<PAGE>
As filed with the Securities and Exchange Commission on January 28, 1999
Registration No. 333-68057
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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MODEM MEDIA . POPPE TYSON, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7311 06-1464807
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
(203) 341-5200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
GERALD M. O'CONNELL
Chief Executive Officer
Modem Media . Poppe Tyson, 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. ALAN DEAN, Esq.
BRIAN C. ERB, Esq. Davis Polk & Wardwell
Wilson Sonsini Goodrich & Rosati 450 Lexington Avenue
Professional Corporation New York, NY 10017
650 Page Mill Road (212) 450-4000
Palo Alto, CA 94304
(650) 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: [_]
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- --------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 28, 1999
[LOGO OF MODEM MEDIA . POPPE TYSON APPEARS HERE]
2,600,000 Shares
Class A Common Stock
We are offering 2,600,000 shares of our Class A common stock. This is our
initial public offering, and no public market currently exists for our shares.
The shares have been approved for quotation on the Nasdaq National Market under
the symbol "MMPT." We anticipate that the initial public offering price will be
between $11.00 and $13.00 per share.
---------------
Investing in the Class A common stock involves risks.
See "Risk Factors" beginning on page 8.
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<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Company............................................. $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 390,000 shares of Class A common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of Class A
common stock to purchasers on , 1999.
---------------
BancBoston Robertson Stephens
NationsBanc Montgomery Securities LLC
Bear, Stearns & Co. Inc.
The date of this Prospectus is , 1999
<PAGE>
[FLOWCHART DEPICTING THE MODEM MEDIA . POPPE TYSON, INC. FOUR-POINT
SERVICE FRAMEWORK, ALONG WITH ARTWORK DEPICTING THE THREE
CHANNELS IN WHICH ITS WORK APPEARS ON THE INTERNET--WEBSITES,
BANNERS AND E-MAIL.]
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You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions where offers and
sales are permitted.
Until , 1999, all dealers that buy, sell or trade our Class A common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation 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....................................................... 4
Risk Factors............................................................. 8
Company Background....................................................... 16
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 35
Management............................................................... 51
Relationship with True North and Certain Transactions.................... 57
Principal Stockholders................................................... 60
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 65
Underwriting............................................................. 67
Legal Matters............................................................ 69
Experts.................................................................. 69
Additional Information................................................... 69
Index to Financial Statements............................................ F-1
</TABLE>
3
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the Class A common stock being sold in
this offering and our financial statements and notes thereto appearing
elsewhere in this prospectus.
Overview
We provide marketing programs delivered over the Internet and other
electronic media that facilitate two-way communication between our clients and
their customers. We refer to these programs as digital interactive marketing
solutions. By developing marketing programs that incorporate advanced
communication technologies, we enable our clients to establish, retain and
manage one-to-one customer relationships. Our marketing programs include the
design and implementation of electronic business programs that utilize the
Internet to enable our clients to better locate, communicate with and service
customers in an effort to increase the value of their globally-recognized
brands. We combine our substantial expertise in marketing, creative design and
digital technology to deliver on a worldwide basis a complete range of digital
interactive marketing services, including consulting and research related to
our clients' marketing strategies, which we refer to as strategic consulting,
website design, electronic commerce and electronic customer communication
services, interactive advertising and promotions, and data collection and
analysis. Our marketing programs are delivered primarily through the Internet
and are designed to enable our clients to target narrowly-defined market
segments, provide their customers with detailed product and service
information, sell products and services, and provide post-sale customer support
electronically. For visual examples of our interactive marketing services, see
the screen shots on the inside front cover of this prospectus.
We focus on making our digital interactive marketing solutions an integral
part of our clients' marketing strategies in order to promote long-term client
relationships. We combine our strategic interactive marketing knowledge and
technical expertise to provide high-impact, cost-effective digital interactive
marketing and customer management solutions. We use dedicated client service
teams with interactive marketing experience in strategic consulting, creative,
media, technology and production disciplines, led by experienced account
directors, to provide our digital marketing communication services consistently
over the Internet and other electronic media. Our proven processes and
methodologies for executing client work, developed over a decade, enable us to
undertake interactive projects, monitor progress and measure the return on our
clients' investment in interactive marketing programs. We incorporate client
feedback into successive strategic marketing campaigns and programs to further
improve and build upon online customer relationships.
We focus on devising programs that can be integrally linked to our clients'
business functions. We work primarily with a select group of established
Fortune 500 clients committed to interactive marketing, as well as companies
with new online business models. For the nine months ended September 30, 1998,
our ten largest clients measured by revenues with whom we have a continuing
relationship were: AT&T; BancBoston Robertson Stephens; Citibank; Delta Air
Lines; Intel; JC Penney; John Hancock; Kraft; Sony and Unilever. We have
received numerous industry awards for our interactive marketing campaigns,
websites, banner advertisements and CD-ROMs, including the Zima.com campaign
and website, the AT&T Olympic Games Connection Website, the AT&T
"Intermercial" Campaign, the AT&T Worldnet CD-ROM, , the iVillage.com "About
Work"
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campaign, the Sony PlayStation campaign and the Diet Pepsi "Convert a Million"
campaign. In 1998, we won the "Interactive Agency Of The Year" award from the
Internet Advertising Bureau, a trade association, and we are the only company
to win two consecutive "CASIE" awards for interactive marketing.
The Internet is an important medium for advertisers due to its interactive
nature, global reach and rapidly growing audience, as well as the expected
increase in online commerce. Unlike advertising on traditional mass media, the
Internet gives marketers the potential to target advertisements to both broad
audiences and selected groups of users with specific interests and
characteristics. These features enable the development and delivery of
customized and targeted marketing programs and communications services that
incorporate advanced interactive features to inform, engage, entertain and
facilitate commerce with the target audience. The Internet also allows
advertisers and direct marketers to measure the effectiveness and response
rates of advertisements and to track the demographic characteristics of
Internet users in real time. The interactive nature of the Internet enables
marketers to better understand potential customers, and to change messages
rapidly and cost-effectively in response to customer interests and behavior.
The unique capabilities of online advertising, the growth in use of electronic
media and the favorable demographics of Internet users have led to a
significant increase in online advertising. Jupiter Communications estimates
that total spending on the placement of advertisements online in the United
States in 1997 was $940 million, and expects this amount to grow to $4.4
billion in 2000.
Our objective is to be the leading provider of digital interactive marketing
solutions. Key elements of our strategy include:
. developing and maintaining long-term client relationships with a core
group of clients;
. maintaining an innovative approach to digital interactive marketing
through the continuing development of new service offerings and the rapid
adoption of emerging technologies;
. continuing to attract and retain superior professional talent; and
. continuing to expand our global office network in order to provide our
clients with comprehensive global marketing solutions.
We currently serve more than 30 clients through our global network of seven
offices in North America, Europe and Asia. We had pro forma revenues in 1997
and for the nine months ended September 30, 1998 of $29.4 million and $30.4
million, respectively.
Modem Media . Poppe Tyson
Our company is the result of the combination of three separate businesses,
Modem Media Advertising Limited Partnership (the "Modem Partnership"), the
Northern Lights Interactive division of True North Communications Inc., and the
interactive marketing operations of Poppe Tyson, Inc. ("Poppe Tyson") focused
on providing long-term strategic advice to clients. True North, the sixth
largest advertising holding company in the world, formed us in October 1996 to
acquire the Modem Partnership and to combine the Modem Partnership with its
digital interactive marketing operations. We acquired the strategic interactive
marketing operations of Poppe Tyson effective October 1998 as part of True
North's decision to reorganize its interactive marketing operations. True North
had acquired Poppe Tyson in December 1997. The Modem Partnership has been a
provider of digital interactive marketing
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services since 1988. Poppe Tyson has provided digital interactive marketing
services to domestic and international clients since 1985. When we present
financial information on a pro forma basis in this prospectus, we are giving
effect to the combination of the three businesses.
After the offering, True North will own all of the outstanding shares of our
Class B common stock and will control 84.9% of our voting power.
Our principal executive office is located at 228 Saugatuck Avenue, Westport,
Connecticut 06880, and our telephone number at that address is (203) 341-5200.
We maintain Web sites at www.modemmedia.poppetyson.com, www.modemmedia.com, and
www.poppe.com. Information contained on our websites should not be considered
to be a part of this prospectus.
The Offering
The calculation of the shares of common stock outstanding after the offering
in the table below is based on the number of shares outstanding as of
September 30, 1998. The shares of common stock outstanding excludes (a)
3,040,000 shares of Class A common stock that have been reserved for issuance
under our stock option plan and (b) 950,000 shares of Class A common stock
that have been reserved for purchase by employees under our employee stock
purchase plan.
<TABLE>
<C> <S>
Class A common stock offered....................... 2,600,000 shares
Common stock to be outstanding after this offering:
Class A common stock............................ 5,023,831 shares
Class B common stock............................ 5,648,624 shares
Total...................................... 10,672,455 shares
Over-allotment option.............................. 390,000 shares
Voting rights:
Class A common stock............................ One vote per share
Class B common stock............................ Five votes per share
Use of proceeds.................................... We will receive net
proceeds from this
offering of approximately
$26.6 million. We will use
approximately $6.0 million
of the net proceeds to
repay indebtedness owed to
True North, our parent
company. We intend to use
the remaining net proceeds
for working capital and
capital expenditures.
Dividend policy.................................... We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
Proposed Nasdaq National Market symbol............. MMPT
</TABLE>
6
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SUMMARY FINANCIAL DATA
(in thousands, except per share data)
The following summary financial data should be read in conjunction with the
consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. Our pro forma statements of operations
data in the table below are based on the assumptions and contain the
adjustments described in "Selected Financial Data."
<TABLE>
<CAPTION>
Actual Pro Forma
---------------------------------------------------- ------------------------------
Nine Months Ended
Year Ended December 31, September 30, Year Ended Nine Months Ended
-------------------------------- ------------------ December 31, September 30,
1994 1995 1996 1997 1997 1998 1997 1998
----- ------- ------- ------- -------- -------- ------------ -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ -- $ 438 $ 2,093 $25,497 $ 18,025 $ 30,397 $29,422 $30,397
Salaries and benefits
expense................ -- 308 1,322 15,894 11,187 20,793 19,244 20,793
Office and general
expense................ -- 215 712 9,038 6,162 10,309 12,217 10,309
Amortization of goodwill
expense................ -- -- -- 1,666 1,249 1,308 1,666 1,308
Operating losses of True
North units held for
transfer............... (326) 1,766 1,309 2,180 1,600 13 -- --
----- ------- ------- ------- -------- -------- ------- -------
Operating income
(loss)................. 326 (1,851) (1,250) (3,281) (2,173) (2,026) (3,705) (2,013)
Interest income
(expense), net......... -- -- -- (76) (62) (5) (121) (5)
----- ------- ------- ------- -------- -------- ------- -------
Income (loss) before
income taxes........... 326 (1,851) (1,250) (3,357) (2,235) (2,031) (3,826) (2,018)
Provision (benefit) for
income taxes........... 70 (873) (548) (248) (246) 57 66 (59)
----- ------- ------- ------- -------- -------- ------- -------
Net income (loss)....... $ 256 $ (978) $ (702) $(3,109) $ (1,989) $ (2,088) $(3,892) $(1,959)
===== ======= ======= ======= ======== ======== ======= =======
Basic and diluted net
income (loss) per
share.................. $ -- $ -- $(35.10) $ (0.43) $ (0.27) $ (0.29) $ (0.48) $ (0.24)
===== ======= ======= ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
-------------------
Actual Pro Forma
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash........................................................ $ 4,349 $24,925
Working capital............................................. 1,891 22,467
Total assets................................................ 68,182 98,525
Capital lease obligations, less current portion............. 507 507
Related party obligations, less current portion............. 11,275 --
Other long-term obligations................................. 24 24
Total stockholders' equity.................................. 36,802 78,420
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations. Our business, financial condition or results of operations could be
materially adversely affected by any of the following risks. The trading price
of our Class A common stock could decline due to any of these risks, and you
might lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
We have a history of operating losses, and there can be no assurance that we
will be profitable
We have experienced operating losses as well as net losses, on a pro forma
basis, in seven of the eleven quarters during the period from January 1, 1996
to September 30, 1998. Although we have experienced revenue growth in recent
periods, these growth rates may not be sustainable or indicative of future
operating results. In addition, we have incurred substantial costs to expand
and integrate our operations and we intend to continue to invest heavily in
ongoing expansion. Our ongoing integration costs will include the combination
of the financial, information and communications systems of the various
companies that were combined to form our company. Our ongoing expansion costs
will include the leasing of additional office space and the purchase of new
computer and communications equipment. As a result of these and other costs, we
expect to continue to incur operating losses through 1999 or beyond, and there
can be no assurance that we will achieve or sustain profitability.
Our operating results depend on our relationship with a limited number of
clients
Our results of operations and our business depend on our relationship with a
limited number of large clients. Set forth below is the percentage of revenues
on a pro forma basis during the fiscal year ended December 31, 1997 and the
nine months ended September 30, 1998 for each of our clients that accounted for
more that 10% of our revenues and for our ten largest clients combined:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
Client December 31, 1997 September 30, 1998
------ ----------------- ------------------
<S> <C> <C>
AT&T.................................... 31.4% 20.4%
Citibank................................ (less than 10%) 12.0
Ten largest clients combined............ 74.4 76.5
</TABLE>
There can be no assurance that we will be able to maintain our historical rate
of growth or our current level of revenues derived from AT&T, Citibank or any
other client in the future.
We do not have long-term contracts with any of our clients. Our clients
generally hire us for one assignment at a time and do not pay us any retainer
fees in advance. Once an assignment is completed there can be no assurance that
a client will engage us for further services. As a result, a client that
generates substantial revenue for us in one period may not be a substantial
source of revenue in a subsequent period. In addition, our clients generally
have the right to terminate their relationships with us without penalty and
with relatively short or no notice. The termination of our business
relationships with any of our significant clients, including AT&T or Citibank,
or a material
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reduction in the use of our services by any of our significant clients, could
adversely affect our future financial performance.
Variability of our operating results may impact our stock price
Our operating results have fluctuated in the past, and may continue to
fluctuate in the future, as a result of a variety of factors, many of which are
outside of our control, including:
.timing of new projects;
.reductions, cancellations or completions of major projects;
.the loss of significant clients;
.the opening or closing of an office;
.our relative mix of business;
.changes in pricing by us or our competitors;
.employee utilization rates;
.changes in personnel;
.costs related to expansion of our business;
.increased competition; and
.marketing budget decisions by our clients.
As a result of these fluctuations, we believe that period-to-period comparisons
of our operating results cannot be relied upon as indicators of future
performance. In some quarters our operating results may fall below the
expectations of securities analysts and investors due to any of the factors
described above. In such event, the trading price of the Class A common stock
would likely decline.
We also experience some variation in operating results throughout the year
which results in part from the marketing communications spending patterns and
business cycles of our clients, and from marketing communications spending
patterns in general. Our revenues have historically been higher during the
second half of our fiscal year as our clients prepare marketing campaigns for
products and services launched in anticipation of fall trade shows and the
holiday season. We expect this variation in operating results to continue in
the future.
The integration of our separate business units may adversely affect our
operating results
Our company is the result of the combination of three separate businesses,
the Modem Partnership, the Northern Lights Interactive division of True North
and the interactive marketing operations of Poppe Tyson focused on providing
long-term strategic advice to clients. Accordingly, we have only recently begun
to operate as a combined entity. We expect that the integration of our
operations will place a significant burden on our management. Such integration
is subject to risks and uncertainties, including:
. the inability to effectively assimilate the operations, services,
technologies, personnel and cultures of the combining entities;
. the potential disruption of our business; and
. the impairment or loss of relationships with employees and clients.
If in connection with combining our businesses we fail to integrate our
operations successfully or on a timely basis, or if we incur any unforeseen
expenses, our financial performance could be materially and adversely effected.
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If we fail to accurately estimate costs in fixed-fee assignments, our operating
results may be adversely affected
In the nine months ended September 30, 1998, approximately 74% of our
revenues were derived from fixed-fee assignments. If we fail to estimate costs
accurately, control costs during performance of a fixed-fee assignment,
anticipate technical problems or obtain a fee adjustment in the event that we
underestimate costs, our future financial performance could be adversely
affected. We recognize revenues from assignments based on our estimate of the
percentage of each assignment completed in a reporting period. To the extent
our estimates are inaccurate, the revenues and operating profits, if any, we
report for periods during which we are working on an assignment may not
accurately reflect the final results of the assignment and we would be required
to record an expense for such period equal to the amount by which our revenues
were previously overstated.
The interests of True North, our controlling stockholder, may conflict with our
interests
True North owns, directly or indirectly, all of the shares of our Class B
common stock, each share of which entitles its holder to five votes on most
stockholder actions. As a result, True North will have 84.9% of the combined
voting power of both classes of our common stock after this offering. The
purchasers of the shares of Class A common stock offered hereby will be
entitled to one vote per share and will have 7.8% of the combined voting power.
After the offering, True North will have three representatives on our Board of
Directors and will have enough votes to elect all members of the Board of
Directors. As a result of its stock ownership after this offering, True North
will be in a position, without the approval of our public stockholders, to take
corporate actions that could conflict with the interests of our public
stockholders, such as:
. amending our corporate documents;
. approving or defeating mergers or takeover attempts;
. determining the amount and timing of dividends paid to itself and to
holders of Class A common stock;
. changing the size and composition of our Board of Directors and
committees of our Board of Directors; and
. otherwise controlling management and operations and the outcome of most
matters submitted for a stockholder vote.
True North is the sixth largest advertising company in the world. True North
may decide to provide its traditional advertising clients with interactive
marketing solutions that compete with the services we provide. While we have
entered into an agreement with True North whereby it has agreed not to compete
with us, such agreement will expire at the end of 1999. In addition, True North
may expand, through development of new lines of products or businesses, by
acquisition or otherwise, to compete with us.
Currently, two of our five directors are also members of management of True
North and are compensated by True North in connection with their employment by
True North. In addition, one of our current directors is a director of True
North and was selected to serve on our board of directors by True North. These
directors may have conflicts of interest in addressing business opportunities
and strategies in circumstances where our interests differ from those of True
North. For example, if a
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dispute were to arise between True North and our directors who are also
officers and directors of True North, they may be unable to act on our behalf
if such action would have a negative impact on True North. In such a case these
directors would not be able to participate in resolving such dispute and our
remaining officers and directors would be required to act independently. We
have not adopted any formal plan or arrangement to address these potential
conflicts of interest.
Continued growth of our business will place increased demands on our systems
and resources and may impact our operating results
The expansion of our business and customer base has placed increased demands
on our management, operating systems, internal controls and financial and
physical resources. Our continued growth, if any, may strain existing
management and human resources in particular, affecting our ability to attract
and retain talented personnel. Consequently, we may be required to increase
expenditures to hire new employees, open new offices and invest in new
equipment or make other capital expenditures. Any failure to expand any of the
foregoing areas in an efficient manner could adversely affect our business.
There also can be no assurance that we will be able to sustain the rates of
growth that we have experienced in the past.
We will be required to implement a new accounting system to support future
growth
As a result of the recent growth of our business operations, our current
operational, financial and management information systems may not be adequate
to support our expected growth of operations in the future. In this regard, we
are currently in the process of installing a new financial accounting system.
We have spent approximately $800,000 to date on such system and intend to make
additional capital expenditures of approximately $800,000 in 1999 to complete
this system. If we are unsuccessful in implementing our new accounting system
as required, our business may be adversely affected.
We depend on our key management personnel for our future success
We rely on our key management personnel, including Gerald M. O'Connell, our
Chief Executive Officer, and Robert C. Allen, II, our President. We believe
that our future success will depend upon our ability to attract and retain
additional highly skilled personnel. If any of our officers or key employees
leave our company, the relationships that they have with our clients could be
lost. In addition, our ability to generate revenues directly relates to our
personnel, both in terms of the number and expertise of the personnel we have
available to work on our projects and the mix of full time employees, temporary
employees and contract service providers we utilize. The competition for
employees at all levels of the digital interactive marketing industry is
intense and is increasing. As a result, if we fail to retain existing employees
or hire new employees when necessary, our business, financial condition and
operating results could be materially and adversely affected.
Conflicts of interest and exclusivity arrangements with our clients may limit
our ability to provide services to others
Conflicts of interest between clients and potential clients are inherent in
the marketing communications industry. Moreover, as is customary in the
marketing communications industry, we have entered into exclusivity
arrangements with many of our largest clients that restrict our ability to
provide services to their competitors. We have in the past been, and may in the
future be, unable to take on new clients because such opportunities would
require us to provide services to direct competitors of our existing clients.
In addition, we risk harming relationships with existing clients
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when we agree to provide services to indirect competitors of existing clients.
Prospective clients may choose also not to retain us for reasons of actual or
perceived conflicts of interest.
The developing market for our digital interactive marketing solutions is
subject to uncertainties
The market for digital interactive marketing solutions has only recently
begun to develop, is evolving rapidly and is characterized by an increasing
number of market entrants. Demand for and market acceptance of recently
introduced 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, online services and corporate
intranets;
. the development of technologies that facilitate interactive communication
between organizations and targeted audiences; and
. our ability to anticipate such technologies and incorporate them into our
services in a timely fashion.
Significant issues concerning the commercial use of these technologies remain
unresolved, and may have a negative impact on the growth of marketing
activities that utilize these technologies. Such significant issues include
security, privacy, reliability, cost, ease of use and quality of service. 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
interactive marketing services will continue to grow, that demand for our
services will continue or that individual personal computer users in business
or at home will continue to use the Internet or other interactive media for
commerce and communication. If the market for digital interactive marketing
solutions develops more slowly than we expect, or if our services do not
continue to achieve market acceptance, our future operating performance could
be materially adversely affected.
Our business depends on continued growth in use and improvement of the Internet
Because we are in the business of providing digital interactive marketing
services, our future success depends on the continued expansion of, and
reliance of consumers and businesses on, the Internet. The Internet may not be
able to support an increased number of users or an increase in the volume of
data transmitted over it. As a result, the performance or reliability of the
Internet may be adversely affected as use increases. The improvement of the
Internet in response to increased demands will require timely improvement of
the high speed modems and other communications equipment that form the Internet
infrastructure. The Internet has already experienced certain outages and delays
as a result of damage to portions of its infrastructure. The effectiveness of
the Internet may also decline due to delays in the development or adoption of
new technical standards and protocols designed to support increased levels of
activity. There can be no assurance that the infrastructure, products or
services necessary to maintain and expand the Internet will be developed, or
that the Internet will be a viable commercial medium for advertisers.
Changes in government regulation could adversely affect our business
The marketing communications industry is subject to extensive government
regulation, both domestic and foreign, with respect to the truth in and
fairness of advertising. We must comply with Federal Trade Commission
regulations governing the marketing of products and services and similar
12
<PAGE>
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 we will not
be subject to claims against us or our clients by other companies or
governmental agencies or that any such claims, regardless of merit, would not
have a material adverse effect on our future operating performance.
Due to the increasing popularity and use of the Internet, any number of
state, federal, foreign international laws and regulations may be adopted
regarding pricing, acceptable content, taxation and quality of products and
services. Any new legislation could inhibit the growth in use of the Internet
and decrease the acceptance of the Internet as a communications and commercial
medium, or could in turn decrease the demand for our services or otherwise have
a material adverse effect on our future operating performance.
Consumers' concerns about privacy on the internet may adversely affect our
business
An important feature of the services we provide to our clients is the ability
to develop and maintain individual user profiles to measure the effectiveness
of digital marketing programs and to determine the nature of the content to be
provided to particular customers. Profile information is often captured when
consumers visit a site on the Internet and volunteer information in response to
questions or other forms of solicitation concerning their backgrounds,
interests and preferences. These profiles are used by our clients to manage the
distribution and frequency as well as the content of advertising placement.
However, privacy concerns may cause consumers to resist providing the personal
data necessary to support this profiling capability. Moreover, even the
perception of privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of the Internet as a means of commerce and marketing. Privacy
concerns would be heightened by legislative or regulatory requirements that
mandate notification to Internet users that the data captured on certain
Internet sites may be used by marketing entities to address product promotion
and advertising to that user. While we are not aware of any such legislation or
regulatory requirements in the United States, no assurance can be given that
they will not be adopted. If the privacy concerns of consumers are not
adequately addressed, our future operating performance could be materially and
adversely affected.
We may be liable to our clients for damages
Many of our engagements involve the development, implementation and
maintenance of marketing programs that are critical to our clients' businesses.
Our failure or inability to meet a client's expectations in the performance of
services could injure our business reputation or result in a claim for
substantial damages against us regardless of our responsibility for such
failure. In addition, the marketing programs we provide for our clients may
include confidential or proprietary client information. Although we have
implemented policies to prevent such client information from being disclosed to
unauthorized parties or used inappropriately, any such unauthorized disclosure
or use could result in a claim against us for substantial damages. Our
contractual provisions attempting to limit such damages may not be enforceable
in all instances or may otherwise fail to protect us from liability for
damages, which could adversely affect our future operating performance.
We depend on True North for services and client referrals
We have historically depended on True North for corporate administrative
functions. In addition, True North has provided legal, accounting, treasury
consulting, financing, cash management, tax and payroll administration,
insurance, employee benefits administration, debt and lease guaranties
13
<PAGE>
services to us in the past. We have entered into agreements with True North to
continue providing legal, tax preparation, insurance, treasury consulting,
financing and debt and lease guaranty services after the offering. If we are no
longer able to obtain these services from True North, we will be required to
provide such services internally or find a third-party provider of these
services. There can be no assurance that, if required, we will be able to
secure the provision of these services on acceptable terms. If we are
unsuccessful in obtaining an acceptable provider of any of these services upon
termination of our agreements with True North, our future financial performance
could be adversely affected. Because we are a wholly-owned subsidiary of True
North, none of these agreements resulted from arm's-length negotiations and,
therefore, the prices charged to us for services provided thereunder may be
higher or lower than prices that may be charged by third parties.
We have also from time to time received client referrals from True North and
have worked with True North in obtaining new clients. However, True North is
not required to assist us in obtaining new clients or to refer any of its
clients to us. There can be no assurance that True North will continue to
assist us in obtaining new clients in the future. If True North stops assisting
us in obtaining new clients, or if True North provides us with less help than
in the past, our ability to obtain new clients could be impaired and our future
operating performance could be adversely affected.
Problems related to the "Year 2000 Issue" could adversely affect our business
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. The
failure to correct any such programs or hardware could result in system
failures or miscalculations causing disruptions of our operations, including,
among other things, a temporary inability to process transactions, send
invoices or engage in similar normal business activities. We have determined
that we will have to modify or replace portions of our information processing
systems so that those systems will properly utilize dates beyond December 31,
1999. We plan to complete the modifications and replacements necessary to
correct those systems prior to December 31, 1999. If such modifications and
replacements are not made, or are not completed on a timely basis, the Year
2000 Issue could have a material impact on our future operating performance.
We frequently conduct transactions and perform services that interface
directly with systems of our clients. There is no guarantee that the systems of
our clients or other companies on which our systems rely will be timely
converted and will not experience material business disruptions that could
affect us as a result of the Year 2000 problem. Responses of clients and third
party suppliers to our inquiries to date indicate that they expect, at this
time, to be compliant by the Year 2000 based on their progress to date.
However, the inability of a substantial number of our suppliers to complete
their Year 2000 compliance could cause significant disruptions in our ability
to provide services to our clients. Moreover, the inability of a substantial
number of our clients to complete their Year 2000 compliance could cause them
to reduce spending on interactive marketing programs. Either event could have a
material adverse effect on our future operating performance.
The most reasonable worst case scenario for Year 2000 Issues, which we
believe is unlikely, would result in delayed billings to customers and
difficulties in making payments to suppliers and employees. In such event, we
would prepare manual bills for customers and advance funds to suppliers and
employees until Year 2000 Issues are resolved. We believe that the additional
costs of temporary staff to process billings and payments would not have a
material adverse impact on our results of operations. In addition, the Year
2000 Issue could also result in large-scale failures of
14
<PAGE>
utility power or local and long distance voice and data circuits or the failure
of a large portion of our hardware and software systems affecting one or more
of our offices. It is reasonably likely that any one or a combination of these
failures could effectively prevent one or more of our offices from conducting
normal service operations for clients, from billing clients, or making payments
to suppliers and employees in a timely manner. In such event, our plan is to
temporarily transfer the operations of the affected office to one or more of
our functional offices. All of our offices are networked together and data may
be distributed between offices through our own network or through the Internet.
Market volatility may impact our share price
The stock market in general, and the market for technology-related stocks in
particular, have experienced extreme volatility that often has been unrelated
to the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of our Class A
common stock, regardless of our actual operating performance.
15
<PAGE>
COMPANY BACKGROUND
Modem Media is the result of the combination of three separate businesses,
the Modem Partnership, the Northern Lights Interactive division of True North
and the strategic interactive marketing operations of Poppe Tyson.
In October 1996, True North formed Modem Media as a subsidiary to acquire the
Modem Partnership and to combine it with True North's digital interactive
marketing operations, including Northern Lights Interactive. In 1998, True
North undertook to consolidate all of its strategic interactive marketing
operations in Modem Media, and to remove from Modem Media those operations it
had originally contributed in 1996 that were not compatible with Modem Media's
core business. Accordingly, True North agreed to transfer to Modem Media the
strategic interactive marketing operations of Poppe Tyson, another True North
subsidiary, in exchange for the non-strategic portion of the operations
originally contributed to Modem Media in 1996. The operations to be removed
consisted of all operations originally contributed other than Northern Lights
Interactive. This combination will be completed prior to the offering with
effect from October 1, 1998.
The Modem Partnership, a provider of digital interactive marketing services,
was founded in 1987. Poppe Tyson was formed in December 1985 and has provided
interactive marketing services to domestic and international clients since
1988. Poppe Tyson became a True North subsidiary in December 1997 when True
North acquired Poppe Tyson's parent company, Bozell, Jacobs, Kenyon & Eckhardt,
Inc. ("Bozell"). The strategic interactive marketing operations of Poppe Tyson
contributed to Modem Media in 1998 are referred to in this prospectus as the
"Poppe Tyson Strategic Interactive Marketing Operations." These operations
focus on providing long-term strategic advice to clients, and include assets
and client relationships in the United States, and interactive agencies in the
United Kingdom and Hong Kong.
Upon consummation of the transactions described above, Modem Media's business
will consist of the Modem Partnership, Northern Lights Interactive and the
Poppe Tyson Strategic Interactive Marketing Operations.
16
<PAGE>
Set forth below are the ownership interests of Modem Media, consisting of the
Modem Partnership and the operations originally contributed by True North in
1996, and of the Poppe Tyson Strategic Interactive Marketing Operations prior
to their combination with Modem Media and this offering:
[CHART OF OWNERSHIP INTERESTS APPEARS HERE]
True North is a publicly-owned company. One director and two officers of True
North serve as directors of Modem Media. See "Relationship with True North and
Certain Transactions."
17
<PAGE>
Set forth below are the ownership interests of Modem Media after the October
1998 combination and this offering:
[CHART OF OWNERSHIP INTERESTS APPEARS HERE]
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by Modem Media from the sale of the Class A
common stock in this offering, after deducting estimated expenses of $2.4
million, all of which are payable by Modem Media, and underwriting discounts
and commissions, are estimated to be approximately $26.6 million (approximately
$30.9 million if the underwriters exercise their over-allotment option in
full), at an assumed initial public offering price of $12.00 per share. The
principal purposes of this offering are to repay indebtedness owed to True
North, to obtain additional capital, to create a public market for Modem
Media's Class A common stock and to facilitate future access by Modem Media to
public securities markets.
Modem Media will use approximately $6.0 million of the net proceeds from this
offering to pay indebtedness owed to True North. This indebtedness is due and
payable upon consummation of this offering and is non-interest bearing. Modem
Media currently expects to use the remaining $20.6 million of net proceeds for
general corporate purposes, including working capital and capital expenditures.
A portion of the net proceeds from this offering may also be used to acquire or
invest in complementary marketing communications companies, services, products
or technologies, or to invest in geographic expansion. Pending use of the net
proceeds for the above purposes, Modem Media intends to invest such funds in
short-term, interest-bearing, investment grade obligations or may advance a
portion of such funds to True North under its current intercompany lending
arrangements.
DIVIDEND POLICY
Modem Media 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. Any determination to pay dividends in
the future will be at the discretion of Modem Media's Board of Directors and
will depend upon Modem Media's financial condition, results of operations and
capital requirements. See "Risk Factors--The interests of True North, our
controlling stockholder, may conflict with our interests."
19
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of Modem Media at
September 30, 1998: (i) on an actual basis; and (ii) on a pro forma basis after
giving effect to the combination of Modem Media and the Poppe Tyson Strategic
Interactive Marketing Operations, the offering and the application of the net
proceeds of the offering, including:
. the purchase of fixed assets of $1,624,000;
. the forgiveness of $5,275,000 of intercompany payables;
. the sale to True North of the non-strategic digital interactive marketing
operations originally contributed by True North to Modem Media in 1996;
. the issuance of an aggregate of 809,514 shares of Class B common stock to
True North;
. increased goodwill due to the payment of the additional purchase price of
$15,587,000 by True North to the former partners of the Modem Partnership
upon consummation of this offering;
. the repayment of a $6,000,000 note payable to True North; and
. the issuance and sale of 2,600,000 shares of Class A common stock offered
hereby by Modem Media at the initial public offering price of $12.00 per
share, the midpoint of the estimated public offering price range set
forth on the cover page of this prospectus, after deducting underwriting
discounts and commissions and estimated offering expenses.
Unless otherwise indicated, the information in this prospectus:
. reflects a 0.95-for-1 reverse split of our outstanding shares of Class A
common stock and Class B common stock which will take place prior to this
offering;
. reflects an amendment of our Certificate of Incorporation authorizing an
aggregate of 39,351,376 shares of Class A common stock and 5,648,624
shares of Class B common stock, which will take place concurrently with
this offering; and
. does not take into account the possible issuance of additional shares of
Class A common stock to the underwriters pursuant to their right to
purchase additional shares to cover over-allotments.
<TABLE>
<CAPTION>
September 30, 1998
-------------------
Actual Pro Forma
-------- ---------
(in thousands)
<S> <C> <C>
Intercompany loans payable................................. $ 11,275 $ --
Capital lease obligations, less current portion............ 507 507
Stockholders' equity:
Preferred stock, $0.001 par value; 5,000,000 shares au-
thorized, none issued and outstanding................... -- --
Common stock, $0.001 par value; 39,351,376 shares of
Class A common stock and 5,648,624 shares of Class B
common stock authorized, 2,423,831 shares of Class A
common stock and 4,839,110 shares of Class B common
stock issued and outstanding, actual; 39,351,376 shares
of Class A common stock and 5,648,624 shares of Class B
common stock authorized, 5,023,831 shares of Class A
common stock and 5,648,624 shares of Class B common
stock issued and outstanding, pro forma................. 8 12
Paid-in capital.......................................... 47,273 88,887
Accumulated deficit...................................... (10,498) (10,498)
Accumulated other comprehensive income................... 19 19
-------- --------
Total stockholders' equity............................. 36,802 78,420
-------- --------
Total capitalization................................... $ 48,584 $ 78,927
======== ========
</TABLE>
20
<PAGE>
DILUTION
The pro forma net tangible book value of Modem Media as of September 30, 1998
was $1.9 million or $0.24 per share of common stock. Net tangible book value
per share is determined by dividing the net tangible book value of Modem Media
(total tangible assets less total liabilities) by the number of shares of
common stock outstanding. After giving effect to the sale by Modem Media of the
2,600,000 shares of Class A common stock offered hereby (at an assumed initial
public offering price of $12.00 per share, the midpoint of the estimated public
offering price range set forth on the cover page of this prospectus, and after
deducting underwriting discounts and commissions and estimated offering
expenses), Modem Media's adjusted pro forma net tangible book value at
September 30, 1998 would have been approximately $29.2 million or $2.74 per
share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $2.50 per share and an immediate dilution to
new investors of $9.26 per share. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Class A common
stock........................................................... $12.00
Pro forma net tangible book value per share of common stock as of
September 30, 1998.............................................. $0.24
Increase in net tangible book value per share of common stock
attributable to new investors................................... 2.50
Pro forma net tangible book value per share of common stock after
the Offering.................................................... 2.74
------
Dilution per share of Class A common stock to new investors...... $ 9.26
======
</TABLE>
The following table sets forth on a pro forma basis as of September 30, 1998
the difference between the number of shares of common stock purchased from
Modem Media, 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 $12.00 per share):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 8,072,455 76% $32,747,000 51% $ 4.06
New investors.............. 2,600,000 24% $31,200,000 49% $12.00
---------- --- ----------- ---
Total.................... 10,672,455 100% $63,947,000 100%
========== === =========== ===
</TABLE>
The foregoing table excludes an aggregate of 3,040,000 shares of Class A
common stock reserved for issuance pursuant to Modem Media's 1997 Stock Option
Plan, of which 1,890,542 have been granted to our employees, and 950,000 shares
of Class A common stock reserved for issuance pursuant to Modem Media's 1999
Employee Stock Purchase Plan. If such options are exercised, new investors will
incur additional dilution from the amount shown in the table above.
21
<PAGE>
SELECTED FINANCIAL DATA
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 year
ended December 31, 1994 and the balance sheet data as of December 31, 1994 and
1995 are derived from financial statements of Modem Media that have been
audited by Arthur Andersen LLP, independent public accountants, which are not
included in this prospectus. The statement of operations data for the fiscal
years ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1998 and the balance sheet data as of December 31, 1996 and 1997
and September 30, 1998 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 nine months ended September 30, 1997 are derived from the unaudited
financial statements of Modem Media. 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, 1997 and 1998 are not necessarily
indicative of the results to be expected for any other interim period or any
other future fiscal year. As a result of the combination of Modem Media and the
Poppe Tyson Strategic Interactive Marketing Operations and other factors, Modem
Media believes that the historical results of operations may not be indicative
of the results of operations to be expected in the future, and that the results
of operations for current interim periods are not necessarily indicative of
results to be expected for the entire year. Accordingly, Modem Media has
included pro forma results of operations data under "Management's Discussion
and Analysis of Financial Condition and Results of Operations," which
management believes may be useful to investors in evaluating the performance of
Modem Media on an ongoing basis.
Our pro forma results of operations in the table below assume that the
following transactions occurred on January 1, 1997:
. the acquisition of the Poppe Tyson Strategic Interactive Marketing
Operations; and
. the sale of Modem Media's non-strategic interactive marketing operations
to True North in connection with the combination of Modem Media and the
Poppe Tyson Strategic Interactive Marketing Operations.
The pro forma balance sheet data reflects adjustments for transactions
related to the combination of Modem Media and the Poppe Tyson Strategic
Interactive Marketing Operations, which have been recorded at historical costs.
These transactions include:
. the purchase of fixed assets of $1,624,000;
. the forgiveness of $5,275,000 of intercompany payables;
. the sale to True North of Modem Media's non-strategic digital interactive
marketing operations originally contributed by True North in 1996; and
. the issuance of an aggregate of 809,514 shares of our Class B common
stock to True North.
The pro forma balance sheet data also reflects adjustments for other
transactions, including:
. the sale of the 2,600,000 shares of Class A common stock offered hereby
at an assumed initial public offering price of $12.00 per share, the
midpoint of the estimated public offering price range set forth on the
cover page of this prospectus;
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<PAGE>
. application of the net proceeds from this offering after deducting
underwriting discounts and commissions, estimated offering expenses and
$6.0 million which will be used to pay indebtedness due and payable to
True North upon consummation of this offering; and
. increased goodwill due to the payment of the additional purchase price of
$15,587,000 by True North to the former partners of the Modem Partnership
upon consummation of this offering.
See "Use of Proceeds" and "Risk Factors--The interests of True North, our
controlling stockholder, may conflict with our interests."
<TABLE>
<CAPTION>
Actual Pro Forma
----------------------------------------------------- -----------------------------
(dollars in thousands, except per share data)
Nine
Months
Nine Months Ended Year Ended Ended
Year Ended December 31, September 30, December 31, September 30,
-------------------------------- ------------------- ------------ ----------------
1994 1995 1996 1997 1997 1998 1997 1997 1998
----- ------- ------- ------- ----------- ------- ------------ ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues................ $ -- $ 438 $ 2,093 $25,497 $18,025 $30,397 $29,422 $20,799 $30,397
Salaries and benefits
expense................ -- 308 1,322 15,894 11,187 20,793 19,244 13,793 20,793
Office and general
expense................ -- 215 712 9,038 6,162 10,309 12,217 8,176 10,309
Amortization of goodwill
expense................ -- -- -- 1,666 1,249 1,308 1,666 1,249 1,308
Operating losses of True
North Units Held for
Transfer............... (326) 1,766 1,309 2,180 1,600 13 -- -- --
----- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)................. 326 (1,851) (1,250) (3,281) (2,173) (2,026) (3,705) (2,419) (2,013)
Interest income
(expense), net......... -- -- -- (76) (62) (5) (121) (84) (5)
----- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 326 (1,851) (1,250) (3,357) (2,235) (2,031) (3,826) (2,503) (2,018)
Provision (benefit) for
income taxes........... 70 (873) (548) (248) (246) 57 66 114 (59)
----- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 256 $ (978) $ (702) $(3,109) $(1,989) $(2,088) $(3,892) $(2,617) $(1,959)
===== ======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted net
income (loss) per
share.................. $ -- $ -- $(35.10) $ (0.43) $ (0.27) $ (0.29) $ (0.48) $ (0.32) $ (0.24)
===== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, 1998
-------------------------- ------------------
1994 1995 1996 1997 Actual Pro Forma
----- ----- ------ ------ ------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash............................ $ -- $ -- $2,726 $7,056 $4,349 $24,925
Working capital................. -- 548 3,428 3,269 1,891 22,467
Total assets.................... 256 753 54,022 59,024 68,182 98,525
Capital lease obligations, less
current portion................ -- -- 193 472 507 507
Related party obligations, less
current portion................ -- 620 6,000 9,346 11,275 --
Other long-term obligations..... -- -- 55 41 24 24
Total stockholders' (deficit)
equity......................... 256 (846) 40,493 35,618 36,802 78,420
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Modem Media'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
Modem Media derives substantially all of its revenues from fees for digital
interactive marketing services rendered to a select number of Fortune 500
companies and emerging companies with online business models. Modem Media's
digital interactive marketing services include:
.strategic consulting and research;
.strategy development and planning;
. development of electronic customer service capabilities which Modem
Media refers to as "customer management platform development," and
. continuous monitoring of the quantitative and qualitative effectiveness
of services previously provided to the client by Modem Media, which is
commonly referred to in Modem Media's industry as "program measurement
and analysis."
A majority of Modem Media's revenues are derived from fixed-fee assignments.
Modem Media recognizes revenues as services are rendered. Modem Media
reassesses its estimated costs on each project on a monthly basis and losses
are accrued, on a project-by-project basis, to the extent costs incurred and
anticipated costs to complete projects exceed anticipated billings. Provisions
for losses on uncompleted contracts are recognized in the period in which such
losses are determined.
Clients generally hire Modem Media on an engagement basis rather than a
retainer basis. Once a project is completed, there can be no assurance that a
client will engage Modem Media for future services. As a result, a client that
generates substantial revenue for Modem Media in one period may not be a
substantial source of revenue in a subsequent period. In addition, Modem
Media's clients generally have the right to terminate their relationships with
Modem Media without penalty and with relatively short or no notice. The
termination of Modem Media's business relationships with any of its significant
clients, or a material reduction in the use of Modem Media's services by any
such clients, could adversely affect Modem Media's business, financial
condition and results of operations. Modem Media's five largest clients
accounted for 56.8% and 54.8% of revenues on a pro forma basis for the year
ended December 31, 1997 and the nine months ended September 30, 1998,
respectively. AT&T accounted for 31.4% and 20.4% of Modem Media's revenues on a
pro forma basis for the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. In addition, Citibank accounted for 12.0% of
Modem Media's revenues on a pro forma basis for the nine months ended September
30, 1998.
Salaries and benefits represent the majority of Modem Media's operating
expenses. These expenses include salaries, employee benefits, incentive
compensation and other payroll-related costs. Office and general is comprised
of office rent and utilities, depreciation, amortization of software,
professional and consulting fees, travel, telephone and other related expenses.
Modem Media has experienced operating losses as well as net losses on both a
historical and pro forma basis, as defined below, in seven of the eleven
quarters in the period January 1, 1996 through September 30, 1998. Although
Modem Media has experienced revenue growth in recent
24
<PAGE>
periods, these growth rates may not be sustainable or indicative of future
operating results. In addition, Modem Media has incurred substantial costs to
expand and integrate its operations and intends to continue to invest heavily
in ongoing expansion and integration efforts as well as infrastructure
development. As a result, Modem Media expects to continue to incur operating
losses through 1999 or beyond. There can be no assurance that Modem Media will
achieve or sustain profitability.
Modem Media was formed by True North in October 1996 to acquire the Modem
Partnership and to combine it with certain of True North's digital interactive
marketing operations, including its Northern Lights Interactive division. The
Modem Partnership was formed in 1987 by Gerald M. O'Connell, our Chief
Executive Officer, and Douglas C. Ahlers, our Executive Vice President. Prior
to this offering, Modem Media intends to acquire the Poppe Tyson Strategic
Interactive Marketing Operations in exchange for non-strategic digital
interactive marketing businesses originally contributed by True North to Modem
Media in 1996, plus 809,514 shares of Class B common stock and the forgiveness
of approximately $5.3 million of intercompany payables. This transaction will
be effective as of October 1, 1998. This transaction will occur among companies
under common control, and, accordingly, has been recorded as of December 31,
1997 (the date of True North's acquisition of the Poppe Tyson Strategic
Interactive Marketing Operations) at historical costs. Poppe Tyson was formed
in December 1985 as a subsidiary of Bozell, which was acquired by True North in
December 1997 in a business combination accounted for under the pooling-of-
interests method. See "Company Background," "Certain Transactions" and Notes 1,
3 and 15 of Notes to Consolidated Financial Statements of Modem Media . Poppe
Tyson, Inc. and Subsidiaries.
The results of operations for Modem Media include the results of:
. the Modem Parnership;
. the digital interactive marketing operations contributed by True North to
Modem Media in 1996, including both Northern Lights Interactive and the
non-strategic digital interactive marketing businesses that Modem Media
intends to sell back to True North prior to this offering; and
. the Poppe Tyson Strategic Interactive Marketing Operations,
from their respective dates of acquisition by True North. The results of
operations of the businesses that Modem Media intends to sell back to True
North are presented as Operating Losses of True North Units Held for Transfer
in Modem Media's consolidated financial statements included elsewhere in this
prospectus.
The financial statements of:
. The Modem Partnership as of and for the years ended December 31, 1995 and
1996; and
. the Poppe Tyson Strategic Interactive Marketing Operations as of and for
the years ended December 31, 1996 and 1997
are included herein as the financial statements of the predecessors to Modem
Media.
Pro Forma Results of Operations
The following table sets forth certain pro forma statements of operations
data of Modem Media for the years ended December 31, 1995, 1996 and 1997 and
for the nine months ended
25
<PAGE>
September 30, 1997 and 1998. The pro forma results of operations data of Modem
Media presented below assume that the following transactions each occurred on
January 1, 1995:
. the combination of Modem Media and the Modem Partnership;
. the acquisition of the Poppe Tyson Strategic Interactive Marketing
Operations; and
. the disposition of the non-strategic digital interactive marketing
operations that Modem Media intends to sell back to True North prior to
this offering.
Management believes that the pro forma statements of operations data may be
useful to investors in evaluating the financial performance of Modem Media on
an ongoing basis. Such pro forma data may not, however, be indicative of the
results of operations of Modem Media that actually would have occurred had the
transactions reflected in the pro forma results occurred at the beginning of
the periods presented, or of the results of operations that may be obtained by
Modem Media in the future.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------ ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(unaudited, in thousands)
<S> <C> <C> <C> <C> <C>
Revenues......................... $12,156 $20,321 $29,422 $ 20,799 $ 30,397
Salaries and benefits............ 5,334 14,050 19,244 13,793 20,793
Office and general............... 2,955 6,569 12,217 8,176 10,309
Amortization of goodwill......... 1,666 1,666 1,666 1,249 1,308
------- ------- ------- -------- --------
Operating profit (loss).......... 2,201 (1,964) (3,705) (2,419) (2,013)
Interest income (expense), net... 8 16 (121) (84) (5)
Provision (benefit) for taxes.... 1,626 68 66 114 (59)
------- ------- ------- -------- --------
Net income (loss)................ $ 583 $(2,016) $(3,892) $ (2,617) $ (1,959)
======= ======= ======= ======== ========
</TABLE>
The following table sets forth certain statements of operations data of Modem
Media as a percentage of total revenues on a pro forma basis, as defined, for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
-------------------- -------------------
1995 1996 1997 1997 1998
----- ----- ----- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and benefits... 43.9 69.2 65.4 66.3 68.4
Office and general...... 24.3 32.3 41.5 39.3 33.9
Amortization of
goodwill............... 13.7 8.2 5.7 6.0 4.3
----- ----- ----- -------- --------
Operating profit
(loss)................. 18.1 (9.7) (12.6) (11.6) (6.6)
Interest income
(expense), net......... 0.1 0.1 (0.4) (0.4) --
Provision (benefit) for
taxes.................. 13.4 0.3 0.2 0.6 (0.2)
----- ----- ----- -------- --------
Net income (loss)....... 4.8% (9.9)% (13.2)% (12.6)% (6.4)%
===== ===== ===== ======== ========
</TABLE>
Pro Forma Nine Months Ended September 30, 1997 Compared to Pro Forma Nine
Months Ended September 30, 1998
Revenues. Pro forma revenues increased $9.6 million, or 46.2%, from $20.8
million for the nine months ended September 30, 1997 to $30.4 million for the
nine months ended September 30, 1998. Pro forma revenues increased primarily as
a result of increased services provided to existing clients, as well as the
addition of new clients.
26
<PAGE>
Salaries and Benefits. Pro forma salaries and benefits increased $7.0
million, or 50.7%, from $13.8 million for the nine months ended September 30,
1997 to $20.8 million for the nine months ended September 30, 1998. Pro forma
salaries and benefits represented 66.3% and 68.4% of pro forma revenues for the
nine months ended September 30, 1997 and 1998, respectively. Both the dollar
and percentage increases in pro forma salaries and benefits were attributable
to a company-wide increase in headcount to better manage the growth of its
business, service clients and actively pursue new client business.
Office and General. Pro forma office and general increased $2.1 million, or
25.6%, from $8.2 million for the nine months ended September 30, 1997 to $10.3
million for the nine months ended September 30, 1998. Pro forma office and
general represented 39.3% and 33.9% of pro forma revenues in the nine months
ended September 30, 1997 and 1998, respectively. The dollar increase in pro
forma office and general was due primarily to increased occupancy and office
support expenses incurred in connection with increases in headcount. The
decrease of office and general as a percentage of pro forma revenue is due
primarily to higher percentage growth rates in revenue.
Amortization of Goodwill. Pro forma amortization of goodwill increased by
$0.1 million, or 8.3%, from $1.2 million for the nine months ended September
30, 1997 to $1.3 million for the nine months ended September 30, 1998 as a
result of the payment of $3.3 million in additional purchase price for the
Modem Partnership in May 1998. Goodwill resulted from the combination of Modem
Media with the Modem Partnership in December 1996 (the "Modem Partnership
Combination") and is being amortized by Modem Media over a 20-year period. In
connection with the Modem Partnership Combination, True North is obligated to
pay the former owners of the Modem Partnership an aggregate of up to $18.6
million as additional consideration upon consummation of an initial public
offering. Such amount will result in additional amortization of goodwill by
Modem Media of up to $0.3 million per quarter over 18 years.
Income Taxes. Modem Media had a provision for income taxes of $0.1 million on
a pro forma pre-tax loss of $2.5 million for the nine months ended September
30, 1997, as compared to a benefit for income taxes of $0.1 million on a pro
forma pre-tax loss of $2.0 million for the nine months ended September 30,
1998. The effective income tax rate was 4.6% on a pro forma basis for the nine
months ended September 30, 1997 compared to an effective income tax benefit
rate of 2.9% on a pro forma basis for the nine months ended September 30, 1998.
The effective tax rates differ from the federal statutory rate primarily due to
the effect of non-deductible goodwill amortization and losses of foreign
subsidiaries on which Modem Media did not recognize a tax benefit.
Pro Forma Year Ended December 31, 1996 Compared to Pro Forma Year Ended
December 31, 1997
Revenues. Pro forma revenues increased by $9.1 million, or 44.8%, from $20.3
million for the year ended December 31, 1996 to $29.4 million for the year
ended December 31, 1997. The increase in pro forma revenues between 1996 and
1997 resulted principally from increased services provided to existing clients,
and, to a lesser extent, the addition of new clients. The opening of new
offices in the United Kingdom and Hong Kong during the fourth quarter of 1996
and first quarter of 1997, respectively, also contributed to the increase.
Salaries and Benefits. Pro forma salaries and benefits increased $5.1
million, or 36.2%, from $14.1 million for the year ended December 31, 1996 to
$19.2 million for the year ended December 31, 1997. As a percentage of
revenues, pro forma salaries and benefits decreased from 69.2% for the year
ended December 31, 1996 to 65.4% for the year ended December 31, 1997. The
dollar increase
27
<PAGE>
in pro forma salaries and benefits was due primarily to company-wide increases
in headcount to support new business and the establishment of two international
offices. The decrease of pro forma salaries and benefits as a percentage of pro
forma revenue is attributable primarily to higher percentage growth rates in
revenue.
Office and General. Pro forma office and general increased $5.6 million, or
84.8%, from $6.6 million in 1996 to $12.2 million in 1997. As a percentage of
revenues, pro forma office and general was 32.3% and 41.5% in 1996 and 1997,
respectively. Both the dollar and percentage increases were related to
continued infrastructure commitments to expand operations, the opening of new
offices in the United Kingdom and Hong Kong during the fourth quarter of 1996
and the first quarter of 1997, respectively, and the establishment of a $0.6
million reserve for the relocation of Modem Media's main office.
Amortization of Goodwill. Pro forma amortization of goodwill remained
constant at $1.7 million in 1996 and 1997. Goodwill resulted from the Modem
Partnership Combination and is being amortized over a 20-year period.
Income Taxes. Modem Media's pro forma provision for income taxes remained
constant at $0.1 million on pro forma pre-tax losses of $2.0 million and $3.8
million in 1996 and 1997, respectively. The effective pro forma income tax
rates were 3.5% in 1996 and 1.7% in 1997. These rates differ from the federal
statutory rate primarily due to the effect of non-deductible goodwill
amortization and losses of foreign subsidiaries on which Modem Media did not
recognize a tax benefit.
Pro Forma Year Ended December 31, 1995 Compared to Pro Forma Year Ended
December 31, 1996
Revenues. Pro forma revenues increased by $8.1 million, or 66.4%, from $12.2
million in the year ended December 31, 1995 to $20.3 million in the year ended
December 31, 1996. The increase in pro forma revenues between 1995 and 1996
resulted principally from increased services provided to existing clients, and,
to a lesser extent, the addition of new clients.
Salaries and Benefits. Pro forma salaries and benefits increased $8.8
million, or 166.0%, from $5.3 million for the year ended December 31, 1995 to
$14.1 million for the year ended December 31, 1996. As a percentage of
revenues, pro forma salaries and benefits increased from 43.9% for the year
ended December 31, 1995 to 69.2% for the year ended December 31, 1996. Both
dollar and percentage increases in pro forma salaries and benefits were due
primarily to company-wide increases in headcount to support new business and
establish new offices, as well as a $3.0 million non-recurring, non-cash
compensation charge related to the grant of options to purchase partnership
interests in the Modem Partnership.
Office and General. Pro forma office and general increased $3.6 million, or
120.0%, from $3.0 million in 1995 to $6.6 million in 1996. As a percentage of
revenues, pro forma office and general was 24.3% and 32.3% in 1995 and 1996,
respectively. Both the dollar and percentage increases were due to increases in
the size of Modem Media's operations and infrastructure commitments, as well as
the establishment of new offices, at higher percentage growth rates than
revenues.
Amortization of Goodwill. Pro forma amortization of goodwill remained
constant at $1.7 million in 1995 and 1996. Goodwill resulted from the Modem
Partnership Combination and is being amortized over a 20-year period.
28
<PAGE>
Income Taxes. Modem Media had a provision of $1.6 million on pro forma pre-
tax income of $2.2 million for 1995, as compared to a provision of $0.1 million
on a pro forma pre-tax loss of $2.0 million for 1996. The effective income tax
rate was 73.6% on a pro forma basis for 1995 as compared to 3.5% in 1996. These
rates differ from the federal statutory rate primarily due to the effect of
non-deductible goodwill amortization and, in 1996, the non-deductible losses of
foreign subsidiaries on which Modem Media did not recognize a tax benefit.
Factors Affecting Operating Results
Modem Media's revenues have historically been higher during the second half
of each year as its clients prepare marketing campaigns for products and
services launched in anticipation of fall trade shows and the holiday season.
During the first quarter of the year, Modem Media has historically experienced
revenue declines from the fourth quarter of the preceding year as clients
reestablish their annual marketing and advertising budgets. Modem Media expects
this variation in revenue to continue in the future.
Modem Media'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 new projects, material reductions, cancellations or completions of
major projects, the loss of significant clients, the opening or closing of an
office, Modem Media's relative mix of business, changes in Modem Media's
pricing strategies or those of its competitors, employee utilization rates,
changes in personnel and other factors that are outside of Modem Media's
control. In addition, Modem Media has experienced some variation in operating
results throughout the year resulting in part from marketing communications
spending patterns and business cycles of its clients. As a result, period-to-
period comparisons of Modem Media's operating results cannot be relied upon as
indicators of future performance.
Historical Results of Operations
Overview
The following table sets forth certain items from Modem Media's statements of
operations data included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- ----------- -------
(In thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 438 $ 2,093 $25,497 $18,025 $30,397
Salaries and benefits......... 308 1,322 15,894 11,187 20,793
Office and general............ 215 712 9,038 6,162 10,309
Amortization of goodwill...... -- -- 1,666 1,249 1,308
Operating losses of True North
Units Held for Transfer...... 1,766 1,309 2,180 1,600 13
------- ------- ------- ------- -------
Operating loss................ (1,851) (1,250) (3,281) (2,173) (2,026)
Interest income (expense),
net.......................... -- -- (76) (62) (5)
(Benefit) provision for
taxes........................ (873) (548) (248) (246) 57
------- ------- ------- ------- -------
Net loss...................... $ (978) $ (702) $(3,109) $(1,989) $(2,088)
======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
The following table sets forth certain items from Modem Media's statements of
operations data as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
---------------------- -----------------
1995 1996 1997 1997 1998
------ ----- ----- ----------- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Salaries and benefits............ 70.3 63.2 62.3 62.1 68.4
Office and general............... 49.1 34.0 35.5 34.2 33.9
Amortization of goodwill......... -- -- 6.5 6.9 4.3
Operating losses of True North
Units Held for Transfer......... 403.2 62.5 8.6 8.9 0.1
------ ----- ----- ----- -----
Operating loss................... (422.6) (59.7) (12.9) (12.1) (6.7)
Interest income (expense), net... -- -- (0.3) (0.3) --
(Benefit) provision for taxes.... (199.3) (26.2) (1.0) (1.4) 0.2
------ ----- ----- ----- -----
Net loss......................... (223.3)% (33.5)% (12.2)% (11.0)% (6.9)%
====== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1998
Revenues. Revenues increased $12.4 million, or 68.9%, from $18.0 million for
the nine months ended September 30, 1997 to $30.4 million for the nine months
ended September 30, 1998. Revenues increased $4.8 million, or 26.7%, due to the
addition of the revenues of the Poppe Tyson Strategic Interactive Marketing
Operations as a result of the combination of those operations with Modem Media,
and also as a result of increased services provided to existing clients and the
addition of new clients. See Note 1 of Notes to Consolidated Financial
Statements of Modem Media . Poppe Tyson, Inc. and Subsidiaries.
Salaries and Benefits. Salaries and benefits increased $9.6 million, or
85.7%, from $11.2 million for the nine months ended September 30, 1997 to $20.8
million for the nine months ended September 30, 1998. Salaries and benefits
represented 62.1% and 68.4% of revenues in the nine months ended September 30,
1997 and 1998, respectively. The dollar and percentage increases in salaries
and benefits are attributable to a company-wide increase in headcount,
partially as a result of the combination of Modem Media and the Poppe Tyson
Strategic Interactive Marketing Operations.
Office and General. Office and general increased $4.1 million, or 66.1%, from
$6.2 million for the nine months ended September 30, 1997 to $10.3 million for
the nine months ended September 30, 1998. Office and general represented 34.2%
and 33.9% of revenues for the nine months ended September 30, 1997 and 1998,
respectively. The dollar increase in office and general was due primarily to
the addition of Poppe Tyson Strategic Interactive Marketing Operations' office
and general as a result of the combination of these operations with Modem Media
($2.3 million, or 37.1%), as well as increased occupancy and office support
incurred in connection with increases in headcount. The decrease in office and
general as a percentage of revenue is due primarily to a higher rate of revenue
growth than the rate of growth in office and general.
Amortization of Goodwill. Amortization of goodwill increased by $0.1 million,
or 8.3%, from $1.2 million for the nine months ended September 30, 1997 to $1.3
million for the nine months ended September 30, 1998 as a result of the payment
of $3.3 million in additional purchase price for the Modem Partnership in May
1998. Goodwill resulted from the Modem Partnership Combination and is being
amortized over a 20-year period. In connection with the Modem Partnership
Combination, True North is obligated to pay the former owners of the Modem
30
<PAGE>
Partnership an aggregate of up to $18.6 million as additional consideration
upon consummation of an initial public offering. Such amount will result in
additional amortization of goodwill of up to $0.3 million per quarter over 18
years (the remainder of the initial 20-year goodwill amortization period).
Operating Losses of True North Units Held For Transfer. The operating loss of
the non-strategic digital interactive businesses that Modem Media intends to
sell back to True North prior to this offering, shown on the face of the
financial statements as "Operating Losses of True North Units Held for
Transfer," decreased $1.6 million or 100.0%, from an operating loss of $1.6
million during the nine months ended September 30, 1997 to nearly breakeven
during the nine months ended September 30, 1998 principally due to the closure
of an office and overhead reductions at other locations.
Income Taxes. Modem Media had a benefit for income taxes of $0.2 million on
pre-tax losses of $2.2 million for the nine months ended September 30, 1997, as
compared to a provision for income taxes of $0.1 million on a pre-tax loss of
$2.0 million for the nine months ended September 30, 1998. The effective income
tax benefit rate was 11.0% for the nine months ended September 30, 1997 and the
effective income tax rate was 2.8% for the nine months ended September 30,
1998. The effective tax rates differ from the federal statutory rate primarily
due to the effect of non-deductible goodwill amortization, the tax effects of
the non-strategic digital interactive marketing operations that Modem Media
intends to sell back to True North prior to this offering, and, in 1998, losses
of foreign subsidiaries on which Modem Media did not recognize a tax benefit.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1997
Revenues. Revenues increased by $23.4 million from $2.1 million in the year
ended December 31, 1996 to $25.5 million in the year ended December 31, 1997.
The increase in revenues between 1996 and 1997 resulted principally from the
Modem Partnership Combination, which was accounted for under the purchase
method.
Salaries and Benefits. Salaries and benefits increased $14.6 million from
$1.3 million in 1996 to $15.9 million in 1997. As a percentage of revenues,
salaries and benefits decreased from 63.2% in 1996 to 62.3% in 1997. The
overall increase in salaries and benefits was primarily due to the addition of
the Modem Partnership salaries and benefits as a result of the Modem
Partnership Combination. The decrease in salaries and benefits as a percentage
of revenue was due primarily to higher percentage revenue growth rates compared
to salaries and benefits growth rates.
Office and General. Office and general increased $8.3 million from $0.7
million in 1996 to $9.0 million in 1997. As a percentage of revenues, office
and general was 34.0% and 35.5% in 1996 and 1997, respectively. The overall
increase in office and general was the addition of the Modem Partnership office
and general as a result of the Modem Partnership Combination.
Amortization of Goodwill. Amortization of goodwill increased from zero in
1996 to $1.7 million in 1997. Goodwill resulted from the Modem Partnership
Combination and is being amortized over a 20-year period.
Operating Losses of True North Units Held For Transfer. The operating loss of
the non-strategic digital interactive marketing operations that Modem Media
intends to sell back to True North prior to this offering, shown on the face of
the financial statements as "Operating Losses of True North Units Held for
Transfer," increased $0.9 million, or 69.2%, from $1.3 million in 1996 to $2.2
million in 1997.
Income Taxes. Modem Media's benefit for income taxes decreased by $0.3
million, from a benefit of $0.5 million on pre-tax losses of $1.3 million in
1996 to a benefit of $0.2 million on pre-tax losses of $3.4 million in 1997.
The effective income tax benefit rate was 43.8% in 1996 and 7.4% in 1997. These
rates differ from the federal statutory rate primarily due to the effect of
non-deductible goodwill amortization.
31
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Revenues. Revenues increased by $1.7 million from $0.4 million for the year
ended December 31, 1995 to $2.1 million for the year ended December 31, 1996.
The increase resulted principally from revenue growth in Northern Lights
Interactive in addition to revenues from operations in Canada.
Salaries and Benefits. Salaries and benefits increased $1.0 million from $0.3
million in 1995 to $1.3 million in 1996. As a percentage of revenues, salaries
and benefits represented 70.3% and 63.2% in 1995 and 1996, respectively. The
dollar increase in salaries and benefits were due primarily to company-wide
increases in headcount. The percentage decrease was due primarily to a higher
rate of revenue growth than the rate of growth in salaries and benefits.
Office and General. Office and general increased $0.5 million from $0.2
million in 1995 to $0.7 million in 1996. As a percentage of revenues, office
and general was 49.1% and 34.0% in 1995 and 1996, respectively. The principal
reason for the dollar increase was increased costs to support office revenue,
and the principal reason for the decrease as a percentage of revenue was a
higher rate of revenue growth than the rate of growth in office and general.
Operating Losses of True North Units Held For Transfer. The operating loss of
the non-strategic digital interactive marketing operations that Modem Media
intends to sell back to True North prior to this offering shown on the face of
the financial statements as "Operating Losses of True North Units Held for
Transfer," decreased $0.5 million, or 27.8%, from $1.8 million in 1995 to $1.3
million in 1996.
Income Taxes. Modem Media's benefit for income taxes decreased by $0.4
million, or 44.4%, from $0.9 million on pre-tax losses of $1.9 million in 1995,
to $0.5 million on pre-tax losses of $1.3 million in 1996. The effective income
tax benefit rate was 47.2% in 1995 and the effective income tax rate was 43.8%
in 1996. These rates differ from the federal statutory rate primarily due to
the effect of non-deductible goodwill amortization.
Liquidity and Capital Resources
Modem Media historically has financed its operations primarily from funds
generated from operations and borrowings from True North. At September 30,
1998, Modem Media had a non-interest bearing intercompany note payable to True
North of $6.0 million, which will be repaid from the net proceeds of this
offering. Pursuant to agreements between True North and its lenders, Modem
Media is subject to limitations on indebtedness which could adversely affect
Modem Media's ability to secure debt financing in the future.
Net cash (used in) provided by operating activities was $(0.3) million,
$(3.7) million and $6.4 million for the years ended December 31, 1995, 1996 and
1997, respectively, and $4.2 million and $0.3 million for the nine months ended
September 30, 1997 and 1998, respectively. The investment in working capital
was partially offset by depreciation expense and goodwill amortization, which
totaled $2.9 million for the year ended December 31, 1997, and $2.1 million and
$2.5 million for the nine months ended September 30, 1997 and 1998,
respectively.
Net cash of $2.6 million was provided by investing activities for the year
ended December 31, 1996 due to the acquisition of the Modem Partnership's cash
via the Modem Partnership Combination. Net cash (used in) investing activities
was $(1.2) million for the year ended December 31, 1997, and $(0.9) million and
$(2.6) million for the nine months ended September 30, 1997 and 1998,
respectively. Investing activities reflect capital expenditures to purchase and
install enterprise software in 1998, and to purchase other computer software,
computer hardware, furniture and office equipment in all periods.
32
<PAGE>
Net cash provided by (used in) financing activities was $0.3 million, $3.8
million, and $(0.9) million for the years ended December 31, 1995, 1996 and
1997, respectively, and $(1.9) million and $(0.4) million for the nine months
ended September 30, 1997 and 1998, respectively. The primary source of cash
flows from financing activities was borrowings from True North of $0.5 million,
$5.4 million, $0.7 million for the years ended December 31, 1995, 1996 and
1997, respectively.
Modem Media's short-term capital commitments include payments of
approximately $0.8 million in 1999 to complete a new financial accounting
system, as well as lease payments aggregating approximately $3.9 million in
1999. In addition, in September 1998, Modem Media executed a letter of intent
relating to an investment of up to $5.0 million in a company that places
advertisements on the Internet. The long-term capital needs of Modem Media will
depend on numerous factors, including the rates at which Modem Media is able to
obtain new business from clients and expand its personnel and infrastructure to
accommodate growth, as well as the rate at which it chooses to invest in new
technologies. Modem Media has ongoing needs for capital, including working
capital for operations, project development costs and capital expenditures to
maintain and expand its operations.
Capital Resources. In August 1998, True North extended a credit facility to
Modem Media allowing for revolving borrowings in the amount of up to $3.0
million to be outstanding at any given time. The credit facility with True
North expires two years from the date of completion of this offering, or sooner
upon the occurrence of certain events. See "Relationship with True North and
Certain Transactions--Intercompany Agreements."
Modem Media believes that the net proceeds from this offering (estimated to
be $26.6 million), together with funds available from operations, if any, will
be sufficient to meet the capital needs of Modem Media for at least the next
twelve months. A portion of the net proceeds from this offering may also be
used to acquire or invest in complementary marketing communications companies,
services, products or technologies, or to invest in geographic expansion. Modem
Media has no agreements or commitments with respect to any such transactions.
Year 2000 Compliance
Modem Media has completed an assessment of its non-information technology
systems, and believes based on that assessment that these systems do not
contain any elements that are susceptible to Year 2000 problems. Based on
recent assessments of its information technology systems, however, Modem Media
has determined that it will be required to modify or replace some portions of
its information processing systems in order to ensure that those systems are
Year 2000 compliant. Modem Media intends to replace these systems in 1999, and
does not believe that the cost of replacement will be material. As a result,
Modem Media believes that its internal computer systems will properly utilize
dates beyond December 31, 1999. If, in the worst case scenario, such
replacement is not made, or is not completed on a timely basis, the Year 2000
issue could have a material impact on the operations of Modem Media.
Modem Media regularly conducts transactions and performs services that
interface directly with systems of its clients. Modem Media has not undertaken
to confirm that its clients' systems are Year 2000 compliant. In the worst case
scenario, the inability of a substantial number of Modem Media's clients to
complete their Year 2000 compliance could cause them to reduce substantially
their spending on interactive marketing programs.
33
<PAGE>
Furthermore, there can be no assurance that Modem Media's suppliers will not
experience material business disruptions as a result of the Year 2000 issue
that could affect Modem Media. In this regard, Modem Media has asked each of
its third-party suppliers to confirm that they are Year 2000 compliant.
Substantially all of Modem Media's third-party suppliers have indicated that
they expect to be Year 2000 compliant by the Year 2000 based on their progress
to date, and a majority have indicated that their Year 2000 compliance programs
have already been completed. However, in the worst case scenario, a substantial
number of third parties could be unable to complete their Year 2000 resolution
process, causing significant disruptions in Modem Media's ability to provide
services to its clients. True North has agreed to provide legal, tax
preparation, insurance, treasury, financing and debt and lease guaranty
services to Modem Media after the offering. Modem Media does not believe that
any Year 2000 problems experienced by True North would have a material effect
on True North's ability to provide these services to Modem Media.
Modem Media has not established contingency plans in case of failure of its
information technology systems since it expects to have its material systems in
place by the second quarter of 1999. In connection with Modem Media's
assessment of third party readiness in early 1999, Modem Media will evaluate
the necessity of contingency plans based on the level of uncertainty regarding
such compliance. In the event Modem Media's clients, intermediaries or vendors
do not expect to be Year 2000 compliant, Modem Media's contingency plan may
include replacing such intermediaries or vendors or conducting the particular
operation itself.
In order to keep pace with the growth and expansion of its business, Modem
Media decided in 1997 to replace its existing financial accounting system and
is currently in the process of doing so. Under the purchase agreement, the
system provider has given Modem Media a two-year limited warranty that the
replacement financial accounting system will be Year 2000 compliant.
Recently Issued Accounting Pronouncements
Segment Disclosures. In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131,
Disclosure About Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. The statement also establishes standards
for related disclosure about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997, but is not required to be applied to interim financial
statements in the initial year of adoption. Therefore, Modem Media will adopt
the new requirements retroactively in its annual consolidated financial
statements for the year ended December 31, 1998. The adoption of SFAS No. 131
will not affect Modem Media's results of operations or financial position.
Derivative Instruments. In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Modem Media currently believes that there will
be no impact from SFAS No. 133 on Modem Media's earnings.
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BUSINESS
The following Business section contains forward-looking statements, which
involve risks and uncertainties. Modem Media'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
Modem Media provides marketing programs that are delivered over the Internet
and other electronic media, and that facilitate two-way communication between
its clients and their customers. Modem Media refers to these programs in our
industry as digital interactive marketing solutions. By developing marketing
programs that incorporate advanced communication technologies, Modem Media
enables its clients to establish, retain and manage customer relationships.
Marketing programs offered by Modem Media include the design and implementation
of electronic business programs that utilize the Internet to enable its clients
to acquire, communicate with and service customers, thereby increasing the
value of their globally-recognized brands. Modem Media combines its substantial
expertise in strategic marketing, creative design and digital technology to
deliver on a worldwide basis a complete range of digital interactive marketing
services, including strategic consulting and research, website design,
electronic commerce and electronic customer communication services, interactive
advertising and promotions, and data collection and analysis. For visual
examples of Modem Media's interactive marketing services in action, please see
the screen shots on the inside front cover of this prospectus.
Modem Media's marketing programs are designed to enable its clients to target
narrowly-defined market segments, provide their customers with detailed product
and service information, sell products and services, and provide post-sale
customer support electronically, and promote consumer interest in their entire
product lines. Marketing programs developed by Modem Media are delivered
primarily through the Internet, but also through other digital channels such as
corporate intranets, proprietary online services, CD-ROMs and interactive
kiosks. Modem Media has received numerous industry awards for its interactive
marketing campaigns, websites, banner advertisements and CD-ROMs, including the
Zima.com campaign and website, the AT&T Olympic Games Connection Website, the
AT&T "Intermercial" Campaign, the AT&T Worldnet CD-ROM, the iVillage.com "About
Work" campaign, the Sony PlayStation campaign and the Diet Pepsi "Convert a
Million" campaign. In 1998, Modem Media won the "Interactive Agency Of The
Year" award from the Internet Advertising Bureau, a trade association, and
Modem Media is the only company to win two consecutive "CASIE" awards for
interactive marketing.
Modem Media focuses on promoting long-term client relationships by devising
programs that can be integrally linked to its clients' business functions.
Modem Media believes that interactive technologies, which provide its clients
with the ability to establish highly specific, direct communications with their
customers, are becoming an increasingly important component of successful
marketing strategies. Accordingly, Modem Media works primarily with a select
group of established Fortune 500 clients committed to interactive marketing, as
well as companies with new online business models. For the nine months ended
September 30, 1998, our ten largest clients with whom we have a continuing
relationship measured by revenue were: AT&T; BancBoston Robertson Stephens;
Citibank; Delta Air Lines; Intel; JC Penney; John Hancock; Kraft; Sony and
Unilever.
Modem Media's predecessor, the Modem Partnership, was founded more than ten
years ago by pioneers in interactive marketing and electronic commerce. In
1987, the founders of the Modem
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Partnership created the first interactive marketing communications company, by
delivering interactive electronic commerce applications that allowed clients to
engage their prospective and current customers in two-way marketing-oriented
online communication. Modem Media combines the Modem Partnership with Northern
Lights Interactive and the strategic interactive marketing operations of Poppe
Tyson. Modem Media currently serves more than 30 clients through its global
network of seven offices in North America, Europe and Asia. Additional
information regarding our operations in different geographic regions is set
forth in Note 11 of Notes to Consolidated Financial Statements set forth
elsewhere in this prospectus. Modem Media had pro forma revenues in 1997 and
for the nine months ended September 30, 1998 of $29.4 million and $30.4
million, respectively. See Note 11 of Notes to Consolidated Financial
Statements of Modem Media . Poppe Tyson, Inc. and Subsidiaries.
Industry Background
Modem Media believes that the emergence of the Internet has stimulated demand
for high quality, cost effective digital interactive marketing solutions. Modem
Media believes there are a number of trends that are currently shaping the
marketing communications needs of its clients. These trends include the
following:
Growth of the Internet and Demand for Delivery of Services Online
The Internet has experienced unprecedented growth in recent years and this
growth is expected to continue. According to International Data Corporation
("IDC"), the number of Internet users worldwide will grow from an estimated 100
million in 1998 to an estimated 320 million in 2002. Several factors have
contributed to the growth of the Internet, its increasing value to users and
its adoption as a vehicle for commerce, including:
. the large and growing number of personal computers in homes and
businesses;
. improvements in network infrastructure and capacity, which have produced
increases in performance levels and speed;
. easy, low-cost access to the Internet;
. global awareness of the Internet among consumer and business users; and
. the rapidly expanding availability of online content and commerce.
The acceptance of the Internet as a global communications medium has driven
demand for digital content which can be accessed online. Similarly, the growing
use of the Internet as a channel for communication and commerce has made it
possible to use digital content to provide services to users online and over
the Internet, which Modem Media refers to as digital services. Digital services
can be easily developed, updated, manipulated and distributed either broadly or
to targeted audiences. The rapid development of the Internet and other
technologies that facilitate these services is having a profound impact on the
development and delivery of customer acquisition, retention, and loyalty
solutions and on the conduct of commerce.
Rapid Growth of E-Business and Internet Advertising
The Internet is dramatically affecting the methods by which consumers and
businesses are evaluating and buying goods and services, and by which
businesses are providing customer service. The Internet provides online
merchants with the ability to reach a global audience and to operate with
minimal infrastructure, reduced overhead and greater economies of scale, while
providing consumers with a broad selection, increased pricing power and
unparalleled convenience. As a result,
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the volume of business transacted on the Internet is growing. IDC estimates
that business to consumer commerce on the Internet will grow from approximately
$5 billion in 1997 to approximately $95 billion in 2002 and business to
business commerce on the Internet will grow from approximately $7 billion in
1997 to approximately $331 billion in 2002.
The Internet is an important medium for advertisers due to its interactive
nature, global reach and rapidly growing audience, as well as the expected
increase in online commerce. Unlike advertising on traditional mass media, the
Internet gives marketers the potential to target advertisements to broad
audiences or to selected groups of users with specific interests and
characteristics. These features enable the development and delivery of
customized and targeted marketing programs and communications services that
incorporate digital data and advanced interactive features to inform, engage,
entertain and facilitate commerce with the target audience. The Internet also
allows advertisers and direct marketers to measure the effectiveness and
response rates of advertisements and to track the demographic characteristics
of Internet users in real time. Furthermore, unlike traditional media, which
permit consumers only passive reception of communications, the Internet enables
consumers to respond instantaneously to marketing messages. The interactive
nature of the Internet enables marketers to better understand potential
customers, by providing a two-way channel of communication between marketers
and consumers. In addition, the great speed at which communication takes place
between marketer and consumer over this new Internet channel provides marketers
with the added ability to change messages rapidly and cost-effectively in
response to customer interests and behavior. The unique capabilities of online
advertising, the growth in online traffic and the favorable demographics of
Internet users have led to a significant increase in online advertising.
Jupiter Communications estimates that total spending on the placement of
advertisements online in the United States in 1997 was $940 million and expects
this amount to grow to $4.4 billion in 2000.
Increased Emphasis on Consistent Global Marketing for Increased Brand Awareness
Recognition of the importance of building brands and conducting commerce on a
global basis has produced significant growth in demand for comprehensive global
interactive marketing and communication services by large corporate clients. As
companies expand their operations throughout the world, they seek to extend the
strength of their domestic brands. Critical to this strategy is the ability to
execute a consistent brand development and customer management program on a
worldwide basis while at the same time responding to regional or local demands
or tastes. The Internet's worldwide reach provides a cost-effective medium for
implementing one-to-one, interactive global marketing programs. Consequently,
companies are increasingly seeking digital interactive marketing advisors with
strategic marketing expertise and global full-service capabilities to develop
coordinated, interactive global marketing programs. Zenith Media, a media
research and planning firm, estimates that worldwide advertising expenditures
will increase from $183.2 billion in 1986 to $469.3 billion in 2000, and that
the percentage of advertising outside North America will increase from 44.0% of
total worldwide advertising expenditures in 1986 to 56.6% in 2000.
Need for Full Service Digital Interactive Marketing Solutions for Global Brands
Modem Media believes that successful interactive marketing programs will
generate new customer relationships for its clients and significantly increase
the value of their brands. Current industry trends have resulted in heightened
demand for digitally distributed marketing communications services and
solutions. Interactive digital marketing programs help companies to improve
their customer relationships by permitting the effective and immediate
distribution of relevant services and information, providing
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instant and measurable feedback, and facilitating interaction between companies
and their customers. This information can be used by marketers to quickly
improve the effectiveness of brand marketing programs or to modify channel
management, products and services.
While the Internet offers numerous opportunities, global marketers face a
number of significant challenges in realizing the potential of the Internet as
a marketing channel. As businesses increase their use of the Internet, they
seek solutions and technologies that will allow them to deliver highly-targeted
messages, receive real-time feedback, benefit from business efficiencies and
capitalize on other potential advantages of online advertising and marketing.
Businesses seeking such comprehensive solutions have generally turned to three
sources: conventional advertising and marketing firms, project-oriented
interactive marketing firms and information technology service providers.
Generally, traditional advertising and marketing firms lack the extensive
technical skills and full service capabilities required to produce and
implement the increasingly complex solutions demanded by clients today.
Project-oriented interactive marketing firms lack the strategic account
management capabilities, full service architecture and global network of
offices required to establish long-term global relationships with clients.
Furthermore, information technology service providers lack the creative and
marketing skills required to deliver unique and compelling content. Management
believes that increasing demand for digital interactive marketing services,
combined with the inability of most of today's marketing firms and information
technology service providers to supply the full range of skills required to
effectively deliver such services, provides Modem Media with significant market
opportunities and positions it for future growth.
The Modem Media Solution
Modem Media is a full-service digital interactive marketing company that
creates new ways for its global clients to use innovative digital content and
technologies to increase the value of their brands. Modem Media combines its
expertise in strategic marketing, technology and digital design and production
to develop comprehensive digital interactive marketing solutions for its
clients on a worldwide basis. Modem Media's tailored marketing solutions are
designed to deliver innovative digital customer relationship programs,
establish ongoing communications and services with targeted customers, and
provide prompt feedback on the overall effectiveness of interactive marketing
campaigns. Modem Media's solutions offer clients the following benefits:
Long-Term Strategic Marketing Relationships. Modem Media deploys marketing
professionals responsible for individual client relationships, who focus on
developing interactive marketing solutions for companies seeking to build
global brand equity. In developing strategic solutions, Modem Media works
closely with the senior management of its clients to devise programs that can
be integrally linked to a client's business functions. By embedding its
programs into a client's overall marketing strategy, Modem Media believes it
effectively positions itself to offer ongoing value-added services to
continuously supplement and enhance existing solutions and thereby cultivate
long-term client relationships. Modem Media's methodology in devising a digital
interactive marketing solution consists of:
. an initial assessment of the client's overall objective;
. the pursuit of this objective through a combination of website design, e-
business implementation and advertising and promotions; and
. the monitoring and analysis of the effectiveness of these implemented
programs to continuously enhance and improve the overall marketing
strategy.
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Modem Media believes that this methodology has a proven track record of
delivering value to clients and is an important factor in helping clients
develop and manage customer relationships and build brand equity.
Full Service Offering Framework. Modem Media offers comprehensive services
for clients seeking to create innovative marketing and customer management
programs incorporating advanced digital media and communications technologies.
Modem Media offers its clients a wide range of digital interactive marketing
services such as strategic consulting and research, website design, electronic
commerce and electronic customer communication services, interactive
advertising and promotions and data collection and analysis. By offering these
services Modem Media has positioned itself to develop and manage all aspects of
a client's interactive marketing strategy and implement needed programs on an
ongoing basis.
Superior Design and Execution Capabilities. Modem Media believes its
substantial capabilities in marketing strategy, its interactive media
expertise, its creative excellence and its award winning technical design and
production skills provide it with significant competitive advantages. In
particular, Modem Media attempts to provide, and has received numerous awards
for, creative and technology solutions that meet or exceed the highest
standards of service in the industry. In order to maintain high levels of
creativity and quality, Modem Media places great importance on recruiting and
retaining talented employees. In addition to its design capabilities, Modem
Media believes that its innovative use of sophisticated technology has enabled
it to provide superior marketing communications services. Modem Media's
development staff continues to design tools and applications to provide
marketing communication services quickly and efficiently. Modem Media has been
responsible for a number of innovations in the digital interactive marketplace,
including the pioneering of Internet advertising; the development of online
research and data analysis capabilities; the implementation of inbound e-mail
programs, Java-enabled web banner ads and instant win promotions online; the
development of customized targeted marketing programs; and the development of
customer relationship management programs.
Extensive Global Network. Modem Media provides its services through a network
of offices and professional staff in seven cities throughout North America,
Europe and Asia which can be deployed to effectively create and support a
client's worldwide interactive marketing campaigns. In addition, Modem Media
aggregates and preserves its best practices, technologies and creative work
from each engagement to consistently leverage and apply the capabilities and
experiences of the entire Modem Media . Poppe Tyson organization. Through its
network of local offices, Modem Media believes it can implement global
marketing campaigns that articulate consistent brand images while at the same
time addressing local and regional marketing demands or tastes. Approximately
12.0% of Modem Media's total revenues in the nine months ended September 30,
1998 were attributable to its international operations. See Note 11 of Notes to
Consolidated Financial Statements of Modem Media . Poppe Tyson, Inc. and
Subsidiaries.
Strategy
Modem Media's objective is to be the leading provider of digital interactive
marketing solutions. The key elements of Modem Media's strategy include the
following:
Develop and Maintain Long-Term Client Relationships. Modem Media has been
able to use its comprehensive approach to digital interactive marketing
solutions as an effective tool in forming its client relationships. Modem Media
provides a wide range of interactive marketing solutions to a core group of
clients rather than providing a limited number of services to an extensive
client base. As
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part of this strategy, Modem Media's account professionals pursue close
relationships with each client's senior management. For example, Modem Media's
relationship with JC Penney began in 1988. Modem Media's relationship with AT&T
began in 1992 and has expanded to its current status with Modem Media acting as
AT&T's interactive agency of record since 1995. Modem Media has also developed
ongoing, long-term relationships with Citibank, Delta Airlines, IBM, and John
Hancock, among other companies. Modem Media intends to continue to leverage its
experience and expertise to continue to build long-term client relationships.
Maintain Innovative Approach to Digital Interactive Marketing
Solutions. Since its founding, Modem Media has combined its full service
interactive marketing solutions with technology expertise to provide innovative
solutions to its clients. Modem Media intends to continue the development of
new service offerings, the establishment of strategic relationships with
leading technology companies to improve and expand service offerings, and the
rapid adoption of emerging technologies, including Internet tools, data
management solutions and customization technologies. Modem Media believes that
its innovative approach to digital interactive marketing solutions provides it
with a competitive advantage in the emerging digital interactive marketing
industry.
Continue to Attract and Retain Superior Professional Talent. Modem Media
believes that its culture is particularly attractive to professionals seeking
to use advanced technology to develop digital interactive marketing solutions.
Modem Media places a premium on innovation, and encourages its employees to
apply their creativity in the conception, design and implementation of
marketing programs for its clients. Modem Media recognizes that to maintain its
position as a leading digital interactive marketing organization, it must
continue to recruit and, more importantly, retain qualified and experienced
professionals with both creative and technological skills, which are currently
in high demand. As part of this strategy, Modem Media has implemented several
programs including an aggressive recruiting campaign, competitive compensation
packages, a company-wide incentive stock option plan, an internal employee
referral program, and an extensive in-house training program.
Continue to Expand Global Office Network. Modem Media believes that existing
and new clients will increasingly demand international marketing services to
help manage customer relationships and build global brand equity. In
anticipation of this demand, Modem Media is continuing to build its network of
offices. Modem Media believes that in the emerging market for providing digital
interactive marketing solutions, rapidly building a critical mass of strategic,
technical and creative talent will provide Modem Media with a substantial
competitive advantage. Modem Media believes that by expanding its geographic
presence, particularly in Europe and Asia, it will be better positioned to
provide its clients with comprehensive interactive global marketing solutions.
Services
Modem Media focuses on making its digital interactive marketing solutions an
integral part of its clients' marketing strategies in order to promote long-
term client relationships. Modem Media combines its strategic interactive
marketing knowledge with its technical expertise to provide high impact, cost-
effective digital interactive marketing and customer management solutions.
Modem Media uses dedicated client service teams with experience in consulting,
creative, media, technology and production disciplines, led by experienced
account directors, to provide its integrated digital marketing communication
services. Modem Media's proven processes and methodologies for executing client
work, developed over a decade, enable it to undertake interactive projects,
monitor progress and measure the return on its clients' investment in
interactive marketing campaigns. Modem Media incorporates client feedback into
successive strategic marketing campaigns and programs to further improve and
build upon online customer relationships.
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Client initiatives are guided by Modem Media's strategic account management
team through a four-point service framework that includes strategic consulting
and research, strategy development and planning, interactive marketing program
execution, and continuous program measurement and data analysis, as illustrated
below:
[FLOW CHART DEPICTING STRATEGIC ACCOUNT MANAGEMENT]
Strategic Consulting and Research. Modem Media provides clients with
diagnostic analysis to guide their enterprise-wide interactive marketing
efforts. Services include custom research, online marketing research, and
strategic consulting. These services are aimed at:
. identifying and prioritizing interactive opportunities to strengthen
customer relationships;
. creating strategies to position and brand products in order to create a
competitive advantage; and
. reducing marketing communication costs through the creative application
of interactive technologies.
In addition, a rigorous methodology is used to evaluate current customers
reached by the Internet. Modem Media's strategic business consultants and
research professionals prepare clients to develop interactive communication
programs that effectively and efficiently connect the clients' customers to
their products, services, market position and brand equity.
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Strategy Development and Planning. Modem Media works with clients to define
interactive marketing strategies and plans, and seeks to identify concepts that
will maximize these strategies. In formulating detailed program plans, Modem
Media combines creative marketing concepts and interactive technology to
provide customized marketing programs for its clients. The concepts and plans
articulated by Modem Media provide the basis for the development of interactive
marketing programs.
Interactive Marketing Program Execution. Based on the interactive strategy
and concepts, Modem Media works with clients to jointly design specific
solutions, determine roles and responsibilities for development work, and
manage the use and flow of data in creating interactive marketing programs
distributed across the following channels:
. websites, where Modem Media creates or services entire websites for
clients;
. banner advertising, where Modem Media creates discrete "banner" size
advertisements for clients to be posted on the websites of others; and
. e-mail, where Modem Media designs and enables client advertising by means
of both in-bound and out-bound electronic mail messages.
Modem Media assembles a development team consisting of account, creative,
production and media professionals to service clients and execute programs. The
team then helps define the components for the solutions and the required data
from client systems, and performs the required systems integration to architect
and build the solutions. Modem Media's programs may incorporate advertising and
promotion services, and are often enabled for e-commerce, e-care and other
value added utilities known in our industry as "e-business." Modem Media
designs, develops, creates, maintains and updates the various components of
each solution as required, consistent with the client's interactive strategy on
a global basis. Modem Media believes that the key to successful interactive
marketing is the incorporation of a participatory experience through services
and utilities that seamlessly integrate the brand into the three platform
channels (website, banner advertising and e-mail) that occupy the majority of
the client's customers time online.
Program Measurement and Data Analysis. Modem Media's data specialists
collect, manage and analyze data that results from interactions between
clients' marketing programs and their customers. Through usage and yield
analysis of traffic and sales transactions, Modem Media is able to gather
valuable insights into the effectiveness of digital marketing communication
programs as well as the segmentation of customer profiles. This acquired
knowledge of customer behavior and transaction patterns enables Modem Media to
further devise, design and implement targeted marketing programs aimed at
increasingly efficient customer acquisition and retention and additional sales
and marketing opportunities.
Continuous Program Improvement. Through strategic marketing initiatives and
ongoing programs for its clients, Modem Media has positioned itself to gain
insights into its clients' businesses. Modem Media uses the information it
collects in performing program measurement and data analysis to help its
clients improve their customer management programs and channels, continuously
improve the effectiveness of their digital interactive marketing programs, and
adapt and deploy these programs globally. Modem Media believes that its
continuous program improvement builds the foundation for recurring client
business.
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Modem Media is committed to establishing and maintaining high-quality
creative and technical standards for its digital interactive marketing
services. Modem Media has earned the following awards for its digital
interactive solutions:
<TABLE>
<CAPTION>
Award Client/Project Year
- ----------------------- ------------------------------------------- ----------
<S> <C> <C>
AMA Spire Award Keystone Fishing Hotline 1992
Direct Marketing Diet Pepsi "Convert a Million" campaign 1993
Association (DMA) Gold
Echo Award
American Advertising Zima.com 1995; 1996
Award (ADDY)
AT&T Olympic Games Connection Website 1997
Intel Rich advertising campaign 1998
John Hancock "Silhouettes" campaign 1998
iVillage "About Work" campaign 1998
Coalition for AT&T "Intermercial" campaign 1996
Advertising Supported
Information and
Entertainment (CASIE)
AT&T Olympic Games Website 1996
Zima.com 1996
John Hancock Website 1997
Mar.com--Best WWW AT&T Olympic Games Connection Website 1997
Marketing Campaign
--Best CD Rom/Floppy AT&T Worldnet CD ROM 1997
Disk-Based Ad
--Best Banner Series iVillage.com "About Work" campaign 1997
New York 1-800-CALL-ATT 1997
Festivals/Interactive
Multimedia Competition
One Show Bronze Pencil John Hancock "Silhouettes" campaign 1998
Cannes Cyberlions Finalist Certificate for AT&T Catalog 1998
Finalist Certificate for Intel "Reebok-RIA" 1998
Sony PlayStation 1998
The One Show Rugby Football Union 1998
Sony PlayStation 1998
Adweek Top Ten 1995; 1996
Interactive Agencies
Channel 7 Top 100 1996; 1997
Agencies
AdAge Top Three 1997
Interactive Agencies
IAB Agency of the Year 1998
Award
Momentum Awards "Turbo 1998
Agency of the Year"
Red Herring Top Five 1998
Interactive Agencies
</TABLE>
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Modem Media Clients
Modem Media's clients consist primarily of organizations whose businesses are
impacted by rapidly changing digital media and interactive communications
technologies, and range from Fortune 500 companies with brands to companies
with new online business models. Modem Media's services for these clients
include strategic marketing assignments as well as global digital interactive
marketing and sales programs combining various platforms and services. Our
results of operations and our business depend on our relationship with a
limited number of large clients. Set forth below is the percentage of revenues
on a pro forma basis during the fiscal year ended December 31, 1997 and the
nine months ended September 30, 1998 for each of the clients that accounted for
more than 10% of our revenues and for our ten largest clients combined:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30,
Client December 31, 1997 1998
------ ----------------- -----------------
<S> <C> <C>
AT&T..................................... 31.4% 20.4%
Citibank................................. (less than 10%) 12.0
Ten largest clients combined............. 74.4 76.5
</TABLE>
The following is a list of our ten largest clients measured by revenues for
the nine months ended September 30, 1998 with whom Modem Media has a continuing
relationship, showing the year in which we began providing services to each
client and the primary industries served by these clients:
<TABLE>
<S> <C>
Communications Financial Services
AT&T (1992) BancBoston Robertson Stephens (1998)
Citibank (1997)
Computer Hardware
John Hancock (1996)
Intel (1997)
Travel
Consumer Products/Retail
Delta Air Lines (1995)
Kraft (1996)
JC Penney (1989)
Sony (1997)
Unilever (1997)
</TABLE>
Modem Media's clients ordinarily hire Modem Media on an assignment basis
rather than on a retainer basis. Accordingly, Modem Media does not have long-
term contractual relationships with its clients. As a result, Modem Media's
clients generally have the right to terminate their relationships with Modem
Media without penalty and on relatively short or no notice. Once an assignment
is completed there can be no assurance that a client will engage Modem Media
for further services. For example, Modem Media provides services to AT&T and
Citibank pursuant to one-year, renewable contracts that provide the general
parameters of the relationship only. AT&T or Citibank may terminate its
agreement with Modem Media upon 90 days' prior written notice to Modem Media.
While Modem Media is not aware of plans by any of its significant clients to
terminate their use of Modem Media's services, the termination of Modem Media's
business relationship with any of its significant clients, including AT&T or
Citibank, or a material reduction in the use of Modem Media's services by a
significant client, could have a material adverse effect on Modem Media's
business, financial condition or results of operations.
Conflicts of interest between clients and potential clients are inherent in
the marketing communications industry. Moreover, as is customary in the
marketing communications industry, we
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have entered into exclusivity arrangements with many of our largest clients
that restrict our ability to provide services to competitors of these clients.
We have in the past been, and may in the future be, unable to take on new
clients because such opportunities would require us to provide services to
direct competitors of our existing clients.
Client Case Studies
Set forth below are descriptions of strategic interactive marketing solutions
developed by Modem Media for three of its ten largest clients for the nine
months ended September 30, 1998. Modem Media has provided strategic interactive
marketing solutions to each of these clients since at least 1996 and each
relationship has involved all aspects of Modem Media's service offerings
described above under "--Services." Accordingly, Modem Media believes that the
marketing solutions described below are representative of the services and
solutions it generally offers to its clients.
AT&T
AT&T is one of the world's largest providers of communications services,
including voice, data and video telecommunications, to large and small
businesses, consumers and government entities. Modem Media believes that AT&T
has long viewed the Internet as an essential strategic channel to build its
brand awareness, and in particular has been very focused on coordinating its
branding efforts among advertising channels to preserve the integrity of its
brand and present a consistent image. AT&T hired Modem Media in 1992 to access
Modem Media's full service architecture and its strategic approach to using the
Internet in the context of AT&T's overall strategy for building and maintaining
its valuable brand. Modem Media believes that as a result of its initiatives,
AT&T is one of the largest advertisers on the Internet today.
AT&T selected Modem Media as its interactive agency of record in 1995 based
on its belief that a long-term relationship with one interactive marketing firm
would produce the best interactive marketing programs. Modem Media's primary
responsibilities for AT&T have included 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. In addition, Modem Media launched the online catalogue for AT&T's
consumer and small business markets in 1997, and created a new and creative
branding program for AT&T during the 1998 Nagano Olympics, using an ad server
network to deliver sequential targeted advertising based on prior user activity
in electronic trading card rooms. Modem Media believes that AT&T has
experienced increased brand awareness, improved client acquisition and
retention and increased sales as a result of Modem Media's marketing programs.
JC Penney
JC Penney is one of the largest retailers in the United States. JC Penney
first hired Modem Media in 1988, seeking to ensure that its catalog customers
had an online alternative to purchase its retail products. Management believes
that JC Penney was looking in particular for a marketing firm that had
experience with online marketing and commerce, and hired Modem Media in part
because of its innovative work in establishing GE's online store, GEnie, and
its experience in establishing Prodigy's online commerce offering.
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<PAGE>
The goal of Modem Media's initial project was to build an online brand image
for JC Penney and ultimately draw shoppers to the site. In the process, Modem
Media had to create a new reporting system for the digital channel and create a
solution that could be integrated with JC Penney's existing systems. Modem
Media's work included the creation of customized systems and tools with which
JC Penney could measure demand for its products over time, and the formation of
a technology development partnership with JC Penney Information Systems that
co-developed custom systems integration solutions and a targeted media plan
that evolved into a number of affiliated programs. Modem Media also created a
multi-faceted Internet platform that allowed for personalization, custom
shopping, easy searching, gift reminder services, and the ability to request
catalogs online. Since its initial assignment, Modem Media has provided JC
Penney with consulting on corporate strategy, Internet-related business, and
organizational and operational design, performed marketing analysis of site
traffic and sales tracking, established media partnerships, and carried out
online merchandising, marketing and sales programs.
John Hancock
John Hancock, a diversified financial services and insurance provider, offers
a variety of financial products ranging from life insurance, annuities, and
mutual funds to long-term care insurance coverage to both consumers and
businesses worldwide. In late 1996, John Hancock wanted to take advantage of
the Internet as a new channel of distribution directed at high-income, well
educated consumers, and to modernize its brand image. John Hancock was facing
new competition due to deregulation in the financial services industry, as well
as decreasing interest in insurance products in favor of investments such as
mutual funds. John Hancock hired Modem Media in 1997 to accomplish the
following objectives: (i) reposition John Hancock as a balanced provider of
both insurance and investment products and services; (ii) generate qualified
leads for Hancock's agent/broker force; (iii) establish the Internet as a new
channel for selling products via e-commerce; and (iv) modernize John Hancock's
brand image.
Modem Media developed an interactive marketing strategy designed to educate
the consumer about financial planning for major life events, and emphasizing
John Hancock's image as a trusted advisor. The solution was "Portrait
Planning," a powerful Web-based approach for step-by-step financial planning
that aided users in planning for the future. By answering a series of simple
questions, users could begin planning for a number of significant life events,
such as the purchase of a house, retirement, or a child's education. The
marketing program built awareness of John Hancock's products, bonded consumers
to the John Hancock brand, and created a database of potential clients. In
order to better target "Portrait Planning," Modem Media devised its innovative
"Silhouettes" campaign, which used targeted banner ads to introduce "Portrait
Planning" to a more focused audience and thereby produce quantifiable results.
By tracking consumer responses to its online campaigns for John Hancock, Modem
Media was able to create an extensive database of potential clients with many
of their financial needs outlined. Modem Media believes that the Internet has
had now become one of Hancock's principal sources of new customers.
Furthermore, Modem Media has been advised by John Hancock that new customers
gained through the Internet have generally purchased large and comprehensive
insurance and annuity products and generate higher average fees for John
Hancock than customers gained from any other direct or indirect channel.
Strategic Relationships
Modem Media has entered into several strategic relationships with other
companies whose products or services are included as part of the interactive
marketing solutions that Modem Media
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delivers to its clients. Modem Media seeks to identify strategic partners whose
products or services complement Modem Media's program offerings and enable
clients to engage in more effective digital interactive marketing. As part of
its strategic relationships, Modem Media participates in the development and
specification of its partners' new and existing product and service offerings
in order to enhance their utility for Modem Media's clients.
Use of Technology
Modem Media's background in developing e-commerce solutions for online
services, the skills of its technology professionals and its legacy of firsts
have helped Modem Media to utilize technology to further the business and
marketing objectives of its client base. Modem Media utilizes technology to
implement its clients' interactive marketing efforts and to help its clients
manage their customer relationships.
Modem Media makes extensive use of third-party technologies and applications
as part of the solutions it engineers for its clients. Modem Media has utilized
third-party technology in order to perform several essential business and
marketing functions for its clients, including credit card processing, ad
serving, e-mail management, data warehousing, order fulfillment and data
processing. Utilizing third-party technology greatly reduces the cost of the
solutions Modem Media provides for its clients, while increasing their
scalability as well as the speed with which Modem Media can bring them to
market. Modem Media intends to continue incorporating advanced third-party
technologies into its service offerings as the interactive marketing needs of
its clients evolve.
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 we use and the expertise gained in those technologies
will continue to be applicable in the future. There can be no assurance that we
can correctly identify which technologies will achieve market acceptance, that
such new technologies will be made available to us or that such technologies
can be economically applied by us 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 our financial performance.
Management Information Systems
Modem Media is currently implementing various aspects of its service delivery
infrastructure, which includes financial and project management systems. Modem
Media believes that these systems will enhance its ability to manage its
engagements and monitor the utilization of its professional staff. In addition,
Modem Media is in the process of installing a secure global network which
provides access to Modem Media's proprietary corporate memory application,
which management believes will significantly improve consistent handling of
clients and business development efforts globally. The above, coupled with
Modem Media's existing proprietary process for service delivery across Modem
Media, will further improve client and business management globally.
Competition
The market for our services is very competitive and highly fragmented and is
characterized by pressures to incorporate new capabilities, accelerate job
completion schedules and reduce prices. We face competition from a number of
sources, including traditional advertising and marketing firms, project-
oriented interactive marketing firms and information technology service
providers. Modem
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Media's primary competitors include iXL, Agency.com, Grey New Technologies,
Think New Ideas and USWeb/CKS. Many traditional advertising agencies have also
started to develop digital media and interactive communications capabilities.
In this regard, True North may decide to provide its traditional advertising
clients with interactive marketing solutions that compete with the services
provided by Modem Media. Moreover, certain project-oriented interactive
marketing firms and information technology service providers provide Internet
consulting, corporate identity and packaging, production, advertising and
website design services, and are technologically proficient in the digital
media and interactive communications fields. In addition, in-house marketing
and information systems departments and graphic design companies compete with
certain portions of our business.
Some of our competitors and potential competitors have longer operating
histories, longer client relationships, and greater financial, management,
technology, development, sales, marketing and other resources than we do.
Competition depends to a large extent on clients' perception of the quality and
creativity as well as the technical proficiency of our digital interactive
marketing services and those of our competitors. We also compete on the basis
of price and the ability to serve clients on a broad geographic basis. To the
extent we lose clients to our competitors because of dissatisfaction with our
services, or if our reputation is adversely impacted for any other reason, our
future operating performance could be materially and adversely affected.
There are relatively low barriers to entry in the digital interactive
marketing industry, primarily because it is a service industry that requires
minimal capital expenditures from new entrants. We expect that we 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, technological or other advantages over our services, any of which
could have a material adverse effect on our future operating performance.
Intellectual Property
Modem Media's ability to anticipate and rapidly adapt its services to
capitalize on emerging technologies is important to establishing and
maintaining a technology leadership position. There can be no assurance that
Modem Media will correctly identify which technologies will achieve market
acceptance, that such new technologies will be made available to Modem Media or
that such technologies can be economically applied by Modem Media on a timely
basis. Despite Modem Media's efforts to control access to its technologies, it
may be possible for a third party to copy or otherwise obtain and use Modem
Media's technologies without authorization, or to develop similar or superior
services or 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 Modem Media's
intellectual property rights, to protect Modem Media's trade secrets, to
determine the validity and scope of the rights to technologies 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 Modem Media's business, financial condition or
results of operations.
Modem Media . Poppe Tyson, Inc., Modem Media, Poppe.com, and Northern Lights
Interactive are trademarks or tradenames of Modem Media.
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. Modem Media must
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comply with Federal Trade Commission regulations with respect to the marketing
of products and services and similar state regulations. In addition, there has
had been an increasing tendency in the United States on the part of businesses
to resort to the judicial system to challenge comparative advertising of their
competitors on the grounds that the advertising is false and deceptive.
Although there are currently few laws or regulations directly governing
access to or commerce on the Internet, due to the increasing popularity and
use of the Internet, a number of laws and regulations may be adopted regarding
user privacy, pricing, acceptable content, taxation and quality of products
and services. In addition, the government has been requested to regulate and
impose fees on Internet service providers and online service providers in a
manner similar to long distance telephone carriers. The adoption of any such
laws or regulations could affect the costs of communicating on the Internet
and adversely affect the growth in use of the Internet, or decrease the
acceptance of the Internet as a communications and commercial medium, which
could in turn decrease the demand for Modem Media's services or otherwise have
a material adverse effect on Modem Media's business, results of operations and
financial condition.
Employees
In order to maintain high levels of creativity and quality, Modem Media
places great importance on recruiting and retaining talented employees. As of
December 31, 1998, Modem Media had approximately 400 full-time employees.
Modem Media also hires temporary employees and contract service providers as
necessary. None of Modem Media's employees is represented by a labor union,
and Modem Media considers its employee relations to be good.
Modem Media's success will depend to a significant degree on the continuing
contributions of members of its senior management, including Gerald M.
O'Connell, its Chief Executive Officer, and Robert C. Allen, II, its
President, 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. Modem Media has at
times experienced, and continues to experience, difficulty in recruiting
sufficient numbers of qualified personnel. Although Modem Media's executive
officers have entered into employment agreements with Modem Media which
contain non-competition provisions, there can be no assurance that any of
these executives will not voluntarily terminate their employment with Modem
Media. 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 Modem Media's business, financial condition or results of
operations. If one or more of Modem Media's key employees resign from Modem
Media to join a competitor or to form a competing company, the loss of such
personnel or the related loss of potential clients, and the fact that there
can be no assurance that Modem Media would be able to prevent the unauthorized
disclosure or use of its technical knowledge, practices, procedures or client
lists, could have a material adverse effect on Modem Media's business,
financial condition or results of operations. See "Risk Factors--We depend on
our key management personnel for our future success."
Facilities
Modem Media's headquarters are located in two facilities in Westport,
Connecticut and use approximately 40,000 square feet of total leased office
space. The leases expire in January of 1999 and July 31, 2000, respectively.
To combine its existing operations, Modem Media has secured a lease for a
54,300 square foot facility for occupancy in January 1999. Modem Media has an
option in
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2000 to enter into a 10-year lease for an additional 25,000 square feet in this
facility. Modem Media maintains additional offices in New York, Chicago, San
Francisco, Toronto, Hong Kong and London.
Modem Media believes that its current facilities, along with facilities
currently subject to negotiation, will be adequate to meet Modem Media's
requirements for the foreseeable future. There can be no assurance that Modem
Media will be successful in obtaining additional space, if required, or if such
space is obtained that it will be on terms acceptable to Modem Media.
Legal Proceedings
Modem Media is not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of Modem Media as of the date of this
prospectus.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Gerald M. O'Connell (1)............. 37 Chief Executive Officer and Director
Douglas C. Ahlers................... 38 Executive Vice President
Robert C. Allen, II................. 31 President and Director
Steven C. Roberts................... 37 Chief Financial Officer
Donald M. Elliman, Jr. (1).......... 53 Director
Donald L. Seeley (1)................ 54 Director
Theodore J. Theophilos.............. 45 Director
</TABLE>
- --------
(1) Member of Public Offering Committee.
Gerald M. O'Connell has served as Chief Executive Officer and a director of
Modem Media since November 1998. From October 1996 to November 1998, Mr.
O'Connell was President and Chief Operating Officer and a director of Modem
Media. From 1987 to October 1996, Mr. O'Connell was a Managing Partner of the
Modem Partnership, 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 of the Direct Marketing Association.
Douglas C. Ahlers has served as Executive Vice President of Modem Media since
November 1998. From October 1996 to November 1998, Mr. Ahlers was President of
the Relationship Technology Group, a division of Modem Media, and a director of
Modem Media. From 1987 to October 1996, Mr. Ahlers was a Managing Partner of
the Modem Partnership, which he co-founded in 1987. 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 and a director of Modem Media
since November 1998. From October 1996 to November 1998, Mr. Allen was
President of a division of Modem Media and a director of Modem Media. From 1992
to October 1996, Mr. Allen served as a Managing Partner of the Modem
Partnership. From 1989 to 1992, Mr. Allen was the Director of Business
Development at the Modem Partnership. Mr. Allen received a B.A. in English from
Gettysburg College.
Steven C. Roberts has served as Chief Financial Officer of Modem Media since
August 1998. From January 1997 to August 1998, Mr. Roberts served in various
capacities with Modem Media, most recently as Vice President, Finance and
International Operations. From 1990 to January 1997, Mr. Roberts held various
management positions at a number of subsidiaries of United Technologies. From
1984 to 1989, Mr. Roberts served as Second Vice President of Corporate Finance
at Continental Bank. Mr. Roberts holds a B.A. in Economics from Middlebury
College and an M.B.A. in Finance and Production from the University of Chicago.
Donald L. Seeley has been a director of Modem Media since November 1998 and
has been Executive Vice President, Chief Financial Officer, of True North since
1997. From 1993 to 1997,
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Mr. Seeley was Chief Executive Officer of the Alexander Consulting Group. From
1988 to 1993, Mr. Seeley was Senior Vice President of Alexander & Alexander
Services Inc., the parent company of the Alexander Consulting Group. From 1986
to 1988, Mr Seeley was Vice President and Treasurer of United Airlines. Mr.
Seeley holds a B.S. in accounting and an M.B.A. from the University of Colorado
at Boulder, and is a Chartered Financial Analyst.
Theodore J. Theophilos has been a director of Modem Media since November 1998
and has been Executive Vice President, Corporate General Counsel, of True North
since 1996. From 1995 to 1996, Mr. Theophilos was Senior Vice President and
General Counsel of A.C. Nielsen Company, and from 1986 to 1995 was a partner of
Sidley & Austin (a law firm). Mr. Theophilos holds a B.A. and an M.A. from
Northwestern University and a J.D. from the University of Chicago.
Donald M. Elliman, Jr. has served as a director of Modem Media since November
1998, as a director of True North since May 1998 and as a director of Bozell
since 1991. Mr. Elliman is currently an Executive Vice President and director
of Time Inc. Mr. Elliman was the President of Sports Illustrated from September
1992 through January 1998 and has held various senior sales/marketing and
publishing positions with Time Inc. since 1967.
Messrs. O'Connell and Allen were elected to the Board of Directors of Modem
Media pursuant to an agreement with True North entered into in connection with
the formation of Modem Media in December 1996. Modem Media and True North
agreed in 1996 to cause each of Messrs. O'Connell and Allen to be elected to
Modem Media's Board of Directors as long as each serves as an executive officer
of Modem Media and until their collective ownership of Modem Media's Class A
common stock 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 Modem Media's Board of Directors.
There are no family relationships among any of the directors or officers of
Modem Media.
Modem Media's Board of Directors currently has two vacancies, which Modem
Media's Bylaws authorize the Board of Directors to fill. The Board of Directors
intends to appoint two persons who are not officers or employees of Modem Media
or True North to the Board of Directors within 90 days of the date of this
prospectus and is required to do so to maintain Modem Media's listing on the
Nasdaq National Market. If Modem Media does not add such independent directors
within 90 days following the offering, Modem Media 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.
Director Compensation
Effective upon consummation of the offering, Modem Media directors who are
not also employees of Modem Media or True North will be paid an annual retainer
of $10,000. Directors who are also employees of Modem Media or True North will
not receive any additional compensation for serving on the Board of Directors.
Committees of the Board of Directors
Modem Media's Board of Directors has a Public Offering Committee, which acts
in place of the Board on matters related to this offering. Such matters
include, without limitation, negotiation with the underwriters for the purpose
of determining the terms and pricing of the offering. The Public Offering
Committee consists of Messrs. O'Connell, Seeley and Elliman.
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Modem Media intends to establish an Audit Committee within 90 days following
this offering composed of at least two directors, which is required to maintain
Modem Media's listing on the Nasdaq National Market. No member of the Audit
Committee will be an employee of Modem Media or True North or a director of
True North. The Audit Committee will report to the Board regarding the
appointment of the independent public accountants of Modem Media, the scope and
fees of prospective annual audits and the results thereof, compliance with
Modem Media's accounting and financial policies and management's procedures and
policies relative to the adequacy of Modem Media's internal accounting
controls.
Compensation Committee Interlocks and Insider Participation
The Board of Directors intends to establish a compensation committee
comprised of independent directors that will make determinations regarding the
compensation of executive officers of Modem Media. In the past, compensation of
executive officers of Modem Media has been determined by directors of Modem
Media who were not officers of Modem Media. No interlocking relationship exists
between Modem Media'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
Modem Media's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Delaware General
Corporation 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 his or her fiduciary duties as a
director, except for liability for:
. any breach of the duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. any transaction from which the director derives an improper personal
benefit.
Modem Media's Bylaws provide that Modem Media shall indemnify its directors
and officers and may indemnify its employees and agents to the fullest extent
permitted by Delaware law.
Modem Media has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in its Certificate of
Incorporation and Bylaws. Under these agreements, Modem Media is obligated to
indemnify its directors and officers for expenses, attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding arising out of such person's services as a director or officer of
Modem Media, any subsidiary of Modem Media or any other company or enterprise
to which the person provides services at the request of Modem Media. Modem
Media believes that these provisions and agreements are necessary to attract
and retain qualified individuals to serve as directors and officers. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling Modem Media pursuant to
the foregoing provisions, Modem Media has been informed that in the opinion of
the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Modem Media where indemnification will
be required or permitted. Modem Media is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
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Executive Compensation and Employment Agreements
The following table sets forth information concerning the compensation
received for services rendered to Modem Media by its current Chief Executive
Officer and each of the other most highly-compensated executive officers of
Modem Media during the year ended December 31, 1998 whose total compensation in
fiscal 1998 equaled or exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Position Salary Bonus(5) Options
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Gerald M. O'Connell(1)
Chief Executive Officer......................... $300,000 142,500
Robert C. Allen, II(2)
President....................................... 300,000 142,500
Douglas C. Ahlers(3)
Executive Vice President........................ 212,500 --
Steven C. Roberts(4)
Chief Financial Officer......................... 174,000 60,454
</TABLE>
- --------
(1) Mr. O'Connell served as President and Chief Operating Officer of Modem
Media from January through November 1998. In November 1998, Mr. O'Connell
was appointed Chairman and Chief Executive Officer of Modem Media.
(2) Mr. Allen served as a division president from January through November
1998. In November 1998, Mr. Allen was appointed President of Modem Media.
(3) Mr. Ahlers served as President, Relationship Technology Group, from January
through June 1998. In June 1998, Mr. Ahlers was appointed Executive Vice
President of Modem Media.
(4) Mr. Roberts served as Vice President, Operations, of Modem Media from
January through August 1998. In August 1998, Mr. Roberts was appointed
Chief Financial Officer of Modem Media.
(5) Modem Media intends to pay a bonus to each of the executive officers for
services performed in fiscal 1998 based upon Modem Media's operating
performance during 1998. Such amounts have not yet been determined. In
fiscal 1997, Messrs. O'Connell, Ahlers, Allen and Roberts were paid bonuses
of $60,000, $60,000, $60,000 and $28,000, respectively.
The following table sets forth information as to options granted to the
executive officers during the year ended December 31, 1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
Potential
Percent Realizable Value at
Number of Total Assumed Annual Rate
Securities Options of Stock
Underlying Granted to Appreciation for
Options Employees Exercise Option Term (3)
Granted(1) in Fiscal Price Per Expiration -------------------
Name (#) Year Share (2) Date 5% 10%
- ---- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gerald M. O'Connell..... 142,500 13.8% $11.05 12/11/08 $990,509 $2,510,144
Robert C. Allen, II..... 142,500 13.8 11.05 12/11/08 990,509 2,510,144
Douglas C. Ahlers....... -- -- -- -- -- --
Steven C. Roberts....... 12,954 1.3 11.58 1/2/08 94,332 239,055
47,500 4.6 11.05 12/11/08 330,170 836,715
</TABLE>
- --------
(1) These options to purchase shares of Class A common stock were granted under
the Stock Option Plan and provide that the options vest as to 20% of the
underlying common stock on the date of grant and as to an additional 20%
per year thereafter.
(2) Options were granted at an exercise price equal to 100% of the fair market
value of Modem Media's Class A common stock on the date of grant, as
determined by the Board of Directors.
(3) This column shows the hypothetical gains or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full ten-year term of the options. The assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent Modem Media's estimate or projection of
future common stock prices.
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<PAGE>
The following table sets forth information with respect to unexercised
options held by the executive officers as of December 31, 1998. No options were
exercised by the executive officers during fiscal 1998.
AGGREGATE STOCK OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
December 31, 1998 at December 31, 1998(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gerald M. O'Connell......... 43,700 136,800 $ -- $ --
Robert C. Allen, II......... 43,700 136,800 -- --
Douglas C. Ahlers........... 15,200 22,800 -- --
Steven C. Roberts........... 21,936 63,131 -- --
</TABLE>
- --------
(1) Calculated by determining the difference between the exercise price and the
deemed fair market value of the securities underlying the options at
December 31, 1998.
In December 1996, Modem Media 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
Modem Media's Board of Directors. Messrs. O'Connell and Allen currently receive
base salaries of $300,000 each. In June 1998, Mr. Ahlers' salary was set at
$150,000 per year in connection with his appointment as Executive Vice
President. Pursuant to the employment agreements, if Modem Media 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 time remaining in 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 December 1996, Modem Media entered into an employment agreement with Mr.
Roberts providing for an initial annual base salary of $150,000. Mr. Roberts
currently receives a base salary of $174,000. Pursuant to the employment
agreement, if Modem Media terminates Mr. Roberts' employment without cause, he
is entitled to receive severance benefits equal to one year's salary. In
addition, Mr. Roberts has agreed to certain confidentiality, noncompetition and
nonsolicitation provisions.
Stock Plans
1997 Stock Option Plan
Modem Media has established a stock option plan pursuant to which a total of
3,040,000 shares of Class A common stock have been reserved for issuance to
provide additional incentive to its employees, officers, directors and
consultants. Pursuant to the stock option plan, Modem Media may grant stock
options and stock purchase rights to Modem Media's employees, officers,
directors and consultants. The Board of Directors, or a committee to whom the
Board has delegated authority (the "Plan Administrator"), selects the
individuals to whom options and stock purchase rights are granted, interprets
and adopts rules for the operation of the stock option plan and specifies the
vesting, exercise price and other terms of options and stock purchase rights.
As of September 30, 1998, options to purchase an aggregate of 968,170 shares of
Class A common stock had been granted, at a weighted average exercise price of
$7.74 per share. Subsequent to September 30, 1998, Modem Media issued options
to purchase an aggregate of approximately 904,000 shares of Class A common
stock at an exercise price of $11.05 per share and options to purchase an
aggregate of approximately 47,500 shares of Class A common stock at an exercise
price of $11.58 per share.
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The maximum term of an incentive stock option granted under the Plan is
generally limited to ten years. If an optionee terminates his or her service
with Modem Media, the optionee generally may exercise only those options vested
as of the date of termination of service. Unless otherwise specified in the
option agreement, the optionee must effect such exercise within three months of
termination of service for any reason other than death or disability, and
within one year after termination due to death or disability. 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 Modem Media
on the date of grant. Payment of the exercise price may be made by such methods
as determined by the Plan Administrator and may include cash, check, a
promissory note or shares of Modem Media's Class A common stock valued at the
fair market value on the date of exercise.
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.
Upon the termination of a purchaser's service with Modem Media, Modem Media
shall have an option to repurchase his or her shares at the original price paid
by the purchaser.
In the event Modem Media is acquired or merges with another entity or
transfers 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.
1999 Employee Stock Purchase Plan
Concurrently with the offering, Modem Media intends to establish an Employee
Stock Purchase Plan under which a total of 950,000 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 employed by Modem Media or a subsidiary of
Modem Media 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 employee's compensation, subject to certain
limitations. The purchase plan will be implemented in a series of consecutive,
overlapping offering periods, each approximately six months in duration.
Offering periods will begin on the first trading day on or after and
of every other year and terminate on the last trading day in the period
months later. However, the first offering period shall be the period of
approximately 24 months commencing on the date upon which the registration
statement of which this prospectus is a part is declared effective by the
Commission and terminating on the last trading day in the period ending ,
2001. Each participant will be granted an option to purchase stock 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. Participation ends automatically on termination of employment
with Modem Media. The purchase plan will terminate in 2009 unless sooner
terminated by Modem Media's Board of Directors.
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RELATIONSHIP WITH TRUE NORTH AND CERTAIN TRANSACTIONS
Relationship with True North
Upon completion of the offering, True North will own approximately 52.9% of
the common stock outstanding (51.1% if the underwriters' over-allotment option
is exercised in full), representing 84.9% (83.9% if the underwriter's over-
allotment option is exercised in full) of the total voting power of Modem
Media. As long as True North controls a majority of the voting power of Modem
Media, it will be able, acting alone, to:
.elect at least a majority of the Board of Directors of Modem Media;
. amend Modem Media's Certificate of Incorporation or effect a merger, sale
of assets or other major corporate transaction;
.defeat any non-negotiated takeover attempt;
. determine the amount and timing of dividends paid to itself and to
holders of Class A common stock; and
. otherwise control the management and operations of Modem Media and the
outcome of most matters submitted for a stockholder vote.
Currently, two of the five directors of Modem Media (Messrs. Seeley and
Theophilos) are also members of management of True North, and are compensated
by True North in connection with their employment by True North. In addition,
one of the other current directors of Modem Media (Mr. Elliman) is a director
of True North and was selected by True North. These directors may have
conflicts of interest in addressing certain business opportunities and
strategies in circumstances where Modem Media's and True North's interests
differ. Modem Media has not adopted any formal plan or arrangement to address
such potential conflicts of interest.
The Modem Partnership Combination
Prior to 1996, True North provided limited digital interactive marketing
services through its Northern Lights Interactive division to a number of its
traditional advertising clients. In 1996, True North decided that it might be
possible to maximize stockholder value of True North by establishing a separate
subsidiary to operate its digital interactive marketing businesses. At the same
time, True North began to consider the acquisition of other complementary
digital interactive marketing companies and began to consider the potential
public offering of stock of the subsidiary. True North formed Modem Media in
October 1996 to acquire the Modem Partnership from Gerald M. O'Connell, Modem
Media's current Chairman and Chief Executive Officer, Douglas C. Ahlers, Modem
Media's current Executive Vice President, Robert C. Allen, II, Modem Media's
current President, and one other unaffiliated owner (the "Limited Partners")
and to consolidate True North's digital interactive marketing operations.
Accordingly, in December 1996, True North sold to Modem Media its digital
interactive marketing operations and its technology development operations. In
connection with the acquisition by True North of the Modem partnership and the
sale to Modem Media of True North's digital interactive marketing operations,
True North and the Limited Partners received the following consideration:
True North
.5,648,624 shares of Class B common stock of Modem Media.
Limited Partners
.an aggregate of 2,415,646 shares of Class A common stock of Modem
Media;
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.$24.4 million of common stock of True North; and
. an additional $4.0 million of common stock of True North and up to
$19.0 million cash from True North upon consummation of an initial
public offering of Modem Media (including this offering).
In accordance with EITF 90-13, "Accounting for Simultaneous Common Control
Mergers," the valuation of the 64% interest in the Modem Partnership acquired
by True North is stated at fair value in the consolidated financial statements
of Modem included elsewhere in this registration statement. The assets and
liabilities of the True North digital interactive marketing operations and the
36% interest in the Modem Partnership not acquired by True North are reflected
at historical costs.
The Combination and Related Transactions
As part of True North's decision to reorganize its interactive marketing
operations by centralizing them in Modem Media, True North decided to combine
the strategic interactive marketing operations then being conducted by Poppe
Tyson with the operations of its Northern Lights Interactive division and the
Modem Partnership. At the same time, True North decided to reacquire from Modem
Media businesses originally contributed to Modem Media that were not
complementary to the combined businesses. Accordingly, prior to this offering,
Modem Media intends to complete the following transactions effective as of
October 1, 1998:
. Poppe Tyson will form a wholly-owned subsidiary ("Poppe Tyson Operations
Holding Company") and contribute the Poppe Tyson Strategic Interactive
Marketing Operations and fixed assets of $1.6 million to Poppe Tyson
Operations Holding Company.
. Bozell will forgive approximately $5,275,000 of intercompany indebtedness
owed to Bozell by the Poppe Tyson Strategic Interactive Marketing
Operations.
. Poppe Tyson will declare a dividend of all the outstanding capital stock
of Poppe Tyson Operations Holding Company to Bozell, which in turn will
declare a dividend of all the outstanding capital stock of Poppe Tyson
Operations Holding Company to True North, so that Poppe Tyson Operations
Holding Company will become a direct, wholly-owned subsidiary of True
North.
. Poppe Tyson Operations Holding Company will be merged with and into Modem
Media, with Modem Media succeeding to all the business and operations of
Poppe Tyson Operations Holding Company, in exchange for the issuance of
1,666,288 shares of Class B common stock of Modem Media to True North.
. Assets and liabilities related to non-strategic digital interactive
marketing operations that were originally contributed by True North to
Modem Media in connection with the Modem Partnership Combination will be
returned by Modem Media to True North and its affiliates in exchange for
856,774 shares of Class B common stock of Modem Media previously held by
True North and its affiliates.
These transactions have been accounted for at historical costs because they
will occur between commonly controlled entities.
Intercompany Agreements
In the normal course of business, Modem Media and True North have from time-
to-time entered into various business transactions and agreements, and they may
enter into additional transactions in the future. The following is a summary of
each of the material agreements that Modem Media and True North have entered
into in connection with the combination of Modem Media and the Poppe Tyson
Strategic Interactive Marketing Operations. Such summaries are qualified in
their entirety by
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those agreements, which are filed as exhibits to the registration statement of
which this prospectus is a part.
Administrative Services Agreement. Under an Administrative Services
Agreement, True North will perform various administrative functions and provide
other services to Modem Media, including tax preparation, insurance, treasury
consulting and legal. During the period in which True North performs
administrative functions for Modem Media, expenses associated with such
functions will be charged to Modem Media based on rates and estimates set forth
on schedules attached to the Administrative Service Agreement. Modem Media 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 of
Modem Media and the Poppe Tyson Strategic Interactive Marketing Operations, but
must give 180 days' written notice of such intent to terminate.
Intercompany Credit Arrangements. Modem Media and True North are parties to
certain intercompany credit agreements. In August 1998, True North extended a
credit facility to Modem Media allowing for revolving borrowings in the amount
of up to $3.0 million to be outstanding at any given time at an interest rate
equal to True North's cost of borrowings, plus two percent. In addition, True
North has agreed at its discretion to provide guarantees for Modem Media
borrowings from time to time in exchange for a fee of 0.5% per annum on the
amount guaranteed. The credit facility with True North expires two years from
the date of completion of the initial public offering, or sooner upon the
occurrence of certain events. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Modem Media provides advances to True North under an Intercompany
Demand Note from time to time upon True North's request and at Modem Media's
discretion. Such advances are due on demand and bear interest at 5.75% per
annum. At September 30, 1998, an aggregate of $2.5 million was outstanding
under such advances.
Sublease with Bozell. Modem Media has entered into a sublease with Bozell
pursuant to which Modem Media will lease office space in New York. The rent per
square foot under the sublease agreement is based on the average monthly rent
per square foot and other related costs under Bozell's underlying lease.
Brazil Affiliation Agreement. Modem Media has entered into an agreement with
Bozell pursuant to which Bozell has agreed, for a period of two years, to
provide services to Modem Media's clients through its office in Sao Paolo,
Brazil as requested by Modem Media. In return, Modem Media has granted a
license to Bozell to operate its office in Brazil under the name "Modem Media .
Poppe Tyson, Inc." during the same period.
Tax Matters Agreement. In connection with the transactions consummated
effective October 1, 1998, Modem Media and True North entered into an agreement
providing for unitary state tax sharing arrangements.
Parent Company Guarantees. Commencing on July 1, 1998, True North has
guaranteed payment on behalf of Modem Media under operating and other leases at
a fee of 0.5% of the amount guaranteed.
Modem Media believes that all of the transactions set forth above were made
on terms no less favorable to Modem Media than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
Modem Media 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 Modem Media 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 Modem Media's common stock as of December 31, 1998 and
as adjusted to reflect the sale of shares of Class A common stock by Modem
Media offered hereby, by:
. each person or entity who is known by Modem Media to beneficially own
five percent or more of the outstanding shares of either class of common
stock of Modem Media;
. each director;
. each executive officer; and
. all directors and executive officers of Modem Media as a group.
<TABLE>
<CAPTION>
Class B Common
Class A Common Stock Common Stock Stock
--------------------------------- ------------ --------------------
Percent of Total
Percent of Ownership Voting Power
--------------------------------- --------------------
Shares Shares
Beneficially Before After Beneficially Before After
Name Owned(1) Offering Offering(2) Owned(1) Offering Offering(2)
- ---- ------------ -------- ----------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
True North
Communications
Inc.(3)................ -- -- % -- % 5,648,624 92.1% 84.9%
101 East Erie Street
Chicago, Illinois 60611
Gerald M. O'Connell
(4)(5)................. 1,099,673 44.6 21.7% -- 3.6 3.3%
Douglas C. Ahlers
(4)(6)................. 1,071,174 43.9 21.3% -- 3.5 3.2%
Robert C. Allen, II
(4)(5)................. 319,789 13.0 6.3% -- 1.0 1.0%
Steven C. Roberts
(4)(7)................. 26,600 1.1 * -- * *
Donald M. Elliman, Jr.
(8).................... -- -- -- 5,648,624 92.1 84.9%
Donald L. Seeley (9).... -- -- -- 5,648,624 92.1 84.9%
Theodore J. Theophilos
(10)................... -- -- -- 5,648,624 92.1 84.9%
All directors and
executive officers as a
group (seven
persons)(11)........... 2,517,237 98.6 48.8% 5,648,624 99.9 92.1%
</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 September 30, 1998 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) Includes shares of Class B common stock held by various wholly-owned
subsidiaries of True North.
(4) The address of each of Messrs. O'Connell, Ahlers, Allen and Roberts is c/o
Modem Media . Poppe Tyson, Inc., 228 Saugatuck Avenue, Westport,
Connecticut 06880.
(5) Includes 43,700 shares of Class A common stock subject to options which are
exercisable within 60 days of December 31, 1998.
(6) Includes 15,200 shares of Class A common stock subject to options which are
exercisable within 60 days of December 31, 1998.
(7) Includes 26,600 shares of Class A common stock subject to options which are
exercisable within 60 days of December 31, 1998.
(8) Includes 5,648,624 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Elliman disclaims
beneficial ownership of such shares.
(9) Includes 5,648,624 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Seeley disclaims
beneficial ownership of such shares.
(10) Includes 5,648,624 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Theophilos disclaims
beneficial ownership of such shares.
(11) Includes an aggregate of 129,200 shares of Class A common stock subject to
options held by directors and executive officers of Modem Media, which are
exercisable within 60 days of December 31, 1998.
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DESCRIPTION OF CAPITAL STOCK
Pursuant to Modem Media's Certificate of Incorporation, Modem Media has
authority to issue an aggregate of 50,000,000 shares of capital stock,
consisting of 39,351,376 shares of Class A common stock, par value $0.001 per
share, 5,648,624 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 Modem Media's Certificate of Incorporation.
Common Stock
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 outstanding share of Class A common stock is entitled to
one vote on all matters submitted to a vote of Modem Media's stockholders,
including the election of directors, and each share of Class B common stock is
entitled 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. There is no cumulative voting in the election
of directors.
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 Modem Media 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
when there are no longer any shares of Class B common stock 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 if,
and when such dividends are declared by Modem Media'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 Modem
Media, Modem Media will declare and pay such dividends in two separate classes,
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 Modem
Media, Modem Media 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.
Each share of Class B common stock is convertible into one share of Class A
common stock at any time at the option of the holder. Each share of Class B
common stock will automatically convert into one share of Class A common stock
upon the sale or transfer of such share of Class B common stock to any person
other than a parent corporation, subsidiary or other related party of such
holder or other qualified recipient. 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.
Liquidation. In the event of any dissolution, liquidation, or winding up of
the affairs of Modem Media, whether voluntary or involuntary, after payment of
the debts and other liabilities of Modem Media and making provision for the
holders of preferred stock, if any, the remaining assets of Modem Media 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 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 amount per share 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 conversion rights to the
extent and only to the extent that the voting rights and conversion rights of
Class A common stock and Class B common stock differ at that time.
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. Modem Media's
Board of Directors has the authority to issue preferred stock in one or more
series and to establish the rights and restrictions granted to or imposed on
any unissued shares of preferred stock and to fix the number of shares
constituting any series without any further vote or action by the stockholders.
Modem Media's Board of Directors has the authority, without approval of the
stockholders, to issue preferred stock that has voting and conversion rights
superior to the common stock, which could have the effect of delaying or
preventing a change in control of Modem Media. Modem Media currently has no
plans to issue any shares of preferred stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Modem Media is subject to the provisions of Section 203 of the Delaware
General Corporation Law, 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
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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 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:
. the owner of 15% or more of the outstanding voting stock of the
corporation;
. an affiliate or associate of the 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
. an affiliate or associate of the persons described in the foregoing
bullet points.
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 Modem Media's
Certificate of Incorporation nor the Bylaws exempt Modem Media from the
restrictions imposed under Section 203 of the Delaware General Corporation Law.
It is anticipated that the provisions of Section 203 of the Delaware General
Corporation Law may encourage companies interested in acquiring Modem Media to
negotiate in advance with the Board of Directors of Modem Media 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 Modem Media and transact such other business as may be properly brought
before the meeting. Special meetings of stockholders may be called by the
Chairman or the Chief Executive Officer or by a majority of the Board. Modem
Media's Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by the stockholders of Modem Media may be
effected at a duly called annual or special meeting of the stockholders or may
be taken by a consent in writing by stockholders.
Modem Media's Certificate of Incorporation may be amended with the approval
of a majority of the Board and the holders of a majority of Modem Media's
outstanding voting securities.
The number of directors shall be fixed by resolution of the Board. The size
of the Board is currently fixed at seven 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 Modem Media's voting power present and entitled to vote at a
meeting of stockholders. Vacancies and newly-created directorships resulting
from any increase in the number of directors may be filled by a majority of the
directors then in office, 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 combination of Modem Media and the Modem
Partnership in December 1996 (the "Modem Partnership Combination"), Modem Media
and True North agreed to cause the election of the following individuals to the
Board of Directors, subject to certain conditions:
. each of Messrs. O'Connell and Allen, so long as they collectively own at
least 45% of the aggregate amount of Class A common stock they received
pursuant to the Modem Partnership Combination;
. Mr. O'Connell, so long as Messrs. O'Connell, Ahlers and Allen
collectively own at least 30% of the aggregate amount of Class A common
stock they received pursuant to the Modem Partnership Combination.
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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
Modem Media's Certificate of Incorporation contains certain provisions
permitted under the Delaware General Corporation Law 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:
. for any breach of the director's duty of loyalty to Modem Media or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate the rights of Modem Media or any
stockholder to seek non-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. Modem Media's
Bylaws also contain provisions indemnifying the directors and officers of Modem
Media to the fullest extent permitted by the Delaware General Corporation Law.
Modem Media believes that these provisions are necessary to attract and retain
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.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for Modem Media's
common stock. Modem Media cannot predict the effect, if any, that sales of
shares of the Class A common stock to the public or the availability of shares
for sale to the public will have on the market price of the Class A common
stock prevailing from time to time. Nevertheless, if a significant number of
shares of Class A common stock are sold in the public market, or if people
believe that such sales may occur, the prevailing market price of our Class A
common stock could decline.
Upon consummation of this offering, Modem Media will have 5,023,831 shares of
Class A common stock outstanding (5,413,831 shares if the underwriters' over-
allotment is exercised in full) and 5,648,624 shares of Class B common stock
outstanding. Of the shares outstanding after the offering, the 2,600,000 shares
of Class A common stock sold in the offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"), except for any such shares which may be acquired by an "affiliate" of
Modem Media, which shares will be subject to the volume limitations of Rule 144
under the Securities Act. As defined in Rule 144, an "affiliate" of an issuer
is a person who, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such issuer.
Substantially all of the remaining 2,423,831 shares of Class A common stock and
all of the 5,648,624 shares of Class B common stock outstanding will be
"restricted securities" as that phrase is defined in Rule 144 and may not be
resold in the absence of registration under the Securities Act or pursuant to
an exemption from such registration, including the exemption provided by Rule
144 under the Securities Act. Each share of Class B common stock will
automatically convert into one share of Class A common stock upon the sale or
transfer of such share of Class B common stock to any person other than a
parent corporation or subsidiary of such holder or other qualified recipient.
Subject to the foregoing and to the lock-up agreements described below, under
Rule 144 as currently in effect, beginning 180 days after the date of this
prospectus, holders of restricted securities will be entitled to sell a number
of shares of common stock within any three-month period equal to the greater of
1% of the then outstanding shares of the common stock (approximately 106,725
shares immediately after the offering) or the average weekly reported volume of
trading of the common stock on the Nasdaq National Market during the four
calendar weeks preceding such sale, provided that certain manner of sale and
notice requirements and requirements as to the availability of current public
information concerning Modem Media are satisfied.
Immediately after the offering, there will be options to purchase
approximately 1,890,542 shares of Class A common stock outstanding. Subject to
the provisions of the lock-up agreements described below, holders of these
options may rely on the resale provisions of Rule 701 under the Securities Act,
which permits nonaffiliates to sell shares without having to comply with the
current public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their shares without
having to comply with the holding period provision of Rule 144, in each case
beginning 90 days after the consummation of this offering. In addition,
immediately after this offering, Modem Media intends to file a registration
statement on Form S-8 covering all options granted under the 1997 Stock Plan.
Shares of Class A common stock registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market, unless such shares are subject to
vesting restrictions with Modem Media or the lock-up agreements described
below. See "Management--Stock Plans--1997 Stock Option Plan."
65
<PAGE>
Notwithstanding the foregoing, in connection with this offering, each of
Modem Media, True North and its affiliates, and Modem Media's directors and
officers has agreed that, without the prior written consent of BancBoston
Robertson Stephens Inc. on behalf of the underwriters, during the period ending
180 days after the date of this prospectus, he, she or it will not directly or
indirectly:
. offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge, or grant any right with respect to, any shares of common stock
or any securities convertible into or exchangeable for shares of common
stock, whether such shares or any such securities are then owned by
such person or are thereafter acquired directly from Modem Media.
The above 180-day restriction does not apply to the following:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement, as described below;
. the issuance of common stock upon the exercise of outstanding options;
or
. the issuance of options under existing stock option and incentive
plans, provided such options do not vest prior to the expiration of the
180-day period referenced above. See "Underwriting."
66
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., NationsBanc Montgomery Securities LLC and
Bear, Stearns & Co. Inc., have severally agreed with Modem Media, subject to
the terms and conditions of the underwriting agreement, to purchase from Modem
Media the number of shares of Class A common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all such
shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...............................
NationsBanc Montgomery Securities LLC...........................
Bear, Stearns & Co. Inc.........................................
---------
Total......................................................... 2,600,000
=========
</TABLE>
The representatives of the underwriters have advised Modem Media that the
underwriters propose to offer the shares of Class A common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to certain dealers at such price less a concession of not in excess of $
per share, of which $ may be reallowed to other dealers. After this
offering, the public offering price, concession, and reallowance to dealers may
be reduced by the representatives. No such reduction shall change the amount of
proceeds to be received by Modem Media as set forth on the cover page of this
prospectus. The Class A common stock is offered by the underwriters as stated
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-Allotment Option. Modem Media has granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 390,000 additional shares of Class A common stock at the same
price per share as Modem Media will receive for the 2,600,000 shares that the
underwriters have agreed to purchase. To the extent that the underwriters
exercise such option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Class A common stock to be purchased by it shown in the
above table represents as a percentage of the 2,600,000 shares offered hereby.
If purchased, such additional shares will be sold by the underwriters on the
same terms as those on which the 2,600,000 shares are being sold. Modem Media
will be obligated, pursuant to the option, to sell shares to the extent the
option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Class A
common stock offered hereby. If such option is exercised in full, the total
price to public, underwriting discounts and commissions and proceeds to company
will be $35.9 million, $5.0 million and $30.9 million, respectively.
Directed Share Program. At the request of Modem Media, the underwriters have
reserved up to shares of Class A common stock to be issued by Modem Media
and offered hereby for sale, at the initial public offering price, to
directors, officers, employees, business associates and
67
<PAGE>
related persons of Modem Media. The number of shares of Class A common stock
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and Modem Media against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each officer and director of Modem Media and certain
other holders of shares of common stock have agreed, during the period ending
180 days after the date of this prospectus ("the lock-up period"), subject to
certain exceptions, not to offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to any shares of
common stock or any options or warrants to purchase any shares of common stock,
or any securities convertible into or exchangeable for shares of common stock
owned as of the date of this prospectus or thereafter acquired directly by such
holders or with respect to which they have the power of disposition, without
the prior written consent of BancBoston Robertson Stephens Inc. However,
BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of securities subject to the lock-up
agreement. There are no existing agreements between the representatives of the
underwriters and any of Modem Media's stockholders providing consent to the
sale of shares prior to the expiration of the lock-up period.
Future Sales. In addition, Modem Media has agreed that during the lock-up
period Modem Media will not, without the prior written consent of BancBoston
Robertson Stephens Inc., subject to certain exceptions, (i) consent to the
disposition of any shares held by stockholders subject to lock-up agreements
prior to the expiration of the lock-up period or (ii) issue, sell, contract to
sell, or otherwise dispose of, any shares of common stock, any options to
purchase any shares of common stock or any securities convertible into,
exercisable for or exchangeable for shares of common stock other than Modem
Media's sale of shares in this offering, the issuance of common stock upon the
exercise of outstanding options, and the issuance of options under existing
stock option and incentive plans provided such options do not vest prior to the
expiration of the lock-up period. See "Shares Eligible for Future Sale."
Listing. Application has been made to have the Class A common stock approved
for quotation on the Nasdaq National Market under the symbol "MMPT."
No Prior Public Market. Prior to this offering, there has been no public
market for Modem Media's common stock. Consequently, the public offering price
for the Class A common stock offered by this prospectus will be determined
through negotiations among Modem Media and the representatives of the
underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, certain financial information of Modem Media,
market valuations of other companies that Modem Media and the representatives
believe to be comparable to Modem Media, estimates of the business potential of
Modem Media, the present state of Modem Media's development and other factors
deemed relevant.
Stabilization. The representatives of the underwriters have advised Modem
Media that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
68
<PAGE>
bids, that may have the effect of stabilizing or maintaining the market price
of the Class A common stock at a level above that which might otherwise prevail
in the open market. A "stabilizing bid" is a bid for or the purchase of Class A
common stock on behalf of the underwriters for the purpose of fixing or
maintaining the price of the Class A common stock. A "syndicate covering
transaction" is the bid for or the purchase of Class A common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the Class A
common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised Modem Media that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby will be
passed upon for Modem Media by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California, and for the underwriters by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The audited financial statements and schedules 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.
ADDITIONAL INFORMATION
Modem Media 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
Modem Media 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 that a copy of such contract or other document has been filed as an
exhibit to the Registration Statement, reference is made to the exhibit filed,
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 Website
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.
69
<PAGE>
This prospectus includes statistical data regarding Internet usage and the
advertising and marketing industry which were obtained from industry
publications, including reports generated by International Data Corporation,
Jupiter Communications and Zenith Media. These industry publications generally
indicate that they have obtained information from sources believed to be
reliable, but do not guarantee the accuracy and completeness of such
information. While Modem Media believes these industry publications to be
reliable, Modem Media has not independently verified such data. Modem Media
also has not sought the consent of any of these organizations to refer to their
reports in this prospectus.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Modem Media . Poppe Tyson, Inc. and Subsidiaries
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998..................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997
(unaudited) and 1998................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1998..................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the nine months ended September 30, 1997
(unaudited) and 1998................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Modem Media Advertising Limited Partnership
Report of Independent Public Accountants................................ F-25
Balance Sheets as of December 31, 1995 and 1996......................... F-26
Statements of Income for the years ended December 31, 1995 and 1996..... F-27
Statements of Partners' Capital for the years ended December 31, 1995
and 1996............................................................... F-28
Statements of Cash Flows for the years ended December 31, 1995 and
1996................................................................... F-29
Notes to Financial Statements........................................... F-30
Poppe Tyson Strategic Interactive Marketing Operations
Report of Independent Public Accountants................................ F-34
Balance Sheets as of December 31, 1996 and 1997......................... F-35
Statements of Operations for the years ended December 31, 1996 and
1997................................................................... F-36
Statements of Changes in Equity (Deficit) for the years ended December
31, 1996 and 1997...................................................... F-37
Statements of Cash Flows for the years ended December 31, 1996 and
1997................................................................... F-38
Notes to Financial Statements........................................... F-39
</TABLE>
F-1
<PAGE>
After the reorganization transaction discussed in Note 1 and the reverse stock
split discussed in Notes 2 and 15 to Modem Media . Poppe Tyson, Inc.'s
consolidated financial statements is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
November 16, 1998
(except with respect to
certain matters discussed
in Notes 2 and 15, as to
which the date is January
11, 1999)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Modem Media . Poppe Tyson, Inc.:
We have audited the accompanying consolidated balance sheets of Modem Media .
Poppe Tyson, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1997 and September 30, 1998, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1995, 1996 and 1997 and the nine months ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Modem Media . Poppe Tyson,
Inc. and subsidiaries as of December 31, 1996 and 1997 and September 30, 1998,
and the results of their operations and their cash flows for the years ended
December 31, 1995, 1996 and 1997 and the nine months ended September 30, 1998,
in conformity with generally accepted accounting principles.
F-2
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
December 31, December 31, September 30, September 30,
1996 1997 1998 1998
------------ ------------ ------------- -------------
(unaudited)
(see Note 15)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................... $ 2,726,000 $ 7,056,000 $ 4,349,000 $ 4,349,000
Accounts receivable,
net of bad debt
reserve of $408,000,
$452,000, $578,000
and $578,000,
respectively.......... 6,586,000 7,414,000 11,650,000 11,650,000
Unbilled revenues...... 590,000 1,044,000 987,000 987,000
Unbilled charges....... 650,000 658,000 563,000 563,000
Deferred taxes......... 3,000 303,000 699,000 699,000
Prepaid expenses and
other current
assets................ 154,000 341,000 717,000 717,000
True North note
receivable............ -- -- 2,500,000 2,500,000
------------ ------------ ------------ ------------
Total current
assets.............. 10,709,000 16,816,000 21,465,000 21,465,000
Property and Equipment:
Leasehold
improvements.......... 111,000 239,000 288,000 694,000
Computers and
software.............. 1,316,000 2,240,000 4,343,000 5,078,000
Furniture and other.... 419,000 1,480,000 2,350,000 2,833,000
------------ ------------ ------------ ------------
Total property and
equipment........... 1,846,000 3,959,000 6,981,000 8,605,000
Less: accumulated
depreciation and
amortization.......... (19,000) (1,134,000) (2,454,000) (2,454,000)
------------ ------------ ------------ ------------
Total property and
equipment, net...... 1,827,000 2,825,000 4,527,000 6,151,000
Other Assets:
Goodwill, net of
accumulated
amortization of $0,
$1,666,000,
$2,974,000 and
$2,974,000,
respectively.......... 32,161,000 31,645,000 33,600,000 33,600,000
Net assets of True
North Units Held for
Transfer.............. 9,291,000 7,573,000 7,444,000 --
Deferred taxes......... -- 84,000 179,000 179,000
Other assets,
including deferred
offering costs........ 34,000 81,000 967,000 967,000
------------ ------------ ------------ ------------
Total other assets... 41,486,000 39,383,000 42,190,000 34,746,000
------------ ------------ ------------ ------------
Total assets......... $ 54,022,000 $ 59,024,000 $ 68,182,000 $ 62,362,000
============ ============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....... $ 1,656,000 $ 1,101,000 $ 2,764,000 $ 2,764,000
Pre-billed media....... 1,343,000 3,886,000 3,546,000 3,546,000
Advance billings....... 1,393,000 2,163,000 1,224,000 1,224,000
Deferred revenues...... 174,000 1,616,000 3,066,000 3,066,000
Income taxes payable... 174,000 549,000 661,000 661,000
Current portion of
long-term lease
obligations........... 76,000 342,000 449,000 449,000
Accrued expenses....... 690,000 1,494,000 3,401,000 3,401,000
Due to True North...... -- 729,000 1,212,000 7,212,000
Due to former Modem
Partnership
partners.............. 1,564,000 -- -- --
Other current
liabilities........... 211,000 1,667,000 3,251,000 3,251,000
------------ ------------ ------------ ------------
Total current
liabilities......... 7,281,000 13,547,000 19,574,000 25,574,000
Noncurrent Liabilities:
Due to Bozell, non-
interest bearing...... -- 3,346,000 5,275,000 --
Note payable to True
North................. 6,000,000 6,000,000 6,000,000 --
Deferred taxes......... 29,000 -- -- --
Capital lease
obligations, less
current portion....... 193,000 472,000 507,000 507,000
Other liabilities...... 26,000 41,000 24,000 24,000
Commitments and
contingencies..........
Stockholders' Equity:
Common stock, Class A,
$.001 par value--
39,351,376 shares
authorized, 2,423,831
issued and
outstanding........... 3,000 3,000 3,000 3,000
Common stock, Class B,
$.001 par value--
5,648,624 shares
authorized, 4,839,110
issued and
outstanding........... 5,000 5,000 5,000 6,000
Preferred stock, $.001
par value--5,000,000
shares authorized,
none issued and
outstanding........... -- -- -- --
Paid-in capital........ 43,588,000 44,828,000 47,273,000 46,727,000
Accumulated deficit.... (3,103,000) (9,192,000) (10,498,000) (10,498,000)
Accumulated other
comprehensive
income................ -- (26,000) 19,000 19,000
------------ ------------ ------------ ------------
Total stockholders'
equity.............. 40,493,000 35,618,000 36,802,000 36,257,000
------------ ------------ ------------ ------------
Total liabilities and
stockholders'
equity.............. $ 54,022,000 $ 59,024,000 $ 68,182,000 $ 62,362,000
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 438,000 $ 2,093,000 $25,497,000 $18,025,000 $30,397,000
Costs and Expenses:
Salaries and
benefits............. 308,000 1,322,000 15,894,000 11,187,000 20,793,000
Office and general.... 215,000 712,000 9,038,000 6,162,000 10,309,000
Amortization of
goodwill............. -- -- 1,666,000 1,249,000 1,308,000
Operating losses of
True North Units Held
for Transfer......... 1,766,000 1,309,000 2,180,000 1,600,000 13,000
----------- ----------- ----------- ----------- -----------
Total costs and
expenses........... 2,289,000 3,343,000 28,778,000 20,198,000 32,423,000
Operating Loss.......... (1,851,000) (1,250,000) (3,281,000) (2,173,000) (2,026,000)
Interest Expense, Net... -- -- (76,000) (62,000) (5,000)
----------- ----------- ----------- ----------- -----------
Loss before Income
Taxes.................. (1,851,000) (1,250,000) (3,357,000) (2,235,000) (2,031,000)
(Benefit) Provision for
Income Taxes........... (873,000) (548,000) (248,000) (246,000) 57,000
----------- ----------- ----------- ----------- -----------
Net Loss................ $ (978,000) $ (702,000) $(3,109,000) $(1,989,000) $(2,088,000)
=========== =========== =========== =========== ===========
Net loss per share:
Basic and diluted..... $ -- $ (35.10) $ (0.43) $ (0.27) $ (0.29)
=========== =========== =========== =========== ===========
Pro forma basic and
diluted.............. $ (0.39) $ (0.26)
=========== ===========
Weighted-average number
of common shares
outstanding:
Basic and diluted..... -- 20,000 7,260,000 7,259,000 7,263,000
=========== =========== =========== =========== ===========
Pro forma basic and
diluted.............. 8,072,000 8,072,000
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
------------- Accumulated Other Total
Class Class Paid-in Earnings/ Comprehensive Stockholders'
A B Capital (Deficit) Income Equity
------ ------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1994............... $ -- $ -- $ -- $ 256,000 $ -- $ 256,000
Comprehensive income:
Net loss.............. -- -- -- (978,000) -- (978,000)
-----------
Total comprehensive
income............. (978,000)
Dividends............... -- -- -- (124,000) -- (124,000)
------ ------ ----------- ------------ -------- -----------
Balance as of December
31, 1995............... -- -- -- (846,000) -- (846,000)
Comprehensive income:
Net loss.............. -- -- -- (702,000) -- (702,000)
-----------
Total comprehensive
income............. (702,000)
Acquisition of Modem
Partnership............ 3,000 5,000 35,134,000 -- -- 35,142,000
Forgiveness of
intercompany
borrowings............. -- -- 8,454,000 -- -- 8,454,000
Dividends............... -- -- -- (1,555,000) -- (1,555,000)
------ ------ ----------- ------------ -------- -----------
Balance as of December
31, 1996............... 3,000 5,000 43,588,000 (3,103,000) -- 40,493,000
Comprehensive income:
Net loss.............. -- -- -- (3,109,000) -- (3,109,000)
Foreign currency
translation
adjustment........... -- -- -- -- 8,000 8,000
-----------
Total comprehensive
income............. (3,101,000)
-----------
Acquisition of Poppe
Tyson Strategic
Interactive Marketing
Operations............. (2,980,000) (34,000) (3,014,000)
Payment to former Modem
Partnership partners... -- -- 1,150,000 -- -- 1,150,000
Other, net.............. -- -- 90,000 -- -- 90,000
------ ------ ----------- ------------ -------- -----------
Balance as of December
31, 1997............... 3,000 5,000 44,828,000 (9,192,000) (26,000) 35,618,000
Comprehensive income:
Net loss.............. -- -- -- (2,088,000) -- (2,088,000)
Foreign currency
translation
adjustment........... -- -- -- -- 45,000 45,000
-----------
Total comprehensive
income............. (2,043,000)
-----------
Payment to former Modem
Partnership partners... -- -- 3,263,000 -- -- 3,263,000
Other, net.............. -- -- (818,000) 782,000 -- (36,000)
------ ------ ----------- ------------ -------- -----------
Balance as of September
30, 1998............... $3,000 $5,000 $47,273,000 $(10,498,000) $ 19,000 $36,802,000
====== ====== =========== ============ ======== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
MODEM MEDIA, POPPE TYSON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ----------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (978,000) $ (702,000) $ (3,109,000) $ (1,989,000) $ (2,088,000)
Adjustments to
reconcile net loss to
net cash (used in)
provided by operating
activities:
Depreciation.......... 4,000 15,000 1,189,000 827,000 1,165,000
Amortization of
goodwill............. -- -- 1,666,000 1,249,000 1,308,000
Provision for doubtful
accounts............. -- -- 517,000 150,000 251,000
Loss on disposal of
equipment............ -- -- 98,000 -- 155,000
Changes in assets and
liabilities:
Accounts receivable.. (606,000) (1,692,000) (568,000) 1,206,000 (4,487,000)
Unbilled revenues.... -- (76,000) (454,000) (582,000) 57,000
Unbilled charges..... (123,000) (52,000) 38,000 (350,000) 95,000
Prepaid expenses and
other current
assets.............. -- -- (125,000) (174,000) (376,000)
Accounts payable and
other current
liabilities......... 129,000 (347,000) 535,000 436,000 3,247,000
Pre-billed media..... -- -- 2,543,000 (1,343,000) (340,000)
Advance billings..... -- 428,000 770,000 (1,110,000) (939,000)
Deferred revenues.... 89,000 (76,000) 1,442,000 3,620,000 1,450,000
Income taxes
payable............. (37,000) 210,000 375,000 424,000 112,000
Accrued expenses..... -- 378,000 196,000 840,000 1,907,000
Deferred taxes....... -- (135,000) (413,000) (99,000) (491,000)
Other, net........... -- 1,000 (22,000) 47,000 (896,000)
Net assets of True
North Units Held for
Transfer............ 1,215,000 (1,635,000) 1,718,000 1,090,000 129,000
---------- ----------- ------------ ------------ ------------
Net cash (used in)
provided by
operating
activities......... (307,000) (3,683,000) 6,396,000 4,242,000 259,000
Cash flows from
investing activities:
Purchase of property
and equipment......... (27,000) (139,000) (1,324,000) (923,000) (2,591,000)
Cash of acquired
companies............. -- 2,723,000 147,000 -- --
---------- ----------- ------------ ------------ ------------
Net cash (used in)
provided by
investing
activities......... (27,000) 2,584,000 (1,177,000) (923,000) (2,591,000)
Cash flows from
financing activities:
Funding from parent
company............... 458,000 5,380,000 729,000 (332,000) (88,000)
Dividends paid to True
North ................ (124,000) (1,555,000) -- -- --
Distributions to former
Modem Partnership
partners.............. -- -- (1,564,000) (1,564,000) --
Principal payments made
under capital lease
obligations........... -- -- (143,000) (96,000) (289,000)
Other, net............. -- -- 89,000 88,000 2,000
---------- ----------- ------------ ------------ ------------
Net cash provided by
(used in) financing
activities......... 334,000 3,825,000 (889,000) (1,904,000) (375,000)
---------- ----------- ------------ ------------ ------------
Net increase (decrease)
in cash................ -- 2,726,000 4,330,000 1,415,000 (2,707,000)
Cash, at beginning of
period................. -- -- 2,726,000 2,726,000 7,056,000
---------- ----------- ------------ ------------ ------------
Cash, at end of period.. $ -- $ 2,726,000 $ 7,056,000 $ 4,141,000 $ 4,349,000
========== =========== ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Modem Media . Poppe Tyson, Inc. ("Modem Media" or the "Company") was formed
by True North Communications Inc. ("True North") in 1996 to combine certain of
True North's strategic interactive marketing and website design and maintenance
units with Modem Media Advertising Limited Partnership (the "Modem
Partnership") in a business combination accounted for under the purchase method
(see Note 3). Accordingly, the Modem Partnership has been reflected in the
Modem Media financial statements since December 31, 1996. The Modem Partnership
is a predecessor entity of Modem Media, and its financial statements as of and
for the years ended December 31, 1995 and 1996 are included elsewhere in the
registration statement. The Company's name was changed from TN Technologies
Inc. to Modem Media . Poppe Tyson, Inc. in November 1998.
Effective October 1, 1998, the Company acquired the strategic interactive
marketing operations of Poppe Tyson Inc. (the "Poppe Tyson Strategic
Interactive Marketing Operations") from True North in exchange for certain of
the Company's subsidiaries and operations and an aggregate of 809,514 shares of
Class B common stock (the "Combination") (see Note 15). The Poppe Tyson
Strategic Interactive Marketing Operations consist of the strategic interactive
marketing operations of Poppe Tyson Inc. ("Poppe Tyson") in the United Kingdom,
Hong Kong and the U.S., and certain fixed assets. The historical financial
results of the Poppe Tyson Strategic Interactive Marketing Operations have been
prepared on a carved-out basis, and are included in the consolidated financial
statements of the Company from December 31, 1997, the date of the merger of
Bozell with True North. All adjustments necessary for the fair presentation of
the consolidated financial statements related to the Poppe Tyson Strategic
Interactive Marketing Operations are reflected herein. The accumulated deficit
arising from the operating results of the Poppe Tyson Strategic Interactive
Marketing Operations is reflected as a reduction in paid-in capital in the
accompanying consolidated balance sheet at September 30, 1998. The Poppe Tyson
Strategic Interactive Marketing Operations are a predecessor entity of the
Company, and their financial statements as of and for the years ended December
31, 1996 and 1997 are included elsewhere in the registration statement.
Poppe Tyson was formed in December 1985 as a subsidiary of Bozell, Jacobs,
Kenyon & Eckhardt, Inc. ("Bozell"), which was acquired by True North in
December 1997 in a business combination accounted for under the pooling-of-
interests method. Poppe Tyson includes the strategic interactive marketing
operations and website production and maintenance businesses of Bozell.
Prior to undertaking the Combination, the Company and True North management
agreed that the value of the non-strategic digital interactive marketing
operations contributed to Modem Media by True North in 1996 would be optimized
under True North management, as the strategic focus of those businesses would
not be complementary to the Company. True North and the Company have analyzed
the future cash flows of those businesses and believe the investment is fully
realizable at this time. Because the Combination occurred among True North and
majority-owned, controlled subsidiaries, the transaction has been recorded at
historical cost as of December 31, 1997, the date upon which the Company and
the Poppe Tyson Strategic Interactive Marketing Operations came under common
control.
In contemplation of the Combination effected as of October 1, 1998, the net
assets of the businesses to be sold back to True North have been presented as
one line, "Net Assets of True North
F-7
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Units Held for Transfer," on the face of the historical balance sheets in a
manner similar to that of assets held for sale. Similarly, the pre-tax losses
of those businesses have been presented as one line, "Operating Losses of True
North Units Held for Transfer," in the historical statements of operations.
Summarized financial data of the businesses to be sold back to True North are
as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $11,001,000 $18,401,000 $16,766,000 $12,598,000 $10,140,000
Costs and expenses...... 12,766,000 19,663,000 18,652,000 14,125,000 10,019,000
Loss before income
taxes.................. (1,766,000) (1,309,000) (2,180,000) (1,600,000) (13,000)
Net loss................ (930,000) (751,000) (1,718,000) (1,096,000) (129,000)
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------- September 30,
1996 1997 1998
----------- ----------- -------------
(unaudited)
<S> <C> <C> <C>
Current assets......................... $ 7,590,000 $10,378,000 $10,089,000
Goodwill, net.......................... 6,212,000 5,893,000 5,686,000
Total assets........................... 18,255,000 19,845,000 19,444,000
Current liabilities.................... 6,881,000 4,119,000 5,251,000
Total liabilities...................... 8,964,000 12,272,000 12,000,000
Net assets............................. 9,291,000 7,573,000 7,444,000
</TABLE>
2. Summary of Significant Accounting Policies
Nature of Operations--The Company has been a leading provider of digital
interactive marketing solutions since 1987. By developing marketing programs
that incorporate advanced communications technologies, the Company enables its
clients to establish, retain and manage customer relationships. The Company's
marketing programs include the design and implementation of electronic business
programs that enable its clients to support and leverage their world class
brands. The Company combines its substantial expertise in strategic marketing,
creative design and digital technology to deliver, on a worldwide basis, a
complete range of digital interactive marketing services, including strategic
consulting and research, electronic commerce and electronic consumer care
services, interactive advertising and promotions, and data collection analysis.
The Company's marketing programs are designed to enable its clients to target
narrowly-defined market segments, provide their customers with detailed product
and service information, sell products and services and provide post-sale
customer support electronically, and offer ongoing marketing programs.
Marketing programs developed by the Company are delivered primarily through the
Internet. The Company has operations in the United States, Canada, Hong Kong
and the United Kingdom.
The Company is subject to certain risk factors including: history of
operating losses; dependence on key clients; variability of operating results;
and integration of the separate business units. All of these risk factors are
described in detail under "Risk Factors."
Principles of Consolidation--The accompanying consolidated financial
statements include all of the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F- 8
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interim Financial Statements--The consolidated balances as of and for the
nine months ended September 30, 1997 are unaudited. The unaudited consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of its operating results. The operating results for the nine
months ended September 30, 1997 and 1998 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 affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition and Billing--A majority of the Company's revenues are
derived from fixed-fee assignments. Revenues are recognized as services are
rendered. Unbilled revenues represent labor costs incurred and estimated
earnings in excess of billings. Unbilled charges represent production and other
client reimbursable out-of-pocket costs in excess of billings. Revenue is
reported net of such reimbursable costs. Pre-billed media represents amounts
billed to customers for media placement in advance of the advertisements being
placed. Advanced billings represent billings of production and other client
reimbursable out-of-pocket costs in excess of those incurred. Amounts billed to
clients in excess of revenues recognized to date are classified as deferred
revenues. The Company reassesses its estimated costs on each project on a
monthly basis and losses are accrued, on a project-by-project basis, to the
extent the costs incurred and anticipated costs to complete projects exceed
anticipated billings. Provisions for estimated losses on uncompleted projects
are made in the period in which such losses are determinable.
Business Concentrations and Credit Risk--The Company's services have been
provided to a limited number of clients located worldwide in a variety of
industries. The Company had revenues from five clients during the year ended
December 31, 1997 and the nine months ended September 30, 1997 and 1998 that
accounted for 65.5%, 64.9% and 54.8% of total revenues, respectively. No one
client accounted for more than 10% of revenues during the years ended December
31, 1995 or 1996.
The Company is subject to a concentration of credit risk with respect to its
accounts receivable. One customer accounted for 28.4% and 16.4% of accounts
receivable as of December 31, 1996 and 1997, respectively, and two customers
accounted for 38.9% of accounts receivable as of September 30, 1998.
Property and Equipment--Property and equipment are stated at cost and are
depreciated, principally using the straight-line method, over their estimated
useful lives of three to five years for computers and software, and five to
twelve years for furniture and other. Purchased software and third-party costs
incurred to develop software for internal use are capitalized and amortized
principally over three years. Leasehold improvements are amortized over the
lesser of their estimated useful lives or the remaining lease term. In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of, the Company reviews its recorded property and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not
F-9
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be recoverable and provides currently for any identified impairments. In
conjunction with the transactions that occurred effective October 1, 1998 (see
Note 1), the Company performed a physical inventory of property and equipment
at certain international locations. As a result of such inventory, the Company
recorded a non-cash impairment loss of $154,000 during the third quarter of
1998.
Income Taxes--Modem Media and True North have certain tax-sharing
arrangements that are described in Note 10. The Company accounts for income
taxes under the liability method in accordance with SFAS No. 109, Accounting
for Income Taxes. In accordance with such standard, the provision for income
taxes includes deferred income taxes resulting from items reported in different
periods for income tax and financial statement purposes. Deferred tax assets
and liabilities represent the expected future tax consequences of the
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. The effects of changes in tax
rates on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
Goodwill--Goodwill represents acquisition costs in excess of the fair value
of tangible net assets of purchased subsidiaries and is amortized using the
straight-line method over 20 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 cash flows from
the related businesses.
Fair Value of Financial Instruments--The carrying values of the Company's
current assets and current liabilities approximate fair value because of the
short maturities of these financial instruments.
Pro Forma Net Loss Per Share--In accordance with SFAS No. 128, Earnings Per
Share, basic net loss per share is computed using the weighted-average number
of common shares outstanding during each period. Diluted net loss per share
gives effect to all potential dilutive securities that were outstanding during
each period. Pro forma basic net loss per share is computed using the weighted-
average number of common shares of Modem Media outstanding upon consummation of
the transaction with True North effective as of October 1, 1998 (see Note 1).
Pro forma diluted net loss per share gives effect to all potential dilutive
securities that were outstanding during the period. The Company had a net loss
for all periods presented herein; therefore, none of the options outstanding
during each of the periods presented were included in the computations of
diluted loss per share or pro forma diluted loss per share as they were
antidilutive. See Note 6 for the details of options outstanding.
On January 11, 1999, the Company's Board of Directors approved a 0.95-for-1
reverse split of the Company's outstanding common stock effective upon
completion of the Combination. Accordingly, all historical weighted-average
share and per-share amounts have been restated to reflect the reverse stock
split.
Proposed Public Offering--In connection with its contemplated initial public
offering of securities, the Company has incurred approximately $750,000 in
offering-related costs that are being deferred until the consummation of the
offering, at which time they will be charged against paid-in capital. If the
offering is not consummated, the deferred costs will be expensed.
F-10
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Translation--The Company's financial statements were
prepared in accordance with the requirements of SFAS No. 52, Foreign Currency
Translation. Under this method, net foreign currency transaction gains (losses)
are included in the accompanying consolidated statements of operations. Such
gains (losses) were immaterial for the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1997 and 1998. The Company had no
foreign currency transaction gains (losses) during the year ended December 31,
1995.
Comprehensive Income--The Company reflects its comprehensive income, such as
unrealized gains or losses on the Company's foreign currency translation
adjustments, as a separate component of stockholders' equity as required by
SFAS No. 130, Reporting Comprehensive Income. There were no other items of
comprehensive income during these periods.
Recently Issued Accounting Standard--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 131, Disclosure About Segments of an Enterprise
and Related Information. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. The
statement also establishes standards for related disclosure about products and
services, geographic areas, and major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997, but, it is not required to be
applied to interim financial statements in the initial year of adoption.
Therefore, the Company will adopt the new requirements retroactively in its
annual consolidated financial statements for the year ended December 31, 1998.
The Company currently believes that it operates in one segment and that the
adoption of SFAS No. 131 will not materially affect the Company's current
disclosure of geographic information (see Note 11).
3. Acquisitions
On December 31, 1996, True North, through the Company, acquired a 64%
interest in the Modem Partnership for $32,590,000. The consideration was
comprised of $24,387,000 in common stock of True North and a 36% interest in
certain operations of the Company valued at $8,203,000 by independent appraisal
experts. In addition, True North is obligated to make cash payments of up to
$19,000,000 (reduced by the payments discussed below) and issue $4,000,000 in
shares of True North common stock to the former owners of the Modem Partnership
upon completion of an initial public offering of common stock and/or certain
other events. True North contributed its interests in the Modem Partnership to
the Company in exchange for shares of Class B common stock. The remaining
interests in the Modem Partnership were contributed by its former owners to the
Company in exchange for shares of Class A common stock. The above transactions
resulted in True North holding 4,839,110 shares of Class B common stock of the
Company and the former owners of the Modem Partnership holding 2,415,646 shares
of Class A common stock of the Company at December 31, 1996. Assets acquired,
liabilities assumed and intercompany indebtedness forgiven by True North in
this transaction were $42,300,000, $7,158,000 and $8,454,000, respectively, and
are reflected in the accompanying consolidated balance sheets. In accordance
with EITF 90-13, "Accounting for Simultaneous Common Control Mergers", the
valuation of the 64% interest in the Modem Partnership acquired by True North
is stated at fair value in the accompanying consolidated financial statements.
The assets and liabilities of the operations of the Company and the 36% of the
Modem Partnership not acquired by True North are reflected at historical costs.
The difference
F-11
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
between the initial purchase price and the fair value of assets acquired of
approximately $32,161,000, excluding costs of the transaction, has been
allocated to goodwill by the Company.
Additional payments made will be allocated to the cost in excess of the fair
value of tangible net assets acquired and amortized by the Company over the
remaining life of the assets. The acquisition agreement also requires
additional payments contingent on future earnings to be made in the event that
an initial public offering has not occurred, which payments thereby reduce the
aforementioned $19,000,000 obligation. Pursuant to the agreement, payments
aggregating $1,150,000 and $3,263,000 were made to the former owners in
February 1997 and May 1998, respectively, resulting in a corresponding increase
in goodwill.
Effective October 1, 1998, the Company purchased the Poppe Tyson Strategic
Interactive Marketing Operations in exchange for the non-strategic digital
interactive marketing operations originally contributed by True North to Modem
Media in 1996 and 809,514 shares of Class B common stock of the Company (see
Note 1). The Poppe Tyson Strategic Interactive Marketing Operations consist of
the strategic interactive marketing operations of Poppe Tyson in the United
Kingdom, Hong Kong and the U.S., and certain fixed assets. Assets acquired and
liabilities assumed by the Company in this transaction were $1,565,000 and
$4,579,000, respectively, and are reflected in the accompanying consolidated
balance sheets as of December 31, 1997, the date upon which the Company and the
Poppe Tyson Strategic Interactive Marketing Operations came under common
control.
The following information reflects pro forma statements of operations data
for the years ended December 31, 1995, 1996, and 1997 assuming the acquisitions
of the Modem Partnership and the Poppe Tyson Strategic Interactive Marketing
Operations were consummated on January 1, 1995 (see Note 1).
<TABLE>
<CAPTION>
Poppe Tyson
Strategic
Interactive
The The Modem Marketing Pro Forma
Company Partnership Operations Adjustments Combined
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995
Revenues................ $ 438,000 $11,718,000 $ -- $ -- $12,156,000
(Loss) income before
income taxes........... (1,851,000) 3,960,000 -- (1,666,000) 443,000
Net (loss) income....... (978,000) 3,960,000 -- (3,329,000) (347,000)
Basic net loss per
common share........... --
Year Ended December 31,
1996
Revenues................ $ 2,093,000 $18,102,000 $ 126,000 $ -- $20,321,000
(Loss) income before
income taxes........... (1,250,000) 137,000 (480,000) (1,666,000) (3,259,000)
Net (loss) income....... (702,000) 137,000 (480,000) (1,723,000) (2,768,000)
Basic net loss per
common share........... (138.40)
Year Ended December 31,
1997
Revenues................ $25,497,000 $ -- $ 3,925,000 $ -- $29,422,000
Loss before income
taxes.................. (3,357,000) -- (2,648,000) -- (6,005,000)
Net loss................ (3,109,000) -- (2,500,000) -- (5,609,000)
Basic net loss per
common share........... (.77)
</TABLE>
The pro forma adjustments above reflect the annual amortization expense on
approximately $32,000,000 in goodwill, over a useful life of 20 years, that
would have resulted from the acquisition of the Modem Partnership were it to
have occurred on January 1, 1995 and the tax provision that
F-12
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
would have been recorded on the earnings of the Modem Partnership had it ceased
existing as a limited partnership as of such date.
4. Debt
Restrictions on Indebtedness--Pursuant to certain agreements between True
North and its lenders, the Company is subject to certain limitations on
indebtedness. Such limitations could adversely affect the Company's ability to
secure debt financing in the future.
Lines of Credit--In June 1997, the Modem Partnership increased its bank line
of credit from $1,000,000 to $2,000,000 and the facility subsequently expired
in June 1998. No borrowings were outstanding under this line of credit as of
the balance sheet dates.
Interest Expense--The Company incurred interest expense on all borrowings,
including those from related parties, of $0, $0 and $119,000 for the years
ended December 31, 1995, 1996 and 1997, and $79,000 and $127,000 for the nine
months ended September 30, 1997 and 1998, respectively. Related party interest
expense in the respective totals above are $0, $0, $46,000, $24,000 and
$32,000.
5. Equity
Pursuant to the Company's Amended and Restated Certificate of Incorporation
(see Note 15), the Company has authority to issue an aggregate of 50,000,000
shares of capital stock, consisting of 39,351,376 shares of Class A common
stock, par value $.001 per share, 5,648,624 shares of Class B common stock, par
value $.001 per share, and 5,000,000 shares of undesignated preferred stock,
par value $.001 per share.
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. 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. True North owns, directly or
indirectly, all of the outstanding shares of Class B common stock. Except as
required by applicable law, holders of 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.
The shares of Class A common stock are not convertible. The shares of Class B
common stock are convertible into shares of Class A common stock, in whole or
in part, at any time at the option of the holder, into an equal number of
shares of Class A common stock. Each share of Class B common stock will also
automatically convert into one share of Class A common stock upon the sale or
transfer of such share of Class B common stock to any person other than a
parent corporation or wholly-owned subsidiary of such holder or other qualified
recipient. 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.
F-13
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Upon a merger, combination, or other similar transaction 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 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.
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--Preferred stock may be issued, from time to time, pursuant
to a resolution by the Company's Board of Directors that will set forth the
voting powers and other pertinent rights of such series.
6. Stock-Based Compensation Plan
The Company has established various stock option plans for its officers,
directors, key employees and consultants. Options to purchase 345,244 shares of
Class A common stock that vested immediately and expire on September 30, 2006
were issued under the Modem Media Advertising Limited Partnership 1996 Option
Plan at an exercise price of $0.64 per share. The TN Technologies, Inc. 1997
Stock Option Plan provides for up to 1,140,000 shares of Class A common stock
to be issued at an exercise price of at least 100% of the fair market value of
the stock on the date of grant as determined by the Board of Directors. On
December 11, 1998, the number of shares authorized to be optioned under the
plan was increased to 3,040,000 (see Note 15). These options expire ten years
after the date of grant with 20% vesting on the date of grant and the remainder
vesting at an additional 20% on each anniversary thereof.
The Company utilizes the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, and applies APB No. 25 and related
interpretations in accounting for its stock option plan. Under APB No. 25,
because the exercise prices of the Company's employee stock options are equal
to the market prices of the underlying Company stock on the date of grant, no
compensation expense is recognized. If compensation expense for stock options
awarded under the
F-14
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's plans had been determined consistent with SFAS No. 123, the Company's
net loss and net loss per share would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1996 1997 1998
--------- ----------- -------------
<S> <C> <C> <C>
Net loss:
As reported......................... $(702,000) $(3,109,000) $(2,088,000)
Pro forma........................... (709,000) (4,077,000) (2,602,000)
Basic and diluted loss per share:
As reported......................... $ (35.10) $ (0.43) $ (0.29)
Pro forma........................... (35.45) (0.56) (0.36)
</TABLE>
The effect of applying SFAS No. 123 on the pro forma net loss per share
disclosures is not indicative of future amounts because it does not take option
grants to be made in future years into consideration.
The following is a summary of the activity under the Company's stock option
plans for each annual period presented:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1997
---------------- ----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the
year.................................... -- $ -- 355,608 $ 0.96
Granted.................................. 355,608 0.96 694,187 11.58
Exercised................................ -- -- 7,714 11.58
Forfeited................................ -- -- 73,861 11.37
------- -------
Outstanding at the end of the year....... 355,608 968,220
------- -------
Exercisable at the end of the year....... 347,317 472,924
------- -------
Weighted average fair value of options
granted................................. $8.28 $ 8.37
===== ======
</TABLE>
The following is a summary of the activity under the Company's stock option
plans for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
------- --------
<S> <C> <C>
Outstanding at the beginning of the period.................. 968,220 $ 7.69
Granted..................................................... 66,171 11.58
Exercised................................................... 3,703 0.64
Forfeited................................................... 62,518 11.58
-------
Outstanding at the end of the period........................ 968,170
=======
Exercisable at the end of the period........................ 574,911
=======
Weighted average fair value of options granted.............. $10.54
======
</TABLE>
F-15
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
---------------- September 30,
1996 1997 1998
-------- ------- -------------
<S> <C> <C> <C>
Risk-free interest rate....................... 6.44% 6.75% 5.15%
Expected life................................. 10 years 9 years 10 years
Expected volatility........................... -- 52.77% 98.99%
Expected dividend yield....................... -- -- --
</TABLE>
The following table summarizes information regarding the Company's stock
options outstanding and exercisable as of September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Shares Life Price Shares Price
-------------- ------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
$0.64...................... 340,128 8 years $ 0.64 340,128 $ 0.64
$11.58..................... 628,042 9 years $ 11.58 234,783 $ 11.58
</TABLE>
7. Related Party Transactions
The Company believes that the historical financial statements reflect all
costs of doing business. Many of such costs are derived from transactions with
related parties.
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 between the
Company and True North.
Administrative Services Agreement. Under an Administrative Services
Agreement, True North will provide administrative functions and other services
to the Company, including tax preparation, insurance, treasury consulting and
legal. During the period in which True North performs administrative functions
for the Company, expenses associated with such functions will be charged to the
Company based on rates and estimates set forth on schedules attached to the
Administrative Services Agreement. 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' written
notice of such intent to terminate.
Intercompany Credit Arrangements. The Company and True North are parties to
intercompany credit agreements. In August 1998, True North extended a credit
facility to the Company allowing for revolving borrowings in the amount of up
to $3.0 million to be outstanding at any given time at an interest rate equal
to True North's cost of borrowing plus two percent. In addition, True North has
agreed at its discretion to provide guarantees for Modem Media borrowings from
time to time in exchange for a fee of 0.5% per annum on the amount guaranteed.
The credit facility with True North expires two years from the date of
completion of the initial public offering, or sooner upon the occurrence of
certain events. See "Management's Discussion and Analysis of Financial
Condition
F-16
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and Results of Operations--Liquidity and Capital Resources." In May 1998, the
Company agreed to provide advances to True North from time to time upon True
North's request and subject to the Company's discretion.
Sublease with Bozell. The Company has entered into a sublease with Bozell
pursuant to which the Company will lease office space in New York. The rent per
square foot under the sublease agreement is based on the average monthly rent
per square foot and other related costs under Bozell's underlying lease.
Brazil Affiliation Agreement. The Company has entered into an agreement with
Bozell pursuant to which Bozell has agreed, for a period of two years, to
provide services to the Company's clients through its office in Sao Paolo,
Brazil as requested by the Company. In return, the Company has granted a
license to Bozell to operate its office in Brazil under the name "Modem Media .
Poppe Tyson, Inc." during the same period.
Tax Matters Agreement. In connection with the transactions consummated
effective October 1, 1998, the Company and True North entered into an agreement
providing for certain unitary state tax sharing arrangements.
Parent Company Allocations--True North charges each of its operating units
for general corporate expenses incurred at the parent company level, including
costs to administer employee benefit plans (see also Note 8); legal, accounting
and treasury services; use of office facilities; and other services for certain
operations. The amount of the charge is primarily based on its budgeted
revenue. The Company believes that the method used to allocate these expenses
is reasonable. These charges amounted to approximately $0, $262,000 and
$291,000 for the years ended December 31, 1995, 1996 and 1997, respectively,
and approximately $229,000 and $308,000 for the nine months ended September 30,
1997 and 1998, respectively, and are included in office and general expenses in
the consolidated statements of operations. True North ceased charging
allocations to the Company as of June 30, 1998, as the Company has taken on
responsibility for the majority of the functions that generate the
aforementioned corporate expenses. The Company expects that it may incur
increased expenses associated with being a public company.
Parent Company Guarantees--Commencing on July 1, 1998, True North has
guaranteed payment on behalf of the Company under certain operating and other
leases at a fee of 0.5% of the amount guaranteed.
As a result of the above agreements and other related transactions the
financial statements reflect the following balances:
True North Note Receivable--On May 26, 1998, the Company entered into an
agreement to loan up to $3,000,000 to True North under a demand note facility.
The Company receives payments from True North under such facility from time to
time, as requested. The loan bears interest at 5.75% per annum, payable
quarterly, unless the parties agree upon other arrangements. The principal
amount outstanding under the facility is due and payable at termination of the
agreement, which may be effected at either party's sole discretion upon one
business day's written notice. The outstanding balance under this facility is
$2,500,000 as of September 30, 1998 and is reflected as True North Note
Receivable in the accompanying consolidated balance sheets.
F-17
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to Bozell--Amounts borrowed from Bozell to fund operations are non-
interest bearing. Amounts owed to Bozell as of the date of the reorganization
will be contributed to paid-in capital. Accordingly, the balances outstanding
as of December 31, 1997 and September 30, 1998 have been reflected as
noncurrent liabilities in the accompanying consolidated balance sheets.
The average amounts outstanding for the year ended December 31, 1997 and for
the nine months ended September 30, 1998 were $1.7 million and $4.3 million,
respectively. The amounts were incurred ratably over the periods as advances to
fund operations of Poppe Tyson.
Due to True North--On December 31, 1996, the Company entered into a one-year
agreement with True North, whereby True North provided the Company with a
credit facility. The agreement has been extended indefinitely beyond the
initial one-year term by mutual consent and under the terms outlined hereafter.
The Company receives advances from True North under the facility from time to
time, as requested. Prior to 1998, outstanding borrowings bore interest at
LIBOR plus .75%, which was due monthly. All accrued interest is due and payable
upon termination of the agreement. In 1998, True North ceased charging interest
to the Company under this facility. The outstanding balances at December 31,
1997 and September 30, 1998 were $6,659,000 and $7,152,000, respectively,
including $5,930,000 and $5,940,000 included in Net Assets of True North Units
Held for Transfer as of such dates, respectively. Future payments under this
facility will be made at the option of the Company or on demand. At December
31, 1997 and September 30, 1998, $729,000 and $1,212,000, respectively, are
reflected as Due to True North in the accompanying consolidated balance sheets.
The average amount outstanding for the nine months ended September 30, 1998
for which no interest expense has been accrued is approximately $971,000. The
amounts incurred represent advances to fund operations.
Due to Former Modem Partnership Partners--In December 1996, prior to the
acquisition by True North, the partners of the Modem Partnership declared a
distribution of $1,564,000, which was paid in cash on January 2, 1997.
Note Payable to True North--On December 31, 1996, True North capitalized
intercompany payables of $8,454,000 from the Company to True North into equity,
including $6,394,000 recorded in the balance sheets of the non-strategic
digital interactive marketing operations to be sold back to True North prior to
the offering. The remaining $6,000,000 intercompany payables became a
noncurrent obligation, payable by the Company upon completion of an initial
public offering.
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.
8. Employee Benefit Plans
The Company maintains a profit-sharing plan with a 401(k) feature for the
benefit of its eligible employees. There is no minimum length of service
required to participate in the plan and employees
F-18
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the Company are eligible to begin participation on designated quarterly
enrollment dates provided that they have reached 21 years of age. The Company
makes annual matching and/or profit-sharing contributions to the plan at its
discretion. In addition, certain employees of the Company have participated in
other similar defined contribution plans. Such employees subsequently became
participants of the aforementioned profit-sharing plan. Aggregate cost of
contributions made by the Company to all employee benefit plans were $0, $0 and
$40,000 during the years ended December 31, 1995, 1996 and 1997, respectively,
and $31,000 and $156,000 during the nine months ended September 30, 1997 and
1998, respectively.
The Company intends to adopt a 1999 Employee Stock Purchase Plan effective
upon the completion of its initial public offering.
9. Commitments and Contingencies
Information Systems--In April 1998, the Company entered into a contract for
the replacement of its financial accounting systems. The cost of such systems,
which will be capitalized and amortized over five years, will be approximately
$1,600,000, of which $800,000 has been incurred as of September 30, 1998. The
project's completion is expected during the second quarter of 1999.
Lease Obligations--The Company leases its office facilities and certain
equipment under both operating and capital leases, the expirations of which
extend through 2008. Future minimum lease payments under noncancellable leases
with lease terms in excess of one year as of December 31, 1997 and September
30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
--------------------- -----------------------
Capital Operating Capital Operating
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1998......................... $ 390,000 $1,560,000 $ 101,000 $ 580,000
1999......................... 328,000 1,660,000 437,000 3,421,000
2000......................... 140,000 1,328,000 252,000 3,089,000
2001......................... 68,000 976,000 140,000 2,731,000
2002......................... 42,000 386,000 117,000 1,981,000
Thereafter................... -- -- 36,000 8,091,000
--------- ---------- ---------- -----------
968,000 1,083,000
$5,910,000 $19,893,000
========== ===========
Less: amount representing
interest.................... (154,000) (127,000)
--------- ----------
$ 814,000 $ 956,000
========= ==========
</TABLE>
Rent expense, including rent expense resulting from leases with related
parties (see Note 7), was $0, $117,000 and $1,131,000 for the years ended
December 31, 1995, 1996 and 1997, respectively, and $770,000 and $1,649,000 for
the nine months ended September 30, 1997 and 1998, respectively. The Company
incurred a non-cash charge of $570,000 during the year ended December 31, 1997
in connection with the termination of a lease for office space that is included
in office and general expenses in the accompanying consolidated statements of
operations.
Employment Agreements--In December 1996, the Company entered into five-year
employment agreements with certain senior executives providing for aggregate
initial base salaries of approximately $1,100,000, subject to increases at the
discretion of the Company's Board of
F-19
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Directors. Pursuant to the agreements, if the Company terminates any
executive's employment without cause, the executive is entitled to receive
severance benefits for a predetermined period.
Other--In September 1998, the Company executed a letter of intent relating to
an investment of up to $5.0 million in a company that provides media placement
on the Internet.
10. Income Taxes
The Company and its predecessor entities operated under tax-sharing
arrangements with their former parents. The Poppe Tyson Strategic Interactive
Marketing Operations are, and until October 1, 1998, the effective date of the
Combination, will continue to be, for federal income tax purposes, included in
the consolidated group of which True North is the common parent. The Poppe
Tyson Strategic Interactive Marketing Operations' federal taxable income and
loss through October 1, 1998 will be included in such group's consolidated tax
return filed by True North.
Prior to 1997, the Company was included in the consolidated federal and state
tax returns of True North. The settlement of tax provisions or benefits with
True North occurred in the subsequent year after True North filed its related
consolidated tax returns. Income taxes receivable or payable therefore
represent amounts due from or to True North. In 1997, the Company filed a
stand-alone consolidated federal tax return. The Company is currently a party
to a tax sharing arrangement whereby the Company provides for and pays or
receives certain state taxes.
The components of loss before (benefit) provision for income taxes are as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Domestic................ $ (85,000) $ 75,000 $ (1,258,000) $ (687,000) $ (1,608,000)
International........... -- (16,000) 81,000 52,000 (410,000)
True North Units Held
for Transfer........... (1,766,000) (1,309,000) (2,180,000) (1,600,000) (13,000)
------------ ------------ ------------ ------------ ------------
$ (1,851,000) $ (1,250,000) $ (3,357,000) $ (2,235,000) $ (2,031,000)
============ ============ ============ ============ ============
</TABLE>
The (benefit) provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------- ---------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Current (benefit)
provision:
Federal............... $ (453,000) $ (399,000) $ 250,000 $ 318,000 $ 307,000
Foreign............... -- (7,000) 40,000 25,000 71,000
State................. (425,000) (466,000) 68,000 21,000 170,000
---------- ---------- ---------- ---------- ---------
(878,000) (872,000) 358,000 364,000 548,000
---------- ---------- ---------- ---------- ---------
Deferred provision
(benefit):
Federal............... 5,000 196,000 (458,000) (462,000) (365,000)
Foreign............... -- 2,000 (2,000) (2,000) (16,000)
State................. -- 126,000 (146,000) (146,000) (110,000)
---------- ---------- ---------- ---------- ---------
5,000 324,000 (606,000) (610,000) (491,000)
---------- ---------- ---------- ---------- ---------
Total (benefit) provi-
sion................... $ (873,000) $ (548,000) $ (248,000) $ (246,000) $ 57,000
========== ========== ========== ========== =========
</TABLE>
F-20
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Differences between the Company's effective income tax rate and the U.S.
statutory rate were as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------- ------------------
1995 1996 1997 1997 1998
---- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Statutory federal tax rate......... 35.0% 35.0% 35.0% 35.0% 35.0%
State taxes, net of federal
benefit........................... 14.9 17.7 1.5 3.6 (1.9)
Impact of foreign operations....... -- -- (2.8) (3.3) (9.8)
Goodwill amortization.............. -- (7.4) (20.7) (23.4) (26.1)
Other.............................. (2.7) (1.5) (5.6) (0.9) --
---- ---- ----- -------- --------
Effective rate................... 47.2% 43.8% 7.4% 11.0% (2.8)%
==== ==== ===== ======== ========
</TABLE>
The deferred tax assets and liabilities included in the consolidated
financial statements as of the balance sheet dates consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- --------- -------------
<S> <C> <C> <C>
Current assets (liabilities):
Accrued compensation................ $ 3,000 $ 51,000 $ 476,000
Bad debt reserve.................... -- 13,000 72,000
Lease reserve....................... -- 239,000 151,000
---------- --------- ---------
3,000 303,000 699,000
True North Units Held for Transfer.. 33,000 16,000 16,000
---------- --------- ---------
36,000 319,000 715,000
---------- --------- ---------
Noncurrent (liabilities) assets:
Accelerated amortization............ (27,000) 108,000 109,000
Other............................... (2,000) (24,000) 70,000
---------- --------- ---------
(29,000) 84,000 179,000
True North Units Held for Transfer.. (336,000) (126,000) (126,000)
---------- --------- ---------
(365,000) (42,000) 53,000
---------- --------- ---------
Net deferred tax (liabilities) and
assets............................... $ (329,000) $ 277,000 $ 768,000
========== ========= =========
</TABLE>
Management of the Company believes that the deferred tax assets are fully
realizable through future operations, therefore no valuation allowance has been
provided.
F-21
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Geographic Information
Information about the Company's operations in different geographic regions as
of and for the years ended December 31, 1995, 1996 and 1997, and as of and for
the nine months ended September 30, 1997 and 1998, is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Domestic.............. $ 438,000 $ 1,967,000 $ 25,008,000 $ 17,708,000 $ 26,752,000
International......... -- 126,000 489,000 317,000 3,645,000
------------ ------------ ------------ ------------ ------------
$ 438,000 $ 2,093,000 $ 25,497,000 $ 18,025,000 $ 30,397,000
============ ============ ============ ============ ============
(Loss) income before
(benefit)
provision for income
taxes:
Domestic.............. $ (85,000) $ 75,000 $ (1,258,000) $ (687,000) $ (1,608,000)
International......... -- (16,000) 81,000 52,000 (410,000)
True North Units Held
for Transfer......... (1,766,000) (1,309,000) (2,180,000) (1,600,000) (13,000)
------------ ------------ ------------ ------------ ------------
$ (1,851,000) $ (1,250,000) $ (3,357,000) $ (2,235,000) $ (2,031,000)
============ ============ ============ ============ ============
Net (loss) income:
Domestic.............. $ (48,000) $ 60,000 $ (1,434,000) $ (922,000) $ (1,494,000)
International......... -- (11,000) 43,000 29,000 (465,000)
True North Units Held
for Transfer......... (930,000) (751,000) (1,718,000) (1,096,000) (129,000)
------------ ------------ ------------ ------------ ------------
$ (978,000) $ (702,000) $ (3,109,000) $ (1,989,000) $ (2,088,000)
============ ============ ============ ============ ============
Identifiable assets:
Domestic.............. $ 44,657,000 $ 49,641,000 $ 57,429,000
International......... 74,000 1,810,000 3,309,000
True North Units Held
for Transfer......... 9,291,000 7,573,000 7,444,000
------------ ------------ ------------
$ 54,022,000 $ 59,024,000 $ 68,182,000
============ ============ ============
</TABLE>
12. Assets under Capital Leases
Assets under capital leases are included in the consolidated balance sheets
as follows:
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1996 1997 1998
-------- --------- -------------
<S> <C> <C> <C>
Computers and software.................. $ 12,000 $ 343,000 $ 387,000
Furniture and other..................... 305,000 779,000 1,152,000
-------- --------- ----------
317,000 1,122,000 1,539,000
Less: accumulated depreciation and
amortization........................... (81,000) (272,000) (491,000)
-------- --------- ----------
Total assets under capital leases..... $236,000 $ 850,000 $1,048,000
======== ========= ==========
</TABLE>
Depreciation on assets under capital leases is included in depreciation
expense for all periods presented.
F-22
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Supplemental Cash Flow Data
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
-------------------------- -----------------
1995 1996 1997 1997 1998
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest paid................... $ -- $ -- $119,000 $ 79,000 $127,000
Taxes paid (refunded)........... $(37,000) $15,000 $256,000 $322,000 $689,000
</TABLE>
14. Bad Debt Reserve
The bad debt reserve and related activity is as follows:
<TABLE>
<CAPTION>
Write-
Balance at Provision for offs, Balance at
Beginning Doubtful Net of End of
of Period Accounts Recoveries Other Period
---------- ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996................... $ -- $ -- $ -- $408,000 $408,000
Year Ended December 31,
1997................... $408,000 $517,000 $(489,000) $ 16,000 $452,000
Nine Months Ended
September 30, 1998..... $452,000 $251,000 $(125,000) $ -- $578,000
</TABLE>
"Other" represents the bad debt reserve balances acquired in the acquisitions
of the Modem Partnership in 1996 and the Poppe Tyson Strategic Interactive
Marketing Operations in 1997.
15. Subsequent Events
On November 25, 1998, the Company authorized its management to proceed with
an initial public offering of its Class A common stock.
On December 11, 1998, the Company's Board of Directors approved a proposal to
increase the number of shares of Class A common stock reserved for issuance
under the TN Technologies, Inc. 1997 Stock Option Plan from 1,140,000 to
3,040,000. Immediately thereafter, the Company granted options to purchase an
aggregate of 903,506 shares of its Class A common stock with an exercise price
of $11.05 per share to employees under such plan.
On January 11, 1999, the Company's Board of Directors approved an amendment
to the Company's Certificate of Incorporation to provide for the authorization
of an aggregate of 39,351,376 shares of Class A common stock and 5,648,624
shares of Class B common stock and a 0.95-for-1 reverse split of both classes
of the Company's outstanding common stock effective upon completion of the
Combination. Accordingly, all historical share and per-share amounts have been
restated to reflect the changes in authorized shares and the reverse stock
split.
On , 1999, the Company signed a definitive agreement with True North to
purchase the Poppe Tyson Strategic Interactive Marketing Operations effective
October 1, 1998 in exchange for the net assets of non-strategic digital
interactive marketing businesses originally contributed by True North to Modem
Media in 1996 and 809,514 shares of common stock of the Company.
The unaudited pro forma consolidated balance sheet at September 30, 1998
reflects certain adjustments related to the Combination, including:
. the purchase of fixed assets of $1,624,000;
F-23
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. the forgiveness of $5,275,000 of intercompany payables;
. the sale to True North of non-strategic digital interactive marketing
operations originally contributed by True North to Modem Media in 1996;
. the issuance of an aggregate of 809,514 shares of Class B common stock to
True North; and
. the reclassification of a $6,000,000 note payable to True North to
current liabilities in conjunction with this offering.
All of the above transactions have been recorded at historical costs.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1995
and 1996, and the related statements of income, partners' capital and cash
flows for each of the two years in the period ended December 31, 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 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 Modem Media Advertising
Limited Partnership as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 6, 1997
F-25
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................. $ 184,000 $2,586,000
Accounts receivable, net of bad debt reserve of
$262,000 and $408,000, respectively.................. 4,933,000 4,287,000
Unbilled revenues..................................... 316,000 514,000
Unbilled charges...................................... 759,000 475,000
Prepaid expenses and other current assets............. 22,000 125,000
---------- ----------
Total current assets.................................. 6,214,000 7,987,000
Property and Equipment:
Leasehold improvements................................ 84,000 144,000
Computers and software................................ 1,104,000 1,957,000
Furniture and other................................... 330,000 576,000
---------- ----------
Total property and equipment.......................... 1,518,000 2,677,000
Less: accumulated depreciation and amortization....... (312,000) (998,000)
---------- ----------
Total property and equipment, net..................... 1,206,000 1,679,000
Other Assets........................................... 43,000 33,000
---------- ----------
Total assets.......................................... $7,463,000 $9,699,000
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable...................................... $2,551,000 $1,576,000
Pre-billed media...................................... 211,000 1,343,000
Advance billings...................................... 32,000 965,000
Deferred revenues..................................... 110,000 161,000
Current portion of capital lease obligations.......... 82,000 76,000
Accrued compensation.................................. 320,000 313,000
Bank overdrafts....................................... 157,000 --
Due to partners....................................... -- 1,564,000
Other current liabilities............................. 52,000 506,000
---------- ----------
Total current liabilities............................. 3,515,000 6,504,000
Noncurrent Liabilities:
Capital lease obligations, less current portion....... 186,000 193,000
Other liabilities..................................... -- 26,000
Partners' Capital:
General partner's interest............................ 2,029,000 3,031,000
Limited partners' interest............................ 1,733,000 (55,000)
---------- ----------
Total partners' capital............................... 3,762,000 2,976,000
---------- ----------
Total liabilities and partners' capital............... $7,463,000 $9,699,000
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-26
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues.................... $11,718,000 $18,102,000
Costs and Expenses:
Salaries and benefits..... 4,397,000 8,252,000
Guaranteed payments to
partners................. 629,000 1,003,000
Office and general........ 2,740,000 5,680,000
Expense related to
issuance of partnership
options.................. -- 3,045,000
----------- -----------
Total operating
expenses............... 7,766,000 17,980,000
Operating Income............ 3,952,000 122,000
Interest income........... 20,000 44,000
Interest expense.......... (12,000) (29,000)
----------- -----------
Net Income.................. $ 3,960,000 $ 137,000
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited Total
Partner's Partners' Partners'
Interest Interest Capital
---------- ---------- ----------
<S> <C> <C> <C>
Partners' Capital, December 31, 1994........ $1,051,000 $ 276,000 $1,327,000
Net income................................ 2,020,000 1,940,000 3,960,000
Distributions............................. (1,042,000) (483,000) (1,525,000)
---------- ---------- ----------
Partners' Capital, December 31, 1995........ 2,029,000 1,733,000 3,762,000
Net income................................ 70,000 67,000 137,000
Distributions............................. (2,113,000) (1,855,000) (3,968,000)
Issuance of partnership options........... 3,045,000 -- 3,045,000
---------- ---------- ----------
Partners' Capital, December 31, 1996........ $3,031,000 $ (55,000) $2,976,000
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 3,960,000 $ 137,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 253,000 686,000
Provision for doubtful accounts.................... 258,000 394,000
Expense related to issuance of partnership
options........................................... -- 3,045,000
Changes in assets and liabilities:
Accounts receivable............................... (4,302,000) 252,000
Unbilled revenues................................. (183,000) (198,000)
Unbilled charges.................................. (238,000) 284,000
Prepaid expenses and other current assets......... (7,000) (103,000)
Accounts payable and other current liabilities.... 2,498,000 (521,000)
Pre-billed media.................................. 211,000 1,132,000
Advance billings.................................. 32,000 933,000
Deferred revenues................................. 7,000 51,000
Accrued compensation.............................. -- (7,000)
Other, net........................................ (12,000) 36,000
----------- -----------
Net cash provided by operating activities........ 2,477,000 6,121,000
Cash flows from investing activities:
Purchase of property and equipment.................. (894,000) (952,000)
----------- -----------
Net cash used in investing activities............ (894,000) (952,000)
Cash flows from financing activities:
Bank overdrafts..................................... 158,000 (157,000)
Principal payments made under capital lease
obligations........................................ (34,000) (206,000)
Partners' distributions, net........................ (1,525,000) (2,404,000)
----------- -----------
Net cash used in financing activities............ (1,401,000) (2,767,000)
----------- -----------
Net increase in cash................................. 182,000 2,402,000
Cash, at beginning of period......................... 2,000 184,000
----------- -----------
Cash, at end of period............................... $ 184,000 $ 2,586,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............ $ 13,000 $ 29,000
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-29
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Business and Significant Accounting Policies
Description of business--Modem Media Advertising Limited Partnership (the
"Modem Partnership"), a Connecticut limited partnership, 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 Modem Partnership is a technology-based marketing
communications firm that provides interactive marketing solutions to its
customers.
Effective December 31, 1996, True North Communications Inc. ("True North")
acquired a 64% interest in the Modem Partnership directly from the partners.
True North contributed its ownership in the Modem Partnership and certain other
businesses to its subsidiary, TN Technologies Inc., now named Modem Media .
Poppe Tyson, Inc. These transactions are further described in Note 3 to the
consolidated financial statements of Modem Media . Poppe Tyson, Inc. appearing
elsewhere in this registration statement.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition--Revenues are recognized as services are rendered.
Unbilled revenues represent labor costs incurred and estimated earnings in
excess of billings. Unbilled charges represent production and other client
reimbursable out-of-pocket costs in excess of billings. Revenue is reported net
of such reimbursable costs. Pre-billed media represents amounts billed to
customers for media placement in advance of the advertisements being placed.
Advanced billings represent billings of production and other client
reimbursable out-of-pocket costs in excess of those incurred. Amounts billed to
clients in excess of revenues recognized to date are classified as deferred
revenues. Provisions for estimated losses on uncompleted projects are made in
the period in which such losses are determinable.
Business Concentration--The Modem Partnership's services have been provided
to a limited number of customers located in the United States in a variety of
industries. One customer accounted for approximately 78% of the Modem
Partnership's revenues during each of the years ended December 31, 1995 and
1996.
Property and equipment--Property and equipment are stated at cost and are
depreciated, principally using the straight-line method, over their estimated
useful lives of three years for computers and software, and five to seven years
for furniture and other. Leasehold improvements are amortized over the lesser
of their estimated useful lives or the remaining lease term. The Modem
Partnership 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 identified impairments.
Income taxes--The Modem Partnership is a limited partnership pursuant to the
provisions of the Internal Revenue and Connecticut State Tax Codes.
Consequently, any federal and state income taxes
F-30
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
applicable to the Modem Partnership's income are payable directly by its
partners. Taxable income to the partners, computed on a modified cash basis,
was $1,537,000 and $5,105,000 for the years ended December 31, 1995 and 1996,
respectively, as compared to pre-tax book income of $3,960,000 and $137,000 for
the identical periods.
Fair value of financial instruments--The carrying value of the Modem
Partnership's current assets and current liabilities approximate their fair
values due to the short maturities of these financial instruments.
Reclassifications--Certain prior year amounts have been reclassified to
conform to current year presentation. These changes had no impact on previously
reported results of operations or partners' capital.
2. Bad Debt Reserve
The Modem Partnership's bad debt reserve and related activity is as follows:
<TABLE>
<CAPTION>
Write-
Balance at Provision for offs, Balance at
Beginning Doubtful Net of End of
of Period Accounts Recoveries Period
---------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31,
1995..................... $ 21,000 $258,000 $ (17,000) $262,000
Year Ended December 31,
1996..................... $262,000 $394,000 $(248,000) $408,000
</TABLE>
3. Lease Commitments
The Modem Partnership leases office space in Westport and Norwalk,
Connecticut and equipment under capital and operating leases expiring in
various years through 2001. Rent expense related to operating leases totaled
$296,000 and $494,000 for the years ended December 31, 1995 and 1996,
respectively.
Minimum future lease payments under noncancelable capital and operating
leases with lease terms in excess of one year as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------
Capital Operating
-------- ----------
<S> <C> <C>
1997................................................... $ 94,000 $ 547,000
1998................................................... 74,000 524,000
1999................................................... 74,000 500,000
2000................................................... 55,000 291,000
2001................................................... 9,000 --
Thereafter............................................. -- --
-------- ----------
306,000 $1,862,000
==========
Less: amount representing interest................... (37,000)
--------
$269,000
========
</TABLE>
F-31
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
Assets under capital leases are included in the consolidated balance sheets
as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
Computers and software................................... $ 55,000 $ 12,000
Furniture and other...................................... 247,000 263,000
-------- --------
302,000 275,000
Less: accumulated depreciation and amortization.......... (44,000) (81,000)
-------- --------
Total assets under capital leases........................ $258,000 $194,000
======== ========
</TABLE>
The Modem Partnership's obligations under the lease for office space in
Westport, Connecticut were guaranteed as of December 31, 1996 by a $160,000
standby letter of credit secured by accounts receivable and other assets. In
April 1996, the Company obtained an additional $100,000 standby letter of
credit to guarantee certain vendor payables.
The Modem Partnership entered into two sublease agreements relative to the
Norwalk, Connecticut locations in October 1995 and May 1996. Total revenues to
be received in future years pursuant to these sublease agreements, which will
offset the Modem Partnership's obligation, approximate $58,000 at December 31,
1996.
4. Retirement Benefit Plan
Since January 1, 1994, the Modem Partnership has maintained a profit-sharing
plan with a 401(k) feature for the benefit of eligible employees. No minimum
length of service is required to participate in the plan and employees of the
Company are eligible to begin participation on designated quarterly enrollment
dates provided that they have reached 21 years of age. The Modem Partnership
made discretionary matching contributions of $60,000 and $74,000 during the
years ended December 31, 1995 and 1996, respectively.
5. Line of Credit
At December 31, 1996, the Company had a $1,000,000 bank line of credit
secured by accounts receivable and other assets. No borrowings were outstanding
under such line of credit as of the balance sheet date.
6. Transactions with Partners
Partner Compensation--The Modem Partnership's partners are also employees of
the Modem Partnership and their compensation is included in the accompanying
statements of income as "Guaranteed payments to partners." Distributions of the
Modem Partnership's net income to the partners are included in the financial
statements as "Distributions."
Due to Partners--In December 1996, the partners of the Modem Partnership
declared a distribution of $1,564,000, which was paid in cash on January 2,
1997.
F-32
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. 1996 Option Plan
In October 1996, the Modem Partnership established the Modem Media
Advertising Limited Partnership 1996 Option Plan and granted fully vested
options to certain employees to purchase interests in the Modem Partnership.
These options resulted in a pre-tax, one-time, non-cash charge against income
in the fourth quarter of 1996 of $3,045,000. The options have an exercise price
of $0.61 per share and vest upon issuance. The compensation expense was
calculated based upon the fair market value of the Modem Partnership's
ownership interests of approximately $9.00 per share which is derived from the
acquisition of the Modem Partnership by True North in December 1996.
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To True North Communications Inc.:
We have audited the accompanying balance sheets of the Poppe Tyson Strategic
Interactive Marketing Operations as of December 31, 1996 and 1997, and the
related statements of operations, changes in equity (deficit) and cash flows
for each of the two years in the period ended December 31, 1997. These
financial statements are the responsibility of the management of the Poppe
Tyson Strategic Interactive Marketing Operations. 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 the Poppe Tyson Strategic
Interactive Marketing Operations as of December 31, 1996 and 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
November 16, 1998
F-34
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1997
--------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................. $ 332,000 $ 147,000
Accounts receivable, net of bad debt reserve of $0
and $16,000, respectively........................... 137,000 777,000
Unbilled charges..................................... -- 46,000
Prepaid expenses and other current assets............ 21,000 60,000
--------- -----------
Total current assets............................. 490,000 1,030,000
Property and Equipment:
Leasehold improvements............................... -- 7,000
Furniture, computers and software.................... 24,000 693,000
--------- -----------
Total property and equipment..................... 24,000 700,000
Less: accumulated depreciation and amortization...... (3,000) (168,000)
--------- -----------
Total property and equipment, net................ 21,000 532,000
Other Assets........................................... 5,000 3,000
--------- -----------
Total assets..................................... $ 516,000 $ 1,565,000
========= ===========
LIABILITIES AND EQUITY (DEFICIT)
Current Liabilities:
Accounts payable..................................... $ 72,000 $ 366,000
Current portion of capital lease obligations......... -- 139,000
Accrued liabilities.................................. 233,000 608,000
--------- -----------
Total current liabilities........................ 305,000 1,113,000
Noncurrent Liabilities:
Due to Bozell, non-interest bearing.................. 724,000 3,346,000
Capital lease obligations, less current portion...... -- 120,000
Equity (Deficit):
Accumulated deficit.................................. (480,000) (2,980,000)
Accumulated other comprehensive income............... (33,000) (34,000)
--------- -----------
Total equity (deficit)........................... (513,000) (3,014,000)
--------- -----------
Total liabilities and equity (deficit)........... $ 516,000 $ 1,565,000
========= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-35
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1996 1997
---------- ------------
<S> <C> <C>
Revenues............................................. $ 126,000 $ 3,925,000
Costs and Expenses:
Salaries and benefits.............................. 429,000 3,350,000
Office and general................................. 177,000 3,177,000
---------- ------------
Total costs and expenses......................... 606,000 6,527,000
Operating Loss....................................... (480,000) (2,602,000)
Interest Expense, Net................................ -- (46,000)
---------- ------------
Loss before Income Taxes............................. (480,000) (2,648,000)
Benefit for Income Taxes............................. -- (148,000)
---------- ------------
Net Loss............................................. $ (480,000) $ (2,500,000)
========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-36
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENTS OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Other
Accumulated Comprehensive Total
Deficit Income Equity (Deficit)
------------ ------------- ----------------
<S> <C> <C> <C>
Balance as of December 31, 1995... $ -- $ -- $ --
Comprehensive income:
Net loss.......................... (480,000) -- (480,000)
Foreign currency translation
adjustment..................... -- (33,000) (33,000)
------------
Total comprehensive income.... (513,000)
------------ --------- ------------
Balance as of December 31, 1996... (480,000) (33,000) (513,000)
Comprehensive income:
Net loss........................ (2,500,000) -- (2,500,000)
Foreign currency translation
adjustment..................... -- (1,000) (1,000)
------------
Total comprehensive income.... (2,501,000)
------------ --------- ------------
Balance as of December 31, 1997... $ (2,980,000) $ (34,000) $ (3,014,000)
============ ========= ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-37
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1996 1997
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (480,000) $ (2,500,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization..................... 3,000 165,000
Provision for doubtful accounts................... -- 16,000
Changes in assets and liabilities:
Accounts receivable.............................. (137,000) (656,000)
Unbilled charges................................. -- (46,000)
Prepaid expenses and other current assets........ (21,000) (39,000)
Accounts payable................................. 72,000 294,000
Accrued liabilities.............................. 233,000 375,000
Other, net....................................... (38,000) 1,000
---------- ------------
Net cash used in operating activities........... (368,000) (2,390,000)
Cash flows from investing activities:
Purchase of property and equipment.................. (24,000) (289,000)
---------- ------------
Net cash used in investing activities........... (24,000) (289,000)
Cash flows from financing activities:
Funding from parent company......................... 724,000 2,622,000
Principal payments made under capital lease
obligations........................................ -- (128,000)
---------- ------------
Net cash provided by financing activities....... 724,000 2,494,000
---------- ------------
Net increase (decrease) in cash...................... 332,000 (185,000)
Cash, at beginning of period......................... -- 332,000
---------- ------------
Cash, at end of period............................... $ 332,000 $ 147,000
========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............ $ -- $ 46,000
========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-38
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
1. Business and Significant Accounting Policies
Description of business--Poppe Tyson, Inc. ("Poppe Tyson") was formed in
December 1985 as a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc.
("Bozell"), which was acquired by True North Communications Inc ("True North")
in December 1997 in a business combination accounted for under the pooling-of-
interests method. Poppe Tyson includes the strategic interactive marketing
operations and web site production and maintenance businesses of Bozell.
The strategic interactive marketing operations of Poppe Tyson (the "Poppe
Tyson Strategic Interactive Marketing Operations" or the "Company") consist of
Poppe Tyson's strategic interactive marketing operations in the United Kingdom,
Hong Kong and the U.S., and certain fixed assets. The operations in the United
Kingdom commenced operations in the fourth quarter of 1996 and the operations
in Hong Kong and the United States commenced in 1997.
Effective October 1, 1998, the Poppe Tyson Strategic Interactive Marketing
Operations were purchased by Modem Media . Poppe Tyson, Inc. ("Modem Media"),
formerly TN Technologies, Inc. This transaction is further discussed in Notes 1
and 3 to the consolidated financial statements of Modem Media appearing
elsewhere in this registration statement.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Revenue Recognition--Revenues are recognized as services are rendered.
Unbilled charges represent production and other client reimbursable out-of-
pocket costs in excess of billings. Revenue is reported net of such
reimbursable costs. Amounts billed to clients in excess of revenues recognized
to date are classified as deferred revenues. Provisions for estimated losses on
uncompleted projects are made in the period in which such losses are
determinable.
Business Concentration and Credit Risk--The Company's services have been
provided to a limited number of clients in a variety of industries. Three
customers accounted for 75.0% and one customer accounted for 42.4% of the
Company's revenues during the years ended December 31, 1996 and 1997,
respectively.
Four customers accounted for the entire accounts receivable balance as of
December 31, 1996 and two customers accounted for 34.7% of accounts receivable
as of December 31, 1997.
Property and equipment--Property and equipment are stated at cost and are
depreciated, principally using the straight-line method, over their estimated
useful lives of three years for computers and software, and five to seven years
for furniture and other. Leasehold improvements are amortized over the lesser
of their estimated useful lives or the remaining lease term. 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 identified impairments.
F-39
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income taxes--The Company and Bozell have certain tax-sharing arrangements as
described in Note 4. The Company accounts for income taxes under the liability
method in accordance with SFAS No. 109, Accounting for Income Taxes. In
accordance with such standard, the provision for income taxes includes deferred
income taxes resulting from items reported in different periods for income tax
and financial statement purposes. Deferred tax assets and liabilities represent
the expected future tax consequences of the differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. The effects of changes in tax rates on deferred tax
assets and liabilities are recognized in the period that includes the enactment
date.
Foreign Currency Translation--The Company's financial statements were
prepared in accordance with the requirements of SFAS No. 52, Foreign Currency
Translation. Under this method, net foreign currency transaction gains (losses)
are included in the accompanying statements of operations. Such gains (losses)
were immaterial for the years ended December 31, 1996 and 1997.
Fair value of financial instruments--The carrying value of the Company's
current assets and current liabilities approximate their fair values due to the
short maturities of these financial instruments.
2. Lease Commitments
The Company leases office space in the United Kingdom and Hong Kong and
equipment under capital and operating leases expiring in various years through
2002. Rent expense related to operating leases totaled $35,000 and $231,000 for
the years ended December 31, 1996 and 1997, respectively.
Minimum future lease payments under noncancellable capital and operating
leases with lease terms in excess of one year as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Capital Operating
-------- ---------
<S> <C> <C>
1998..................................................... $185,000 $287,000
1999..................................................... 143,000 253,000
2000..................................................... 15,000 125,000
2001..................................................... -- 125,000
2002..................................................... -- 32,000
Thereafter............................................... -- --
-------- --------
343,000 $822,000
========
Less: amount representing interest..................... (84,000)
--------
$259,000
========
</TABLE>
Assets under capital leases are included in the 1997 balance sheet as
follows:
<TABLE>
<S> <C>
Furniture, computers and software.................................. $387,000
Less: accumulated depreciation and amortization.................... (55,000)
--------
Total assets under capital leases................................ $332,000
========
</TABLE>
F-40
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Related Party Transactions
Due to Bozell--Amounts remitted to, and borrowed from, Bozell to fund
operations are non-interest bearing. Amounts owed to Bozell as of the effective
date of the sale of the Company to Modem Media (see Note 1) will be contributed
to paid-in capital. Accordingly, the balances outstanding as of December 31,
1996 and 1997 have been reflected as noncurrent liabilities in the accompanying
balance sheets.
The average amount outstanding for the year ended December 31, 1997 was
approximately $60,000. The amount was incurred ratably over the year as
advances to fund operations.
Parent Company Allocations--Bozell charges each of its operating units for
general corporate expenses incurred at the parent company level, including
costs to administer certain employee benefit plans; legal, accounting and
treasury services; use of office facilities; and other services for certain
operations. These charges amounted to approximately $0 and $115,000 for the
years ended December 31, 1996 and 1997, respectively, and are included in
office and general expenses in the statements of operations. The Company
believes that the method used to allocate these general corporate expenses
(based on revenue) is reasonable and that the expenses that would have been
incurred on a stand-alone basis would not be materially different.
4. Income Taxes
The Company operates under a tax sharing agreement with its parent, Bozell,
and until October 1, 1998, the effective date of the sale of the Company to
Modem Media will continue to be, for federal income tax purposes, included in
Bozell's consolidated returns.
The components of loss before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------
1996 1997
---------- ------------
<S> <C> <C>
Domestic........................................... $ -- $ (352,000)
International...................................... (480,000) (2,296,000)
---------- ------------
$ (480,000) $ (2,648,000)
========== ============
The benefit for income taxes consists of the following:
<CAPTION>
Year Ended
December 31,
------------------------
1996 1997
---------- ------------
<S> <C> <C>
Current benefit:
Federal.......................................... $ -- $ (110,000)
Foreign.......................................... -- --
State............................................ -- (38,000)
---------- ------------
Total benefit...................................... $ -- $ (148,000)
========== ============
</TABLE>
The Company's effective income tax rates and the U.S. statutory rate of 35.0%
differ principally because the Company has not recognized tax benefits on the
losses of its international operations.
F-41
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Subsequent Events
Effective October 1, 1998, the Poppe Tyson Strategic Interactive Marketing
Operations will be purchased by Modem Media, formerly TN Technologies, Inc.
This transaction is further discussed in Notes 1 and 3 to the consolidated
financial statements of Modem Media appearing elsewhere in this registration
statement.
F-42
<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............................................ $ 12,510
NASD filing fee................................................. 5,000
Nasdaq National Market listing fee.............................. 81,625
Printing and engraving expenses................................. 450,000
Legal fees and expenses......................................... 450,000
Accounting fees and expenses.................................... 1,314,000
Blue Sky qualification fees and expenses........................ 5,000
Transfer agent and registrar fees............................... 10,000
Miscellaneous fees.............................................. 112,000
-----------
Total......................................................... $ 2,440,135
===========
</TABLE>
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 10.8
hereto) with its officers and directors. Reference is also made to Section 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.
Item 15. Recent Sales of Unregistered Securities
From the Registrant's inception through November 27, 1998, the Registrant has
sold the following securities:
(1) In December 1996, the Registrant issued an aggregate of 2,415,646 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 the Modem
Partnership and Messrs. O'Connell and Ahlers, the stockholders of the
general partner of the Modem Partnership, in exchange for a portion of
their respective limited and general partnership interests in the Modem
Partnership and all of the capital stock of the general partner of the
Modem Partnership.
(2) In December 1996, the Registrant issued 2,662,008 shares of its Class A
common stock to True North in exchange for all of its limited and general
partnership interests in Modem.
(3) In December 1996, the Registrant issued 4,839,110 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
II-1
<PAGE>
and properties of True North's existing digital marketing communications
business (representing 2,177,102 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.
(4) From its inception through November 27, 1998, the Registrant has issued
shares of Class A common stock upon the exercise of options as follows:
<TABLE>
<CAPTION>
Exercise Price
Number of Shares per Share
---------------- --------------
<S> <C>
471 $ 0.64
8,018 $ 11.58
</TABLE>
The issuances of the securities described in (1) through (3) 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 Modem Media 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. The sales of the Securities described in (4) above were deemed to
be exempt from registration under the Securities Act in reliance on Rule 701
under such Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(a)+ Certificate of Incorporation of Registrant, as amended.
3.1(b)+ Form of Amended and Restated Certificate of Incorporation of
Registrant to be effective upon consummation of the offering.
3.2(a)+ Bylaws of Registrant, as amended.
3.2(b) Form of Bylaws of Registrant to be effective upon consummation of
the offering.
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(a) Form of Administrative Services Agreement between Registrant and
True North Communications Inc.
10.1(b) Form of Intercompany Credit Agreement between the Registrant and
True North Communications Inc.
10.1(c)* Form of Tax Matters Agreement between the Registrant and True
North Communications Inc.
10.1(d) Form of Asset Purchase Agreement by and between the Registrant and
True North Communications Inc. dated February , 1999.
10.1(e) Form of Asset Purchase Agreement by and between the Registrant and
R/GA Media Group, Inc. dated February , 1999.
10.1(f) Form of Agreement and Plan of Merger Among True North
Communications Inc., PT Controlled, Inc., the Registrant and each
of Douglas C. Ahlers, Robert C. Allen, II, Gerald M. O'Connell and
Kraft Enterprises, Ltd. dated February , 1999.
10.2 Intercompany Demand Note dated November 24, 1998 issued by True
North Communications Inc. to the Registrant.
10.3 Form of Affiliate Agreement between the Registrant and Modem Media
. Poppe Tyson do Brasil Ltda.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.4 Sublease Agreement between the Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc., dated August 1, 1998.
10.5(a) Amended and Restated Employment Agreement between Registrant and
Gerald M. O'Connell, dated as of January 1, 1997, as amended and
restated as of November 25, 1998.
10.5(b) Amended and Restated Employment Agreement between Registrant and
Douglas C. Ahlers, dated as of January 1, 1997, as amended and
restated as of June 1, 1998.
10.5(c) Amended and Restated Employment Agreement between Registrant and
Robert C. Allen, II, dated as of January 1, 1997, as amended and
restated as of November 25, 1998.
10.6(a)+ Covenant Not to Compete or Solicit Business between Registrant and
Gerald M. O'Connell, dated as of December 31, 1996.
10.6(b)+ Covenant Not to Compete or Solicit Business between Registrant and
Douglas C. Ahlers, dated as of December 31, 1996.
10.6(c)+ Covenant Not to Compete or Solicit Business between Registrant and
Robert C. Allen, II, dated as of December 31, 1996.
10.7(a)+ Letter Agreement between Registrant and Steven C. Roberts dated
December 2, 1996.
10.7(b)+ Noncompetition, Confidentiality and Proprietary Rights Agreement
between Steven C. Roberts and the Registrant.
10.8+ Form of Indemnification Agreement.
10.9 1997 Stock Option Plan, as amended.
10.10 1999 Employee Stock Purchase Plan.
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.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Not applicable.
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 had 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 had been settled by controlling precedent, submit to a court of appropriate
II-3
<PAGE>
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 had duly caused this Amendment No. 5 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 27th day of January,
1999.
Modem Media . Poppe Tyson, Inc.
By: /s/ Gerald M. O'Connell
---------------------------------
Gerald M. O'Connell
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald M. O'Connell Chief Executive Officer January 27, 1999
______________________________________ and Director
Gerald M. O'Connell (Principal Executive
Officer)
Steven C. Roberts* Chief Financial Officer January 27, 1999
______________________________________ (Principal Financial and
Steven C. Roberts Accounting Officer)
Robert C. Allen, II* Director January 27, 1999
______________________________________
Robert C. Allen, II
Donald M. Elliman, Jr.* Director January 27, 1999
______________________________________
Donald M. Elliman, Jr.
Donald L. Seeley* Director January 27, 1999
______________________________________
Donald L. Seeley
Theodore J. Theophilos* Director January 27, 1999
______________________________________
Theodore J. Theophilos
</TABLE>
*By: /s/ Gerald M. O'Connell
- ---------------------------------
Gerald M. O'Connell
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1(a)+ Certificate of Incorporation of Registrant, as amended.
3.1(b)+ Form of Amended and Restated Certificate of Incorporation of
Registrant to be effective upon consummation of the offering.
3.2(a)+ Bylaws of Registrant, as amended.
3.2(b) Form of Bylaws of Registrant to be effective upon consummation of
the offering.
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(a) Form of Administrative Services Agreement between Registrant and
True North Communications Inc.
10.1(b) Form of Intercompany Credit Agreement between the Registrant and
True North Communications Inc.
10.1(c)* Form of Tax Matters Agreement between the Registrant and True
North Communications Inc.
10.1(d) Form of Asset Purchase Agreement by and between the Registrant and
True North Communications Inc. dated February , 1999.
10.1(e) Form of Asset Purchase Agreement by and between the Registrant and
R/GA Media Group, Inc. dated February , 1999.
10.1(f) Form of Agreement and Plan of Merger Among True North
Communications Inc., PT Controlled, Inc., the Registrant and each
of Douglas C. Ahlers, Robert C. Allen, II, Gerald M. O'Connell and
Kraft Enterprises, Ltd. dated February , 1999.
10.2 Intercompany Demand Note dated November 24, 1998 issued by True
North Communications Inc. to the Registrant.
10.3 Form of Affiliate Agreement between the Registrant and Modem
Media . Poppe Tyson do Brasil Ltda.
10.4 Sublease Agreement between the Registrant and Bozell, Jacobs,
Kenyon & Eckhardt, Inc., dated August 1, 1998.
10.5(a) Amended and Restated Employment Agreement between Registrant and
Gerald M. O'Connell, dated as of January 1, 1997, as amended and
restated as of November 25, 1998.
10.5(b) Amended and Restated Employment Agreement between Registrant and
Douglas C. Ahlers, dated as of January 1, 1997, as amended and
restated as of June 1, 1998.
10.5(c) Amended and Restated Employment Agreement between Registrant and
Robert C. Allen, II, dated as of January 1, 1997, as amended and
restated as of November 25, 1998.
10.6(a)+ Covenant Not to Compete or Solicit Business between Registrant and
Gerald M. O'Connell, dated as of December 31, 1996.
10.6(b)+ Covenant Not to Compete or Solicit Business between Registrant and
Douglas C. Ahlers, dated as of December 31, 1996.
10.6(c)+ Covenant Not to Compete or Solicit Business between Registrant and
Robert C. Allen, II, dated as of December 31, 1996.
10.7(a)+ Letter Agreement between Registrant and Steven C. Roberts dated
December 2, 1996.
10.7(b)+ Noncompetition, Confidentiality and Proprietary Rights Agreement
between Steven C. Roberts and the Registrant.
10.8+ Form of Indemnification Agreement.
10.9 1997 Stock Option Plan, as amended.
10.10 1999 Employee Stock Purchase Plan.
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.
24.1+ Power of Attorney (included on page II-4).
27.1+ Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Previously filed.
<PAGE>
EXHIBIT 1.1
MODEM MEDIA . POPPE TYSON, INC.
Class A Common Stock
UNDERWRITING AGREEMENT
----------------------
February __, 1999
BANCBOSTON ROBERTSON STEPHENS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Modem Media . Poppe Tyson, Inc., a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the entities listed in Schedule
A hereto (herein collectively called the "Underwriters") and hereby confirms its
agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,600,000 shares of its authorized and unissued Class A common stock par value
$.001 per share (the "Firm Shares") to the several Underwriters. The Company
also proposes to grant to the Underwriters an option to purchase up to 390,000
additional shares of the Company's Class A common stock par value $.001 per
share (the "Option Shares"), as provided in Section 7 hereof. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Class A common stock par value $.001 per share of the
Company to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, together with all outstanding shares of Class B common
stock par value $.001 per share are hereinafter referred to as "Common Stock."
<PAGE>
It is understood that on February __, 1999 the Company, True North
Communications Inc. ("True North") and certain subsidiaries of True North
completed a series of transactions, effective as of October 1, 1998, described
in the Prospectus under the heading "Relationship with TNC and Certain
Transactions -- The Combination and Related Transactions" (such transactions
being referred to herein as the "Reorganization"). Pursuant to the
Reorganization, the Company entered into (i) the Asset Purchase Agreement dated
February __, 1999 by and between the Company and True North, (ii) the Asset
Purchase Agreement dated February __, 1999 by and between the Company and R/GA
Media Group, Inc. and (iii) Agreement and Plan of Merger dated February __, 1999
by and among the Company, True North, PT Controlled, Inc., Douglas C. Ahlers,
Robert C. Allen, II, Gerald M. O'Connell and Kraft Enterprises, (collectively,
the "Restructuring Agreements"). Pursuant to the Reorganization, the Company
also entered into certain other agreements (the "Intercompany Agreements") with
True North and certain of its subsidiaries each of which is described in the
Prospectus under the heading "Relationship with TNC and Certain Transactions --
Intercompany Agreements." It is also understood that effective as of __, 1999,
the Company issued shares of Common Stock pursuant to a 0.95-for-1 reverse
stock split of its Common Stock (the "Reverse Stock Split").
2. Representations, Warranties and Agreements of the Company. The Company
represents and warrants to and agrees with each Underwriter that:
(a) A registration statement on Form S-1 (File No. 333-68057) with
respect to the Shares, including a prospectus subject to completion, has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules
and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") under the Act and has been filed
with the Commission; such amendments to such registration statement, such
amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments, of each related prospectus subject to completion
(the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
2
<PAGE>
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if BancBoston Robertson
Stephens Inc., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) of
the Rules and Regulations pursuant to subparagraph (1), (4) or (7) of Rule
424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of
prospectus). If the registration statement relating to the Shares has not
been declared effective under the Act by the Commission, the Company will
prepare and promptly file an amendment to the registration statement,
including a final form of prospectus, or, if BancBoston Robertson Stephens
Inc., on behalf of the several Underwriters, shall agree to the utilization
of Rule 434 of the Rules and Regulations, the information required to be
included in any term sheet filed pursuant to Rule 434(b) of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement
shall mean such registration statement, including financial statements,
schedules and exhibits, in the form in which it became or becomes, as the
case may be, effective (including, if the Company omitted information from
the registration statement pursuant to Rule 430A(a) or files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the information deemed
to be a part of the registration statement at the time it became effective
pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations) and,
in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement,
shall also mean (from and after the effectiveness of such amendment or the
filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company
omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part
of the Registration Statement at the time it became effective pursuant to
Rule 430A(b) of the Rules and Regulations); provided, however, that if in
reliance on Rule 434 of the Rules and Regulations and with the consent of
BancBoston Robertson Stephens Inc., on behalf of the several Underwriters,
the Company shall have provided to the Underwriters a term sheet pursuant
to Rule 434(b) prior to the time
3
<PAGE>
that a confirmation is sent or given for purposes of Section 2(10)(a) of
the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the
Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided
to the Underwriters by the Company for use in connection with the offering
of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations), the term "Prospectus" shall refer to such revised
prospectus from and after the time it is first provided to the Underwriters
for such use. If in reliance on Rule 434 of the Rules and Regulations and
with the consent of BancBoston Robertson Stephens Inc., on behalf of the
several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) prior to the time that a confirmation is
sent or given for purposes of Section 2(10)(a) of the Act, the Prospectus
and the term sheet, together, will not be materially different from the
prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and,
as of its date, has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and
on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act
and the Rules and Regulations and will in all material respects conform to
the requirements of the Act and the Rules and Regulations, (ii) the
Registration Statement, and any amendments or supplements thereto, did not
and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a
4
<PAGE>
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties contained in this
subparagraph (b) shall apply to information contained in or omitted from
the Registration Statement or Prospectus, or any amendment or supplement
thereto, in reliance upon, and in conformity with, written information
relating to any Underwriter furnished to the Company by such Underwriter
specifically for use in the preparation thereof.
(c) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties
and conduct its business as described in the Prospectus; the Company owns
all of the outstanding capital stock of its subsidiaries free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable
interest; each of the Company and its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise; no proceeding has been
instituted in any such jurisdiction, revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification; each of the Company and its subsidiaries is in possession of
and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect; neither the Company
nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material
bond, debenture, note or other evidence of indebtedness, or in any material
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound; and neither the Company nor any of its
subsidiaries is in material violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or over their respective properties
of which it has knowledge.
5
<PAGE>
(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the
performance of this Agreement, the Restructuring Agreements and the
Intercompany Agreements and the consummation of the transactions herein and
therein contemplated will not result in a material breach or violation of
any of the terms and provisions of, or constitute a default under, (i) any
bond, debenture, note or other evidence of indebtedness, or under any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, (ii) the charter or bylaws of the
Company or any of its subsidiaries, or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or over their respective
properties. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the
execution and delivery of this Agreement, the Restructuring Agreements or
the Intercompany Agreements and the consummation by the Company or any of
its subsidiaries of the transactions herein or therein contemplated, except
such as may be required under the Act or under state or other securities or
Blue Sky laws, all of which requirements have been satisfied in all
material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the
Company, its subsidiaries or any of their respective officers or any of
their respective properties, assets or rights before any court, government
or governmental agency or body, domestic or foreign, having jurisdiction
over the Company or any of its subsidiaries or any of their respective
officers or properties or otherwise which (i) might result in any material
adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise or might materially and adversely
6
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affect their properties, assets or rights, (ii) might prevent consummation
of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so
disclosed; and there are no agreements, contracts, leases or documents of
the Company or any of its subsidiaries of a character required to be
described or referred to in the Registration Statement or Prospectus or to
be filed as an exhibit to the Registration Statement by the Act or the
Rules and Regulations which have not been accurately described in all
material respects in the Registration Statement or Prospectus or filed as
exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
those issued pursuant to the Reorganization and the Reverse Stock Split)
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" and conforms in
all material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly
state the substance of the instruments defining the capitalization of the
Company); the Firm Shares and the Option Shares have been duly authorized
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly
issued and fully paid and nonassessable, and will be sold free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right
of first refusal or other similar right of shareholders exists with respect
to any of the Firm Shares or Option Shares or the issuance and sale
thereof. No further approval or authorization of any shareholder, the Board
of Directors of the Company or others is required for the issuance and sale
or transfer of the Shares except as may be required under the Act or under
state or other securities or Blue Sky laws. All issued and outstanding
shares of capital stock of each subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and
were not issued in violation of or subject to any preemptive right or
rights to subscribe for or purchase shares and are owned by the Company
free and clear of any pledge, lien, security interest, encumbrance, claim
or equitable interest. Except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations
7
<PAGE>
convertible into, or any contracts or commitments to issue or sell, shares
of its capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted
and exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such plans,
arrangements, options and rights.
(g) Arthur Andersen LLP are independent accountants within the
meaning of the Act and the Rules and Regulations; the audited financial
statements of the Company, together with the related schedules and notes,
and the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial
position and the results of operations of the Company and its subsidiaries
at the respective dates and for the respective periods to which they apply;
and all audited consolidated financial statements of the Company, together
with the related schedules and notes, and the unaudited consolidated
financial information, filed with the Commission as part of the
Registration Statement, have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as may be otherwise stated therein. The selected and
summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been
compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required
to be included in the Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries as one enterprise, (ii) any transaction that is material to
the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or any
of its subsidiaries, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness
of the Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (v) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (vi) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries
8
<PAGE>
which has been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement
and Prospectus as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise. Each of the
Company and its subsidiaries has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased
by it, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles. The Company owns or leases all such properties as are
necessary to its operations as now conducted or as proposed to be
conducted.
(j) The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and has paid
all taxes shown thereon as due, and there is no tax deficiency that has
been or, to the best of the Company's knowledge, might be asserted against
the Company or any of its subsidiaries that might have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise; and all tax liabilities are adequately
provided for on the books of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts
generally deemed adequate for their respective businesses and consistent
with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires
9
<PAGE>
or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(l) To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers, software vendors or
original equipment manufacturers that might be expected to result in a
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise. No collective bargaining
agreement exists with any of the Company's employees and, to the best of
the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights
which are necessary to conduct its businesses as described in the
Registration Statement and Prospectus; the expiration of any patents,
patent rights, trade secrets, trademarks, service marks, trade names or
copyrights would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise;
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets, know-
how, trademarks, service marks, trade names or copyrights; and the Company
has not received any notice of, and has no knowledge of, any infringement
of or conflict with asserted rights of others with respect to any patent,
patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a
material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(n) There are no issues related to the Company's preparedness for
the Year 2000 that (i) are of a character required to be described or
referred to in the Registration Statement or Prospectus by the Act or the
Rules and Regulations which have not been accurately described in the
10
<PAGE>
Registration Statement or Prospectus or (ii) might reasonably be expected
to result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise or that might
materially affect the Company's properties, assets or rights or those of
any of its subsidiaries.
(o) During the last five (5) years, the Company has not (i) made any
unlawful contribution to any candidate for foreign office or failed to
disclose fully any contribution in violation of law or (ii) made any
payment to any federal or state governmental office or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
(p) The Common Stock has been approved for quotation on The Nasdaq
National Market, subject to official notice of issuance.
(q) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
conduct, its affairs in such a manner as to ensure that it will not become
an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(r) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are
to be purchased, as the case may be, and (ii) completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses,
the Prospectus, the Registration Statement and other materials, if any,
permitted by the Act.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(t) Each officer and director of the Company and each holder of more
than 30,000 shares of common stock of the Company has agreed in writing
that such person will not, for a period of 180 days from the date that the
Registration Statement is declared effective by the Commission
11
<PAGE>
(the "Lock-up Period"), offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively,
a "Disposition") any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by such person or with respect to
which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or
donees thereof agree in writing to be bound by this restriction, (ii) as a
distribution to partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction has been expressly agreed
to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably expected to lead to or
result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder.
Such prohibited hedging or other transactions would include, without
limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person has also agreed and consented to the entry of stop
transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with
this restriction. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company and the
number and type of securities held by each securityholder. The Company has
provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers,
directors or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of
BancBoston Robertson Stephens Inc.
(u) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations
relating to the use, treatment, storage and disposal of toxic substances
and protection of health or the environment ("Environmental Laws") which
are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted
12
<PAGE>
claim under Environmental Laws, which claim is required to be disclosed in
the Registration Statement and the Prospectus, (iii) the Company will not
be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended
(42 U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated
site under applicable state or local law.
(v) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them, except as disclosed in the Registration Statement and the Prospectus.
(x) The Reorganization and related transactions described in the
Prospectus under the caption "Relationship with TNC and Certain
Transactions" have been effected as described in the prospectus and in
accordance with all applicable law. The Restructuring Agreements and the
Intercompany Agreements are valid and binding agreements, enforceable by
the Company, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general
equitable principles, and, to the best of the Company's knowledge, the
other contracting party or parties thereto are not in material breach or
material default under any of such agreements.
(y) The Company has no significant subsidiaries (as such term is
defined in Rule 1-02 of Regulation S-X of the Act).
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<PAGE>
(z) The Reverse Stock Split was duly authorized by the Company and was
effected on ___, 1999 in accordance with all applicable law.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by Federal or other funds
immediately available in New York City at the offices of Davis Polk & Wardwell,
450 Lexington Avenue, New York, New York (or at such other place as may be
agreed upon among the Representatives and the Company), at 7:00 A.M., San
Francisco time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
1:30 P.M., San Francisco time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 11 hereof), such time and date of payment and delivery being
herein called the "Closing Date;" provided, however, that if the Company has not
made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
14
<PAGE>
It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering of the Firm Shares at an
initial public offering price of $_____ per share. After the initial public
offering, the several Underwriters may, in their discretion, vary the public
offering price.
The information set forth in the first sentence of the second paragraph, in
the third paragraph and in the 11th paragraph under the caption "Underwriting"
in any Preliminary Prospectus and in the Prospectus constitutes the only
information furnished by the Underwriters to the Company for inclusion in any
Preliminary Prospectus, the Prospectus or the Registration Statement, and you,
on behalf of the respective Underwriters, represent and warrant to the Company
that the statements made therein do not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations as may be required subsequent to the
date the Registration Statement is declared effective to become effective
as promptly as possible; the Company will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement,
any subsequent amendment to the Registration Statement or any abbreviated
registration statement has become effective or any supplement to the
Prospectus has been filed; if the Company omitted information from the
Registration Statement at the time it was originally declared effective in
reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the
15
<PAGE>
time period prescribed, with the Commission pursuant to subparagraph (1) or
(4) of Rule 424(b) of the Rules and Regulations or as part of a post-
effective amendment to such Registration Statement as originally declared
effective which is declared effective by the Commission; if the Company
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
Company will provide evidence satisfactory to you that the Prospectus and
term sheet meeting the requirements of Rule 434(b) or (c), as applicable,
of the Rules and Regulations, have been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (7) of Rule 424(b)
of the Rules and Regulations; if for any reason the filing of the final
form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed with the Commission
within the time period prescribed; it will notify you promptly of any
request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information;
promptly upon your request, it will prepare and file with the Commission
any amendments or supplements to the Registration Statement or Prospectus
which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with
the distribution of the Shares by the Underwriters; it will promptly
prepare and file with the Commission, and promptly notify you of the filing
of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions,
if, at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event shall have occurred as a result of which
the Prospectus or any other prospectus relating to the Shares as then in
effect would include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection
with the sale of the Shares, it will prepare promptly upon request, but at
the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to
you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with
the Act, the Rules and Regulations and the provisions of this Agreement.
16
<PAGE>
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you
may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that
the Company shall not be required in connection therewith or as a condition
thereof to qualify as a foreign corporation or to execute a general consent
to service of process in any jurisdiction in which it is not otherwise
required to be so qualified or to so execute a general consent to service
of process. In each jurisdiction in which the Shares shall have been
qualified as above provided, the Company will make and file such statements
and reports in each year as are or may be required by the laws of such
jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet
under Rule 434, in no event later than the first (1st) full business day
following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to
permit compliance with Section 10(a)(3) of the Act, all in such quantities
as you may from time to time reasonably request. Notwithstanding the
foregoing, if BancBoston Robertson Stephens Inc., on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in
such quantities as you may from time to time reasonably request.
(e) If the Company elects to rely on Rule 462(b) under the Act, the
Company shall file a Rule 462(b) Registration Statement with the Commission
in compliance with Rule 462(b) under the Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Act, and shall pay the applicable fees in accordance with Rule 111 under
the Act.
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<PAGE>
(f) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth
(45th) day following the end of the fiscal quarter first occurring after
the first anniversary of the effective date of the Registration Statement,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of
the Registration Statement.
(g) During a period of five (5) years after the date hereof, the
Company will furnish to its shareholders as soon as practicable after the
end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and
unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year, and will furnish to you and the other several
Underwriters hereunder, upon request (i) concurrently with furnishing such
reports to its shareholders, statements of operations of the Company for
each of the first three (3) quarters in the form furnished to the Company's
shareholders, (ii) concurrently with furnishing to its shareholders, a
balance sheet of the Company as of the end of such fiscal year, together
with statements of operations, of shareholders' equity, and of cash flows
of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants,
(iii) as soon as they are available, copies of all reports (financial or
other) mailed to shareholders, (iv) as soon as they are available, copies
of all reports and financial statements furnished to or filed with the
Commission or any securities exchange (v) every material press release and
every material news item or article in respect of the Company or its
affairs which was generally released to shareholders or prepared by the
Company, and (vi) any additional information of a public nature concerning
the Company, or its business which you may reasonably request. During such
five (5) year period, if the Company shall have active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
(h) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
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<PAGE>
(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which
may be the same entity as the transfer agent) for its Common Stock.
(j) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill
any condition of the Underwriters' obligations hereunder, or if the Company
shall terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(b)(i),
the Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel)
incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of BancBoston Robertson Stephens Inc., effect the
Disposition of, directly or indirectly, any Securities other than (i) the
sale of the Firm Shares and the Option Shares hereunder, (ii) the issuance
of shares of Common Stock pursuant to options outstanding on the date
hereof under the 1997 Stock Option Plan (as defined in the Prospectus) or
(iii) the issuance of options under the 1997 Stock Option Plan, provided
that if such options shall vest prior to the expiration of the Lock-up
Period, the recipient of such options shall agree in writing to
restrictions on the resale of the underlying shares of capital stock that
are substantially similar to the restrictions contained in the Lock-up
Agreements.
(m) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration
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statement registering shares under the 1997 Option Plan or other employee
benefit plan.
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, any Blue
Sky memorandum, the Underwriters' Questionnaire and Power of Attorney,
and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters,
including transfer taxes, if any, the cost of all certificates
representing the Shares and transfer agents' and registrars' fees; all
costs and expenses incident to the preparation and undertaking of
"road show" presentations to be made to prospective investors; all
expenses and fees in connection with the quotation of the Shares on
the Nasdaq National Market; the fees and disbursements of counsel for
the Company; all fees and other charges of the Company's independent
certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including
appropriate exhibits), any Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; NASD filing
fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD
filings and Blue Sky qualifications); and all other expenses directly
incurred by the Company in connection with the performance of their
obligations hereunder.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other
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proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to
reimburse the Underwriters for such expenses and the possibility that
such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) listed from time to time in The Wall Street
Journal which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are not
made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
(b) In addition to their other obligations under Section 8(b) hereof,
the Underwriters severally and not jointly agree that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof, they will reimburse the
Company on a monthly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company for such expenses
and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
shall promptly return such payment to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any
such interim reimbursement payments which are not made to the Company
within thirty (30) days of a request for reimbursement shall bear interest
at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted under the provisions of the
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Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in
such demand or notice, then the party responding to said demand or notice
is authorized to do so. Any such arbitration will be limited to the
operation of the interim reimbursement provisions contained in Sections
5(a)(ii) and 5(b) hereof and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses which is created
by the provisions of Sections 8(a) and 8(b) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(d)
hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you;
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the
Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information
as they may reasonably have requested to enable them to pass upon the
matters referred to in this Section.
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(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to
be purchased, as the case may be, there shall not have been any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in
your sole judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus; and
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the
following opinion of counsel for the Company, dated the Closing Date or
such later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(i) The Company and each of its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation;
(ii) The Company and each of its subsidiaries has the corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus;
(iii) The Company and each of its subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in
each jurisdiction, if any, in which the ownership or leasing of its
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified or be in good standing
would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and
outstanding shares of capital stock of the Company (including the
shares of Common Stock issued pursuant to the Reorganization and the
Reverse Stock Split) have been duly authorized and validly issued and
are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any
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<PAGE>
preemptive right, co-sale right, registration right, right of first
refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right and are owned by the Company free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be,
have been duly authorized and, upon issuance and delivery against
payment therefor in accordance with the terms hereof, will be duly and
validly issued and fully paid and nonassessable, and will not have
been issued in violation of or subject to any preemptive right, co-
sale right, registration right, right of first refusal or other
similar right.
(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters
the Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed
and delivered by the Company;
(ix) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom
as to which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all
material respects with the requirements of the Act and the applicable
Rules and Regulations;
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<PAGE>
(xi) The statements (a) in the Prospectus under the captions
"Relationship with TNC and Certain Transactions", "Description of
Capital Stock" and "Underwriting" and (b) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein;
(xii) After due inquiry, to the best of such counsel's knowledge
(i) there are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described
in the Registration Statement or the Prospectus and are not so
described, and (ii) there are no statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xiii) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Restructuring Agreements and the Intercompany Agreements will not
(a) result in any violation of the Company's charter or bylaws or (b)
to such counsel's knowledge, result in a material breach or violation
of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company is
a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or over any of their respective
properties or operations;
(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries,
or over any of their respective properties or operations is necessary
in connection with the consummation by the Company of the transactions
contemplated by this Agreement, the
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Restructuring Agreements or the Intercompany Agreements, except such
as have been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriters;
(xv) To such counsel's knowledge neither the Company nor any of
its subsidiaries is presently (a) in material violation of its charter
or bylaws, or (b) in material breach of any applicable statute, rule
or regulation known to such counsel or, to such counsel's knowledge,
any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or its subsidiaries or over any
of their respective properties or operations;
(xvi) To such counsel's knowledge, no holders of Common Stock or
other securities of the Company have registration rights with respect
to securities of the Company; and
(xvii) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, (except as noted
above) nothing has come to the attention of such counsel which leads them to
believe that, at the time the Registration Statement became effective and at all
times subsequent thereto up to and on the Closing Date and on any later date on
which Option Shares are to be purchased, the Registration Statement and any
amendment or supplement thereto (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or at the Closing Date or any later date on which the Option Shares are to be
purchased, as the case may be, the Registration Statement, the Prospectus and
any amendment
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or supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of California or the
General Corporation Law of the State of Delaware upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion
of Davis Polk & Wardwell, in form and substance satisfactory to you, with
respect to certain matters relating to this Agreement and the transactions
contemplated hereby as you may reasonably require, and the Company shall
have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter
from Arthur Andersen LLP addressed to the Underwriters, dated the Closing
Date or such later date on which Option Shares are to be purchased, as the
case may be, confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than two business days prior to the Closing
Date or such later date on which Option Shares are to be purchased, as the
case may be, (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the Closing
Date or such later date on which Option Shares are to be purchased, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall
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<PAGE>
not disclose any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. The Original Letter from Arthur
Andersen LLP shall be addressed to or for the use of the Underwriters in
form and substance satisfactory to the Underwriters and shall contain
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and Prospectus. In addition, you shall have received from Arthur Andersen
LLP a letter addressed to the Company and made available to you for the use
of the Underwriters stating that their review of the Company's system of
internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Act;
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(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto , contained all material information required to
be included therein by the Act and the Rules and Regulations and in
all material respects conformed to the requirements of the Act and the
Rules and Regulations, the Registration Statement, and any amendment
or supplement thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been so set forth;
and
(iv) The Reorganization has been effected as described in the
Prospectus and in accordance with all applicable law.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not
been (a) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company and its subsidiaries considered as one enterprise, (b) any
transaction that is material to the Company and its subsidiaries
considered as one enterprise, except transactions entered into in the
ordinary course of business, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except
obligations incurred in the ordinary course of business, (d) any
change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (f) any
loss or damage (whether or not insured) to the property of the Company
or any of its subsidiaries which has been sustained or will have been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
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prospects of the Company and its subsidiaries considered as one
enterprise.
(h) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company and each holder of more than
30,000 shares of common stock, in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of
any Securities now owned or hereafter acquired directly by such person or
with respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or shareholders of such person, provided
that the distributees thereof agree in writing to be bound by the terms of
this restriction, or (iii) with the prior written consent of BancBoston
Robertson Stephens Inc. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to
lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than such
holder. Such prohibited hedging or other transactions would include,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities.
Furthermore, such person will have also agreed and consented to the entry
of stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with
this restriction.
(i) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company herein, as to the performance by the Company of
its obligations hereunder and as to the other conditions concurrent and
precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
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7. Option Shares.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of
the Firm Shares only, a nontransferable option to purchase up to an
aggregate of 390,000 Option Shares at the purchase price per share for the
Firm Shares set forth in Section 3 hereof. Such option may be exercised by
the Representatives on behalf of the several Underwriters on one (1) or
more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the
public, by giving written notice to the Company. The number of Option
Shares to be purchased by each Underwriter upon the exercise of such option
shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such
option as the number of Firm Shares purchased by such Underwriter (set
forth in Schedule A hereto) bears to the total number of Firm Shares
purchased by the several Underwriters (set forth in Schedule A hereto),
adjusted by the Representatives in such manner as to avoid fractional
shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the
purchase price therefor by the several Underwriters by federal or other
funds immediately available in New York City. In the event of any breach of
the foregoing, the Company shall reimburse the Underwriters for the
interest lost and any other expenses borne by them by reason of such
breach. Such delivery and payment shall take place at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 or at such
other place as may be agreed upon among the Representatives and the Company
(i) on the Closing Date, if written notice of the exercise of such option
is received by the Company at least two (2) full business days prior to the
Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company receives written
notice of the exercise of such option, if such notice is received by the
Company less than two (2) full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for
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checking at least one (1) full business day prior to the date of payment
and delivery and will be in such names and denominations as you may
request, such request to be made at least two (2) full business days prior
to such date of payment and delivery. If the Representatives so elect,
delivery of the Option Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be
obligated to) make payment of the purchase price on behalf of any
Underwriter or Underwriters whose check or checks shall not have been
received by you prior to the date of payment and delivery for the Option
Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of
any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment and
delivery for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and
to the condition that all proceedings taken at or prior to the payment date
in connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and
you shall have been furnished with all such documents, certificates and
opinions as you may request in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants or agreements of the Company or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or
otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities (or actions in respect thereof) arising out of or
based
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upon (i) any breach of any representation, warranty, agreement or covenant
of the Company herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or any such
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by
such Underwriter, directly or through you, specifically for use in the
preparation thereof and, provided further, that the indemnity agreement
provided in this Section 8(a) with respect to any Preliminary Prospectus
shall not inure to the benefit of any Underwriter from whom the person
asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected had
not been sent or given to such person within the time required by the Act
and the Rules and Regulations, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company against any losses, claims, damages or
liabilities, joint or several, to which the Company may become
33
<PAGE>
subject under the Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation,
warranty, agreement or covenant of such Underwriter herein contained, (ii)
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in the case of subparagraphs (ii) and (iii) of this
Section 8(b) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished
to the Company by such Underwriter, directly or through you, specifically
for use in the preparation thereof, and agrees to reimburse the Company for
any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each
director of the Company, and each person, if any, who controls the Company
within the meaning of the Act or the Exchange Act. This indemnity agreement
shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against any indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it shall elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
34
<PAGE>
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a) or 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the
subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this
Section 8 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time
to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact
that this
35
<PAGE>
Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such
proportion so that the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company is responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of
the amount by which the underwriting discount applicable to the Shares
purchased by such Underwriter exceeds the amount of damages which such
Underwriter has been otherwise required to pay and (ii) no person guilty of
a fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. The contribution agreement in this
Section 8(d) shall extend upon the same terms and conditions to, and shall
inure to the benefit of, each person, if any, who controls any Underwriter
or the Company within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each
director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required
by the Act and the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter within the meaning of the Act or the Exchange Act, or by or on
behalf of the Company or any of its officers, directors or controlling persons
within the meaning of the Act or the Exchange Act, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination of
this Agreement.
36
<PAGE>
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate number of
Firm Shares which such defaulting Underwriter or Underwriters agreed but failed
to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10 (i) the Company shall have the right
to postpone the time of delivery for a period of not more than seven (7) full
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement, supplements to the Prospectus or other such documents
which may thereby be made necessary, and (ii) the respective number of Firm
Shares to be purchased by the remaining Underwriters and substituted underwriter
or underwriters shall be taken as the basis of their underwriting obligation.
If the remaining Underwriters shall not take up and pay for all such Firm Shares
so agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek
37
<PAGE>
another underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the preceding
paragraph of this Section 10, the Company shall not be liable to any Underwriter
(except as provided in Sections 5 and 8 hereof) nor shall any Underwriter (other
than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the number of Firm Shares agreed by
such Underwriter to be purchased hereunder, which Underwriter shall remain
liable to the Company and the other Underwriters for damages, if any, resulting
from such default) be liable to the Company (except to the extent provided in
Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or
the Company, may prevent this Agreement from becoming effective without
liability of any party to any other party, except as provided in Sections
4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter
specified at any time on or prior to the Closing Date or on or prior to any
later date on which Option Shares are to be purchased, as the case may be,
(i) if the Company shall have failed, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise
38
<PAGE>
from that set forth in the Registration Statement or Prospectus, which, in
your sole judgment, is material and adverse, or (ii) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such exchange or in the over the counter market by the
NASD, or if a banking moratorium shall have been declared by federal, New
York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of
the business and operations of the Company regardless of whether or not
such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the
Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the
declaration by the United States of a national emergency which, in the
reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus. In the event of termination pursuant to
subparagraph (i) above, the Company shall remain obligated to pay costs and
expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination
pursuant to any of subparagraphs (ii) through (v) above shall be without
liability of any party to any other party except as provided in Sections 5
and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o BancBoston Robertson Stephens Inc., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 228 Saugatuck Avenue, Westport,
Connecticut
39
<PAGE>
06880, telecopier number (203) 341-5200, Attention: G.M. O'Connell, Chief
Executive Officer.
13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors and assigns and said controlling persons and said officers and
directors, and for the benefit of no other person or entity. No purchaser of
any of the Shares from any Underwriter shall be construed a successor or assign
by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancBoston Robertson Stephens Inc. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
40
<PAGE>
If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and the several Underwriters.
Very truly yours,
MODEM MEDIA . POPPE TYSON, INC.
By _________________________________
Accepted as of the date first above written:
BANCBOSTON ROBERTSON STEPHENS INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By __________________________________
Authorized Signatory
41
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc. .............
NationsBanc Montgomery Securities LLC...........
Bear, Stearns & Co. Inc. .......................
---------
Total..................................... 2,600,000
=========
</TABLE>
42
<PAGE>
EXHIBIT 3.2(b)
AMENDED AND RESTATED
BYLAWS
OF
MODEM MEDIA . POPPE TYSON, 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.............................................................................................. 5
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................................................................................................ 9
3.1 POWERS.............................................................................................. 9
3.2 NUMBER AND TERM OF OFFICE........................................................................... 9
3.3 BOARD REPRESENTATION................................................................................ 9
3.4 RESIGNATION AND VACANCIES........................................................................... 10
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............................................................................ 12
3.10 QUORUM.............................................................................................. 12
3.11 WAIVER OF NOTICE.................................................................................... 12
3.12 ADJOURNMENT......................................................................................... 12
3.13 NOTICE OF ADJOURNMENT............................................................................... 13
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................................... 13
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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.................................................................................. 16
5.6 CHAIRMAN OF THE BOARD................................................................................. 16
5.7 CHIEF EXECUTIVE OFFICER............................................................................... 16
5.9 VICE PRESIDENTS....................................................................................... 17
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............................................................................. 20
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
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................................................... 21
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS........................................................ 21
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
MODEM MEDIA . POPPE TYSON, 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
<PAGE>
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
(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 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 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 or her capacity as a proponent of 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, a stockholder 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 or she
should so determine, he or she 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 shall set forth
(i) as to each
-2-
<PAGE>
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
being 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 or she should so determine, he or she 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, the chairman of the board or 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 10 nor more than 60 days after the
receipt of the request. If the notice is not given within 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.
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2.4 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his or her absence by the vice chairman of the board, if
any, or in his or her absence by the chief executive officer, if any, or in his
or her absence by the president, if any, or in his or her 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 or her 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 10 nor more than 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.
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2.7 QUORUM
The presence in person or by proxy of the holders of a majority of the
voting power of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings of stockholders; 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 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 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 is 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
stock holder'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 at least a majority 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 Stock 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 any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting
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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 60 days nor less than 10 days before the date of
any such meeting nor more than 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 preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day 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 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.
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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 or three. If inspectors are appointed
at a meeting pursuant to the request of one 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 or three 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
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
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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 five. 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 and Robert C. Allen,
II (including spouses, members of their immediate family or their estate, heirs
and intestate successors, the "Limited Partners") collectively own at least 45%
of the aggregate number of the corporation's common stock held by them on
December 31, 1996 (the "Limited Partner Shares"), (a) Gerald M. O'Connell and
(b) Robert C. Allen, II so long as he continues to serve as a senior executive
of the corporation; and (ii) so long as the Limited Partners collectively own
less than 45% but at least 30% of the 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
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
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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 to be elected by all of the
stockholders entitled to vote, voting 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 the manner
prescribed by the pro visions 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 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
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 so 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.
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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 so long as a quorum
is present at the first meeting of such newly elected board of directors. 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 dates of such meetings are fixed by the board of directors.
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 by a majority of the
directors then in office.
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 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 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
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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 of the meeting. In
addition, if the meeting is to be held at the principal executive office of the
corporation, the notice need not specify the place of the meeting.
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
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 at the meeting at which the adjournment is taken, unless the
meeting is adjourned for more than 24 hours. If the meeting is adjourned for
more than 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.
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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 or her absence by the vice chairman of the
board, if any, or in his or her 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 or her 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 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
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The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one 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 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 Sec
tions 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 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 corporation shall have such officers as determined by the board of
directors, which officers may include a chairman of the board, a chief executive
officer, a president, a secretary, a chief financial officer and a treasurer.
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.
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
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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 or her 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 or she 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 or her by the board of directors or as may be
prescribed by these Bylaws. In the absence or nonexistence of the chairman of
the board and chief executive officer, he or she shall preside at all meetings
of the stockholders and 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
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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 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
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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 (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.
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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 such person 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 Article VI 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 by the board of directors (i) 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, if
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, that the facts known to the determining 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 either to be
in or not to be opposed to the best interests of the corporation.
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, either as to action in
his or her official capacity or as to action in any other capacity while holding
office. The corporation is specifically authorized to enter into individual
contracts with any or all of its directors, officers, employees and 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
person.
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6.7 AMENDMENTS
Any repeal or modification of this Bylaw shall have prospective effect
only, and shall not affect the rights of any person under this Bylaw as in
effect at the time of an alleged action or omission to act giving rise to a
proceeding against such person, if such alleged action or omission occurred
prior to the repeal or modification of this Bylaw.
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 (i) a record of
its stockholders listing their names and addresses and the number and class of
shares held by each, (ii) a copy of these Bylaws as amended to date, and (iii)
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 other writing that authorizes the attorney or 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 the 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 such 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
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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 corpora
tion to permit the director to inspect any and all books and records, the stock
ledger and the stock list and to make copies thereof or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
regard 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.
ARTICLE VII
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 for purposes
of determining 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 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
60th day before the date of that action, whichever is later.
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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 officers of the corporation enumerated Section 5.1 of these bylaws
shall have the authority to execute in the name of the corporation bonds,
contracts, deeds, leases and other written instruments to be executed by the
corporation. In addition, the board of directors, except as otherwise provided
in these Bylaws, may authorize any other 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 render it liable for any purpose or for
any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the 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, any holder of uncertificated shares shall, upon request, 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, the president or a vice-president, and by the chief financial officer,
the secretary or an assistant secretary of the corporation, representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile(s). If 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, such certificate may be issued by the corporation
with the same effect as if such person 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, or 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.
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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, designations, preferences,
and 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, how ever, 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 such
certificate a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences, and 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.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace previously issued certificates unless the latter are
surrendered to the corporation and canceled at the same time. The board of
directors may, if any share certificate or certificate for any other security is
lost, stolen or destroyed, authorize the issuance of a replacement certificate
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.
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ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation 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 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 all the stockholders 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
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(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.
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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EXHIBIT 4.1
CLASS A COMMON STOCK CLASS A COMMON STOCK
PAR VALUE $.001 PAR VALUE $.001
- ---------------- ------------
NUMBER SHARES
- ---------------- ------------
[LOGO APPEARS HERE]
MODEM MEDIA . POPPE TYSON, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP 607533 10 6
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK OF
Modem Media. Poppe Tyson, Inc. transferable on the books of the Corporation by
the holder hereof 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 all of the provisions of the Restated
Certificate of Incorporation of the Corporation and its By-Laws, as amended
(copies of which are on file at the office of the Corporation), to all of which
the holder by acceptance hereof assents. This certificate is not valid until
countersigned by a Transfer Agent and registered by a Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Gerald M. O'Connell
--------------------------
CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
TRANSFER AGENT AND REGISTRAR
[SEAL APPEARS HERE]
BY /s/ Steven M. Roberts
--------------------------
AUTHORIZED SIGNATURE SECRETARY
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS,
THE POWERS, DESIGNATIONS, REFERENCES AND 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.
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)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..............................
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do 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(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE>
[WSGR Letterhead]
EXHIBIT 5.1
-----------
January 26, 1999
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission on November 27, 1998 (Registration No.
333-68057), including all amendments thereto through the date hereof (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of up to 2,990,000 shares of your Class A
Common Stock (the "Shares"), including an option granted to the underwriters to
purchase up to an additional 390,000 shares to cover over-allotments. We
understand that you are selling the Shares to the underwriters for resale to the
public as described in the Registration Statement. As your legal counsel, we
have examined the proceedings taken, and are familiar with the proceedings
proposed to be taken, by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken or
proposed to be taken by us, as your legal counsel, prior to the issuance of the
Shares, the Shares will be legally issued, fully paid and non-assessable when
sold in the manner described in the Registration Statement.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati PC
<PAGE>
EXHIBIT 10.1(A)
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
TRUE NORTH COMMUNICATIONS INC.
AND
MODEM MEDIA . POPPE TYSON, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I DEFINITIONS................................................... 1
1.1 ADDITIONAL SERVICES.......................................... 1
1.2 EXPIRATION DATE.............................................. 1
1.3 IMPRACTICABLE................................................ 1
1.4 INITIAL SERVICES............................................. 1
1.5 INSURANCE SERVICES........................................... 1
1.6 LEGAL SERVICES............................................... 1
1.7 PROVIDING COMPANY............................................ 1
1.8 RECEIVING COMPANY............................................ 1
1.9 REPRESENTATIVE............................................... 1
1.10 SERVICES..................................................... 1
1.11 TAX PREPARATION SERVICES..................................... 2
1.12 TERMINATION DATE............................................. 2
1.13 TREASURY CONSULTING SERVICES................................. 2
ARTICLE II SERVICES...................................................... 2
2.1 SERVICES..................................................... 2
2.2 TERM......................................................... 3
2.3 CHARGES AND PAYMENT.......................................... 3
2.4 GENERAL OBLIGATIONS; STANDARD OF CARE........................ 4
2.5 CERTAIN LIMITATIONS.......................................... 5
2.6 CONFIDENTIALITY.............................................. 6
2.7 TERMINATION.................................................. 6
2.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY OR
LIABILITIES AND INDEMNIFICATION.............................. 6
2.9 REPRESENTATIVE............................................... 7
2.10 DISPUTE RESOLUTION........................................... 7
2.11 BINDING ARBITRATION.......................................... 8
2.12 INJUNCTIVE RELIEF............................................ 8
ARTICLE III MISCELLANEOUS................................................ 9
3.1 TAXES........................................................ 9
3.2 LAWS AND GOVERNMENTAL REGULATIONS............................ 9
3.3 RELATIONSHIP OF PARTIES...................................... 9
3.4 EXPENSES..................................................... 9
3.5 REFERENCES................................................... 9
3.6 MODIFICATION AND AMENDMENT................................... 10
3.7 INCONSISTENCY................................................ 10
</TABLE>
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ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT, dated as of February, 1999 (the
"Effective Date"), is by and between True North Communications Inc., a Delaware
corporation ("TNC"), and Modem Media . Poppe Tyson, Inc., a Delaware corporation
("MMPT").
WHEREAS, the Boards of Directors of TNC and MMPT have determined that it is
in the best interests of each of TNC and MMPT and their respective stockholders
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 ADDITIONAL SERVICES shall have the meaning set forth in Subsection
2.1(c).
1.2 EXPIRATION DATE shall have the meaning set forth in Section 2.2.
1.3 IMPRACTICABLE (and words of similar import) shall have the meaning
set forth in Subsection 2.5(a).
1.4 INITIAL SERVICES shall have the meaning set forth in Subsection
2.1(a).
1.5 INSURANCE SERVICES shall have the meaning set forth in Subsection
2.1(a)(ii).
1.6 LEGAL SERVICES shall have the meaning set forth in Subsection
2.1(a)(iii).
1.7 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.
1.8 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.
1.9 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.
1.10 SERVICES shall have the meaning set forth in Subsection 2.1(c).
<PAGE>
1.11 TAX PREPARATION SERVICES shall have the meaning set forth in
Subsection 2.1(a)(i).
1.12 TERMINATION DATE shall have the meaning set forth in Section 2.2.
1.13 TREASURY CONSULTING SERVICES shall have the meaning set forth in
Subsection 2.1(a)(iv).
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) TAX PREPARATION SERVICES described in Exhibit A attached
hereto;
(ii) INSURANCE SERVICES described in Exhibit B attached hereto;
(iii) LEGAL SERVICES described in Exhibit C attached hereto; and
(iv) TREASURY CONSULTING SERVICES described in Exhibit D
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.
(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
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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) Corporate Secretarial Services;
(ii) Corporate Development Advice;
(iii) Investor Relations;
(iv) Public Relations; and
(v) 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.
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
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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(d) 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.
(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
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<PAGE>
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 consents or
approvals required for the provision or receipt of Services. 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 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.
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<PAGE>
(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.
2.6 CONFIDENTIALITY.
(a) 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.
(b) INTERNAL USE; TITLE, COPIES, RETURN. Receiving Company agrees
that:
(i) all procedures and related materials provided to Receiving
Company are for Receiving Company's internal use and use of Receiving Company's
clients; and
(ii) 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.
2.7 TERMINATION. MMPT 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 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 MMPT 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.
2.8 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.
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(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.
2.9 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.
2.10 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
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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.
2.11 BINDING ARBITRATION.
(a) Except as set forth in Section 2.10 and 2.12, 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.
(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.
2.12 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.
-8-
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ARTICLE III
MISCELLANEOUS
3.1 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.
3.2 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.
3.3 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, 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.
3.4 EXPENSES. Except as expressly set forth herein (including in the
Exhibits hereto), 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 MMPT in the case of costs or expenses incurred by MMPT.
3.5 REFERENCES. All reference to Sections, Articles, Exhibits or
Schedules contained 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
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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.
3.6 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.
3.7 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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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:_______________________________________
MODEM MEDIA . POPPE TYSON, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
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EXHIBIT A
TAX PREPARATION SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: MMPT
-----------------
3. Description of Service:
----------------------
Services Included:
. Preparation of Federal corporate tax returns, extensions, and E/S
payments.
. Maintain required tax records including depreciation, basis, foreign
earnings & profits, foreign tax credit records and required analysis
((S)1.861-8 analysis, etc.)
. US tax compliance for foreign entities
. Responding to IRS, state and local inquires
. Handling of IRS, state and local audits
. State & Local income tax returns for Connecticut, New York, New
Jersey, Pennsylvania and all unitary/combined reporting states
. Preparation of state franchise tax returns
Services NOT Included:
. Preparation of local sales & use tax returns, payroll tax returns,
foreign tax returns
. Preparation of local business tax returns (Chicago head tax, NYC rent
tax, etc.)
. State unclaimed property filings, audits, etc.
4. Charges for Services:
--------------------
The annual cost of these services will be agreed by the parties and are
expected to be approximately $25,000.
<PAGE>
EXHIBIT B
INSURANCE SUPPORT SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: MMPT
-----------------
3. Description of Service:
----------------------
. Insurance (inclusive of director and officers insurance). MMPT will
have a separate insurance program modeled after the TNC program. Aon
will remain the Broker of Record and insurance administrative work
(annual renewal process, issuance of insurance certificates, claim
management, etc.) will be performed internally by TNC. Separate
policies would be issued with pricing, limits, deductibles modeled
after the current TNC coverages.
4. Charges for Services:
--------------------
. The aggregate annual cost of the TNC provided services will be $3,000.
<PAGE>
EXHIBIT C
LEGAL SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: MMPT
-----------------
3. Description of Service:
----------------------
Services Included:
. Drafting and review of agency, production, confidentiality, employment
and software agreements; review of website content; review of internet
sweepstakes and other promotions; consultation on production and
trademark clearance issues.
Services NOT Included:
. Advice with respect to securities transactions and securities law
advice, mergers and acquisitions and other corporate transactions,
employee benefits or employment matters.
4. Charges for Services:
--------------------
$120.00 per hour.
<PAGE>
EXHIBIT D
TREASURY CONSULTING SERVICES
1. Providing Company: TNC
-----------------
2. Receiving Company: MMPT
-----------------
3. Description of Service:
----------------------
Consulting services regarding:
. Banking relationships
. Credit arrangements
. Cash management systems to collect and disburse cashflow
. Treasury management system for cash control
. Investments
. Treasury policies
. Foreign exchange
. Letters of credit
. Retirement plans; selection of managers, record keeper, administrator,
etc.
. Retirements plans; the fiduciary responsibilities for a separate
company under ERISA.
4. Charges for Services:
--------------------
$300.00 per hour.
<PAGE>
SCHEDULE 1
REPRESENTATIVES
Representative of TNC: Dale Perona, Secretary
True North Communications Inc.
101 East Erie Street
Chicago, IL 60611-2897
Telephone: (312) 751-7000
Facsimile (312) 440-8104
Representative of MMPT: Steve Roberts, Chief Financial Officer
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Telephone: (203) 291-5200
Facsimile: (203) 291-6061
<PAGE>
Exhibit 10.1(b)
INTERCOMPANY
CREDIT AGREEMENT
----------------
This INTERCOMPANY CREDIT AGREEMENT ("Credit Agreement"), dated as of
----------------
February, 1999, is entered into by and between:
(1) TRUE NORTH COMMUNICATIONS INC. ("Lender"); and
------
(2) MODEM MEDIA . POPPE TYSON, 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 $3,000,000.
----------
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 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 "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.
1.11 "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.
1.12 "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 commissions, duties and taxes and all such other charges
which pertain directly or indirectly to the Credit Accommodations.
1.13 "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.
1.14 "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.
1.15 "Termination Date" shall mean the earliest to occur of (i) the second
----------------
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
-2-
<PAGE>
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 and shall be made in same day or immediately 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 and prepay the Advances and reborrow
pursuant to this Section 2.1.
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 floating rates that approximate Lender's all-in cost of
borrowing, plus 2%. 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 2% 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
Accommodations. 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.
---------------------------
-3-
<PAGE>
(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 guaranteeing
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 terms and conditions of this Credit Agreement and shall
be subject to change, modification and revision 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 0.5% 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 transactions or occurrences
relating to the Credit Accommodations. If Borrower does not reimburse Lender
for a payment made by Lender with respect to a Credit Accommodation on the same
Business Day as the payment is made, the reimbursable amount shall bear interest
for three Business Days at floating rates that approximate Lender's all-in cost
of borrowing, plus 0.5% per annum, and shall thereafter bear interest at a per
annum rate equal to 3% in excess of such rate. Borrower further agrees to hold
Lender harmless from any errors or omissions related to the Credit
Accommodations, 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, extensions,
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 business. 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
-4-
<PAGE>
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 50% of the stockholders'
voting power, Lender shall have the right to demand that Borrower prepay all or
any portion of the outstanding 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
-5-
<PAGE>
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 representations and warranties
made by Borrower in Article 3 hereof are true and correct.
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.
4.6 Initial Public Offering. An initial public offering of common stock
-----------------------
of Borrower shall have occurred prior to March 1, 1999.
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 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
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
Business Days, or (ii) if such failure is not curable within such ten Business
Day period, but is reasonably capable of cure within 30 Business Days, either
(A) such failure shall continue for 30 Business Days or (B) Borrower shall not
have commenced a cure in a manner reasonably satisfactory to Lender within the
initial ten 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,
-6-
<PAGE>
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 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 60 calendar days of commencement; or
(f) Certain Actions. Subsequent to the date hereof, Borrower shall
undertake or permit to occur or exist any of the acts, events or conditions
referred to in Section 6.1 hereto.
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.
-7-
<PAGE>
ARTICLE 6
COVENANTS
6.1 Negative Covenants. Subsequent to the date hereof, without the prior
------------------
written consent of Lender, Borrower shall not (1) create or suffer to exist any
Lien (as such term is defined in the 364-Day Credit Agreement dated as of May
29, 1998 among the Lendor, the Initial Lenders named therein and Citibank, N.A.,
and in the Five-Year Credit Agreement dated as of May 29, 1998 among the Lendor,
the Initial Lenders named therein and Citibank, N.A. (collectively the "Lendor
Credit Agreements"), other than Liens permitted by Section 5.02(a)(i), (ii),
(iii) or (iv) thereof or by Section 5.02(a)(vii) with respect to Section
5.02(a)(iii) or (iv) thereof; (2) assign any right to receive income; (3)
create, incur, assume or suffer to exist any Indebtedness (as such term is
defined in the Lender Credit Agreements other than Indebtedness permitted by
Sections 5.02(b)(i), (ii), (iii) or (iv) thereof or by Section 5.02(b) with
respect to Section 5.02(b)(ii) or (iii) thereof; (4) make any Investment in any
Person other than Investments permitted by Section 5.02(d)(i)-(vii); or (5)
undertake or permit to occur or exist any act, event or condition specified in
Sections 5.02(c), (e) or (f) of the Lender Credit Agreements.
ARTICLE 7
MISCELLANEOUS
7.1 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 telecopied, 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: Treasurer
Telephone: (312) 425-6536
Telecopier No.: (312) 425-6589
-8-
<PAGE>
BORROWER: MODEM MEDIA . POPPE TYSON, INC.
228 Saugatuck Avenue
Westport, CT 06880
Attention: Mr. Steve Roberts
Telephone: (203) 291-5200
Telecopier No.: (203) 291-6061
7.2 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.
7.3 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 assignment 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.
7.4 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 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.
7.5 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.
7.6 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
-9-
<PAGE>
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.
7.7 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.
7.8 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.
7.9 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.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Credit Agreement as of
the date first set forth above.
BORROWER:
MODEM MEDIA . POPPE TYSON, INC.
By:________________________________________
Name:
Title:
LENDER:
TRUE NORTH COMMUNICATIONS INC.
By:________________________________________
Name:
Title:
-11-
<PAGE>
EXHIBIT 10.1(d)
================================================================================
ASSET PURCHASE AGREEMENT
By and Among
MODEM MEDIA . POPPE TYSON, INC.,
R/GA MEDIA GROUP, INC.
and
TRUE NORTH COMMUNICATIONS INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - CERTAIN DEFINITIONS.............................................. 1
ARTICLE II - TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES................ 1
2.1 Transfer of Assets.............................................. 1
2.2 Assumed Liabilities............................................. 1
2.3 Additional Agreements of True North............................. 2
ARTICLE III - PURCHASE AND SALE OF THE ASSETS................................ 2
3.1 Purchase Price.................................................. 2
3.2 Sales and Transfer Taxes........................................ 2
ARTICLE IV - REPRESENTATIONS AND WARRANTIES.................................. 2
4.1 Mutual Representations.......................................... 2
4.2 No Additional Representations or Warranties..................... 3
ARTICLE V - COVENANTS........................................................ 3
5.1 Regulatory Filings.............................................. 3
5.2 Third Party Consents............................................ 4
5.3 Further Assurances.............................................. 4
ARTICLE VI - MISCELLANEOUS PROVISIONS........................................ 4
6.1 Notices......................................................... 4
6.2 Expenses........................................................ 4
6.3 Successors and Assigns.......................................... 4
6.4 Entire Agreement................................................ 5
6.5 Amendments...................................................... 5
6.6 Applicable Law.................................................. 5
6.7 Counterparts; Severability...................................... 6
EXHIBITS
A - Instrument of Assignment and Assumption
</TABLE>
-i-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made and entered into
this _____ day of February, 1999, with effect from October 1, 1998, by and among
Modem Media . Poppe Tyson, Inc., a Delaware corporation ("Seller"), R/GA Media
Group, Inc., a Delaware corporation ("Buyer"), and True North Communications
Inc., a Delaware corporation ("True North").
ARTICLE I
CERTAIN DEFINITIONS
-------------------
"Assumed Liabilities" means, collectively, the Liabilities of Seller
related to the Transferred Assets, the Transferred Business and the Transferred
Agreements.
"Liabilities" means 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, whether arising before or after the date
hereof.
"Transaction Documents" shall mean this Agreement and the Instrument of
Assignment and Assumption in the form attached as Exhibit A.
"Transferred Agreements" shall mean the agreements of Seller related to the
Transferred Business and the Transferred Assets.
"Transferred Assets" shall mean all of the assets and properties of Seller
(including, without limitation, all accounts receivable, goodwill, work-in-
process, cash advances, accrued revenues and employee advances) used in or
related to the Transferred Business.
"Transferred Business" shall mean the business conducted by R/GA
Interactive, a unit of Seller.
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
2.1 Transfer of Assets. On the date hereof, Seller shall sell, transfer
------------------
and assign to Buyer, and Buyer shall purchase and accept from Seller, all of
Seller's right, title and interest in and to the Transferred Assets and the
Transferred Agreements.
<PAGE>
2.2 Assumed Liabilities. On the date hereof, Buyer shall assume all of
-------------------
the Assumed Liabilities. The parties acknowledge that no liabilities or
obligations shall be retained by Seller with respect to the Transferred Assets,
Transferred Business or Transferred Agreements.
2.3 Additional Agreements of True North. True North shall take all
-----------------------------------
actions necessary to cause Buyer to comply with Buyer's obligations hereunder
and to effect the general intentions of the parties in connection with the
transfer of the Transferred Business to Buyer. In addition, True North hereby
agrees to guarantee all obligations of Buyer to Seller under this Agreement.
The parties shall not be bound to exhaust their recourse against Buyer 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 2.3.
ARTICLE III
PURCHASE AND SALE OF THE ASSETS
-------------------------------
3.1 Purchase Price. The purchase price for the Transferred Assets shall
--------------
be 422,528 shares of Seller's Class B Common Stock, par value $0.001 per share,
held by Buyer (the "Class B Shares"), such Class B Shares to be delivered by
Buyer to Seller on the date hereof.
3.2 Sales and Transfer Taxes. Buyer and Seller agree to cooperate to
------------------------
determine the amount of sales, transfer or other taxes or fees (including,
without limitation, 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"). Buyer 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 Seller 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 Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Mutual Representations. Each party represents and warrants to the
----------------------
other party as follows:
(a) Corporate Organization. It is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the state of its
incorporation.
(b) Authorization and Effect of Transaction Documents. It has the
-------------------------------------------------
requisite corporate power to execute and deliver each of the Transaction
Documents and to perform the transactions contemplated hereby and thereby to be
performed by it. The execution and delivery by it of each of the
-2-
<PAGE>
Transaction Documents and the performance by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on its part. It has duly executed and validly delivered this Agreement and each
of the Transaction Documents. This Agreement and each of the other Transaction
Documents constitute its legal, valid and binding obligation, enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency, reorganization, moratorium or other rules of
law governing specific performance, injunctive relief or other equitable
remedies.
(c) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement and each of the Transaction Documents by such party do not, and
the performance by it of the transactions contemplated hereby and thereby to be
performed by it will not, conflict with, or result in any violation of, or
constitute a default under, any provision of its charter or bylaws or under any
Transferred Agreement.
(d) Consents. No consent, approval or authorization of any local,
--------
state, federal or international governmental authority or agency which has
jurisdiction over the parties (a "Governmental Authority") or any other person
is required to be obtained by it in connection with the execution and delivery
of this Agreement or the Transaction Documents or the performance by it of the
transactions contemplated hereby and thereby.
4.2 No Additional Representations or Warranties. Buyer understands and
-------------------------------------------
agrees that Seller is not, in this Agreement or in any other agreement or
document contemplated by this Agreement, representing and warranting to Buyer 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 Instrument of Assignment and Assumption, IT BEING UNDERSTOOD
AND AGREED THAT ALL SUCH ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that
subject to Section 5.3, Seller shall not bear the economic and legal risk that
(x) any conveyance of such assets shall prove to be insufficient or (y) Buyer's
title to any such assets shall be other than good and marketable and free from
encumbrances. Similarly, Buyer understands and agrees that Seller is not, in
this Agreement or in any other agreement or document contemplated by this
Agreement, representing or warranting to Buyer in any way that the obtaining of
the consents or approvals, the execution and delivery of any amendatory
agreements and the 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 5.3 hereof, Seller shall not 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.
-3-
<PAGE>
ARTICLE V
COVENANTS
---------
5.1 Regulatory Filings. Each party shall use its reasonable best efforts
------------------
to obtain, and to cooperate with the other in obtaining, all authorizations of
Governmental Authorities that may be necessary in connection with the
consummation of the transactions contemplated by the Transaction Documents
following the date hereof.
5.2 Third Party Consents. Each party shall use its reasonable efforts to
--------------------
obtain, and will cooperate with the other in obtaining, any third party consents
required for the transfer of the Transferred Agreements following the date
hereof.
5.3 Further Assurances. From time to time, as and when requested by
------------------
either Seller or Buyer, the other party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments as may be
reasonably necessary to consummate the transactions contemplated by the
Transaction Documents. Buyer and Seller shall cooperate and take such action as
may be reasonably requested by the other in order to effect an orderly transfer
of the Transferred Assets and Transferred Agreements.
ARTICLE VI
MISCELLANEOUS PROVISIONS
------------------------
6.1 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and, unless otherwise provided in this Agreement,
shall be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile transfer (confirmed in writing by mail
simultaneously dispatched) to the appropriate party at the address specified
below:
(a) If to Buyer, to:
R/GA Media Group, Inc.
c/o True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Attn: Secretary
(b) If to Seller, to:
Modem Media. Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Attn: Steve Roberts
Telephone No.: (203) 341-5200
Facsimile No.: (203) 291-6061
-4-
<PAGE>
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
6.2 Expenses. Buyer shall pay any expenses incurred by Buyer or Seller in
--------
connection with this Agreement and each of the other Transaction Documents.
6.3 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
6.4 Entire Agreement. This Agreement and the other Transaction Documents
----------------
supersede any other agreement, whether written or oral, that may have been made
or entered into by the parties relating to the matters contemplated hereby and
thereby and constitute the entire agreement by and among the parties hereto.
6.5 Amendments. This Agreement may be amended or supplemented, or any
----------
provisions therein waived, only by written instrument signed by Seller and
Buyer.
6.6 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the substantive laws of the State of Illinois.
-5-
<PAGE>
6.7 Counterparts; Severability. This Agreement may be executed in two or
--------------------------
more counterparts. If any term or other provision of this Agreement is found to
be invalid or unenforceable, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect.
"SELLER:" "BUYER:"
MODEM MEDIA . POPPE TYSON, INC. R/GA MEDIA GROUP, INC.
By:_______________________________ By:__________________________________
Name: G.M. O'Connell Name: Gary D. Chester
Title: Chief Executive Officer Title: Vice President
"TRUE NORTH:"
TRUE NORTH COMMUNICATIONS INC.
By:__________________________________
Name: Dale F. Perona
Title: Senior Vice President
-6-
<PAGE>
Exhibit A
INSTRUMENT OF ASSIGNMENT AND ASSUMPTION
<PAGE>
EXHIBIT 10.1(E)
================================================================================
ASSET PURCHASE AGREEMENT
By and Between
MODEM MEDIA . POPPE TYSON, INC.
and
TRUE NORTH COMMUNICATIONS INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS...................................................... 1
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES......................... 1
2.1 Transfer of Assets................................................. 2
2.2 Assumed Liabilities................................................ 2
ARTICLE III
PURCHASE AND SALE OF THE ASSETS.......................................... 2
3.1 Purchase Price..................................................... 2
3.2 Sales and Transfer Taxes........................................... 2
ARTICLE IV
REPRESENTATIONS AND WARRANTIES........................................... 2
4.1 Mutual Representations............................................. 2
4.2 No Additional Representations or Warranties........................ 3
ARTICLE V
COVENANTS................................................................ 3
5.1 Regulatory Filings................................................. 3
5.2 Third Party Consents............................................... 4
5.3 Further Assurances................................................. 4
ARTICLE VI
MISCELLANEOUS PROVISIONS................................................. 4
6.1 Notices............................................................ 4
6.2 Expenses........................................................... 5
6.3 Successors and Assigns............................................. 5
6.4 Entire Agreement................................................... 5
6.5 Amendments......................................................... 5
6.6 Applicable Law..................................................... 5
6.7 Counterparts; Severability......................................... 5
</TABLE>
-i-
<PAGE>
EXHIBITS
A - Instrument of Assignment and Assumption
-ii-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made and entered into
this _____ day of February, 1999, with effect from October 1, 1998, by and
between Modem Media . Poppe Tyson, Inc., a Delaware corporation ("Seller"), and
True North Communications Inc., a Delaware corporation ("Buyer").
ARTICLE I
CERTAIN DEFINITIONS
-------------------
"Assumed Liabilities" means, collectively, the Liabilities of Seller
related to the Transferred Assets, the Transferred Business and the Transferred
Agreements, including but not limited to any Liabilities relating to
KnowledgeNet.
"Liabilities" means 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, whether arising before or after the date
hereof.
"Transaction Documents" shall mean this Agreement and the Instrument of
Assignment and Assumption in the form attached as Exhibit A.
"Transferred Agreements" shall mean the agreements of Seller related to the
Transferred Business and Transferred Assets.
"Transferred Assets" shall mean (i) all of the assets and properties of
Seller (including, without limitation, all accounts receivable, goodwill, work-
in-process, cash advances, accrued revenues and employee advances) used in or
related to the Transferred Business; (ii) all of the issued and outstanding
capital stock of Christiansen, Fritsch, Giersdorf, Grant & Sperry, Inc., a
Washington corporation, and (iii) all right, title and interest in and to the
trademark and service mark "TN Technologies Inc.," but shall not include any
right title or interest in or to the trademark or service mark "Relationship
Technology Group."
"Transferred Business" shall mean, collectively, the business conducted by
Northern Lights Interactive -- San Francisco, Northern Lights Interactive --
Hong Kong, Relationship Technology Group, Database Marketing Group and
Intellectual Property Group ("IPG").
<PAGE>
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
------------------------------------------------
2.1 Transfer of Assets. On the date hereof, Seller shall sell, transfer
------------------
and assign to Buyer, and Buyer shall purchase and accept from Seller, all of
Seller's right, title and interest in and to the Transferred Assets and the
Transferred Agreements.
2.2 Assumed Liabilities. On the date hereof, Buyer shall assume all of
-------------------
the Assumed Liabilities. The parties acknowledge that no liabilities or
obligations shall be retained by Seller with respect to the Transferred Assets,
Transferred Business or Transferred Agreements.
ARTICLE III
PURCHASE AND SALE OF THE ASSETS
-------------------------------
3.1 Purchase Price. The purchase price for the Transferred Assets shall
--------------
be 479,339 shares of Seller's Class B Common Stock, par value $0.001 per share,
held by Buyer (the "Class B Shares"), such Class B Shares to be delivered by
Buyer to Seller on the date hereof.
3.2 Sales and Transfer Taxes. Buyer and Seller agree to cooperate to
------------------------
determine the amount of sales, transfer or other taxes or fees (including,
without limitation, 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"). Buyer 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 Seller 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 Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Mutual Representations. Each party represents and warrants to the
----------------------
other party as follows:
(a) Corporate Organization. It is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the state of its
incorporation.
(b) Authorization and Effect of Transaction Documents. It has the
-------------------------------------------------
requisite corporate power to execute and deliver each of the Transaction
Documents and to perform the transactions
-2-
<PAGE>
contemplated hereby and thereby to be performed by it. The execution and
delivery by it of each of the Transaction Documents and the performance by it of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on its part. It has duly executed and validly
delivered this Agreement and each of the Transaction Documents. This Agreement
and each of the other Transaction Documents constitute its legal, valid and
binding obligation, enforceable in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency,
reorganization, moratorium or other rules of law governing specific performance,
injunctive relief or other equitable remedies.
(c) Non-Contravention. The execution, delivery and performance of
-----------------
this Agreement and each of the Transaction Documents by such party do not, and
the performance by it of the transactions contemplated hereby and thereby to be
performed by it will not, conflict with, or result in any violation of, or
constitute a default under, any provision of its charter or bylaws or under any
Transferred Agreement.
(d) Consents. No consent, approval or authorization of any local,
--------
state, federal or international governmental authority or agency which has
jurisdiction over the parties (a "Governmental Authority") or any other person
is required to be obtained by it in connection with the execution and delivery
of this Agreement or the Transaction Documents or the performance by it of the
transactions contemplated hereby and thereby.
4.2 No Additional Representations or Warranties. Buyer understands and
-------------------------------------------
agrees that Seller is not, in this Agreement or in any other agreement or
document contemplated by this Agreement, representing and warranting to Buyer 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 Instrument of Assignment and Assumption, IT BEING UNDERSTOOD
AND AGREED THAT ALL SUCH ASSETS ARE BEING TRANSFERRED "AS IS, WHERE IS" and that
subject to Section 5.3, Seller shall not bear the economic and legal risk that
(x) any conveyance of such assets shall prove to be insufficient or (y) Buyer's
title to any such assets shall be other than good and marketable and free from
encumbrances. Similarly, Buyer understands and agrees that Seller is not, in
this Agreement or in any other agreement or document contemplated by this
Agreement, representing or warranting to Buyer in any way that the obtaining of
the consents or approvals, the execution and delivery of any amendatory
agreements and the 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 5.3 hereof, Seller shall not 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.
-3-
<PAGE>
ARTICLE V
COVENANTS
---------
5.1 Regulatory Filings. Each party shall use its reasonable best efforts
------------------
to obtain, and to cooperate with the other in obtaining, all authorizations of
Governmental Authorities that may be necessary in connection with the
consummation of the transactions contemplated by the Transaction Documents
following the date hereof.
5.2 Third Party Consents. Each party shall use its reasonable efforts to
--------------------
obtain, and will cooperate with the other in obtaining, any third party consents
required for the transfer of the Transferred Agreements following the date
hereof.
5.3 Further Assurances. From time to time, as and when requested by
------------------
either Seller or Buyer, the other party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments as may be
reasonably necessary to consummate the transactions contemplated by the
Transaction Documents. Buyer and Seller shall cooperate and take such action as
may be reasonably requested by the other in order to effect an orderly transfer
of the Transferred Assets and Transferred Agreements.
5.4 No Further Use of Trademark. Seller acknowledges the ownership of the
---------------------------
trademark and service mark "TN Technologies Inc." (and derivations thereon) (the
"Trademark") by Buyer and agrees (i) to immediately cease to use the Trademark
and (ii) to do nothing inconsistent with ownership of the Trademark by Buyer.
As soon as practicable after the date hereof, Seller shall change the names of
TN Technologies Ltd. (Hong Kong) and TN Technologies Ltd. (UK) and take such
other actions as may be necessary to terminate use of the Trademark in its
business operations.
ARTICLE VI
MISCELLANEOUS PROVISIONS
------------------------
6.1 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and, unless otherwise provided in this Agreement,
shall be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile transfer (confirmed in writing by mail
simultaneously dispatched) to the appropriate party at the address specified
below:
(a) If to Buyer, to:
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Attn: Secretary
-4-
<PAGE>
(b) If to Seller, to:
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Attn: Steve Roberts
Telephone No.: (203) 341-5200
Facsimile No.: (203) 291-6061
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
6.2 Expenses. Buyer shall pay any expenses incurred by Buyer or Seller in
--------
connection with this Agreement and each of the other Transaction Documents.
6.3 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns.
6.4 Entire Agreement. This Agreement and the other Transaction Documents
----------------
supersede any other agreement, whether written or oral, that may have been made
or entered into by the parties relating to the matters contemplated hereby and
thereby and constitute the entire agreement by and among the parties hereto.
6.5 Amendments. This Agreement may be amended or supplemented, or any
----------
provisions therein waived, only by written instrument signed by Seller and
Buyer.
6.6 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the substantive laws of the State of Illinois.
-5-
<PAGE>
6.7 Counterparts; Severability. This Agreement may be executed in two or
--------------------------
more counterparts. If any term or other provision of this Agreement is found to
be invalid or unenforceable, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect.
"SELLER:" "BUYER:"
MODEM MEDIA . POPPE TYSON, INC. TRUE NORTH COMMUNICATIONS INC.
By:_________________________________ By:__________________________________
Name: G.M. O'Connell Name: Dale F. Perona
Title: Chief Executive Officer Title: Senior Vice President
-6-
<PAGE>
Exhibit A
INSTRUMENT OF ASSIGNMENT AND ASSUMPTION
<PAGE>
EXHIBIT 10.1(F)
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TRUE NORTH COMMUNICATIONS INC. AND
PT CONTROLLED, INC.
AND
MODEM MEDIA. POPPE TYSON, INC.,
DOUGLAS C. AHLERS,
ROBERT C. ALLEN, II,
GERALD M. O'CONNELL, AND
KRAFT ENTERPRISES LTD.
DATED AS OF FEBRUARY __, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I THE MERGER........................................................... 4
1.1 The Merger............................................................. 4
1.2 Effective Time......................................................... 4
1.3 Effect of the Merger................................................... 4
1.4 Certificate of Incorporation; Bylaws................................... 4
1.5 Directors and Officers................................................. 4
1.6 Maximum Shares to Be Issued; Effect on Capital Stock................... 4
1.7 No Further Ownership Rights in Controlled Capital Stock................ 5
1.8 Lost, Stolen or Destroyed Certificates................................. 6
1.9 Taking of Necessary Action; Further Action............................. 6
1.10 Tax Treatment.......................................................... 6
ARTICLE II [INTENTIONALLY LEFT BLANK]........................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MMPT.............................. 6
3.1 Good Standing, Authority............................................... 6
3.2 No Conflicts: Consents................................................. 7
3.3 MMPT Capital Structure................................................. 7
3.4 Organization and Standing.............................................. 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CONTROLLED AND
TRUE NORTH............................................................. 8
4.1 Good Standing; Authority............................................... 8
4.2 No Conflicts; Consents................................................. 8
4.3 Financial Statements................................................... 8
4.4 Taxes.................................................................. 9
4.5 Assets Other than Real Property Interests.............................. 10
4.6 Real Property.......................................................... 11
4.7 Intellectual Property.................................................. 11
4.8 Contracts.............................................................. 12
4.9 Litigation............................................................. 14
4.10 Insurance.............................................................. 14
4.11 Environmental.......................................................... 14
4.12 Benefit Plans.......................................................... 15
4.13 Compliance with Applicable Laws........................................ 15
4.14 Employee and Labor Matters............................................. 16
4.15 Customer Accounts Receivable........................................... 16
4.16 Licenses; Permits...................................................... 17
4.17 Tax Treatment.......................................................... 17
4.18 Disclosure............................................................. 17
4.19 Asset Purchases........................................................ 17
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.20 Sufficiency of Controlled Business..................................... 17
4.21 Effect of Transaction.................................................. 17
4.22 Events Subsequent to Most Recent Financial Statements of Controlled.... 17
[4.23 Restructuring Actions]................................................. 17
ARTICLE V [INTENTIONALLY LEFT BLANK]............................................ 18
ARTICLE VI CERTAIN AGREEMENTS AND COVENANTS..................................... 18
6.1 Agreements of each of MMPT and the Stockholders........................ 18
6.2 Agreements of MMPT..................................................... 18
6.3 Agreements of True North............................................... 19
ARTICLE VII ADDITIONAL AGREEMENTS............................................... 19
7.1 Access to Information.................................................. 19
7.2 Expenses............................................................... 19
7.3 Public Disclosure...................................................... 19
7.4 Consents............................................................... 19
7.5 Reasonable Efforts..................................................... 20
7.6 Notification of Certain Matters........................................ 20
7.7 Additional Documents and Further Assurances............................ 20
7.8 Blue Sky Laws.......................................................... 20
7.9 Legal Requirements..................................................... 20
7.10 Tax Status............................................................. 21
ARTICLE VIII [INTENTIONALLY LEFT BLANK]........................................ 21
ARTICLE IX INDEMNIFICATION...................................................... 21
9.1 Survival of Representations and Warranties; Liability Threshold;
Limitation on Recovery................................................. 21
9.2 Indemnification........................................................ 21
9.3 Insurance.............................................................. 22
9.4 Losses Net of Taxes, Etc............................................... 22
9.5 Procedures Relating to Indemnification................................. 23
9.6 Other Claims........................................................... 24
9.7 Termination of Indemnification......................................... 25
9.8 Mitigation............................................................. 25
9.9 Stockholder Claims..................................................... 25
9.10 Accounts Receivable Reserve............................................ 25
ARTICLE X DISPUTE RESOLUTION................................................... 25
10.1 Binding Arbitration.................................................... 25
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER.................................... 26
11.1 Termination............................................................. 26
11.2 Effect of Termination................................................... 27
11.3 Amendment............................................................... 27
11.4 Extension; Waiver....................................................... 27
ARTICLE XII GENERAL PROVISIONS.................................................. 27
12.1 Notices................................................................. 27
12.2 Interpretation.......................................................... 28
12.3 Counterparts............................................................ 28
12.4 Entire Agreement; Assignment............................................ 28
12.5 Severability............................................................ 29
12.6 Governing Law........................................................... 29
12.7 Specific Performance.................................................... 29
</TABLE>
-iii-
<PAGE>
INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
- -------- -----------
Schedule 1.6(a) Shares to be Received
Schedule 1.6(b) Options to be Converted
Schedule 4.3 Controlled Financial Statements
Schedule 4.6 Real Property
Schedule 4.15 Customer Accounts Receivable
[Schedule 4.23 Restructuring Actions]
<PAGE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit 6.2(a) Public Offering Committee Charter
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
---------
into this ___ day of February, 1999, with effect from October 1, 1998, among
TRUE NORTH COMMUNICATIONS INC., a Delaware corporation ("True North"), PT
----------
CONTROLLED, INC., a Delaware corporation and wholly-owned subsidiary of True
North ("Controlled"), MODEM MEDIA . POPPE TYSON, INC., a Delaware corporation
----------
("MMPT"), 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 (collectively, the "Stockholders").
------------
RECITALS
A. The Boards of Directors of each of MMPT and Controlled believe it is
in the best interests of each company and their respective stockholders that the
business and operations of MMPT and Controlled be combined through the statutory
merger of Controlled with and into MMPT (the "Merger").
------
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of Controlled ("Controlled Capital Stock") and all outstanding
------------------------
options and other rights to acquire or receive shares of Controlled Capital
Stock shall be converted into the right to receive shares of Class A Common
Stock, par value $0.001 per share, of MMPT or Class B Common Stock, par value
$0.001 per share, of MMPT, as set forth on Schedule 1.6(a) hereto, of MMPT
(collectively, "MMPT Common Stock").
-----------------
C. This Agreement and the transactions contemplated hereby constitute the
"Plan of Merger" required by Section 257 of the Delaware General Corporation Law
--------------
("Delaware Law").
------------
D. The Boards of Directors of MMPT and Controlled have approved this
Agreement as part of the Plan of Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
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.
<PAGE>
Acquisition Agreement: the Amended and Restated Acquisition Agreement
---------------------
dated as of December 31, 1996 among MMPT, True North, Foote, Cone & Belding
Advertising, Inc., Foote Cone & Belding, Inc., R/GA Media Group, Inc. 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.
Code: the Internal Revenue Code of 1986, as amended.
----
Common Exchange Ratio: shall have the meaning set forth in Section 1.6(e)
---------------------
hereto.
Controlled: PT Controlled, Inc., a Delaware corporation. For purposes of
----------
Article IV of this Agreement, Controlled shall include the Controlled
Subsidiaries.
Controlled Asset Contribution Agreement: The Asset Contribution Agreement
---------------------------------------
dated _________, 1999 between Poppe Tyson, Inc., a Delaware corporation ("Poppe
Tyson") and Controlled relating to the contribution of certain assets of Poppe
Tyson by Controlled.
Controlled Business: the interactive media services, properties and
-------------------
business of Controlled as conducted following the effective date of the
transactions contemplated by the Controlled Asset Contribution Agreement.
Controlled Subsidiaries: Modem Media . Poppe Tyson (Hong Kong) Limited
-----------------------
and Poppe Tyson (Europe) Limited.
Indemnifiable Losses: with respect to any claim by an Indemnitee for
--------------------
indemnification authorized pursuant to Article 9 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 9 hereof.
Indemnitee: any party who is entitled to receive payment from an
----------
Indemnifying Party pursuant to Article 9 hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay an
-----------------
Indemnitee pursuant to Article 9 hereof.
Intercompany Agreements: the Administrative Services Agreement, the
-----------------------
Intercompany Credit Agreement, the Tax Matters Agreement, each dated as of
_____, 1999, between True North and
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<PAGE>
MMPT, and the Sublease Modification Agreement between MMPT and Bozell, Jacobs,
Kenyon & Eckhardt, Inc., dated August 1, 1998.
Letter of Intent: The Letter of Intent dated May 20, 1998 between True
----------------
North, MMPT and the Stockholders relating to, among other things, the
transactions contemplated by this Agreement.
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.
Merger Agreement: The Amended and Restated Merger Agreement dated as of
----------------
December 31, 1996 among True North, MMPT and the Stockholders.
MPPT: Modem Media . Poppe Tyson, Inc., a Delaware corporation (formerly TN
----
Technologies Inc., a Delaware corporation).
MMPT Asset Purchase Agreements: The Asset Purchase Agreements each dated
------------------------------
as of February __, 1999 (i) between True North and MMPT relating to the purchase
of certain assets of MMPT by True North and (ii) between R/GA Media Group Inc.
and MMPT relating to the purchase of certain assets of MMPT by R/GA Media Group
Inc.
Partnership Interest and Stock Purchase Agreement: The Amended and
-------------------------------------------------
Restated Partnership Interest and Stock Purchase Agreement dated as of December
31, 1996 among True North and the Stockholders.
Restructuring Transactions: The series of steps and transactions
--------------------------
implemented by True North relating to (i) MMPT and certain predecessor entities
of Controlled (including their affiliates) and (ii) the combination of
Controlled with MMPT pursuant to this Agreement, including the following: (a)
the transactions contemplated by the MMPT Asset Purchase Agreements; (b) the
transactions contemplated by the Controlled Asset Contribution Agreement; (c)
the merger of Poppe Tyson (US) with and into an acquisition subsidiary of
Bozell, Jacobs, Kenyan & Eckhardt, Inc.; (d) the liquidation of Poppe Tyson
(Malaysia) and Poppe Tyson BV; (e) the dividend of the stock of Poppe Tyson
(Brazil); (f) the dividend of the stock of Controlled to True North; and (g) the
merger contemplated by this 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
-3-
<PAGE>
information with respect to any of the foregoing, filed or required to be filed
with any taxing authority.
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.
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Controlled shall be merged with and into
MMPT, the separate corporate existence of Controlled shall cease and MMPT shall
continue as the surviving corporation. MMPT as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving Corporation."
---------------------
1.2 Effective Time. The closing of the Merger (the "Closing") will take
-------------- -------
place on the date hereof (the "Closing Date"). On the Closing Date, the parties
------------
hereto shall cause the Merger to be consummated by filing and/or causing to
become effective a Certificate of Merger (or like instrument) with the Secretary
of State of the State of Delaware (the "Certificate of Merger"), in accordance
---------------------
with the relevant provisions of Delaware Law (the time effectiveness of the
Certificate of Merger being referred to herein as the "Effective Time").
--------------
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of MMPT and
Controlled shall vest in the Surviving Corporation, and all debts, liabilities
and duties of MMPT and Controlled shall become the debts, liabilities and duties
of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
------------------------------------
(a) Unless otherwise determined by MMPT prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of MMPT shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of MMPT as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
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<PAGE>
1.5 Directors and Officers. The directors of MMPT shall be the initial
----------------------
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation. The
officers of MMPT shall be the initial officers of the Surviving Corporation,
each to hold office in accordance with the Bylaws of the Surviving Corporation.
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. The maximum
----------------------------------------------------
aggregate number of shares of MMPT Common Stock to be issued in the Merger
(including Class A Common Stock of MMPT to be reserved for issuance upon
exercise of any of Controlled options to be assumed by MMPT in exchange for the
acquisition by MMPT of all outstanding Controlled Capital Stock) shall be
1,753,986 (the "Aggregate Share Number"). No adjustment shall be made in the
----------------------
number of shares of MMPT Common Stock issued in the Merger as a result of any
cash proceeds received by Controlled from the date hereof to the Closing Date
pursuant to the exercise of options to acquire Controlled Capital Stock.
Subject to the terms and conditions of this Agreement, as of the Effective Time,
by virtue of the Merger and without any action on the part of Controlled, MMPT
or the holder of any shares of Controlled Capital Stock, the following shall
occur:
(a) Conversion of Controlled Capital Stock. Each share of Common
--------------------------------------
Stock of Controlled ("Controlled Capital Stock") issued and outstanding
------------------------
immediately prior to the Effective Time will be canceled and extinguished and
will be converted automatically into the right to receive that number of shares
of Class A Common Stock or Class B Common Stock, as set forth on Schedule 1.6(a)
hereto, multiplied by the Common Exchange Ratio (as defined in paragraph (e)
below).
(b) Stock Options. At the Effective Time, those outstanding options
-------------
to purchase shares of Controlled Capital Stock that are set forth on Schedule
1.6(b) (each, a "Controlled Option") shall be, in connection with the Merger,
-----------------
canceled and extinguished and be converted automatically into options to
purchase that number of shares of Class A Common Stock of MMPT equal to the
number of shares of Controlled Capital Stock underlying such Controlled Option
multiplied by the Common Exchange Ratio, rounded down to the nearest whole
number of shares of MMPT Common Stock. The per share exercise price for the
shares of Class A Common Stock of MMPT issuable upon exercise of such exchanged
Controlled Option shall be equal to the quotient determined by dividing the
exercise price per share of the Controlled Capital Stock at which such
Controlled Option was exercisable immediately prior to the Effective Time by the
Common Exchange Ratio rounded up to the nearest whole cent. All other
outstanding options to purchase Controlled Capital Stock, whether vested or
unvested ("Unconverted Options"), will be canceled and extinguished as of the
Effective Time and will not be converted into options to purchase shares of MMPT
Common Stock.
(c) Adjustments to Common Exchange Ratio. The Common Exchange Ratio
------------------------------------
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into MMPT Common Stock or Controlled Capital Stock), merger, recapitalization or
other like change with respect to MMPT Common Stock or Controlled Capital Stock
occurring after the date hereof and prior to the Effective Time, other than as
contemplated hereby.
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<PAGE>
(d) Common Exchange Ratio. The "Common Exchange Ratio" shall be the
---------------------
Aggregate Share Number divided by the sum of (A) the total number of shares of
Controlled Capital Stock outstanding as of immediately prior to the Effective
Time and (B) the total number of shares of Controlled Capital Stock underlying
Controlled Options (other than Unconverted Options) outstanding as of
immediately prior to the Effective Time.
1.7 No Further Ownership Rights in Controlled Capital Stock. All shares
-------------------------------------------------------
of MMPT Common Stock issued upon the surrender for exchange of shares of
Controlled Capital Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Controlled Capital
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Controlled Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates representing shares of Controlled Capital Stock are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.8 Lost, Stolen or Destroyed Certificates. In the event any certificates
--------------------------------------
representing Controlled Capital Stock shall have been lost, stolen or destroyed,
Controlled shall issue in exchange for such lost, stolen or destroyed
certificates, upon the making of an affidavit of that fact by the holder
thereof, such shares of MMPT Common Stock and cash for fractional shares, if
any, as may be required pursuant to Section 1.6.
1.9 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of MMPT and Controlled, the officers and directors of MMPT and
Controlled are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
1.10 Tax Treatment. The Merger is intended to constitute a "Merger" within
-------------
the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code")
----
and the exchange of Controlled Capital Stock for MMPT Common Stock pursuant to
the Merger is intended to constitute an exchange described in Section 354 of the
Code.
ARTICLE II
[INTENTIONALLY LEFT BLANK]
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MMPT
MMPT hereby represents and warrants to Controlled, subject to such
exceptions as are disclosed in the disclosure letter supplied by MMPT to
Controlled (the "MMPT Schedules") dated the date hereof, as follows:
3.1 Good Standing, Authority. MMPT is a corporation duly organized,
------------------------
validly existing and in good standing under the laws of the State of Delaware.
MMPT 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 MMPT to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, approval by the stockholders
of MMPT by the requisite vote under applicable law and MMPT's Certificate of
Incorporation of this Agreement and the Merger, have been duly and properly
taken. This Agreement has been duly executed and delivered by MMPT and
constitutes a legal, valid and binding obligation of MMPT enforceable against
MMPT in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, merger, moratorium or other similar laws
relating thereto or affecting creditors' rights generally or by general
equitable principles.
3.2 No Conflicts: Consents. The execution and delivery of this Agreement
----------------------
by MMPT do not, and the consummation of the transactions contemplated hereby and
compliance with the terms hereof 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
MMPT under, any provision of (a) the Certificate of Incorporation or Bylaws of
MMPT, (b) any material note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement or arrangement to which MMPT 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 MMPT 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 MMPT in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
3.3 MMPT Capital Structure. Except as disclosed on Schedule 1.6(a) and
----------------------
other than True North (including certain wholly-owned subsidiaries of True
North) and the Stockholders, no other person or entity owns any Controlled
Capital Stock. Schedule 1.6(a) sets forth the ownership of all such issued and
outstanding Controlled Capital Stock. Other than as set forth on Schedule
1.6(c), there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral other than arising hereunder, to which MMPT is
a party or by which such party is bound obligating MMPT to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold,
-7-
<PAGE>
repurchased or redeemed any equity interest in MMPT or to grant, or enter into
any such option, warrant, call, right, commitment or agreement.
3.4 Organization and Standing. MMPT has full corporate power an
-------------------------
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. MMPT 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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CONTROLLED AND TRUE NORTH
Controlled and True North represent and warrant to MMPT and the
Stockholders, subject to such exceptions as are disclosed in the disclosure
letter supplied by Controlled to MMPT (the "Controlled Schedules") and dated as
--------------------
of the date hereof, as follows:
4.1 Good Standing; Authority. Controlled is a corporation duly organized,
------------------------
validly existing and in good standing under the laws of the State of Delaware.
Controlled was incorporated on November 16, 1998 for the purpose of effecting
the separate transactions contemplated by this Agreement and the Controlled
Asset Contribution Agreement. Controlled has not engaged in any business
operations since the date of its formation. Controlled and True North have 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
Controlled and True North 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 Controlled and True North and constitutes a legal, valid and
binding obligation of each of Controlled and True North, enforceable against
them in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, merger, moratorium or other similar laws
relating thereto or affecting creditors' rights generally or by general
equitable principles.
4.2 No Conflicts; Consents. The execution and delivery of this Agreement
----------------------
by Controlled and True North do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof 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 Controlled under, any provision of (a) the Certificate of
Incorporation or Bylaws of Controlled or True North, as the case may be, (b) any
material note, bond, mortgage,
-8-
<PAGE>
indenture, deed of trust, license, lease, contract, commitment, agreement or
arrangement to which Controlled or True North, as the case may be, or its is a
party or by which its properties or assets are bound or (c) any judgment, order
or decree, or statute, law, ordinance, rule or regulation applicable to
Controlled, True North, their respective 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 Controlled in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.
4.3 Financial Statements.
--------------------
(a) Schedule 4.3(a) sets forth the consolidated balance sheets of
Controlled as of September 30, 1998 and December 31, 1997 and the consolidated
statements of income and cash flows of Controlled and the Controlled
Subsidiaries for each of the three years ended on December 31, 1997, together
with all the notes that have been prepared to such financial statements, if any,
which financial statements reflect, on a pro forma basis, the Controlled
Business (collectively, the "Controlled Financial Statements"). The Controlled
-------------------------------
Financial Statements are complete and accurate in all material respects and
fairly present the consolidated financial condition and results of operations of
Controlled and the Controlled Subsidiaries, including the Controlled 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 4.3(b), there are, and at the
Closing there will be, no liabilities or obligations of any nature (whether
accrued, absolute, contingent, unasserted or otherwise) relating to Controlled,
including the Controlled Business, except (i) as specifically disclosed,
reflected or fully reserved against as part of the balance sheet of Controlled
or the Controlled Subsidiaries as of September 30, 1998 (the "Controlled Balance
------------------
Sheet") and (ii) for non-material liabilities and obligations incurred in the
- -----
ordinary course of business of Controlled, including the Controlled Business,
consistent with past practice since the date of the Controlled Balance Sheet.
(c) At the Closing, MMPT will not incur any liabilities, costs or
obligations (including severance costs) as a result of the Merger, other than
the Assumed Liabilities (as defined in the Controlled Asset Contribution
Agreement).
4.4 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 Authority with respect to any Taxable period ending
on or before the date hereof relating to or otherwise affecting Controlled or
the Controlled Business (collectively, the "Controlled 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 or required to be shown due
thereon have been paid or have been fully accrued on the Controlled Balance
Sheet in accordance with generally accepted accounting principles. Except to
the extent disclosed in the Controlled Financial Statements (including notes
thereto), the Controlled Returns correctly reflect (and, as to any Controlled
Returns
-9-
<PAGE>
not filed as of the date hereof but filed on or prior to the Closing Date, will
correctly reflect) the Tax liability of Controlled. Controlled has 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 Controlled. Controlled has not granted
any extension or waiver of the limitation period applicable to any Controlled
Returns involving a Tax issue with respect to or otherwise affecting Controlled
or the Controlled Business. There is no claim, audit, action, suit, proceeding,
or investigation now pending or, to the best knowledge of Controlled or True
North, threatened against or with respect to Controlled in respect of any Tax
deficiency or assessment relating to or otherwise affecting Controlled. No
notice of deficiency or similar document of any Tax Authority relating to or
otherwise affecting Controlled has been received by Controlled or True North,
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 Controlled that could, if determined adversely to Controlled,
materially affect the liability of Controlled, for Taxes with respect to or
otherwise affecting Controlled or the Controlled Business in other Taxable
periods. To the knowledge of Controlled and True North, there are no liens for
Taxes on the assets included in or otherwise affecting Controlled or the
Controlled Business other than liens for Taxes which are not yet due and
payable. Controlled has not been or will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) ending on
or prior to the date hereof 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 Controlled
prior to the date hereof. 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 Controlled 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. Controlled is not 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 Controlled
(including, without limitation, any such agreement or arrangement imposed by
operation of law). None of (i) the sale of certain assets by MMPT to True North
or its affiliate pursuant to the terms of the MMPT Asset Purchase Agreements,
(ii) the contribution of certain assets by Poppe Tyson to Controlled pursuant to
the terms of the Controlled Asset Contribution Agreement or (iii) any of the
transactions contemplated or consummated pursuant to or in connection with this
Agreement, or (iv) any other transaction contemplated by the Restructuring
Transactions, has given or will give rise to any Tax Liability on the part of
Controlled, MMPT or the Stockholders.
4.5 Assets Other than Real Property Interests.
-----------------------------------------
(a) Controlled has good and valid title to all assets (other than
real property) reflected on the Controlled Balance Sheet or thereafter acquired,
except those sold or otherwise disposed of since the date of the Controlled
Balance Sheet in the ordinary course of business consistent with past practice,
which are not material to the Controlled Business 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
-10-
<PAGE>
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 Controlled 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 (the mortgages, liens,
security interests, encumbrances and imperfections of title described in clauses
(i), (ii) and (iii) above are hereinafter referred to collectively as
"Controlled Permitted Liens").
--------------------------
(b) All the tangible assets of Controlled have been maintained in all
material respects in accordance with normal industry practice. Each of the
tangible assets of Controlled and each item of material tangible personal
property of Controlled is in all material respects in good operating condition
and repair, ordinary wear and tear excepted. All leased personal property of
Controlled 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.
(c) The Controlled Subsidiaries are wholly-owned subsidiaries of
Controlled. Controlled has no subsidiaries other than the Controlled
Subsidiaries.
4.6 Real Property.
-------------
(a) Schedule 4.6 sets forth a complete list of all leased and other
interests in real property of any kind leased or held by Controlled
(individually, a "Controlled Leased Property") and further identifies any
--------------------------
material agreements relating to said interests in real property. Controlled has
good, valid, and subsisting title to the Controlled 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 whatsoever, except (a) such as are set forth on Schedule 4.6, (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 Controlled 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. The
current use by Controlled of the offices and other facilities located on
Controlled Leased Property does not violate any local zoning ordinance and, to
the knowledge of Controlled and True North, there is no proposed change in any
local zoning ordinance that would have a material adverse effect on the
Controlled Business.
(b) Neither the whole nor any part of the Controlled Leased Property
is subject to any pending suit for condemnation or other taking by any public
authority, and, to the knowledge of Controlled and True North, no such
condemnation or other taking is threatened or contemplated.
4.7 Intellectual Property.
---------------------
(a) Controlled 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 Intellectual Property owned, used,
-11-
<PAGE>
filed by or licensed to Controlled (the "Controlled Intellectual Property"), and
--------------------------------
the consummation of the transactions contemplated hereby will not conflict with,
alter or impair any such rights. Controlled owns or licenses under valid
agreements all Controlled Intellectual Property as is necessary to conduct the
Controlled Business.
(b) Controlled has not granted any options, licenses or agreements of
any kind relating to Controlled Intellectual Property or the marketing or
distribution thereof, except non-exclusive licenses to end users in the ordinary
course of business. Controlled is not bound by or a party to any options,
licenses or agreements of any kind relating to the Controlled Intellectual
Property of any other person. All Controlled Intellectual Property is free and
clear of the claims of others and of all liens, security interests and
encumbrances whatsoever. Controlled's conduct of the Controlled Business does
not violate, conflict with or infringe the Intellectual Property of any other
person. No claims are pending or, to the knowledge of Controlled or True North,
threatened, against Controlled by any person with respect to the ownership,
validity, enforceability, effectiveness or use of any Controlled Intellectual
Property, and, to the knowledge of Controlled and True North, 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 neither Controlled
nor True North has received any written communications alleging that any such
party has violated any rights relating to Intellectual Property of any person.
(c) The Controlled Intellectual Property has been maintained in
confidence in accordance with protection procedures customarily used in the
industries of Controlled to protect rights of like importance. All former and
current members of management and key personnel of Controlled, including all
current employees, agents, consultants and independent contractors who have
contributed to or participated in the conception and development of software or
other Controlled Intellectual Property (collectively, "Controlled Personnel"),
have executed and delivered to Controlled a proprietary information agreement
restricting such person's right to disclose proprietary information of
Controlled and its clients. All former and current Controlled Personnel either
(i) have been party to a "work-for-hire" arrangement or agreement with
Controlled, in accordance with applicable Federal and state law, that has
accorded Controlled 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 Controlled as assignee that
have conveyed to Controlled full, effective and exclusive ownership of all
tangible and intangible property thereby arising. None of the current or former
officers or employees of Controlled have any patents issued or applications
pending for any device, process, design or invention of any kind now used in its
business.
4.8 Contracts. Controlled 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 Controlled by notice of
not more than 60 days for a cost of less than $10,000;
(b) employee collective bargaining agreement or other contract with
any labor union;
-12-
<PAGE>
(c) covenant not to compete or other covenant restricting in any
material respect the development, manufacture, marketing or distribution of
Controlled's products and services;
(d) agreement or other material arrangement with any current or
former officer, director or employee of Controlled;
(e) lease, sublease or similar agreement with any person under which
Controlled is a lessor or sublessor of, or makes available for use to any
person, (A) any Controlled Leased Property or (B) any portion of any premises
otherwise occupied by Controlled;
(f) lease, sublease or similar agreement with any person under which
(A) Controlled is lessee of, or holds or uses, any machinery, equipment, vehicle
or other tangible personal property owned by any person or (B) Controlled is a
lessor or sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by Controlled 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 Controlled 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 in excess of $50,000 and is not terminable by Controlled 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 Controlled Intellectual Property (including any license or other
agreement under which Controlled, True North or any of their Affiliates is
licensee or licensor of any such Controlled Intellectual Property) or to trade
secrets, confidential information or proprietary rights and processes of
Controlled or any other person to which Controlled is a party;
(i) agreement, contract or other instrument under which Controlled
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 has directly or indirectly
effectively guaranteed indebtedness, liabilities or obligations of Controlled or
(B) Controlled 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 Controlled has, directly or
indirectly, made any advance, loan, extension of credit or capital contribution
to, or other investment in, any person;
-13-
<PAGE>
(l) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any real and personal
property of Controlled (other than such that fall within clauses (i) and (iii)
of the definition of Controlled Permitted Liens);
(m) agreement or instrument providing for indemnification of any
person with respect to liabilities relating to any current or former business of
Controlled or any predecessor person; or
(n) other agreement, contract, lease, sublease, license, commitments
or instrument to which Controlled 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 Controlled
by notice of not more than 60 days for a cost of less than $10,000.
(o) group of agreements, contracts, leases, subleases, licenses,
commitments or instruments falling within subparagraphs (a), (f), (g) and (n) of
this Section 4.8 that collectively represent future aggregate liabilities in
excess of $100,000 or that are not terminable by Controlled 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 Controlled.
All agreements, contracts, leases, subleases, licenses, commitments or
instruments of Controlled which are material to business and operations of
Controlled (collectively, the "Controlled Contracts") are valid, binding and in
--------------------
full force and effect and are enforceable by Controlled 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 Controlled and True
North, there are currently none) and, to the knowledge of Controlled and True
North, the consummation of the transactions contemplated hereby will not affect
the validity or enforceability of the Controlled Contracts. Controlled has
performed all material obligations required to be performed by it to date under
the Controlled 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 Controlled and True North, no other party to
any of the Controlled 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. Controlled is not currently renegotiating any of the Controlled
Contracts or paying liquidated damages in lieu of performance.
4.9 Litigation. Controlled is not a party to any litigation. Controlled
----------
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
Controlled or any of its properties, assets, operations or business. To the
knowledge of Controlled and True North, there are no unasserted claims which if
asserted could reasonably be expected to have a Material Adverse Effect. There
is no lawsuit or claim by Controlled pending, or which such claim Controlled
intends to initiate, against any other person involving a claim in excess of
$10,000. To the knowledge of Controlled and True North, there is no pending or
threatened investigation of Controlled by any Governmental Entity.
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<PAGE>
4.10 Insurance. All insurance policies maintained by Controlled 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
date hereof 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. To the
knowledge of Controlled and True North, Controlled has conducted its Business in
a manner so as to conform in all material respects to all applicable provisions
of such insurance policies.
4.11 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) Controlled 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 Controlled has not 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) Neither Controlled nor True North has received notice of any
Environmental Claim filed or threatened against Controlled or relating to
Controlled, or against any person or entity whose liability for any
Environmental Claim Controlled 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
-15-
<PAGE>
against Controlled or against any person or entity whose liability for any
Environmental Claim Controlled has retained or assumed either contractually or
by operation of law.
(d) Controlled 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) 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 Controlled or for its business so as to give rise to
any material liability or corrective or remedial obligation under any
Environmental Laws.
4.12 Benefit Plans. Controlled 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 Controlled nor any benefit plan maintained by
Controlled is subject to ERISA.
4.13 Compliance with Applicable Laws. Controlled is in compliance in all
-------------------------------
material respects with all applicable statutes, laws, ordinances, rules, orders
and regulations of any governmental entity, including those relating to
occupational health and safety ("Applicable Laws"). Neither Controlled nor True
North has received any order or communication since December 31, 1997 from a
Governmental Entity that alleges that Controlled is not in compliance in any
respect with any Applicable Laws.
4.14 Employee and Labor Matters.
--------------------------
(a) (i) There is, and since December 31, 1997 there has been, no
labor strike, dispute, work stoppage or lockout pending, or, to the knowledge of
Controlled and True North, threatened, against Controlled, (ii) to the knowledge
of Controlled and True North, no union organizational campaign is in progress
with respect to the employees of Controlled and no question concerning
representation exists respecting such employees; (iii) Controlled is not engaged
in any unfair labor practice; (iv) there is no unfair labor practice charge or
complaint against Controlled pending, or, to the knowledge of Controlled and
True North, threatened, before the National Labor Relations Board; (v) there are
no pending, or, to the knowledge of Controlled and True North, threatened, union
grievances against Controlled; (vi) there are no pending, or, to the knowledge
of Controlled and True North, threatened, charges against Controlled or any
current or former employee of Controlled before the Equal Employment Opportunity
Commission or any state or local agency responsible for the prevention of
unlawful employment practices; (vii) none of Controlled, True North or
Controlled has 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 Controlled and, to
the knowledge of Controlled and True North, no such investigation is in
progress; and (viii) Controlled is not liable for any arrears of wages,
penalties or taxes with respect to the foregoing.
-16-
<PAGE>
(b) No officer or director of Controlled is, and, to the knowledge of
Controlled and True North, no other employee of Controlled 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 Controlled or the transactions contemplated hereby or have a Material
Adverse Effect. To the knowledge of Controlled and True North, no activity of
any employee of Controlled as or while an employee of Controlled or Controlled
has caused a violation of any employment contract, confidentiality agreement,
patent disclosure agreement, or other contract or agreement. To the knowledge
of Controlled and True North, the execution and delivery of this Agreement 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.
4.15 Customer Accounts Receivable. All customer accounts receivable of
----------------------------
Controlled, whether reflected on the Controlled Balance Sheet or subsequently
created, have arisen from bona fide transactions in the ordinary course of
business. To the knowledge of Controlled and True North, all accounts
receivable reflected in the Controlled Balance Sheet are good and collectible in
the ordinary course of business. Set forth on Schedule 4.15 is a list of the
names of the ten largest customers of the Controlled Business and the percentage
of the Controlled Business' total revenues that each customer represented during
the fiscal year ended December 31, 1997 and through the date hereof. Except as
set forth on Schedule 4.15, there exists no actual or threatened termination,
cancellation or limitation of, or any material modification of or change in, the
business relationship of Controlled with any of the ten largest customers of
Controlled during the fiscal year ended December 31, 1997 and through the date
hereof and, to the knowledge of the Controlled or 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 Controlled with any such customer.
4.16 Licenses; Permits. All licenses, permits and authorizations issued or
-----------------
granted to Controlled by Governmental Entities which are necessary for the
conduct of the Controlled Business are validly held by Controlled. Controlled
has complied in all material respects with all terms and conditions of such
licenses, permits and authorizations, 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 Merger or the consummation of the
transactions contemplated hereby.
4.17 Tax Treatment. The Merger will constitute a Merger within the meaning
-------------
of Section 368(a) of the Code.
4.18 Disclosure. No representation or warranty of Controlled or 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 Controlled or True North to MMPT pursuant to this 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.
-17-
<PAGE>
4.19 Asset Purchases. The transactions contemplated by the Controlled
---------------
Asset Contribution Agreement and the MMPT Asset Purchase Agreements have been
consummated in accordance with their respective terms and without breach by True
North of any covenant or obligation thereunder.
4.20 Sufficiency of Controlled Business. The assets of Controlled comprise
----------------------------------
all of the business, properties, assets (including Intellectual Property) and
goodwill necessary for, and are sufficient for, the conduct of the business of
Controlled (including the Controlled Business) by Controlled in the same manner
as conducted by Controlled (including Controlled) prior to the Controlled
Merger.
4.21 Effect of Transaction. No creditor, employee, client, customer or
---------------------
other person having a material business relationship with the Controlled has
informed Controlled or True North, that such person intends to change such
relationship because of the consummation of any of the transactions contemplated
hereby.
4.22 Events Subsequent to Most Recent Financial Statements of Controlled.
-------------------------------------------------------------------
Since December 31, 1997, there has not been any material adverse change in the
assets that comprise the Controlled Business.
4.23 Restructuring Actions. TNC has taken or caused to be taken the
---------------------
restructuring actions relating to MMPT and Controlled as set forth on Schedule
4.23.
4.24 No Order; HSR. No Governmental Entity has enacted, issued,
-------------
promulgated, enforced or entered any stature, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger. All waiting periods, if any,
under HSR relating to the transactions contemplated hereby have expired or
terminated early.
ARTICLE V
[INTENTIONALLY LEFT BLANK]
ARTICLE VI
CERTAIN AGREEMENTS AND COVENANTS
6.1 Agreements of each of MMPT and the Stockholders. Each of MMPT and the
-----------------------------------------------
Stockholders hereby agree in consideration of the Merger and other agreements
and transactions contemplated by this Agreement, to waive any claim such party
may have with respect to, or arising out of, a breach of any representation and
warranty or the failure to comply with any covenant by True North directly
related to any of the Transferred Assets or the Acquired Entities (as such terms
are defined in the Acquisition Agreement) set forth in the Acquisition Agreement
if and only to the extent such Transferred Assets or Acquired Entities
(including any related liabilities or obligations)
-18-
<PAGE>
have been transferred and assigned to True North pursuant to the MMPT Asset
Purchase Agreements.
6.2 Agreements of MMPT. MMPT hereby agrees with True North and the
------------------
Stockholders as follows:
(a) Public Offering Committee. As of the date hereof, MMPT has
established, and shall continue to maintain until completion of an initial
public offering of MMPT Common Stock, a Public Offering Committee of the Board
of Directors, consisting of Donald L. Seeley, Donald M. Elliman, Jr. and G.M.
O'Connell, in accordance with the provisions set forth in the form of Public
Offering Committee charter attached hereto as Exhibit 6.2(a) hereto. Subject to
the provisions of Section 6.7 of the Acquisition Agreement, True North and MMPT
shall use their respective best efforts to consummate an initial public offering
of MMPT Common Stock as promptly as practicable following the Closing on a
valuation agreed upon by the Stockholders, True North and MMPT, which agreement
shall not be unreasonably withheld.
(b) Board of Directors. As of the date hereof, the Board of Directors
of MMPT consists of five members, three of whom have been selected by True North
and two of whom have been selected by the Stockholders. Subsequent to the
Closing, the Board of Directors will appoint two additional independent
directors reasonably satisfactory to the Stockholders.
(c) Insurance. As of the date hereof, MMPT maintains insurance with
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the business in which it is
engaged.
(d) Bylaws. As of the date hereof, the bylaws of MMPT provide that
meetings of the Board of Directors may be called by the chairman of the Board,
the chief executive officer or a majority of the directors then in office.
(e) Miscellaneous Corporate Governance Matters. Each of the parties
acknowledge and agree that the commitments relating to the governance and
operation of MMPT set forth in the Letter of Intent shall survive the Closing.
(f) Survival. This Section 6.2 shall survive the Closing of this
Agreement.
6.3 Agreements of True North. True North hereby agrees with the other
------------------------
parties as follows:
Consent to Assignment. True North consents to the assignment to MMPT
of all contracts and agreements between it and Controlled resulting from the
Merger.
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<PAGE>
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information. Subject to any applicable contractual
---------------------
confidentiality obligations each party shall afford the others and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel of it as the
others may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 7.1 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
7.2 Expenses. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
--------------------
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expense; provided, however, that
True North shall pay (i) all fees and expenses of Arthur Andersen LLP and Wilson
Sonsini Goodrich & Rosati, Professional Corporation, in connection with
accounting and legal services rendered in connection with the Merger and the
other transactions contemplated by this Agreement, and (ii) one-half, but not to
exceed $50,000, of the legal fees and expenses of the Stockholders in connection
with the Merger and the other transactions contemplated by this Agreement.
7.3 Public Disclosure. Unless otherwise required by law (including,
-----------------
without limitation, securities laws) no disclosure (whether or not in response
to an inquiry) of the subject matter of this Agreement shall be made by any
party hereto unless approved by True North and MMPT prior to release, provided
that such approval shall not be unreasonably withheld or delayed.
7.4 Consents. MMPT shall use its reasonable efforts to obtain the
--------
consents, waivers and approvals under the Controlled Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in Controlled Schedules) so as to preserve all rights
of, and benefits to MMPT thereunder.
7.5 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that True North shall not be required to agree to any divestiture by
True North or MMPT or any of True North's subsidiaries or affiliates of shares
of capital stock or of any
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<PAGE>
business, assets or property of True North or its subsidiaries or affiliates or
MMPT or its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets, properties and stock.
7.6 Notification of Certain Matters. MMPT shall give prompt notice to
-------------------------------
True North, and True North shall give prompt notice to MMPT, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of MMPT, Controlled or
True North, respectively, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Time except as contemplated
by this Agreement and (ii) any failure of MMPT or Controlled or True North, as
the case may be, to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.6
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
7.7 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
7.8 Blue Sky Laws. True North and Controlled shall take such steps as
-------------
may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the MMPT Common Stock
pursuant hereto. MMPT shall use its reasonable best efforts to assist True North
and Controlled as may be necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in connection with the issuance
of MMPT Common Stock pursuant hereto.
7.9 Legal Requirements. Each of Controlled, True North and MMPT will
------------------
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals by or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such filings with or investigations by any
Governmental Entity, and any other such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement.
7.10 Tax Status. The parties hereto will take no action that could
----------
reasonably be expected to cause the exchange of Controlled Capital Stock for
MMPT Common Stock to fail to qualify as an exchange pursuant to a merger within
the meaning of Section 368(a).
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<PAGE>
ARTICLE VIII
[INTENTIONALLY LEFT BLANK]
ARTICLE IX
INDEMNIFICATION
9.1 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.
(b) Except as specifically provided herein, the provisions of this
Article IX shall terminate and be of no further force and effect on the third
anniversary of the date hereof. Notwith standing the foregoing, the
representations and warranties of Controlled and True North contained in
Sections 4.3, 4.4, 4.11, 4.15, 4.17, 4.19, 4.20, 4.23 and the covenant set forth
in Section 6.3 shall survive the Closing and shall continue in full force and
effect without limit as to time (subject to any applicable statutes of
limitations).
(c) No party to this Agreement shall be entitled to indemnification
for any loss contemplated by this Article IX 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 exceeds $100,000 (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. The foregoing two sentences shall not apply to a breach of the
representations and warranties or covenants set forth in Sections 4.3, 4.4,
4.11, 4.15, 4.17, 4.19, 4.20, 4.23 and 6.3 hereof.
9.2 Indemnification.
---------------
(a) True North shall indemnify, defend and hold harmless MMPT, each of
its directors, officers, employees and agents, each Affiliate of MMPT and the
Stockholders (the "Indemnified Parties") from and against any and all
Indemnifiable Losses of MMPT, any of its Affiliates or the Stockholders, as the
case may be, arising out of or due to, directly or indirectly, (i) any breach by
MMPT or Controlled or True North of any representation or warranty of Controlled
or True North given for the benefit of MMPT or the Stockholders, as the case may
be, contained in Article IV of this Agreement or in any certificate or Schedule
delivered pursuant hereto, and (ii) any breach of any covenant of Controlled or
True North contained in this Agreement and (iii) third party claims relating to
Neterra; provided, however, that the indemnification obligations of True North
pursuant to this Article IX shall not apply to the breach by MMPT or Controlled
of any representation or warranty given by MMPT or Controlled, the untruth of
which is actually known to any Stockholder as of the date hereof or as of the
Closing Date. The parties hereto acknowledge and
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<PAGE>
agree that the Stockholders shall have no obligation to undertake any
investigation of the accuracy of representations and warranties contained in
Article IV.
(b) True North's indemnity obligation under this Section 9.2 shall
include, but not be limited to, Indemnifiable Losses resulting from claims by
former shareholders of any predecessor businesses or entities of Controlled
that arise out of the Restructuring Transactions.
(c) MMPT shall indemnify, defend and hold harmless Controlled and True
North, each of their respective directors, officers, employees and agents and
each Affiliate of Controlled and True North from and against any and all
Indemnifiable Losses of Controlled and True North or any of their respective
Affiliates arising out of or due to, directly or indirectly, (i) any breach by
MMPT of any representations or warranties of MMPT contained in Article III of
this Agreement, or in any certificate or Schedule delivered pursuant hereto, or
(ii) any breach of any covenant of MMPT contained in this Agreement.
9.3 Insurance. Amounts required to be paid pursuant to this Article IX
---------
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 9.2 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.
9.4 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 IX 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
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<PAGE>
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 parties to this Agreement to
reflect such adjustment shall be made if necessary.
9.5 Procedures Relating to Indemnification.
--------------------------------------
(a) In order for an Indemnitee 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 Indemnitee (a "Third Party
-----------
Claim"), such Indemnitee must notify the Indemnifying Party in writing, and in
- -----
reasonable detail, of the Third Party Claim within 20 business days after
receipt by such Indemnitee 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
Indemnitee during the period in excess of 20 days in which the Indemnitee failed
to give such notice). Thereafter, the Indemnitee shall deliver to the
Indemnifying Party, within ten business days after the Indemnitee's receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, 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 Indemnitee 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 Indemnitee 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 Indemnitees (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 Indemnitee for legal expenses subsequently incurred by the
Indemnitee in connection with the defense thereof. If the Indemnifying Party
assumes such defense, the Indemnitee 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 reasonable fees and expenses of counsel employed by the
Indemnitee for any period during which the
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<PAGE>
Indemnifying Party has failed to assume the defense thereof (other than during
any period during which the Indemnitee shall have failed to give timely notice
of the Third Party Claim as provided above).
(c) If the Indemnifying Party elects to assume the defense of any
Third Party Claim in accordance with the provisions of this Section 9.5, all of
the Indemnitees shall cooperate with the Indemnifying 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 information 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 Indemnitee 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 Indemnitee 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 Indemnitee completely in connection with such Third Party Claim and
which would not otherwise adversely affect the Indemnitee.
(d) 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 Indemnitee 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 Indemnitee
which the Indemnitee 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 9.2 other than
Third Party Claims shall be governed by Section 9.6.
9.6 Other Claims. In the event any Indemnitee should have a claim against
------------
any Indemnifying Party under Section 9.2 that does not involve a Third Party
Claim being asserted against or sought to be collected from such Indemnitee, the
Indemnitee shall deliver notice of such claim with reasonable promptness to the
Indemnifying Party. The failure by any Indemnitee so to notify the Indemnifying
Party shall not relieve the Indemnifying Party from any liability which it may
have to such Indemnitee under Section 9.2. If the Indemnifying Party does not
notify the Indemnitee within 20 business days following its receipt of such
notice that the Indemnifying Party disputes its liability to the Indemnitee
under Section 9.2, such claim specified by the Indemnitee in such notice shall
be conclusively deemed a liability of the Indemnifying Party under Section 9.2
and the Indemnifying Party shall pay the amount of such liability to the
Indemnitee 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
-25-
<PAGE>
Indemnifying Party and the Indemnitee 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.
9.7 Termination of Indemnification. The obligations to indemnify and hold
------------------------------
harmless a party hereto pursuant to Section 9.2 shall not terminate except as
provided in Section 9.1 hereof.
9.8 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 Indemnitee shall not be required to make such
--------
efforts if they would be detrimental in any material respect to such party.
9.9 Stockholder Claims. If the Stockholders are entitled to
------------------
indemnification pursuant to Section 9.2(a) or (b) hereof, the Stockholders may,
at their election, direct True North to satisfy its indemnity obligation to the
Stockholders by indemnifying and making whole MMPT for the entire amount of the
loss sustained by MMPT. To the extent not duplicative, the Stockholders shall
also be entitled to indemnity for any or all of their Indemnifiable Losses
arising from such claim.
9.10 Accounts Receivable Reserve. In addition to the indemnification
---------------------------
provided for in this Article IX, True North agrees to purchase from MMPT, at
MMPT's election, any accounts receivable of MMPT arising on or prior to the
Closing Date, net of reserves of MMPT, which are not collected by MMPT after the
Closing within 90 days after such amounts become due and payable. MMPT shall
undertake reasonable steps to collect such amounts during such period.
ARTICLE X
DISPUTE RESOLUTION
10.1 Binding Arbitration.
-------------------
(a) Except as set forth in Section 12.7, (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 9.1 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
-26-
<PAGE>
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 10.1.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination. Except as provided in Section 11.3 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the parties hereto;
(b) by True North or MMPT if: (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (ii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable to the Merger, by
any governmental entity that would make consummation of the Merger illegal;
(c) by True North or MMPT if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i) prohibit
True North's, Controlled's or MMPT's ownership or operation of any portion of
the business of MMPT or (ii) compel True North, Controlled or MMPT to dispose of
or hold separate, as a result of the Merger, any portion of the business or
assets of MMPT or True North.
(d) by True North if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of MMPT
and as a result of such breach the conditions set forth in Section 7.3(a) or
7.3(b), as the case may be, would not then be satisfied; provided, however, that
if such breach is curable by MMPT prior to the Closing Date through the exercise
of its reasonable best efforts, then for so long as MMPT continues to exercise
such reasonable best efforts True North may not terminate this Agreement under
this Section 11.1(d) unless such breach is not cured prior to the Closing Date
(but no cure period shall be required for a breach which by its nature cannot be
cured);
-27-
<PAGE>
(e) by MMPT or the Stockholders if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Controlled or True North and as a result of such breach the
conditions set forth in Section 8.2(a) or 8.2(b), as the case may be, would not
then be satisfied; provided, however, that if such breach is curable by True
North or Controlled prior to the Closing Date through the exercise of its
reasonable best efforts, then for so long as True North or Controlled continues
to exercise such reasonable best efforts MMPT may not terminate this Agreement
under this Section 11.1(e) unless such breach is not cured prior to the Closing
Date (but no cure period shall be required for a breach which by its nature
cannot be cured);
11.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 11.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Controlled, True North,
MMPT or the Stockholders, or their respective officers, directors or
stockholders.
11.3 Amendment. Except as is otherwise required by applicable law after
---------
the stockholders of MMPT approve this Agreement, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
11.4 Extension; Waiver. At any time prior to the Effective Time,
-----------------
Controlled and True North, on the one hand, and MMPT, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. No such waiver shall affect or impair the rights or potential claims of
the Stockholders.
ARTICLE XII
GENERAL PROVISIONS
12.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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<PAGE>
(a) if to Controlled or True North, to:
True North Communications Inc.
101 East Erie Street
Chicago, Illinois 60611
Attention: Secretary
Telephone No.: (312) 425-5000
Facsimile No.: (312) 425-5010
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Brian C. Erb, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to MMPT, to:
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Attention: Steve Roberts
Telephone No.: (203) 341-5200
Facsimile No.: (203) 291-6061
12.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
12.4 Entire Agreement; Assignment. This Agreement, the Schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein (a) constitute the entire agreement among
the parties with respect to the subject matter specifically covered hereby and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter specifically covered hereby;
provided that the parties hereto acknowledge that certain matters governing the
relationship of certain of the parties hereto
-29-
<PAGE>
with respect to matters related to, but not specifically covered by, this
Agreement are covered by various agreements and understandings among those
parties (including the Letter of Intent, the Acquisition Agreement, the Merger
Agreement and the Partnership Interest and Stock Purchase Agreement); (b) are
not intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided, except that Controlled and True North may
assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates.
12.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
12.6 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 under applicable principles of conflicts of laws thereof.
Each of the parties hereto 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 and such process.
12.7 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
-30-
<PAGE>
IN WITNESS WHEREOF, Controlled, True North, MMPT and the Stockholders have
caused this Agreement to be signed, all as of the date first written above.
MODEM MEDIA . POPPE TYSON, INC. TRUE NORTH COMMUNICATIONS INC.
By:_____________________________ By:_____________________________
Name: G.M. O'Connell Name: Dale F. Perona
Title: President Title: Senior Vice President
PT CONTROLLED, INC.
________________________________
Douglas C. Ahlers
________________________________ By:_____________________________
Robert C. Allen, II Name: Dale F. Perona
Title: President
________________________________
Gerald M. O'Connell
KRAFT ENTERPRISES LTD.
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.2
DATED: November 24, 1998
DEMAND NOTE
US $10,000,000
1. Advances.
--------
(a) FOR VALUE RECEIVED, the undersigned, True North Communications Inc. a
Delaware corporation ("Borrower"), hereby unconditionally promises to pay on
--------
demand to the order of Modem Media Advertising Limited Partnership ("Lender"),
------
in lawful money of the United States of America and in immediately available
funds, all amounts owed hereunder. Lender agrees to advance from time to time
until the Termination Date, such sums as Borrower may request (the "Advances")
--------
up to an aggregate principal amount equivalent to US $10,000,000 Advances shall
be made in any combination of Allowable Currencies, as specified below, or such
other currencies as may be agreed to by Lender in its sole discretion, and shall
be made in immediately-available funds.
(b) Each Advance made by Lender to Borrower and each payment made by
Borrower in respect of the outstanding principal amount of this Demand Note
shall be evidenced, at Lender's option, either by a notation made by Lender on
the schedule attached hereto or in its books and records; provided that no
--------
failure on the part of Lender to make any notation shall waive or relieve
Borrower of its obligation to pay any amount from time to time extended
hereunder. Each notation by Lender on the schedule attached hereto or in its
books and records in respect of the Advances made hereunder shall constitute
conclusive and binding evidence of the amounts outstanding hereunder, absent
manifest error.
(c) Requests for Advances must be received by Lender in writing or by
telephone (telephone requests must be confirmed in writing) by 10:00 a.m.
Chicago time on a date that Lender and its banks are open for business (a
"Business Day") that shall be in advance of the date the funds are to be
- -------------
delivered by at least the number of Business Days specified below.
Allowable Currencies Notice Requirement
-------------------- ------------------
US Dollars 1 Business Day
<PAGE>
2. Interest.
--------
(a) Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until payment in full hereof at a
fixed rate of 5.75% per annum; provided, however, that upon the occurrence of an
-------- -------
event of default, such interest rate shall equal the rate described above plus
2%.
(b) All accrued and unpaid interest shall be due and payable to Lender on
the first Business Day of each quarter in immediately available funds or on such
other dates as determined by Lender. If not paid earlier, all accrued interest
hereunder shall be due and payable upon the Termination Date.
(c) All computations of interest shall be made in good faith by Lender,
and such computations and notices of interest payment dates shall be provided to
Borrower as soon as practicable when Advances are outstanding.
3. Payments. All payments and prepayments of principal and interest and
--------
any other obligations hereunder shall be made without setoff or counterclaim in
immediately-available funds. Whenever any payment due hereunder shall fall 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.
4. Prepayments. Borrower may prepay any Advances, in whole or in part, at
-----------
any time, upon 2 Business Days' notice, provided that any additional costs of
borrowing that Lender incurs under its related debt as a result of such
prepayment shall be added to the principal amount outstanding hereunder.
5. Events of Default. An event of default shall occur if (i) Borrower
-----------------
fails to pay any obligation when due hereunder or (ii) Borrower shall fail to
pay any material indebtedness (other than indebtedness hereunder) when due
(after the lapse of any applicable grace period) or, in the case of such
indebtedness payable on demand, when demanded (after the lapse of any applicable
grace period), or any event shall occur or condition shall exist and shall
continue for more than the period of grace, if any, applicable thereto and shall
have the effect of causing, or permitting the holder of any such indebtedness or
any trustee or other person acting on behalf of such holder to cause such
material indebtedness to become due prior to its stated maturity or to realize
upon any collateral given as security therefor.
6. Termination. Either party, in its sole discretion may terminate this
-----------
Demand Note on any day hereafter by at least 1 Business Days' written notice to
the other party of the date of termination (the "Termination Date"), and all
----------------
principal outstanding and interest due hereunder shall be immediately due and
payable. Any additional costs of Borrowing that Lender incurs under its related
debt as a result of such termination shall be added to the principal amount
outstanding hereunder.
2
<PAGE>
7. Acceleration under Certain Circumstances without Demand. In the event
--------------------------------------------------------
that (a) Borrower shall become insolvent or bankrupt or shall cease payment on
its debts as they mature or shall make an assignment for the benefit of
creditors, (b) a trustee, receiver or liquidator shall be appointed for Borrower
for a substantial part of its property or (c) bankruptcy, reorganization,
arrangement, insolvency or similar proceedings shall be instituted by or against
Borrower under the laws of any jurisdiction, the indebtedness evidenced by this
Demand Note shall immediately and automatically become and be due and payable,
without any requirement that demand be made hereunder by any person and without
any requirement that notice, presentment, protest or notice of dishonor of any
type be given, all of which are expressly waived by Borrower.
8. Fees and Expenses. All fees and expenses related to the enforcement of
-----------------
Lender's obligations hereunder shall be paid, immediately upon demand, by
Borrower.
9. Representation and Warranties. Borrower represents and warrants to
------------------------------
Lender that (a) this Demand Note constitutes the legal, valid and binding
obligation of Borrower enforceable against it in accordance with its terms, (b)
the execution, delivery and performance by Borrower of this Demand Note are
within its corporate powers, have been duly authorized by all necessary
corporate action, require no action by or in respect of, or filing with, any
governmental body, agency or official, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of its
Certificate of Incorporation or By-laws or of any agreement, judgment,
injunction, order, decree or other instrument binding upon it and (c) the
proceeds of each advance or loan made by Lender to Borrower and evidenced by
this Demand Note shall be used by Borrower for general working capital purposes
and shall not be used by Borrower to purchase or acquire, or to refinance any
indebtedness extended to facilitate the purchase or acquisition of, the capital
stock of or any other equity interest in any other person.
10. Assignment. This Demand Note may not be assigned by Borrower except
----------
pursuant to the operation of law.
11. Effect of Delay or Omission. No delay or omission of Lender in
---------------------------
exercising any right or remedy hereunder shall constitute a waiver of any such
right or remedy.
12. Waivers. Lender and Borrower severally waive presentment for payment,
-------
demand, protest and notice of dishonor and all other demands or notices in
connection with the delivery, acceptance, endorsement, performance, default or
enforcement of this Demand Note.
13. Governing Law. This Demand Note shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois without reference to conflicts
of law rules.
14. Notices. All notices and other communications required or permitted
-------
to be given hereunder shall be in writing (or by telephone and confirmed in
writing) and shall be deemed to have been duly given if delivered by hand or
sent by courier or certified mail, return receipt requested or by telecopy to
the parties at the addresses set forth opposite their signature
3
<PAGE>
hereon or such other address as either party shall have last designated by
notice to the other party. All notices and communications shall be deemed to
have been received (a) upon receipt if delivered by hand, facsimile or waiver or
(b) on the third Business Day after the date of mailing if mailed as provided
above.
THIS NOTE REPLACES AND SUPERSEDES THAT CERTAIN $3,000,000 DEMAND NOTE DATED
MAY 26, 1998 MADE BY BORROWER TO THE ORDER OF THE LENDER.
BORROWER:
TRUE NORTH COMMUNICATIONS INC.
Address: By: /s/ Kenneth J. Ashley
101 East Erie Street ----------------------------------
Chicago, Illinois 60611 Its: V.P., Treasurer
Attention: Treasurer ---------------------------------
LENDER:
MODEM MEDIA ADVERTISING LIMITED
PARTNERSHIP
Address: By: /s/ Gerald M. O'Connell
400 Nyala Farms ---------------------------------
Westport, Connecticut 06880
It: Vice President
---------------------------------
4
<PAGE>
Schedule to Demand Note
of
True North Communications Inc. dated November 24, 1998
<TABLE>
<CAPTION>
Amount of Principal Unpaid Principal Notation Made
Date Amount of Loan Paid Balance By
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/24/98 $2,500,000 - $2,500,000
- ---------------------------------------------------------------------------------------------------
11/24/98 $2,000,000 - $4,500,000
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
EXHIBIT 10.3
AFFILIATE AGREEMENT
-------------------
This AFFILIATE AGREEMENT (this "Agreement") dated February __, 1999 (the
"Effective Date") is by and between Modem Media . Poppe Tyson, Inc., a Delaware
corporation ("Licensor") having its principal place of business at 228 Saugatuck
Avenue, Westport, CT 06880, and Bozell, Jacobs, Kenyon & Eckhardt, Inc., a
Delaware corporation ("Licensee") having a place of business at 40 West 23rd
Street, New York, NY 10010.
WHEREAS, Licensor is the owner of the trademarks and service marks "MMPT"
and "MODEM MEDIA . POPPE TYSON" (collectively, the "Trademarks"); and
WHEREAS, Licensee desires the right to use the Trademark and Licensor is
willing to grant permission to do so, on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties hereto agree as follows:
1. License of the Trademarks. Subject to the terms and conditions of this
-------------------------
Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts, a
nonexclusive, nontransferable license to use the Trademarks and to license such
use to its wholly owned subsidiary Modem Media . Poppe Tyson do Brasil Ltda., a
company organized under the laws of Brazil ("Permitted Sublicensee"). Licensee
and Permitted Sublicensee may use the Trademarks solely in connection with
operation of Licensee's and Permitted Sublicensee's internet marketing services
business in Brazil.
2. Quality Control. Licensee agrees that it shall take all steps
---------------
necessary to maintain and preserve the high standard of marketable quality of
all products or services sold or serviced under or in connection with the
Trademarks, as determined by Licensor and in a manner consistent with Licensor's
quality control procedures. Licensor, or its representatives, shall have the
right, at all reasonable times, to inspect the processes of distribution, sale,
and servicing of products and services by Licensee or Permitted Sublicensee
under the Trademarks, both on the premises of Licensee Permitted Sublicensee and
elsewhere, and Licensee agrees to remedy such deficiencies as Licensor or its
representatives may find and bring to Licensee's attention. Licensee shall
comply with all applicable laws and regulations and obtain all appropriate
government approvals pertaining to the distribution, sale, servicing or
advertising of products or services by Licensee utilizing or bearing the
Trademarks.
3. Other Use Restrictions. Licensee agrees to use the Trademarks in a
----------------------
commercially responsible manner so as not to impair the value of or the goodwill
associated with the Trademarks.
<PAGE>
4. Recordals. Licensee and the Licensor shall file recordals of this
---------
Agreement or related agreements in Brazil as Licensor shall deem appropriate.
Licensee shall be solely responsible for proper filing of the recordals and
shall pay all costs or fees associated with such filing.
5. Compensation. In consideration of the rights granted in this
------------
Agreement, Licensee agrees to service Licensor clients in Brazil during the term
of this Agreement as directed by Licensor. Licensee agrees that in connection
with services performed for Licensor clients, Licensee shall bill Licensor
clients in accordance with Licensee's current practices.
6. Termination. This Agreement shall terminate on the first of the
-----------
following to occur:
a. The two-year anniversary of the Effective Date; or
b. By mutual written consent of Licensor and Licensee; or
c. By Licensor, upon 60 days having passed from Licensor's having
given notice to Licensee of Licensee's breach of any of the terms of this
Agreement; provided Licensee has failed, in the sole opinion of Licensor, to
cure such breach within such 60 day period. Licensor's approval of such cure
shall not be unreasonably withheld; or
d. By Licensor or Licensee, upon 90 days having past after giving
prior written notice to the other party.
Upon the termination of this Agreement, for any reason, Licensee agrees to
immediately discontinue all use of the Trademarks, to cooperate with Licensor in
the destruction or stickering of all printed materials bearing the Trademarks,
and to withdraw recording of this Agreement or related agreements from all
governmental records. All rights not granted herein in the Trademarks and the
goodwill connected therewith shall remain the property of Licensor.
In the event of termination, neither party shall be liable to the other
because of such termination for compensation, reimbursement, or damages on
account of the loss of prospective profits or anticipated sales or on account of
expenditures, inventory, investments, leases, or commitments in connection with
the business or goodwill of Licensor or Licensee.
7. Reservation of Rights. Licensee acknowledges the ownership of the
---------------------
Trademarks by Licensor, agrees not to sublicense the Trademarks, and to do
nothing inconsistent with such ownership, and agrees that any use by Licensee or
Permitted Sublicensee of the Trademarks shall not create any interest or right,
express or implied, in Licensee or Permitted Sublicensee other than as set forth
in the terms and conditions of this Agreement.
8. No Competing Use or Registration. Licensee shall not in any way
--------------------------------
utilize or attempt to register or aid any third party in utilizing or attempting
to register any trademark or service mark which is the same or confusingly
similar to the Trademarks.
2
<PAGE>
9. Survival. The obligations of Licensee set forth in Sections 7, 8, 10,
--------
11 and 12 hereof shall survive the termination of this Agreement.
10. Warranty. Licensor makes no warranty as to the validity of the
--------
Trademarks or that Licensee's use of the Trademarks will be free from claims of
infringement by other parties.
11. Relationship of the Parties. The relationship of Licensor and
---------------------------
Licensee shall be solely that of licensor and licensee. Nothing contained
herein shall be construed to imply a joint venture or principal and agent
relationship between the parties, and neither party shall have any right, power
or authority to create any obligation, express or implied, on behalf of the
other. Each party agrees not to act or to fail to act so as to create any
relationship between them disclaimed herein.
12. Indemnification. Licensee agrees to indemnify and hold Licensor
---------------
harmless from any and all liability, including, but not limited to, any products
liability, costs, damage, expenses and fees whatsoever, including reasonable
attorneys' fees, incurred by Licensor in connection and arising out of
Licensee's or the Permitted Sublicensee's use of the Trademarks or the provision
of services by Licensee as contemplated hereby.
13. LIMITATION OF LIABILITY. LICENSOR'S TOTAL LIABILITY HEREUNDER FOR ALL
-----------------------
CAUSES OF ACTION (WHETHER IN CONTRACT, TORT, INCLUDING NEGLIGENCE, OR OTHERWISE)
SHALL NOT EXCEED THE AGGREGATE PROFITS GENERATED WITH RESPECT TO THE CLIENTS OF
LICENSOR IN BRAZIL DURING THE TERM OF THIS AGREEMENT. IN NO EVENT WILL LICENSOR
BE LIABLE TO LICENSEE FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF THIS AGREEMENT OR THE USE OF THE TRADEMARKS.
14. Government Approvals. Licensee represents and warrants that no
--------------------
consent, approval, or authorization of or designation, declaration, or filing
with any governmental authority in New York or Brazil is required in connection
with the valid execution, delivery, or performance of this Agreement.
15. Miscellaneous.
-------------
a. Waiver. Any waiver by Licensor of any breach of any term or
------
condition of this Agreement by Licensee shall not be deemed a waiver of any
subsequent breach of the same or any other term or condition.
b. Notices. All notices, and other communications required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered by hand or mailed, certified or registered mail, return
receipt requested and postage prepaid:
(i) If to Licensee, to:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, New York 10010
3
<PAGE>
With a copy to:
True North Communications Inc.
101 East Erie Street
Chicago, IL 60611
Attention: Dale Perona
or to such other person or address as the Licensee shall have previously
notified the Licensor in writing;
(ii) If to Licensor, to:
Modem Media Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880, U.S.A.
Attn: Secretary
or to such other person or address as the Licensor shall have previously
notified the Licensee in writing.
c. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of New York.
d. Headings. The Section and subsection headings in this Agreement
--------
are inserted for convenience and identification only and are in no way intended
to define or limit the scope, extent or intent of this Agreement, or any of the
provisions hereof.
e. Assignment. The license granted hereunder shall not be assignable
----------
or transferable in any manner whatsoever by Licensee, nor shall Licensee have
the right to grant any sublicenses of the overall rights, duties and obligations
of this Agreement, except upon the express written consent of the Licensor.
f. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto, and no party shall be liable or bound to the other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein.
g. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but which together shall constitute
one and the same instrument.
h. Severability. If any provision of this Agreement is, for any
------------
reason, declared to be invalid, then such invalidation shall not affect the
validity of the otherwise valid provisions of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first written above.
MODEM MEDIA POPPE TYSON, INC.
By: ______________________________
Title: ___________________________
BOZELL, JACOBS, KENYON & ECKHARDT, INC.
By: ______________________________
Title: ___________________________
5
<PAGE>
EXHIBIT 10.4
SUBLEASE AGREEMENT
-------- ---------
THIS SUBLEASE AGREEMENT ("Sublease") is made as of the 1st day of
September, 1998 between BOZELL, JACOBS, KENYON & ECKHARDT, INC., a Delaware
corporation ("Sublandlord"), and TN TECHNOLOGIES INC., a Delaware corporation
("Subtenant").
R E C I T A L S
---------------
23rd Street Properties ("Landlord"), as landlord and Sublandlord, as
tenant, did enter into that certain lease agreement, dated June 18, 1986, which
lease agreement as thereafter amended by letter agreement dated December 22,
1987 and lease amendment (the "Amendment") dated as of June 1, 1996 is
hereinafter referred to as the "Lease", for the lease by Sublandlord of certain
space located in the building (the "Building") known as 40 West 23rd Street, New
York, New York.
The space leased in the Building by Sublandlord pursuant to the Lease
is hereinafter referred to as the "Premises".
Sublandlord and Subtenant desire to enter into this Sublease, pursuant
to the terms of which Subtenant will lease from Sublandlord and Sublandlord will
lease to Subtenant a portion of the Premises.
NOW, THEREFORE, for and in consideration of the mutual covenants and
obligations set forth in this Sublease, Sublandlord and Subtenant do hereby
agree as follows:
1. Subleased Premises. Sublandlord does hereby lease to Subtenant,
------------------
and Subtenant does hereby lease and rent from Sublandlord, that portion of the
"Additional Space" (as such term is defined in the Amendment and used herein to
mean the entire fifth (5th) floor and mezzanine of the Building) comprising
approximately 57.33% of the Additional Space and identified on the diagram
annexed hereto and made a part hereof (the "Subleased Premises").
2. Term. The term of this Sublease (the "Sublease Term") shall
----
begin on September 1, 1998 (the "Commencement Date"). The Sublease Term shall
expire at 12:00 midnight on September 29, 2004, unless the Lease or this
Sublease is sooner terminated or expires earlier in accordance with the terms
and conditions set forth therein or herein.
3. Rent.
----
(a) Subtenant shall pay to Sublandlord, throughout the Sublease
Term, 57.33% of the "Fixed Rent" per annum provided to be paid with respect to
the Additional Space pursuant to the Amendment (the "Base Rent"). The Base
Rent shall be payable by Subtenant to Sublandlord, in advance, in equal
consecutive monthly installments which are due and payable on or before the
date that is five (5) business days preceding the first day of each calendar
month during the Sublease Term.
(b) Subtenant shall also pay to Sublandlord, throughout the
Sublease Term as additional rent ("Additional Rent"), all additional rent and
other charges due under the Lease which is attributable to the Subleased
Premises. The additional rent and other charges which is attributable to the
Subleased Premises shall be (i) 57.33% of the amounts set forth in the
Amendment, and (ii) to the extent not set forth in the Amendment shall be
determined by dividing the total payments payable by Sublandlord under the
Lease by the rentable square feet of the Premises and multiplying the quotient
by the number of rentable square feet in the Subleased Premises. Subtenant
shall be responsible for both any estimated payments of Additional Rent and
any reconciliation payments of Additional Rent which are payable by
Sublandlord pursuant to the Lease. Appropriate prorations shall be made with
respect to any partial calendar years included in the Sublease Term.
Sublandlord shall notify Subtenant of any such estimated amounts and any
reconciliation amounts promptly upon Sublandlord's receipt of notice from
Landlord of the amounts due with respect to the entire Premises. Subtenant
shall make all Additional Rent payments to Sublandlord upon demand.
(c) Subtenant shall be solely responsible for any costs or
charges attributable to the Subleased Premises during the Sublease Term for
items such as damage repair,
<PAGE>
extra or after-hours HVAC service, extra janitorial services, excess
electrical consumption, light bulb replacement and the like. Subtenant shall
also pay any and all tax due with respect to Rent (as such term is hereinafter
defined) pursuant to the laws of New York and/or any political subdivision
thereof; provided, however, that Subtenant shall not be responsible for the
payment of any tax levied on Sublandlord that is in the nature of an income
tax.
(d) The Base Rent, Additional Rent and all charges due by
Subtenant under subparagraph (c) of this Article "3" are collectively referred
to in this Sublease as "Rent".
4. Relationship to Lease. This Sublease and all of Subtenant's
---------------------
rights hereunder are expressly subject to and subordinate to all of the terms of
the Lease. Subtenant hereby acknowledges that it has received copies of the
Lease and has read all of the terms and conditions thereof. Subtenant hereby
agrees to assume all obligations of Sublandlord (as tenant under the Lease) with
respect to the Subleased Premises. Subtenant hereby acknowledges that Subtenant
shall look solely to Landlord for the performance of all the Landlord's
obligations under the Lease and that Sublandlord shall not be obligated to
provide any services to Subtenant or otherwise perform any obligations in
connection with this Sublease. Subtenant acknowledges that any termination of
the Lease may result in a termination of the Sublease. In the event of a
default under any underlying lease of all or any portion of the Subleased
Premises which results in the termination of such lease, Subtenant shall, at the
option of the lessor under any such lease ("Underlying Lessor"), provided such
option is exercised within thirty (30) days of the termination of such
underlying lease, attorn to and recognize the Underlying Lessor as landlord
hereunder and shall, promptly upon the Underlying Lessor's request, execute and
deliver all instruments necessary or appropriate to confirm such attornment and
recognition. Notwithstanding such attornment and recognition, the Underlying
Lessor shall not (i) be liable for any previous act or omission of Sublandlord
under this Sublease, (ii) be subject to any offset, not expressly provided for
in this Sublease, which shall have accrued to the Subtenant against Sublandlord,
or (iii) be bound by any modification of this Sublease or by any prepayment of
more than one month's rent, unless such modification or prepayment shall have
been previously approved in writing by the Underlying Lessor. Subtenant hereby
waives all rights under any present or future law to elect, by reason of the
termination of such underlying lease, to terminate this Sublease or surrender
possession of the Subleased Premises.
5. Use. Subtenant's use of the Subleased Premises shall be strictly
---
in accordance with the use and all other provisions of the Lease. No person or
entity other than Subtenant may use or occupy the Subleased Premises without
Sublandlord's prior written consent. Subtenant shall make no alterations or
changes to the Subleased Premises of any kind or nature without Sublandlord's
prior written consent.
6. Default. Any act or omission by Subtenant that would constitute,
-------
create, cause, or contribute to a default under the Lease shall be a default by
Subtenant under this Sublease. In addition, any failure by Subtenant to (i) pay
Rent when due (and the continuance of such failure for five (5) days following
notice from Sublandlord to Subtenant) or, (ii) perform any other obligations
required under this Sublease, shall be a default hereunder. Any default by
Subtenant shall entitle Sublandlord to exercise any and all of the same rights
and remedies against Subtenant as are available to Landlord against Sublandlord
as tenant under the Lease, arising out of a default, beyond the expiration of
any and all applicable grace, notice and cure periods under the Lease, by the
Sublandlord as tenant under the Lease, and any other remedies available at law
or in equity.
7. Quiet Enjoyment. Subject to the Lease and provided Subtenant has
---------------
performed its obligations hereunder, Subtenant shall have the quiet enjoyment of
the Subleased Premises without interference by Sublandlord or anyone claiming
by, through or under Sublandlord.
8. Insurance and Indemnities. Subtenant hereby agrees to indemnify
-------------------------
and hold Sublandlord harmless, with respect to the Subleased Premises, to the
same extent that Sublandlord is required to indemnify and hold Landlord harmless
with respect to the Premises. Subtenant hereby agrees to obtain and provide
evidence satisfactory to Sublandlord, on or before the date of this Sublease,
that Subtenant is carrying insurance with regard to the Subleased Premises in
the same amounts and of the same types required to be carried by Sublandlord
with regard to the Premises.
2
<PAGE>
9. Subleasing and Assignment. Subtenant shall have no right to
-------------------------
sublease or assign its rights under this Sublease or its rights with regard to
the Subleased Premises (i) without the prior written consent of Sublandlord, and
(ii) in any manner not in accordance with the terms and provisions of Articles
"11" and "39" of the Lease. The following events and circumstances constitute
an assignment of this Sublease requiring the Sublandlord's consent thereto and
in the event that Subtenant fails to so obtain Sublandlord's consent it shall be
a default hereunder: (i) if Subtenant is a partnership or limited liability
company, the withdrawal or change, whether voluntary, involuntary or by
operation of law, of 50% or more of the partners or members, or transfer of 50%
or more of partnership or membership interests, within a twelve (12) month
period, or the dissolution of the partnership or limited liability company and
(ii) if Subtenant is a closely held corporation (i.e., whose stock is not
- -
publicly held and not traded through an exchange or over the counter), the
dissolution, merger, consolidation or other reorganization of Subtenant, or,
within a twelve (12) month period, (A) the sale or other transfer of more than
an aggregate of 50% of the voting shares of Subtenant (other than to immediate
family members by reason of gift or death, or (B) the sale, mortgage,
hypothecation or pledge of more than an aggregate of 50% of the value of the
unencumbered assets of Subtenant.
10. Condition of Subleased Premises. Upon the expiration or earlier
-------------------------------
termination of this Sublease, Subtenant shall return the Subleased Premises to
Sublandlord in the condition required by the Lease.
11. Notices. Notices by Sublandlord and Subtenant shall be given to
-------
each other in the same manner provided by the Lease at the following addresses:
Sublandlord:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
800 Blackstone Centre
302 South 36th Street
Omaha, Nebraska 68131-2453
Attention: Mr. Michael L. Schultz
Senior Vice President
Subtenant:
TN TECHNOLOGIES INC.
228 Saugatuck Avenue
Westport, Connecticut 06880
Attention: Mr. Steve Roberts
Vice President Operations
12. Brokers. Each party represents to the other that it has not
-------
dealt with any real estate broker, sales person or finder in connection with
this Sublease. Each party hereby agrees to indemnify and hold the other
harmless from and against any liabilities and claims for commissions or fees due
or claimed to be due by any party, claiming to have dealt with the indemnifying
party in connection with this Sublease.
13. Miscellaneous. This Sublease shall be governed by the laws of
-------------
the State of New York. Time shall be of the essence with regard to the
obligations under this Sublease. This Sublease supersedes all prior discussions
and agreements between the parties. IN WITNESS WHEREOF, the parties hereto have
executed this Sublease, as of the day and year first above written.
3
<PAGE>
SUBLANDLORD:
BOZELL, JACOBS, KENYON &
ECKHARDT, INC., a Delaware corporation
By:
-------------------------------
SUBTENANT:
TN TECHNOLOGIES INC., a Delaware
corporation
By:
-------------------------------
4
<PAGE>
RIDER TO SUBLEASE AGREEMENT
Dated as of September 1, 1998
Between Bozell, Jacobs, Kenyon & Eckhardt, Inc., as "Sublandlord",
and TN Technologies, Inc., as "Subtenant"
Notwithstanding any provision of the Sublease Agreement ("Sublease") to
which this Rider is attached and of which this Rider forms a part, and in
particular the provisions of paragraph 4 of such Sublease, Sublandlord and
Subtenant agree as follows. Terms used in this Rider as defined terms and not
otherwise defined herein shall have the meanings assigned to them in the
Sublease.
1. Notwithstanding Subtenant's agreement to assume all obligations of
Sublandlord as tenant under the Lease with respect to the Subleased Premises,
Subtenant shall have no obligation to pay the Fixed Rent, or any additional rent
or other charges payable to the Landlord under the Lease (except if arising out
of a default by Subtenant), all such Fixed Rent, additional rent and other
charges being payable by Subtenant to Sublandlord, as specified in paragraph 3
of the Sublease.
2. Sublandlord shall pay to the Landlord under the Lease when and as due,
all Fixed Rent, additional rent and other charges payable by the tenant under
the Lease, and shall duly perform any other obligations of the tenant under the
Lease which, by their nature, cannot be performed directly by Subtenant.
3. Sublandlord shall deliver to Subtenant promptly copies of all notices
of default and other formal notices served upon Sublandlord by the Landlord
under the Lease which pertain to the Subleased Premises.
4. In the event the Lease is terminated by reason of Sublandlord's
default thereunder, and such default is not the result of Subtenant's default
under the Sublease, Sublandlord shall indemnify Subtenant and hold Subtenant
harmless from and against any and all claims, demands, charges, damages,
liabilities, costs and expenses incurred by Subtenant, as a result of the
termination of the Lease, including, without limitation, the reasonable fees and
expenses of Subtenant's attorneys and the unammortized cost to Subtenant of
Subtenant's leasehold improvements.
5
<PAGE>
IN WITNESS WHEREOF, Subtenant and Sublandlord have executed this Rider as
of the date of the Sublease.
SUBLANDLORD:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.,
a Delaware corporation
By:
-------------------------------
SUBTENANT:
TN Technologies, Inc.,
a Delaware corporation
By:
-------------------------------
6
<PAGE>
EXHIBIT 10.5(a)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Modem Media. Poppe Tyson, Inc. (formerly, TN Technologies Holding Inc.)
("Employer"), a Delaware corporation, and Gerald M. O'Connell ("Executive")
enter into this Employment Agreement as of January 1, 1997, as amended and
restated as of November 25, 1998 (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 Chief Executive
-----------------
Officer 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
<PAGE>
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 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
responsiblities 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 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
terminated
-3-
<PAGE>
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 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
-5-
<PAGE>
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 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 a
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
-7-
<PAGE>
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:
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Facsimile: (203) 291-6061
Attention: Chief Financial Officer
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.
MODEM MEDIA . POPPE TYSON, INC. GERALD M. O'CONNELL
By:_____________________________ _______________________________________
Title:__________________________ Address: ______________________________
_______________________________________
Facsimile: ____________________________
-9-
<PAGE>
Exhibit 10.5(b)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Modem Media . Poppe Tyson, Inc. (formerly, TN Technologies Holding Inc.)
("Employer"), a Delaware corporation, and Douglas C. Ahlers ("Executive") enter
into this Employment Agreement as of January 1, 1997, as amended and restated as
of June 1, 1998 (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 Executive Vice
-----------------
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.
<PAGE>
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 one hundred fifty thousand dollars ($150,000), 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 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
terminated
-3-
<PAGE>
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
-5-
<PAGE>
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 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 a
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
-7-
<PAGE>
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:
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Facsimile: (203) 291-6061
Attention: Chief Financial Officer
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.
MODEM MEDIA . POPPE TYSON, INC. DOUGLAS C. AHLERS
By:___________________________ ___________________________
Title:________________________ Address:___________________
___________________________
Facsimile:_________________
-9-
<PAGE>
EXHIBIT 10.5(c)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Modem Media . Poppe Tyson, Inc. (formerly, TN Technologies Holding Inc.)
("Employer"), a Delaware corporation, and Robert C. Allen, II ("Executive")
enter into this Employment Agreement as of January 1, 1997, as amended and
restated as of November 25, 1998 (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
<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.
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 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 a
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:
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Facsimile: (203) 291-6061
Attention: Chief Financial Officer
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.
MODEM MEDIA . POPPE TYSON, INC. ROBERT C. ALLEN, II
By:
------------------------------- -------------------------------------
Title: Address:
---------------------------- -----------------------------
-------------------------------------
Facsimile:
---------------------------
-9-
<PAGE>
EXHIBIT 10.9
MODEM MEDIA . POPPE TYSON, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
(as amended December 11, 1998)
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock
Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Modem Media . Poppe Tyson, Inc., a Delaware
-------
corporation.
(h) "Consultant" means any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting or advisory services to such
entity.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the Plan.
------
-2-
<PAGE>
(r) "Option Agreement" means a written or electronic agreement
----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this Amended and Restated 1997 Stock Option Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(y) "Service Provider" means an Employee, Director or Consultant.
----------------
(z) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 3,200,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted
-3-
<PAGE>
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Administrator. The Plan shall be administered by the Board or a
-------------
Committee appointed by the Board, which Committee shall be constituted to comply
with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(e) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
-4-
<PAGE>
(x) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by Optionees to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
-5-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
exercise price shall be no less than 110% of the Fair Market Value per Share on
the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
-6-
<PAGE>
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Except in the case of Options granted to Officers,
Directors and Consultants, Options shall become exercisable at a rate of no less
than 20% per year over five (5) years from the date the Options are granted.
Unless the Administrator provides otherwise, vesting of Options granted
hereunder to Officers and Directors shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
(of at least six (6) months) to the extent the Option is
-7-
<PAGE>
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for twelve (12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent that the Option is
vested on the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Option Agreement) by the Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The Options
--------------------------------------------------------
and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason
-8-
<PAGE>
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
Officers, Directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the
-9-
<PAGE>
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Service Provider to whom an
Option or Stock Purchase Right is so granted within a reasonable time after the
date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
-10-
<PAGE>
(b) Shareholder Approval. The Board shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
-11-
<PAGE>
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
-12-
<PAGE>
MODEM MEDIA . POPPE TYSON, INC.
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
(AS AMENDED DECEMBER 11, 1998)
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Amended and
Restated 1997 Stock Option Plan shall have the same defined meanings in this
Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[OPTIONEE'S NAME AND ADDRESS]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
----------------
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
20% of the Shares subject to the Option shall vest immediately on the
Vesting Commencement Date, and 20% of the Shares subject to the Option shall
vest each year thereafter for four consecutive years, subject to Optionee's
continuing to be a Service Provider on such dates.
<PAGE>
Termination Period:
------------------
This Option shall be exercisable for three months after Optionee ceases to
be a Service Provider. Upon Optionee's death or Disability, this Option may be
exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
---------
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option unless such
issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
-------
B.
- -
-2-
<PAGE>
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of NSO. There may be a regular federal income tax
---------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the
-3-
<PAGE>
Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(b) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL,
-4-
<PAGE>
AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE MODEM MEDIA . POPPE TYSON, INC.
_____________________________ ____________________________________
Signature By
_____________________________ ____________________________________
Print Name Title
_____________________________
_____________________________
Residence Address
-5-
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
EXERCISE NOTICE
Modem Media . Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT 06880
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today,___________, 19__,
------------------
the undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of Modem Media.
Poppe Tyson, Inc. (the "Company") under and pursuant to the Amended and
Restated 1997 Stock Option Plan (the "Plan") and the Stock Option Agreement
dated ________, 19__ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash, the
cash equivalent value of the non-cash consideration shall be determined by the
Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or by any combination
thereof within 30 days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with
-2-
<PAGE>
the purchase or disposition of the Shares and that Optionee is not relying on
the Company for any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A
COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Notice or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Exercise Notice to single or multiple assignees, and this Exercise Notice
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such
-3-
<PAGE>
dispute at its next regular meeting. The resolution of such a dispute by the
Administrator shall be final and binding on all parties.
10. Governing Law; Severability. This Exercise Notice is governed by the
---------------------------
internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
----------------
herein by reference. This Exercise Notice, the Plan, the Option Agreement and
the Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE MODEM MEDIA . POPPE TYSON, INC.
___________________________ __________________________________
Signature By
___________________________ __________________________________
Print Name Title
Address: Address:
___________________________ 228 Saugatuck Avenue
----------------------------------
___________________________ Westport, CT 06880
----------------------------------
__________________________________
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: MODEM MEDIA . POPPE TYSON, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company, and any other legend required under applicable
state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of
<PAGE>
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter (or such longer period as any market stand-off agreement may require)
the Securities exempt under Rule 701 may be resold, subject to the satisfaction
of certain of the conditions specified by Rule 144, including: (1) the resale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, (3) the amount of
Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
________________________________
Date:____________________, 19__
-2-
<PAGE>
EXHIBIT 10.10
MODEM MEDIA . POPPE TYSON, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Modem Media . Poppe Tyson, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Modem Media . Poppe Tyson, Inc. and any
-------
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after [_______________]
and [_______________] of each year and terminating on the last Trading Day in
the periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or before [ _____________ ]. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after [_______________] and [_______________] each year, or on
such other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before [ _____________ ]. The Board shall have the power to change
the duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the
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<PAGE>
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
________ shares of the Company's Common Stock (subject to any adjustment
pursuant to Section 19), and provided further that such purchase shall be
subject to the limitations set forth in Sections 3(b) and 12 hereof. The Board
may, for future Offering Periods, increase or decrease, in its absolute
discretion, the maximum number of shares of the Company's Common Stock an
Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall
expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as
-5-
<PAGE>
applicable, in as uniform a manner as shall be practicable and as it shall
determine in its sole discretion to be equitable among all participants
exercising options to purchase Common Stock on such Exercise Date, and terminate
any or all Offering Periods then in effect pursuant to Section 20 hereof. The
Company may make pro rata allocation of the shares available on the Enrollment
Date of any applicable Offering Period pursuant to the preceding sentence,
notwithstanding any authorization of additional shares for issuance under the
Plan by the Company's shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
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<PAGE>
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be Nine hundred fifty thousand (950,000) shares.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned,
-7-
<PAGE>
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution or as provided in Section 15 hereof) by the
participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds from an Offering Period in accordance with
Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
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<PAGE>
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
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<PAGE>
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
---------
MODEM MEDIA . POPPE TYSON, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the Modem Media . Poppe Tyson, Inc. 1999 Employee Stock
Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this Sub-
scription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
___________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing
---------------------------------------------
<PAGE>
within 30 days after the date of any disposition of my shares and I will
--------------------------------------------------------------------------
make adequate provision for Federal, state or other tax withholding
--------------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
--------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
__________________________________ __________________________________________
Relationship
__________________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
_____________________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
---------
MODEM MEDIA . POPPE TYSON, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Modem Media .
Poppe Tyson, Inc. 1999 Employee Stock Purchase Plan which began on ____________,
19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated November 16, 1998 (except with respect to certain matters
discussed in Notes 2 and 15, as to which the date is January 11, 1999) and
March 6, 1997 and to all references to our Firm included in or made a part of
this Amendment No. 5 to Registration Statement on Form S-1 (File No. 333-
68057).
/s/ Arthur Andersen LLP
Stamford, Connecticut
January 27, 1999
