shall
Receiving Company rely solely on its use of the Services in complying with any
laws and governmental regulations.
III.3 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or
construed by the parties or any third party as creating the relationship of
principal and agent,
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<PAGE>
partnership or joint venture between the parties, it being understood and agreed
that no provision contained herein, and no act of the parties, shall be deemed
to create any relationship between the parties other than the relationship of
independent contractor, nor be deemed to vest any rights, interest or claims in
any third parties.
III.4 INCORPORATION OF PROVISIONS OF THE ACQUISITION AGREEMENT.
The following provisions of the Acquisition Agreement are hereby
incorporated herein by reference, and unless otherwise expressly specified
herein, such provisions shall apply as if they are fully set forth herein
(references in paragraphs (a) through (b) below to "Section" shall mean Sections
of the Acquisition Agreement, and except as expressly set forth below,
references in the material incorporated herein by reference shall be references
to the Acquisition Agreement):
(a) Article X, relating to preservation and exchange of information
and protection of proprietary information; and
(b) Article XV, general provisions.
III.5 EXPENSES. Except as expressly set forth herein (including in the
Exhibits hereto) or in the Acquisition Agreement or another related agreement,
whether or not the IPO or the Acquisition is consummated, all legal and other
costs and expenses incurred in connection with this Agreement will be paid by
TNC in the case of costs or expenses incurred by TNC, or TNT in the case of
costs or expenses incurred by TNT.
III.6 REFERENCES. All reference to Sections, Articles, Exhibits or
Schedules c ontained herein mean Sections, Articles, Exhibits or Schedules of or
to this Agreement, as the case may be, unless otherwise stated. When a reference
is made in this Agreement to a "party"or "parties", such reference shall be to a
party or parties to this Agreement unless otherwise indicated. Whenever the
words "include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". The use of the
singular herein shall be deemed to be or include the plural (and vice versa)
whenever appropriate. The use of the words "hereof", herein", "hereunder", and
words of similar import shall refer to this entire Agreement, and not to any
particular article, section, Subsection, clause, paragraph or other subdivision
of this Agreement, unless the context clearly indicates otherwise. The word "or"
shall not be exclusive; "may not" is prohibitive and not permissive .
III.7 MODIFICATION AND AMENDMENT. Except for modifications to Exhibits,
which may be made by Representatives pursuant to Section 2.9 hereof, this
Agreement may not be modified or amended, or any provision waived, except in
writing signed by both parties.
III.8 INCONSISTENCY. In the event of any inconsistency between the terms of
this Agreement and any of the Exhibits hereto, the terms of this Agreement,
other than charges and Expiration Dates of Services, shall control.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Administrative Services
Agreement as of the date first above written.
TRUE NORTH COMMUNICATIONS INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
TN TECHNOLOGIES HOLDING INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE>
EXHIBIT A
ACCOUNTING SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Consolidation Accounting
. SEC Reporting
. Tax Return Preparation and Planning
. Internal Audit
. General Ledger Accounting
4. Charges for Services:
--------------------
Fees for Consolidation Accounting, SEC Reporting and Tax Return Preparation
and Planning shall be salaries, benefits and overhead and shall not exceed
$50,000 per year.
Fees for Internal Audit, will be based on an allocation of salaries,
benefits (not to exceed 20% of salaries) and overhead (at 89% of salaries).
In addition, fees shall include reimbursement of out-of-pocket costs.
Salaries will be allocated based on time expended by TNC personnel on TNT
matters.
During the period that TNC performs the General Ledger Accounting function
for a TNT business unit or subsidiary, the following items will be
allocated based on a ratio of the salaries of TNT employees in the unit or
subsidiary accounted for to total salaries of all TNT/TNC employees in
units accounted for: Computer Maintenance, MIS Depreciation, and Agency
Accounting Department Costs (excluding payroll department). TNC shall be
obligated to perform General Ledger Accounting services for TNT business
units or subsidiaries that had received such Services prior to the
Effective Date.
<PAGE>
EXHIBIT B
CONSULTING SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Creative
. Account Service
4. Charges for Services:
--------------------
Fees and provision for the foregoing Services must be approved in advance
and will be based on an allocation of salaries, benefits (not to exceed 20%
of salaries), out-of-pocket costs and overhead (as determined by the
internal cost allocation system of the office housing the provider of the
Service). Salaries will be allocated based on time expended by TNC
personnel on TNT matters.
<PAGE>
EXHIBIT C
STUDIO SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Inhouse Audio/Visual Services
4. Charges for Services:
--------------------
Fees and provision for services must be approved in advance and will be
based on posted hourly rates and out-of-pocket costs.
<PAGE>
EXHIBIT D
EMPLOYEE BENEFITS AND ADMINISTRATION SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Employee Benefits
TNC shall provide to all employees of TNT located in the United States
the employee benefits listed on Exhibit D-1 attached hereto on the same
terms and conditions as TNC provides such benefits to its employees;
provided, however, TNC shall not provide (i) any such benefits except
dental benefits to employees of Cf2GS; or (ii) any such benefits to
Modern Media employees.
. Employee Benefits Administration and Executive Compensation & Benefit
Plan Design
4. Charges for Services:
--------------------
The cost of the foregoing employee benefits, when purchased by TNC on behalf
of TNT, will be charged or rebated on the basis charged or rebated to TNC.
The cost and provision of any additional benefits to be provided by TNC
shall be approved by the parties in advance. Fees for Employee Benefits
Administration and Executive Compensation & Benefit Plan Design will be
based on an allocation of the cost of the TNC Corporate Human Resources
department across all United States users, based on salary.
<PAGE>
EXHIBIT E
CORPORATE SUPPORT SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Insurance (inclusive of director and offices insurance)
. Travel Services
. Media Research
. Special Order Office Supplies (distinguished from stock items)
4. Charges for Services:
--------------------
The cost and provision for these services shall be approved in advance by
the parties.
The cost of the foregoing items, when purchased by TNC on behalf of TNT,
will be charged or rebated on the basis charged or rebated to TNC.
If TNT is included in TNC's insurance policies, TNT shall be changed on a
pro rata basis.
6. Additional Resources:
--------------------
<PAGE>
EXHIBIT F
MEDIA SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Media Buying
4. Charges for Services:
--------------------
Fees will be based on standard rates for certain classes of clients
multiplied by billings.
<PAGE>
EXHIBIT G
AGENCY SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Agency Paper, Supplies & Printing
. Agency Office Supplies
. Agency Equipment Rental/Lease
. Agency Insurance
. Agency Office Service Salaries
. Phones and local phone calls
. Voicemail
4. Expiration Date of Service:
--------------------------
Agency Services provided at an office location leased under a Space Sharing
Agreement between TNC and TNT dated the Effective Date and listed below,
shall expire, with respect to such location, on the date the related lease
terminates pursuant to the respective Space Sharing Agreement.
Office Space Locations: TN Technologies Holding - New York, Chicago, San
Francisco, Hong Kong, London;
Northern Lights Interactive - Toronto
Relationship Technology Group - New York, Chicago
R/GA Interactive - New York
5. Charges for Services:
--------------------
During the period that TNT employees are housed in an office location
leased under a Space Sharing Agreement, TNT will be charged an allocation
of the accounting cost to TNC based on a ratio of the salaries of TNT
employees housed in the facility to total salaries of all TNT/TNC employees
housed in the facility. Notwithstanding the foregoing, to the extent that
telephone charges can be specifically identified, such costs associated
with TNT personnel will be charged directly to TNT.
<PAGE>
EXHIBIT H
HUMAN RESOURCES AND PAYROLL SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Payroll Services
4. Charges for Services:
--------------------
During the period that TNC performs the payroll function for a TNT unit,
Agency Human Resources and Payroll Department salaries will be allocated
based on a ratio of the salaries of TNT employees whose payroll is
administered to total salaries of all TNT/TNC employees whose payroll is
administered. In addition, fees shall include reimbursement of out-of-
pocket costs such as payroll processing company charges.
<PAGE>
EXHIBIT I
VOICE AND DATA NETWORKS SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: TNT
-----------------
3. Description of Service:
----------------------
. Voice and Data Networks shall mean the software, hardware and circuits
necessary to deliver voice and data messages and internal corporate
network.
4. Charges for Services:
--------------------
TNC will continue to administer the voice and data networks and will charge
TNT for usage.
Annual Charge =
Total Annual Cost to TNC * TNT and TNT Client Workstations Attached
----------------------------------------
Total Workstations Attached
<PAGE>
EXHIBIT J
REFERRAL SERVICES
1. Providing Company: TNC/TNT
-----------------
2. Receiving Company: TNT/TNT
-----------------
3. Description of Service:
----------------------
Referral Services: TNC personnel will participate in selling TNT services
to TNC clients. TNT personnel will participate in selling TNC services to
the TNT clients.
4. Charges for Services:
--------------------
The Receiving Company will pay the Providing Company a referral fee equal
to 1.5% of revenues from projects that such Providing Party's personnel
participate in selling. Revenues are defined as billings less cost of
billings (third party production costs).
Neither entity will bill the other for personnel costs incurred in the
sales process, unless approved in advance.
<PAGE>
SCHEDULE 1
REPRESENTATIVES
Representative of TNC: Dale Perona, Treasurer
True North Communications Inc.
101 East Erie Street
Chicago, IL 60611-2897
Telephone: (312) 751-7000
Facsimile: (312) 440-8104
Representative of TNT: Michael Bogacki, Chief Financial Officer
TN Technologies Holding Inc.
101 East Erie Street
Chicago, IL 60611-2897
Telephone: (312) 751-7000
Facsimile: (312) 440-8070
<PAGE>
Exhibit 10.3 (a)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between Foote, Cone & Belding Limited, a
Hong Kong company ("Sublessor"), and TN Technologies Limited, a Hong Kong
company ("Sublessee"). Sublessor and Sublessee hereby agree as follows:
1. Recitals: This Agreement is made with reference to the fact that Xipho
Development Company Limited, as landlord ("Master Lessor"), and Sublessor, as
tenant, entered into that certain lease, dated as of August 14, 1995 (the
"Master Lease"), with respect to premises consisting of approximately 10,335
square feet of space (the "Premises"), located on a portion of the second floor
of a building known as Harbour Centre, and located at 25 Harbour Road, Wanchai,
Hong Kong (the "Building"). A copy of the Master Lease is attached hereto as
Exhibit A and incorporated by reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee hereby
subleases from Sublessor, a portion of the Premises more particularly described
in Exhibit B attached hereto (the "Subleased Premises"). In connection with its
use of the Subleased Premises, Sublessee shall also have the right to use the
office furniture described in Exhibit C attached hereto and shall have the non-
exclusive right to use (a) in common with Sublessor and the other occupants of
the Building, the common areas outside the Premises that Sublessor has the right
to use under the Master Lease and (b) such additional facilities in the
remainder of the Premises as shall be mutually agreed upon by Sublessor and
Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement shall
be for a period of one (1) year commencing on the "Closing Date" as defined in
that certain Acquisition Agreement dated as of December 31, 1996 between and
among True North Communications Inc. and TN Technologies Holding Inc., a
Delaware corporation and Douglas C. Ahlers, Robert C. Allen, Gerald M. O'Connell
and Kraft Enterprises LTD (the "Commencement Date"), unless this Agreement is
sooner terminated pursuant to its terms or the Master Lease is sooner terminated
pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in this
Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set forth the early termination date, which
date may not be less than six (6) months from the date of delivery of such
notice.
<PAGE>
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Six Thousand Three Hundred Eighty-Six and 67/100 Hong Kong Dollars
(HK$6,386.67) per month and (b) the renewal term, an amount to be mutually
agreed upon between Sublessor and Sublessee prior to each anniversary of the
Commencement Date based upon changes in Sublessor's costs with respect to the
Premises. Base Rent shall be paid on or before the first (1st) day of each
month. Base Rent and Additional Rent (as defined below) for any period during
the Term hereof which is for less than one month of the Term shall be a pro rata
portion of the monthly installment. Base Rent and Additional Rent shall be
payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America. Base Rent and
Additional Rent shall be paid directly to Sublessor at FCB/Hong Kong, 2nd Floor,
Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong, Attention: Kenneth Ip, or
such other address as may be designated in writing by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall pay
such amounts as and when the same are due and payable to Master Lessor under the
Master Lease, and no earlier. Sublessee shall be entitled to its pro rata share
of all credits, if any, given by Master Lessor to Sublessor for Sublessor's
overpayment of Operating Expenses. Sublessee's current pro rata portion of the
Operating Expenses is estimated to be One Thousand Six Hundred Five Hong Kong
Dollars (HK$1,605) per month. Sublessor shall promptly notify Sublessee in
writing of any change therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
depreciation of leasehold improvements, depreciation of furniture and fixtures,
cleaning and maintenance charges and utilities. Sublessee shall pay such amounts
within thirty (30) days of Sublessee's receipt of a written invoice of such
charges. Sublessee's current pro rata portion of the Additional Premises
Expenses is estimated to be Two Thousand Six Hundred Forty Hong Kong Dollars
(HK$2,640) per month. Sublessor shall promptly notify Sublessee in writing of
any change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional Premises Expenses, shall be deemed additional rent
("Additional Rent"). Base Rent and Additional Rent hereinafter collectively
shall be referred to as "Rent."
-2-
<PAGE>
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition, Sublessee shall pay to Sublessor
interest on all amounts due, at the rate of prime plus two percent (2%) or the
maximum rate allowed by law, whichever is less (the "Interest Rate"), from the
due date to and including the date of the payment. The parties agree that the
foregoing late charge represents a reasonable estimate of the cost and expense
which Sublessor will incur in processing each delinquent payment. Sublessor's
acceptance of any interest or late charge shall not waive Sublessee's default in
failing to pay the delinquent amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with all
restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure under generally accepted accounting principles as in effect from
time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased
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<PAGE>
Premises, except in accordance with the Master Lease, and with the prior written
consent of both Sublessor and (to the extent required) Master Lessor.
9. Services: Sublessor shall have no obligation to provide or cause Master
Lessor to provide to the Premises services Master Lessor is obligated to provide
under the Master Lease. Sublessor shall, on behalf of Sublessee, to the extent
required under Section 27 hereof, enforce the Master Lease with respect to
Master Lessor's default in providing any such services. To the extent not
required to be performed by Master Lessor under the Master Lease, Sublessor
shall provide to the Subleased Premises janitorial and other services normally
found in first class office buildings that Sublessor provides to other portions
of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful misconduct
of Sublessor, its agents, employees or invitees, Sublessee shall indemnify,
defend with counsel reasonably acceptable to Sublessor, protect and hold
Sublessor harmless from and against any and all claims, liabilities, judgments,
causes of action, damages, costs and expenses (including reasonable attorneys'
and experts' fees), caused by or arising in connection with: (i) the negligence
or willful misconduct of Sublessee or its agents, employees or invitees; or (ii)
a breach of Sublessee's obligations under this Agreement. Sublessee's
indemnification of Sublessor shall survive termination of this Agreement.
B. Except to the extent caused by the negligence or willful misconduct
of Sublessee, its agents, employees or invitees, Sublessor shall indemnify,
defend with counsel reason ably acceptable to Sublessee, protect and hold
Sublessee harmless from and against any and all reasonable claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees) caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessor or its agents, employees or
invitees; or (ii) a breach of Sublessor's obligations under this Agreement or
under the Master Lease. Sublessor's indemnification of Sublessee shall survive
termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect, at
Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence. The policy shall include coverage for
liability assumed under this Agreement as an "insured contract" for the
performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Agreement, Sublessor and Sublessee hereby release each other,
and their respective agents,
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<PAGE>
employees, subtenants, and contractors, from all liability for damage to any
property that is caused by or results from a risk which is actually insured
against or which would normally be covered by "all risk" property insurance,
without regard to the negligence or willful misconduct of the entity so
released. Each party shall use its best efforts to cause each insurance policy
it obtains to provide that the insurer thereunder waives all right of recovery
by way of subrogation as required herein in connection with any injury or damage
covered by the policy. If the insurance policy cannot be obtained with the
waiver of subrogation, or if the waiver of subrogation is available only at
additional cost and the party for whose benefit the waiver is not obtained does
not pay the additional cost, then the party obtaining the insurance immediately
shall notify the other party of that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock of
Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not be in
default if Sublessee commences the cure within the fifteen (15) day period and
thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but
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<PAGE>
shall not be obligated to, after passage of any applicable notice and cure
periods, make such payment or perform such act. All such sums paid, and all
reasonable costs and expenses of performing any such act, shall be deemed
Additional Rent payable by Sublessee to Sublessor upon demand, together with
interest thereon at the Interest Rate from the date of the expenditure until
repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its personal property and shall surrender the Subleased Premises
to Sublessor in the same condition as received, broom-clean and free of
hazardous materials caused by Sublessee, reasonable wear and tear, leasehold
improvements that Sublessor agrees in writing may be surrendered, casualty and
condemnation, excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessor agrees to reasonably cooperate with
Sublessee in Sublessee's surrender of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the
Subleased Premises upon the expiration or earlier termination of this Agreement,
Sublessee shall indemnify, defend and hold harmless Sublessor from and against
all loss and liability resulting from Sublessee's delay in surrendering the
Subleased Premises and pay Sublessor holdover rent in the amount of one hundred
fifty percent (150%) of the Base Rent and Additional Rent payable in the last
month of the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect Sublessee's rights to use the Subleased
Premises as provided in this Agreement.
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<PAGE>
23. Parking: Sublessee shall not have any parking rights.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's
sole cost and expense, use reasonable efforts to cause Master Lessor to provide
Sublessee with directory signage and building standard signage at the entrance
to the Subleased Premises, in accordance with a design and at a location that is
mutually acceptable to Master Lessor, Sublessor and Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease shall be considered
delivered only when delivered in accordance with the Master Lease.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease to the extent
Sublessee has not expressly agreed to perform such obligations under this
Agreement. Sublessor shall have the right to amend, terminate or waive any
provisions under the Master Lease or make any elections, exercise any right or
remedy or give any consent or approval under the Master Lease. Sublessor, with
respect to the obligations of Master Lessor under the Master Lease that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease and requesting that Master Lessor perform
its obligations under the Master Lease, but shall in no event require Sublessor
to bring a cause of action against Master Lessor.
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease. Sublessee shall comply with all restrictions contained in the
Master Lease that are applicable to the Subleased Premises and the occupation by
any person thereof. In the event of any termination of the Master Lease, this
Sublease shall automatically terminate. Sublessee covenants and agrees with
Sublessor, not to do anything that would result in a default under, or cause to
be terminated, the Master Lease. Nothing contained in this Sublease shall in any
way obligate Sublessor to perform any act required to be performed by the Master
Lessor under the Master Lease, nor shall Sublessor incur any liability to
Sublessee by virtue of Master Lessor's failure to perform any act required of it
under the Master Lease. Sublessee agrees to look solely to Master Lessor for the
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provision of all services and performance of all acts called for under the
Master Lease.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased Premises, subject to the terms and conditions of this Agreement and of
the Master Lease, provided that there is not a default by Sublessee. In the
event, however, that Sublessor defaults in the performance or observance of any
of Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under this Agreement or to enforce, for
Sublessee's benefit, Master Lessor's obligations under the Master Lease (to the
extent required under Section 27 hereof), then Sublessee shall give Sublessor
notice specifying in what manner Sublessor has defaulted, and if such default
shall not be cured by Sublessor within thirty (30) days thereafter (except that
if such default cannot be cured within said thirty (30) day period, this period
shall be extended for an additional reasonable time, provided that Sublessor
commences to cure such default within such thirty (30) day period and proceeds
diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled to cure such default and promptly collect from
Sublessor Sublessee's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs). Sublessee shall not be
required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
30. Miscellaneous: This Agreement shall in all respects be governed by and
construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement shall
be deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement, it
shall do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal proceeding
with respect to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, experts' fees and court costs.
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
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Exhibit 10.3 (b)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between Foote, Cone & Belding, Inc.,
formerly known as Foote, Cone & Belding/Honig, Inc., a Delaware corporation
("Sublessor"), and TN Technologies Holding Inc., a Delaware corporation
("Sublessee"). Sublessor and Sublessee hereby agree as follows:
1. Recitals: This Agreement is made with reference to the fact that 11601
Wilshire Associates, as landlord ("Master Lessor"), and Foote, Cone &
Belding/Honig, Inc., as tenant, entered into that certain lease, dated as of
March 25, 1985, as amended by amendments dated December 15, 1983, February 1,
1985, April 29, 1988 and May 21, 1990 (as amended, the "Master Lease"), with
respect to premises consisting of approximately 62,000 square feet of space (the
"Premises"), located at 11601 Wilshire, Los Angeles, California, (the
"Building"). A copy of the Master Lease is attached hereto as Exhibit A and
incorporated by reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises more particularly
described in Exhibit B attached hereto (the "Subleased Premises"). In connection
with its use of the Subleased Premises, Sublessee shall also have the right to
use the office furniture described in Exhibit C attached hereto and shall have
the non-exclusive right to use (a) in common with Sublessor and the other
occupants of the Building, the common areas outside the Premises that Sublessor
has the right to use under the Master Lease and (b) such additional facilities
in the remainder of the Premises as shall be mutually agreed upon by Sublessor
and Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement
shall be for a period of one (1) year commencing on the "Closing Date" as
defined in that certain Acquisition Agreement dated as of December 31, 1996
between and among True North Communications Inc. and Tenant and Douglas C.
Ahlers, Robert C. Allen, Gerald M. O'Connell and Kraft Enterprises LTD (the
"Commencement Date"), unless this Agreement is sooner terminated pursuant to its
terms or the Master Lease is sooner terminated pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in
this Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set forth the early termination date, which
date may not be less than six (6) months from the date of delivery of such
notice.
<PAGE>
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Seven Hundred Twenty-Seven and 92/100 Dollars ($727.92) per month and
(b) the renewal term, an amount to be mutually agreed upon between Sublessor and
Sublessee prior to each anniversary of the Commencement Date based upon changes
in Sublessor's costs with respect to the Premises. Base Rent shall be paid on or
before the first (1st) day of each month. Base Rent and Additional Rent (as
defined below) for any period during the Term hereof which is for less than one
month of the Term shall be a pro rata portion of the monthly installment. Base
Rent and Additional Rent shall be payable without notice or demand and without
any deduction, offset, or abatement, in lawful money of the United States of
America. Base Rent and Additional Rent shall be paid directly to Sublessor at
FCB/Los Angeles, 11601 Wilshire Boulevard, Los Angeles, California 90025-1772,
Attention: Karen Stutenroth, or such other address as may be designated in
writing by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall pay
such amounts as and when the same are due and payable to Master Lessor under the
Master Lease, and no earlier. Sublessee shall be entitled to its pro rata share
of all credits, if any, given by Master Lessor to Sublessor for Sublessor's
overpayment of Operating Expenses. Sublessee's current pro rata portion of the
Operating Expenses is estimated to be One Hundred Forty-five and 83/100 Dollars
($145.83) per month. Sublessor shall promptly notify Sublessee in writing of any
change therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
depreciation of leasehold improvements, depreciation of furniture and fixtures,
cleaning and maintenance charges, utilities and occupancy taxes. Sublessee shall
pay such amounts within thirty (30) days of Sublessee's receipt of a written
invoice of such charges. Sublessee's current pro rata portion of the Additional
Premises Expenses is estimated to be One Hundred Fifty-Two and 29/100 Dollars
($152.29) per month. Sublessor shall promptly notify Sublessee in writing of any
change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional Premises Expenses, shall be deemed additional rent
("Additional Rent"). Base Rent and Additional Rent hereinafter collectively
shall be referred to as "Rent."
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition,
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Sublessee shall pay to Sublessor interest on all amounts due, at the rate of
prime plus two percent (2%) or the maximum rate allowed by law, whichever is
less (the "Interest Rate"), from the due date to and including the date of the
payment. The parties agree that the foregoing late charge represents a
reasonable estimate of the cost and expense which Sublessor will incur in
processing each delinquent payment. Sublessor's acceptance of any interest or
late charge shall not waive Sublessee's default in failing to pay the delinquent
amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with all
restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure under generally accepted accounting principles as in effect from
time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased Premises, except in accordance with the Master Lease, and with the
prior written consent of both Sublessor and (to the extent required) Master
Lessor.
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9. Services: Sublessor shall have no obligation to provide or cause
Master Lessor to provide to the Premises services Master Lessor is obligated to
provide under the Master Lease. Sublessor shall, on behalf of Sublessee, to the
extent required under Section 27 hereof, enforce the Master Lease with respect
to Master Lessor's default in providing any such services. To the extent not
required to be performed by Master Lessor under the Master Lease, Sublessor
shall provide to the Subleased Premises janitorial and other services normally
found in first class office buildings that Sublessor provides to other portions
of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful
misconduct of Sublessor, its agents, employees or invitees, Sublessee shall
indemnify, defend with counsel reasonably acceptable to Sublessor, protect and
hold Sublessor harmless from and against any and all claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees), caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessee or its agents, employees or
invitees; or (ii) a breach of Sublessee's obligations under this Agreement.
Sublessee's indemnification of Sublessor shall survive termination of this
Agreement.
B. Except to the extent caused by the negligence or willful
misconduct of Sublessee, its agents, employees or invitees, Sublessor shall
indemnify, defend with counsel reason ably acceptable to Sublessee, protect and
hold Sublessee harmless from and against any and all reasonable claims,
liabilities, judgments, causes of action, damages, costs and expenses (including
reasonable attorneys' and experts' fees) caused by or arising in connection
with: (i) the negligence or willful misconduct of Sublessor or its agents,
employees or invitees; or (ii) a breach of Sublessor's obligations under this
Agreement or under the Master Lease. Sublessor's indemnification of Sublessee
shall survive termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect,
at Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence. The policy shall include coverage for
liability assumed under this Agreement as an "insured contract" for the
performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Agreement, Sublessor and Sublessee hereby release each other,
and their respective agents, employees, subtenants, and contractors, from all
liability for damage to any property that is caused by or results from a risk
which is actually insured against or which would normally be covered by "all
risk" property insurance, without regard to the negligence or willful misconduct
of
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<PAGE>
the entity so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If the insurance policy cannot be
obtained with the waiver of subrogation, or if the waiver of subrogation is
available only at additional cost and the party for whose benefit the waiver is
not obtained does not pay the additional cost, then the party obtaining the
insurance immediately shall notify the other party of that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock
of Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not be in
default if Sublessee commences the cure within the fifteen (15) day period and
thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, after passage of
any applicable notice and cure periods, make such payment or perform such act.
All such sums paid, and all reasonable costs and expenses of performing any such
act, shall be deemed Additional Rent payable by Sublessee to Sublessor upon
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<PAGE>
demand, together with interest thereon at the Interest Rate from the date of the
expenditure until repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its personal property and shall surrender the Subleased Premises
to Sublessor in the same condition as received, broom-clean and free of
hazardous materials caused by Sublessee, reasonable wear and tear, leasehold
improvements that Sublessor agrees in writing may be surrendered, casualty and
condemnation, excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessor agrees to reasonably cooperate with
Sublessee in Sublessee's surrender of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the Subleased
Premises upon the expiration or earlier termination of this Agreement, Sublessee
shall indemnify, defend and hold harmless Sublessor from and against all loss
and liability resulting from Sublessee's delay in surrendering the Subleased
Premises and pay Sublessor holdover rent in the amount of one hundred fifty
percent (150%) of the Base Rent and Additional Rent payable in the last month of
the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect Sublessee's rights to use the Subleased
Premises as provided in this Agreement.
23. Parking: Sublessee shall have not have any parking rights.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's
sole cost and
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<PAGE>
expense, use reasonable efforts to cause Master Lessor to provide Sublessee with
directory signage and building standard signage at the entrance to the Subleased
Premises, in accordance with a design and at a location that is mutually
acceptable to Master Lessor, Sublessor and Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease shall be considered
delivered only when delivered in accordance with the Master Lease.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease to the extent
Sublessee has not expressly agreed to perform such obligations under this
Agreement. Sublessor shall have the right to amend, terminate or waive any
provisions under the Master Lease or make any elections, exercise any right or
remedy or give any consent or approval under the Master Lease. Sublessor, with
respect to the obligations of Master Lessor under the Master Lease that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease and requesting that Master Lessor perform
its obligations under the Master Lease, but shall in no event require Sublessor
to bring a cause of action against Master Lessor.
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease. Sublessee shall comply with all restrictions contained in the
Master Lease that are applicable to the Subleased Premises and the occupation by
any person thereof. In the event of any termination of the Master Lease, this
Sublease shall automatically terminate. Sublessee covenants and agrees with
Sublessor, not to do anything that would result in a default under, or cause to
be terminated, the Master Lease. Nothing contained in this Sublease shall in any
way obligate Sublessor to perform any act required to be performed by the Master
Lessor under the Master Lease, nor shall Sublessor incur any liability to
Sublessee by virtue of Master Lessor's failure to perform any act required of it
under the Master Lease. Sublessee agrees to look solely to Master Lessor for the
provision of all services and performance of all acts called for under the
Master Lease.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased
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<PAGE>
Premises, subject to the terms and conditions of this Agreement and of the
Master Lease, provided that there is not a default by Sublessee. In the event,
however, that Sublessor defaults in the performance or observance of any of
Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under this Agreement or to enforce, for
Sublessee's benefit, Master Lessor's obligations under the Master Lease (to the
extent required under Section 27 hereof), then Sublessee shall give Sublessor
notice specifying in what manner Sublessor has defaulted, and if such default
shall not be cured by Sublessor within thirty (30) days thereafter (except that
if such default cannot be cured within said thirty (30) day period, this period
shall be extended for an additional reasonable time, provided that Sublessor
commences to cure such default within such thirty (30) day period and proceeds
diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled to cure such default and promptly collect from
Sublessor Sublessee's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs). Sublessee shall not be
required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
30. Miscellaneous: This Agreement shall in all respects be governed by and
construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement shall
be deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement, it
shall do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal proceeding
with respect to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, experts' fees and court costs.
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUBLESSOR: SUBLESSEE:
FOOTE, CONE & BELDING, INC., TN TECHNOLOGIES HOLDING INC.,
a Delaware corporation a Delaware corporation
By: By:
-------------------------- -----------------------------
Name: Name:
------------------------ ---------------------------
Its: Its:
------------------------- ---------------------------
Address: FCB/Los Angeles Address: TN Technologies Inc.
11601 Wilshire Boulevard 101 East Erie Street
Los Angeles, CA 90025-1772 Chicago, IL 60611
Attn: Karen Stutenroth Attn: Mike Bogacki
and True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attn: Ted Theophilos
-9-
<PAGE>
EXHIBIT A
---------
MASTER LEASE
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<PAGE>
EXHIBIT B
---------
SUBLEASED PREMISES
(a) The "Subleased Premises" are approximately two hundred fifty (250) square
feet of office space consisting of the offices, cubicles and work areas occupied
by Sublessee's employees on the date hereof.
(b) Sublessee shall have the right, without Sublessor's consent, and without
any increase in the rent payable hereunder, to increase the number of people
occupying the Subleased Premises beyond the number occupying the Subleased
Premises on the date hereof.
(c) Sublessor shall have the right, upon at least thirty (30) days written
notice, to relocate Sublessee, at Sublessor's sole cost and expense, to
alternative premises within the Premises which are substantially the same in
size and interior improvements to the Subleased Premises and which are otherwise
reasonably satisfactory to Sublessee. The physical relocation shall occur on a
weekend and be completed by the Monday following the weekend. Upon such
relocation, the alternative premises shall be deemed the Subleased Premises.
In addition, and notwithstanding the foregoing, if the Master Lease
terminates with respect to the Subleased Premises for any reason, Sublessor
shall, prior to such termination, provide Sublessee with comparable space in
accordance with the provisions of the immediately preceding paragraph, in either
(i) the remaining portion of the Premises or (ii) other comparable office
premises leased by Sublessor, in which case the rental rate shall be based upon
Sublessor's actual costs with respect to such premises and Sublessee's occupancy
thereof shall be otherwise on the same terms and conditions as provided herein.
In the event that Sublessor desires to relocate Sublessee to premises not
included within the Premises, Sublessor shall, prior to such relocation, use
commercially reasonable efforts to obtain the consent of the lessor thereof (if
required under the applicable lease) and a waiver of subrogation from such
lessor in favor of Sublessee. If Sublessor is unable to obtain such a consent
and waiver, either party shall have the right to terminate this Agreement by
delivery of written notice to the other no later than ten (10) days prior to the
early termination date; provided, however, that Sublessor shall only have the
right to terminate this Agreement if the lessor's consent to the space sharing
was required under the applicable lease and Sublessor used commercially
reasonable efforts to obtain such consent. This provision shall survive the
termination of this Agreement.
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<PAGE>
EXHIBIT C
---------
OFFICE FURNITURE
The desks, chairs, bookcases, shelving, and other furniture and furnishings
located within the Subleased Premises on the date hereof. Sublessor shall have
the right, with Sublessee's prior written consent, which consent shall not be
unreasonably withheld, to replace the furniture with comparable furniture.
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<PAGE>
Exhibit 10.3 (c)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between FCB Canada Ltd., formerly known
as FCB/Ronalds-Reynolds, Ltd., a company incorporated under the laws of the
Province of Ontario ("Sublessor"), and Northern Lights Interactive Inc., a
company incorporated under the laws of the Province of Ontario ("Sublessee").
Sublessor and Sublessee hereby agree as follows:
1. Recitals: This Agreement is made with reference to the fact that
Crestview Investment Corporation, a company incorporated under the laws of the
Province of Ontario, as landlord ("Master Lessor"), and Sublessor, as tenant,
entered into that certain lease, dated as of May 5, 1988 (the "Current Lease"),
with respect to premises consisting of approximately 58,891 square feet of space
(the "Premises"), located at 245 Eglinton Avenue East, Toronto, Ontario (the
"Building"). Master Lessor and Sublessor have also entered into, or will soon
enter into, an agreement with respect to the Premises whereby the Current Lease
will be terminated and a new lease will take effect as of January 1, 1997 (the
"New Lease"). The Current Lease and the New Lease shall be collectively referred
to as the "Master Lease". A copy of the Master Lease is attached hereto as
Exhibit A and incorporated by reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises more particularly
described in Exhibit B attached hereto (the "Subleased Premises"). In connection
with its use of the Subleased Premises, Sublessee shall also have the right to
use the office furniture described in Exhibit C attached hereto and shall have
the non-exclusive right to use (a) in common with Sublessor and the other
occupants of the Building, the common areas outside the Premises that Sublessor
has the right to use under the Master Lease and (b) such additional facilities
in the remainder of the Premises as shall be mutually agreed upon by Sublessor
and Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement shall
be for a period of one (1) year commencing on the "Closing Date" as defined in
that certain Acquisition Agreement dated as of December 31, 1996 between and
among True North Communications Inc. and TN Technologies Holding Inc., a
Delaware corporation and Douglas C. Ahlers, Robert C. Allen, Gerald M. O'Connell
and Kraft Enterprises LTD (the "Commencement Date"), unless this Agreement is
sooner terminated pursuant to its terms or the Master Lease is sooner terminated
pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in this
Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set
<PAGE>
forth the early termination date, which date may not be less than six (6) months
from the date of delivery of such notice.
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Six Hundred Eighty-Seven and 50/100 Canadian Dollars (CND$687.50) per
month and (b) the renewal term, an amount to be mutually agreed upon between
Sublessor and Sublessee prior to each anniversary of the Commencement Date based
upon changes in Sublessor's costs with respect to the Premises. Base Rent shall
be paid on or before the first (1st) day of each month. Base Rent and Additional
Rent (as defined below) for any period during the Term hereof which is for less
than one month of the Term shall be a pro rata portion of the monthly
installment. Base Rent and Additional Rent shall be payable without notice or
demand and without any deduction, offset, or abatement, in lawful money of the
United States of America. Base Rent and Additional Rent shall be paid directly
to Sublessor at FCB/Canada, 245 Eglinton Avenue East, Toronto, Ontario M4P 3C2,
Canada, Attention: Tony Fernando, or such other address as may be designated in
writing by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall pay
such amounts as and when the same are due and payable to Master Lessor under the
Master Lease, and no earlier. Sublessee shall be entitled to its pro rata share
of all credits, if any, given by Master Lessor to Sublessor for Sublessor's
overpayment of Operating Expenses. Sublessee's current pro rata portion of the
Operating Expenses is estimated to be Eight Hundred Eleven and 88/100 Canadian
Dollars (CND$811.88) per month. Sublessor shall promptly notify Sublessee in
writing of any change therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
business tax, depreciation of leasehold improvements, depreciation of furniture
and fixtures, repairs and maintenance charges and utilities. Sublessee shall pay
such amounts within thirty (30) days of Sublessee's receipt of a written invoice
of such charges. Sublessee's current pro rata portion of the Additional Premises
Expenses is estimated to be Five Hundred Twenty-Three and 75/100 Canadian
Dollars (CND$523.75) per month. Sublessor shall promptly notify Sublessee in
writing of any change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional
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<PAGE>
Premises Expenses, shall be deemed additional rent ("Additional Rent"). Base
Rent and Additional Rent hereinafter collectively shall be referred to as
"Rent."
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition, Sublessee shall pay to Sublessor
interest on all amounts due, at the rate of prime plus two percent (2%) or the
maximum rate allowed by law, whichever is less (the "Interest Rate"), from the
due date to and including the date of the payment. The parties agree that the
foregoing late charge represents a reasonable estimate of the cost and expense
which Sublessor will incur in processing each delinquent payment. Sublessor's
acceptance of any interest or late charge shall not waive Sublessee's default in
failing to pay the delinquent amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with all
restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure
-3-
<PAGE>
under generally accepted accounting principles as in effect from time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased Premises, except in accordance with the Master Lease, and with the
prior written consent of both Sublessor and (to the extent required) Master
Lessor.
9. Services: Sublessor shall have no obligation to provide or cause
Master Lessor to provide to the Premises services Master Lessor is obligated to
provide under the Master Lease. Sublessor shall, on behalf of Sublessee, to the
extent required under Section 27 hereof, enforce the Master Lease with respect
to Master Lessor's default in providing any such services. To the extent not
required to be performed by Master Lessor under the Master Lease, Sublessor
shall provide to the Subleased Premises janitorial and other services normally
found in first class office buildings that Sublessor provides to other portions
of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful misconduct
of Sublessor, its agents, employees or invitees, Sublessee shall indemnify,
defend with counsel reasonably acceptable to Sublessor, protect and hold
Sublessor harmless from and against any and all claims, liabilities, judgments,
causes of action, damages, costs and expenses (including reasonable attorneys'
and experts' fees), caused by or arising in connection with: (i) the negligence
or willful misconduct of Sublessee or its agents, employees or invitees; or (ii)
a breach of Sublessee's obligations under this Agreement. Sublessee's
indemnification of Sublessor shall survive termination of this Agreement.
B. Except to the extent caused by the negligence or willful misconduct
of Sublessee, its agents, employees or invitees, Sublessor shall indemnify,
defend with counsel reason ably acceptable to Sublessee, protect and hold
Sublessee harmless from and against any and all reasonable claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees) caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessor or its agents, employees or
invitees; or (ii) a breach of Sublessor's obligations under this Agreement or
under the Master Lease. Sublessor's indemnification of Sublessee shall survive
termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect,
at Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence. The policy shall include coverage for
liability assumed under this Agreement as an "insured contract" for the
performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
-4-
<PAGE>
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Agreement, Sublessor and Sublessee hereby release each other,
and their respective agents, employees, subtenants, and contractors, from all
liability for damage to any property that is caused by or results from a risk
which is actually insured against or which would normally be covered by "all
risk" property insurance, without regard to the negligence or willful misconduct
of the entity so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If the insurance policy cannot be
obtained with the waiver of subrogation, or if the waiver of subrogation is
available only at additional cost and the party for whose benefit the waiver is
not obtained does not pay the additional cost, then the party obtaining the
insurance immediately shall notify the other party of that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock of
Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not be in
default if Sublessee commences the cure within the fifteen (15) day period and
thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
-5-
<PAGE>
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, after passage of
any applicable notice and cure periods, make such payment or perform such act.
All such sums paid, and all reasonable costs and expenses of performing any such
act, shall be deemed Additional Rent payable by Sublessee to Sublessor upon
demand, together with interest thereon at the Interest Rate from the date of the
expenditure until repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its personal property and shall surrender the Subleased Premises
to Sublessor in the same condition as received, broom-clean and free of
hazardous materials caused by Sublessee, reasonable wear and tear, leasehold
improvements that Sublessor agrees in writing may be surrendered, casualty and
condemnation, excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessor agrees to reasonably cooperate with
Sublessee in Sublessee's surrender of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the
Subleased Premises upon the expiration or earlier termination of this Agreement,
Sublessee shall indemnify, defend and hold harmless Sublessor from and against
all loss and liability resulting from Sublessee's delay in surrendering the
Subleased Premises and pay Sublessor holdover rent in the amount of one hundred
fifty percent (150%) of the Base Rent and Additional Rent payable in the last
month of the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect
-6-
<PAGE>
Sublessee's rights to use the Subleased Premises as provided in this Agreement.
23. Parking: Sublessee shall have the right to use throughout the Term
two (2) parking spaces in the Building's parking lot upon payment of the monthly
fee therefor. The current monthly fee is Seventy Canadian Dollars (CND$70.00)
per space.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's
sole cost and expense, use reasonable efforts to cause Master Lessor to provide
Sublessee with directory signage and building standard signage at the entrance
to the Subleased Premises, in accordance with a design and at a location that is
mutually acceptable to Master Lessor, Sublessor and Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease shall be considered
delivered only when delivered in accordance with the Master Lease.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease to the extent
Sublessee has not expressly agreed to perform such obligations under this
Agreement. Sublessor shall have the right to amend, terminate or waive any
provisions under the Master Lease or make any elections, exercise any right or
remedy or give any consent or approval under the Master Lease. Sublessor, with
respect to the obligations of Master Lessor under the Master Lease that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease and requesting that Master Lessor perform
its obligations under the Master Lease, but shall in no event require Sublessor
to bring a cause of action against Master Lessor.
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease. Sublessee shall comply with all restrictions contained in the
Master Lease that are applicable to the Subleased Premises and the occupation by
any person thereof. In the event of any termination of the Master Lease, this
Sublease shall automatically terminate. Sublessee covenants and agrees with
Sublessor, not to do anything that would result in a default under, or cause to
be terminated, the Master Lease. Nothing contained in this Sublease shall in any
way obligate Sublessor to perform
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<PAGE>
any act required to be performed by the Master Lessor under the Master Lease,
nor shall Sublessor incur any liability to Sublessee by virtue of Master
Lessor's failure to perform any act required of it under the Master Lease.
Sublessee agrees to look solely to Master Lessor for the provision of all
services and performance of all acts called for under the Master Lease.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased Premises, subject to the terms and conditions of this Agreement and of
the Master Lease, provided that there is not a default by Sublessee. In the
event, however, that Sublessor defaults in the performance or observance of any
of Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under this Agreement or to enforce, for
Sublessee's benefit, Master Lessor's obligations under the Master Lease (to the
extent required under Section 27 hereof), then Sublessee shall give Sublessor
notice specifying in what manner Sublessor has defaulted, and if such default
shall not be cured by Sublessor within thirty (30) days thereafter (except that
if such default cannot be cured within said thirty (30) day period, this period
shall be extended for an additional reasonable time, provided that Sublessor
commences to cure such default within such thirty (30) day period and proceeds
diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled to cure such default and promptly collect from
Sublessor Sublessee's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs). Sublessee shall not be
required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
30. Miscellaneous: This Agreement shall in all respects be governed by and
construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement shall
be deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement, it
shall do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal proceeding
with respect to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, experts' fees and court costs.
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<PAGE>
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUBLESSOR: SUBLESSEE:
FCB CANADA LTD., NORTHERN LIGHTS INTERACTIVE INC.,
an Ontario company an Ontario company
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Its:__________________________ Its:__________________________
Address: FCB/Canada Address: TN Technologies Inc.
245 Eglinton Avenue East 101 East Erie Street
Toronto, Ontario M4P 3C2 Chicago, IL 60611
Canada Attn: Mike Bogacki
Attn: Tony Fernando
and True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attn: Ted Theophilos
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<PAGE>
EXHIBIT A
---------
MASTER LEASE
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<PAGE>
EXHIBIT B
---------
SUBLEASED PREMISES
(a) The Subleased Premises are approximately 750 square feet of office space
consisting of the offices, cubicles and work areas occupied by Sublessee's
employees on the date hereof.
(b) Sublessee shall have the right, without Sublessor's consent, and without
any increase in the rent payable hereunder, to increase the number of people
occupying the Subleased Premises beyond the number occupying the Subleased
Premises on the date hereof.
(c) Sublessor shall have the right, upon at least thirty (30) days written
notice, to relocate Sublessee, at Sublessor's sole cost and expense, to
alternative premises within the Premises which are substantially the same in
size and interior improvements to the Subleased Premises and which are otherwise
reasonably satisfactory to Sublessee. The physical relocation shall occur on a
weekend and be completed by the Monday following the weekend. Upon such
relocation, the alternative premises shall be deemed the Subleased Premises.
In addition, and notwithstanding the foregoing, if the Master Lease
terminates with respect to the Subleased Premises for any reason, Sublessor
shall, prior to such termination, provide Sublessee with comparable space in
accordance with the provisions of the immediately preceding paragraph, in either
(i) the remaining portion of the Premises or (ii) other comparable office
premises leased by Sublessor, in which case the rental rate shall be based upon
Sublessor's actual costs with respect to such premises and Sublessee's occupancy
thereof shall be otherwise on the same terms and conditions as provided herein.
In the event that Sublessor desires to relocate Sublessee to premises not
included within the Premises, Sublessor shall, prior to such relocation, use
commercially reasonable efforts to obtain the consent of the lessor thereof (if
required under the applicable lease) and a waiver of subrogation from such
lessor in favor of Sublessee. If Sublessor is unable to obtain such a consent
and waiver, either party shall have the right to terminate this Agreement by
delivery of written notice to the other no later than ten (10) days prior to the
early termination date; provided, however, that Sublessor shall only have the
right to terminate this Agreement if the lessor's consent to the space sharing
was required under the applicable lease and Sublessor used commercially
reasonable efforts to obtain such consent. This provision shall survive the
termination of this Agreement.
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<PAGE>
EXHIBIT C
---------
OFFICE FURNITURE
The desks, chairs, bookcases, shelving, and other furniture and furnishings
located within the Subleased Premises on the date hereof. Sublessor shall have
the right, with Sublessee's prior written consent, which consent shall not be
unreasonably withheld, to replace the furniture with comparable furniture.
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<PAGE>
Exhibit 10.3(d)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between True North Communications Inc.,
a Delaware corporation ("Sublessor"), and TN Technologies Holding Inc., a
Delaware corporation ("Sublessee"). Sublessor and Sublessee hereby agree as
follows:
1. Recitals: This Agreement is made with reference to the fact that Hiro
Real Estate Co., a New York partnership, as landlord ("Master Lessor"), and
Sublessor, as tenant, entered into that certain lease, dated as of February 8,
1995 (the "Master Lease"), with respect to premises located on the 11th, 12th,
13th and 15th floors of a building located at 150 E. 42nd Street, New York, New
York (the "Building"). Master Lessor and Sublessor also entered into that
certain License Agreement dated as of May 11, 1995, as amended by that certain
Amendment to License Agreement dated as of September 15, 1995 (as amended, the
"License"), with respect to premises located on the 16th floor of the Building.
The premises under the Master Lease and the License shall be collectively
referred to as the "Premises". A copy of the Master Lease and the License are
attached hereto as Exhibit A and incorporated by reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises more particularly
described in Exhibit B attached hereto (the "Subleased Premises"). In connection
with its use of the Subleased Premises, Sublessee shall also have the right to
use the office furniture described in Exhibit C attached hereto and shall have
the non-exclusive right to use (a) in common with Sublessor and the other
occupants of the Building, the common areas outside the Premises that Sublessor
has the right to use under the Master Lease and (b) such additional facilities
in the remainder of the Premises as shall be mutually agreed upon by Sublessor
and Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement
shall be for a period of one (1) year commencing on the "Closing Date" as
defined in that certain Acquisition Agreement dated as of December 31, 1996
between and among Sublessor and Sublessee and Douglas C. Ahlers, Robert C.
Allen, Gerald M. O'Connell and Kraft Enterprises LTD (the "Commencement Date"),
unless this Agreement is sooner terminated pursuant to its terms or the Master
Lease is sooner terminated pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in this
Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set forth the early termination date, which
date may not be less than six (6) months from the date of delivery of such
notice.
<PAGE>
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Thirteen Thousand Forty-Six and 24/100 Dollars ($13,046.24) per month
and (b) the renewal term, an amount to be mutually agreed upon between Sublessor
and Sublessee prior to each anniversary of the Commencement Date based upon
changes in Sublessor's costs with respect to the Premises. Base Rent shall be
paid on or before the first (1st) day of each month. Base Rent and Additional
Rent (as defined below) for any period during the Term hereof which is for less
than one month of the Term shall be a pro rata portion of the monthly
installment. Base Rent and Additional Rent shall be payable without notice or
demand and without any deduction, offset, or abatement, in lawful money of the
United States of America. Base Rent and Additional Rent shall be paid directly
to Sublessor at FCB/LKP, 150 East 42nd Street, New York, New York 10017-5612,
Attention: Abbe Binstock, or such other address as may be designated in writing
by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall pay
such amounts as and when the same are due and payable to Master Lessor under the
Master Lease, and no earlier. Sublessee shall be entitled to its pro rata share
of all credits, if any, given by Master Lessor to Sublessor for Sublessor's
overpayment of Operating Expenses. Sublessee's current pro rata portion of the
Operating Expenses is estimated to be One Hundred Twenty Dollars ($120.00) per
month. Sublessor shall promptly notify Sublessee in writing of any change
therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
depreciation of leasehold improvements, depreciation of furniture and fixtures,
cleaning and maintenance charges, utilities, occupancy taxes and the Grand
Central Station Area Tax. Sublessee shall pay such amounts within thirty (30)
days of Sublessee's receipt of a written invoice of such charges. Sublessee's
current pro rata portion of the Additional Premises Expenses is estimated to be
Five Thousand Twenty-Eight and 75/100 Dollars ($5,028.75) per month. Sublessor
shall promptly notify Sublessee in writing of any change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional Premises Expenses, shall be deemed additional rent
("Additional Rent"). Base Rent and Additional Rent hereinafter collectively
shall be referred to as "Rent."
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<PAGE>
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition, Sublessee shall pay to Sublessor
interest on all amounts due, at the rate of prime plus two percent (2%) or the
maximum rate allowed by law, whichever is less (the "Interest Rate"), from the
due date to and including the date of the payment. The parties agree that the
foregoing late charge represents a reasonable estimate of the cost and expense
which Sublessor will incur in processing each delinquent payment. Sublessor's
acceptance of any interest or late charge shall not waive Sublessee's default in
failing to pay the delinquent amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with all
restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure under generally accepted accounting principles as in effect from
time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased
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<PAGE>
Premises, except in accordance with the Master Lease and the License, and with
the prior written consent of both Sublessor and (to the extent required) Master
Lessor.
9. Services: Sublessor shall have no obligation to provide or cause
Master Lessor to provide to the Premises services Master Lessor is obligated to
provide under the Master Lease or the License. Sublessor shall, on behalf of
Sublessee, to the extent required under Section 27 hereof, enforce the Master
Lease or the License with respect to Master Lessor's default in providing any
such services. To the extent not required to be performed by Master Lessor under
the Master Lease, Sublessor shall provide to the Subleased Premises janitorial
and other services normally found in first class office buildings that Sublessor
provides to other portions of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful
misconduct of Sublessor, its agents, employees or invitees, Sublessee shall
indemnify, defend with counsel reasonably acceptable to Sublessor, protect and
hold Sublessor harmless from and against any and all claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees), caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessee or its agents, employees or
invitees; or (ii) a breach of Sublessee's obligations under this Agreement.
Sublessee's indemnification of Sublessor shall survive termination of this
Agreement.
B. Except to the extent caused by the negligence or willful
misconduct of Sublessee, its agents, employees or invitees, Sublessor shall
indemnify, defend with counsel reason ably acceptable to Sublessee, protect and
hold Sublessee harmless from and against any and all reasonable claims,
liabilities, judgments, causes of action, damages, costs and expenses (including
reasonable attorneys' and experts' fees) caused by or arising in connection
with: (i) the negligence or willful misconduct of Sublessor or its agents,
employees or invitees; or (ii) a breach of Sublessor's obligations under this
Agreement, the Master Lease or the License. Sublessor's indemnification of
Sublessee shall survive termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect,
at Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence. The policy shall include coverage for
liability assumed under this Agreement as an "insured contract" for the
performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in
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<PAGE>
this Agreement, Sublessor and Sublessee hereby release each other, and their
respective agents, employees, subtenants, and contractors, from all liability
for damage to any property that is caused by or results from a risk which is
actually insured against or which would normally be covered by "all risk"
property insurance, without regard to the negligence or willful misconduct of
the entity so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If the insurance policy cannot be
obtained with the waiver of subrogation, or if the waiver of subrogation is
available only at additional cost and the party for whose benefit the waiver is
not obtained does not pay the additional cost, then the party obtaining the
insurance immediately shall notify the other party of that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock of
Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not be in
default if Sublessee commences the cure within the fifteen (15) day period and
thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor,
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<PAGE>
or fails to perform any other act on its part to be performed hereunder, then
Sublessor may, but shall not be obligated to, after passage of any applicable
notice and cure periods, make such payment or perform such act. All such sums
paid, and all reasonable costs and expenses of performing any such act, shall be
deemed Additional Rent payable by Sublessee to Sublessor upon demand, together
with interest thereon at the Interest Rate from the date of the expenditure
until repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its personal property and shall surrender the Subleased Premises
to Sublessor in the same condition as received, broom-clean and free of
hazardous materials caused by Sublessee, reasonable wear and tear, leasehold
improvements that Sublessor agrees in writing may be surrendered, casualty and
condemnation, excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessor agrees to reasonably cooperate with
Sublessee in Sublessee's surrender of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the
Subleased Premises upon the expiration or earlier termination of this Agreement,
Sublessee shall indemnify, defend and hold harmless Sublessor from and against
all loss and liability resulting from Sublessee's delay in surrendering the
Subleased Premises and pay Sublessor holdover rent in the amount of one hundred
fifty percent (150%) of the Base Rent and Additional Rent payable in the last
month of the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect Sublessee's rights to use the Subleased
Premises as provided in this Agreement.
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<PAGE>
23. Parking: Sublessee shall not have the right to use any parking spaces
in the Building's parking lot.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's
sole cost and expense, use reasonable efforts to cause Master Lessor to provide
Sublessee with directory signage and building standard signage at the entrance
to the Subleased Premises, in accordance with a design and at a location that is
mutually acceptable to Master Lessor, Sublessor and Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease or the License shall
be considered delivered only when delivered in accordance with the Master Lease
or the License, as appreciable.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease and the
License to the extent Sublessee has not expressly agreed to perform such
obligations under this Agreement. Sublessor shall have the right to amend,
terminate or waive any provisions under the Master Lease or the License or make
any elections, exercise any right or remedy or give any consent or approval
under the Master Lease or the License. Sublessor, with respect to the
obligations of Master Lessor under the Master Lease or the License that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease or the License and requesting that Master
Lessor perform its obligations under the Master Lease or the License, but shall
in no event require Sublessor to bring a cause of action against Master Lessor.
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease and the License. Sublessee shall comply with all restrictions
contained in the Master Lease and the License that are applicable to the
Subleased Premises and the occupation by any person thereof. In the event of any
termination of the Master Lease and the License, this Sublease shall
automatically terminate. Sublessee covenants and agrees with Sublessor, not to
do anything that would result in a default
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<PAGE>
under, or cause to be terminated, the Master Lease or the License. Nothing
contained in this Sublease shall in any way obligate Sublessor to perform any
act required to be performed by the Master Lessor under the Master Lease or the
License, nor shall Sublessor incur any liability to Sublessee by virtue of
Master Lessor's failure to perform any act required of it under the Master Lease
or the License. Sublessee agrees to look solely to Master Lessor for the
provision of all services and performance of all acts called for under the
Master Lease or the License.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased Premises, subject to the terms and conditions of this Agreement and of
the Master Lease and the License, provided that there is not a default by
Sublessee. In the event, however, that Sublessor defaults in the performance or
observance of any of Sublessor's remaining obligations under the Master Lease or
the License or fails to perform Sublessor's stated obligations under this
Agreement or to enforce, for Sublessee's benefit, Master Lessor's obligations
under the Master Lease or the License (to the extent required under Section 27
hereof), then Sublessee shall give Sublessor notice specifying in what manner
Sublessor has defaulted, and if such default shall not be cured by Sublessor
within thirty (30) days thereafter (except that if such default cannot be cured
within said thirty (30) day period, this period shall be extended for an
additional reasonable time, provided that Sublessor commences to cure such
default within such thirty (30) day period and proceeds diligently thereafter to
effect such cure as quickly as possible), then Sublessee shall be entitled to
cure such default and promptly collect from Sublessor Sublessee's reasonable
expenses in so doing (including, without limitation, reasonable attorneys' fees
and court costs). Sublessee shall not be required, however, to wait the entire
cure period described herein if earlier action is required to comply with the
Master Lease, the License or with any applicable governmental law, regulation or
order.
30. Miscellaneous: This Agreement shall in all respects be governed by
and construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement shall
be deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement, it
shall do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal
proceeding with respect
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<PAGE>
to this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees, experts' fees and court costs.
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUBLESSOR: SUBLESSEE:
TRUE NORTH COMMUNICATIONS INC., TN TECHNOLOGIES HOLDING INC.,
a Delaware corporation a Delaware corporation
By: By:
-------------------------- -------------------------
Name: Name:
------------------------ -----------------------
Its: Its:
------------------------- ------------------------
Address: FCB/LKP Address: TN Technologies Inc.
50 East 42nd Street 101 East Erie Street
New York, NY 10017-5612 Chicago, IL 60611
Attn: Abbe Binstock Attn: Mike Bogacki
and True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attn: Ted Theophilos
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<PAGE>
EXHIBIT A
---------
MASTER LEASE
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<PAGE>
EXHIBIT B
---------
SUBLEASED PREMISES
(a) The Subleased Premises are approximately 4,500 square feet of office space
consisting of the offices, cubicles and work areas occupied by Sublessee's
employees on the date hereof.
(b) Sublessee shall have the right, without Sublessor's consent, and without
any increase in the rent payable hereunder, to increase the number of
people occupying the Subleased Premises beyond the number occupying the
Subleased Premises on the date hereof.
(c) Sublessor shall have the right, upon at least thirty (30) days written
notice, to relocate Sublessee, at Sublessor's sole cost and expense, to
alternative premises within the Premises which are substantially the same
in size and interior improvements to the Subleased Premises and which are
otherwise reasonably satisfactory to Sublessee. The physical relocation
shall occur on a weekend and be completed by the Monday following the
weekend. Upon such relocation, the alternative premises shall be deemed the
Subleased Premises.
In addition, and notwithstanding the foregoing, if the Master Lease or the
License terminate with respect to the Subleased Premises for any reason,
Sublessor shall, prior to such termination, provide Sublessee with comparable
space in accordance with the provisions of the immediately preceding paragraph,
in either (i) the remaining portion of the Premises or (ii) other comparable
office premises leased by Sublessor, in which case the rental rate shall be
based upon Sublessor's actual costs with respect to such premises and
Sublessee's occupancy thereof shall be otherwise on the same terms and
conditions as provided herein. In the event that Sublessor desires to relocate
Sublessee to premises not included within the Premises, Sublessor shall, prior
to such relocation, use commercially reasonable efforts to obtain the consent of
the lessor thereof (if required under the applicable lease) and a waiver of
subrogation from such lessor in favor of Sublessee. If Sublessor is unable to
obtain such a consent and waiver, either party shall have the right to terminate
this Agreement by delivery of written notice to the other no later than ten (10)
days prior to the early termination date; provided, however, that Sublessor
shall only have the right to terminate this Agreement if the lessor's consent to
the space sharing was required under the applicable lease and Sublessor used
commercially reasonable efforts to obtain such consent. This provision shall
survive the termination of this Agreement.
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<PAGE>
EXHIBIT C
---------
OFFICE FURNITURE
The desks, chairs, bookcases, shelving, and other furniture and furnishings
located within the Subleased Premises on the date hereof. Sublessor shall have
the right, with Sublessee's prior written consent, which consent shall not be
unreasonably withheld, to replace the furniture with comparable furniture.
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<PAGE>
Exhibit 10.3(e)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between Foote, Cone & Belding
Advertising, Inc., a Delaware corporation ("Sublessor"), and TN Technologies
Holding Inc., a Delaware corporation ("Sublessee"). Sublessor and Sublessee
hereby agree as follows:
1. Recitals: This Agreement is made with reference to the fact that
LaSalle National Trust, N.A. (formerly known as LaSalle National Bank), not
individually, but as trustee under Trust Agreement dated December 21, 1983, and
known as Trust No. 107491 ("Trust") and Rush and Erie Associates, an Illinois
limited partnership, which is the sole beneficiary of the Trust, as landlord
(collectively, "Master Lessor"), and Sublessor, as tenant, entered into that
certain lease, dated as of March 16, 1994, as amended by that certain First
Amendment to Office Lease (as amended, the "Master Lease"), with respect to
premises consisting of approximately 227,569 square feet of space (the
"Premises"), located at 101 E. Erie Street, Chicago, Illinois (the "Building").
A copy of the Master Lease is attached hereto as Exhibit A and incorporated by
reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises more particularly
described in Exhibit B attached hereto (the "Subleased Premises"). In connection
with its use of the Subleased Premises, Sublessee shall also have the right to
use the office furniture described in Exhibit C attached hereto and shall have
the non-exclusive right to use (a) in common with Sublessor and the other
occupants of the Building, the common areas outside the Premises that Sublessor
has the right to use under the Master Lease and (b) such additional facilities
in the remainder of the Premises as shall be mutually agreed upon by Sublessor
and Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement
shall be for a period of one (1) year commencing on the "Closing Date" as
defined in that certain Acquisition Agreement dated as of December 31, 1996
between and among True North Communications Inc. and Sublessee and Douglas C.
Ahlers, Robert C. Allen, Gerald M. O'Connell and Kraft Enterprises LTD (the
"Commencement Date"), unless this Agreement is sooner terminated pursuant to its
terms or the Master Lease is sooner terminated pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in
this Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set forth the early termination date, which
date may not be less than six (6) months from the date of delivery of such
notice.
<PAGE>
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Ten Thousand Eighty-Two and 47/100 Dollars ($10,082.47) per month and
(b) the renewal term, an amount to be mutually agreed upon between Sublessor and
Sublessee prior to each anniversary of the Commencement Date based upon changes
in Sublessor's costs with respect to the Premises. Base Rent shall be paid on or
before the first (1st) day of each month. Base Rent and Additional Rent (as
defined below) for any period during the Term hereof which is for less than one
month of the Term shall be a pro rata portion of the monthly installment. Base
Rent and Additional Rent shall be payable without notice or demand and without
any deduction, offset, or abatement, in lawful money of the United States of
America. Base Rent and Additional Rent shall be paid directly to Sublessor at
FCB, 101 East Erie Street, Chicago, IL 60611, Attention: John Bonomo, or such
other address as may be designated in writing by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall pay
such amounts as and when the same are due and payable to Master Lessor under the
Master Lease, and no earlier. Sublessee shall be entitled to its pro rata share
of all credits, if any, given by Master Lessor to Sublessor for Sublessor's
overpayment of Operating Expenses. Sublessee's current pro rata portion of the
Operating Expenses is estimated to be Six Thousand Six Hundred Eighty-Four and
45/100 Dollars ($6,684.45) per month. Sublessor shall promptly notify Sublessee
in writing of any change therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
depreciation of leasehold improvements and utilities. Sublessee shall pay such
amounts within thirty (30) days of Sublessee's receipt of a written invoice of
such charges. Sublessee's current pro rata portion of the Additional Premises
Expenses is estimated to be One Thousand Four Hundred Ninety-Six and 14/100
Dollars ($1,496.14) per month. Sublessor shall promptly notify Sublessee in
writing of any change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional Premises Expenses, shall be deemed additional rent
("Additional Rent"). Base Rent and Additional Rent hereinafter collectively
shall be referred to as "Rent."
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition, Sublessee shall pay to Sublessor
interest on all amounts due, at the rate of prime plus two percent
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<PAGE>
(2%) or the maximum rate allowed by law, whichever is less (the "Interest
Rate"), from the due date to and including the date of the payment. The parties
agree that the foregoing late charge represents a reasonable estimate of the
cost and expense which Sublessor will incur in processing each delinquent
payment. Sublessor's acceptance of any interest or late charge shall not waive
Sublessee's default in failing to pay the delinquent amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with all
restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure under generally accepted accounting principles as in effect from
time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased Premises, except in accordance with the Master Lease, and with the
prior written consent of both Sublessor and (to the extent required) Master
Lessor.
9. Services: Sublessor shall have no obligation to provide or cause
Master Lessor to provide to the Premises services Master Lessor is obligated to
provide under the Master Lease.
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<PAGE>
Sublessor shall, on behalf of Sublessee, to the extent required under Section 27
hereof, enforce the Master Lease with respect to Master Lessor's default in
providing any such services. To the extent not required to be performed by
Master Lessor under the Master Lease, Sublessor shall provide to the Subleased
Premises janitorial and other services normally found in first class office
buildings that Sublessor provides to other portions of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful
misconduct of Sublessor, its agents, employees or invitees, Sublessee shall
indemnify, defend with counsel reasonably acceptable to Sublessor, protect and
hold Sublessor harmless from and against any and all claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees), caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessee or its agents, employees or
invitees; or (ii) a breach of Sublessee's obligations under this Agreement.
Sublessee's indemnification of Sublessor shall survive termination of this
Agreement.
B. Except to the extent caused by the negligence or willful
misconduct of Sublessee, its agents, employees or invitees, Sublessor shall
indemnify, defend with counsel reason ably acceptable to Sublessee, protect and
hold Sublessee harmless from and against any and all reasonable claims,
liabilities, judgments, causes of action, damages, costs and expenses (including
reasonable attorneys' and experts' fees) caused by or arising in connection
with: (i) the negligence or willful misconduct of Sublessor or its agents,
employees or invitees; or (ii) a breach of Sublessor's obligations under this
Agreement or under the Master Lease. Sublessor's indemnification of Sublessee
shall survive termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect,
at Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence. The policy shall include coverage for
liability assumed under this Agreement as an "insured contract" for the
performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Agreement, Sublessor and Sublessee hereby release each other,
and their respective agents, employees, subtenants, and contractors, from all
liability for damage to any property that is caused by or results from a risk
which is actually insured against or which would normally be covered by "all
risk" property insurance, without regard to the negligence or willful misconduct
of the entity so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If the
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<PAGE>
insurance policy cannot be obtained with the waiver of subrogation, or if the
waiver of subrogation is available only at additional cost and the party for
whose benefit the waiver is not obtained does not pay the additional cost, then
the party obtaining the insurance immediately shall notify the other party of
that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock of
Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not be in
default if Sublessee commences the cure within the fifteen (15) day period and
thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, after passage of
any applicable notice and cure periods, make such payment or perform such act.
All such sums paid, and all reasonable costs and expenses of performing any such
act, shall be deemed Additional Rent payable by Sublessee to Sublessor upon
demand, together with interest thereon at the Interest Rate from the date of the
expenditure until repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its
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<PAGE>
personal property and shall surrender the Subleased Premises to Sublessor in the
same condition as received, broom-clean and free of hazardous materials caused
by Sublessee, reasonable wear and tear, leasehold improvements that Sublessor
agrees in writing may be surrendered, casualty and condemnation, excepted. If
the Subleased Premises are not so surrendered, then Sublessee shall be liable to
Sublessor for all costs incurred by Sublessor in returning the Subleased
Premises to the required condition, plus interest thereon at the Interest Rate.
Sublessor agrees to reasonably cooperate with Sublessee in Sublessee's surrender
of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the Subleased
Premises upon the expiration or earlier termination of this Agreement, Sublessee
shall indemnify, defend and hold harmless Sublessor from and against all loss
and liability resulting from Sublessee's delay in surrendering the Subleased
Premises and pay Sublessor holdover rent in the amount of one hundred fifty
percent (150%) of the Base Rent and Additional Rent payable in the last month of
the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect Sublessee's rights to use the Subleased
Premises as provided in this Agreement.
23. Parking: Sublessee shall have the right to use throughout the Term one
(1) parking space in the Building's parking lot upon payment of the monthly fee
therefor. The current monthly fee is One Hundred Thirty-Six and 58/100 Dollars
($136.58) per space.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's sole
cost and expense, use reasonable efforts to cause Master Lessor to provide
Sublessee with directory signage and building standard signage at the entrance
to the Subleased Premises, in accordance with a design and at a location that is
mutually acceptable to Master Lessor, Sublessor and
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<PAGE>
Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease shall be considered
delivered only when delivered in accordance with the Master Lease.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease to the extent
Sublessee has not expressly agreed to perform such obligations under this
Agreement. Sublessor shall have the right to amend, terminate or waive any
provisions under the Master Lease or make any elections, exercise any right or
remedy or give any consent or approval under the Master Lease. Sublessor, with
respect to the obligations of Master Lessor under the Master Lease that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease and requesting that Master Lessor perform
its obligations under the Master Lease, but shall in no event require Sublessor
to bring a cause of action against Master Lessor.
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease. Sublessee shall comply with all restrictions contained in the
Master Lease that are applicable to the Subleased Premises and the occupation by
any person thereof. In the event of any termination of the Master Lease, this
Sublease shall automatically terminate. Sublessee covenants and agrees with
Sublessor, not to do anything that would result in a default under, or cause to
be terminated, the Master Lease. Nothing contained in this Sublease shall in any
way obligate Sublessor to perform any act required to be performed by the Master
Lessor under the Master Lease, nor shall Sublessor incur any liability to
Sublessee by virtue of Master Lessor's failure to perform any act required of it
under the Master Lease. Sublessee agrees to look solely to Master Lessor for the
provision of all services and performance of all acts called for under the
Master Lease.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased Premises, subject to the terms and conditions of this Agreement and of
the Master Lease, provided that there is not a default by Sublessee. In the
event, however, that Sublessor defaults in the performance or observance of any
of Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under this Agreement or to enforce, for
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<PAGE>
Sublessee's benefit, Master Lessor's obligations under the Master Lease (to the
extent required under Section 27 hereof), then Sublessee shall give Sublessor
notice specifying in what manner Sublessor has defaulted, and if such default
shall not be cured by Sublessor within thirty (30) days thereafter (except that
if such default cannot be cured within said thirty (30) day period, this period
shall be extended for an additional reasonable time, provided that Sublessor
commences to cure such default within such thirty (30) day period and proceeds
diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled to cure such default and promptly collect from
Sublessor Sublessee's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs). Sublessee shall not be
required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
30. Miscellaneous: This Agreement shall in all respects be governed by and
construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement shall
be deemed an original for all purposes. This Agreement shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement, it
shall do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal proceeding
with respect to this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees, experts' fees and court costs.
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUBLESSOR: SUBLESSEE:
FOOTE, CONE & BELDING TN TECHNOLOGIES HOLDING INC.,
ADVERTISING, INC., a Delaware corporation
a Delaware corporation
By:________________________ By:__________________________
Name:______________________ Name:________________________
Its:_______________________ Its:_________________________
Address: FCB Address: TN Technologies Inc.
101 East Erie Street 101 East Erie Street
Chicago, IL 60611 Chicago, IL 60611
Attn: John Bonomo Attn: Mike Bogacki
and True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attn: Ted Theophilos
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<PAGE>
EXHIBIT A
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MASTER LEASE
<PAGE>
EXHIBIT B
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SUBLEASED PREMISES
(a) The Subleased Premises are approximately 6,086 square feet of office space
consisting of the offices, cubicles and work areas occupied by Sublessee's
employees on the date hereof.
Notwithstanding the foregoing, upon the substantial completion (to
Sublessee's reasonable satisfaction) of the build-out of the 9th floor space
shown on the floor plan attached hereto as Exhibit B-1, the Subleased Premises
shall be deemed to be such 9th floor space and Sublessor shall promptly relocate
Sublessee thereto.
(b) Sublessee shall have the right, without Sublessor's consent, and without any
increase in the rent payable hereunder, to increase the number of people
occupying the Subleased Premises beyond the number occupying the Subleased
Premises on the date hereof.
(c) If the Master Lease terminates with respect to the Subleased Premises for
any reason, Sublessor shall, prior to such termination, provide Sublessee with
comparable space in accordance with the provisions of the immediately preceding
paragraph, in either (i) the remaining portion of the Premises or (ii) other
comparable office premises leased by Sublessor, in which case the rental rate
shall be based upon Sublessor's actual costs with respect to such premises and
Sublessee's occupancy thereof shall be otherwise on the same terms and
conditions as provided herein. In the event that Sublessor desires to relocate
Sublessee to premises not included within the Premises, Sublessor shall, prior
to such relocation, use commercially reasonable efforts to obtain the consent of
the lessor thereof (if required under the applicable lease) and a waiver of
subrogation from such lessor in favor of Sublessee. If Sublessor is unable to
obtain such a consent and waiver, either party shall have the right to terminate
this Agreement by delivery of written notice to the other no later than ten (10)
days prior to the early termination date; provided, however, that Sublessor
shall only have the right to terminate this Agreement if the lessor's consent to
the space sharing was required under the applicable lease and Sublessor used
commercially reasonable efforts to obtain such consent. This provision shall
survive the termination of this Agreement.
<PAGE>
EXHIBIT C
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OFFICE FURNITURE
The desks, chairs, bookcases, shelving, and other furniture and furnishings
located within the Subleased Premises on the date hereof. Sublessor shall have
the right, with Sublessee's prior written consent, which consent shall not be
unreasonably withheld, to replace the furniture with comparable furniture.
<PAGE>
Exhibit 10.3(f)
ASSIGNMENT OF LICENSE
---------------------
THIS ASSIGNMENT OF LICENSE (this "Assignment") is dated as of December 31,
1996, and is made by and between FCB Consulting Limited ("Assignor") and TN
Technologies Limited ("Assignee").
RECITALS
--------
This Assignment is made with reference to the following facts and with the
following intentions:
A. Sun Alliance and London Insurance plc ("Licensor") and Assignor, as
user, entered into that certain Office Plus Service Agreement dated as of August
1996 (the "License"), whereby Licensor licensed to Assignor office number 2 on
the second floor of a building located at 50/52 Regent Street, London, W1,
England (the "Premises").
B. Assignor wishes to assign all of its right, title and interest
under the License to Assignee, and Assignee wishes to accept such assignment on
the terms and conditions set forth herein.
1. Assignment: For good and valuable consideration and subject to the
limitations contained herein, Assignor assigns and transfers to Assignee all of
its right, title and interest in the License, and Assignee accepts the
assignment and assumes and agrees to perform, from the Effective Date, all of
the provisions of the License.
2. Assignor's Indemnity: Assignor shall indemnify, defend, protect and hold
Assignee harmless from and against any and all claims, liabilities, losses,
costs (including, without limitation, reasonable attorneys' fees) and damages
(collectively, "Claims") arising from or related to (a) the Premises or the
License which Claims shall have accrued on or before the Effective Date and (b)
any event or condition that shall have occurred or existed on or with respect to
the License or the Premises on or before the Effective Date. The provisions of
this paragraph shall survive the expiration or termination of the License or
this Assignment. To the extent that the provisions of this Section 2 are
inconsistent with the terms of the Acquisition Agreement (defined below), the
terms of the Acquisition Agreement shall prevail.
3. Assignee's Indemnity: Assignee shall indemnify, defend, protect and hold
Assignor harmless from and against any and all Claims arising from or related to
(a) the Premises or the License that accrue after the Effective Date, (b) any
event or condition that occurs or exists on or with respect to the License or
the Premises after the Effective Date, and (c) Assignee's breach of the
obligations on its part to be performed under the terms of the License. The
provisions of this paragraph shall survive the expiration or termination of the
License or this Assignment. To the extent that the provisions of this Section 3
are inconsistent with the terms of the Acquisition Agreement, the terms of the
Acquisition Agreement shall prevail.
<PAGE>
4. Effective Date: This Assignment shall be effective as of the "Closing
Date" as defined in that certain Acquisition Agreement dated as of October 10,
1996 (the "Acquisition Agreement") between and among True North Communications
Inc. and TN Technologies Holding Inc. and Douglas C. Ahlers, Robert C. Allen,
Gerald M. O'Connell and Kraft Enterprises LTD (the "Effective Date").
5. Miscellaneous:
A. Further Assurances: Assignor shall, at any time and from time to
time, execute such additional documents and take such additional actions as
Assignee or its successors or assigns may reasonably request to carry out the
purposes of this Assignment.
B. Successors: This Assignment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
C. Attorneys' Fees: If either party brings any action or legal
proceeding with respect to this Assignment, the prevailing party in such action
shall be entitled to recover its reasonable attorneys' fees and costs.
D. Severability: If any one or more of the provisions contained in
this Assignment shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
E. Counterparts: This Assignment may be executed in one or more
counterparts, each of which shall be an original, but all of which, taken
together, shall constitute one and the same Assignment.
[Signatures to follow]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
intending it to be effective as of the Effective Date.
ASSIGNOR: ASSIGNEE:
FCB CONSULTING LIMITED TN TECHNOLOGIES LIMITED
By:___________________________ By:_________________________
Name:_________________________ Name:_______________________
Its:__________________________ Its:________________________
3
<PAGE>
EXHIBIT 10.3(h)
SPACE SHARING AGREEMENT
-----------------------
THIS SPACE SHARING AGREEMENT (this "Agreement") is dated as of
December 31, 1996, and is made by and between Foote, Cone & Belding, Inc., a
Delaware corporation ("Sublessor"), and TN Technologies Holding Inc., a Delaware
corporation ("Sublessee"). Sublessor and Sublessee hereby agree as follows:
1. Recitals: This Agreement is made with reference to the fact that Blue
Jeans Equities West, as landlord ("Master Lessor"), and Sublessor, as tenant,
entered into that certain Office Lease, dated as of June 14, 1991, as amended by
a First Amendment to Lease dated as of April 28, 1995 and a Second Amendment to
Lease dated as of September 1, 1995 (the "Master Lease"), with respect to
premises (the "Premises") located at 1160 Battery Street, San Francisco,
California (the "Building"). A copy of the Master Lease is attached hereto as
Exhibit A and incorporated by reference herein.
2. Premises: Sublessor hereby subleases to Sublessee, and Sublessee
hereby subleases from Sublessor, a portion of the Premises more particularly
described in Exhibit B attached hereto (the "Subleased Premises"). In
connection with its use of the Subleased Premises, Sublessee shall also have the
right to use the office furniture described in Exhibit C attached hereto and
shall have the non-exclusive right to use (a) in common with Sublessor and the
other occupants of the Building, the common areas outside the Premises that
Sublessor has the right to use under the Master Lease and (b) such additional
facilities in the remainder of the Premises as shall be mutually agreed upon by
Sublessor and Sublessee.
3. Term:
A. Initial Term. The initial term (the "Term") of this Agreement
shall be for a period of one (1) year commencing on the "Closing Date" as
defined in that certain Acquisition Agreement dated as of December 31, 1996
between and among True North Communications Inc. and Sublessee and Douglas C.
Ahlers, Robert C. Allen, Gerald M. O'Connell and Kraft Enterprises LTD (the
"Commencement Date"), unless this Agreement is sooner terminated pursuant to its
terms or the Master Lease is sooner terminated pursuant to its terms.
B. Automatic Renewal. Immediately upon the expiration of the initial
term (and each subsequent term), the term of this Agreement shall be
automatically extended for an additional one (1) year period, not to exceed four
(4) renewal terms.
C. Early Termination. Notwithstanding anything to the contrary in
this Agreement, either party may terminate this Agreement by delivering written
notice to the other party at any time after six (6) months following the
Commencement Date. Such notice must set forth the early termination date, which
date may not be less than six (6) months from the date of delivery of such
notice. Sublessee shall also have the right to terminate this Agreement by
delivering written notice to Sublessor at any time. Such notice must set forth
the early termination date, which date may not be less than one (1) month from
the date of delivery of such notice.
<PAGE>
4. Rent:
A. Base Rent. Sublessee shall pay to Sublessor as base rent for the
Subleased Premises ("Base Rent") for each month during (a) the initial Term, the
amount of Fourteen Thousand Nine Hundred Eighty-Four and 52/100 Dollars
($14,984.52) per month and (b) the renewal term, an amount to be mutually agreed
upon between Sublessor and Sublessee prior to each anniversary of the
Commencement Date based upon changes in Sublessor's costs with respect to the
Premises. Base Rent shall be paid on or before the first (1st) day of each
month. Base Rent and Additional Rent (as defined below) for any period during
the Term hereof which is for less than one month of the Term shall be a pro rata
portion of the monthly installment. Base Rent and Additional Rent shall be
payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America. Base Rent and
Additional Rent shall be paid directly to Sublessor at FCB/San Francisco, 1255
Battery Street, San Francisco, CA 94111, Attention: Parkaj Sewal, or such other
address as may be designated in writing by Sublessor.
B. Operating Expenses. Sublessee shall also pay to Sublessor a pro
rata portion, determined by the ratio which the square footage of the Subleased
Premises bears to the square footage of the Premises, of all of the amounts
payable by Sublessor to Master Lessor under the Master Lease as operating
expenses, taxes, and related charges ("Operating Expenses"). Sublessee shall
pay such amounts as and when the same are due and payable to Master Lessor under
the Master Lease, and no earlier. Sublessee shall be entitled to its pro rata
share of all credits, if any, given by Master Lessor to Sublessor for
Sublessor's overpayment of Operating Expenses. Sublessee's current pro rata
portion of the Operating Expenses is estimated to be Four Hundred Forty-Two and
49/100 Dollars ($442.49) per month. Sublessor shall promptly notify Sublessee
in writing of any change therein.
C. Other Premises Expenses. Sublessee shall also pay to Sublessor a
pro rata portion, determined by the ratio which the square footage of the
Subleased Premises bears to the square footage of the Premises, of the amounts
of the following charges incurred by Sublessor with respect to the Premises to
the extent not included in Operating Expenses ("Additional Premises Expenses"):
depreciation of leasehold improvements, and depreciation of furniture and
fixtures. Sublessee shall pay such amounts within thirty (30) days of
Sublessee's receipt of a written invoice of such charges. Sublessee's current
pro rata portion of the Additional Premises Expenses is estimated to be Two
Thousand One Hundred Eleven and 24/100 Dollars ($2,111.24) per month.
Sublessor shall promptly notify Sublessee in writing of any change therein.
D. Additional Rent. All monies other than Base Rent required to be
paid by Sublessee under this Agreement, including, without limitation, Operating
Expenses and Additional Premises Expenses, shall be deemed additional rent
("Additional Rent"). Base Rent and Additional Rent hereinafter collectively
shall be referred to as "Rent."
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<PAGE>
E. Estimate. Sublessor and Sublessee hereby acknowledge that the
rental amounts set forth in this Section 4 are intended to reflect the actual
costs incurred by Sublessor with respect to the Subleased Premises. Sublessor
and Sublessee further acknowledge that, due to Sublessee's recent relocation
within the Premises and the pending renegotiation of the Master Lease, that the
rental amounts set forth herein are estimates only, and shall be amended to
reflect Sublessor's actual costs with respect to the Subleased Premises. Both
parties shall promptly endeavor to determine the actual rental amounts.
5. Late Charge: If Sublessee fails to pay to Sublessor any amount due
hereunder within five (5) days after the due date, Sublessee shall pay Sublessor
upon demand a late charge equal to five percent (5%) of the delinquent amount
accruing from the due date. In addition, Sublessee shall pay to Sublessor
interest on all amounts due, at the rate of prime plus two percent (2%) or the
maximum rate allowed by law, whichever is less (the "Interest Rate"), from the
due date to and including the date of the payment. The parties agree that the
foregoing late charge represents a reasonable estimate of the cost and expense
which Sublessor will incur in processing each delinquent payment. Sublessor's
acceptance of any interest or late charge shall not waive Sublessee's default in
failing to pay the delinquent amount.
6. Use:
A. Sublessee may use the Subleased Premises only for general office
use. Sublessee shall promptly and properly observe and comply with all laws with
respect to Sublessee's use of the Subleased Premises. Notwithstanding the
foregoing, Sublessee shall not be required to comply, or pay the cost of
complying, with any laws requiring the constructions of alterations or
improvements to the Subleased Premises.
B. Sublessee shall not use, store, transport or dispose of any
hazardous material in or about the Premises, except normal office products in
normal quantities. Sublessee shall defend, indemnify and hold Sublessor and its
officers, directors, successors and assigns harmless from and against, all
claims, costs and liabilities, including attorneys' fees and costs, arising out
of the release, emission or discharge by Sublessee or its employees or agents of
any hazardous material on or about the Subleased Premises during the Term. As
used herein, "hazardous materials" shall mean any material or substance that is
now or hereafter designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction or the
environment.
C. Sublessee shall not do or permit anything to be done in or about
the Subleased Premises which would (i) injure the Subleased Premises; or (ii)
vibrate, shake, overload, or impair the efficient operation of the Subleased
Premises or the sprinkler systems, heating, ventilating or air conditioning
equipment, or utilities systems located therein. Sublessee shall comply with
all restrictions set forth in the Master Lease and all reasonable rules and
regulations promulgated from time to time by Master Lessor and Sublessor.
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<PAGE>
7. Repairs: Sublessee shall maintain in good order and condition the
Subleased Premises; provided, however, that Sublessee shall in no event be
required to perform any repairs and maintenance (a) necessitated by the acts or
omissions of Sublessor or its agents, employees or invitees, (b) to any of the
building systems servicing the Subleased Premises or any structural portions of
the Subleased Premises, or (c) which could be properly treated as a capital
expenditure under generally accepted accounting principles as in effect from
time to time.
8. Improvements: No alterations or improvements shall be made to the
Subleased Premises, except in accordance with the Master Lease, and with the
prior written consent of both Sublessor and (to the extent required) Master
Lessor.
9. Services: Sublessor shall have no obligation to provide or cause
Master Lessor to provide to the Premises services Master Lessor is obligated to
provide under the Master Lease. Sublessor shall, on behalf of Sublessee, to the
extent required under Section 27 hereof, enforce the Master Lease with respect
to Master Lessor's default in providing any such services. To the extent not
required to be performed by Master Lessor under the Master Lease, Sublessor
shall provide to the Subleased Premises janitorial and other services normally
found in first class office buildings that Sublessor provides to other portions
of the Premises.
10. Indemnity:
A. Except to the extent caused by the negligence or willful
misconduct of Sublessor, its agents, employees or invitees, Sublessee shall
indemnify, defend with counsel reasonably acceptable to Sublessor, protect and
hold Sublessor harmless from and against any and all claims, liabilities,
judgments, causes of action, damages, costs and expenses (including reasonable
attorneys' and experts' fees), caused by or arising in connection with: (i) the
negligence or willful misconduct of Sublessee or its agents, employees or
invitees; or (ii) a breach of Sublessee's obligations under this Agreement.
Sublessee's indemnification of Sublessor shall survive termination of this
Agreement.
B. Except to the extent caused by the negligence or willful
misconduct of Sublessee, its agents, employees or invitees, Sublessor shall
indemnify, defend with counsel reason ably acceptable to Sublessee, protect and
hold Sublessee harmless from and against any and all reasonable claims,
liabilities, judgments, causes of action, damages, costs and expenses (including
reasonable attorneys' and experts' fees) caused by or arising in connection
with: (i) the negligence or willful misconduct of Sublessor or its agents,
employees or invitees; or (ii) a breach of Sublessor's obligations under this
Agreement or under the Master Lease. Sublessor's indemnification of Sublessee
shall survive termination of this Agreement.
11. Insurance: Sublessee shall obtain and keep in full force and effect,
at Sublessee's sole cost and expense, a commercial general liability policy of
insurance protecting Sublessee against claims for bodily injury, personal injury
and property damage based upon, involving or arising out of Sublessee's use or
occupancy of the Premises and all areas appurtenant thereto.
-4-
<PAGE>
Such insurance shall be on an occurrence basis providing single limit coverage
in an amount not less than $1,000,000 per occurrence. The policy shall include
coverage for liability assumed under this Agreement as an "insured contract" for
the performance of Sublessee's indemnity obligations under this Agreement. The
policy shall name Sublessor and Master Lessor as additional insureds.
12. Release and Waiver of Subrogation: Notwithstanding anything to the
contrary in this Agreement, Sublessor and Sublessee hereby release each other,
and their respective agents, employees, subtenants, and contractors, from all
liability for damage to any property that is caused by or results from a risk
which is actually insured against or which would normally be covered by "all
risk" property insurance, without regard to the negligence or willful misconduct
of the entity so released. Each party shall use its best efforts to cause each
insurance policy it obtains to provide that the insurer thereunder waives all
right of recovery by way of subrogation as required herein in connection with
any injury or damage covered by the policy. If the insurance policy cannot be
obtained with the waiver of subrogation, or if the waiver of subrogation is
available only at additional cost and the party for whose benefit the waiver is
not obtained does not pay the additional cost, then the party obtaining the
insurance immediately shall notify the other party of that fact.
13. Damage; Condemnation: If the Premises or the Building, or any part
thereof, are damaged due to any peril or condemned, Sublessee shall be entitled
to an abatement of all Rent to the extent Sublessor is entitled to an abatement
under the Master Lease. If the Premises are condemned or damaged by any peril
and the damage resulting therefrom cannot be (or is not in fact) repaired so
that the Subleased Premises will be reasonably suitable for Sublessee's intended
use within ninety (90) days after the condemnation or damage, then Sublessee
shall have the option to terminate this Agreement by delivery of written notice
thereof to Sublessor.
14. Assignment and Subletting: Sublessee may not assign this Agreement,
sublet the Subleased Premises or permit any use of the Subleased Premises by
another party. Notwithstanding the foregoing, a transfer in the capital stock
of Sublessee shall not be deemed to be an assignment hereunder.
15. Default: Sublessee shall be in default of its obligations under this
Agreement if any of the following events occur:
A. Sublessee fails to pay any Rent when due, when such failure
continues for three (3) days after written notice from Sublessor to Sublessee
that any such sum is due; or
B. Sublessee fails to perform any term, covenant or condition of this
Agreement (except those requiring payment of Rent) and fails to cure such breach
within fifteen (15) days after delivery of a written notice specifying the
nature of the breach; provided, however, that if more than fifteen (15) days
reasonably are required to remedy the failure, then Sublessee shall not
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<PAGE>
be in default if Sublessee commences the cure within the fifteen (15) day period
and thereafter diligently completes the cure.
16. Remedies: In the event of any default by Sublessee, Sublessor shall
have all remedies available under applicable law. Sublessor may resort to its
remedies cumulatively or in the alternative.
17. Right to Cure Defaults: If Sublessee fails to pay any sum of money to
Sublessor, or fails to perform any other act on its part to be performed
hereunder, then Sublessor may, but shall not be obligated to, after passage of
any applicable notice and cure periods, make such payment or perform such act.
All such sums paid, and all reasonable costs and expenses of performing any such
act, shall be deemed Additional Rent payable by Sublessee to Sublessor upon
demand, together with interest thereon at the Interest Rate from the date of the
expenditure until repaid.
18. Surrender: Prior to expiration of this Agreement, Sublessee shall
remove all of its personal property and shall surrender the Subleased Premises
to Sublessor in the same condition as received, broom-clean and free of
hazardous materials caused by Sublessee, reasonable wear and tear, leasehold
improvements that Sublessor agrees in writing may be surrendered, casualty and
condemnation, excepted. If the Subleased Premises are not so surrendered, then
Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in
returning the Subleased Premises to the required condition, plus interest
thereon at the Interest Rate. Sublessor agrees to reasonably cooperate with
Sublessee in Sublessee's surrender of the Subleased Premises.
19. Holdover: In the event that Sublessee does not surrender the
Subleased Premises upon the expiration or earlier termination of this Agreement,
Sublessee shall indemnify, defend and hold harmless Sublessor from and against
all loss and liability resulting from Sublessee's delay in surrendering the
Subleased Premises and pay Sublessor holdover rent in the amount of one hundred
fifty percent (150%) of the Base Rent and Additional Rent payable in the last
month of the Term prior to the expiration or earlier termination thereof.
20. Estoppel Certificates: Within ten (10) calendar days after receipt of
written demand by either party, the other party shall execute and deliver to the
requesting party an estoppel certificate (a) certifying that this Agreement is
unmodified and in full force and effect or, if modified, the nature of such
modification; (b) acknowledging, to the best of the responding party's
knowledge, that there are no uncured defaults on the part of the requesting
party; and (c) certifying such other information as may be reasonably required
by the requesting party.
21. Sublessor's Right to Enter: Sublessor or its agents may, upon
reasonable notice, enter the Subleased Premises at any reasonable time for the
purpose of inspecting the same, supplying any service to be provided by
Sublessor to Sublessee, making necessary alterations, additions or repairs or
for any other purpose permitted under this Agreement.
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<PAGE>
22. Effect of Conveyance: As used in this Agreement, the term "Sublessor"
means the holder of the tenant's interest under the Master Lease. In the event
of any assignment, transfer or termination of the tenant's interest under the
Master Lease, Sublessor shall be and hereby is entirely relieved of all
covenants and obligations of Sublessor accruing after the date of such transfer,
and it shall be deemed and construed, that any transferee has assumed and shall
carry out all covenants and obligations thereafter to be performed by Sublessor
hereunder; provided, however, that no such assignment, transfer or termination
shall terminate this Agreement or affect Sublessee's rights to use the Subleased
Premises as provided in this Agreement.
23. Parking: Sublessee shall have the right to use throughout the Term
three (3) parking spaces in the Building's parking lot upon payment of the
monthly fee therefor. The current monthly fee is One Hundred Seventy-Five
Dollars ($175.00) per space.
24. Signage: Sublessor shall, upon Sublessee's request, at Sublessee's
sole cost and expense, use reasonable efforts to cause Master Lessor to provide
Sublessee with directory signage and building standard signage at the entrance
to the Subleased Premises, in accordance with a design and at a location that is
mutually acceptable to Master Lessor, Sublessor and Sublessee.
25. Broker: Sublessor and Sublessee each represent to the other that they
have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction.
26. Notices: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party shall be
that address set forth below their signatures at the end of this Agreement. All
notices, demands or communications in connection with this Agreement shall be
personally delivered or properly addressed and deposited in the mail (certified,
return receipt requested, and postage prepaid). Notices shall be deemed
delivered (a) upon receipt, if personally delivered, or (b) three (3) business
days after mailing, if mailed as set forth above. Notwithstanding the foregoing,
all notices given to Master Lessor under the Master Lease shall be considered
delivered only when delivered in accordance with the Master Lease.
27. Sublessor's Obligations with Respect to the Master Lease: Sublessor
shall fully perform all of its obligations under the Master Lease to the extent
Sublessee has not expressly agreed to perform such obligations under this
Agreement. Sublessor shall have the right to amend, terminate or waive any
provisions under the Master Lease or make any elections, exercise any right or
remedy or give any consent or approval under the Master Lease. Sublessor, with
respect to the obligations of Master Lessor under the Master Lease that
materially affect Sublessee's use of the Subleased Premises, shall, upon
Sublessee's written request, use Sublessor's diligent good faith efforts to
cause Master Lessor to perform such obligations for the benefit of Sublessee.
Such diligent good faith efforts shall include, without limitation, upon
Sublessee's written request, immediately notifying Master Lessor of its
nonperformance under the Master Lease and requesting that Master Lessor perform
its obligations under the Master Lease, but shall in no event require Sublessor
to bring a cause of action against Master Lessor.
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<PAGE>
28. Sublessee's Obligations with Respect to the Master Lease: Sublessee
acknowledges that this Sublease is and shall remain subject and subordinate to
the Master Lease. Sublessee shall comply with all restrictions contained in the
Master Lease that are applicable to the Subleased Premises and the occupation by
any person thereof. In the event of any termination of the Master Lease, this
Sublease shall automatically terminate. Sublessee covenants and agrees with
Sublessor, not to do anything that would result in a default under, or cause to
be terminated, the Master Lease. Nothing contained in this Sublease shall in any
way obligate Sublessor to perform any act required to be performed by the Master
Lessor under the Master Lease, nor shall Sublessor incur any liability to
Sublessee by virtue of Master Lessor's failure to perform any act required of it
under the Master Lease. Sublessee agrees to look solely to Master Lessor for the
provision of all services and performance of all acts called for under the
Master Lease.
29. Quiet Enjoyment: Sublessee shall peacefully have, hold and enjoy the
Subleased Premises, subject to the terms and conditions of this Agreement and of
the Master Lease, provided that there is not a default by Sublessee. In the
event, however, that Sublessor defaults in the performance or observance of any
of Sublessor's remaining obligations under the Master Lease or fails to perform
Sublessor's stated obligations under this Agreement or to enforce, for
Sublessee's benefit, Master Lessor's obligations under the Master Lease (to the
extent required under Section 27 hereof), then Sublessee shall give Sublessor
notice specifying in what manner Sublessor has defaulted, and if such default
shall not be cured by Sublessor within thirty (30) days thereafter (except that
if such default cannot be cured within said thirty (30) day period, this period
shall be extended for an additional reasonable time, provided that Sublessor
commences to cure such default within such thirty (30) day period and proceeds
diligently thereafter to effect such cure as quickly as possible), then
Sublessee shall be entitled to cure such default and promptly collect from
Sublessor Sublessee's reasonable expenses in so doing (including, without
limitation, reasonable attorneys' fees and court costs). Sublessee shall not be
required, however, to wait the entire cure period described herein if earlier
action is required to comply with the Master Lease or with any applicable
governmental law, regulation or order.
30. Miscellaneous: This Agreement shall in all respects be governed by
and construed in accordance with the laws of the state in which the Subleased
Premises are located. If any term of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, then the remainder of this
Agreement shall remain in full force and effect to the fullest extent possible
under the law, and shall not be affected or impaired. This Agreement may not be
amended except by the written agreement of all parties hereto. Time is of the
essence with respect to the performance of every provision of this Agreement in
which time of performance is a factor. Any executed copy of this Agreement
shall be deemed an original for all purposes. This Agreement shall, subject to
the provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Sublessor and Sublessee.
The language in all parts of this Agreement shall in all cases be construed as a
whole according to its fair meaning, and not strictly for or against either
Sublessor or Sublessee. The captions used in this Agreement are for convenience
only and shall not be considered in the construction or interpretation of any
provision hereof. When a party is required to do something by this Agreement,
it shall
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<PAGE>
do so at its sole cost and expense without right of reimbursement from the other
party unless specific provision is made therefor.
31. Attorneys' Fees: If either party brings any action or legal
proceeding with respect to this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees, experts' fees and court costs.
32. Authority to Execute: Sublessee and Sublessor each represent and
warrant to the other that each person executing this Agreement on behalf of each
party is duly authorized to execute and deliver this Agreement on behalf of that
party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
SUBLESSOR: SUBLESSEE:
FOOTE, CONE & BELDING TN TECHNOLOGIES HOLDING INC.,
ADVERTISING, INC., a Delaware corporation
a Delaware corporation
By:_________________________ By:___________________________
Name:_______________________ Name:_________________________
Its:________________________ Its:__________________________
Address: FCB/San Francisco Address: TN Technologies Inc.
1255 Battery Street 101 East Erie Street
San Francisco, CA 94111 Chicago, IL 60611
Attn: Parkaj Sewal Attn: Mike Bogacki
and True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attn: Ted Theophilos
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<PAGE>
EXHIBIT A
---------
MASTER LEASE
<PAGE>
EXHIBIT B
---------
SUBLEASED PREMISES
(a) The Subleased Premises are approximately 4,500 square feet of office space
consisting of the offices, cubicles and work areas occupied by Sublessee's
employees on the date hereof.
(b) Sublessee shall have the right, without Sublessor's consent, and without
any increase in the rent payable hereunder, to increase the number of people
occupying the Subleased Premises beyond the number occupying the Subleased
Premises on the date hereof.
(c) Sublessor shall have the right, upon at least thirty (30) days written
notice, to relocate Sublessee, at Sublessor's sole cost and expense, to
alternative premises within the Premises which are substantially the same in
size and interior improvements to the Subleased Premises and which are otherwise
reasonably satisfactory to Sublessee. The physical relocation shall occur on a
weekend and be completed by the Monday following the weekend. Upon such
relocation, the alternative premises shall be deemed the Subleased Premises.
In addition, and notwithstanding the foregoing, if the Master Lease
terminates with respect to the Subleased Premises for any reason, Sublessor
shall, prior to such termination, provide Sublessee with comparable space in
accordance with the provisions of the immediately preceding paragraph, in either
(i) the remaining portion of the Premises or (ii) other comparable office
premises leased by Sublessor, in which case the rental rate shall be based upon
Sublessor's actual costs with respect to such premises and Sublessee's occupancy
thereof shall be otherwise on the same terms and conditions as provided herein.
In the event that Sublessor desires to relocate Sublessee to premises not
included within the Premises, Sublessor shall, prior to such relocation, use
commercially reasonable efforts to obtain the consent of the lessor thereof (if
required under the applicable lease) and a waiver of subrogation from such
lessor in favor of Sublessee. If Sublessor is unable to obtain such a consent
and waiver, either party shall have the right to terminate this Agreement by
delivery of written notice to the other no later than ten (10) days prior to the
early termination date; provided, however, that Sublessor shall only have the
right to terminate this Agreement if the lessor's consent to the space sharing
was required under the applicable lease and Sublessor used commercially
reasonable efforts to obtain such consent. This provision shall survive the
termination of this Agreement.
<PAGE>
EXHIBIT C
---------
OFFICE FURNITURE
The desks, chairs, bookcases, shelving, and other furniture and furnishings
located within the Subleased Premises on the date hereof. Sublessor shall have
the right, with Sublessee's prior written consent, which consent shall not be
unreasonably withheld, to replace the furniture with comparable furniture.
<PAGE>
Exhibit 10.4
INTERCOMPANY
CREDIT AGREEMENT
----------------
This INTERCOMPANY CREDIT AGREEMENT ("Credit Agreement"), dated as of
December 31, 1996, is entered into by and between:
(1) TRUE NORTH COMMUNICATIONS INC. ("Lender"); and
(2) TN TECHNOLOGIES HOLDING INC. ("Borrower").
In consideration of the covenants, conditions and agreements set forth herein,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Advance" shall have the meaning given in Section 2.1 of the Credit
Agreement.
1.2 "Business Day" shall mean any day on which commercial banks are not
authorized or required to close in Chicago, Illinois.
1.3 "Credit Accommodations" shall have the meaning given in Section 2.6.
1.4 "Credit Agreement" shall have the meaning set forth in the opening
paragraph of this document.
1.5 "Commitment" shall mean an amount equal to $5,000,000.
1.6 "Default" shall mean any event or circumstance not yet constituting an
Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
1.7 "Event of Default" shall have the meaning given to that term in
Section 5.1.
1.8 "GAAP" shall mean generally accepted accounting principles and
practices as promulgated by the Financial Accounting Standards Board and as in
effect in the United States of America from time to time, consistently applied.
Unless otherwise indicated in this Credit Agreement, all accounting terms used
in this Credit Agreement shall be construed, and all accounting and financial
computations hereunder or thereunder shall be computed, in accordance with GAAP.
1.9 "Governmental Authority" shall mean any domestic or foreign national,
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of
<PAGE>
the foregoing, or any other entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
1.10 "Indebtedness" of any Person shall mean and include the aggregate
amount of, without duplication (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than accounts payable
incurred in the ordinary course of business determined in accordance with
generally accepted accounting principles), (d) all obligations under capital
leases of such Person, (e) all obligations or liabilities of others secured by a
lien on any asset of such Person, whether or not such obligation or liability is
assumed, (f) all guarantees of such Person of the obligations of another Person;
(g) all obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement upon an
event of default are limited to repossession or sale of such property), (h) net
exposure under any interest rate swap, currency swap, forward, cap, floor or
other similar contract that is not entered into in connec tion with a bona fide
hedging operation that provides offsetting benefits to such Person, which agree
ments shall be marked to market on a current basis, (i) all reimbursement and
other payment obligations, contingent or otherwise, in respect of letters of
credit.
1.11 "LIBOR Rate" shall mean the rate per annum, rounded up to the nearest
.01%, at which U.S. dollar deposits are offered in the London interbank market
for one month periods as quoted in the "Money Rates" column of The Wall Street
Journal on the first Business Day of each calendar month. All computations of
such interest shall be based on a year of 360 days and actual days elapsed. Such
LIBOR Rate shall remain in effect until it is adjusted on the first Business Day
of the following calendar month.
1.12 "Liens" shall mean any mortgage, lien, deed of trust, charge, pledge,
security interest or other similar encumbrance.
1.13 "Loan Documents" shall mean and include this Credit Agreement and any
other documents, instruments and agreements delivered to Lender in connection
with this Credit Agreement.
1.14 "Material Adverse Change" shall mean any material adverse change in
the business, financial condition, operations, properties, performance or
prospects of the Borrower and its subsidiaries, taken as a whole.
1.15 "Obligations" shall mean and include all Advances, Reimbursement
Obligations, debts, liabilities, and financial obligations, howsoever arising,
owed by Borrower to Lender of every kind and description (whether or not
evidenced by any note or instrument), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of any of the Loan Documents, including, without limitation, all third
party charges, fees and
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<PAGE>
commissions, duties and taxes and all such other charges which pertain directly
or indirectly to the Credit Accommodations.
1.16 "Permitted Liens" means the following:
(a) Liens existing on the date hereof;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Lender's security
interests;
(c) Liens (i) upon or in any equipment acquired or held by Borrower to
secure the purchase price of such equipment or indebtedness incurred solely for
the purpose of financing such equipment within 180 days of its acquisition, or
(ii) existing on such equipment at the time of its acquisition, provided that
the Lien is confined solely to the property so acquired and accessions,
replacements, substitutions and improvements thereof or thereto, and the
proceeds (including insurance proceeds) of such equipment;
(d) Liens on equipment leased by Borrower pursuant to an operating
lease in the ordinary course of business (including proceeds thereof and
accessions thereto) incurred solely for the purpose of financing the lease of
such Equipment;
(e) Leases or subleases and licenses and sublicenses granted to others
in the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower, and any interest or title of a lessor,
licensor or under any lease or license;
(f) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by Borrower;
provided such Liens are not granted in contemplation of or in connection with
the acquisition of such asset by Borrower;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default;
(h) Easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens which constitute rights of set-off of a customary nature or
banker's Liens with respect to amounts on deposit, whether arising by operation
of law or by contract, in connection with arrangement entered into with banks in
the ordinary course of business;
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<PAGE>
(k) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; and
(l) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (j) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
1.17 "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a Governmental Authority.
1.18 "Reimbursement Obligations" means all debts, liabilities and
obligations of every kind and description, howsoever arising, owed by Borrower
to Lender (whether or not evidenced by any note or instrument), direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising pursuant to the terms of any Credit Accommodation, including,
without limitation, all interest, fees, charges, expenses, reasonable attorneys'
fees (and expenses) and accountants' fees (and expenses) chargeable to Borrower
or payable by Borrower hereunder or thereunder.
1.19 "Termination Date" shall mean the earliest to occur of (i) the first
anniversary of the date of this Credit Agreement, (ii) the date the Obligations
are made due and payable pursuant to Section 5.2, and (iii) the 90th day
following receipt by Borrower of a demand for repayment pursuant to Section 2.8.
ARTICLE 2
ADVANCES AND OTHER CREDIT ACCOMMODATIONS
2.1 Advances. Subject to the terms and conditions of this Credit
Agreement, Lender agrees to advance to Borrower from time to time and until the
earlier to occur of (i) the Termination Date or (ii) the date of receipt by
Borrower of a demand by Lender of a mandatory prepayment under the provisions of
Section 2.8 hereof, such sums as Borrower may request (the "Advances") but which
shall not exceed, in the aggregate principal amount at any one time outstanding,
together with the amount of the Credit Accommodations at such time outstanding,
the Commitment. Advances shall be made in lawful currency of the United States
of America and shall be made in same day or immedi ately available funds. Each
Advance shall be in an amount equal to at least $25,000 or any integral multiple
of $10,000 in excess thereof and shall be made one Business Day after written
request (or telephonic request confirmed in writing). Subject to the terms and
conditions hereof, Borrower may borrow, prepay the Advances and reborrow
pursuant to this Section 2.1.
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<PAGE>
2.2 Payment upon Maturity. If not paid earlier, the outstanding principal
balance of all Advances and Reimbursement Obligations shall be due and payable
to the Lender on the Termination Date. If on the Termination Date any Credit
Accommodations remain outstanding, in addition to paying in full all other
Obligations, Borrower shall provide to Lender cash collateral in an amount equal
to 110% of the amount of all Credit Accommodations outstanding to secure all
Reimbursement Obligations, and Borrower shall execute and deliver to Lender a
pledge agreement with respect thereto in a form satisfactory to Lender.
2.3 Interest. Interest on the outstanding principal balance under the
Advances shall accrue at the LIBOR Rate in effect plus 75 basis points per
annum. All computations of such interest shall be based on a year of 360 days
and actual days elapsed for each day on which any principal balance is
outstanding under the terms of the Credit Agreement.
2.4 Interest Payments. All accrued and unpaid interest shall be due on the
first Business Day of each month. If not paid earlier, all outstanding accrued
interest hereunder shall be due and payable to the Lender on the Termination
Date.
2.5 Other Payment Terms.
(a) Place and Manner. Borrower shall make all payments due to Lender
hereunder in lawful money of the United States and in same day or immediately
available funds.
(b) Date. Whenever any payment due hereunder shall fall due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.
(c) Default Rate. From and after the occurrence of an Event of Default
and during the continuance thereof, Borrower shall pay interest on all
Obligations not paid when due, from the due date thereof until such amounts are
paid in full, at a per annum rate equal to three (3) percentage points in excess
of the rate otherwise applicable to Advances and shall pay a charge per annum
with respect to the Credit Accommodations equal to 3.75% of the amount of such
Credit Accomodations. All computations of such interest and charges shall be
based on a year of 360 days and actual days elapsed.
2.6 Other Credit Accommodations.
(a) Terms. Subject to the terms and conditions of this Credit
Agreement, from time to time Borrower may request that Lender (i) assist
Borrower in establishing or opening letters of credit with one or more banks by
joining in the applications for the letters of credit and/or guaran teeing
payment or performance of the letters of credit and/or drafts or acceptances
thereunder or (ii) guarantee other payment obligations of Borrower
(collectively, "Credit Accommodations"). The decision to do any of the foregoing
shall be in Lender's sole discretion and the amount, extent, terms and
conditions of any such letters of credit, drafts, acceptances or guaranties
shall be subject to the
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<PAGE>
terms and conditions of this Credit Agreement and shall be subject to change,
modification and revi sion from time to time in Lender's sole discretion. All
obligations incurred by Lender in connection with the Credit Accommodations
shall be incurred solely as an accommodation to Borrower and for Borrower's
account. The total amount of the Credit Accommodations shall not exceed at any
time, together with the aggregate principal amount of the Advances, the
Commitment.
(b) Charges. In addition to any customary changes, fees or expenses of
any bank or other person in connection with a Credit Accommodation (all of which
shall be charged to Borrower's account and shall be payable by Borrower to
Lender immediately), Borrower shall pay to Lender a fee equal to 75 basis points
per annum on the amount of such Credit Accommodations, which shall be due and
payable on the first Business Day of each month. All computations of such fees
shall be based on a year of 360 days and actual days elapsed.
(c) Reimbursement. Borrower unconditionally agrees to reimburse Lender
for any and all payments made by Lender with respect to the Credit
Accommodations and to indemnify, defend and hold Lender harmless from any and
all losses, claims and liabilities arising from any trans actions or occurrences
relating to the Credit Accommodations. If Borrower does not reimburse Lender for
a payment made by Lender with respect to a Credit Accomodation on the same
Business Day as the payment is made, the reimbursable amount shall bear interest
for three Business Days at the LIBOR Rate then in effect plus 75 basis points
per annum and shall thereafter bear interest at a per annum rate equal to three
percentage points in excess of such rate. Borrower further agrees to hold Lender
harmless from any errors or omissions related to the Credit Accomodations,
whether caused by Lender or any financial institution providing the Credit
Accommodations.
(d) Lender's Authority. Borrower agrees that any action taken by
Lender in connection with Credit Accommodations in good faith shall be binding
on Borrower. Lender shall have the full right and authority to take such actions
with respect to the Credit Accommodations as it in good faith deems necessary or
desirable, including agreeing to any amendments, renewals, exten sions,
modifications, changes or cancellations of any of the terms and conditions of
any of the Credit Accommodations.
2.7 Borrower's Account. The Obligations of Borrower to Lender hereunder
shall be evidenced by one or more accounts or records maintained by Lender in
the ordinary course of busi ness. The accounts or records maintained by Lender
shall be presumptive evidence of the amount of such Obligations, and the
interest and principal payments and other charges thereon. Any failure so to
record or any error in so doing shall not, however, limit, increase or otherwise
affect the obligation of Borrower hereunder to pay any amount owing hereunder.
Upon Lender's request, Borrower shall execute a promissory note in favor of
Lender.
2.8 Mandatory Prepayment. At any time after Lender ceases to own shares of
capital stock of Borrower which control in excess of fifty percent (50%) of the
stockholders' voting power, Lender shall have the right to demand that Borrower
prepay all or any portion of the outstanding
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<PAGE>
Advances and cash collateralize all or any portion of the outstanding Credit
Accommodations (as set forth in Section 2.2) not later than the 60th day
following receipt by Borrower of such a demand.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BORROWER
To induce Lender to enter into this Credit Agreement and to make
Advances and extend Credit Accommodations hereunder, Borrower represents and
warrants to Lender as follows:
3.1 Due Incorporation, Qualification, etc.. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation.
3.2 Authority. The execution, delivery and performance by Borrower of
each Loan Document to be executed by Borrower and the consummation of the
transactions contemplated thereby (i) are within the power of Borrower and (ii)
have been duly authorized by all necessary actions on the part of Borrower.
3.3 Enforceability. Each Loan Document executed, or to be executed, by
Borrower has been, or will be, duly executed and delivered by Borrower and
constitutes, or will constitute, a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity.
ARTICLE 4
CONDITIONS TO MAKING ADVANCES OR CREDIT ACCOMMODATIONS
Lender's obligation to make the initial Advance or Credit
Accommodation and each subsequent Advance or Credit Accommodation is subject to
the prior satisfaction or waiver of all the conditions set forth in this Article
4.
4.1 Principal Loan Documents. Borrower shall have duly executed and
delivered to Lender: (a) the Credit Agreement; and (b) such other documents,
instruments and agreements as Lender may reasonably request.
4.2 Representations and Warranties Correct. The representations and
warranties made by Borrower in Article 3 hereof shall be true and correct as of
the date on which each Advance or Credit Accommodation is made and after giving
effect to the making of the Advance or Credit Accommodation. The submission by
Borrower to Lender of a request for an Advance or Credit Accommodation shall be
deemed to be a certification by the Borrower that as of the date of borrowing,
the representa tions and warranties made by Borrower in Article 3 hereof are
true and correct.
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<PAGE>
4.3 No Event of Default or Default. No Event of Default or Default has
occurred or is continuing.
4.4 Total Outstanding Advances and Credit Accommodations. The total
aggregate principal amount of outstanding Advances and Credit Accommodations
does not exceed the Commitment.
4.5 No Material Adverse Change. There shall have occurred no Material
Adverse Change since the date of this Credit Agreement.
ARTICLE 5
EVENTS OF DEFAULT
5.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Credit Agreement:
(a) Failure to Pay. Borrower shall fail to (i) pay the principal
amount of all outstanding Advances or cash collateralize the Credit
Accommodations on the Termination Date hereunder; (ii) pay any interest,
Obligation or other payment required under the terms of this Credit Agreement or
any other Loan Document on the date due and such failure shall continue for
three (3) Business Days; or (iii) pay any Indebtedness (excluding Obligations)
owed by Borrower to Lender on the date due and such failure shall continue for
three (3) Business Days; or
(b) Breaches of Covenants. Borrower shall fail to observe or perform
any other covenant, obligation, condition or agreement contained in this Credit
Agreement or any other Loan Document and (i) such failure shall continue for ten
(10) Business Days, or (ii) if such failure is not curable within such ten (10)
Business Day period, but is reasonably capable of cure within thirty (30)
Business Days, either (A) such failure shall continue for thirty (30) Business
Days or (B) Borrower shall not have commenced a cure in a manner reasonably
satisfactory to Lender within the initial ten (10) Business Day period; or
(c) Representations and Warranties. Borrower shall furnish any
representation, warranty, certificate, or other statement (financial or
otherwise) to Lender in writing in connection with any of the Loan Documents, or
as an inducement to Lender to enter into this Credit Agreement, which shall be
false, incorrect, incomplete or misleading in any material respect when made or
furnished by or on behalf of Borrower; or
(d) Voluntary Bankruptcy or Insolvency Proceedings. Borrower shall (i)
apply for or consent to the appointment of a receiver, trustee, liquidator or
custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of all or any of its
creditors or enter into a composition with one or more of its creditors, (iv) be
dissolved or liquidated in full or
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in part, (v) become insolvent (as such term is defined in 11 U.S.C. (S)101 (32),
as amended from time to time), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(e) Involuntary Bankruptcy or Insolvency Proceedings. There shall be
commenced proceedings for the appointment of a receiver, trustee, liquidator or
custodian of Borrower or of all or a substantial part of the property thereof,
or an involuntary case or other proceedings seeking liquidation, reorganization
or other relief with respect to Borrower or the debts thereof under any
bankruptcy, insolvency or other similar law now or hereafter in effect and an
order for relief entered or such proceeding shall not be dismissed or discharged
within sixty (60) calendar days of commencement; or
(f) Incurrence of Indebtedness. Subsequent to the date hereof,
Borrower shall incur Indebtedness, other than the Indebtedness hereunder, in an
amount in excess of Three Million Dollars ($3,000,000); or
(g) Liens. Borrower shall incur any Liens after the date hereof other
than Permitted Liens.
5.2 Rights of Lender upon Default.
(a) Acceleration. Upon the occurrence or existence of any Event of
Default described in Sections 5.1(d) and 5.1(e), automatically and without
notice or, at the option of Lender, upon the occurrence of any other Event of
Default, (i) the Commitment shall terminate and (ii) all outstanding Obligations
payable by Borrower hereunder shall become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the other Loan
Documents to the contrary notwithstanding.
(b) Cumulative Rights, etc. The rights, powers and remedies of Lender
under this Credit Agreement shall be in addition to all rights, powers and
remedies given to Lender by virtue of any applicable law, rule or regulation of
any Governmental Authority, or any agreement, all of which rights, powers, and
remedies shall be cumulative and may be exercised successively or concurrently
without impairing Lender's rights hereunder.
ARTICLE 6
MISCELLANEOUS
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6.1 Notices. Except as otherwise provided herein, all notices, requests,
demands, consents, instructions or other communications to or upon Lender or
Borrower under this Agreement or the other Loan Documents shall be in writing
and telecopied, mailed or delivered to each party at its telecopier number or
address set forth below (or to such other telecopier number or address for any
party as indicated in any notice given by that party to the other party). All
such notices and communications shall be effective (a) when sent by Federal
Express or other overnight service of recognized standing, on the Business Day
following the deposit with such service; (b) when mailed by registered or
certified mail, first class postage prepaid and addressed as aforesaid through
the United States Postal Service, upon receipt; (c) when delivered by hand, upon
delivery; and (d) when tele copied, upon confirmation of receipt; provided,
however, that any notice delivered to Lender under Article 2 shall not be
effective until received by Lender.
LENDER: TRUE NORTH COMMUNICATIONS INC.
101 East Erie Street
Chicago, Illinois 60611
Attention: Mr. Paul Bors
Telecopier No.: (312) 425-6353
BORROWER: TN TECHNOLOGIES HOLDING INC.
101 East Erie Street
Chicago, Illinois 60611
Attention: Mr. Michael Bogacki
Telecopier No.: (312) 425-6350
6.2 Waivers; Amendments. Any term, covenant, agreement or condition of this
Credit Agreement or any other Loan Document may be amended or waived if such
amendment or waiver is in writing and is signed by Borrower and Lender. No
failure or delay by Lender in exercising any right hereunder shall operate as a
waiver thereof or of any other right nor shall any single or partial exercise of
any such right preclude any other further exercise thereof or of any other
right. A waiver or consent given hereunder shall be effective only if in writing
and in the specific instance and for the specific purpose for which given.
6.3 Successors and Assigns. This Credit Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of Borrower, Lender and
their respective successors and permitted assigns, except that Borrower may not
assign or transfer (and any such attempted assign ment or transfer shall be
void) any of its rights or obligations under any Loan Document without the prior
written consent of Lender, which such consent shall not be unreasonably
withheld.
6.4 Set-off. In addition to any rights and remedies of Lender provided by
law, Lender shall have the right, without prior notice to Borrower (any such
notice being expressly waived by Borrower to the extent permitted by applicable
law), upon the occurrence and during the continuance of a Default or an Event of
Default, to set-off and apply against any Indebtedness, whether matured or
unmatured, of Borrower to Lender (including, without limitation, the
Obligations), any amount
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owing from Lender to Borrower. The aforesaid right of set-off may be exercised
by Lender against Borrower or against any trustee in bankruptcy, debtor-in-
possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor of Borrower or against anyone else claiming
through or against Borrower or such trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, receiver, or execution, judgment or
attachment creditor, notwithstanding the fact that such right of set-off shall
not have been exercised by Lender prior to the occurrence of a Default or an
Event of Default. Lender agrees promptly to notify Borrower after any such set-
off and application made by Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application.
6.5 No Third Party Rights. Nothing expressed in or to be implied from this
Agreement or any other Loan Document is intended to give, or shall be construed
to give, any Person, other than the parties hereto and thereto and their
permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any other Loan Document.
6.6 Partial Invalidity. If at any time any provision of this Credit
Agreement or any of the Loan Documents is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of the Credit
Agreement or such other Loan Documents, nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction, shall
in any way be affected or impaired thereby.
6.7 Governing Law. This Credit Agreement and each of the other Loan
Documents shall be governed by and construed in accordance with the laws of the
State of Illinois without reference to conflicts of law rules.
6.8 Construction. Each of this Credit Agreement and the other Loan
Documents is the result of negotiations among, and has been reviewed by,
Borrower, Lender and their respective counsel. Accordingly, this Credit
Agreement and the other Loan Documents shall be deemed to be the product of all
parties hereto, and no ambiguity shall be construed in favor of or against
Borrower or Lender.
6.9 Entire Agreement. This Credit Agreement and the other Loan Documents,
taken together, constitute and contain the entire agreement of Borrower and
Lender with respect to the subject matter hereof and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
among the parties, whether written or oral, respecting the subject matter
hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Credit Agreement as of
the date first set forth above.
BORROWER:
TN TECHNOLOGIES HOLDING INC.
By:
--------------------------------
Name:
Title:
LENDER:
TRUE NORTH COMMUNICATIONS INC.
By:
--------------------------------
Name:
Title:
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Exhibit 10.5
INTELLECTUAL PROPERTY AGREEMENT
THIS INTELLECTUAL PROPERTY AGREEMENT (this "Agreement") is dated as of
December 31, 1996 ("Effective Date") by and between True North
Communications Inc., ("TNC"), and TN Technologies Holding Inc. ("TNT"), and
describes the terms and conditions pursuant to which TNT shall license to TNC
certain Software (as defined below).
WHEREAS, TNC desires to receive a license to certain assigned intellectual
property assets of TNT and TNT desires to grant such license in accordance with
the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and adequacy of which are hereby acknowledged,
the parties, intending to be legally bound, agree as follows:
1. Definitions
For the purpose of this Agreement, the following terms shall have the
following meanings:
1.1 "Confidential Information" means all Software listings, Documentation
(as defined below), information, data, drawings, benchmark tests,
specifications, trade secrets, object code and machine-readable copies of the
Software (as defined below), source code relating to the Software, and any other
proprietary information supplied to TNC by TNT, including all items defined as
"confidential information of TNT" in any other agreement between TNC and TNT
whether executed prior to or after the date of this Agreement.
1.2 "Documentation" means any instruction manuals or other materials
regarding the Use (as defined below) of the Software.
1.3 "Maintenance and Support" means the services described in Section 5.
1.4 "Software" means the computer software programs specified in Attachment
A and otherwise provided to TNC pursuant to this Agreement.
1.5 "Update" means a release or version of the Software containing
functional enhancements, extensions, error corrections or fixes that are
generally made available (other than media and handling charges) by TNT, and
shall include the source code embodied in such functional enhancements,
extensions, error corrections or fixes.
1.6 "Use" means utilization of the Software by TNC and its affiliates and
subsidiaries (as permitted herein) for their own internal information processing
services and computing needs.
<PAGE>
2. Grant of License
2.1 License Grant. Subject to the terms and conditions of this Agreement,
TNT hereby grants to TNC a nonexclusive and nontransferable license to (a) Use
the Software, and to make sufficient copies as necessary for such Use; (b) use
and copy the Documentation in connection with Use of the Software; and (c)
modify and enhance the Software and hire third parties to do so in accordance
with Section 2.4 below. This license transfers to TNC neither title nor any
proprietary or intellectual property rights to the Software, Documentation, or
any copyrights, patents, or trademarks, embodied or used in connection
therewith, except for the rights expressly granted herein. The license for the
Knowledge Network (as described on Attachment A) shall become perpetual and paid
up upon the payment of all Development Costs set forth in Attachment B. The
Software may not be sublicensed by TNC; provided, however, that (a) the SCJNet
Software (as described on Attachment A) may be sublicensed by TNC to S.C.
Johnson & Son, Inc. ("SC Johnson"), for SC Johnson's use (and the use of SC
Johnson's affiliates and subsidiaries) consistent with the terms of this
Agreement; (b) the KCNet Software (as described in Attachment A) may be
sublicensed by TNC to Kimberly Clark Corporation ("KC"), for KC's use (and the
use of KC's affiliates and subsidiaries) consistent with the terms of this
Agreement; and (c) the Software may be used by the affiliates and subsidiaries
of TNC consistent with the terms of this Agreement.
2.2 Deliverables. Unless otherwise indicated in Attachment B, TNT shall
issue to TNC, as soon as practicable, but in no later than ninety (90) days
after the Effective Date one (1) machine-readable copy of the Software,
including source code thereto, along with one (1) copy of the appropriate
Documentation.
2.3 Copies. TNC may not copy the Software, except as permitted by this
Agreement; provided, however, that TNC will be entitled to make a reasonable
number of machine-readable copies of the Software for backup, disaster recovery
or archival purposes. TNC shall maintain accurate and up-to-date records of the
number and location of all copies and users of the Software and Documentation
and inform TNT in writing of such location(s) on a quarterly basis. All copies
of the Software and Documentation will be subject to all terms and conditions of
this Agreement. Whenever TNC is permitted to copy or reproduce all or any part
of the Software and Documentation, all titles, trademark symbols, copyright
symbols and legends, and other proprietary markings must be reproduced. In the
event that TNC requires additional copies of the Software from TNT, TNT shall
provide such copies at the cost of the media upon which the Software is stored.
Any re-installation services for such replacement copies will be provided by TNT
to TNC in accordance with the provisions of the Software Maintenance and
Enhancement Agreement between TNC and TNT of even date herewith.
2.4 TNC Modification and Enhancement of the Software. TNC shall have the
right to modify and enhance the Software and hire third parties to do so,
provided that TNC shall first discuss such modifications and enhancements with
TNT, and TNT shall have the opportunity to propose that TNT will modify and
enhance the Software. If the parties do not agree upon terms under which TNT
shall modify and enhance the Software, TNC shall have the right to modify and
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enhance the Software and hire third parties to do so, provided that such third
parties agree to abide by the confidentiality provisions of this Agreement.
3. License Restrictions
TNC agrees that it will not itself, or through any parent, other
subsidiary, affiliate, agent or other third party:
(a) sell, lease, license or sublicense the Software or the Documentation;
(b) decompile, disassemble, or reverse engineer the Software, in whole or
in part;
(c) allow access to the Software by any user other than TNC's employees and
the employees of TNC's affiliates and subsidiaries; (provided, however
the SCJNet Software may be used by SC Johnson (and its affiliates and
subsidiaries) and the KCNet Software may be used by KC (and its
affiliates and subsidiaries));
(d) use the Software to provide processing services to third parties, or
otherwise use the Software on a "service bureau" basis; or
(e) provide, disclose, divulge or make available to, or permit use of the
Software by any third party without TNT's prior written consent.
4. License Fee
4.1 Payment. In consideration of the license granted pursuant to Section
2.1, TNC agrees to pay TNT the License Fees as defined and specified in
Attachment B on the dates specified therein.
4.2 Taxes. All charges and fees provided for in this Agreement (including
the Maintenance Fees as defined and specified in Attachment B) are exclusive of
and do not include any taxes, duties, or similar charges imposed by any
government. TNC agrees to pay or reimburse TNT for all federal, state, dominion,
provincial, or local sales, use, personal property, excise or other taxes, fees,
or duties arising out of this Agreement or the transactions contemplated by this
Agreement (other than taxes on the net income of TNT).
5. Maintenance and Support
Maintenance and support of the Software shall be provided in accordance
with the terms of the Maintenance and Support Agreement between the parties of
even date herewith.
6. Limited Warranty and Limitation of Liability
TNT warrants that the Software will perform with substantially the same
features and
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functionality of the Software currently installed at TNC's premises for a period
of one (1) year from the Effective Date. If during this time period the Software
does not perform as warranted, TNT shall, at its option, undertake to correct
the Software, replace such Software free of charge or, if neither of the
foregoing is commercially practicable, terminate this Agreement and refund to
TNC the License Fee. In addition, TNT warrants that the media on which the
Software is distributed will be free from defects in materials and workmanship
under normal use for a period of ninety (90) days from the Effective Date. TNT
will replace any defective media returned to TNT within the ninety (90) day
period. The foregoing are TNC's sole and exclusive remedies for breach of
warranty. The warranty set forth above is made to and for the benefit of TNC
only. The warranty will apply only if:
(a) the Software has been properly used at all times and in accordance with
the instructions as communicated in writing by TNT;
(b) no modification, alteration or addition has been made to the Software
by persons other than TNT or TNT's authorized representative; and
(c) TNC has not requested modifications, alterations or additions to the
Software that cause it to deviate substantially from the same features
and functionality of the Software currently installed at TNC's
premises.
EXCEPT AS SET FORTH ABOVE, TNT MAKES NO WARRANTIES, WHETHER EXPRESS,
IMPLIED, OR STATUTORY REGARDING OR RELATING TO THE SOFTWARE OR THE
DOCUMENTATION, OR ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO TNC UNDER
THIS AGREEMENT, INCLUDING MAINTENANCE AND SUPPORT. TNT SPECIFICALLY DISCLAIMS
ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO THE SOFTWARE, DOCUMENTATION AND SAID OTHER MATERIALS AND
SERVICES, AND WITH RESPECT TO THE USE OF ANY OF THE FOREGOING.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT WILL TNT BE
LIABLE FOR ANY LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF
COVER OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE
SOFTWARE OR SERVICES PERFORMED HEREUNDER, WHETHER ALLEGED AS A BREACH OF
CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF TNT HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION, TNT WILL NOT BE LIABLE FOR ANY
DAMAGES CAUSED BY DELAY IN DELIVERY OR FURNISHING THE SOFTWARE OR SAID SERVICES.
TNT'S LIABILITY FOR DAMAGES WILL NOT, IN ANY EVENT, EXCEED THE LICENSE FEE PAID
BY TNC TO TNT UNDER THIS AGREEMENT.
The provisions of this Section 6 allocate risks under this Agreement
between TNC and TNT.
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<PAGE>
TNT's pricing reflects this allocation of risks and limitation of liability.
No action arising out of any breach or claimed breach of this Agreement or
transactions contemplated by this Agreement may be brought by either party more
than one (1) year after the cause of action has accrued. For purposes of this
Agreement, a cause of action will be deemed to have accrued when a party knew or
reasonably should have known of the breach or claimed breach.
No employee, agent, representative or affiliate of TNT has authority to
bind TNT to any oral representations or warranty concerning the Software. Any
representation and warranty of TNT concerning the Software not in this Agreement
will be valid only if (a) it is in writing dated after the Effective Date, and
(b) the writing is executed by an officer of TNT.
7. Indemnification for Infringement
TNT shall, at its expense, indemnify and hold TNC harmless from any claim,
action or allegation brought against TNC that the Software infringes any patent,
copyright, trade secret or other proprietary right of any third party and shall
pay any final judgments awarded or settlements entered into; provided that TNC
gives prompt written notice to TNT of any such claim, action or allegation of
infringement and gives TNT the authority to proceed as contemplated herein. TNT
will have the exclusive right to defend any such claim, action or allegation and
make settlements thereof at its own discretion, and TNC may not settle or
compromise such claim, action or allegation, except with prior written consent
of TNT. TNC shall give such assistance and information as TNT may reasonably
require to settle or oppose such claims. If any such infringement, claim, action
or allegation is brought or threatened, TNT may, at its sole option and expense:
(a) procure for TNC the right to continue Use of the Software or
infringing part thereof;
(b) modify or amend the Software or infringing part thereof, or replace
the Software or infringing part thereof with other software having
substantially the same or better capabilities without substantially
increasing TNC's costs (for example, RAM upgrades shall not be
considered to substantially increase TNC's costs whereas replacement
of several CPUs will be considered to substantially increase TNC's
costs); or,
(c) if neither of the foregoing is commercially practicable terminate this
Agreement and repay to TNC a portion, if any, of the License Fee equal
to the amount paid by TNC less one-forty-eighth (1/48) thereof for
each month or portion thereof that this Agreement has been in effect,
whereupon TNT and TNC will be released from any further obligation to
the other under this Agreement, except for the obligations of
indemnification provided for above and such other obligations that
survive termination.
The foregoing obligations shall not apply to the extent the infringement
arises as a result of modifications to the Software made by any party other than
TNT or TNT's authorized representative.
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<PAGE>
The foregoing states the entire liability of TNT with respect to infringement of
any patent, copyright, trade secret or other proprietary right.
8. Confidential Information
8.1 TNC's Obligations. TNC acknowledges TNT's claim that the Confidential
Information constitutes valuable trade secrets, and TNC agrees that it shall use
Confidential Information solely in accordance with the provisions of this
Agreement and will not disclose, or permit to be disclosed, the same, directly
or indirectly, to any third party without TNT's prior written consent. TNC
agrees to exercise due care in protecting the Confidential Information from
unauthorized use and disclosure. However, TNC bears no responsibility for
safeguarding information that is publicly available, already in TNC's possession
and not subject to a confidentiality obligation, obtained by TNC from third
parties without restrictions on disclosure, independently developed by TNC
without reference to Confidential Information, or required to be disclosed by
order of a court or other governmental entity.
8.2 TNT's Obligations. TNT acknowledges that, in the course of its
performance of this Agreement, it may become privy to certain information that
TNC deems proprietary and confidential. TNT agrees to treat all such information
that is identified as proprietary and confidential in a confidential manner and
will not disclose or permit to be disclosed the same, directly or indirectly, to
any third party without TNC's prior written consent. However, TNT bears no
responsibility for safeguarding information that is publicly available, already
in TNT's possession and not subject to a confidentiality obligation, obtained by
TNT from third parties without restrictions on disclosure, independently
developed by TNT without reference to such information, or required to be
disclosed by order of a court or other governmental entity.
8.3 Injunctive Relief. In the event of actual or threatened breach of the
provisions of Section 8.1 or 8.2, the nonbreaching party may have no adequate
remedy at law and will be entitled to seek immediate and injunctive and other
equitable relief, without the necessity of showing actual money damages.
9. Term and Termination
9.1 Term. This Agreement will take effect on the Effective Date and will
remain in force until terminated in accordance with this Agreement.
9.2 Termination by TNC. This Agreement may be terminated by TNC upon
ninety (90) days' prior written notice to TNT, with or without cause, provided
that no such termination will entitle TNC to a refund of any portion of the fees
under Attachment B. Such termination shall not occur within five (5) years after
the Effective Date with respect to the Knowledge Network Software.
9.3 Termination by TNT. TNT may, by written notice to TNC, terminate this
Agreement if any of the following events ("Termination Events") occur:
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(a) TNC fails to pay any undisputed amount due TNT within thirty (30)
days after TNT gives TNC written notice of such nonpayment;
(b) TNC is in material breach of any nonmonetary term, condition or
provision of this Agreement, which breach, if capable of being
cured, is not cured within thirty (30) days after TNT gives TNC
written notice of such breach;
(c) TNC (i) terminates or suspends its business, (ii) becomes
insolvent, admits in writing its inability to pay its debts as
they mature, makes an assignment for the benefit of creditors, or
becomes subject to direct control of a trustee, receiver or
similar authority, or (iii) becomes subject to any bankruptcy or
insolvency proceeding under federal or state statutes; or
(d) TNT elects to refund TNC's fees in accordance with Section 7.
Termination of this Agreement will not affect the provisions regarding
TNC's or TNT's treatment of Confidential Information, provisions relating to the
payment of amounts due, or provisions limiting or disclaiming TNT's liability,
which provisions will survive termination of this Agreement.
9.4 Effect of Termination. If the Development Costs set forth on
Attachment B for any of the Software licensed herein have not been fully paid,
within thirty (30) days after the date of termination or discontinuance of this
Agreement for any reason whatsoever, TNC shall (a) cease all Use of the Software
and the Documentation for which Development Costs have not been fully paid; and
(b) return such Software and all copies, in whole or in part, all such
Documentation relating thereto, and any other Confidential Information relating
to such Software in its possession that is in tangible form. TNC shall furnish
TNT with a certificate signed by an executive officer of TNC verifying that the
same has been done.
10. Nonassignment/Binding Agreement
Neither this Agreement nor any rights under this Agreement may be assigned
or otherwise transferred by TNC, in whole or in part, whether voluntarily or by
operation of law, including by way of sale of assets, merger or consolidation,
without the prior written consent of TNT, which consent will not be unreasonably
withheld. Subject to the foregoing, this Agreement will be binding upon and will
inure to the benefit of the parties and their respective successors and assigns.
11. Notices
Any notice required or permitted under the terms of this Agreement or
required by law must be in writing and must be (a) delivered in person, (b) sent
by first class certified mail, or air mail, as appropriate, or (c) sent by
overnight air courier, in each case properly posted and fully prepaid to the
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appropriate address set forth below. Either party may change its address for
notice by notice to the other party given in accordance with this Section.
Notices will be considered to have been given at the time of actual delivery in
person, three (3) business days after deposit in the mail as set forth above, or
one (1) day after delivery to an overnight air courier service.
12. Miscellaneous
12.1 Force Majeure. Neither party will incur any liability to the other
party on account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is caused, in
whole or in part, by events, occurrences, or causes beyond the control and
without negligence of the parties. Such events, occurrences, or causes will
include, without limitation, acts of God, strikes, lockouts, riots, acts of war,
earthquake, fire and explosions, but the inability to meet financial obligations
is expressly excluded.
12.2 Waiver. Any waiver of the provisions of this Agreement or of a
party's rights or remedies under this Agreement must be in writing to be
effective. Failure, neglect, or delay by a party to enforce the provisions of
this Agreement or its rights or remedies at any time, will not be construed and
will not be deemed to be a waiver of such party's rights under this Agreement
and will not in any way affect the validity of the whole or any part of this
Agreement or prejudice such party's right to take subsequent action.
12.3 Severability. If any term, condition, or provision in this Agreement
is found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will preserve, as
far as possible, the intentions expressed in this Agreement. If the parties fail
to agree on such an amendment, such invalid term, condition or provision will be
severed from the remaining terms, conditions and provisions, which will continue
to be valid and enforceable to the fullest extent permitted by law.
12.4 Integration. This Agreement (including the Attachments and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
previous communications, representations, understandings and agreements, either
oral or written, between the parties with respect to said subject matter. This
Agreement may not be amended, except by a writing signed by both parties, with
an officer of TNT executing such writing.
12.5 Conflicting Terms. No terms, provisions or conditions of any
purchase order, acknowledgment or other business form that TNC may use in
connection with this Agreement or the performance of the terms hereof will have
any effect on the rights, duties or obligations of the parties under, or
otherwise modify, this Agreement, regardless of any failure of TNT to object to
such terms, provisions or conditions.
12.6 Export Controls. TNC may not export or re-export the Software
without the prior written consent of TNT and without the appropriate United
States and foreign government licenses.
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12.7 Non-Waiver. No exercise or enforcement by either party of any right
or remedy under this Agreement will preclude the enforcement by such party of
any other right or remedy under this Agreement or that such party is entitled by
law to enforce.
12.8 Governing Law. This Agreement will be interpreted and construed in
accordance with the laws of the State of Illinois and the United States of
America, without regard to conflict of law principles.
12.9 Dispute Resolution.
(a) Except as set forth in Sections 8.1 and 8.2 any dispute,
controversy or claim arising in connection with this Agreement, shall be settled
by binding arbitration if so requested by any party hereto pursuant to paragraph
(b) below. The arbitration shall be conducted by three arbitrators, who shall be
appointed pursuant to the rules of the American Arbitration Association (the
"AAA"). The arbitration shall be held in Chicago, Illinois and shall be
conducted in accordance with the commercial arbitration rules of the AAA, except
that the rules set forth in this Section 2.11 shall govern such arbitration to
the extent they conflict with the rules of the AAA.
(b) Upon written notice by a party to the other parties of a request
for arbitration hereunder, the parties shall use their commercially reasonable
efforts to cause the arbitration to be conducted in an expeditious manner. All
other procedural matters shall be within the discretion of the arbitrators. In
the event a party fails to comply with the procedures in any arbitration in a
manner deemed material by the arbitrators, the arbitrators shall fix a
reasonable period of time for compliance and, if the party does not comply
within said period, a remedy deemed just by the arbitrators, including an award
of default, may be imposed.
(c) The determination of the arbitrators shall be final and binding on
the parties. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction. The parties shall each be responsible for
their own expenses in connection with such arbitration, including without
limitation, counsel fees and fees of experts; provided, however, that the
parties shall share equally in the expense of the arbitrators and of the AAA.
IN WITNESS WHEREOF, the parties have executed this Agreement.
TRUE NORTH COMMUNICATIONS INC. TN TECHNOLOGIES HOLDING INC.
"TNC" "TNT"
By: By:
-------------------------- ---------------------------
---------------------------
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(print name and title) (print name and title)
Date: Date:
---------------------------- -------------------------------
Address: Address:
------------------------------------
------------------------------------
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ATTACHMENT A
------------
SOFTWARE
--------
Knowledge Network
SCJNet
KCNet
<PAGE>
ATTACHMENT B
------------
FEES
----
KNOWLEDGE NETWORK
- -----------------
TNC has paid to TNT three hundred seventy thousand dollars ($370,000) and TNT
acknowledges receipt of such payment. On the Effective Date, TNC shall pay to
TNT three hundred seventy thousand dollars ($370,000). On July 1, 1997, July 1,
1998, July 1, 1999 and July 1, 2000, regardless of the term of this Agreement,
TNC shall pay TNT one-fifth of TNT's development costs in equal portions (the
"Development Costs"), with such Development Costs calculated on TNT's prorated
estimate of Development Costs to be determined on December 31, 1996. In no event
will any of such July payments be less than seven hundred forty thousand dollars
($740,000) or exceed eight hundred thousand dollars ($800,000). Such payments
will be adjusted upward in the event the two payments of three hundred seventy
thousand dollars ($370,000) do not equal one-fifth of the Development Costs, to
account for any shortfall.
SCJNET
- ------
TNC shall pay TNT a license fee of $150,000, due by the Effective Date and TNT
acknowledges receipt of such payment.
On each anniversary of the Effective Date for each year of the term of this
Agreement, TNC shall pay TNT a license fee of $50,000 per year, at the
commencement of each such year.
KCNET
- -----
TNC has paid to TNT fifty thousand dollars ($50,000) and TNT acknowledges
receipt of such payment for Phase I of the KCNet Software. TNC and TNT shall
agree on the fees for further phases of the KCNet Software, and TNC shall have
rights to such further phases in accordance with the terms of this Agreement as
such fees for further phases are agreed upon by the parties.
<PAGE>
Exhibit 10.6
TAX MATTERS AGREEMENT
This Tax Matters Agreement (the "Agreement") is made as of this 31st day
of December, 1996, by and between True North Communications Inc., a Delaware
corporation ("True North"), and TN Technologies Holding Inc., a Delaware
Corporation ("TNT Holding").
WHEREAS, True North is the common parent of an affiliated group of
corporations, as defined in section 1504(a) of the Internal Revenue Code of
1986, as amended (the "Code"), of which Christiansen, Frisch, Giersdorf, Grant &
Sperry, Inc., a Washington corporation ("CF2GS"), and certain predecessors of
TNT Holding are members;
WHEREAS, True North and some or all of the other members of its affiliated
group are members of a unitary business group for state, local, and foreign
income tax purposes in various jurisdictions;
WHEREAS, True North, on behalf of its affiliated group, has filed and will
continue to file consolidated federal income tax returns and, on behalf of its
unitary business group, has filed and will continue to file certain combined,
unitary or consolidated tax returns for state, local, and foreign income tax
purposes;
WHEREAS, True North, certain of its subsidiaries, and TNT Holding, among
others, have entered into that certain Amended and Restated Acquisition
Agreement dated as of December 31, 1996 (the "Acquisition Agreement") pursuant
to which certain assets and assumed liabilities will be transferred and assigned
by True North and certain of its subsidiaries to TNT Holding in exchange for TNT
Holding stock;
WHEREAS, as a result of the acquisition by True North and certain of its
subsidiaries of stock of TNT Holding, TNT Holding and some or all of its
subsidiaries and affiliates may be required or permitted to be included in
certain state, local, and foreign combined, unitary or consolidated income tax
returns of True North and other subsidiaries or affiliates of True North for
taxable periods following the closing of the transactions contemplated by the
Acquisition Agreement;
WHEREAS, in view of the foregoing, the parties wish to provide for the
allocation among them of certain tax liabilities and certain related matters;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. DEFINITIONS.
For purposes of this Agreement, the terms set forth below shall be defined
as follows:
<PAGE>
(a) "Closing Date" shall mean December 31, 1996.
(b) "Parent" shall mean (I) True North, (ii) any successor common parent
corporation described in Treas. Reg. (S)1.1502-75(d)(2)(i) or (ii), or (iii) any
corporation as to which Parent (or a successor corporation described in clause
(ii) hereof) is the "predecessor" within the meaning of Treas. Reg. (S)1.1502-
1(f)(1), if such corporation acquires True North (or a successor corporation
described in clause (ii) hereof) in a "reverse acquisition" within the meaning
of Treas. Reg. (S)1.502-75(d)(3).
(c) "Group" shall mean Parent and all other business entities (whether now
existing or hereafter formed or acquired) that are required to (or otherwise do
properly) join with Parent in filing a consolidated federal income tax return or
a Unitary Return.
(d) "Group Tax Liability" shall mean the consolidated or combined tax
liability (including penalties and interest) of the Group for a given year with
respect to a Unitary Return.
(e) "Member" shall mean a corporation or other business entity that is
either required or permitted under the applicable law to be a part of the Group.
(f) "Subsidiary" shall mean a corporation or other business entity, other
than Parent, which is a Member.
(g) "Taxes" shall mean any Federal, state, local, or foreign income,
franchise, business or net worth tax.
(h) "TNT Holding" shall include TNT Holding, any predecessor of TNT
Holding, and any subsidiary or controlled affiliate of TNT Holding, including
the Acquired Entities for all periods after the Closing Date.
(i) "Unitary Return" shall mean a state, local, or foreign unitary,
consolidated, or combined income, franchise, business, or net worth tax return.
2. ALLOCATION AND PAYMENTS.
(a) Except as otherwise provided in this Agreement or in the Acquisition
Agreement, TNT Holding shall not owe any amount to Parent, and Parent shall not
owe any amount to TNT Holding in respect of Taxes as a result of TNT Holding
being included in a federal income tax consolidated return or Unitary Return for
any period (or portion thereof) ending on or prior to the Closing Date.
(b) For any taxable period ending after the Closing Date with respect to
any jurisdiction in which TNT Holding is included with Parent in any Unitary
Return ("Post-Closing Unitary Return"), TNT Holding shall pay to Parent five
days prior to the due date of any such Unitary Return (or such earlier date as
may reasonably be requested by Parent to fund estimated
<PAGE>
tax payments) an amount equal to TNT Holding's hypothetical tax liability to
such jurisdiction as determined on a separate company basis as if TNT Holding
had not been a subsidiary of Parent and had filed its own separate return in a
manner consistent with the positions, methods, elections, and other approaches
adopted by Parent, except any of such positions, methods, elections and other
approaches that are materially inconsistent with those reflected on TNT
Holding's separate Federal income tax return with respect to such period
(collectively, the "Section 4 Policies"). For the purposes of the foregoing
calculation with respect to the first period that ends following the Closing
Date, it shall be assumed that there is a closing of the books as of the close
of business on the Closing Date. Adjustments to any calculation of TNT Holding's
hypothetical tax liability shall be made where necessary or appropriate to
ensure that TNT Holding does not suffer any detriment or realize any benefit (as
a result of being included in a Post-Closing Unitary Return) as compared to TNT
Holding's filing a separate return utilizing the Section 4 Policies.
(c) With respect to any Post-Closing Unitary Return of Parent in which TNT
Holding is included, to the extent that TNT Holding has for the taxable period
covered by such Post-Closing Unitary Return a net operating loss, a credit or
other item of tax benefit available for use in such Post-Closing Unitary Return
(collectively, a "Tax Benefit Item"), then Parent shall pay to TNT Holding
within five days following the date of filing of such Post-Closing Unitary
Return, in respect of such Tax Benefit Item, an amount equal to the difference,
if any, between the amount of the Group Tax Liability for such Post-Closing
Unitary Return determined (A) with such Tax Benefit Item and (B) without such
Tax Benefit Item.
(d) Parent and TNT Holding shall cooperate and provide reasonable
assistance to each other in making the hypothetical tax calculations required
under Sections 2(b) and 2(c) hereof. Parent and TNT Holding shall each provide
to the other, on request, copies of all workpapers and other supporting
documentation used by them in making such hypothetical calculations.
3. CHANGES IN TAX LIABILITY.
(a) Parent shall be solely responsible for, and shall hold TNT Holding
harmless from loss or expense in respect of, any Taxes owing in respect of (i)
any consolidated federal income tax return that includes Parent, (ii) any
Unitary Return that includes Parent and is not a Post-Closing Unitary Return,
and (iii) any state, local, or foreign income or similar tax return of Parent or
a Subsidiary, to the extent that such Taxes arise from income earned on or prior
to the Closing Date, which shall be determined by a closing of the books as of
the close of business on the Closing Date.
(b) Except as otherwise provided in this Agreement , TNT Holding shall be
solely responsible for, and shall hold True North harmless from loss or expense
in respect of, any Taxes owing in respect of (I) any consolidated or other
federal income tax return for periods ending after the Closing Date that does
not include Parent but does include TNT Holding or any subsidiary of TNT
Holding, (ii) any Unitary Return that includes TNT Holding or any subsidiary
<PAGE>
of TNT Holding for taxable periods ending after the Closing Date which is not a
Post-Closing Unitary Return, and (iii) any state, local, or foreign income or
similar tax return of TNT Holding which is not a Unitary Return, to the extent
that such Taxes arise from income earned by TNT Holding after the Closing Date,
which shall be determined by a closing of the books as of the close of business
on the Closing Date.
(c) If for any period ending after the Closing Date with respect to
jurisdictions in which a Post-Closing Unitary Return is filed: (i) the Group
files an amended Post-Closing Unitary Return, (ii) the Group's tax liability is
adjusted, or (iii) the Group is assessed and pays additional Taxes, then the
amount of the payments required under Section 2(b) and 2(c) shall be recomputed
to give effect to such amended return, adjustment or assessment, as the case may
be. TNT Holding shall then pay to Parent, or Parent shall then pay to TNT
Holding, as the case may be, any difference between the amounts determined by
such recomputation and the amounts previously paid, appropriately adjusted for
any interest and penalties assessed and paid.
4. FILING OF RETURNS.
(a) Subject to the provisions of Section 7(b) hereof, Parent, in its sole
discretion, may include TNT Holding with Parent in a Post-Closing Unitary Return
if Parent believes in good faith that it is required or permitted by law to take
such action. TNT Holding shall, on request of Parent, execute and file such
consents, elections, powers of attorney and other documents, and take such
action, as may reasonably be necessary or appropriate for the proper preparation
and filing of any such Post-Closing Unitary Returns.
(b) With respect to any Post-Closing Unitary Return, Parent shall have the
right, in its sole discretion, to take all such action which it shall deem
necessary or appropriate to prepare and file the return, including, by way of
illustration and not limitation, (i) make any elections which are permitted or
required in the preparation or filing of the return; (ii) determine the
substance and manner in which the return (including any schedules or attachments
thereto) shall be prepared and filed, including, without limitation, the
substance and manner in which any item of income, gain, loss, deduction or
credit shall be reported and the accounting method to be used; (iii) request an
extension or extensions of the filing date for the return; (iv) contest,
compromise, settle or otherwise control (at its own expense) any adjustment,
assessment or deficiency proposed, asserted or assessed as a result of any
audit, examination or other proceeding with respect to the return; (v) file,
prosecute, compromise or settle any claim for refund or credit with respect to
the return; and (vi) determine whether any refunds to which the Group may be
entitled shall be paid by way of refund or credit.
(c) Notwithstanding any other provisions of this Agreement, Parent, in
exercising its authority to control audits, examinations, amendments or other
proceedings with respect to Post-Closing Unitary Returns, shall not, without the
prior approval of TNT Holding (which approval shall not be unreasonably
withheld), take any action in connection therewith (including, without
limitation, agree to, concede or settle any adjustment) which would result in
TNT Holding having an obligation under this Agreement to pay an amount in excess
of $100,000
<PAGE>
to Parent. Parent and TNT Holding shall also maintain such books and records and
provide such information as each may reasonably request of the other in
connection with the matters contemplated by this Agreement.
5. ALTERED FILING STATUS.
(a) In the event that a state, local or foreign taxing authority seeks to
combine or consolidate, under unitary tax principles or otherwise, the items of
income and deductions of TNT Holding with those of Parent (a "Unitary Claim")
for a any period ending after the Closing Date with respect to which Parent did
not include TNT Holding in a Unitary Return, then Parent shall be entitled, at
its own expense, to control the defense, settlement or compromise of any audit
or other proceeding with such taxing authority regarding the Unitary Claim . TNT
Holding shall, at the request of Parent, execute and deliver all powers of
attorney and other documents and take all other action reasonably appropriate or
necessary to permit Parent to do so. Provided Parent has secured the prior
approval of TNT Holding for any adjustment which results in TNT Holding owing an
amount in excess of $50,000 to Parent, TNT Holding shall pay to Parent within
five days of notice and demand therefor an amount equal to (i) its share of the
liability resulting from the Unitary Claim (as determined in accordance with
Sections 2 and 4 hereof), less (ii) the amount of tax, if any, that TNT Holding
has previously paid to the taxing authority with respect to the period covered
by the Unitary Claim. To the extent, if any, the Group receives the benefit of
an amount of tax separately paid by TNT Holding with respect to the period
covered by the Unitary Claim in excess of TNT Holding's tax liability determined
as a result of the Unitary Claim, Parent shall pay to TNT Holding an amount
equal to such excess within five days of notice and demand therefor.
(b) In the event that a state, local or foreign taxing authority seeks to
exclude or remove TNT Holding from a unitary business group including Parent for
a period for which Parent had filed a Post-Closing Unitary Return (a "Separate
Claim"), then Parent shall be entitled, at its own expense, to control the
defense, settlement or compromise of any audit, examination, adjustment or other
proceeding with such taxing authority regarding the Separate Claim . TNT Holding
shall, at the request of Parent, execute and deliver all powers of attorney and
other documents and take all other action reasonably appropriate or necessary
for Parent to do so. If TNT Holding's tax liability determined as a result of
the Separate Claim is less than the amount of tax previously paid by TNT Holding
to Parent pursuant to Sections 2 and 4 hereof for the period covered by the
Separate Claim, Parent shall pay to TNT Holding an amount equal to the
difference. If, as a result of any Separate Claim, it is determined that TNT
Holding should not have been included in a Post-Closing Unitary Return, Parent
shall pay TNT Holding an amount equal to the amount, if any, previously paid to
Parent by TNT Holding pursuant to Sections 2 and 4 of this Agreement for the
period or periods covered by the Separate Claim decreased by the amount, if any,
which the taxing authority refunds or credits to TNT Holding for the period
covered by the Separate Claim.
(c) If, as the result of any Unitary Claim or Separate Claim, any interest
or penalties are assessed or imposed on the Group, Parent, or TNT Holding, TNT
Holding will be responsible for the payment of all interest on its share of the
liability as determined under the preceding paragraphs of this Section 5. Parent
will be responsible for the payment of any
<PAGE>
penalties.
6. TERMINATION OF AFFILIATION.
(a) This Agreement shall survive any termination of affiliation of TNT
Holding with Parent for federal or state tax purposes.
(b) Parent and TNT Holding shall consult and cooperate with each other and
shall furnish each other with such information as is reasonably necessary or
appropriate to prepare (I) any consolidated federal income tax return of the
Group for any taxable year in which TNT Holding was (or was required to be) a
Member, and (ii) any Post-Closing Unitary Return.
(c) Parent and TNT Holding shall promptly notify each other in the event of
any Unitary Claim, Separate Claim, or audit or inquiry by a taxing authority
with respect to any Post-Closing Unitary Return. The parties will also consult
and cooperate with each other and shall furnish each other with information
concerning the status of any tax audit or tax refund claim relating to any
consolidated federal income tax return or Unitary Return of the Group. Subject
to the prior approval requirements with respect to the obligation of TNT Holding
to make payments to Parent under this Agreement, Parent shall have the right to
make the final determination as to the response of the Group to any audit
examination or other proceeding and shall have the sole right to control, at its
own expense, any contest of any change proposed or deficiency asserted and any
proposed disallowance of a claim for refund or credit.
7. DISPUTE RESOLUTION.
(a) The parties shall attempt to resolve any dispute in a manner consistent
with the provisions of this Agreement. To the extent they are unable or refuse
to do so, and the dispute relates to the calculation or allocation of any
liability under this Agreement, the matter shall be referred to a mutually
agreeable nationally recognized accounting firm for binding arbitration.
Arbitration may be initiated by either party upon written notice to the other
party at least 30 days after the date on which a party has given written notice
of the existence and nature of a dispute. The parties agree to be bound by the
decision of an arbitrator chosen pursuant to this paragraph. The parties agree
to share equally the fees and expenses of the arbitrator.
(b) TNT Holding shall have the right to challenge its inclusion in, or
exclusion from, a Post-Closing Unitary Return. To the extent TNT Holding and
Parent are unable to resolve this issue within ten days following receipt of
notice by Parent, the issue will be referred to an arbitrator chosen pursuant to
Section 7(a). The standard for decision shall be whether it is more likely than
not that a Unitary Return is required or permitted under the applicable law and
all the relevant facts and circumstances. The parties will share equally all
fees and expenses of the arbitrator.
8. MISCELLANEOUS PROVISIONS.
(a) This Agreement and the Acquisition Agreement contains the entire
<PAGE>
understanding of the parties hereto with respect to the subject matter contained
herein and supersedes all prior written, oral or implied understandings,
representations and agreements among the parties with respect thereto. No
alteration, amendment, or modification of any of the terms of this Agreement
shall be valid unless made by an instrument signed in writing by an authorized
officer of each party. In the event of any conflict between this Agreement and
the Acquisition Agreement, the provisions of the Acquisition Agreement shall
control.
(b) This Agreement shall be binding upon and inure to the benefit of each
party hereto, and its respective successors.
(c) This Agreement is not intended to benefit any person other than the
parties hereto and each of their respective successors . No person not a party
or a party's successor shall be a third party beneficiary hereof.
(d) This Agreement shall be governed by, interpreted and enforced in
accordance with the laws of the State of Illinois (regardless of the laws that
might be applicable under principles of conflicts of laws).
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Any notice or other communication required or permitted under this
Agreement shall be in writing and shall be personally delivered or sent by
certified or registered United States mail, postage prepaid, to the parties at
the following addresses (or at such other address as a party may specify by
notice to the other):
If to Parent:
True North Communications, Inc.
101 E. Erie Street
Chicago, IL 60611
Attn: Gary D. Chester,
Director of Corporate Tax
If to TNT Holding:
TN Technologies Holding, Inc.
101 E. Erie Street
Chicago, IL 60611
Attn: Gregory W. Blaine,
Chairman and Chief Executive Officer
Any such notice or communication shall be effective and be deemed to have been
given as of the dates delivered or mailed, as the case may be; provided that any
notice changing any of the
<PAGE>
addresses set forth above shall be effective and deemed to have been given only
upon its actual receipt by the party to which it is addressed.
(g) If any provision of this Agreement shall be judicially determined to be
unenforceable, such provision shall be deemed deleted herefrom only with respect
to (and only to the extent of) the jurisdiction where such adjudication was made
but such adjudication shall not otherwise affect the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf as of the date first above written.
TRUE NORTH COMMUNICATIONS INC.
By:____________________________________
Title:
TN TECHNOLOGIES HOLDING INC.
By:____________________________________
Title:
<PAGE>
EXHIBIT 10.8(a)
EMPLOYMENT AGREEMENT
TN Technologies Holding Inc. ("Employer"), a Delaware corporation, and
Gerald M. O'Connell ("Executive") enter into this Employment Agreement as of
January 1, 1997 (the "Agreement").
WHEREAS, Employer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement") and the Amended and Restated Partnership Interest and Stock Purchase
Agreement dated as of December 31, 1996 (the "Purchase Agreement");
WHEREAS, pursuant to the Reorganization Agreement and the Purchase
Agreement, Employer is acquiring (the "Acquisition") all of the limited
partnership interests in Modem Media Advertising Limited Partnership, a
Connecticut limited partnership ("MMLP"), and all of the issued and outstanding
capital stock of Modem Media, Inc., a Connecticut corporation ("Modem Media");
WHEREAS, as a condition to closing to the Reorganization Agreement, the
parties have agreed to enter into an Employment Agreement;
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
WHEREAS, Employer desires to employ and Executive desires to be employed by
Employer in the capacity described herein;
WHEREAS, Employer and Executive desire to set forth the following terms and
conditions of their agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Employer and Executive
agree as follows:
1. Employment Duties. Executive agrees to serve as President of Employer
-----------------
and shall have such duties, responsibilities and authorities as the Board of
Directors of Employer may from time to time assign and which are reasonably
consistent with such position. Throughout the period of employment, Executive
shall perform his assigned duties diligently, in good faith and to the best of
his abilities and shall devote all of his business time to the business and
affairs of Employer, provided, however, that Executive may serve on the board of
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directors of other corporations as may be customary and usual for a person in
Executive's position and serve in any capacity with any civic, educational or
charitable organization, provided, in each case, such activities do not
materially interfere with the performance of his duties hereunder and that such
service is consistent with all Company policies and procedures regarding such
service. Executive shall be subject to Employer's general employment policies
in effect or as modified. Subject to Section 6.3 of the Reorganization
Agreement, during the term of employment hereunder, Employer agrees to appoint
and maintain (subject to Executive's performance of his duties as a member of
the Board of Directors in good faith
<PAGE>
and as provided in and consistent with the by-laws of Employer and the Delaware
General Corporation) Executive as a member of the Board of Directors. Executive
shall be based at the office of Employer located in Connecticut; provided, that
--------
Executive acknowledges and agrees that he may be required to perform ordinary
business travel consistent with the responsibilities of his position with
Employer. Employer shall use commercially reasonable efforts to cause Executive
to succeed Greg Blaine as Chief Executive Officer of Employer in the event that
Mr. Blaine no longer serves in such capacity.
2. Term of Employment. Unless earlier terminated pursuant to paragraph 5
------------------
below, the initial term of employment (the "Initial Term of Employment") covered
by this Agreement shall commence on the effective date of this Agreement as
designated in paragraph 19 herein and continue through December 31, 2001. In
the event Executive remains employed by Employer after the Initial Term of
Employment, the terms and conditions of such continued employment shall be those
set forth in this Agreement, except that, after the Initial Term of Employment,
either party may terminate the employment relationship upon thirty days' written
notice.
3. Salary. During his employment with Employer, Executive's annual
------
salary shall be at least three hundred thousand dollars ($300,000), less
required or authorized deductions, paid on regular paydays consistent with
Employer's payroll procedures.
4. Benefits; Expense Reimbursement. During his employment with Employer,
-------------------------------
Executive shall be entitled to participate in such employee benefit plans and
other programs, in accordance with the terms of such plans and programs and
shall receive such other benefits, as Employer may make generally available to
its senior executive officers; provided, however, that Employer shall not be
-------- -------
required to offer Executive any benefits that are made available to current or
future senior executive officers on an individual basis and that are not made
generally available to its other senior executive officers. Employer retains
the right to cancel, alter or amend any of its employee benefit plans and other
fringe benefit arrangements without notice to the extent permitted by such plans
or arrangements. Employer shall reimburse Executive for reasonable business
expenses incurred by Executive in connection with the performance of his duties
and obligations and that are consistent with Employer's policies and procedures.
5. Termination. The Initial Term of Employment may be terminated as set
-----------
forth below. Notwithstanding such termination, except as specifically set forth
below, paragraphs 6, 7 and (except in the case of termination of Executive
pursuant to paragraph 5(D) or (E)) 15 shall continue to apply following such
termination. Unless otherwise stated in this Agreement or in any applicable
benefit plans or as otherwise required by law, Executive shall have no
continuing right to salary or benefits after employment is terminated and,
except as set forth in paragraphs 5(D) and (E), Employer shall have no further
obligations to Executive. Subject to Section 15 hereof, upon any termination of
employment, in addition to other amounts set forth herein, Executive (or his
estate in the case of death) shall be entitled to receive salary, expenses and
other benefits accrued through and including the date of termination. Employer
retains any other remedies it may have for breach of this Agreement.
-2-
<PAGE>
(A) Death. Executive's employment will terminate automatically upon
-----
Executive's death.
(B) Inability to Perform. Employer may, upon thirty days' prior
--------------------
written notice, terminate Executive's employment upon Executive's inability to
perform his essential duties and obligations hereunder for a period of four
consecutive months or six months in any 12 month period because of Executive's
physical or mental disability (a "Disability"). Notwithstanding the foregoing,
nothing in this Agreement shall prevent employer from immediately removing
Executive from his position as officer of Employer, or reducing the duties or
job responsibilities of Employer, immediately upon the Disability of such
Executive; provided that Employer shall reinstate Executive to his position as
--------
officer, with the corresponding duties and responsibilities of such position,
upon the removal of such Disability prior to the termination of such Executive
pursuant to the provisions of this Agreement.
(C) For Cause. Employer may terminate Executive's employment
---------
immediately if, in the reasonable determination of the Board of Directors or the
compensation committee of the Board of Directors of Employer as set forth in an
action of the Board of Directors or such committee setting forth in reasonable
detail the reasons for such termination, (i) Executive engages in conduct that
violates significant policies of Employer after Executive is notified by
Employer that Executive is engaging in conduct that violates significant
policies of Employer; (ii) Executive fails to perform the essential functions of
Executive's job (except for a failure resulting from a bona fide illness or
incapacity) or fails to carry out Employer's reasonable directions with respect
to material duties after Executive is notified by Employer that Executive is
failing to perform these essential functions or failing to carry out the
reasonable directions of Employer; (iii) Executive engages in embezzlement or
misappropriation of corporate funds or other acts of fraud, dishonesty or self-
dealing, or commits a felony or any significant violation of any statutory or
common law duty of loyalty to Employer; or (iv) Executive breaches a material
provision of this Agreement (including, but not limited to, the noncompete and
nonsolicitation provisions in paragraph 6(c)) after Executive is notified by
Employer that Executive has breached a material provision of this Agreement.
Prior to any termination of Executive for Cause pursuant to clauses (i), (ii) or
(iv) of this subparagraph 5(C), Employer shall give Executive reasonable
opportunity to remedy any condition, or conduct, action or inaction of Executive
giving rise to the violation or breach of such clause if such violation or
breach is remediable.
(D) By Employer. Employer may terminate Executive's employment
-----------
without cause or reason by giving Executive written notice. Such notice shall
set forth the date of termination, which date shall be not later than 30 days
following the date of notice (the "Notice Period"). During any Notice Period,
Executive shall make reasonable efforts to cooperate with Employer in achieving
a transition of Executive's duties and responsibilities. Upon termination of
Executive's employment by Employer without cause, Executive shall be entitled to
continue to receive, for the lesser of the three years following termination or
the balance of the Initial Term of Employment, (i) his salary and (ii) an annual
amount equal to the average for the two full fiscal years prior to termination
(or the amount in the immediately preceding fiscal year, if Executive is
-3-
<PAGE>
terminated prior to having completed two full years of employment) of any
payments to Executive pursuant to any cash bonus plan of Employer. Employer, at
its discretion, may elect to continue to pay Executive his salary and any such
bonus on regularly scheduled paydays, but reduced by any amounts earned by
Executive from alternative employment or to make a lump sum payment to Executive
equal to the unpaid balance of such salary and bonus payments discounted to the
date of payment using a discount rate of 7% per annum; provided, however, that
-------- -------
Employer shall not be obligated to continue to employ Executive or to continue
payment of salary or bonus for any period if Employer has grounds to terminate
Executive's employment as specified above in subparagraph (A) or (C)(iii) and
(iv). Subsequent to termination pursuant to this subparagraph 5(D), Executive
shall not be obligated to look for or accept alternative employment; provided,
--------
however, that if Executive accepts any alternative employment during the balance
- -------
of the Initial Term of Employment, Employer may reduce from amounts owed under
this subparagraph 5(D) all amounts earned by Executive from such alternative
employment, and Executive shall be obligated to inform Employer of the amount of
income received by him from alternative employment for the balance of the
Initial Term of Employment.
(E) By Executive. Executive may terminate his employment for "Good
------------
Reason" as described below, by giving thirty days' prior written notice to
Employer. "Good Reason" means (I) a decrease in the total amount of Executive's
base salary below the amount prescribed by paragraph 3; (ii) a change in the
Executive's title or duties from what is set forth in Section 1 hereto; (iii)
the relocation of Employer's headquarters in violation of Section 6.4 of the
Reorganization Agreement, without Executive's consent; or (iv) Employer breaches
a material provision of this Agreement. Prior to any termination of Executive
for Good Reason by Executive, Employer shall have a reasonable opportunity to
remedy any condition, or conduct, action or inaction of Employer giving rise to
Executive's right to terminate this Agreement for Good Reason. In the event
that Executive's employment with Employer is terminated at any time during the
Initial Employment Period by Executive for Good Reason, then Executive shall be
entitled to continue to receive his salary and any cash bonus in the manner
contemplated by paragraph 5(D) above for the balance of the Initial Employment
Period.
6. Confidentiality. Executive acknowledges that he will have access to
---------------
and will be entrusted with confidential and proprietary information and trade
secrets relating to Employer's services and products, including, but not limited
to, presentations for clients and prospective clients made on behalf of
Employer. Such confidential information gives Employer a business advantage
over others who do not have such information. Such confidential information may
include, but is not limited to, business strategies, plans, proposals, training
materials, computer software, names of or financial or other information
regarding Employer or Executive's relationships with its clients, advertising
techniques, development of creative products and any other information that is
maintained confidentially and not known to or readily determinable by the
public. Accordingly, Executive agrees to undertake the following obligations
that he acknowledges to be reasonably designed to protect Employer's legitimate
business interests without unnecessarily or unreasonably restricting Executive's
post-employment opportunities:
-4-
<PAGE>
(a) Upon termination of employment for any reason, Executive shall
return to Employer all property of Employer including, but not limited to,
documents or things containing any of its confidential information, files,
forms, notes, records, or charts. Executive shall not retain any copies in any
form of any such confidential information;
(b) During the Employment Period or thereafter, without Employer's
prior written consent, Executive shall not use or disclose, and shall take all
necessary precautions to avoid the disclosure to any person, any confidential
information unless at that time the information has become known to the public
or to Employer's competitors other than by breach of this Agreement or any other
confidentiality agreement binding on Executive;
(c) Executive covenants and agrees to be bound by the Covenant Not To
Compete Or Solicit Business entered into by the parties contemporaneous with
this Agreement; and
(d) To permit Employer to monitor Executive's compliance with the
Covenant Not To Compete or Solicit Business, during the Initial Term of
Employment or for 2 years following the termination of employment, whichever is
longer, Executive shall promptly notify Employer in writing of the name and
address of each business organization for which he acts as agent, partner,
owner, consultant, contractor, advisor, representative or Executive.
7. Intellectual Property. Executive shall disclose and assign to
---------------------
Employer all of his right, title and interest in and to, any ideas, processes,
trademarks, trade secrets, copyrightable materials, plans, inventions and
business plans, whether patentable or not, that he develops, creates, discovers,
conceives or improves upon during the Employment Period that relate, directly or
indirectly, to Employer's business, including, but not limited to, any computer
programs, processes, products or procedures, methods of advertising, marketing
research, strategies or business plans (collectively referred to as
"Intellectual Property"). Executive agrees that such Intellectual Property
shall be the sole property of Employer. Executive shall, during employment and
thereafter, at Employer's request and cost, provide Employer with such
assistance as is reasonably necessary to secure a patent, trademark, copyright
or other protection of such Intellectual Property. Executive agrees that he
will not use any Intellectual Property right for his own purposes or for any
purpose other than those of Employer.
8. Remedies. If Executive violates any of the terms of Section 6 or 7 of
--------
this Agreement, Employer shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Employer would be irreparably
damaged by Executive's breach of any such provision, that damages for such a
breach are not easily calculated, and that any remedy at law would be
inadequate. Therefore, Employer shall be entitled to obtain injunctive or other
equitable relief against Executive, his agents, assigns or successors for a
breach of this Agreement and without the necessity of the proving actual
monetary loss. It is expressly understood between the parties that this
injunctive or equitable relief shall not be Employer's exclusive remedy for
breach of this Agreement. Without limitation, in the event of any
-5-
<PAGE>
breach by Executive of his Covenant Not To Compete or Solicit Business, such
Executive shall not be entitled to receive any salary payments or any other
compensation beyond the date of such breach to which he would otherwise be
entitled, and Executive shall be obligated to repay to Employer salary payments
received by him at any time after the occurrence of such breach. Nothing in this
Section 8 shall prevent any party hereto from seeking any remedy, including an
interim, interlocutory or permanent injunction or restraining order, for a
breach of this Agreement.
Should any litigation, other than arbitration provided for in paragraph 17
herein, be commenced concerning any provision of this Agreement or Executive's
employment or termination or employment, the prevailing party shall be entitled,
in addition to such other relief as may be granted, to its attorneys' fees and
costs incurred by reason of such litigation.
9. Assignment. Executive acknowledges that the services he renders
----------
pursuant to this Agreement are unique and personal. Accordingly, Executive may
not assign any of his rights or delegate any of his duties or obligations under
this Agreement. Employer may assign its rights, duties or obligations under
this Agreement to any person with whom it has merged or consolidated, or to whom
it has transferred all, or substantially all, of its assets.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed to confer upon
any person, other than the parties and their respective successors and assigns
permitted by this Agreement, any right, remedy or claim under, or by reason of,
this Agreement.
10. Entire Agreement; Amendment. This Agreement, the Reorganization
---------------------------
Agreement and the Covenant Not To Compete or Solicit Business constitute the
entire agreement between Employer and Executive with respect to the subject
matter hereof. This Agreement supersedes any prior agreement made between the
parties. The parties may not amend this Agreement except by written instrument
signed by both parties and approved by the Board of Directors or the
compensation committee of the Board of Directors of Employer.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
12. Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Definitions. Any capitalized term used in this Agreement shall have
-----------
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
-6-
<PAGE>
14. Waiver. No provision of this Agreement shall be deemed to be waived
------
as a result of the failure of Employer or Executive to require the performance
of any term or condition of this Agreement or by other course of conduct. To be
effective, a waiver must be in writing, signed by each of the parties hereto and
approved by the Board of Directors or the compensation committee of the Board of
Directors of Employer and state specifically that it is intended to constitute a
waiver of a term or breach of this Agreement. The waiver by Employer or
Executive of any term or breach of this Agreement shall not prevent a subsequent
enforcement of such term or any other term and shall not be deemed to be a
waiver of any subsequent breach.
15. Set-Off. Notwithstanding anything herein to the contrary, subject to
-------
the requirements of Section 13.3 of the Reorganization Agreement, Employer shall
have the right to set-off, at any time and from time to time, against any amount
owing by Employer to Executive under this Agreement, any amount from time to
time owing by Executive to Employer in connection with any cause, matter or
thing whatsoever including, but not limited to, this Agreement, the
Reorganization Agreement, the Purchase Agreement and the Related Agreements.
With respect to any amounts owing under the Reorganization Agreement, the
Purchase Agreement or any Related Agreement, Employer agrees to fully comply
with the dispute resolution provisions of such agreement prior to invoking its
right of set-off under this Agreement. In addition, Employer agrees that, with
respect to an action for set-off for a breach of a representation and warranty
contained in the Reorganization Agreement, Employer shall be entitled to seek
set-off of amounts due under this Agreement from Executive (a) in the case of
any several representation and warranty, only if Executive is determined to have
breached, or acknowledges a breach of, such representation and warranty, and (b)
in the case of any joint and several representation, only in proportion to
Executive's liability under such representation and warranty.
16. Key-Person Insurance. Executive acknowledges that Employer may wish
--------------------
to purchase and maintain key-person insurance with respect to Executive and
covenants and agrees to cooperate with Employer in that regard in all reasonable
respects which shall include, without limitation, submitting to such medical
examinations, answering such questions and completing and signing such documents
as may reasonably be required by any insurance company from time to time in
connection therewith. Upon termination of the Employment Period, Executive
shall be provided the opportunity to purchase such policy at his expense.
17. Dispute Resolution. Employer or Executive may institute arbitration
------------------
pursuant to Article 13 of the Reorganization Agreement in connection with any
dispute, controversy or claim arising in connection with this Agreement;
provided, however, that nothing in this paragraph shall prohibit Employer or its
- -------- -------
affiliates from pursuing injunctive or other equitable relief against Executive
prior to, contemporaneous with, or subsequent to invoking or participating in
any dispute resolution process.
18. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after
-7-
<PAGE>
having been sent by registered or certified mail or upon receipt when sent by
facsimile (but only if receipt is confirmed by the addressee by a return
facsimile signed by the addressee) addressed as follows:
If to Employer:
TN Technologies Holding Inc.
101 East Erie
Chicago, IL 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive: at the address or facsimile number set forth below
Executive's signature on the signature page hereto.
or to such other address as such party (or its designated additional notice
recipient) may indicate by a notice delivered to the other party hereto.
19. Effective Date. This Agreement shall be effective as of the Closing
--------------
Date of the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Agreement shall be null and void.
20. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT WITH
COUNSEL.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written above.
TN TECHNOLOGIES HOLDING INC. GERALD M. O'CONNELL
By:_________________________ _____________________________
Title:______________________ Address:_____________________
_____________________________
Facsimile:___________________
-9-
<PAGE>
EXHIBIT 10.8(b)
EMPLOYMENT AGREEMENT
TN Technologies Holding Inc. ("Employer"), a Delaware corporation, and
Douglas C. Ahlers ("Executive") enter into this Employment Agreement as of
January 1, 1997 (the "Agreement").
WHEREAS, Employer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement") and the Amended and Restated Partnership Interest and Stock Purchase
Agreement dated as of December 31, 1996 (the "Purchase Agreement");
WHEREAS, pursuant to the Reorganization Agreement and the Purchase
Agreement, Employer is acquiring (the "Acquisition") all of the limited
partnership interests in Modem Media Advertising Limited Partnership, a
Connecticut limited partnership ("MMLP"), and all of the issued and outstanding
capital stock of Modem Media, Inc., a Connecticut corporation ("Modem Media");
WHEREAS, as a condition to closing to the Reorganization Agreement, the
parties have agreed to enter into an Employment Agreement;
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
WHEREAS, Employer desires to employ and Executive desires to be employed by
Employer in the capacity described herein;
WHEREAS, Employer and Executive desire to set forth the following terms and
conditions of their agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Employer and Executive
agree as follows:
1. Employment Duties. Executive agrees to serve as President of Employer
-----------------
and shall have such duties, responsibilities and authorities as the Board of
Directors of Employer may from time to time assign and which are reasonably
consistent with such position. Throughout the period of employment, Executive
shall perform his assigned duties diligently, in good faith and to the best of
his abilities and shall devote all of his business time to the business and
affairs of Employer, provided, however, that Executive may serve on the board of
-------- -------
directors of other corporations as may be customary and usual for a person in
Executive's position and serve in any capacity with any civic, educational or
charitable organization, provided, in each case, such activities do not
materially interfere with the performance of his duties hereunder and that such
service is consistent with all Company policies and procedures regarding such
service. Executive shall be subject to Employer's general employment policies
in effect or as modified. Subject to Section 6.3 of the Reorganization
Agreement, during the term of employment hereunder, Employer agrees to appoint
and maintain (subject to Executive's performance of his duties as a member of
the Board of Directors in good faith and as provided in and consistent with the
by-laws of Employer and the Delaware General
<PAGE>
Corporation) Executive as a member of the Board of Directors. Executive shall be
based at the office of Employer located in Connecticut; provided, that Executive
--------
acknowledges and agrees that he may be required to perform ordinary business
travel consistent with the responsibilities of his position with Employer.
2. Term of Employment. Unless earlier terminated pursuant to paragraph 5
------------------
below, the initial term of employment (the "Initial Term of Employment") covered
by this Agreement shall commence on the effective date of this Agreement as
designated in paragraph 19 herein and continue through December 31, 2001. In
the event Executive remains employed by Employer after the Initial Term of
Employment, the terms and conditions of such continued employment shall be those
set forth in this Agreement, except that, after the Initial Term of Employment,
either party may terminate the employment relationship upon thirty days' written
notice.
3. Salary. During his employment with Employer, Executive's annual
------
salary shall be at least three hundred thousand dollars ($300,000), less
required or authorized deductions, paid on regular paydays consistent with
Employer's payroll procedures.
4. Benefits; Expense Reimbursement. During his employment with Employer,
-------------------------------
Executive shall be entitled to participate in such employee benefit plans and
other programs, in accordance with the terms of such plans and programs and
shall receive such other benefits, as Employer may make generally available to
its senior executive officers; provided, however, that Employer shall not be
-------- -------
required to offer Executive any benefits that are made available to current or
future senior executive officers on an individual basis and that are not made
generally available to its other senior executive officers. Employer retains
the right to cancel, alter or amend any of its employee benefit plans and other
fringe benefit arrangements without notice to the extent permitted by such plans
or arrangements. Employer shall reimburse Executive for reasonable business
expenses incurred by Executive in connection with the performance of his duties
and obligations and that are consistent with Employer's policies and procedures.
5. Termination. The Initial Term of Employment may be terminated as set
-----------
forth below. Notwithstanding such termination, except as specifically set forth
below, paragraphs 6, 7 and (except in the case of termination of Executive
pursuant to paragraph 5(D) or (E)) 15 shall continue to apply following such
termination. Unless otherwise stated in this Agreement or in any applicable
benefit plans or as otherwise required by law, Executive shall have no
continuing right to salary or benefits after employment is terminated and,
except as set forth in paragraphs 5(D) and (E), Employer shall have no further
obligations to Executive. Subject to Section 15 hereof, upon any termination of
employment, in addition to other amounts set forth herein, Executive (or his
estate in the case of death) shall be entitled to receive salary, expenses and
other benefits accrued through and including the date of termination. Employer
retains any other remedies it may have for breach of this Agreement.
(A) Death. Executive's employment will terminate automatically upon
-----
Executive's death.
-2-
<PAGE>
(B) Inability to Perform. Employer may, upon thirty days' prior
--------------------
written notice, terminate Executive's employment upon Executive's inability to
perform his essential duties and obligations hereunder for a period of four
consecutive months or six months in any 12 month period because of Executive's
physical or mental disability (a "Disability"). Notwithstanding the foregoing,
nothing in this Agreement shall prevent employer from immediately removing
Executive from his position as officer of Employer, or reducing the duties or
job responsibilities of Employer, immediately upon the Disability of such
Executive; provided that Employer shall reinstate Executive to his position as
--------
officer, with the corresponding duties and responsibilities of such position,
upon the removal of such Disability prior to the termination of such Executive
pursuant to the provisions of this Agreement.
(C) For Cause. Employer may terminate Executive's employment
---------
immediately if, in the reasonable determination of the Board of Directors or the
compensation committee of the Board of Directors of Employer as set forth in an
action of the Board of Directors or such committee setting forth in reasonable
detail the reasons for such termination, (i) Executive engages in conduct that
violates significant policies of Employer after Executive is notified by
Employer that Executive is engaging in conduct that violates significant
policies of Employer; (ii) Executive fails to perform the essential functions of
Executive's job (except for a failure resulting from a bona fide illness or
incapacity) or fails to carry out Employer's reasonable directions with respect
to material duties after Executive is notified by Employer that Executive is
failing to perform these essential functions or failing to carry out the
reasonable directions of Employer; (iii) Executive engages in embezzlement or
misappropriation of corporate funds or other acts of fraud, dishonesty or self-
dealing, or commits a felony or any significant violation of any statutory or
common law duty of loyalty to Employer; or (iv) Executive breaches a material
provision of this Agreement (including, but not limited to, the noncompete and
nonsolicitation provisions in paragraph 6(c)) after Executive is notified by
Employer that Executive has breached a material provision of this Agreement.
Prior to any termination of Executive for Cause pursuant to clauses (i), (ii) or
(iv) of this subparagraph 5(C), Employer shall give Executive reasonable
opportunity to remedy any condition, or conduct, action or inaction of Executive
giving rise to the violation or breach of such clause if such violation or
breach is remediable.
(D) By Employer. Employer may terminate Executive's employment
-----------
without cause or reason by giving Executive written notice. Such notice shall
set forth the date of termination, which date shall be not later than 30 days
following the date of notice (the "Notice Period"). During any Notice Period,
Executive shall make reasonable efforts to cooperate with Employer in achieving
a transition of Executive's duties and responsibilities. Upon termination of
Executive's employment by Employer without cause, Executive shall be entitled to
continue to receive, for the lesser of the three years following termination or
the balance of the Initial Term of Employment, (i) his salary and (ii) an annual
amount equal to the average for the two full fiscal years prior to termination
(or the amount in the immediately preceding fiscal year, if Executive is
terminated prior to having completed two full years of employment) of any
payments to Executive pursuant to any cash bonus plan of Employer. Employer, at
its discretion, may elect to continue to pay Executive his salary and any such
bonus on regularly scheduled paydays, but reduced by any
-3-
<PAGE>
amounts earned by Executive from alternative employment or to make a lump sum
payment to Executive equal to the unpaid balance of such salary and bonus
payments discounted to the date of payment using a discount rate of 7% per
annum; provided, however, that Employer shall not be obligated to continue to
-------- -------
employ Executive or to continue payment of salary or bonus for any period if
Employer has grounds to terminate Executive's employment as specified above in
subparagraph (A) or (C)(iii) and (iv). Subsequent to termination pursuant to
this subparagraph 5(D), Executive shall not be obligated to look for or accept
alternative employment; provided, however, that if Executive accepts any
-------- -------
alternative employment during the balance of the Initial Term of Employment,
Employer may reduce from amounts owed under this subparagraph 5(D) all amounts
earned by Executive from such alternative employment, and Executive shall be
obligated to inform Employer of the amount of income received by him from
alternative employment for the balance of the Initial Term of Employment.
(E) By Executive. Executive may terminate his employment for "Good
------------
Reason" as described below, by giving thirty days' prior written notice to
Employer. "Good Reason" means (I) a decrease in the total amount of Executive's
base salary below the amount prescribed by paragraph 3; (ii) a change in the
Executive's title or duties from what is set forth in Section 1 hereto; (iii)
the relocation of Employer's headquarters in violation of Section 6.4 of the
Reorganization Agreement, without Executive's consent; or (iv) Employer breaches
a material provision of this Agreement. Prior to any termination of Executive
for Good Reason by Executive, Employer shall have a reasonable opportunity to
remedy any condition, or conduct, action or inaction of Employer giving rise to
Executive's right to terminate this Agreement for Good Reason. In the event
that Executive's employment with Employer is terminated at any time during the
Initial Employment Period by Executive for Good Reason, then Executive shall be
entitled to continue to receive his salary and any cash bonus in the manner
contemplated by paragraph 5(D) above for the balance of the Initial Employment
Period.
6. Confidentiality. Executive acknowledges that he will have access to
---------------
and will be entrusted with confidential and proprietary information and trade
secrets relating to Employer's services and products, including, but not limited
to, presentations for clients and prospective clients made on behalf of
Employer. Such confidential information gives Employer a business advantage
over others who do not have such information. Such confidential information may
include, but is not limited to, business strategies, plans, proposals, training
materials, computer software, names of or financial or other information
regarding Employer or Executive's relationships with its clients, advertising
techniques, development of creative products and any other information that is
maintained confidentially and not known to or readily determinable by the
public. Accordingly, Executive agrees to undertake the following obligations
that he acknowledges to be reasonably designed to protect Employer's legitimate
business interests without unnecessarily or unreasonably restricting Executive's
post-employment opportunities:
(a) Upon termination of employment for any reason, Executive shall
return to Employer all property of Employer including, but not limited to,
documents or things containing any
-4-
<PAGE>
of its confidential information, files, forms, notes, records, or charts.
Executive shall not retain any copies in any form of any such confidential
information;
(b) During the Employment Period or thereafter, without Employer's
prior written consent, Executive shall not use or disclose, and shall take all
necessary precautions to avoid the disclosure to any person, any confidential
information unless at that time the information has become known to the public
or to Employer's competitors other than by breach of this Agreement or any other
confidentiality agreement binding on Executive;
(c) Executive covenants and agrees to be bound by the Covenant Not To
Compete Or Solicit Business entered into by the parties contemporaneous with
this Agreement; and
(d) To permit Employer to monitor Executive's compliance with the
Covenant Not To Compete or Solicit Business, during the Initial Term of
Employment or for 2 years following the termination of employment, whichever is
longer, Executive shall promptly notify Employer in writing of the name and
address of each business organization for which he acts as agent, partner,
owner, consultant, contractor, advisor, representative or Executive.
7. Intellectual Property. Executive shall disclose and assign to
---------------------
Employer all of his right, title and interest in and to, any ideas, processes,
trademarks, trade secrets, copyrightable materials, plans, inventions and
business plans, whether patentable or not, that he develops, creates, discovers,
conceives or improves upon during the Employment Period that relate, directly or
indirectly, to Employer's business, including, but not limited to, any computer
programs, processes, products or procedures, methods of advertising, marketing
research, strategies or business plans (collectively referred to as
"Intellectual Property"). Executive agrees that such Intellectual Property
shall be the sole property of Employer. Executive shall, during employment and
thereafter, at Employer's request and cost, provide Employer with such
assistance as is reasonably necessary to secure a patent, trademark, copyright
or other protection of such Intellectual Property. Executive agrees that he
will not use any Intellectual Property right for his own purposes or for any
purpose other than those of Employer.
8. Remedies. If Executive violates any of the terms of Section 6 or 7 of
--------
this Agreement, Employer shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Employer would be irreparably
damaged by Executive's breach of any such provision, that damages for such a
breach are not easily calculated, and that any remedy at law would be
inadequate. Therefore, Employer shall be entitled to obtain injunctive or other
equitable relief against Executive, his agents, assigns or successors for a
breach of this Agreement and without the necessity of the proving actual
monetary loss. It is expressly understood between the parties that this
injunctive or equitable relief shall not be Employer's exclusive remedy for
breach of this Agreement. Without limitation, in the event of any breach by
Executive of his Covenant Not To Compete or Solicit Business, such Executive
shall not be entitled to receive any salary payments or any other compensation
beyond the date of such breach
-5-
<PAGE>
to which he would otherwise be entitled, and Executive shall be obligated to
repay to Employer salary payments received by him at any time after the
occurrence of such breach. Nothing in this Section 8 shall prevent any party
hereto from seeking any remedy, including an interim, interlocutory or permanent
injunction or restraining order, for a breach of this Agreement.
Should any litigation, other than arbitration provided for in paragraph 17
herein, be commenced concerning any provision of this Agreement or Executive's
employment or termination or employment, the prevailing party shall be entitled,
in addition to such other relief as may be granted, to its attorneys' fees and
costs incurred by reason of such litigation.
9. Assignment. Executive acknowledges that the services he renders
----------
pursuant to this Agreement are unique and personal. Accordingly, Executive may
not assign any of his rights or delegate any of his duties or obligations under
this Agreement. Employer may assign its rights, duties or obligations under
this Agreement to any person with whom it has merged or consolidated, or to whom
it has transferred all, or substantially all, of its assets.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed to confer upon
any person, other than the parties and their respective successors and assigns
permitted by this Agreement, any right, remedy or claim under, or by reason of,
this Agreement.
10. Entire Agreement; Amendment. This Agreement, the Reorganization
---------------------------
Agreement and the Covenant Not To Compete or Solicit Business constitute the
entire agreement between Employer and Executive with respect to the subject
matter hereof. This Agreement supersedes any prior agreement made between the
parties. The parties may not amend this Agreement except by written instrument
signed by both parties and approved by the Board of Directors or the
compensation committee of the Board of Directors of Employer.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
12. Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Definitions. Any capitalized term used in this Agreement shall have
-----------
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
14. Waiver. No provision of this Agreement shall be deemed to be waived
------
as a result of the failure of Employer or Executive to require the performance
of any term or condition of this
-6-
<PAGE>
Agreement or by other course of conduct. To be effective, a waiver must be in
writing, signed by each of the parties hereto and approved by the Board of
Directors or the compensation committee of the Board of Directors of Employer
and state specifically that it is intended to constitute a waiver of a term or
breach of this Agreement. The waiver by Employer or Executive of any term or
breach of this Agreement shall not prevent a subsequent enforcement of such term
or any other term and shall not be deemed to be a waiver of any subsequent
breach.
15. Set-Off. Notwithstanding anything herein to the contrary, subject to
-------
the requirements of Section 13.3 of the Reorganization Agreement, Employer shall
have the right to set-off, at any time and from time to time, against any amount
owing by Employer to Executive under this Agreement, any amount from time to
time owing by Executive to Employer in connection with any cause, matter or
thing whatsoever including, but not limited to, this Agreement, the
Reorganization Agreement, the Purchase Agreement and the Related Agreements.
With respect to any amounts owing under the Reorganization Agreement, the
Purchase Agreement or any Related Agreement, Employer agrees to fully comply
with the dispute resolution provisions of such agreement prior to invoking its
right of set-off under this Agreement. In addition, Employer agrees that, with
respect to an action for set-off for a breach of a representation and warranty
contained in the Reorganization Agreement, Employer shall be entitled to seek
set-off of amounts due under this Agreement from Executive (a) in the case of
any several representation and warranty, only if Executive is determined to have
breached, or acknowledges a breach of, such representation and warranty, and (b)
in the case of any joint and several representation, only in proportion to
Executive's liability under such representation and warranty.
16. Key-Person Insurance. Executive acknowledges that Employer may wish
--------------------
to purchase and maintain key-person insurance with respect to Executive and
covenants and agrees to cooperate with Employer in that regard in all reasonable
respects which shall include, without limitation, submitting to such medical
examinations, answering such questions and completing and signing such documents
as may reasonably be required by any insurance company from time to time in
connection therewith. Upon termination of the Employment Period, Executive
shall be provided the opportunity to purchase such policy at his expense.
17. Dispute Resolution. Employer or Executive may institute arbitration
------------------
pursuant to Article 13 of the Reorganization Agreement in connection with any
dispute, controversy or claim arising in connection with this Agreement;
provided, however, that nothing in this paragraph shall prohibit Employer or its
- -------- -------
affiliates from pursuing injunctive or other equitable relief against Executive
prior to, contemporaneous with, or subsequent to invoking or participating in
any dispute resolution process.
18. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or certified mail or upon receipt when sent by facsimile (but
only if
-7-
<PAGE>
receipt is confirmed by the addressee by a return facsimile signed by the
addressee) addressed as follows:
If to Employer:
TN Technologies Holding Inc.
101 East Erie
Chicago, IL 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive: at the address or facsimile number set forth below
Executive's signature on the signature page hereto.
or to such other address as such party (or its designated additional notice
recipient) may indicate by a notice delivered to the other party hereto.
19. Effective Date. This Agreement shall be effective as of the Closing
--------------
Date of the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Agreement shall be null and void.
20. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT WITH
COUNSEL.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written above.
TN TECHNOLOGIES HOLDING INC. DOUGLAS C. AHLERS
By:_________________________ ______________________________
Title:______________________ Address:______________________
______________________________
Facsimile:____________________
-9-
<PAGE>
EXHIBIT 10.8(c)
EMPLOYMENT AGREEMENT
TN Technologies Holding Inc. ("Employer"), a Delaware corporation, and
Robert C. Allen, II ("Executive") enter into this Employment Agreement as of
January 1, 1997 (the "Agreement").
WHEREAS, Employer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement") and the Amended and Restated Partnership Interest and Stock Purchase
Agreement dated as of December 31, 1996 (the "Purchase Agreement");
WHEREAS, pursuant to the Reorganization Agreement and the Purchase
Agreement, Employer is acquiring (the "Acquisition") all of the limited
partnership interests in Modem Media Advertising Limited Partnership, a
Connecticut limited partnership ("MMLP"), and all of the issued and outstanding
capital stock of Modem Media, Inc., a Connecticut corporation ("Modem Media");
WHEREAS, as a condition to closing to the Reorganization Agreement, the
parties have agreed to enter into an Employment Agreement;
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
WHEREAS, Employer desires to employ and Executive desires to be employed by
Employer in the capacity described herein;
WHEREAS, Employer and Executive desire to set forth the following terms and
conditions of their agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Employer and Executive
agree as follows:
1. Employment Duties. Executive agrees to serve as President of Employer
-----------------
and shall have such duties, responsibilities and authorities as the Board of
Directors of Employer may from time to time assign and which are reasonably
consistent with such position. Throughout the period of employment, Executive
shall perform his assigned duties diligently, in good faith and to the best of
his abilities and shall devote all of his business time to the business and
affairs of Employer, provided, however, that Executive may serve on the board of
-------- -------
directors of other corporations as may be customary and usual for a person in
Executive's position and serve in any capacity with any civic, educational or
charitable organization, provided, in each case, such activities do not
materially interfere with the performance of his duties hereunder and that such
service is consistent with all Company policies and procedures regarding such
service. Executive shall be subject to Employer's general employment policies
in effect or as modified. Subject to Section 6.3 of the Reorganization
Agreement, during the term of employment hereunder, Employer agrees to appoint
and maintain (subject to Executive's performance of his duties as a member of
the Board of Directors in good faith and as provided in and consistent with the
by-laws of Employer and the Delaware General
<PAGE>
Corporation) Executive as a member of the Board of Directors. Executive shall be
based at the office of Employer located in Connecticut; provided, that Executive
--------
acknowledges and agrees that he may be required to perform ordinary business
travel consistent with the responsibilities of his position with Employer.
2. Term of Employment. Unless earlier terminated pursuant to paragraph 5
------------------
below, the initial term of employment (the "Initial Term of Employment") covered
by this Agreement shall commence on the effective date of this Agreement as
designated in paragraph 19 herein and continue through December 31, 2001. In
the event Executive remains employed by Employer after the Initial Term of
Employment, the terms and conditions of such continued employment shall be those
set forth in this Agreement, except that, after the Initial Term of Employment,
either party may terminate the employment relationship upon thirty days' written
notice.
3. Salary. During his employment with Employer, Executive's annual
------
salary shall be at least three hundred thousand dollars ($300,000), less
required or authorized deductions, paid on regular paydays consistent with
Employer's payroll procedures.
4. Benefits; Expense Reimbursement. During his employment with Employer,
-------------------------------
Executive shall be entitled to participate in such employee benefit plans and
other programs, in accordance with the terms of such plans and programs and
shall receive such other benefits, as Employer may make generally available to
its senior executive officers; provided, however, that Employer shall not be
-------- -------
required to offer Executive any benefits that are made available to current or
future senior executive officers on an individual basis and that are not made
generally available to its other senior executive officers. Employer retains
the right to cancel, alter or amend any of its employee benefit plans and other
fringe benefit arrangements without notice to the extent permitted by such plans
or arrangements. Employer shall reimburse Executive for reasonable business
expenses incurred by Executive in connection with the performance of his duties
and obligations and that are consistent with Employer's policies and procedures.
5. Termination. The Initial Term of Employment may be terminated as set
-----------
forth below. Notwithstanding such termination, except as specifically set forth
below, paragraphs 6, 7 and (except in the case of termination of Executive
pursuant to paragraph 5(D) or (E)) 15 shall continue to apply following such
termination. Unless otherwise stated in this Agreement or in any applicable
benefit plans or as otherwise required by law, Executive shall have no
continuing right to salary or benefits after employment is terminated and,
except as set forth in paragraphs 5(D) and (E), Employer shall have no further
obligations to Executive. Subject to Section 15 hereof, upon any termination of
employment, in addition to other amounts set forth herein, Executive (or his
estate in the case of death) shall be entitled to receive salary, expenses and
other benefits accrued through and including the date of termination. Employer
retains any other remedies it may have for breach of this Agreement.
(A) Death. Executive's employment will terminate automatically upon
-----
Executive's death.
-2-
<PAGE>
(B) Inability to Perform. Employer may, upon thirty days' prior
--------------------
written notice, terminate Executive's employment upon Executive's inability to
perform his essential duties and obligations hereunder for a period of four
consecutive months or six months in any 12 month period because of Executive's
physical or mental disability (a "Disability"). Notwithstanding the foregoing,
nothing in this Agreement shall prevent employer from immediately removing
Executive from his position as officer of Employer, or reducing the duties or
job responsibilities of Employer, immediately upon the Disability of such
Executive; provided that Employer shall reinstate Executive to his position as
--------
officer, with the corresponding duties and responsibilities of such position,
upon the removal of such Disability prior to the termination of such Executive
pursuant to the provisions of this Agreement.
(C) For Cause. Employer may terminate Executive's employment
---------
immediately if, in the reasonable determination of the Board of Directors or the
compensation committee of the Board of Directors of Employer as set forth in an
action of the Board of Directors or such committee setting forth in reasonable
detail the reasons for such termination, (i) Executive engages in conduct that
violates significant policies of Employer after Executive is notified by
Employer that Executive is engaging in conduct that violates significant
policies of Employer; (ii) Executive fails to perform the essential functions of
Executive's job (except for a failure resulting from a bona fide illness or
incapacity) or fails to carry out Employer's reasonable directions with respect
to material duties after Executive is notified by Employer that Executive is
failing to perform these essential functions or failing to carry out the
reasonable directions of Employer; (iii) Executive engages in embezzlement or
misappropriation of corporate funds or other acts of fraud, dishonesty or self-
dealing, or commits a felony or any significant violation of any statutory or
common law duty of loyalty to Employer; or (iv) Executive breaches a material
provision of this Agreement (including, but not limited to, the noncompete and
nonsolicitation provisions in paragraph 6(c)) after Executive is notified by
Employer that Executive has breached a material provision of this Agreement.
Prior to any termination of Executive for Cause pursuant to clauses (i), (ii) or
(iv) of this subparagraph 5(C), Employer shall give Executive reasonable
opportunity to remedy any condition, or conduct, action or inaction of Executive
giving rise to the violation or breach of such clause if such violation or
breach is remediable.
(D) By Employer. Employer may terminate Executive's employment
-----------
without cause or reason by giving Executive written notice. Such notice shall
set forth the date of termination, which date shall be not later than 30 days
following the date of notice (the "Notice Period"). During any Notice Period,
Executive shall make reasonable efforts to cooperate with Employer in achieving
a transition of Executive's duties and responsibilities. Upon termination of
Executive's employment by Employer without cause, Executive shall be entitled to
continue to receive, for the lesser of the three years following termination or
the balance of the Initial Term of Employment, (i) his salary and (ii) an annual
amount equal to the average for the two full fiscal years prior to termination
(or the amount in the immediately preceding fiscal year, if Executive is
terminated prior to having completed two full years of employment) of any
payments to Executive pursuant to any cash bonus plan of Employer. Employer, at
its discretion, may elect to continue to pay Executive his salary and any such
bonus on regularly scheduled paydays, but reduced by any
-3-
<PAGE>
amounts earned by Executive from alternative employment or to make a lump sum
payment to Executive equal to the unpaid balance of such salary and bonus
payments discounted to the date of payment using a discount rate of 7% per
annum; provided, however, that Employer shall not be obligated to continue to
-------- -------
employ Executive or to continue payment of salary or bonus for any period if
Employer has grounds to terminate Executive's employment as specified above in
subparagraph (A) or (C)(iii) and (iv). Subsequent to termination pursuant to
this subparagraph 5(D), Executive shall not be obligated to look for or accept
alternative employment; provided, however, that if Executive accepts any
-------- -------
alternative employment during the balance of the Initial Term of Employment,
Employer may reduce from amounts owed under this subparagraph 5(D) all amounts
earned by Executive from such alternative employment, and Executive shall be
obligated to inform Employer of the amount of income received by him from
alternative employment for the balance of the Initial Term of Employment.
(E) By Executive. Executive may terminate his employment for "Good
------------
Reason" as described below, by giving thirty days' prior written notice to
Employer. "Good Reason" means (I) a decrease in the total amount of Executive's
base salary below the amount prescribed by paragraph 3; (ii) a change in the
Executive's title or duties from what is set forth in Section 1 hereto; (iii)
the relocation of Employer's headquarters in violation of Section 6.4 of the
Reorganization Agreement, without Executive's consent; or (iv) Employer breaches
a material provision of this Agreement. Prior to any termination of Executive
for Good Reason by Executive, Employer shall have a reasonable opportunity to
remedy any condition, or conduct, action or inaction of Employer giving rise to
Executive's right to terminate this Agreement for Good Reason. In the event
that Executive's employment with Employer is terminated at any time during the
Initial Employment Period by Executive for Good Reason, then Executive shall be
entitled to continue to receive his salary and any cash bonus in the manner
contemplated by paragraph 5(D) above for the balance of the Initial Employment
Period.
6. Confidentiality. Executive acknowledges that he will have access to
---------------
and will be entrusted with confidential and proprietary information and trade
secrets relating to Employer's services and products, including, but not limited
to, presentations for clients and prospective clients made on behalf of
Employer. Such confidential information gives Employer a business advantage
over others who do not have such information. Such confidential information may
include, but is not limited to, business strategies, plans, proposals, training
materials, computer software, names of or financial or other information
regarding Employer or Executive's relationships with its clients, advertising
techniques, development of creative products and any other information that is
maintained confidentially and not known to or readily determinable by the
public. Accordingly, Executive agrees to undertake the following obligations
that he acknowledges to be reasonably designed to protect Employer's legitimate
business interests without unnecessarily or unreasonably restricting Executive's
post-employment opportunities:
(a) Upon termination of employment for any reason, Executive shall
return to Employer all property of Employer including, but not limited to,
documents or things containing any
-4-
<PAGE>
of its confidential information, files, forms, notes, records, or charts.
Executive shall not retain any copies in any form of any such confidential
information;
(b) During the Employment Period or thereafter, without Employer's
prior written consent, Executive shall not use or disclose, and shall take all
necessary precautions to avoid the disclosure to any person, any confidential
information unless at that time the information has become known to the public
or to Employer's competitors other than by breach of this Agreement or any other
confidentiality agreement binding on Executive;
(c) Executive covenants and agrees to be bound by the Covenant Not To
Compete Or Solicit Business entered into by the parties contemporaneous with
this Agreement; and
(d) To permit Employer to monitor Executive's compliance with the
Covenant Not To Compete or Solicit Business, during the Initial Term of
Employment or for 2 years following the termination of employment, whichever is
longer, Executive shall promptly notify Employer in writing of the name and
address of each business organization for which he acts as agent, partner,
owner, consultant, contractor, advisor, representative or Executive.
7. Intellectual Property. Executive shall disclose and assign to
---------------------
Employer all of his right, title and interest in and to, any ideas, processes,
trademarks, trade secrets, copyrightable materials, plans, inventions and
business plans, whether patentable or not, that he develops, creates, discovers,
conceives or improves upon during the Employment Period that relate, directly or
indirectly, to Employer's business, including, but not limited to, any computer
programs, processes, products or procedures, methods of advertising, marketing
research, strategies or business plans (collectively referred to as
"Intellectual Property"). Executive agrees that such Intellectual Property
shall be the sole property of Employer. Executive shall, during employment and
thereafter, at Employer's request and cost, provide Employer with such
assistance as is reasonably necessary to secure a patent, trademark, copyright
or other protection of such Intellectual Property. Executive agrees that he
will not use any Intellectual Property right for his own purposes or for any
purpose other than those of Employer.
8. Remedies. If Executive violates any of the terms of Section 6 or 7 of
--------
this Agreement, Employer shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Employer would be irreparably
damaged by Executive's breach of any such provision, that damages for such a
breach are not easily calculated, and that any remedy at law would be
inadequate. Therefore, Employer shall be entitled to obtain injunctive or other
equitable relief against Executive, his agents, assigns or successors for a
breach of this Agreement and without the necessity of the proving actual
monetary loss. It is expressly understood between the parties that this
injunctive or equitable relief shall not be Employer's exclusive remedy for
breach of this Agreement. Without limitation, in the event of any breach by
Executive of his Covenant Not To Compete or Solicit Business, such Executive
shall not be entitled to receive any salary payments or any other compensation
beyond the date of such breach
-5-
<PAGE>
to which he would otherwise be entitled, and Executive shall be obligated to
repay to Employer salary payments received by him at any time after the
occurrence of such breach. Nothing in this Section 8 shall prevent any party
hereto from seeking any remedy, including an interim, interlocutory or permanent
injunction or restraining order, for a breach of this Agreement.
Should any litigation, other than arbitration provided for in paragraph 17
herein, be commenced concerning any provision of this Agreement or Executive's
employment or termination or employment, the prevailing party shall be entitled,
in addition to such other relief as may be granted, to its attorneys' fees and
costs incurred by reason of such litigation.
9. Assignment. Executive acknowledges that the services he renders
----------
pursuant to this Agreement are unique and personal. Accordingly, Executive may
not assign any of his rights or delegate any of his duties or obligations under
this Agreement. Employer may assign its rights, duties or obligations under
this Agreement to any person with whom it has merged or consolidated, or to whom
it has transferred all, or substantially all, of its assets.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Agreement, express or implied, is intended or shall be construed to confer upon
any person, other than the parties and their respective successors and assigns
permitted by this Agreement, any right, remedy or claim under, or by reason of,
this Agreement.
10. Entire Agreement; Amendment. This Agreement, the Reorganization
---------------------------
Agreement and the Covenant Not To Compete or Solicit Business constitute the
entire agreement between Employer and Executive with respect to the subject
matter hereof. This Agreement supersedes any prior agreement made between the
parties. The parties may not amend this Agreement except by written instrument
signed by both parties and approved by the Board of Directors or the
compensation committee of the Board of Directors of Employer.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
12. Legal Enforceability. Any provision of this Agreement which is
--------------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Definitions. Any capitalized term used in this Agreement shall have
-----------
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
14. Waiver. No provision of this Agreement shall be deemed to be waived
------
as a result of the failure of Employer or Executive to require the performance
of any term or condition of this
-6-
<PAGE>
Agreement or by other course of conduct. To be effective, a waiver must be in
writing, signed by each of the parties hereto and approved by the Board of
Directors or the compensation committee of the Board of Directors of Employer
and state specifically that it is intended to constitute a waiver of a term or
breach of this Agreement. The waiver by Employer or Executive of any term or
breach of this Agreement shall not prevent a subsequent enforcement of such term
or any other term and shall not be deemed to be a waiver of any subsequent
breach.
15. Set-Off. Notwithstanding anything herein to the contrary, subject to
-------
the requirements of Section 13.3 of the Reorganization Agreement, Employer shall
have the right to set-off, at any time and from time to time, against any amount
owing by Employer to Executive under this Agreement, any amount from time to
time owing by Executive to Employer in connection with any cause, matter or
thing whatsoever including, but not limited to, this Agreement, the
Reorganization Agreement, the Purchase Agreement and the Related Agreements.
With respect to any amounts owing under the Reorganization Agreement, the
Purchase Agreement or any Related Agreement, Employer agrees to fully comply
with the dispute resolution provisions of such agreement prior to invoking its
right of set-off under this Agreement. In addition, Employer agrees that, with
respect to an action for set-off for a breach of a representation and warranty
contained in the Reorganization Agreement, Employer shall be entitled to seek
set-off of amounts due under this Agreement from Executive (a) in the case of
any several representation and warranty, only if Executive is determined to have
breached, or acknowledges a breach of, such representation and warranty, and (b)
in the case of any joint and several representation, only in proportion to
Executive's liability under such representation and warranty.
16. Key-Person Insurance. Executive acknowledges that Employer may wish
--------------------
to purchase and maintain key-person insurance with respect to Executive and
covenants and agrees to cooperate with Employer in that regard in all reasonable
respects which shall include, without limitation, submitting to such medical
examinations, answering such questions and completing and signing such documents
as may reasonably be required by any insurance company from time to time in
connection therewith. Upon termination of the Employment Period, Executive
shall be provided the opportunity to purchase such policy at his expense.
17. Dispute Resolution. Employer or Executive may institute arbitration
------------------
pursuant to Article 13 of the Reorganization Agreement in connection with any
dispute, controversy or claim arising in connection with this Agreement;
provided, however, that nothing in this paragraph shall prohibit Employer or its
- -------- -------
affiliates from pursuing injunctive or other equitable relief against Executive
prior to, contemporaneous with, or subsequent to invoking or participating in
any dispute resolution process.
18. Notices. All notices or other communications required or permitted
-------
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or certified mail or upon receipt when sent by facsimile (but
only if
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<PAGE>
receipt is confirmed by the addressee by a return facsimile signed by the
addressee) addressed as follows:
If to Employer:
TN Technologies Holding Inc.
101 East Erie
Chicago, IL 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive: at the address or facsimile number set forth below
Executive's signature on the signature page hereto.
or to such other address as such party (or its designated additional notice
recipient) may indicate by a notice delivered to the other party hereto.
19. Effective Date. This Agreement shall be effective as of the Closing
--------------
Date of the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Agreement shall be null and void.
20. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT WITH
COUNSEL.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date written above.
TN TECHNOLOGIES HOLDING INC. ROBERT C. ALLEN, II
By:__________________________ _______________________________
Title:_______________________ Address:_______________________
_______________________________
Facsimile:_____________________
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<PAGE>
EXHIBIT 10.9(a)
COVENANT NOT TO COMPETE OR SOLICIT BUSINESS
-------------------------------------------
TN Technologies Holding Inc., a Delaware corporation ("Buyer") and Gerald
M. O'Connell ("Executive") enter into this Covenant Not To Compete or Solicit
Business ("Covenant") as of December 31, 1996.
WHEREAS, Buyer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Buyer is acquiring (the
"Acquisition") all of the limited partnership interests in Modem Media
Advertising Limited Partnership, a Connecticut limited partnership ("MMLP"), and
all of the issued and outstanding capital stock of Modem Media, Inc., a
Connecticut corporation ("Modem Media");
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
NOW, THEREFORE, in further consideration of the promises and mutual
covenants contained in the Employment Agreement, the Reorganization Agreement
and the Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and to protect more
effectively the value of the assets and goodwill purchased by Buyer, Executive
covenants and agrees as follows:
1. COVENANT NOT TO COMPETE. Executive covenants that during the period
commencing on the effective date of the Reorganization Agreement and ending on
the later of (i) the date which is five years after the effective date of the
Reorganization Agreement or (ii) the date which is two years after the last
payment of salary pursuant to the Employment Agreement (the "Non-
Competition/Non-Solicitation Period"), either individually or in partnership or
jointly or in conjunction with any person or persons, firm, association,
syndicate, company, contractor, corporation or organization of any kind, as
principal, agent, trustee, shareholder, employee or consultant, or in any other
manner whatsoever, whether directly or indirectly, he shall not render or assist
others in rendering services to or for any person or persons, firm, association,
syndicate, company or corporation, that is engaged in any business substantially
similar to any part of:
(a) advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services carried on by Buyer or entities in which Buyer owns 40% or more of the
ownership interests (collectively referred to as "Buyer and its Affiliates")
during the two-year period immediately preceding the date employment is
terminated;
(b) any other advertising services delivered through the Internet or
corporate intranets, digital communications services dedicated to marketing
purposes, or consumer database management in conjunction with marketing or
advertising services for which Buyer or its Affiliates has, as of the
<PAGE>
termination of such Employee's employment, formulated plans, of which Executive
is aware, to commence carrying on within 1 year after the date employment is
terminated; or
(c) any advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services solicited by Buyer or its Affiliates with respect to clients or
potential clients of Buyer or its Affiliates.
Without limiting the foregoing, nothing herein shall prohibit Executive's
being a passive owner of not more than 5% of the outstanding stock of any class
of a corporation or other entity which is publicly traded, so long as Executive
has no active participation in the business of such corporation or other entity.
Notwithstanding anything herein to the contrary, Executive shall have no
obligations under this Section 1 or under Section 2 or 3 hereof if Buyer
breaches a material term of the Employment Agreement.
2. COVENANT NOT TO SOLICIT. Executive covenants and agrees that he will
not, and will not attempt to, at any time during the Non-Competition/Non-
Solicitation Period, directly or indirectly, induce or assist in the inducement
of:
(i) any employee or consultant of Buyer or its Affiliates away from Buyer
or its Affiliates or from the faithful discharge of such employee's or
consultant's contractual and fiduciary obligations to serve Buyer's or its
Affiliates' interest; or
(ii) any "Client" of Buyer or its Affiliates away from Buyer or its
Affiliates.
As used in this Covenant, "Client" shall extend to those persons, firms,
corporations or other entities (a) who were clients of Buyer or its Affiliates,
as is applicable, at any time during the Non-Competition/Non-Solicitation Period
and who continued to be clients at any time within the 18-month period
immediately preceding the inducement (including, without limitation, AT&T
Corporation); or (b) who were new business contacts of Buyer or its Affiliates,
as is applicable, during the Non-Competition/Non-Solicitation Period and who had
been active new business contacts at any time within a one-year period
immediately preceding the inducement.
3. NON INTERFERENCE. Executive covenants and agrees that he will not at
any time during the Non Competition/Non-Solicitation Period, directly or
indirectly, seek to cause the termination or any change in the terms of any
relationships between Buyer or its Affiliates and any supplier or vendor or
prospective supplier or vendor of Buyer or its Affiliates; provided, however,
-------- -------
that Executive shall not be precluded from utilizing any supplier or vendor.
4. DEFINITIONS. Any capitalized term used in this Covenant shall have
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
-2-
<PAGE>
5. REMEDIES. If Executive violates any of the terms of this Covenant,
Buyer or any of its Affiliates shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Buyer or any of its Affiliates
would be irreparably damaged by Executive's breach of any provision of this
Covenant, that damages for such a breach are not easily calculated, and that any
remedy at law would be inadequate. Therefore, Buyer and any of its Affiliates
shall be entitled to seek and obtain injunctive or other equitable relief
against Executive, his agents, assigns or successors for a breach of this
Covenant and without the necessity of proving actual monetary loss. It is
expressly understood between the parties that this injunctive or equitable
relief shall not be Buyer's or any of its Affiliates' exclusive remedy for
breach of this Covenant.
Should any litigation be commenced concerning any provision of this
Covenant, the prevailing party shall be entitled, in addition to such other
relief as may be granted, to its attorneys' fees and costs incurred by reason of
such litigation.
6. LEGAL ENFORCEABILITY. Any provision of this Covenant which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7. GOVERNING LAW. This Covenant shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
8. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Reorganization
Agreement and the Employment Agreement constitute the entire agreement between
Buyer and Executive with respect to the subject matter hereof. This Covenant
supersedes any prior agreement made between the parties. The parties may not
amend this Covenant except by written instrument signed by each party hereto and
approved by the Board of Directors or the compensation committee of the Board of
Directors of Buyer.
-3-
<PAGE>
9. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or certified mail or upon receipt when sent by facsimile (but
only if receipt is confirmed by the addressee by a return facsimile signed by
the addressee) addressed as follows:
If to Buyer, to:
TN Technologies Holding Inc.
101 East Erie
Chicago, Illinois 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive, to: the address or facsimile number set forth below Executive's
signature on the signature page hereof.
or to such other address as such party (or if designated additional notice
recipient) may indicate by a notice delivered to the other parties hereto.
10. SUCCESSORS AND ASSIGNS. Executive acknowledges that his obligations
hereunder are unique and personal. Accordingly, Executive may not assign any of
his rights or delegate any of his duties or obligations under this Covenant.
Buyer may assign its rights, duties or obligations under this Covenant to any
person with whom it has merged or consolidated, or to whom it has transferred
all, or substantially all, of its assets.
This Covenant shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Covenant, express or implied, is intended or shall be construed to confer upon
any person other than the parties and their respective successors and assigns
permitted by this Covenant any right, remedy or claim under, or by reason of,
this Covenant.
11. WAIVER. No provisions of this Covenant shall be deemed to be waived
as a result of the failure of Buyer or its Affiliates or Executive to require
the performance of any term or condition of this Covenant or by other course of
conduct. To be effective, a waiver must be in writing, signed by all of the
parties hereto and approved by the Board of Directors or the compensation
committee of the Board of Directors of Buyer and state specifically that it is
intended to constitute a waiver of a term or breach of this Covenant. The
waiver by Buyer or its Affiliates or Executive of any term or breach of this
Covenant shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
-4-
<PAGE>
12. EFFECTIVE DATE. This Covenant is effective as of the Closing Date of
the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Covenant shall be null and void.
EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS COVENANT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS COVENANT WITH
COUNSEL.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Covenant as of
the date written above.
TN TECHNOLOGIES HOLDING INC. GERALD M. O'CONNELL
By:___________________________ ________________________________
Position:_____________________ Address:________________________
________________________________
Facsimile:______________________
-6-
<PAGE>
EXHIBIT 10.9(b)
COVENANT NOT TO COMPETE OR SOLICIT BUSINESS
-------------------------------------------
TN Technologies Holding Inc., a Delaware corporation ("Buyer") and Douglas
C. Ahlers ("Executive") enter into this Covenant Not To Compete or Solicit
Business ("Covenant") as of December 31, 1996.
WHEREAS, Buyer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Buyer is acquiring (the
"Acquisition") all of the limited partnership interests in Modem Media
Advertising Limited Partnership, a Connecticut limited partnership ("MMLP"), and
all of the issued and outstanding capital stock of Modem Media, Inc., a
Connecticut corporation ("Modem Media");
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
NOW, THEREFORE, in further consideration of the promises and mutual
covenants contained in the Employment Agreement, the Reorganization Agreement
and the Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and to protect more
effectively the value of the assets and goodwill purchased by Buyer, Executive
covenants and agrees as follows:
1. COVENANT NOT TO COMPETE. Executive covenants that during the period
commencing on the effective date of the Reorganization Agreement and ending on
the later of (i) the date which is five years after the effective date of the
Reorganization Agreement or (ii) the date which is two years after the last
payment of salary pursuant to the Employment Agreement (the "Non-
Competition/Non-Solicitation Period"), either individually or in partnership or
jointly or in conjunction with any person or persons, firm, association,
syndicate, company, contractor, corporation or organization of any kind, as
principal, agent, trustee, shareholder, employee or consultant, or in any other
manner whatsoever, whether directly or indirectly, he shall not render or assist
others in rendering services to or for any person or persons, firm, association,
syndicate, company or corporation, that is engaged in any business substantially
similar to any part of:
(a) advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services carried on by Buyer or entities in which Buyer owns 40% or more of the
ownership interests (collectively referred to as "Buyer and its Affiliates")
during the two-year period immediately preceding the date employment is
terminated;
(b) any other advertising services delivered through the Internet or
corporate intranets, digital communications services dedicated to marketing
purposes, or consumer database management in conjunction with marketing or
advertising services for which Buyer or its Affiliates has, as of the
<PAGE>
termination of such Employee's employment, formulated plans, of which Executive
is aware, to commence carrying on within 1 year after the date employment is
terminated; or
(c) any advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services solicited by Buyer or its Affiliates with respect to clients or
potential clients of Buyer or its Affiliates.
Without limiting the foregoing, nothing herein shall prohibit Executive's
being a passive owner of not more than 5% of the outstanding stock of any class
of a corporation or other entity which is publicly traded, so long as Executive
has no active participation in the business of such corporation or other entity.
Notwithstanding anything herein to the contrary, Executive shall have no
obligations under this Section 1 or under Section 2 or 3 hereof if Buyer
breaches a material term of the Employment Agreement.
2. COVENANT NOT TO SOLICIT. Executive covenants and agrees that he will
not, and will not attempt to, at any time during the Non-Competition/Non-
Solicitation Period, directly or indirectly, induce or assist in the inducement
of:
(i) any employee or consultant of Buyer or its Affiliates away from Buyer
or its Affiliates or from the faithful discharge of such employee's or
consultant's contractual and fiduciary obligations to serve Buyer's or its
Affiliates' interest; or
(ii) any "Client" of Buyer or its Affiliates away from Buyer or its
Affiliates.
As used in this Covenant, "Client" shall extend to those persons, firms,
corporations or other entities (a) who were clients of Buyer or its Affiliates,
as is applicable, at any time during the Non-Competition/Non-Solicitation Period
and who continued to be clients at any time within the 18-month period
immediately preceding the inducement (including, without limitation, AT&T
Corporation); or (b) who were new business contacts of Buyer or its Affiliates,
as is applicable, during the Non-Competition/Non-Solicitation Period and who had
been active new business contacts at any time within a one-year period
immediately preceding the inducement.
3. NON INTERFERENCE. Executive covenants and agrees that he will not at
any time during the Non Competition/Non-Solicitation Period, directly or
indirectly, seek to cause the termination or any change in the terms of any
relationships between Buyer or its Affiliates and any supplier or vendor or
prospective supplier or vendor of Buyer or its Affiliates; provided, however,
-------- -------
that Executive shall not be precluded from utilizing any supplier or vendor.
4. DEFINITIONS. Any capitalized term used in this Covenant shall have
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
-2-
<PAGE>
5. REMEDIES. If Executive violates any of the terms of this Covenant,
Buyer or any of its Affiliates shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Buyer or any of its Affiliates
would be irreparably damaged by Executive's breach of any provision of this
Covenant, that damages for such a breach are not easily calculated, and that any
remedy at law would be inadequate. Therefore, Buyer and any of its Affiliates
shall be entitled to seek and obtain injunctive or other equitable relief
against Executive, his agents, assigns or successors for a breach of this
Covenant and without the necessity of proving actual monetary loss. It is
expressly understood between the parties that this injunctive or equitable
relief shall not be Buyer's or any of its Affiliates' exclusive remedy for
breach of this Covenant.
Should any litigation be commenced concerning any provision of this
Covenant, the prevailing party shall be entitled, in addition to such other
relief as may be granted, to its attorneys' fees and costs incurred by reason of
such litigation.
6. LEGAL ENFORCEABILITY. Any provision of this Covenant which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7. GOVERNING LAW. This Covenant shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
8. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Reorganization
Agreement and the Employment Agreement constitute the entire agreement between
Buyer and Executive with respect to the subject matter hereof. This Covenant
supersedes any prior agreement made between the parties. The parties may not
amend this Covenant except by written instrument signed by each party hereto and
approved by the Board of Directors or the compensation committee of the Board of
Directors of Buyer.
-3-
<PAGE>
9. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or certified mail or upon receipt when sent by facsimile (but
only if receipt is confirmed by the addressee by a return facsimile signed by
the addressee) addressed as follows:
If to Buyer, to:
TN Technologies Holding Inc.
101 East Erie
Chicago, Illinois 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive, to: the address or facsimile number set forth below Executive's
signature on the signature page hereof.
or to such other address as such party (or if designated additional notice
recipient) may indicate by a notice delivered to the other parties hereto.
10. SUCCESSORS AND ASSIGNS. Executive acknowledges that his obligations
hereunder are unique and personal. Accordingly, Executive may not assign any of
his rights or delegate any of his duties or obligations under this Covenant.
Buyer may assign its rights, duties or obligations under this Covenant to any
person with whom it has merged or consolidated, or to whom it has transferred
all, or substantially all, of its assets.
This Covenant shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Covenant, express or implied, is intended or shall be construed to confer upon
any person other than the parties and their respective successors and assigns
permitted by this Covenant any right, remedy or claim under, or by reason of,
this Covenant.
11. WAIVER. No provisions of this Covenant shall be deemed to be waived
as a result of the failure of Buyer or its Affiliates or Executive to require
the performance of any term or condition of this Covenant or by other course of
conduct. To be effective, a waiver must be in writing, signed by all of the
parties hereto and approved by the Board of Directors or the compensation
committee of the Board of Directors of Buyer and state specifically that it is
intended to constitute a waiver of a term or breach of this Covenant. The
waiver by Buyer or its Affiliates or Executive of any term or breach of this
Covenant shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
-4-
<PAGE>
12. EFFECTIVE DATE. This Covenant is effective as of the Closing Date of
the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Covenant shall be null and void.
EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS COVENANT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS COVENANT WITH
COUNSEL.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Covenant as of
the date written above.
TN TECHNOLOGIES HOLDING INC. DOUGLAS C. AHLERS
By:__________________________ _______________________________
Position:____________________ Address:_______________________
_______________________________
Facsimile:_____________________
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<PAGE>
EXHIBIT 10.9(c)
COVENANT NOT TO COMPETE OR SOLICIT BUSINESS
-------------------------------------------
TN Technologies Holding Inc., a Delaware corporation ("Buyer") and Robert
C. Allen, II ("Executive") enter into this Covenant Not To Compete or Solicit
Business ("Covenant") as of December 31, 1996.
WHEREAS, Buyer and Executive are parties to the Amended and Restated
Reorganization Agreement dated as of December 31, 1996 (the "Reorganization
Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Buyer is acquiring (the
"Acquisition") all of the limited partnership interests in Modem Media
Advertising Limited Partnership, a Connecticut limited partnership ("MMLP"), and
all of the issued and outstanding capital stock of Modem Media, Inc., a
Connecticut corporation ("Modem Media");
WHEREAS, Executive, as a limited partner in MMLP and a shareholder of Modem
Media, will substantially and materially benefit from the Acquisition;
NOW, THEREFORE, in further consideration of the promises and mutual
covenants contained in the Employment Agreement, the Reorganization Agreement
and the Purchase Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and to protect more
effectively the value of the assets and goodwill purchased by Buyer, Executive
covenants and agrees as follows:
1. COVENANT NOT TO COMPETE. Executive covenants that during the period
commencing on the effective date of the Reorganization Agreement and ending on
the later of (i) the date which is five years after the effective date of the
Reorganization Agreement or (ii) the date which is two years after the last
payment of salary pursuant to the Employment Agreement (the "Non-
Competition/Non-Solicitation Period"), either individually or in partnership or
jointly or in conjunction with any person or persons, firm, association,
syndicate, company, contractor, corporation or organization of any kind, as
principal, agent, trustee, shareholder, employee or consultant, or in any other
manner whatsoever, whether directly or indirectly, he shall not render or assist
others in rendering services to or for any person or persons, firm, association,
syndicate, company or corporation, that is engaged in any business substantially
similar to any part of:
(a) advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services carried on by Buyer or entities in which Buyer owns 40% or more of the
ownership interests (collectively referred to as "Buyer and its Affiliates")
during the two-year period immediately preceding the date employment is
terminated;
(b) any other advertising services delivered through the Internet or
corporate intranets, digital communications services dedicated to marketing
purposes, or consumer database management in conjunction with marketing or
advertising services for which Buyer or its Affiliates has, as of the
<PAGE>
termination of such Employee's employment, formulated plans, of which Executive
is aware, to commence carrying on within 1 year after the date employment is
terminated; or
(c) any advertising services delivered through the Internet or corporate
intranets, digital communications services dedicated to marketing purposes, or
consumer database management in conjunction with marketing or advertising
services solicited by Buyer or its Affiliates with respect to clients or
potential clients of Buyer or its Affiliates.
Without limiting the foregoing, nothing herein shall prohibit Executive's
being a passive owner of not more than 5% of the outstanding stock of any class
of a corporation or other entity which is publicly traded, so long as Executive
has no active participation in the business of such corporation or other entity.
Notwithstanding anything herein to the contrary, Executive shall have no
obligations under this Section 1 or under Section 2 or 3 hereof if Buyer
breaches a material term of the Employment Agreement.
2. COVENANT NOT TO SOLICIT. Executive covenants and agrees that he will
not, and will not attempt to, at any time during the Non-Competition/Non-
Solicitation Period, directly or indirectly, induce or assist in the inducement
of:
(i) any employee or consultant of Buyer or its Affiliates away from Buyer
or its Affiliates or from the faithful discharge of such employee's or
consultant's contractual and fiduciary obligations to serve Buyer's or its
Affiliates' interest; or
(ii) any "Client" of Buyer or its Affiliates away from Buyer or its
Affiliates.
As used in this Covenant, "Client" shall extend to those persons, firms,
corporations or other entities (a) who were clients of Buyer or its Affiliates,
as is applicable, at any time during the Non-Competition/Non-Solicitation Period
and who continued to be clients at any time within the 18-month period
immediately preceding the inducement (including, without limitation, AT&T
Corporation); or (b) who were new business contacts of Buyer or its Affiliates,
as is applicable, during the Non-Competition/Non-Solicitation Period and who had
been active new business contacts at any time within a one-year period
immediately preceding the inducement.
3. NON INTERFERENCE. Executive covenants and agrees that he will not at
any time during the Non Competition/Non-Solicitation Period, directly or
indirectly, seek to cause the termination or any change in the terms of any
relationships between Buyer or its Affiliates and any supplier or vendor or
prospective supplier or vendor of Buyer or its Affiliates; provided, however,
-------- -------
that Executive shall not be precluded from utilizing any supplier or vendor.
4. DEFINITIONS. Any capitalized term used in this Covenant shall have
the meaning ascribed to it in the Reorganization Agreement, unless otherwise
defined herein.
-2-
<PAGE>
5. REMEDIES. If Executive violates any of the terms of this Covenant,
Buyer or any of its Affiliates shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Buyer or any of its Affiliates
would be irreparably damaged by Executive's breach of any provision of this
Covenant, that damages for such a breach are not easily calculated, and that any
remedy at law would be inadequate. Therefore, Buyer and any of its Affiliates
shall be entitled to seek and obtain injunctive or other equitable relief
against Executive, his agents, assigns or successors for a breach of this
Covenant and without the necessity of proving actual monetary loss. It is
expressly understood between the parties that this injunctive or equitable
relief shall not be Buyer's or any of its Affiliates' exclusive remedy for
breach of this Covenant.
Should any litigation be commenced concerning any provision of this
Covenant, the prevailing party shall be entitled, in addition to such other
relief as may be granted, to its attorneys' fees and costs incurred by reason of
such litigation.
6. LEGAL ENFORCEABILITY. Any provision of this Covenant which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7. GOVERNING LAW. This Covenant shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
8. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Reorganization
Agreement and the Employment Agreement constitute the entire agreement between
Buyer and Executive with respect to the subject matter hereof. This Covenant
supersedes any prior agreement made between the parties. The parties may not
amend this Covenant except by written instrument signed by each party hereto and
approved by the Board of Directors or the compensation committee of the Board of
Directors of Buyer.
-3-
<PAGE>
9. NOTICES. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or certified mail or upon receipt when sent by facsimile (but
only if receipt is confirmed by the addressee by a return facsimile signed by
the addressee) addressed as follows:
If to Buyer, to:
TN Technologies Holding Inc.
101 East Erie
Chicago, Illinois 60611
Facsimile: (312) 440-8070
Attention: Gregory W. Blaine
If to Executive, to: the address or facsimile number set forth below Executive's
signature on the signature page hereof.
or to such other address as such party (or if designated additional notice
recipient) may indicate by a notice delivered to the other parties hereto.
10. SUCCESSORS AND ASSIGNS. Executive acknowledges that his obligations
hereunder are unique and personal. Accordingly, Executive may not assign any of
his rights or delegate any of his duties or obligations under this Covenant.
Buyer may assign its rights, duties or obligations under this Covenant to any
person with whom it has merged or consolidated, or to whom it has transferred
all, or substantially all, of its assets.
This Covenant shall be binding upon and inure to the benefit of the
parties hereto and their permitted successors and assigns. Nothing in this
Covenant, express or implied, is intended or shall be construed to confer upon
any person other than the parties and their respective successors and assigns
permitted by this Covenant any right, remedy or claim under, or by reason of,
this Covenant.
11. WAIVER. No provisions of this Covenant shall be deemed to be waived
as a result of the failure of Buyer or its Affiliates or Executive to require
the performance of any term or condition of this Covenant or by other course of
conduct. To be effective, a waiver must be in writing, signed by all of the
parties hereto and approved by the Board of Directors or the compensation
committee of the Board of Directors of Buyer and state specifically that it is
intended to constitute a waiver of a term or breach of this Covenant. The
waiver by Buyer or its Affiliates or Executive of any term or breach of this
Covenant shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
-4-
<PAGE>
12. EFFECTIVE DATE. This Covenant is effective as of the Closing Date of
the Reorganization Agreement. If the Reorganization Agreement is not
consummated, this Covenant shall be null and void.
EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS COVENANT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS COVENANT WITH
COUNSEL.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Covenant as of
the date written above.
TN TECHNOLOGIES HOLDING INC. ROBERT C. ALLEN, II
By:__________________________ _______________________________
Position:____________________ Address:_______________________
_______________________________
Facsimile:_____________________
-6-
<PAGE>
Exhibit 10.16
SOFTWARE MAINTENANCE AND ENHANCEMENT AGREEMENT
THIS SOFTWARE MAINTENANCE AND ENHANCEMENT AGREEMENT (this "Agreement") is
dated as of December 31, 1996 ("Effective Date") by and between True North
Communications Inc. ("TNC"), and TN Technologies Holding Inc. ("TNT"), and
describes the terms and conditions pursuant to which TNT shall maintain, support
and enhance certain Software (as defined below).
WHEREAS, the parties have entered into an Intellectual Property Agreement
(as defined below) for the licensing of certain software from TNT to TNC; and
WHEREAS, TNC wishes TNT to perform certain support and enhancement service
related to such software and related technology, and TNT wishes to perform such
services, both under the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the covenants and conditions set forth
herein, the parties agree as follows:
1. DEFINITIONS.
For the purpose of this Agreement, the following terms shall have the
following meanings:
1.1 "Documentation" means any instruction manuals or other materials
regarding the use of the Software.
1.2 "Intellectual Property Agreement" means the agreement relating to
the Software entered into between the parties as of December 31, 1996.
1.3 "Maintenance and Support" means the services described in
Sections 2 and 3.
1.4 "Servers" means the servers of TNC's local area Intranet and any
technology embodied therein.
1.5 "Software" means the computer software programs licensed to TNC
pursuant to the Intellectual Property Agreement and specified in Attachment A.
1.6 "Update" means a release or version of the Software containing
functional enhancements, extensions, error corrections or fixes that are
generally made available without charge (other than media and handling charges)
by TNT, and shall include the source code embodied in such functional
enhancements, extensions, error corrections or fixes.
<PAGE>
2. MAINTENANCE AND SUPPORT. Maintenance and Support shall include the
following services:
2.1 Authorized Contact. TNT shall supply a coordinator to be located
at TNC corporate headquarters in Chicago, who will be the primary contact
between the TNC authorized contact described in Section 4.1 and the TNT
technical staff. The responsibilities of this coordinator are set forth in
Attachment B.
2.2 Error Corrections. TNT shall use commercially reasonable efforts
to correct all reproducible errors in the Software in a manner commensurate with
the severity of the error.
2.3 Reports. No more than thirty (30) days after the end of each
calendar quarter, TNT shall provide TNC a report of time and resources that have
been devoted to Maintenance and Support during such quarter.
2.4 System Management. TNT shall work with TNC to manage the
Software by performing daily systems operations and management, including
routine backup procedures, monitoring of Software performance, and assessment of
the ability of the Software to meet TNC's information processing needs, at a
level commensurate with the level at which TNT or its predecessor was providing
such services prior to the Effective Date.
2.5 Training. TNT shall coordinate the initial and annual training
of Information Systems support staff of TNC. Such training shall be in the form
of a one-day "train the trainer" workshop to be conducted at TNC's premises.
2.6 Installation. Subject to Section 7.4, TNT shall perform the
installation of the Software on the Servers, including any related configuration
of the Servers or other TNC equipment related to the Software, at no additional
charge.
2.7 Third Party Software. TNT shall procure for TNC licenses for the
Netscape server and Netscape client (browser) software presently used by the
Servers ("Netscape Software"). Such Netscape Software license will cover up to
two thousand (2,000) seats and ten (10) servers. TNT shall provide first tier
technical support to TNC regarding the use of the Netscape Software. TNT shall
procure from Netscape, or such other third party as TNT deems suitable, related
software maintenance and support agreements to provide TNT with second-tier
support for such usage by TNC.
2.8 Second Tier Support. TNT will provide second-tier technical
support directly to Information Systems support staff designated by TNC as
technical contacts. Hours for such support shall be 9 a.m. to 5 p.m., Central
Standard Time.
-2-
<PAGE>
3. UPDATES AND ADDITIONAL SOFTWARE. Maintenance Services shall include
the following:
3.1 Updates. TNT will provide Updates to TNC at no additional
charge.
3.2 Enhancement. TNT shall monitor the developing technologies
applicable to the Software, and evaluate their performance, reliability and
applicability to the Software. TNT shall report to TNC's authorized contact
described in Section 4.1 periodically on such developing technologies, and
discuss with TNC the possible applicability of such technologies to the
Software. When and if TNT determines, in its sole discretion, that these
technologies would enhance the operation of the Software, TNT shall make
commercially reasonable efforts to integrate such technologies into the
Software; provided, however, that TNT shall add significant enhancements of
functionality only with TNC's prior approval. TNT will use commercially
reasonable efforts to perform enhancements reasonably requested by TNC in a
reasonably timely fashion.
3.3 Expansion. TNT shall cooperate with TNC to expand the
availability of the Software throughout any TNC locations, as requested by TNC.
TNT shall cooperate with TNC to expand and refine the Software, including
without limitation the addition of menu items, information sections, and
integration of agency/location specific areas, addition of new technologies
such as streaming video, audio or other multi-media capabilities as they become
available and desired by TNC.
3.4 Documentation. TNT shall provide Documentation in connection
with any Updates that add significant functionality to the Software.
3.5 Quarterly Reports. Within thirty (30) days of the end of each
calendar quarter, TNT shall provide a report to TNC of operating expenses and
capitalized costs in connection with the maintenance and enhancement of the
Software, as well as reimbursable expenses, fees charged pursuant to Section
7.4, and any other fees payable by TNC for products or services other than
Maintenance Services. Upon TNC's reasonable request, TNT shall provide
supporting documentation for such reports, at TNT's expense.
4. TNC RESPONSIBILITIES.
4.1 Authorized Contact. TNC will appoint a key contact for all
development and operational issues. This key contact will be responsible for
coordinating all communications between TNC and TNT for Maintenance Services.
Such contact shall have authorization to grant the approvals required on behalf
of TNC in this Agreement.
4.2 TNC Assistance. TNC agrees to provide TNT reasonable access to
all necessary personnel to answer questions about any problems reported by TNC
regarding the Software or Servers.
-3-
<PAGE>
4.3 Notification. TNC agrees to provide TNT with a reasonably
detailed description in writing of any reported problem or error to the degree
necessary to permit confirmation or reproduction thereof by TNT.
4.4 Installation of Error Corrections and New Releases. TNC shall
implement promptly all Updates or other new versions of the Software provided by
TNT under this Agreement.
4.5 First Tier Support. First tier technical support to TNC's
customers will be solely the responsibility of TNC.
4.6 Reporting. Within ten (10) days of the end of each calendar
quarter, TNC shall manage and report to TNT the number of users of the Software
during such month. Such reports are intended to help TNT determine commercial
application licensing and support issues.
4.7 Additional Software and Services. Any additional software
licenses for Netscape Software or technical resources to upgrade the Netscape
Software or other third party applications beyond that set forth in Section 2.7
will be solely the responsibility of TNC. Any additional technical resources or
software upgrades for commercial applications in addition to the Software will
be solely the responsibility of TNC.
5. EXCLUSIONS.
5.1 Eligibility of Software. Maintenance and Support will not
include services requested as a result of, or with respect to, the following
(except to the extent caused by TNT), and any services requested as a result
thereof will be billed to TNC at a rate of two hundred forty percent (240%) of
the applicable hourly fee, pay, wage, or salary of the employee performing such
services, plus out-of-pocket expenses associated therewith; provided, however,
that if such services are performed by a consultant of TNT, such rate shall be
one hundred twenty percent (120%) of the applicable hourly fee of such
consultant:
(a) accident; unusual physical, electrical or electromagnetic
stress; neglect; misuse; failure of electric power, air conditioning or humidity
control; failure of rotation media not furnished by TNT; operation of the
Software with other media not meeting or not maintained in accordance with the
manufacturer's specifications; or causes other than ordinary use;
(b) improper installation by TNC or use of the Software that
deviates from any operating procedures communicated in writing by TNT;
(c) modification, alteration or addition or attempted
modification, alteration or addition of the Software undertaken by persons other
than TNT or TNT's authorized representatives; or
-4-
<PAGE>
(d) computer programs created by TNC or any third party that are
not supplied or approved by TNT; or
(c) TNC's failure to implement all releases and updates to the
Software which are issued to TNC by TNT;
(f) changes to the operating system or physical, hardware or
software environment which adversely affect the Software and are not approved or
authorized by TNT in writing; or
(g) use of the Software in conjunction with products not
supplied or approved by TNT.
5.2 Current and Previous Release. Maintenance and Support shall not
include support for any but the most current release of Software and the
previous release of the Software.
6. TERM AND TERMINATION
6.1 Term. TNT's duties under this Agreement shall commence on the
Effective Date and continue for a term of one (1) year, and shall renew
automatically each year unless either party notifies the other of its intent not
to renew at least sixty (60) days prior to the renewal date.
6.2 Termination for Breach. If either party breaches a material
provision of this Agreement and fails to cure such breach within thirty (30)
days after receiving written notice of the breach, the other party shall have
the right to terminate this Agreement at any time.
6.3 Termination of License. Notwithstanding any provisions of this
Agreement, the provision herein shall terminate and TNT's obligations hereunder
shall expire upon the termination of the license of the Software to TNC under
the Intellectual Property Agreement.
6.4 Survival. The provisions of Sections 1, 6, 8, 9, 10 and 11 shall
survive termination of this Agreement.
7. PAYMENT TERMS AND TAXES.
7.1. Fees. TNC agrees to pay TNT, quarterly in advance, software
maintenance and support fees as set forth in Attachment C of this Agreement
("Maintenance and Support Fee"). Fees for any special services must be approved
by TNC in advance, and will be in addition to the annual Maintenance and Support
Fee and will be charged at TNT's then current rates for such services. TNT may
change the Maintenance and Support Fee upon written notice no less than ninety
-5-
<PAGE>
(90) days prior to the renewal date.
7.2 Payment. TNT shall invoice TNC for all amounts on or after the
annual renewal date. Payment terms shall be net thirty (30) days. Any amount due
TNT under this Agreement not received by TNT by the date due shall be subject to
a service charge of one and one half percent (1.5%) per month, or the maximum
charge permitted by law, whichever is less.
7.3 Taxes. Maintenance and Support Fees do not include any taxes,
duties or charges of any kind (including without limitation any withholding
taxes) imposed by any federal, state, local or other governmental entity for
products or services provided under this Agreement, excluding only taxes based
solely on TNT's net income. If any such taxes are found at any time to be
payable, TNC shall pay such taxes, unless TNC provides TNT with a valid tax
exemption certificate authorized by the appropriate taxing authority.
7.4 Additional Fees. The following items and services shall not be
included in Maintenance Services. In the event TNC wishes to obtain such items
or services, or additional items or services, TNC may request TNT to provide
such items or services on a time and materials basis at TNT's then-current
rates.
(a) Travel Expenses. Any reasonable travel expenses of TNT
personnel in support of any task relating to the Software or Servers, including
without limitation any additional expenses for expedited travel to comply with
urgent requests for support by TNT. TNC shall pay TNT for the actual,
out-of-pocket costs of such travel expenses. Upon TNC's request, TNT shall
provide copies of supporting documentation for such expenses.
(b) Additional Hardware and Software. Any costs associated with
Server hardware, supplemental Server or client software, or operating systems
required to support the Servers or Software that are approved in advance by TNC.
TNC shall pay TNT for the actual, out-of-pocket costs of such items.
(c) Connectivity. Any local area or metropolitan or wide area
network or other connectivity fees that may be required to support the Software.
TNC shall pay TNT for the actual, out-of-pocket costs of such items.
8. Confidentiality. All information disclosed under this Agreement shall
be subject to the terms and conditions of Section 8 of the Intellectual Property
Agreement.
-6-
<PAGE>
9. WARRANTY AND DISCLAIMER. TNT will use all reasonable commercial
efforts to provide the support requested by TNC under this Agreement in a
professional and workmanlike manner, but TNT cannot guaranty that every question
or problem raised by TNC will be resolved. OTHER THAN IN THE PRECEDING SENTENCE,
TNT MAKES NO WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF NON-INFRINGEMENT,
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
10. LIMITATION OF LIABILITY.
10.1 TNT'S LIABILITY UNDER THIS AGREEMENT SHALL NOT EXCEED THE FEES
RECEIVED BY TNT FROM TNC UNDER THIS AGREEMENT.
10.2 IN NO EVENT SHALL TNT HAVE ANY LIABILITY FOR ANY SPECIAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF ACTION,
WHETHER OR NOT TNT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF
ANY LIMITED REMEDY.
11. Miscellaneous
11.1 Force Majeure. Neither party will incur any liability to the
other party on account of any loss or damage resulting from any delay or failure
to perform all or any part of this Agreement if such delay or failure is caused,
in whole or in part, by events, occurrences, or causes beyond the control and
without negligence of the parties. Such events, occurences, or causes will
include, without limitation, acts of God, strikes, lockouts, riots, acts of
war, earthquake, fire and explosions, but the inability to meet financial
obligations is expressly excluded.
11.2 Waiver. Any waiver of the provisions of this Agreement or of a
party's rights or remedies under this Agreement must be in writing to be
effective. Failure, neglect, or delay by a party to enforce the provisions of
this Agreement or its rights or remedies at any time, will not be construed and
will not be deemed to be a waiver of such party's rights under this Agreement
and will not in any way affect the validity of the whole or any part of this
Agreement or prejudice such party's right to take subsequent action.
11.3 Severability. If any term, condition, or provision in this
Agreement is found to be invalid, unlawful or unenforceable to any extent, the
parties shall endeavor in good faith to agree to such amendments that will
preserve, as far as possible, the intentions expressed in this Agreement. If
the parties fail to agree on such an amendment, such invalid term, condition or
-7-
<PAGE>
provision will be severed from the remaining terms, conditions and provisions,
which will continue to be valid and enforceable to the fullest extent permitted
by law.
11.4 Integration. This Agreement (including the Attachments and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes all
previous communications, representations, understandings and agreements, either
oral or written, between the parties with respect to said subject matter. This
Agreement may not be amended, except by a writing signed by both parties.
11.5 Conflicting Terms. No terms, provisions or conditions of any
purchase order, acknowledgement or other business form that TNC may use in
connection with this Agreement or the performance of the terms hereof will have
any effect on the rights, duties or obligations of the paries under, or
otherwise modify, this Agreement, regardless of any failure of TNT to object to
such terms, provisions or conditions.
11.6 Export Controls. TNC may not export or re-export the Software
without the prior written consent of TNT and without the appropriate United
States and foreign government licenses.
11.7 Non-Waiver. No exercise or enforcement by either party of any
right or remedy under this Agreement will preclude the enforcement by such party
of any other right or remedy under this Agreement or that such party is entitled
by law to enforce.
11.8 Governing Law. This Agreement will be interpreted and construed
in accordance with the laws of the State of Illinois and the United States of
America, without regard to conflict of law principles.
11.9 Dispute Resolution.
(a) Any dispute, controversy or claim arising in connection with
this Agreement, shall be settled by binding arbitration if so requested by any
party hereto pursuant to paragraph (b) below. The arbitration shall be
conducted by three arbitrators, who shall be appointed pursuant to the rules of
the American Arbitration Association (the "AAA"). The arbitration shall be held
in Chicago, Illinois and shall be conducted in accordance with the commercial
arbitration rules of the AAA, except that the rules set forth in this Section
11.9 shall govern such arbitration to the extent they conflict with the rules of
the AAA.
(b) Upon written notice by a party to the other parties of a
request for arbitration hereunder, the parties shall use their commercially
reasonable efforts to cause the arbitration to be conducted in an expeditious
manner. All other procedural matters shall be within the discretion of the
arbitrators. In the event a party fails to comply with the procedures in any
arbitration in a manner deemed material by the arbitrators, the arbitrators
shall fix a reasonable period of time for compliance and, if the party does not
comply within said period, a remedy deemed
-8-
<PAGE>
just by the arbitrators, including an award of default, may be imposed.
-9-
<PAGE>
(c) The determination of the arbitrators shall be final and
binding on the parties. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction. The parties shall each be
responsible for their own expenses in connection with such arbitration,
including without limitation, counsel fees and fees of experts; provided,
however, that the parties shall share equally in the expense of the arbitrators
and of the AAA.
AGREED: AGREED:
TNT TNC
- ------------------------------ -----------------------------
(Signature) (Signature)
- ------------------------------ -----------------------------
(Name) (Name)
- ------------------------------ -----------------------------
(Title) (Title)
- ------------------------------ -----------------------------
(Date) (Date)
-10-
<PAGE>
ATTACHMENT A
------------
SOFTWARE
--------
Knowledge Network
SCJNet
K-C Net
<PAGE>
ATTACHMENT B
------------
Co-ordinator Responsibilities
Act as the primary informational resource for the Software.
Oversee the daily operation of the Software as well as promote and foster
its use within TNC. Coordinate training of the system's users and its content
providers.
Continually evaluate the success of the Software and assist in the
implementation of enhancements to the Software to ensure its continued
effectiveness and successful use within TNC.
Assist in the coordination and project management of any future
enhancement or expansion projects.
Report to the Intranet Technologies Systems Manager, TNT, Chicago.
This position is currently held by Amy Brooks.
<PAGE>
ATTACHMENT C
------------
Maintenance and Support Fees
The annual maintenance fee for the first year from the Effective Date shall be
$1.7 million, payable in four equal installments in advance for each calendar
quarter on January 1, April 1, July 1, and October 1, 1997.
On approximately August 1, 1997, TNT shall provide TNC with a report detailing
cumulative operating expenses for the six month period ended June 30, 1997, less
any portions thereof paid directly by TNC related to the software (but not
including software amortization costs). If the amount so calculated differs from
$850,000 by more than 10%, the parties shall meet in good faith to re-negotiate
the maintenance fees for July 1, 1997 through December 31, 1997, with such fees
being applied retroactively to July 1, 1997. If the parties cannot agree on a
maintenance fee, the maintenance fee for such period shall remain at the annual
rate of $1.7 million.
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
Christiansen, Fritsch, Giersdorf, Grant and Sperry, Inc. (Washington), "Cf2GS"
Modem Media, Inc. (Connecticut)
Modem Media Limited Partnership (Connecticut)
Northern Lights Interactive Inc. (Delaware)
Northern Lights Interactive Inc. (Ontario, Canada)
TN Technologies Inc. (Delaware)
TN Technologies Limited (Hong Kong)
*TN Technologies Limited (United Kingdom)
*a wholly owned subsidiary of TN Technologies Inc. (Delaware) which is a wholly
owned subsidiary of the Registrant.
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<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 446
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