<PAGE>
As filed with the Securities and Exchange Commission on January 13, 1999
Registration No. 333-68057
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
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)
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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
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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 13, 1999
Modem Media . Poppe Tyson
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.
We have applied to have the shares we are offering 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.]
2
<PAGE>
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. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our Class A common stock. Unless otherwise
indicated, all references in this prospectus to "MMPT," "we," "us" or "our" are
to Modem Media . Poppe Tyson, Inc.
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 TNC 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
<PAGE>
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
Since 1987, we have been a leading provider of 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, thereby increasing the value of their
world-class brands. We combine our 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. 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 various 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 with world class brands committed to interactive marketing,
as well as companies with new online business models. Our clients include:
AT&T; Citibank; Delta Air Lines; E*Trade; IBM; Intel; JC Penney; John Hancock;
Sony and Unilever. We have also received numerous industry awards for our
interactive marketing campaigns, websites, banner advertisements and CD-ROMs,
including the Zima.com campaign and website, various AT&T sites and campaigns,
the iVillage.com "About Work" 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.
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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 online advertising revenue in the United States in 1997 was $1.1
billion, and expects this amount to grow to $5.0 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 our leadership position in 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 ("Modem"), the Northern Lights
Interactive division of True North Communications Inc. and the strategic
interactive marketing operations of Poppe Tyson, Inc. TNC, the sixth largest
advertising holding company in the world, formed us in October 1996 to acquire
Modem and to combine Modem with its digital marketing operations. We acquired
the strategic interactive marketing operations of PTI effective October 1998 as
part of TNC's decision to reorganize its strategic interactive marketing
operations. TNC had acquired PTI in December 1997. Modem was a leading provider
of digital interactive marketing services founded in 1987. PTI 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 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. We also refer
to True North as TNC.
5
<PAGE>
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
<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(1)
Class B common stock............................ 5,648,624 shares
Total...................................... 10,672,455 shares(1)
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
TNC, 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>
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(1) Based on shares outstanding as of September 30, 1998. Excludes (i)
3,040,000 shares of Class A common stock that have been set aside for stock
options under our stock option plan, of which 1,890,542 have been granted
to our employees, and (ii) 950,000 shares of Class A common stock that have
been set aside for purchase by employees under our employee stock purchase
plan.
6
<PAGE>
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 TNC
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>
7
<PAGE>
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 historical results have been impacted by, and our future operating
results will depend on, the following factors:
. demand for our services;
. our clients' budgets for interactive marketing services;
. the size of the contracts we enter into with clients;
. our ability to maintain our client relationships and obtain assignments
from new clients; and
. our success in attracting and retaining qualified personnel.
We may not succeed in addressing these factors, and the failure to do so
could have a material adverse effect on our future operating performance.
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 five 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
Five largest clients combined........... 56.8 54.8
</TABLE>
8
<PAGE>
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.
One element of our business strategy is to strengthen and maintain long-term
relationships with a select number of established Fortune 500 clients with
world-class brand name recognition. Nevertheless, our clients generally hire us
for only 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 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.
9
<PAGE>
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,
Modem, the Northern Lights Interactive division of TNC and the strategic
interactive marketing operations of PTI. 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 various 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.
If We Fail to Accurately Estimate Costs in Fixed-Fee Assignments, Our Operating
Results May be Adversely Affected
A significant majority of our revenues is 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 TNC, Our Controlling Stockholder, May Conflict With Our
Interests
TNC 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, TNC 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, TNC 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, TNC 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 the management and operations of MMPT and the
outcome of most matters submitted for a stockholder vote.
10
<PAGE>
Currently, two of our five directors are also members of management of TNC and
are compensated by TNC in connection with their employment by TNC. In addition,
one of our current directors is a director of TNC and was selected to serve on
our board of directors by TNC. These directors may have conflicts of interest
in addressing business opportunities and strategies in circumstances where our
interests differ from those of TNC.
TNC is one of the largest advertising firms in the United States. Although
TNC currently intends to refer its traditional advertising clients to us for
strategic interactive marketing services, TNC is not restricted in any manner
from competing with us for new engagements. In addition, TNC may expand,
through development of new lines of products or businesses, by acquisition or
otherwise, to compete with us. We have not adopted any formal plan or
arrangement to address any of the potential conflicts of interest described
above.
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,
11
<PAGE>
financial condition and operating results could be materially and adversely
affected. See "Business--Employees."
Conflicts of Interest Often Arise in the Marketing Communications Industry
Conflicts of interest between clients are inherent in the marketing
communications industry. We have in the past been, and may in the future be,
unable to take on certain 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 when we agree to provide
services to even indirect competitors of our existing clients. Furthermore,
some of our clients require us to agree not to provide our services to their
competitors. 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. See "Business--Industry Background."
Our Business Depends on Continued Growth in Use and Improvement of the Internet
and the World Wide Web
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
12
<PAGE>
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 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
13
<PAGE>
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 TNC for Services and Client Referrals
We have historically depended on TNC for corporate administrative functions,
as well as for certain legal, accounting, treasury, financing, cash management,
tax and payroll administration, insurance, employee benefits administration,
debt and lease guaranties and other services. We have entered into agreements
with TNC to continue providing legal, tax preparation, insurance, treasury,
financing, corporate support and debt and lease guaranty services after the
offering. If we are no longer able to obtain these services from TNC, 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 TNC, our future financial performance could
be adversely affected. Because we are a wholly-owned subsidiary of TNC, 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 relied on TNC for client referrals or
cooperated with TNC in obtaining new clients. However, TNC is not required to
assist us in obtaining new clients or client referrals. There can be no
assurance that TNC will continue to assist us in obtaining new clients in the
future. If TNC stops assisting us in obtaining new clients, or if TNC 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
14
<PAGE>
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.
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
MMPT is the result of the combination of three separate businesses, Modem,
the Northern Lights Interactive division of TNC and the strategic interactive
marketing operations of PTI.
In October 1996, TNC formed MMPT as a subsidiary to acquire Modem and to
combine it with TNC's digital interactive marketing operations, including
Northern Lights Interactive. In 1998, TNC undertook to consolidate all of its
strategic interactive marketing operations in MMPT and to remove certain non-
strategic operations from MMPT. Accordingly, TNC agreed to transfer to MMPT the
strategic interactive marketing operations of PTI, another TNC subsidiary, in
exchange for a portion of the operations originally contributed to MMPT in
1996. This combination will be completed prior to the offering with effect from
October 1, 1998.
Modem, a leading provider of digital interactive marketing services, was
founded in 1987. PTI was formed in December 1985 and has provided interactive
marketing services to domestic and international clients since 1988. PTI became
a TNC subsidiary in December 1997 when TNC acquired PTI's parent company,
Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell").
The PTI strategic interactive marketing operations contributed to MMPT in
1998, which include operations in the United States, the United Kingdom and
Hong Kong, are referred to in this prospectus as the "PTI Strategic Interactive
Marketing Operations." The businesses originally contributed to MMPT by TNC in
1996 are referred to in this prospectus as the "TNC Units." The TNC Units being
returned to TNC are referred to in this prospectus as the "TNC Units Held for
Transfer." The TNC Units, other than the TNC Units Held for Transfer are
referred to in this prospectus as the "Retained TNC Units." The 1998
combination of the Retained TNC Units and Modem with the PTI Strategic
Interactive Marketing Operations is referred to in this prospectus as the
"Combination."
Upon consummation of the transactions described above, MMPT's business will
consist of Modem, Northern Lights Interactive and the PTI Strategic Interactive
Marketing Operations.
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<PAGE>
Set forth below are the ownership interests of Modem, the TNC Units and the
PTI Strategic Interactive Marketing Operations prior to the Combination and
this offering:
Modem/TNC Units PTI Strategic Interactive
Marketing Operations
[GRAPHIC DEPICTING THE OWNERSHIP INTERESTS IN MODEM, THE TNC UNITS AND THE PTI
STRATEGIC INTERACTIVE MARKETING OPERATIONS PRIOR TO THE COMBINATION AND THIS
OFFERING.]
17
<PAGE>
Set forth below are the ownership interests of MMPT after the Combination and
this offering:
MMPT
[GRAPHIC DEPICTING OWNERSHIP INTERESTS IN MMPT]
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by MMPT 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 MMPT, 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 TNC, to obtain additional
capital, to create a public market for MMPT's Class A common stock and to
facilitate future access by MMPT to public securities markets.
MMPT will use approximately $6.0 million of the net proceeds from this
offering to pay indebtedness owed to TNC. This indebtedness is due and payable
upon consummation of this offering and is non-interest bearing. MMPT 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, MMPT intends to invest such funds in short-
term, interest-bearing, investment grade obligations or may advance a portion
of such funds to TNC under its current intercompany lending arrangements.
DIVIDEND POLICY
MMPT 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 MMPT's Board of Directors and will depend
upon MMPT's financial condition, results of operations and capital
requirements. See "Risk Factors--The Interests of TNC, Our Controlling
Stockholder, May Conflict With Our Interests."
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<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of MMPT at September
30, 1998: (i) on an actual basis; and (ii) on a pro forma basis after giving
effect to the Combination, 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 TNC of the TNC Units Held for Transfer;
. the issuance of an aggregate of 809,514 shares of Class B common stock to
TNC;
. the payment of the additional purchase price of $15,587,000 by TNC to the
former Modem partners upon consummation of this offering;
. the repayment of a $6,000,000 note payable to TNC; and
. the issuance and sale of 2,600,000 shares of Class A common stock offered
hereby by MMPT 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 concurrently
with 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 MMPT 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 MMPT (total
tangible assets less total liabilities) by the number of shares of common stock
outstanding. After giving effect to the sale by MMPT 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), MMPT'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
MMPT, 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 MMPT's 1997 Stock Option Plan
and 950,000 shares of Class A common stock reserved for issuance pursuant to
MMPT'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 MMPT 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 MMPT 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 MMPT 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 MMPT.
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
and other factors, MMPT 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, MMPT 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 MMPT 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 PTI Strategic Interactive Marketing Operations;
and
. the disposition of the units to be transferred to TNC in connection with
the Combination (the "TNC Units Held for Transfer").
The pro forma results of operations of MMPT also include the results of the TNC
Units other than the TNC Units Held for Transfer from the dates of their
inception. The pro forma balance sheet data reflects adjustments for certain
transactions related to the Combination, all of 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 TNC of the TNC Units Held for Transfer; and
. the issuance of an aggregate of 809,514 shares of our Class B common
stock to TNC.
22
<PAGE>
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;
. 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
TNC upon consummation of this offering; and
. the payment of the additional purchase price of $15,587,000 by TNC to the
former Modem partners upon consummation of this offering.
See "Use of Proceeds" and "Risk Factors--The Interests of TNC, 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 TNC
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. MMPT'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
MMPT 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. MMPT's digital
interactive marketing services include:
. strategic consulting and research;
. strategy development and planning;
. development of electronic customer service capabilities which MMPT
refers to as "customer management platform development," and
. continuous monitoring of the quantitative and qualitative effectiveness
of services previously provided to the client by MMPT, which is
commonly referred to in MMPT's industry as "program measurement and
analysis."
A majority of MMPT's revenues are derived from fixed-fee assignments. MMPT
recognizes revenues as services are rendered. MMPT 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 MMPT on an engagement basis rather than a retainer
basis. Once a project is completed, there can be no assurance that a client
will engage MMPT for future services. As a result, a client that generates
substantial revenue for MMPT in one period may not be a substantial source of
revenue in a subsequent period. In addition, MMPT's clients generally have the
right to terminate their relationships with MMPT without penalty and with
relatively short or no notice. The termination of MMPT's business relationships
with any of its significant clients or a material reduction in the use of
MMPT's services by any such clients, could adversely affect MMPT's business,
financial condition and results of operations. MMPT'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 MMPT'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
MMPT's revenues on a pro forma basis for the nine months ended September 30,
1998.
Salaries and benefits represent the majority of MMPT'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.
24
<PAGE>
MMPT 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
MMPT has experienced revenue growth in recent periods, these growth rates may
not be sustainable or indicative of future operating results. In addition,
MMPT 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, MMPT expects to
continue to incur operating losses through 1999 or beyond. There can be no
assurance that MMPT will achieve or sustain profitability.
MMPT was formed by TNC in October 1996 to acquire Modem and to combine it
with certain of TNC's digital marketing operations, including its Northern
Lights Interactive division (the "TNC Units"). Modem 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, MMPT intends to acquire the
PTI Strategic Interactive Marketing Operations in exchange for certain of the
TNC Units (the "TNC Units Held for Transfer"), 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 TNC's acquisition of
the PTI Strategic Interactive Marketing Operations) at historical costs. PTI
was formed in December 1985 as a subsidiary of Bozell, which was acquired by
TNC 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 MMPT include the results of Modem, the TNC
Units, including the TNC Units Held for Transfer, and the PTI Strategic
Interactive Marketing Operations from their respective dates of acquisition by
TNC. The results of operations of the TNC Units Held for Transfer are
presented as Operating Results of TNC Units Held for Transfer in MMPT's
consolidated financial statements included elsewhere in this prospectus. The
financial statements of:
. Modem as of and for the years ended December 31, 1995 and 1996; and
. the PTI 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 MMPT.
Pro Forma Results of Operations
The following table sets forth certain pro forma statements of operations
data of MMPT for the years ended December 31, 1995, 1996 and 1997 and for the
nine months ended September 30, 1997 and 1998. The pro forma results of
operations data of MMPT presented below assume that the following transactions
each occurred on January 1, 1995:
. the combination of MMPT and Modem;
. the acquisition of the PTI Strategic Interactive Marketing Operations; and
. the disposition of the TNC Units Held for Transfer.
25
<PAGE>
The pro forma results of operations of MMPT also include the results of the TNC
Units, other than the TNC Units Held for Transfer (the "Retained TNC Units"),
from the dates of their inception. Management believes that the pro forma
statements of operations data may be useful to investors in evaluating the
financial performance of MMPT on an ongoing basis. Such pro forma data may not,
however, be indicative of the results of operations of MMPT 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 MMPT 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 MMPT
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.
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-
26
<PAGE>
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 Modem in
May 1998. Goodwill resulted from the combination of MMPT with Modem in December
1996 (the "Modem Combination") and is being amortized by MMPT over a 20-year
period. In connection with the Modem Combination, TNC is obligated to pay the
former owners of Modem 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 MMPT of up to $0.3 million per
quarter over 18 years.
Income Taxes. MMPT 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 MMPT 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 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
27
<PAGE>
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 MMPT'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
Combination and is being amortized over a 20-year period.
Income Taxes. MMPT'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 MMPT 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 Modem.
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 MMPT'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
Combination and is being amortized over a 20-year period.
Income Taxes. MMPT 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 MMPT did not recognize a tax benefit.
28
<PAGE>
Factors Affecting Operating Results
MMPT'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, MMPT has historically experienced revenue declines
from the fourth quarter of the preceding year as clients reestablish their
annual marketing and advertising budgets. MMPT expects this variation in
revenue to continue in the future.
MMPT'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, MMPT's relative mix of business, changes in MMPT's pricing strategies
or those of its competitors, employee utilization rates, changes in personnel
and other factors that are outside of MMPT's control. In addition, MMPT 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 MMPT'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 MMPT'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 TNC 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 MMPT'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 TNC 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 PTI Strategic Interactive Marketing Operations as a
result of the Combination, 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.
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 PTI Strategic Interactive Marketing Operations office and
general as a result of the Combination ($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 Modem in May 1998. Goodwill
resulted from the Modem Combination and is being amortized over a 20-year
period. In connection with the Modem Combination, TNC is obligated to pay the
former owners of Modem an aggregate of up to $18.6 million as additional
consideration upon
30
<PAGE>
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 TNC Units Held For Transfer. The operating loss of the
TNC 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. MMPT 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 TNC Units Held for Transfer, and, in 1998, losses of foreign subsidiaries
on which MMPT 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 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
Modem salaries and benefits as a result of the Modem 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 Modem office and general as
a result of the Modem Combination.
Amortization of Goodwill. Amortization of goodwill increased from zero in
1996 to $1.7 million in 1997. Goodwill resulted from the Modem Combination and
is being amortized over a 20-year period.
Operating Losses of TNC Units Held For Transfer. The operating loss of TNC
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. MMPT'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 the Retained TNC
Units, 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 TNC Units Held For Transfer. The operating loss of TNC
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. MMPT'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
MMPT historically has financed its operations primarily from funds generated
from operations and borrowings from TNC. At September 30, 1998, MMPT had a non-
interest bearing intercompany note payable to TNC of $6.0 million, which will
be repaid from the net proceeds of this offering. Pursuant to agreements
between TNC and its lenders, MMPT is subject to limitations on indebtedness
which could adversely affect MMPT'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 Modem's cash via the Modem
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 TNC of $0.5 million, $5.4
million, $0.7 million for the years ended December 31, 1995, 1996 and 1997,
respectively.
MMPT'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, MMPT 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 MMPT will depend on numerous factors, including the
rates at which MMPT 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. MMPT has various 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, TNC extended a credit facility to MMPT
allowing for revolving borrowings in the amount of up to $3.0 million to be
outstanding at any given time. The credit facility with TNC expires two years
from the date of completion of this offering, or sooner upon the occurrence of
certain events. See "Relationship with TNC and Certain Transactions--
Intercompany Agreements."
MMPT 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 MMPT 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. MMPT
has no agreements or commitments with respect to any such transactions.
Year 2000 Compliance
MMPT 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, MMPT 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. MMPT intends to replace these systems in 1999, and does not believe
that the cost of replacement will be material. As a result, MMPT 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 MMPT.
MMPT regularly conducts transactions and performs services that interface
directly with systems of its clients. MMPT 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 MMPT's clients to complete their Year 2000
compliance could cause them to reduce substantially their spending on
interactive marketing programs.
Furthermore, there can be no assurance that MMPT's suppliers will not
experience material business disruptions as a result of the Year 2000 issue
that could affect MMPT. In this regard,
33
<PAGE>
MMPT has asked each of its third-party suppliers to confirm that they are Year
2000 compliant. Substantially all of MMPT'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 MMPT's
ability to provide services to its clients.
MMPT 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 MMPT's assessment of
third party readiness in early 1999, MMPT will evaluate the necessity of
contingency plans based on the level of uncertainty regarding such compliance.
In the event MMPT's clients, intermediaries or vendors do not expect to be Year
2000 compliant, MMPT'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, MMPT
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 MMPT 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, MMPT 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
MMPT'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. MMPT currently believes that there will be no
impact from SFAS No. 133 on MMPT's earnings.
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BUSINESS
The following Business section contains forward-looking statements, which
involve risks and uncertainties. MMPT'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
Since 1987, MMPT has been a leading provider of marketing programs that are
delivered over the Internet and other electronic media, and that facilitate
two-way communication between our clients and their customers. We refer to
these programs in our industry as digital interactive marketing solutions. By
developing marketing programs that incorporate advanced communication
technologies, MMPT enables its clients to establish, retain and manage customer
relationships. Marketing programs offered by MMPT 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 world-class brands. MMPT 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 MMPT's interactive marketing services in action, please see the
screen shots on the inside front cover of this prospectus.
MMPT'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 MMPT are delivered primarily
through the Internet, but also through other digital channels such as corporate
intranets, proprietary online services, CD-ROMs and interactive kiosks. MMPT
has received numerous industry awards for its interactive marketing campaigns,
websites, banner advertisements and CD-ROMs, including the Zima.com campaign
and website, various AT&T websites and campaigns, the iVillage.com "About Work"
campaign, the Sony PlayStation campaign and the Diet Pepsi "Convert a Million"
campaign. In 1998, MMPT won the "Interactive Agency Of The Year" award from the
Internet Advertising Bureau, a trade association, and MMPT is the only company
to win two consecutive "CASIE" awards for interactive marketing.
MMPT focuses on promoting long-term client relationships by devising programs
that can be integrally linked to its clients' business functions. MMPT 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, MMPT works primarily with a select group of
established Fortune 500 clients with world class brands committed to
interactive marketing, as well as companies with new online business models.
MMPT's clients include AT&T; Citibank; Delta Air Lines; E*Trade; IBM; Intel; JC
Penney; John Hancock; Sony and Unilever.
MMPT's predecessor, Modem, was founded more than ten years ago by pioneers in
interactive marketing and electronic commerce. In 1998, the founders of Modem
created the first interactive marketing communications company, by delivering
interactive electronic commerce applications that
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allowed clients to engage their prospective and current customers in two-way
marketing-oriented communication over the Internet. MMPT combines Modem with a
portion of TNC's Northern Lights Interactive division and the strategic
interactive marketing operations of PTI. MMPT maintains a relationship with
TNC, the sixth largest advertising agency holding company in the world,
pursuant to which TNC currently intends to refer its traditional advertising
services clients to MMPT for strategic interactive marketing services. The TNC
network of companies includes Bozell and FCB Worldwide. MMPT 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. MMPT 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
MMPT believes that the emergence of the Internet has stimulated demand for
high quality, cost effective digital interactive marketing solutions. MMPT
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 and services which can be accessed online. 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 online advertising revenue in the
United States in 1997 was $1.1 billion and expects this amount to grow to $5
billion in 2000.
Increased Emphasis on Consistent Global Marketing for World-Class Brands
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 World-Class
Brands
MMPT 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 MMPT with significant market
opportunities and positions it for future growth.
THE MMPT SOLUTION
MMPT is a leading 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 world class brands. MMPT 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. MMPT'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. MMPT's solutions offer clients the following benefits:
Long-Term Strategic Marketing Relationships. MMPT 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, MMPT 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, MMPT 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. MMPT'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 Web site 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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MMPT 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. MMPT offers comprehensive services for
clients seeking to create innovative marketing and customer management programs
incorporating advanced digital media and communications technologies. MMPT
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 MMPT
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. MMPT 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, MMPT
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, MMPT
places great importance on recruiting and retaining talented employees. In
addition to its design capabilities, MMPT believes that its innovative use of
sophisticated technology has enabled it to provide superior marketing
communications services. MMPT's development staff continues to design tools and
applications to provide marketing communication services quickly and
efficiently. MMPT has built its industry-leading position through a "legacy of
firsts" 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. MMPT 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, MMPT 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, MMPT 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.
Strategy
MMPT's objective is to be the leading provider of digital interactive
marketing solutions. The key elements of MMPT's strategy include the following:
Develop and Maintain Long-Term Client Relationships. MMPT has been able to
use its comprehensive approach to digital interactive marketing solutions as an
effective tool in forming its client relationships. MMPT 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 part of
this strategy, MMPT's account professionals pursue close relationships with
each client's senior management. For example, MMPT's relationship with JC
Penney began in 1988. MMPT's
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relationship with AT&T began in 1992 and has expanded to its current status
with MMPT acting as AT&T's interactive agency of record since 1995. MMPT has
also developed ongoing, long-term relationships with Citibank, Delta Airlines,
IBM, and John Hancock, among other companies. MMPT intends to continue to
leverage its experience and expertise to continue to build long-term client
relationships.
Maintain Leadership Position in Digital Interactive Marketing. Since its
founding, MMPT has combined its full service interactive marketing solutions
with technology expertise to provide innovative solutions to its clients. MMPT
intends to maintain its leadership position in digital interactive marketing
through the continuing 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. MMPT believes that its leadership position provides it with a
competitive advantage in the emerging digital interactive marketing industry.
Continue to Attract and Retain Superior Professional Talent. MMPT believes
that its culture is particularly attractive to professionals seeking to use
leading-edge technology to develop digital interactive marketing solutions.
MMPT 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. MMPT 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, MMPT 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. MMPT 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, MMPT is continuing to build its network of offices. MMPT 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 MMPT with a substantial competitive advantage.
MMPT 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
MMPT focuses on making its digital interactive marketing solutions an
integral part of its clients' marketing strategies in order to promote long-
term client relationships. MMPT combines its strategic interactive marketing
knowledge with its technical expertise to provide high impact, cost-effective
digital interactive marketing and customer management solutions. MMPT uses
dedicated client service teams with experience in strategic consulting,
creative, media, technology and production disciplines, led by experienced
account directors, to provide its integrated digital marketing communication
services. MMPT'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. MMPT 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 MMPT'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. MMPT 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. MMPT'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. MMPT 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, MMPT
combines creative marketing concepts and interactive technology to provide
customized marketing programs for its clients. The concepts and plans
articulated by MMPT provide the basis for the development of interactive
marketing programs.
Interactive Marketing Program Execution. Based on the interactive strategy
and concepts, MMPT 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 MMPT creates or services entire websites for clients;
. banner advertising, where MMPT creates discrete "banner" size
advertisements for clients to be posted on the websites of others; and
. e-mail, where MMPT designs and enables client advertising by means of
both in-bound and out-bound mail messages.
MMPT 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. MMPT'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." MMPT 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.
MMPT 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. MMPT'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, MMPT 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 MMPT 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, MMPT has positioned itself to gain insights
into its clients' businesses. MMPT 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. MMPT believes that its continuous program
improvement builds the foundation for recurring client business.
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MMPT is committed to establishing and maintaining high-quality creative and
technical standards for its digital interactive marketing services. MMPT 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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MMPT Clients
MMPT'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 world-class brands to
companies with new online business models. MMPT'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 five 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
Five largest clients combined............ 56.8 54.8
</TABLE>
The following is a list of MMPT clients within the primary industries served
by MMPT. Each listed client accounted for more than $100,000 of MMPT's revenues
in the nine months ended September 30, 1998.
Communications Services
AT&T BancBoston Robertson Stephens
Citibank
Computer Hardware E*Trade
John Hancock
IBM
Women.com
Intel
Travel
Consumer Products/Retail
Delta Airlines
JC Penney
Kodak
SC Johnson
Sony
Unilever
MMPT generally performs multiple projects for clients under fixed-fee
contracts, and MMPT's clients ordinarily hire MMPT on an assignment basis
rather than on a retainer basis. Some clients may require exclusivity
arrangements, whereby MMPT may be limited in its ability to provide services to
companies who may be competitors of MMPT's clients. In addition, MMPT's clients
generally have the right to terminate their relationships with MMPT without
penalty and on relatively short or no notice. Once an assignment is completed
there can be no assurance that a client will engage MMPT for further services.
For example, MMPT provides services to AT&T and Citibank pursuant to one-year,
renewable contracts. AT&T or Citibank may terminate its agreement with MMPT
upon 90 days' prior written notice to MMPT. While MMPT is not aware of plans by
any of its significant clients to terminate their use of MMPT's services, the
termination of MMPT's business
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relationship with any of its significant clients, including AT&T or Citibank,
or a material reduction in the use of MMPT's services by a significant client
could have a material adverse effect on MMPT's business, financial condition or
results of operations.
Client Case Studies
The following client case studies illustrate marketing solutions developed by
MMPT for three long-standing clients for whom MMPT has provided its full range
of services, including:
. strategic consulting and research;
. strategy development and planning;
. interactive marketing program execution; and
. continuous program measurement and data analysis.
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. MMPT 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 MMPT in 1992 to access MMPT'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. MMPT believes that as a result of its initiatives, AT&T is one of the
largest advertisers on the Internet today.
AT&T selected MMPT 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. MMPT'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.
MMPT's responsibilities extend through several of AT&T's business units. MMPT'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, MMPT 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. MMPT believes that AT&T has experienced increased brand
awareness, improved client acquisition and retention and increased sales as a
result of MMPT's marketing programs.
JC Penney
JC Penney is one of the largest retailers in the United States. JC Penney
first hired MMPT 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 MMPT 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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The goal of MMPT's initial project was to build an online brand image for JC
Penney and ultimately draw shoppers to the site. In the process, MMPT 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. MMPT'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. MMPT 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, MMPT 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 MMPT 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.
MMPT 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," MMPT 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, MMPT was able to create an
extensive database of potential clients with many of their financial needs
outlined. MMPT believes that the Internet has had now become one of Hancock's
principal sources of new customers. Furthermore, MMPT 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.
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<PAGE>
Strategic Relationships
MMPT has entered into several strategic relationships with other companies
whose products or services are included as part of the interactive marketing
solutions that MMPT delivers to its clients. MMPT seeks to identify strategic
partners whose products or services complement MMPT's program offerings and
enable clients to engage in more effective digital interactive marketing. As
part of its strategic relationships, MMPT participates in the development and
specification of its partners' new and existing product and service offerings
in order to enhance their utility for MMPT's clients.
Use of Technology
MMPT's background in developing e-commerce solutions for online services, the
skills of its technology professionals and its legacy of firsts have helped
MMPT to utilize technology to further the business and marketing objectives of
its client base. MMPT utilizes technology to implement its clients' interactive
marketing efforts and to help its clients manage their customer relationships.
MMPT makes extensive use of third-party technologies and applications as part
of the solutions it engineers for its clients. MMPT 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 MMPT provides
for its clients, while increasing their scalability as well as the speed with
which MMPT can bring them to market. MMPT 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
MMPT is currently implementing various aspects of its service delivery
infrastructure, which includes financial and project management systems. MMPT
believes that these systems will enhance its ability to manage its engagements
and monitor the utilization of its professional staff. In addition, MMPT is in
the process of installing a secure global network which provides access to
MMPT's proprietary corporate memory application, which management believes will
significantly improve consistent handling of clients and business development
efforts globally. The above, coupled with MMPT's existing proprietary process
for service delivery across MMPT, will further improve client and business
management globally.
47
<PAGE>
Competition
The market for our services is very competitive 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. Many traditional
advertising agencies have started to develop digital media and interactive
communications capabilities. 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
MMPT'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 MMPT will correctly
identify which technologies will achieve market acceptance, that such new
technologies will be made available to MMPT or that such technologies can be
economically applied by MMPT on a timely basis. Despite MMPT's efforts to
control access to its technologies, it may be possible for a third party to
copy or otherwise obtain and use MMPT'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 MMPT's intellectual property rights, to
protect MMPT'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 MMPT's business,
financial condition or results of operations.
Modem Media . Poppe Tyson, Inc., Modem Media, Poppe.com, TN Technologies Inc.
and Northern Lights Interactive are trademarks or tradenames of MMPT.
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<PAGE>
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. MMPT must 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 MMPT's services or otherwise have a material adverse
effect on MMPT's business, results of operations and financial condition.
Employees
In order to maintain high levels of creativity and quality, MMPT places great
importance on recruiting and retaining talented employees. As of December 31,
1998, MMPT had approximately 400 full-time employees. MMPT also hires temporary
employees and contract service providers as necessary. None of MMPT's employees
is represented by a labor union, and MMPT considers its employee relations to
be good.
MMPT'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. MMPT has at times
experienced, and continues to experience, difficulty in recruiting sufficient
numbers of qualified personnel. Although MMPT's executive officers have entered
into employment agreements with MMPT which contain non-competition provisions,
there can be no assurance that any of these executives will not voluntarily
terminate their employment with MMPT. 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 MMPT's business,
financial condition or results of operations. If one or more of MMPT's key
employees resign from MMPT 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 MMPT 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 MMPT's
business, financial condition or results of operations. See "Risk Factors--We
Depend on Our Key Management Personnel for Our Future Success."
49
<PAGE>
Facilities
MMPT'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, MMPT has secured a lease for a 54,300 square foot
facility for occupancy in January 1999. MMPT has an option in 2000 to enter
into a 10-year lease for an additional 25,000 square feet in this facility.
MMPT maintains additional offices in New York, Chicago, San Francisco, Toronto,
Hong Kong and London.
MMPT believes that its current facilities, along with facilities currently
subject to negotiation, will be adequate to meet MMPT's requirements for the
foreseeable future. There can be no assurance that MMPT will be successful in
obtaining additional space, if required, or if such space is obtained that it
will be on terms acceptable to MMPT.
Legal Proceedings
MMPT is not a party to any material legal proceedings.
50
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of MMPT 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
MMPT since November 1998. From October 1996 to November 1998, Mr. O'Connell was
President and Chief Operating Officer and a director of MMPT. From 1987 to
October 1996, Mr. O'Connell was a Managing Partner of Modem, 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 MMPT since
November 1998. From October 1996 to November 1998, Mr. Ahlers was President of
the Relationship Technology Group, a division of MMPT, and a director of MMPT.
From 1987 to October 1996, Mr. Ahlers was a Managing Partner of Modem, 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 MMPT since
November 1998. From October 1996 to November 1998, Mr. Allen was President of
MMPT's Modem Media division and a director of MMPT. From 1992 to October 1996,
Mr. Allen served as a Managing Partner of Modem Media. From 1989 to 1992, Mr.
Allen was the Director of Business Development at Modem Media. Mr. Allen
received a B.A. in English from Gettysburg College.
Steven C. Roberts has served as Chief Financial Officer of MMPT since August
1998. From January 1997 to August 1998, Mr. Roberts served in various
capacities with MMPT, 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 MMPT since November 1998 and has been
Executive Vice President, Chief Financial Officer, of TNC since 1997. From 1993
to 1997, Mr. Seeley was Chief Executive Officer of the Alexander Consulting
Group. From 1988 to 1993, Mr. Seeley was
51
<PAGE>
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 MMPT since November 1998 and
has been Executive Vice President, Corporate General Counsel, of TNC 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 MMPT since November 1998,
as a director of TNC 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 MMPT
pursuant to an agreement with TNC entered into in connection with the formation
of MMPT in December 1996. MMPT and TNC agreed in 1996 to cause each of Messrs.
O'Connell and Allen to be elected to MMPT's Board of Directors as long as each
serves as an executive officer of MMPT and until their collective ownership of
MMPT'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 MMPT's Board of Directors. There are
no family relationships among any of the directors or officers of MMPT.
MMPT's Board of Directors currently has two vacancies, which MMPT'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 MMPT or TNC to the
Board of Directors within 90 days of the date of this prospectus and is
required to do so to maintain MMPT's listing on the Nasdaq National Market. If
MMPT does not add such independent directors within 90 days following the
offering, MMPT 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, MMPT directors who are not also
employees of MMPT or TNC will be paid an annual retainer of $10,000. Directors
who are also employees of MMPT or TNC will not receive any additional
compensation for serving on the Board of Directors.
Committees of the Board of Directors
MMPT'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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<PAGE>
MMPT intends to establish an Audit Committee within 90 days following this
offering composed of at least two directors, which is required to maintain
MMPT's listing on the Nasdaq National Market. No member of the Audit Committee
will be an employee of MMPT or TNC or a director of TNC. The Audit Committee
will report to the Board regarding the appointment of the independent public
accountants of MMPT, the scope and fees of prospective annual audits and the
results thereof, compliance with MMPT's accounting and financial policies and
management's procedures and policies relative to the adequacy of MMPT'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 MMPT. In the past, compensation of
executive officers of MMPT has been determined by directors of MMPT who were
not officers of MMPT. No interlocking relationship exists between MMPT'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
MMPT'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.
MMPT's Bylaws provide that MMPT shall indemnify its directors and officers
and may indemnify its employees and agents to the fullest extent permitted by
Delaware law.
MMPT 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, MMPT 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
MMPT, any subsidiary of MMPT or any other company or enterprise to which the
person provides services at the request of MMPT. MMPT believes that these
provisions and agreements are necessary to attract and retain qualified
individuals to serve as directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of MMPT where indemnification will be
required or permitted. MMPT is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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<PAGE>
Executive Compensation and Employment Agreements
The following table sets forth information concerning the compensation
received for services rendered to MMPT by its current Chief Executive Officer
and each of the other most highly-compensated executive officers of MMPT 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 MMPT from
January through November 1998. In November 1998, Mr. O'Connell was
appointed Chairman and Chief Executive Officer of MMPT.
(2) Mr. Allen served as President, Modem Media, from January through November
1998. In November 1998, Mr. Allen was appointed President of MMPT.
(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 MMPT.
(4) Mr. Roberts served as Vice President, Operations, of MMPT from January
through August 1998. In August 1998, Mr. Roberts was appointed Chief
Financial Officer of MMPT.
(5) MMPT intends to pay a bonus to each of the executive officers for services
performed in fiscal 1998 based upon MMPT'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 MMPT'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 MMPT'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, MMPT 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 MMPT'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 MMPT 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, MMPT 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
MMPT 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
MMPT 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, MMPT may grant stock options
and stock purchase rights to MMPT'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, MMPT 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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<PAGE>
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 MMPT, 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 MMPT 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 MMPT'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 MMPT, MMPT shall have an
option to repurchase his or her shares at the original price paid by the
purchaser.
In the event MMPT 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, MMPT 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 MMPT or a subsidiary of MMPT
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 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 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 MMPT. The purchase plan will terminate in 2009 unless sooner
terminated by MMPT's Board of Directors.
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<PAGE>
RELATIONSHIP WITH TNC AND CERTAIN TRANSACTIONS
Relationship with TNC
Upon completion of the offering, TNC 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 MMPT. As
long as TNC controls a majority of the voting power of MMPT, it will be able,
acting alone, to:
. elect at least a majority of the Board of Directors of MMPT;
. amend MMPT'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 MMPT and the outcome
of most matters submitted for a stockholder vote.
Currently, two of the five directors of MMPT (Messrs. Seeley and Theophilos)
are also members of management of TNC, and are compensated by TNC in connection
with their employment by TNC. In addition, one of the other current directors
of MMPT (Mr. Elliman) is a director of TNC and was selected by TNC. These
directors may have conflicts of interest in addressing certain business
opportunities and strategies in circumstances where MMPT's and TNC's interests
differ. MMPT has not adopted any formal plan or arrangement to address such
potential conflicts of interest.
The Modem Combination
TNC formed MMPT in October 1996 to acquire Modem from Gerald M. O'Connell,
MMPT's current Chairman and Chief Executive Officer, Douglas C. Ahlers, MMPT's
current Executive Vice President, Robert C. Allen, II, MMPT's current
President, and one other unaffiliated owner (the "Limited Partners") and to
consolidate TNC's digital interactive marketing operations. Accordingly, in
December 1996, TNC sold to MMPT its digital interactive marketing operations
and its technology development operations. In connection with the acquisition
by TNC of Modem and the sale to MMPT of TNC's digital interactive marketing
operations, TNC and the Limited Partners received the following consideration:
TNC
. 5,648,624 shares of Class B common stock of MMPT.
Limited Partners
. an aggregate of 2,415,646 shares of Class A common stock of MMPT;
. $24.4 million of common stock of TNC; and
. an additional $4.0 million of common stock of TNC and up to $19.0
million cash from TNC upon consummation of an initial public offering
of MMPT (including this offering).
57
<PAGE>
THE COMBINATION AND RELATED TRANSACTIONS
Prior to this offering, MMPT intends to complete the following transactions
effective as of October 1, 1998:
. PTI will form a wholly-owned subsidiary ("PTI Operations Holding
Company") and contribute the PTI Strategic Interactive Marketing
Operations and fixed assets of $1.6 million to PTI Operations Holding
Company.
. Bozell will forgive approximately $5,275,000 of intercompany indebtedness
owed to Bozell by the PTI Strategic Interactive Marketing operations.
. PTI will declare a dividend of all the outstanding capital stock of PTI
Operations Holding Company to Bozell, which in turn will declare a
dividend of all the outstanding capital stock of PTI Operations Holding
Company to TNC, so that PTI Operations Holding Company will become a
direct, wholly-owned subsidiary of TNC.
. PTI Operations Holding Company will be merged with and into MMPT, with
MMPT succeeding to all the business and operations of PTI Operations
Holding Company, in exchange for the issuance of 1,666,288 shares of
Class B common stock of MMPT to TNC.
. Assets and liabilities related to TNC Units Held for Transfer, originally
contributed by TNC to MMPT in connection with the Modem Combination, will
be returned by MMPT to TNC and its affiliates in exchange for 856,774
shares of Class B common stock of MMPT previously held by TNC and its
affiliates.
INTERCOMPANY AGREEMENTS
In the normal course of business, MMPT and TNC have from time-to-time entered
into various business transactions and agreements, and MMPT and TNC may enter
into additional transactions in the future. The following is a summary of each
of the material agreements that MMPT and TNC have entered into in connection
with the Combination. Such summaries are qualified in their entirety by those
agreements, which are filed as exhibits to the registration statement of which
this prospectus is a part.
Administrative Services Agreement. Under an Administrative Services
Agreement, TNC will provide various administrative functions and other services
to MMPT, including tax preparation, insurance, treasury, corporate support,
legal, and debt and lease guarantees. During the period in which TNC performs
administrative functions for MMPT, expenses associated with such functions will
be charged to MMPT based on rates and estimates set forth on schedules attached
to the Administrative Service Agreement. MMPT may terminate this agreement at
any time upon 90 days' prior written notice, and TNC may terminate the
agreement 12 months following the Combination, but must give 180 days' written
notice of such intent to terminate.
Intercompany Credit Arrangements. MMPT and TNC are parties to certain
intercompany credit agreements. In August 1998, TNC extended a credit facility
to MMPT 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 TNC's cost of
borrowings, plus two percent. The credit facility with TNC 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." MMPT provides advances to TNC under an Intercompany Demand Note
from time to time upon TNC's request and at MMPT'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.
58
<PAGE>
Sublease with Bozell. MMPT has entered into a sublease with Bozell pursuant
to which MMPT 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. MMPT has entered into an agreement with Bozell
pursuant to which Bozell has agreed, for a period of three years, to provide
services to MMPT's clients through its office in Sao Paolo, Brazil as requested
by MMPT. In return, MMPT 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, MMPT and TNC entered into an agreement providing for
unitary state tax sharing arrangements.
Parent Company Guarantees. Commencing on July 1, 1998, TNC has guaranteed
payment on behalf of MMPT under operating and other leases at a fee of 0.5% of
the amount guaranteed.
MMPT believes that all of the transactions set forth above were made on terms
no less favorable to MMPT than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between MMPT 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 MMPT than could be obtained from unaffiliated third parties.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of MMPT's common stock as of December 31, 1998 and as
adjusted to reflect the sale of shares of Class A common stock by MMPT offered
hereby, by:
. each person or entity who is known by MMPT to beneficially own five
percent or more of the outstanding shares of either class of common stock
of MMPT;
. each director;
. each executive officer; and
. all directors and executive officers of MMPT 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 TNC.
(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 TNC
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 TNC
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
TNC 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 MMPT, which are
exercisable within 60 days of December 31, 1998.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to MMPT's Certificate of Incorporation, MMPT 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 MMPT'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 MMPT'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 MMPT 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 MMPT'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 MMPT,
MMPT 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 MMPT, MMPT 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.
61
<PAGE>
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 MMPT, whether voluntary or involuntary, after payment of the
debts and other liabilities of MMPT and making provision for the holders of
preferred stock, if any, the remaining assets of MMPT 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. MMPT'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. MMPT'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 MMPT. MMPT currently has no plans to issue any shares of preferred
stock.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
MMPT 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
62
<PAGE>
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 MMPT's Certificate of
Incorporation nor the Bylaws exempt MMPT 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 MMPT to negotiate in advance with the Board
of Directors of MMPT 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 MMPT 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. MMPT's's Certificate of
Incorporation and Bylaws provide that any action required or permitted to be
taken by the stockholders of MMPT 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.
MMPT's's Certificate of Incorporation may be amended with the approval of a
majority of the Board and the holders of a majority of MMPT'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 MMPT'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 TNTI and Modem in December
1996 (the "Modem Combination"), MMPT and TNC 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 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 Combination.
63
<PAGE>
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
MMPT'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 MMPT 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 MMPT 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. MMPT's Bylaws
also contain provisions indemnifying the directors and officers of MMPT to the
fullest extent permitted by the Delaware General Corporation Law. MMPT 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.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for MMPT's common
stock. MMPT 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, MMPT 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
MMPT, 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 MMPT 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, MMPT 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
MMPT or the lock-up agreements described below. See "Management--Stock Plans--
1997 Stock Option Plan."
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<PAGE>
Notwithstanding the foregoing, in connection with this offering, each of
MMPT, TNC and its affiliates, and MMPT'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 MMPT.
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."
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<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 MMPT, subject to the terms
and conditions of the underwriting agreement, to purchase from MMPT 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 MMPT 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 MMPT 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. MMPT 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 MMPT 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. MMPT 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 MMPT, the underwriters have
reserved up to shares of Class A common stock to be issued by MMPT and
offered hereby for sale, at the initial public offering price, to directors,
officers, employees, business associates and related
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<PAGE>
persons of MMPT. 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 MMPT 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 MMPT 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 MMPT's stockholders providing consent to the sale of
shares prior to the expiration of the lock-up period.
Future Sales. In addition, MMPT has agreed that during the lock-up period
MMPT 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 MMPT'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 MMPT's common stock. Consequently, the public offering price for the
Class A common stock offered by this prospectus will be determined through
negotiations among MMPT and the representatives of the underwriters. Among the
factors to be considered in such negotiations are prevailing market conditions,
certain financial information of MMPT, market valuations of other companies
that MMPT and the representatives believe to be comparable to MMPT, estimates
of the business potential of MMPT, the present state of MMPT's development and
other factors deemed relevant.
Stabilization. The representatives of the underwriters have advised MMPT
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 MMPT 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 MMPT 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
MMPT 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 MMPT 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 MMPT believes these industry publications to be reliable,
MMPT has not independently verified such data. MMPT 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
PTI Strategic Interactive Marketing Operations
Report of Independent Public Accountants................................ F-33
Balance Sheets as of December 31, 1996 and 1997......................... F-34
Statements of Operations for the years ended December 31, 1996 and
1997................................................................... F-35
Statements of Changes in Equity (Deficit) for the years ended December
31, 1996 and 1997...................................................... F-36
Statements of Cash Flows for the years ended December 31, 1996 and
1997................................................................... F-37
Notes to Financial Statements........................................... F-38
</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 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
TNC 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 and
$2,974,000,
respectively.......... 32,161,000 31,645,000 33,600,000 33,600,000
Net assets of TNC
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 TNC............. -- 729,000 1,212,000 7,212,000
Due to former Modem
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 TNC,
non-interest
bearing............... 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
TNC 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.... 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 PTI
Strategic Interactive
Marketing Operations... (2,980,000) (34,000) (3,014,000)
Payment to former Modem
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
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 TNC
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 TNC.. (124,000) (1,555,000) -- -- --
Distributions to former
Modem 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. ("MMPT" or the "Company") was formed by True
North Communications Inc. ("TNC") in 1996 to combine certain of TNC's strategic
interactive marketing and website design and maintenance units with Modem Media
Advertising Limited Partnership ("Modem") in a business combination accounted
for under the purchase method (see Note 3). Accordingly, Modem has been
reflected in the MMPT financial statements since December 31, 1996. Modem is a
predecessor entity of MMPT, 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 "PTI Strategic Interactive
Marketing Operations") from TNC in exchange for certain of the Company's
subsidiaries and operations (the "TNC Units Held for Transfer") and an
aggregate of 809,514 shares of Class B common stock (the "Combination") (see
Note 15). The PTI Strategic Interactive Marketing Operations consist of the
strategic interactive marketing operations of Poppe Tyson Inc. ("PTI") in the
United Kingdom, Hong Kong and the U.S., and certain fixed assets. The
historical financial results of the PTI 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 TNC. All adjustments necessary for the fair
presentation of the consolidated financial statements related to the PTI
Strategic Interactive Marketing Operations are reflected herein. The
accumulated deficit arising from the operating results of the PTI Strategic
Interactive Marketing Operations is reflected as a reduction in paid-in capital
in the accompanying consolidated balance sheet at September 30, 1998. The PTI
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.
PTI was formed in December 1985 as a subsidiary of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("Bozell"), which was acquired by TNC in December 1997 in a
business combination accounted for under the pooling-of-interests method. PTI
includes the strategic interactive marketing operations and website production
and maintenance businesses of Bozell.
Prior to undertaking the Combination, Company and TNC management agreed that
the value of the TNC Units Held for Transfer would be optimized under TNC
management, as the strategic focus of the underlying businesses would not be
complementary to the Company. TNC and the Company have analyzed the future cash
flows of the TNC Units Held for Transfer and believe the investment is fully
realizable at this time. Because the Combination occurred among TNC 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 PTI Strategic Interactive Marketing Operations came under common control.
In contemplation of the Combination effected as of October 1, 1998, the net
assets of the TNC Units Held for Transfer have been presented as one line 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 the TNC Units Held for Transfer
have been presented as one line in the historical statements of operations.
F-7
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial data of the TNC Units Held for Transfer 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.
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
F-8
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 contracts. 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 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
F-9
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 and TNC 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 MMPT outstanding upon consummation of the
transaction with TNC 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 initial public offering. 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.
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.
F-10
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, TNC, through the Company, acquired a 64% interest in
Modem for $32,590,000. The consideration was comprised of $24,387,000 in common
stock of TNC and a 36% interest in certain operations of the Company valued at
$8,203,000 by independent appraisal experts. In addition, TNC 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 TNC common stock to the former owners
of Modem upon completion of an initial public offering of common stock and/or
certain other events. TNC contributed its interests in Modem to the Company in
exchange for shares of Class B common stock. The remaining interests in Modem
were contributed by its former owners to the Company in exchange for shares of
Class A common stock. The above transactions resulted in TNC holding 4,839,110
shares of Class B common stock of the Company and the former owners of Modem
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 TNC 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 Modem acquired by
TNC 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 Modem not acquired by TNC are reflected at historical costs. The
difference 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
F-11
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 PTI Strategic
Interactive Marketing Operations in exchange for the TNC Units Held for
Transfer and 809,514 shares of stock of the Company (see Note 1). The PTI
Strategic Interactive Marketing Operations consist of the strategic interactive
marketing operations of PTI 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 PTI 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 Modem and the PTI Strategic Interactive Marketing Operations were
consummated on January 1, 1995 (see Note 1).
<TABLE>
<CAPTION>
PTI Strategic
Interactive
The Marketing Pro Forma
Company Modem 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 Modem were it to have occurred on
January 1, 1995 and the tax provision that would have been recorded on the
earnings of Modem had it ceased existing as a limited partnership as of such
date.
4. Debt
Restrictions on Indebtedness--Pursuant to certain agreements between TNC 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.
F-12
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Lines of Credit--In June 1997, Modem 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. TNC 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.
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
F-13
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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>
F-14
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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>
F-15
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 TNC have from time-to-time
entered into various business transactions and agreements, and the Company and
TNC may enter into additional transactions in the future. The following is a
summary of each of the material agreements between the Company and TNC.
Administrative Services Agreement. Under an Administrative Services
Agreement, TNC will provide various administrative functions and other services
to the Company, including tax preparation, insurance, treasury, corporate
support, legal, and debt and lease guarantees. During the period in which TNC
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 TNC 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 TNC are parties to certain
intercompany credit agreements. In August 1998, TNC 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 TNC's
cost of borrowing plus two percent. The credit facility with TNC 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." In May 1998, the Company agreed to provide advances to TNC
from time to time upon TNC'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 three years, to
provide services to the Company's clients through its office in Sao Paolo,
Brazil as requested by the Company. In return, the
F-16
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 TNC entered into an agreement
providing for certain unitary state tax sharing arrangements.
Parent Company Allocations--TNC charges each of its operating units for
general corporate expenses incurred at the parent company level, including
costs to administer certain 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. TNC 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, TNC 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:
TNC Note Receivable--On May 26, 1998, the Company entered into an agreement
to loan up to $3,000,000 to TNC under a demand note facility. The Company
receives payments from TNC 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 TNC Note Receivable in the accompanying
consolidated balance sheets.
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 PTI.
Due to TNC--On December 31, 1996, the Company entered into a one-year
agreement with TNC, whereby TNC provided the Company with a credit facility.
The agreement has been extended
F-17
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
indefinitely beyond the initial one-year term by mutual consent and under the
terms outlined hereafter. The Company receives advances from TNC 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, TNC 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 the net assets of
the TNC 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 TNC 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 Partners--In December 1996, prior to the acquisition by
TNC, the partners of Modem declared a distribution of $1,564,000, which was
paid in cash on January 2, 1997.
Note Payable to TNC--On December 31, 1996, TNC capitalized intercompany
payables of $8,454,000 from the Company to TNC into equity, including
$6,394,000 recorded in the balance sheets of the TNC Units Held for Transfer.
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 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.
F-18
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, September 30,
1997 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 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 PTI 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
F-19
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
in the consolidated group of which TNC is the common parent. The PTI 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 TNC.
Prior to 1997, the Company was included in the consolidated federal and state
tax returns of TNC. The settlement of tax provisions or benefits with TNC
occurred in the subsequent year after TNC filed its related consolidated tax
returns. Income taxes receivable or payable therefore represent amounts due
from or to TNC. 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)
TNC 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)
============ ============ ============ ============ ============
The (benefit) provision for income taxes consists of the following:
<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
TNC 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
TNC 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)
TNC 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)
TNC 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
TNC 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 Modem in 1996 and the PTI 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
initial public offering. 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 TNC to purchase
the PTI Strategic Interactive Marketing Operations effective October 1, 1998 in
exchange for the net assets of the TNC Units Held for Transfer 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;
. the forgiveness of $5,275,000 of intercompany payables;
F-23
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. the sale to TNC of the TNC Units Held for Transfer;
. the issuance of an aggregate of 809,514 shares of Class B common stock to
TNC; and
. the reclassification of a $6,000,000 note payable to TNC 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
("Modem"), 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. Modem is a
technology-based marketing communications firm that provides interactive
marketing solutions to its customers.
Effective December 31, 1996, True North Communications Inc. ("TNC") acquired
a 64% interest in Modem directly from the partners. TNC contributed its
ownership in Modem and certain other businesses to its subsidiary, TN
Technologies Inc. ("TNTI"), 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--Modem'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 Modem'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. Modem 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--Modem is a limited partnership pursuant to the provisions of
the Internal Revenue and Connecticut State Tax Codes. Consequently, any federal
and state income taxes applicable to Modem's income are payable directly by its
partners. Taxable income to the partners,
F-30
<PAGE>
MODEM MEDIA ADVERTISING LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 Modem'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
Modem'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
Modem 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>
Modem'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.
Modem 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 Modem's obligation, approximate $58,000 at December 31, 1996.
4. Retirement Benefit Plan
Since January 1, 1994, Modem 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. Modem 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--Modem's partners are also employees of Modem and their
compensation is included in the accompanying statements of income as
"Guaranteed payments to partners." Distributions of Modem's net income to the
partners are included in the financial statements as "Distributions."
Due to Partners--In December 1996, the partners of Modem declared a
distribution of $1,564,000, which was paid in cash on January 2, 1997.
7. 1996 Option Plan
In October 1996, Modem established the Modem Media Advertising Limited
Partnership 1996 Option Plan and granted fully vested options to certain
employees to purchase interests in Modem. 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 Modem's ownership interests of approximately $9.00 per share which is
derived from the acquisition of Modem by TNC in December 1996.
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To True North Communications Inc.:
We have audited the accompanying balance sheets of PTI 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 PTI 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 PTI 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-33
<PAGE>
PTI 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-34
<PAGE>
PTI 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-35
<PAGE>
PTI 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-36
<PAGE>
PTI 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-37
<PAGE>
PTI STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
1. Business and Significant Accounting Policies
Description of business--Poppe Tyson, Inc. ("PTI") was formed in December
1985 as a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Bozell"),
which was acquired by True North Communications Inc ("TNC") in December 1997 in
a business combination accounted for under the pooling-of-interests method. PTI
includes the strategic interactive marketing operations and web site production
and maintenance businesses of Bozell.
The strategic interactive marketing operations of PTI (the "PTI Strategic
Interactive Marketing Operations" or the "Company") consist of PTI'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 PTI Strategic Interactive Marketing Operations
were purchased by Modem Media . Poppe Tyson, Inc. ("MMPT"), formerly TN
Technologies, Inc. This transaction is further discussed in Notes 1 and 3 to
the consolidated financial statements of MMPT 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-38
<PAGE>
PTI 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-39
<PAGE>
PTI 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 MMPT (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
MMPT 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-40
<PAGE>
PTI STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Subsequent Events
Effective October 1, 1998, the PTI Strategic Interactive Marketing Operations
were purchased by MMPT, formerly TN Technologies, Inc. This transaction is
further discussed in Notes 1 and 3 to the consolidated financial statements of
MMPT appearing elsewhere in this registration statement.
F-41
<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 Modem and
Messrs. O'Connell and Ahlers, the stockholders of Modem Media, Inc., the
general partner of Modem, in exchange for a portion of their respective
limited and general partnership interests in Modem and all of the capital
stock of Modem Media Inc.
(2) In December 1996, the Registrant issued 2,662,008 shares of its Class A
common stock to TNC 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 TNC in connection with the transfer and assignment to the
Registrant of substantially all of the assets
II-1
<PAGE>
and properties of TNC'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 TNC 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 MMPT 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 Affiliation 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 Modification Agreement between the Registrant and Bozell,
Jacobs, Kenyon & Eckhardt, Inc., dated August 1, 1998.
10.5(a)* Employment Agreement between Registrant and Gerald M. O'Connell,
dated as of January 1, 1997.
10.5(b)* Employment Agreement between Registrant and Douglas C. Ahlers,
dated as of January 1, 1997.
10.5(c)* Employment Agreement between Registrant and Robert C. Allen, II,
dated as of January 1, 1997.
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. 4 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 13th 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 13, 1999
______________________________________ and Director
Gerald M. O'Connell (Principal Executive
Officer)
Steven C. Roberts* Chief Financial Officer January 13, 1999
______________________________________ (Principal Financial and
Steven C. Roberts Accounting Officer)
Robert C. Allen, II* Director January 13, 1999
______________________________________
Robert C. Allen, II
Donald M. Elliman, Jr.* Director January 13, 1999
______________________________________
Donald M. Elliman, Jr.
Donald L. Seeley* Director January 13, 1999
______________________________________
Donald L. Seeley
Theodore J. Theophilos* Director January 13, 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 Affiliation Agreement between the Registrant and Modem
Media . Poppe Tyson do Brasil Ltda.
10.4* Sublease Modification Agreement between the Registrant and Bozell,
Jacobs, Kenyon & Eckhardt, Inc., dated August 1, 1998.
10.5(a)* Employment Agreement between Registrant and Gerald M. O'Connell,
dated as of January 1, 1997.
10.5(b)* Employment Agreement between Registrant and Douglas C. Ahlers,
dated as of January 1, 1997.
10.5(c)* Employment Agreement between Registrant and Robert C. Allen, II,
dated as of January 1, 1997.
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 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Modem Media . Poppe Tyson, Inc.:
As independent public accountants, we hereby consent to the use of our
reports dated November 16, 1998 and March 6, 1997 and to all references to our
Firm included in or made a part of this Amendment No. 4 to Registration
Statement on Form S-1 (File No. 333-68057).
/s/ Arthur Andersen LLP
Stamford, Connecticut
January 11, 1999
