<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
Commission File No. 0-21935
----------------
Modem Media . Poppe Tyson, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1464807
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
230 East Avenue
Norwalk, CT 06855
(203) 299-7000
(Address of principal executive offices and zip code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
There were 24,337,056 shares of the Registrant's Class A Common Stock, $.001
par value, and no shares of the Registrant's Class B common stock, $.001 par
value, outstanding as of April 28, 2000.
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<PAGE>
INDEX
<TABLE>
<CAPTION>
Description Page
----------- ----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999.............................................. 1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2000 and 1999........................... 2
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999........................... 3
Notes to Condensed Consolidated Financial Statements........... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 3. Defaults Upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 5. Other Information.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
Signatures....................................................... 13
</TABLE>
i
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 29,143,000 $ 30,265,000
Short-term investments........................... 356,000 16,859,000
Accounts receivable, net......................... 25,486,000 18,090,000
Unbilled revenues................................ 3,752,000 2,066,000
Deferred income taxes............................ 1,304,000 1,004,000
Other current assets............................. 3,572,000 2,967,000
------------ ------------
Total current assets............................ 63,613,000 71,251,000
Noncurrent assets:
Property and equipment, net...................... 15,911,000 14,192,000
Goodwill, net.................................... 116,876,000 55,742,000
Deferred income taxes............................ 4,806,000 602,000
Other assets..................................... 5,175,000 3,945,000
------------ ------------
Total noncurrent assets......................... 142,768,000 74,481,000
------------ ------------
Total assets.................................... $206,381,000 $145,732,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 4,778,000 $ 5,346,000
Pre-billed media................................. 8,841,000 6,639,000
Advance billings................................. 2,789,000 2,736,000
Deferred revenues................................ 4,660,000 4,125,000
Accrued expenses and other current liabilities... 14,989,000 14,718,000
------------ ------------
Total current liabilities....................... 36,057,000 33,564,000
Other liabilities.................................. 1,301,000 692,000
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000
shares authorized, none issued and outstanding.. -- --
Common stock, Class A, $.001 par value,
44,909,539 shares authorized, 13,323,623 and
12,115,970 shares issued, respectively.......... 13,000 12,000
Common stock, Class B, $.001 par value,
11,116,326 shares authorized, 11,109,295 and
11,116,326 shares issued and outstanding,
respectively.................................... 11,000 11,000
Paid-in capital.................................. 181,987,000 121,151,000
Accumulated deficit.............................. (11,571,000) (8,604,000)
Treasury stock, 191,865 and 184,834 shares of
Class A common stock, at cost, respectively..... (1,157,000) (1,118,000)
Accumulated other comprehensive income........... (260,000) 24,000
------------ ------------
Total stockholders' equity...................... 169,023,000 111,476,000
------------ ------------
Total liabilities and stockholders' equity...... $206,381,000 $145,732,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Revenues............................................ $28,537,000 $12,383,000
Cost of revenues.................................... 14,316,000 6,506,000
----------- -----------
Gross profit........................................ 14,221,000 5,877,000
Operating expenses:
Sales and marketing............................... 1,238,000 347,000
General and administrative........................ 12,818,000 5,554,000
Amortization of goodwill.......................... 3,029,000 590,000
----------- -----------
Total operating expenses........................ 17,085,000 6,491,000
----------- -----------
Operating loss...................................... (2,864,000) (614,000)
Interest income, net................................ 544,000 337,000
----------- -----------
Loss before income taxes............................ (2,320,000) (277,000)
Provision for income taxes.......................... 647,000 196,000
----------- -----------
Net loss............................................ $(2,967,000) $ (473,000)
=========== ===========
Basic and diluted net loss per share................ $ (0.13) $ (0.02)
=========== ===========
Basic and diluted weighted-average number of common
shares outstanding................................. 23,583,000 19,310,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
2
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MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(2,967,000) $ (473,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation....................................... 1,224,000 742,000
Amortization of goodwill........................... 3,029,000 590,000
Provision for doubtful accounts.................... 403,000 108,000
Other, net......................................... 611,000 --
Changes in assets and liabilities:
Accounts receivable............................... (6,740,000) 4,937,000
Unbilled revenues................................. (1,696,000) (531,000)
Other current assets.............................. (436,000) (481,000)
Accounts payable, accrued expenses and other
current liabilities.............................. (3,152,000) (3,196,000)
Pre-billed media.................................. 2,219,000 (1,289,000)
Advance billings.................................. 53,000 (101,000)
Deferred revenues................................. 526,000 (841,000)
Other, net........................................ 186,000 278,000
----------- -----------
Net cash used in operating activities............ (6,740,000) (257,000)
Cash flows from investing activities:
Purchases of property and equipment................. (2,217,000) (881,000)
Acquisitions, net of cash acquired.................. (11,115,000) --
Purchases of short-term investments................. (324,000) --
Maturities of short-term investments................ 16,859,000 --
Other, net.......................................... 14,000 --
----------- -----------
Net cash provided by (used in) investing
activities...................................... 3,217,000 (881,000)
Cash flows from financing activities:
Proceeds from initial public offering............... -- 43,459,000
Funding to True North............................... (14,000) (2,672,000)
Exercises of stock options.......................... 2,692,000 --
Other, net.......................................... (116,000) 66,000
----------- -----------
Net cash provided by financing activities........ 2,562,000 40,853,000
----------- -----------
Effect of exchange rates on cash and cash
equivalents......................................... (161,000) --
----------- -----------
Net (decrease) increase in cash and cash
equivalents......................................... (1,122,000) 39,715,000
Cash and cash equivalents, beginning of the period... 30,265,000 7,824,000
----------- -----------
Cash and cash equivalents, end of the period......... $29,143,000 $47,539,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
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MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Nature of Operations--Modem Media . Poppe Tyson, Inc. ("Modem Media" or the
"Company") is a leading Internet professional services firm focused on
conceiving, developing and distributing customer-focused Internet solutions
for Global 500 and select online businesses. Headquartered in Norwalk, CT, the
Company has offices in New York City, San Francisco, Toronto, London, Paris,
Munich, Tokyo, Hong Kong and Sao Paulo.
Basis of Presentation--The condensed consolidated balance sheet as of March
31, 2000 and the condensed consolidated statements of operations and cash
flows for the three months ended March 31, 2000 and 1999, are unaudited. The
unaudited condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments), that are, in the opinion of
management, necessary for a fair presentation of the Company's financial
position and results of operations. The operating results for the three months
ended March 31, 2000 and 1999 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.
Reclassifications--Certain reclassifications have been made in the prior
period condensed consolidated financial statements to conform to the current
period presentation.
Business Combinations--Business combinations that have been accounted for
under the purchase method of accounting include the results of operations of
the acquired businesses from the dates of their respective acquisition. Net
assets of acquired companies are recorded at their fair value to the Company
at the date of acquisition unless any such company was acquired in a
transaction between entities under common control, in which case the net
assets of such company are recorded at historical cost.
Income Taxes--The Company accounts for income taxes under the liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. The Company's effective tax rates differ
from the federal statutory rate primarily due to the effect of non-deductible
goodwill amortization and losses of certain foreign subsidiaries on which the
Company did not recognize tax benefits.
Cash, Cash Equivalents and Short-Term Investments--The Company's short-term
investments reflected in the accompanying condensed consolidated balance
sheets have been classified as held-to-maturity securities and are carried at
amortized cost, which approximates market, since management has the positive
intent and ability to hold such investments to maturity. Short-term
investments principally consist of commercial paper maturing less than six
months from the date of purchase.
Earnings Per Share--In accordance with SFAS No. 128, Earnings Per Share,
basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding during each period. Diluted net income
(loss) per share gives effect to all potentially dilutive securities that were
outstanding during each period. The Company had net losses for the three
months ended March 31, 2000 and 1999; as a result, none of the options or
warrants outstanding during those periods were included in the computations of
diluted net loss per share since they were antidilutive.
All historical share and per-share amounts have been restated to reflect
the 2-for-1 stock split effected by the Company on March 1, 2000 (see Note 3).
4
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Acquisitions
In February 2000, the Company acquired substantially all of the assets of
Eurokapi Multimedia S.A. ("Eurokapi"), a builder and marketer of e-businesses
in Paris, France, for approximately $450,000 in cash. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
operating results of Eurokapi have been included in the Company's condensed
consolidated financial statements from the date of its acquisition. The excess
of purchase price over the net assets acquired of approximately $500,000 is
being amortized over a five-year period.
In February 2000, the Company acquired 100% of the outstanding capital
stock of Vivid Holdings, Inc. and its majority-owned subsidiary, Vivid
Publishing, Inc. (collectively hereinafter referred to as "Vivid") for
approximately $63,600,000. Vivid is a professional services company, with
approximately 100 employees, that provides strategic interactive marketing
services for Fortune 500 companies and Internet start-ups. The consideration
was comprised of approximately $10,200,000 in cash, approximately $14,400,000
in Modem Media Class A common stock (446,010 shares), of which approximately
$4,500,000 will remain in escrow as security for the indemnification
obligations of the sellers, and approximately $39,000,000 in value related to
employee stock options that were converted to Modem Media stock options. The
acquisition has been accounted for under the purchase method of accounting
and, accordingly, the operating results of Vivid have been included in the
Company's condensed consolidated financial statements from the date of its
acquisition. The preliminary allocation of the excess of purchase price over
the fair value of net assets acquired of approximately $63,800,000 is being
amortized over a five-year period and is subject to final determination.
In March 2000, the Company purchased its affiliate office in Sao Paulo,
Brazil ("Modem Media Brazil") from its former parent, True North
Communications Inc. ("True North"), for $135,000 in cash. Because the
transaction occurred among True North and majority-owned, controlled
subsidiaries, the transaction was recorded at historical cost.
3. Equity
On March 1, 2000, the Company effected a 2-for-1 stock split, paid in the
form of a stock dividend, of both classes of its outstanding common stock. All
historical share and per-share amounts have been restated to reflect the stock
split.
On March 15, 2000, the Company filed a registration statement with the
Securities and Exchange Commission relating to a proposed public offering of
4,500,000 shares of the Company's Class A common stock. The Company
subsequently postponed this offering due to adverse market conditions. As of
March 31, 2000, approximately $800,000 in offering-related costs have been
deferred by the Company and reflected as other assets in the accompanying
condensed consolidated balance sheet. If the Company determines that the
offering will not be consummated, the Company will charge these costs to
operations in the period in which this determination is made.
On April 26, 2000, True North and its subsidiaries converted all of their
shares of the Company's Class B common stock into shares of the Company's
Class A common stock. As a result, True North and its subsidiaries' combined
voting power in the Company was reduced to approximately 46% of total voting
power. As a result of such reduction, the Company no longer is subject to
restrictions on its indebtedness. The conversion was originally scheduled to
occur on June 30, 2000.
5
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Comprehensive Income
The Company reflects its comprehensive income, such as unrealized gains and
losses on its foreign currency translation adjustments, as a separate
component of stockholders' equity as required by SFAS No. 130, Reporting
Comprehensive Income. Total comprehensive income (loss) for the three months
ended March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
Net loss............................................... $(2,967,000) $(473,000)
Foreign currency translation adjustment................ (284,000) 9,000
----------- ---------
Total comprehensive loss............................. $(3,251,000) $(464,000)
=========== =========
</TABLE>
5. Related Party Transactions
In the normal course of business, the Company and True North have from
time-to-time entered into various business transactions and agreements, and
may enter into additional transactions in the future (see Notes 2 and 3).
6. Geographic Information
Information about the Company's operations in different geographic regions
is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Domestic........................................ $ 22,403,000 $ 10,779,000
International................................... 6,134,000 1,604,000
------------ ------------
$ 28,537,000 $ 12,383,000
============ ============
Earnings before interest, taxes and amortization
of goodwill:
Domestic........................................ $ 831,000 $ 358,000
International................................... (666,000) (382,000)
------------ ------------
$ 165,000 $ (24,000)
============ ============
(Loss) income before income taxes:
Domestic........................................ $ (1,426,000) $ 121,000
International................................... (894,000) (398,000)
------------ ------------
$ (2,320,000) $ (277,000)
============ ============
Net loss:
Domestic........................................ $ (2,037,000) $ (192,000)
International................................... (930,000) (281,000)
------------ ------------
$ (2,967,000) $ (473,000)
============ ============
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Identifiable assets:
Domestic........................................ $183,696,000 $126,521,000
International................................... 22,685,000 19,211,000
------------ ------------
$206,381,000 $145,732,000
============ ============
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements herein constitute "forward-looking statements" within
the meaning of Section 21E(i)(1) of the Securities and Exchange Act of 1934,
as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results of Modem
Media to be materially different from any future results expressed or implied
by these statements. Such factors include, among other things, the following:
. history of operating losses; . the cost and timing of
international expansion;
. dependence on a limited number of
clients; . the ability to manage future
growth, if any;
. variability of operating results;
. dependence on key management
personnel;
. the ability to accurately estimate
costs in fixed-fee engagements;
. exclusivity arrangements with
clients that may limit our ability
to provide services to others;
. the ability to attract and retain
qualified professionals;
. the ability to successfully . dependence on technology;
introduce and expand the Me-business
Network and CentrPort technology;
. dependence on the continued growth
of the Internet; and
. the ability to integrate acquired
companies; . changes in government regulation
including regulation of privacy
issues.
In light of these and other uncertainties, the forward-looking statements
included in this document should not be regarded as a representation by Modem
Media that its plans and objectives will be achieved.
Overview
We are a leading Internet professional services firm focused on conceiving,
developing and distributing customer-focused Internet solutions for Global 500
and select online businesses. Our customer-focused approach combines
technology-driven solutions with a deep understanding of the customer's unique
needs to create e-business solutions that are more rewarding for both our
clients and their customers. We combine our experience in business strategy,
creative design, technology and marketing to deliver to our clients, on a
global basis, an integrated service offering that includes:
. strategic consulting and customer research;
. design, development and implementation of e-business websites;
. distribution and marketing of customized services across multiple
Internet-enabled communication channels; and
. collection and analysis of customer data and measurement of the
effectiveness of our e-business solutions.
We call this comprehensive approach, focused on building enduring, mutually
beneficial client-customer relationships, Me-businessSM, since in the eyes of
the customer, the company that best answers "my" needs will get "my" business.
We established the Me-business Network to enhance the distribution of our
Me-business solutions to our clients' customers. The network is designed to
seamlessly deliver services across multiple Internet-enabled communication
channels including websites, e-mail, wireless devices and call centers by
deploying the functionality of best-of-breed vendors on each channel. Through
CentrPortSM, our proprietary data and distribution management platform, we
provide clients an outsourced service to identify, accumulate and analyze
customer data generated through the Me-business Network's various
communication channels. By enabling a
7
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cross-channel understanding of individual customer needs, we can continuously
tailor new services for our clients' customers and deliver them appropriately.
Since our inception in 1987, we have established and maintained
relationships with Global 500 and select online businesses. Our clients
include Citibank, Intel, General Motors, Delta Air Lines, General Electric,
IBM and JCPenney. We service our clients through a global network of offices
in North America, Latin America, Europe and Asia with our staff of over 850
employees.
Clients generally hire us on a fixed-fee, retainer or time-and-material
basis. A majority of our revenues are derived from fixed-fee engagements. We
recognize revenues as services are rendered. We reassess our estimated costs
on fixed-fee engagements periodically and losses are accrued, on a project-by-
project basis, to the extent that costs incurred and anticipated costs to
complete projects exceed anticipated billings. Provisions for losses on
uncompleted fixed-fee contracts are recognized in the period in which such
losses are determined. We anticipate that CentrPort and the Me-business
Network will generate transactional fees for distribution and data management.
Once a project is completed, there can be no assurance that a client will
engage us for future 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, or a material reduction in the use of our
services by any such clients, could adversely affect our business, financial
condition or results of operations.
Cost of revenues consists of salaries, employee benefits and incentive
compensation for our professional services staff, costs for temporary
employees that we use to provide professional services, costs associated with
the CentrPort technology and certain other direct costs.
Sales and marketing consists of salaries, employee benefits and incentive
compensation of new business and other sales and marketing personnel, as well
as certain other marketing costs. During 2000, we have substantially increased
our spending on marketing and advertising on a global basis to promote the
Modem Media brand. In addition, we have increased our sales personnel to
expand new business efforts.
General and administrative includes salaries, employee benefits and
incentive compensation of administrative and other nonbillable employees, as
well as office rent, utilities, depreciation, amortization of software,
professional and consulting fees, travel, telephone and other related
expenses.
We have experienced operating losses or net losses in ten of the thirteen
quarters from January 1, 1997 through March 31, 2000. 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 intend
to continue to invest in ongoing expansion and integration efforts, as well as
infrastructure development. As a result of these increased costs, and the
amortization of goodwill related to our acquisition of Vivid, we expect to
incur net losses for the foreseeable future.
During the first quarter of 2000, 78.5% of our revenues were domestic and
21.5% were international. We anticipate that our domestic operations will
experience declines in margins as we hire strategy and technology personnel in
anticipation of new engagements and the further development of the CentrPort
technology platform. We intend to increase hiring internationally to meet
demand and provide full-service capabilities in each office. International
revenues are expected to grow at a faster rate than domestic operations.
International margins will continue to be lower than domestic margins due to
competitive pricing, lower utilization rates, higher benefit costs and higher
occupancy and infrastructure costs.
8
<PAGE>
Factors Affecting Operating Results
Our 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
offices, our relative mix of business, changes in our pricing strategies or
those of our competitors, employee utilization rates, changes in personnel and
other factors that are outside of our control. In addition, we have
experienced some variation in operating results throughout the year resulting
in part from the Internet professional services spending patterns and business
cycles of our clients. As a result, period-to-period comparisons of our
operating results cannot be relied upon as indicators of future performance.
Our revenues have historically been higher during the second half of each
year. During the first quarter of each year, we have historically experienced
revenue declines from the fourth quarter of the preceding year as clients
reestablish their annual budgets allocated to their Internet initiatives.
Although we did not experience this variation in the first quarters of 2000
and 1999, there can be no assurance that the variation will not return in
future fiscal years.
Results of Operations
The following table sets forth certain items from our statements of
operations for the three months ended March 31, 2000 and 1999 included
elsewhere in this Quarterly Report on Form 10-Q:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
2000 1999
------------------ ------------------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.............................. $28,537,000 100.0 % $12,383,000 100.0 %
Cost of revenues...................... 14,316,000 50.2 6,506,000 52.5
----------- ----- ----------- -----
Gross profit.......................... 14,221,000 49.8 5,877,000 47.5
Sales and marketing................... 1,238,000 4.3 347,000 2.8
General and administrative............ 12,818,000 44.9 5,554,000 44.9
Amortization of goodwill.............. 3,029,000 10.6 590,000 4.8
----------- ----- ----------- -----
Operating loss........................ (2,864,000) (10.0) (614,000) (5.0)
Interest income, net.................. 544,000 1.9 337,000 2.7
Provision for income taxes............ 647,000 2.3 196,000 1.5
----------- ----- ----------- -----
Net loss.............................. $(2,967,000) (10.4)% $ (473,000) (3.8)%
=========== ===== =========== =====
</TABLE>
Results of Operations--Three Months Ended March 31, 2000 Compared to Three
Months Ended March 31, 1999
Revenues. Revenues increased $16.2 million, or 130.5%, to $28.5 million for
the three months ended March 31, 2000 from $12.4 million for the three months
ended March 31, 1999. Revenues increased primarily as a result of increased
services provided to existing clients and the addition of new clients, as well
as our acquisition of Vivid, which accounted for approximately $1.8 million of
consolidated revenues during the first quarter of 2000.
Cost of Revenues and Gross Profit. Cost of revenues increased $7.8 million,
or 120.0%, to $14.3 million for the three months ended March 31, 2000 from
$6.5 million for the three months ended March 31, 1999. Gross margin improved
to 49.8% of consolidated revenues for the first quarter of 2000 from 47.5% for
the first quarter of 1999. The increase in cost of revenues was primarily due
to a company-wide increase in headcount primarily due to our acquisitions of
Vivid, Eurokapi and Modem Media Brazil. The increase in gross margin in the
first quarter of 2000 compared to the first quarter of 1999 was primarily due
to higher billing rates.
9
<PAGE>
Sales and Marketing. Sales and marketing increased $0.9 million, or 256.8%
to $1.2 million for the three months ended March 31, 2000 compared to $0.3
million for the three months ended March 31, 1999. Sales and marketing
represented 4.3% of revenues for the first quarter of 2000 and 2.8% for the
first quarter of 1999. The dollar and percentage increases in sales and
marketing were primarily attributable to increased salaries, benefits and
incentive compensation associated with an increase in headcount.
General and Administrative. General and administrative increased $7.3
million, or 130.8%, to 12.8 million for the three months ended March 31, 2000
from $5.6 million for the three months ended March 31, 1999. General and
administrative remained constant at 44.9% of revenues for the first quarter of
2000 and 1999. The dollar increase in general and administrative was primarily
the result of increased occupancy, office support and personnel costs of
administrative and other nonbillable employees incurred in connection with an
increase in headcount.
Amortization of Goodwill. Amortization of goodwill increased by $2.4
million, or 413.4%, to $3.0 million for the three months ended March 31, 2000
from $0.6 million for the three months ended March 31, 1999. The increase is
primarily a result of our acquisition of Vivid, as well as certain
international offices.
Interest Income, Net. The net increase to $0.5 million during the three
months ended March 31, 2000 is principally attributable to interest income
earned on investments purchased with the proceeds from our initial public
offering, which occurred in February 1999.
Income Taxes. We had a provision for income taxes of $0.6 million on pre-
tax loss of $2.3 million for the three months ended March 31, 2000, as
compared to a provision for income taxes of $0.2 million on a pre-tax loss of
$0.3 million for the three months ended March 31, 1999. Our effective income
tax rate was 27.9% for the three months ended March 31, 2000 as compared to an
effective income tax rate of 70.8% for the three months ended March 31, 1999.
Our effective tax rates differ from the federal statutory rate primarily due
to the effect of non-deductible goodwill amortization and losses of certain
foreign subsidiaries on which we did not recognize tax benefits.
Liquidity and Capital Resources
We historically have financed our operations from funds generated from
operations and proceeds from our initial public offering.
Net cash used in operating activities was $6.7 million and $0.3 million for
the three months ended March 31, 2000 and 1999, respectively.
Net cash provided by (used in) investing activities was $3.2 million and
$(0.9) million for the three months ended March 31, 2000 and 1999,
respectively. Investing activities reflect our acquisitions, as well as the
maturities of our short-term investments, in 2000 and purchases of property
and equipment in both periods.
Net cash provided by financing activities was $2.6 million and $40.9
million for the three months ended March 31, 2000 and 1999, respectively. The
primary sources of cash flows from financing activities in 2000 and 1999 are
proceeds from the exercise of employee stock options and our initial public
offering, respectively.
Our short-term capital commitments include lease payments over the next 12
months aggregating approximately $7.3 million and the funding of certain of
our international operations. Our long-term capital needs will depend on
numerous factors, including the rates at which we are able to obtain new
business from clients and expand our personnel and infrastructure to
accommodate growth, as well as the rate at which we choose to invest in new
technologies and additional global expansion. We have ongoing needs for
capital, including working capital for operations, project development costs
and capital expenditures to maintain and expand our operations.
10
<PAGE>
We believe that our cash on hand and short term investments, together with
funds available from operations, will be sufficient to meet our capital needs
for at least the next twelve months. In order to accelerate the development of
our business, we may need additional funds which we may seek through public or
private financings or other sources.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 4, 1999, the Securities and Exchange Commission declared our
registration statement on Form S-1 (No. 333-68057) effective. On February 10,
1999, we completed an initial public offering of an aggregate of 5,980,000
shares of our Class A common stock at an offering price of $8.00 per share.
The managing underwriters for the offering were BancBoston Robertson Stephens,
NationsBanc Montgomery Securities LLC and Bear, Stearns & Co. Inc. Net
proceeds to us, after deducting underwriting discounts and commissions of
$3,349,000 and offering expenses of $2,440,000 were $42,051,000. None of the
expenses incurred in the offering were direct or indirect payments to our
directors, officers, or general partners or their associates, to persons
owning ten percent or more of any class of our equity securities or to our
affiliates. We used $6,000,000 of these proceeds to settle an intercompany
note payable to True North and approximately $23,200,000 to acquire and fund
the operations of complementary businesses in Tokyo, Munich, Paris, Brazil and
San Francisco. We have invested the remainder of the net proceeds in short-
term, interest bearing, investment grade obligations pending their use.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.2(b) Amendment to the Amended and Restated Bylaws of the Company
effective as of April 25, 2000
4.8 Agreement dated April 26, 2000, by and between True North
Communications Inc. and the Company, amending the Intercompany
Credit Agreement, dated February 3, 1999, and Stockholders
Agreement, dated May 4, 1999
10.2(k) Employment Agreement dated December 31, 1998 between the Company
and John Nardone
10.2(l) Letter Agreement dated January 31, 2000 between the Company and
John Nardone
10.2(m) Letter Agreement dated January 31, 2000 between the Company and
Amy Nenner
10.3(e) Covenant Not to Compete or Solicit Business between the Company
and John Nardone, dated as of December 31, 1998
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Modem Media filed a Form 8-K on February 25, 2000 reporting in Item 2 the
consummation of Modem Media's acquisition of Vivid Holdings, Inc. This Form 8-
K was subsequently amended on March 15, 2000, reporting in Item 7 the
financial statements of Vivid Holdings, Inc. and the pro forma combined
financial statements of Modem Media and Vivid Holdings, Inc.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MODEM MEDIA . POPPE TYSON, INC.
Date: May 12, 2000
/s/ Gerald M. O'Connell
By: _________________________________
Gerald M. O'Connell
Chief Executive Officer
(Principal Executive Officer)
/s/ Steven C. Roberts
By: _________________________________
Steven C. Roberts
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<PAGE>
Exhibit 3.2(b)
AMENDMENT
to the
AMENDED and RESTATED
BYLAWS
of
MODEM MEDIA . POPPE TYSON, INC.
Pursuant to the resolutions unanimously adopted by the Board of Directors
of Modem Media . Poppe Tyson, Inc. on April 25, 2000, Articles 2.9 and 3.4 shall
be amended and the following shall be substituted therefore:
I. The last paragraph of Article 2.9 shall be amended to read as follows:
"If a quorum is present, the affirmative vote of at least a majority
of the voting power of the shares present in person or by proxy at a
duly held meeting and entitled to vote on the subject matter shall be
the act of the stockholders, unless the vote of a different number or
a vote by classes is required by law, by the Certificate of
Incorporation or by these Bylaws. Notwithstanding the foregoing,
directors shall be elected by a plurality of the votes of the shares
present in person or by proxy at a duly held meeting of shareholders
and entitled to vote on the election of directors."
II. The second paragraph of Article 3.4 shall be amended to read as follows:
"Unless otherwise provided in the Certificate of Incorporation or
these Bylaws, vacancies on the board of directors may be filled by a
majority of the remaining directors, even in less than a quorum, or by
a sole remaining director; however, a vacancy created by the removal
of a director by the vote of the stock holders or by court order may
be filled by a plurality of the votes of the shares present in person
or by proxy at a duly held meeting of stock holders and entitled to
vote on the election of directors. Each director so elected shall
hold office until the next annual meeting of the stockholders and
until a successor has been elected and qualified."
IN WITNESS WHEREOF, this amendment shall be effective as of the date first
written above, and shall be filed with minutes of the Company.
By: /s/ Sloane Levy
Title: Vice President, General Counsel and
Corporate Secretary
<PAGE>
Exhibit 4.8
AGREEMENT
---------
THIS AGREEMENT made as of April 26, 2000, by and between True North
Communications Inc., a Delaware corporation ("True North") and Modem Media .
Poppe Tyson, Inc., a Delaware corporation ("Modem Media").
W I T N E S S E T H
-------------------
WHEREAS, True North has agreed to convert, and cause its subsidiaries to
covert, Modem Media's Class B shares to Class A shares; and
WHEREAS, True North and Modem Media wish to facilitate the conversion of
Class B shares to Class A shares.
NOW, THEREFORE, the parties, intending to be legally bound, agree that on
the date True North and its subsidiaries convert Class B common stock to Class A
common stock (the "Effective Date") the following provisions shall apply:
1. Amendment to Stockholders Agreement. The Stockholders Agreement dated
-----------------------------------
May 4, 1999 by and among True North, Modem Media and Gerald M. O'Connell, and
Robert C. Allen, II shall be amended as follows:
a) The date "June 30, 2000" in Paragraph 5 (ii) of the Stockholders
Agreement is hereby deleted in its entirety and "April 26, 2000" shall
be substituted therefore; and
b) Paragraph 4 of the Stockholders Agreement shall be deleted in its
entirety and the following shall be substituted therefore:
"Following the Expiration Date until such time as True North and its
affiliates no longer own in the aggregate shares of capital stock of
Modem Media representing at least 10% of the outstanding capital stock
of Modem Media, Modem Media shall take all actions necessary to in
order to cause the nomination of, and each Stockholder shall take all
actions necessary to cause the election of, and vote its shares of
Modem Media common stock for, (i) at least one director designated by
True North, (ii) Gerald M. O'Connell for so long as he is a senior
executive officer of Modem Media and (iii) Robert C. Allen, II for so
long as he is a senior executive officer of Modem Media."
<PAGE>
All other terms and conditions of the Stockholders Agreement shall continue
in full force and effect.
2. Amendment to Intercompany Credit Agreement. The Intercompany Credit
------------------------------------------
Agreement dated February 3, 1999 by and between True North and Modem Media,
shall be amended as follows: a) Article 6 entitled "Covenants" is hereby deleted
in its entirety; and b) the contact information for the Borrower set forth in
Article 7.1 entitled "Notices" shall read as follows:
Borrower: MODEM MEDIA . POPPE TYSON, INC.
230 East Avenue
Norwalk, CT 06855
Attention: Mr. Steve Roberts
Telephone: (203) 299-7007
Telecopier: (203) 299-7457
All other terms and conditions of the Intercompany Credit Agreement shall
continue in full force and effect.
3. True North Non-Dilutive Options Letter Agreement. Under the Non
-------------------------------------------------
Dilutive Options Letter Agreement dated February 3, 1999 by and between True
North and Modem Media, True North will be required to deliver Class A common
stock (instead of Class B common stock) from and after the Effective Date in
accordance with that letter.
4. Reorganization Agreement. Section 6.3(b) of the Amended and Restated
------------------------
Reorganization Agreement dated as of December 31, 1996 by and among True North,
G.M. O'Connell, Robert Allen, TN Technologies Holding, Inc. and certain other
parties shall be deleted its entirety.
5. Counterparts. This Agreement may be executed in counterparts, each such
------------
counterpart shall be an original and altogether shall constitute but one and the
same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
and year first set forth above.
True North Communications Inc.
By: /s/ Kevin Smith
Chief Financial Officer
Modem Media . Poppe Tyson, Inc.
By: /s/ G. M. O'Connell
Chief Executive Officer
With respect to Section 1 only:
/s/ Gerald M. O'Connell
/s/ Robert Allen
<PAGE>
Exhibit 10.2(K)
EMPLOYMENT AGREEMENT
Modem Media. Poppe Tyson, Inc. ("Employer") and John Nardone ("Executive") enter
into this Employment Agreement (the "Agreement") as of December 31, 1998 (the
"Effective Date").
WHEREAS, Employer desires to employ and Executive desires to be employed by
Employer in the capacity described herein;
WHEREAS, Employer and Executive desire to set forth the following terms and
conditions of their agreement;
NOW, THEREFORE, in consideration of the premises and the covenants contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Employer and Executive hereby agree
as follows:
1 Employment Duties. Executive agrees to serve as President of International
------------------
and Worldwide Director of Media for Employer and shall have such duties,
responsibilities and authorities as the C.E.O. of Employer may from time to time
assign and which are reasonably consistent with such position. Throughout the
period of employment, Executive shall perform his assigned duties diligently, in
good faith and to the best of his abilities and shall devote all of this
business time to the business and affairs of Employer. Executive shall be
subject to Employer's general employment policies in effect or as modified.
2. Term of Employment. Unless earlier terminated pursuant to Section 5 below,
-------------------
the initial term of employment (the "Initial Term of Employment") covered by
this Agreement shall commence on the Effective Date and continue for eighteen
months. In the event Executive remains employed by Employer after the Initial
Term of Employment, the terms and conditions of such continued Employment shall
be those set forth in this Agreement, except that, after the Initial Term of
Employment, either party may terminate the employment relationship upon 30 days'
written notice, and no severance or other benefits shall be due to Employee
after such 30-day notice period.
3. Salary and Incentive Compensation. During his employment with Employer,
----------------------------------
Executive's annual salary shall be at least $225,000 required or authorized
deductions, paid on regular paydays consistent with Employer's payroll
procedures.
Executive shall be eligible for an annual performance bonus, at the discretion
of the C.E.O. of Employer and the Compensation Committee of the Board of
Directors of Employer (the "Board").
The C.E.O. of the Employer will recommend to the Board that Executive be granted
an option to purchase 130,000 shares of Employer stock under Employer's Stock
Option Plan. The terms of this stock option shall be subject to the provisions
of the Stock Option Plan.
<PAGE>
4. Benefits, Expense Reimbursement. During his employment with Employer,
--------------------------------
Executive shall be entitled to participate in such employee benefit plans and
other programs, in accordance with the terms of such plans and programs and
shall receive such other benefits, as Employer may make generally available to
its employees; provided, however, that Employer shall not be required to offer
Executive any benefits that are made available to current or future senior
executive officers on an individual basis and that are not made generally
available to its other senior executive officers. Employer retains the right to
cancel, alter or amend any of its employee benefit plans and other fringe
benefit arrangements without notice to the extent permitted by such plans or
arrangements. Employer shall reimburse Executive for reasonable business
expenses incurred by Executive in connection with the performance of his duties
and obligations and that are consistent with Employer's policies and procedures.
5. Termination. The Initial Term of Employment may be terminated as set forth
------------
below. Unless otherwise stated in this Agreement or in any applicable benefit
plans, Executive shall have no continuing right to salary or benefits after
employment is terminated and, except as set forth in Section 5 (D) Employer
shall have no further obligations to Executive. Upon any termination of
employment, in addition to other amounts set forth herein, Executive (or his
estate in the case of death) shall be entitled to receive salary, expenses and
other benefits accrued through and including the date of termination. Employer
retains any other remedies it may have for breach of this Agreement.
(A) Death. Executive's employment will terminate automatically upon
------
Executive's death.
(B) Inability to Perform. Employer may, upon thirty days' prior written
---------------------
notice, terminate Executive's employment upon Executive's inability to perform
his essential duties and obligations hereunder for a period of four consecutive
months or six months in any 12 month period because of Executive's physical or
mental disability (a "Disability"). Notwithstanding the foregoing, nothing in
this Agreement shall prevent Employer from immediately removing Executive from
his position as officer of Employer, of reducing the duties or job
responsibilities of Executive, immediately upon the Disability of such
Executive; provide that Employer shall reinstate Executive to his position as
-------
officer, with the corresponding duties and responsibilities of such position,
upon the removal of such Disability prior to the termination of Executive
pursuant to the provisions of this Agreement.
(C) For Cause. Employer may terminate Executive's employment immediately
----------
if, in the reasonable determination of the C.E.O. of the Board, (i) Executive
engages in conduct that violates significant policies of Employer after
Executive is notified by Employer that Executive is engaging in conduct that
violates significant policies of Employer; (ii) Executive fails to perform the
essential functions of Executive's job (except for a failure resulting from a
bonafide illness or incapacity) or fails to carry out Employer's reasonable
directions with respect to material duties after Executive is notified by
Employer that Executive is failing to perform these essential functions or
failing to carry out the reasonable directions of Employer; (iii) Executive
engages in embezzlement or misappropriation of corporate funds or other acts of
fraud, dishonestly or self-dealing, or commits a felony or any significant
violation of any statutory or common law duty of loyalty to Employer; or (iv)
Executive breaches a material provision of this Agreement or the Covenant Not to
Compete or Solicit Business attached hereto as Exhibit A, after Executive is
notified by Employer that Executive has breached a material provision of this
Agreement. Prior to any termination of Executive for Cause
<PAGE>
pursuant to clauses (i), (ii) or (iv) of this Section 5 (C), Employer shall give
Executive reasonable opportunity to remedy any condition, or conduct, action or
inaction of Executive giving rise to the violation or breach of such clause if
such violation or breach is remediable.
(D) By Employer. Employer may terminate Executive's employment without cause
------------
or reason by giving Executive written notice. Such notice shall set forth the
date of termination, which date shall be not later than 30 days following the
date of notice (the "Notice Period"). During any Notice Period, Executive shall
make reasonable efforts to cooperate with Employer in achieving a transition of
Executive's duties and responsibilities. Upon termination of Executive's
employment during the initial term of employment by Employer without cause,
Executive shall be entitled to base salary for the remainder of the initial term
of employment, but for no longer than six months.
6. Confidentiality. Executive acknowledges that he will have access to and will
----------------
be entrusted with confidential and proprietary information and trade secrets
relating to Employer's services and products, including, but not limited to,
presentations for clients and prospective clients made on behalf of Employer.
Such confidential information gives Employer a business advantage over others
who do not have such information. Such confidential information may include, but
is not limited to, business strategies, plans, proposals, training materials,
computer software, names of or financial or other information regarding Employer
or Executive's relationships with its clients, advertising techniques,
development of creative products and any other information that is maintained
confidentially and not known to or readily determinable by the public.
Accordingly, Executive agrees to undertake the following obligations that he
acknowledges to be reasonably designed to protect Employer's legitimate business
interests without unnecessarily or unreasonably restricting Executive's post-
employment opportunities.
(a) Upon termination of employment for any reason, Executive shall return to
Employer all property of Employer including, but not limited to,
documents or things containing any of its confidential information,
files, forms, notes, records, or charts. Executive shall not retain any
copies in any form of any such confidential information;
(b) During the Employment Period or thereafter, without Employer's prior
written consent, Executive shall not use or disclose, and shall take all
necessary precautions to avoid the disclosure to any person, any
confidential information unless at that time the information has become
known to the public or to Employer's competitors other than by breach of
this Agreement or any other confidentiality agreement binding on
Executive;
(c) Executive covenants and agrees to be bound by the Covenant Not To Compete
Or Solicit Business entered into by the parties contemporaneous with this
Agreement and attached to this Agreement as Exhibit A; and
(d) To permit Employer to monitor Executive's compliance with the Covenant
Not To Compete or Solicit Business, during his employment with Employer
and for one year following his termination of employment, for any reason
(or one year following the end of any severance period, if later),
Executive shall promptly notify Employer in
<PAGE>
writing of the name and address of each business organization for which
he acts as agent, partner, owner, consultant, contractor, advisor,
representative or Executive.
7. Intellectual Property. Executive shall disclose and assign to Employer all
----------------------
of his right, title and interest in and to, any ideas, processes, trademarks,
trade secrets, copyrightable materials, plans, inventions and business plans,
whether patentable or not, that he develops, creates, discovers, conceives or
improves upon during his employment with Employer that relate, directly or
indirectly, to Employer's business, including but not limited to, any computer
programs, processes, products or procedures, methods or advertising, marketing
research, strategies or business plans (collectively referred to as
"Intellectual Property"). Executive agrees that such Intellectual Property shall
be the sole property of Employer. Executive shall, during employment and
thereafter, at Employer's request and cost, provide Employer with such
assistance as is reasonably necessary to secure a patent, trademark, copyright
or other protection of such Intellectual Property. Executive agrees that he will
not use any Intellectual Property right for his own purposes or for any purpose
other than those of Employer.
8. Remedies. If Executive violates any of the terms of Section 6 or 7 of this
--------
Agreement or any terms of the Covenant Not to Compete or Solicit Business,
Employer shall be entitled to all appropriate remedies, including an interim,
interlocutory or permanent injunction or restraining order to be issued by any
competent court enjoining and restraining Executive from such wrongful acts. It
is further agreed that Employer would be irreparably damaged by Executive's
breach of any such provision, that damages for such a breach are not easily
calculated, and that any remedy by law would be inadequate. Therefore, Employer
shall be entitled to obtain injunctive or other equitable relief against
Executive, his agents, assigns or successors for a breach of this Agreement and
without the necessity of the proving actual monetary loss. It is expressly
understood between the parties that this injunctive or equitable relief shall
not be Employer's exclusive remedy for breach of this Agreement. Without
limitation, in the event of any breach by Executive of his Covenant Not To
Compete or Solicit Business, Executive shall not be entitled to receive any
salary payments or any other compensation beyond the date of such breach to
which he would otherwise be entitled, and Executive shall be obligated to repay
to Employer salary payments received by him at any time after the occurrence of
such breach. Nothing in this Section 8 shall prevent any party hereto from
seeking any remedy, including an interim, interlocutory or permanent injunction
or restraining order, for a breach of this Agreement.
Should any litigation, other than arbitration provided for in Section 13 herein,
be commenced concerning any provision of this Agreement or Executive's
employment or termination or employment, the prevailing party shall be entitled,
in addition to such other relief as may be granted, to its attorneys' fees and
costs incurred by reason of such litigation.
9. Assignment. Executive acknowledges that the services he renders pursuant to
-----------
this Agreement are unique and personal. Accordingly, Executive may not assign
any of his rights or delegate any of his duties or obligations under this
Agreement. Employer may assign its rights, duties or obligations
<PAGE>
under this Agreement to any person with whom it has merged or consolidated, or
to whom it has transferred all, or substantially all, of its assets.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their permitted successors and assigns. Nothing is this Agreement,
express or implied, is intended or shall be construed to confer upon any person,
other than the parties and their respective successors and assigns permitted by
this Agreement, any right, remedy or claim under, or by reason of, this
Agreement.
10. Entire Agreement; Amendment. This Agreement and the Covenant Not To Compete
----------------------------
or Solicit Business constitute the entire agreement between Employer and
Executive with respect to the subject matter hereof This Agreement supersedes
any prior agreement made between the parties. The parties may not amend this
Agreement except by written instrument signed by both parties and approved by
the C.E.O. or the Compensation Committee of the Board.
11. Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Connecticut.
12. Legal Enforceability. Any provision of this Agreement which is prohibited or
---------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provision hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13. Arbitration. Any dispute or controversy between Employer and Executive,
------------
whether arising out of or relating to this Agreement, the breach of this
Agreement, or otherwise, shall be settled by arbitration administered by the
American Arbitration Association in accordance with its Commercial Rules then in
effect and judgment on the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. The arbitrator shall have the authority
to award any remedy or relief that a court of competent jurisdiction could order
or grant, including, without limitation, the issuance of an injunction. However,
either party may, without inconsistency with this arbitration provision, apply
to any court having jurisdiction over such dispute or controversy and seek
interim provisional, injunctive or other equitable relief until the arbitration
award is rendered or the controversy is otherwise resolved. Except as necessary
in court proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of Employer and Executive. Employer and Executive
acknowledge that this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included in this
Agreement, the United States Federal Arbitration Act shall govern the
interpretation and enforcement of this arbitration provision.
14. Definitions. Any capitalized term used in this Agreement shall have the
------------
meaning ascribed to it in the Reorganization Agreement, unless otherwise defined
herein.
<PAGE>
15. Waiver. No provision of this Agreement shall be deemed to be waived as a
-------
result of the failure of Employer or Executive to require the performance of any
term or condition of this Agreement or by other course of conduct. To be
effective, a waiver must be writing, signed by each of the parties hereto and
approved by the Board of Directors or the Compensation Committee of the Board
and state specifically that it is intended to constitute a waiver of a term or
breach of this Agreement. The waiver by Employer or Executive of any term or
breach of this Agreement shall not prevent a subsequent enforcement of such term
or any other term and shall not be deemed to be a waiver of any subsequent
breach.
16. Notices. All notices or other communications required or permitted hereunder
shall be in writing and shall be deemed given or delivered and received when
delivered personally (which shall be deemed to include delivery via express
courier such as Federal Express) or three days after having been sent by
registered or certified mail or upon receipt when sent by facsimile (but only if
receipt is confirmed by the addressee by a return facsimile signed by the
addressee) addressed as follows:
If to Employer:
Modem Media. Poppe Tyson, Inc.
228 Saugatuck Avenue
Westport, CT, 06880
Attention: G.M. O'Connell, CEO
If to Executive:
John Nardone
9 Saddle Hill Lane
Stamford, CT 06903
17. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCPETS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT WITH
COUNSEL.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
Modem Media. Poppe Tyson, Inc. John Nardone
By: /s/ Robert C. Allen, II /s/ John Nardone
Title: President
<PAGE>
Exhibit 10.2(l)
January 31, 2000
John Nardone
9 Saddlehill Lane
Stamford, CT 06903
Dear John:
This letter constitutes the agreement (the "Agreement") between you and Modem
Media . Poppe Tyson, Inc. (the "Company") regarding benefits due you under
certain circumstances as described below.
1 Acceleration of Stock Options Upon. Termination. The vesting of your
Company stock options granted to you as of the date of this Agreement will be
accelerated by one year upon either of the following events:
A. The termination of your employment by you for "Good Reason" (as
defined in Section 4 below) within eighteen (18) months after a
Change of Control; or
B. The termination of your employment by the Company or its successor
(other than for "cause," as defined in Section 3 below) within
eighteen (18) months after a Change of Control.
In addition, if the effective date of any such termination of your
employment is 6 months or less from your next vesting date, an additional number
of options will vest equal to (I) the total number of options that would have
vested on your next vesting date, multiplied by (ii) a fraction, the numerator
of which equals the number of months from the date of your last vesting and the
effective date of your termination of employment, and the denominator of which
is 12.
2. Change of Control. For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following events: (I) the consummation
of a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (ii) the
consummation of the sale or disposition by the Company of all or substantially
all of the Company's assets; or (iii) any person (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended) becomes the
beneficial owner (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities.
3. Termination for Cause. For purposes of this Agreement, "cause" shall mean
(I) your gross misconduct in the performance of your duties with the Company;
(ii) your engaging in illegal conduct (other than any misdemeanor, traffic
violation or similar misconduct) in connection with your performance of duties
for the Company; or (iii) your commission of a felony. The determination as to
whether "cause" exists shall be made by me (or such other individual who may
become your immediate supervisor).
<PAGE>
4. Termination for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean a material reduction in your compensation or/and employee benefits;
material reduction in your job responsibilities or position; or relocation of
your work location by more than fifty (50) miles.
5. Other Agreements. Except as specifically stated herein, all other terms and
conditions of prior written agreements regarding the subject of your employment
shall remain in full force and effect.
Kindly indicate your agreement to the foregoing by signing in the space provided
below.
Very truly yours,
MODEM MEDIA . POPPE TYSON, INC.
/s/ G.M. O'Connell
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ John Nardone
February 18, 2000
<PAGE>
Exhibit 10.2(m)
January 3, 2000
Ms. Amy Nenner
8 Lockwood Circle
Westport, CT 06880
Dear Amy:
We are pleased to offer you the position of VP, Human Resources, with Modem
Media . Poppe Tyson, reporting to Robert Allen, President, starting on four
weeks after you resign from your current position, which start date is expected
on or about February 7, 2000.
The following confirms the specific agreements regarding your compensation if
you accept this position of VP, Human Resources with Modem Media . Poppe Tyson:
. Your annual base salary on your start date will be $ 180,000.
. You will receive a one time sign-on bonus in the amount of $ 65,000. You
agree if you terminate your employment with Modem Media . Poppe Tyson prior
to 60 days from the date your employment commences, that you will repay to
Modem Media the entire amount of the bonus.
. The Board has approved a 25,000 stock options. The options will vest over a
period of three years, with the first 33% vesting one year from the grant
date, and the remaining vesting scheduled at 33% annually for a period of
two years thereafter. You will participate in future grants of options to
be determined by Modem Media management and the Board of Directors. The
exercise price of the granted options will be the current fair market value
on your date of grant or your date of hire, which ever occurs later.
. If within one (1) year following a Change of Control, your employment is
terminated involuntarily by Modem Media other than for Cause (as defined
below) the following shall occur:
a. The options granted herein will immediately vest effective upon
the date of termination.
b. If the value of the options granted hereunder at time of such
involuntary termination does not equal $320,000, then Modem Media
(and its successors) will reimburse you for the difference between
the then current value of such options and $320,000. For purposes
of this paragraph, if you exercise any options before any such
involuntary termination, the amount you recognized upon exercise
of such options will be deducted from the amount due to you
hereunder. In addition, value will be determined by calculating
the average closing price of the Modem Media's common stock as
listed on NASDAQ for last 5 trading days prior to such involuntary
termination.
If your employment is terminated involuntarily by Modem Media other than for
Cause, you will be paid the equivalent of 6 months of your then current base
salary as severance.
For purposes of this letter, "Change of Control" shall mean the occurrence of
any one of the following events: (i) the consummation of a merger or
consolidation of Modem Media with any other corporation, other than a merger or
consolidation which would result in the voting securities of Modem Media
outstanding
<PAGE>
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the voting securities of Modem Media or such surviving entity outstanding
immediately after such merger or consolidation and (ii) the consummation of the
sale or disposition by Modem Media of all or substantially all of Modem Media's
assets, or (iii) any person (as such term is used in Sections 13(d) of the
Securities Exchange Act of 1934, as amended) becomes the beneficial owner (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
Modem Media representing fifty percent (50%) or more of the total voting power
represented by Modem Media's then outstanding voting securities (excluding any
beneficial owner, as of the date of the grant, of at least 50% of the total
voting power represented by Modem Media's outstanding voting securities).
For purposes of this letter, "Cause" shall mean (A) intentional misconduct in
the performance of duties with Modem Media, (including violation of Modem
Media's policies or agreements relating to noncompetition or confidentiality);
(B) failure (other than due to Disability) to substantially perform the duties
of one's job; (C) engaging in illegal conduct (other than any misdemeanor,
traffic violation or similar misconduct) in connection with the performance of
duties for Modem Media; or (D) commission of a felony.
You will be eligible for a merit bonus that will be calculated using the
standard methods similarly applied to other members of the management team, with
a target of 25% of your annual base salary. Such bonus is dependent upon your
performance, the overall financial performance of Modem Media, and is at the
discretion of Modem Media's senior management.
You will be eligible for 16 vacation days at the completion of your first year
of employment. In addition you are eligible for 2 personal days and 2 floating
holidays each year.
Amy, we are looking forward to your joining Modem Media . Poppe Tyson and
playing a key role in our continued success. Please acknowledge your acceptance
by signing the copy of your offer letter and confidentiality agreement and
returning the documents to me in the enclosed envelope. If you have any
questions or concerns, please give me a call.
Best Regards,
Accepted By: ____________________
/s/ Peter Massey /s/ Amy Nenner
VP, General Manager Date: ____________________________
January 7, 2000
<PAGE>
Exhibit 10.3(e)
COVENANT NOT TO COMPETE OR SOLICIT BUSINESS
Modem Media. Poppe Tyson, Inc. ("Company") and John Nardone ("Execuitve") enter
into this Covenant Not To Compete or Solicit Business ("Covenant") as December
31,1998.
WHEREAS, Company and Executive are parties to an Employment Agreement;
NOW, THEREFORE, in further consideration of the promises and mutual covenants
contained in the Employment Agreement, Executive covenants and agrees as
follows:
1. Covenant Not To Compete. Executive covenants that during the period
commencing on the Effective Date of the Employment Agreement and ending 12
months after the later of (i) the termination of Executive's Employment with
Company or (ii) the end of any severance payment or other salary continuation
period (the "Non-Compete Period"), either individually or in partnership or
jointly or in conjunction with any person or persons, firm, association,
syndicate, company, contractor, corporation or organization of any kind, as
principal, agent, trustee, shareholder, employee or consultant, or in any other
manner whatsoever, whether directly or indirectly, he shall not render or assist
others in rendering services to or for any person or persons, firm, association,
syndicate, company or corporation, that is engaged in any business substantially
similar to any part of:
(a) advertising, media or direct marketing services delivered through the
Internet or corporate intranets or digital communications services
dedicated to marketing purposes that competes directly or indirectly with
Company's business strategy during the two-year period immediately
preceding the date employment is terminated;
(b) any other advertising, media or direct marketing services delivered through
the Internet or corporate intranets, digital communications services
dedicated to marketing purposes for which Company or its affiliates has, as
of the termination of such Employee's employment, formulated plans, of
which Executive is aware, to commence carrying on within I year after the
date employment is terminated; or
(c) any advertising, media or direct marketing services delivered through the
Internet or corporate intranets, digital communications services dedicated
to marketing purposes solicited by Company or its affiliates with respect
to clients or potential clients of Company or its affiliates.
Without limiting the foregoing, nothing herein shall prohibit Executive from
being a passive owner of not more than 5% of the outstanding stock of any class
of a corporation or other entity which is publicly traded, so long as Executive
has no active participation in the business of such corporation or other entity.
2. Covenant Not To Solicit. Executive covenants and agrees that he will not,
and will not attempt to, at any time during the Non-Compete Period, directly or
indirectly, induce or assist in the inducement of:
<PAGE>
(i) any employee or consultant of Company away from Company or its Affiliates
or from the faithful discharge of such employee's or consultant's
contractual and fiduciary obligations to serve Company's or its Affiliates'
interest; or
(ii) any "Client" of Company or its Affiliates away from Company or its
Affiliates.
As used in this Covenant, "Client" shall mean those persons, firms, corporations
or other entities (a) who are current clients of Company or its Affiliates, (b)
who are active new business contacts (as defined by written or oral proposals or
contemplation of proposals between company or its affiliates), as is applicable,
during the Non-Compete Period or (c) who are strategic new business prospects of
the Company or its Affiliates, which list of prospects will be defined at the
time of Executive's departure and will be limited to no more than 12 companies.
3. Non Interference. Executive covenants and agrees that he will not at any
time during the Non Competition/Non-Solicitation Period, directly or indirectly,
seek to cause the termination or any change in the terms of any relationships
between Company or its affiliates and any supplier or vendor or prospective
supplier or vendor of Company or its affiliates; provided, however, that
Executive shall not be precluded from utilizing any supplier or vendor.
4. Remedies. If Executive violates any of the terms of this Covenant, Company
or any of its affiliates shall be entitled to all appropriate remedies,
including an interim, interlocutory or permanent injunction or restraining order
to be issued by any competent court enjoining and restraining Executive from
such wrongful acts. It is further agreed that Company or any of its affiliates
would be irreparably damaged by Executive's breach of any provision of this
Covenant, that damages for such a breach are not easily calculated, and that any
remedy at law would be inadequate. Therefore, Company and any of its affiliates
shall be entitled to seek and obtain injunctive or other equitable relief
against Executive, his agents, assigns or successor for a breach of this
Covenant and without the necessity of proving actual monetary loss. It is
expressly understood between the parties that this injunctive or equitable
relief shall not be Company's or any of its affiliates' exclusive remedy for
breach of this Covenant.
Should any litigation be commenced concerning any provision of this Covenant,
the prevailing party shall be entitled, in addition to such other relief as may
be granted, to its attorneys' fees and costs incurred by reason of such
litigation.
5. Legal Enforceability. Any provision of this Covenant which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
6. Governing Law. This Covenant shall be governed by and construed in
accordance with the internal laws as opposed to the conflicts of law provisions)
of the State of Connecticut.
7. Entire Agreement; Amendment. This Covenant and the Employment Agreement
constitute the entire agreement between Company and Executive with respect to
the subject matter hereof. This Covenant supersedes any prior agreement made
between the parties. The parties may not amend this Covenant except by written
instrument signed by each party hereto and approved by C.E.O. of the Company.
8. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given or delivered and
received when delivered personally (which shall be deemed to include delivery
via express courier such as Federal Express) or three days after having been
sent by registered or
<PAGE>
certified mail or upon receipt when sent by facsimile (but only if receipt is
confirmed by the addressee by a return facsimile signed by the addressee)
addressed as follows:
If to Company, to:
Modem Media. Poppe Tyson
228 Saugatuck Avenue
Westport, CT 06880
Attention: G. M. O'Connell, Chairman and CEO
If to Executive, to:
John Nardone
9 Saddle Hill Lane
Stamford, CT 06903
9. Successors and Assigns. Executive acknowledges that his obligations
hereunder are unique and personal. Accordingly, Executive may not assign any of
his rights or delegate any of his duties or obligations under this Covenant.
Company may assign its rights, duties or obligations under this Covenant to any
person with whom it has merged or consolidated, or to whom it has transferred
all, or substantially all, of its assets.
This Covenant shall be binding upon and inure to the benefit of the parties
hereto and their permitted successors and assigns. Nothing in this Covenant,
express or implied, is intended or shall be construed to confer upon any person
other than the parties and their respective successors and assigns permitted by
this Covenant any right, remedy or claim under, or by reason of, this Covenant.
10. Waiver. No provisions of this Covenant shall be deemed to be waived as a
result of the failure of Company or its affiliates or Executive to require the
performance of any term or condition of this Covenant or by other course of
conduct. To be effective, a waiver must be in writing, signed by all of the
parties hereto and approved by the Board of Directors or the Compensation
Committee of the Board of Directors of Company and state specifically that it is
intended to constitute a waiver of a term or breach of this Covenant. The waiver
by Company or its Affiliates or Executive of any term or breach of this Covenant
shall not prevent a subsequent enforcement of such term or any other term and
shall not be deemed to a waiver of any subsequent breach.
EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE PROVISIONS
OF THIS COVENANT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE OPPORTUNITY TO AND
HAS REVIEWED THE TERMS AND CONDITIONS OF THIS COVENANT WITH COUNSEL.
IN WITNESS WHEREOF, the parties hereto have executed this Covenant as of the
date first written above.
Modem Media. Poppe Tyson, Inc. John Nardone
By:/s/ Robert C. Allen /s/ John Nardone
Position: President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Condensed Consolidated Balance Sheet as of March 31, 2000 and
Condensed Consolidated Statement of Operations for the three months ended March
31, 2000 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 29,143
<SECURITIES> 356
<RECEIVABLES> 26,944
<ALLOWANCES> 1,458
<INVENTORY> 0
<CURRENT-ASSETS> 63,613
<PP&E> 22,860
<DEPRECIATION> 6,949
<TOTAL-ASSETS> 206,381
<CURRENT-LIABILITIES> 36,057
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 168,999
<TOTAL-LIABILITY-AND-EQUITY> 206,381
<SALES> 28,537
<TOTAL-REVENUES> 28,537
<CGS> 0
<TOTAL-COSTS> 31,401
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (544)
<INCOME-PRETAX> (2,320)
<INCOME-TAX> 647
<INCOME-CONTINUING> (2,967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,967)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
