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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 0-21935
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Modem Media . Poppe Tyson, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 06-1464807
(State of incorporation) (I.R.S. Employer Identification Number)
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230 East Avenue
Norwalk, CT 06855
(203) 299-7000
(Address of principal executive offices and zip code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.001 par value, traded on the Nasdaq National Market
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [_]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Company's Class A Common Stock held by
non-affiliates as of March 1, 2000, computed by reference to the closing price
of such stock, was approximately $410,035,343.
There were 12,936,634 shares of the Registrant's Class A Common Stock,
$.001 par value, and 11,109,696 shares of the Registrant's Class B Common
Stock, $.001 par value, outstanding as of March 1, 2000.
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
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Item Description Page
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PART I
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1 Business.......................................................... 1
2 Properties........................................................ 14
3 Legal Proceedings................................................. 14
4 Submission of Matters to a Vote of Security Holders............... 14
PART II
5 Market for Registrant's Common Equity and Related Stockholder 15
Matters...........................................................
6 Selected Financial Data........................................... 16
7 Management's Discussion and Analysis of Financial Condition and 17
Results of Operations.............................................
7A Quantitative and Qualitative Disclosures About Market Risk........ 22
8 Financial Statements and Supplementary Data....................... 23
9 Changes in and Disagreements with Accountants on Accounting and 23
Financial Disclosure..............................................
PART III
10 Directors and Executive Officers of the Registrant................ 24
11 Executive Compensation............................................ 26
12 Security Ownership of Certain Beneficial Owners and Management.... 31
13 Certain Relationships and Related Transactions.................... 33
PART IV
14 Exhibits, Financial Statements Schedules and Reports on Form 8-K.. 34
Index to Exhibits................................................. 35
Signatures........................................................ 38
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In this document, the terms "Modem Media," "we," "us" and "our" refer to
Modem Media . Poppe Tyson, Inc. Unless otherwise indicated, all share amounts
and financial information presented in this document give effect to a 0.95-for-
1 reverse split of our common stock in February 1999 and a 2-for-1 split of our
common stock on March 1, 2000.
"Modem Media" and "Me-business" are service marks of Modem Media.
"CentrPort" is a service mark of CentrPort, LLC.
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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This document includes 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 our actual results 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 ability to integrate acquired
. dependence on a limited number of companies;
clients; . the cost and timing of
. variability of operating results; international expansion;
. the ability to accurately . the ability to manage future
estimate costs in fixed-fee growth, if any;
engagements; . dependence on key management
. the ability to attract and retain personnel;
qualified professionals; . exclusivity arrangements with
. the ability to successfully clients that may limit the
introduce and expand the Me- ability to provide services to
business Network and CentrPort others;
technology; . dependence on technology;
. dependence on the continued
growth of the Internet; and
. 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 us
that our plans and objectives will be achieved.
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PART I
ITEM 1. BUSINESS
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-business SM, 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
CentrPort SM, 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 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, Coca-Cola, Delta Air Lines, E*TRADE, General Electric,
General Motors, IBM, Intel and Women.com. We service our clients through a
global network of eleven offices in North America, Latin America, Europe and
Asia with our staff of over 750 employees.
Industry Background
The Internet has fundamentally changed the way businesses and customers
interact, introducing new ways of communicating, obtaining information,
purchasing goods and services, providing customer service and soliciting
customer feedback. The Internet and electronic commerce have increased the
frequency and speed of interaction between a business and its trading partners
and customers by providing immediate access to and facilitating the
interactive exchange of information. Traditionally limited to in-person, print
and analog channels, customers today can interact with businesses through a
variety of digital communication channels. While websites have been the
primary Internet communication channel, businesses increasingly interact with
their customers through such additional Internet-enabled channels as e-mail,
cellular phones or PDAs.
The profound impact of the Internet has led to a shift in the balance of
power from the business to the customer. However, many companies today
continue to approach e-business through the context of the traditional
business-customer relationship. These companies view the Internet as a vehicle
that allows easy access to a larger customer base to whom they can market and
sell, or push, their products and services. Using the Internet simply as
another medium which connects customers to businesses fails to realize the
full potential of the Internet to transform the customer experience to one
that is more relevant, efficient, meaningful and mutually rewarding for both
the business and the customer.
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Given these market dynamics and the expansion of new Internet-enabled
communication channels, successful businesses must be able to identify what
personalized services the customer wants and have the ability to deliver those
services across multiple communication channels to begin and ultimately extend
a relationship between the business and the customer. As opposed to the push
approach, this pull approach utilizes knowledge gained about the customer
through multiple interactions to make available relevant personalized services
to drive customer satisfaction, retention and loyalty. For example, through
analyzing customer behavior patterns of a frequent flyer through existing
channels, such as the airline's call center and website, an airline could
introduce a value-added service to provide updated flight status information,
potential new bookings and special fare promotions via a PDA. As a result, the
airline creates greater customer satisfaction and generates potential future
revenues through customer retention and loyalty.
Customer personalization requires the ability to capture and analyze
customer activity across multiple communication channels in an efficient and
effective manner. Currently, companies have significant investments in
channel-specific infrastructure including ad networks, web servers, e-mail and
customer call centers. Unfortunately, these systems may not communicate with
one another, track multiple communication channels, systematically store data
or incorporate prior learning from past results, and may be slow to implement,
requiring extensive internal resources that may not be coordinated across the
divisions within a company. Inefficiencies arise because as the customer
interacts with the company on each communication channel the information that
the customer gives the company, or that the company observes, is generally
stored in separate databases. A solution that can aggregate data on a
particular customer across multiple channels can dramatically increase e-
business results and activity. Once a company has a centralized cross-channel
understanding of the customer, it can intelligently deliver services across
channels to better service customers, thus optimizing the business
relationship with and profitability of each individual customer.
Given the complexity and scale of these new Internet-related initiatives,
few businesses have in-house employees with the advanced skills necessary to
effectively conceive and implement customer-focused strategies and solutions.
Nor do they have the technology and systems required to aggregate data
resulting from cross-channel customer contact that will enable them to develop
key insights that can drive a higher return on their customer relationships.
Given the pressures to get to market quickly, training in-house employees may
not be a practical alternative. Hiring trained professionals may be difficult
because they are in great demand. Outsourcing this function to providers of
Internet professional services is often the most efficient and cost-effective
solution for many companies.
Currently there are a large number of Internet professional services firms
that compete in the marketplace that focus on technology infrastructure for
advanced electronic commerce platforms. Advantages achieved by e-businesses
with advanced electronic commerce platforms, however, will be limited if these
businesses do not implement solutions that are driven by the fundamental
understanding that customers control the e-business relationship. We believe a
greater portion of future Internet-related services spending will be dedicated
to the development, implementation and ongoing management of customer-focused
solutions that enable the delivery of services to individual customers across
multiple Internet-enabled communication channels and devices. We believe that
Internet professional services firms that have a customer-focused approach,
expertise across multiple Internet-enabled communication channels, advanced
data analytics and a global delivery capability will capture an increased
share of Internet expenditures from Global 500 and leading online businesses.
Our Me-Business Solution
Me-business Vision: A Customer Driven Approach. We have developed a
business approach that recognizes the power of the customer in a business
relationship and seeks to direct that power to the benefit of our clients. In
following our Me-business approach, we create customer-focused solutions by
understanding customer needs, conceiving services that fulfill those needs,
building and scaling those services, enabling our clients to distribute them
on multiple communication channels and measuring their effectiveness for both
our clients and their customers on a global basis. Our approach helps our
clients increase the lifetime revenue potential of their customers and
transforms the customer experience to one that is more relevant, efficient,
meaningful and mutually rewarding for both the client and the customer.
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Building and Delivering Services Across Multiple Internet Channels and
Devices. We build a client's website not only as an e-commerce platform, but
also as the foundation of a comprehensive online marketing strategy. We work
with our clients to build Me-business solutions that fulfill customer needs by
providing them with personalized services for each customer. We have
established the Me-business Network, an outsourced solution, to enable our
clients to reach beyond their own websites and provide personalized content
and services to customers through their customers' preferred communication
channels. This network consists of strategic relationships with select ad-
serving and affiliate marketing companies, wireless providers, e-mail delivery
systems, personalization and content management engines. Because of our pre-
established relationships with network partners, we can offer clients quick
and cost-effective access to these services. For example, in the case of an
airline, these services may include online, PDA, or pager reservation and
flight-delay notification capabilities.
Analyze and Customize Customer Information to Enhance Client-Customer
Relationships. We continuously analyze and measure our customer-focused Me-
business solutions to determine their effectiveness against client goals and
customer needs. In order to make this analysis and measurement more effective,
we have built, and are continuing to develop, a leading-edge technology
platform called CentrPort. CentrPort provides clients an outsourced service to
identify, accumulate and analyze customer data generated through the Me-
business Network's various channels. By accumulating information on the
customer's interactions through these different channels and devices in a
single database, our clients can better understand their customers' needs and
customize new Internet services and features for them. For example, our Me-
business Network may recognize our airline client's customer on another
travel-related website and proactively offer the customer the option of
booking a reservation without leaving the site. Through the constant
accumulation of customer behavioral data in a centralized technology platform,
we are able to continuously increase our client's knowledge of their
customers, develop better services for each individual customer, identify and
understand the customer's preferred delivery channel and ultimately help our
client measure and improve its return on Internet-related initiatives.
Global Delivery Capabilities. We believe that multinational companies
prefer a single service provider to help them build and manage their Internet
activities around the world. Our knowledge of the international marketplace,
combined with our knowledge of our clients' businesses, enables us to help
design and create effective global e-business strategies. Through our global
network of eleven offices in North America, Latin America, Europe and Asia, we
deliver successful customer-focused Me-business solutions tailored to the
specific needs and preferences of the local markets in which our multinational
clients operate. Our single consistent global methodology makes it easier and
more efficient for our clients to do business with us worldwide. This
differentiating factor strengthens our position with our Global 500 clients
and makes it more difficult for our competitors to develop relationships with
them.
Our Services Approach
We deploy integrated, multi-disciplinary client service teams with strong
backgrounds in business strategy, creative design, technology and marketing to
conceive, develop and distribute Me-business solutions for our clients.
Over the course of our client relationships, we focus on different
competencies at various phases. With our customer-focused Me-business approach
as their foundation, client initiatives are driven by our proprietary Modem
Media process, which has been refined over the past five years and includes:
Understanding Customer Needs. Using our consulting and research resources,
we conduct diagnostic analyses of our clients' businesses to gain a deep
understanding of the unique needs and expectations of the customer. During
this phase we conduct primary and secondary customer research, perform a
competitive review to identify opportunities and threats, analyze online
customer behavior, inventory the existing customer relationship databases,
review existing distribution channels and identify potential conflicts with
online channels.
Conceiving Services That Fulfill Customer Needs. Based on our understanding
of the customer's needs, we identify and prioritize Internet-related
opportunities to strengthen client-customer relationships. We conceive
strategies to position and brand personalized Me-business solutions to create
a competitive advantage for our
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clients. We analyze technology requirements to understand the viability, risks
and timeframes associated with the delivery of these solutions.
Building and Scaling Me-Business Services. We build Me-business services
that are deployed through websites and other communication channels. We create
customized software and applications and identify best-of-breed hardware,
software and third-party applications to develop overall Me-business
solutions. In conjunction with the client's existing staff or vendors, we
define and coordinate the integration of these services with legacy systems.
Finally, we detach services from client websites and distribute the
functionality of these services to customers on their preferred communication
channels.
Distributing Services on Internet-Enabled Channels. We implement
distribution strategies for our clients either through the existing Me-
business Network of ad-serving and affiliate marketing companies, wireless
providers, e-mail delivery systems, personalization and content management
engines or through the client's preferred vendor. When a client has a
preferred vendor outside of the Me-business Network, we will negotiate
agreements with that vendor. We manage the relationships between our client
and the vendors that are used in implementing our recommended distribution
strategy both within and outside of the Me-business Network.
Measuring Effectiveness for Both the Client and the Customer. We
continuously monitor and measure our Me-business solutions to determine their
effectiveness in meeting client goals and customer needs. Based on our
analysis, we enhance these solutions to increase their relevance, utility and
value. We use the information we collect in performing program measurement and
data analysis to help our clients improve their Me-business solutions and
distribution strategies. We believe that our continuous program improvement
builds the foundation for recurring client business. Our CentrPort technology
will increase our ability to monitor, measure and enhance our solutions
efficiently across multiple communication channels.
Clients
We have a diverse roster of clients. Our five largest clients in 1999
accounted for 45.1% of our revenues, of which Citibank accounted for 13.8%.
Our clients include: Infinite Supply
Citibank Intel
Coca-Cola JCPenney
DaimlerChrysler John Hancock
Delta Air Lines Starwood Hotels and Resorts
E*TRADE Toyota
General Electric Women.com
General Motors
IBM
Sales and Marketing
We target a select group of clients, primarily Global 500 companies and
select online businesses. Many of the Global 500 companies that we target have
an existing presence on the web, but have yet to develop and deploy a
comprehensive strategy for how it will attract, sell and service customers
online. Fewer yet have integrated these efforts across multiple communication
channels, effectively leveraged their domestic business strategies in markets
around the world or integrated these efforts with offline customer service
efforts.
Recognition of the importance of building online customer relationships
through effective Internet solutions on a global basis has fueled a
significant demand for our expertise and services worldwide, particularly
among the largest multinational companies in the world including Citibank,
General Motors, General Electric, IBM and Intel.
Our online business clients range from the leading Internet businesses
looking to upgrade their online sales and marketing efforts, such as E*TRADE
or The Industry Standard, to start-ups requiring comprehensive support
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from business strategy development through technical development, creative
production and launch and marketing support.
We market our Internet professional services through a combination of
business development teams, targeting new prospects, and our existing
relationship managers, who are responsible for deepening our business
relationships with existing clients.
Technology
Our background in developing e-commerce solutions for Global 500
businesses, and the skills of our technology professionals have helped us to
utilize technology to further the business and marketing objectives of our
client base. We utilize technology to implement customer-focused Me-business
solutions for our clients and to help them manage their customer
relationships.
We make extensive use of third-party technologies and applications as part
of the solutions we engineer for our clients. We have utilized third-party
technology in order to perform several essential business and marketing
functions for our clients, including systems integration, 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 we provide for our clients, while increasing their
scalability as well as the speed with which we can bring them to market. We
intend to continue incorporating advanced third-party technologies into our
service offerings as the Internet professional services needs of our clients
evolve.
In addition, we are continuing to develop the CentrPort technology
platform, which is intended to provide: the ability to "make decisions" as to
what information or service to send to a specific customer; campaign
management across multiple communication channels; closed loop media tracking;
and analysis of clickstream and log file data. The CentrPort platform is
designed to evaluate customer responses to prior contacts across multiple
communication channels, and return the appropriate strategic response.
CentrPort can track customers on off-site distribution channels related to the
client, as well as beyond a company's website. CentrPort can aggregate
customer information across multiple communication channels.
The CentrPort technology platform has the following features: (1) a service
bureau built on a Sun/Oracle/Netscape platform; (2) a Java(R)-based
administration interface provided by IBM's WebSphere(TM); (3) a robust,
scalable core engine written in C/C++, with flexible extensible web-based user
interfaces written in Java/HTML; (4) a multi-processor and multi-server
architecture, which provides scalability; and (5) multiple data centers and
redundant, distributed hardware which provides reliability and performance.
Employees and Culture
In order to maintain high levels of creativity and quality, we place great
importance on recruiting and retaining talented employees. As of March 1,
2000, we had more than 750 full-time employees, of which 627 were billable
professionals. We also hire temporary employees and contract service providers
as needed. Our employees are not represented by any union and, except for
senior management are retained on an at-will basis. We consider our employee
relations to be good. We believe our firm fosters an entrepreneurial,
creative, and professional culture, and as a result, attracts talented
individuals. In addition to recruiting talented professionals, we are
committed to employee training and orientation. We have various programs
dedicated to the training and development of our personnel.
Competition
The Internet professional services market has grown dramatically in recent
years due to the increasing need for outsourced expertise in developing end-
to-end Internet solutions to create and maintain an e-business. Businesses
have realized the opportunity to increase revenue, reduce customer turnover,
deepen relationships and increase market share by allowing their customers to
access the client's products and services over the Internet through various
communication channels. As a result, the market for our services is highly
competitive. The
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market is subject to rapid technological change and increased competition from
large existing players, new market entrants and internal Internet services
divisions. Our competitors include:
. Internet professional services firms, such as AGENCY.COM, Digitas, iXL,
Organic, Proxicom, Razorfish, Sapient, Scient, and Viant;
. traditional technology services firms, such as Andersen Consulting,
Computer Sciences Corporation, EDS, and IBM Global Services;
. strategic consulting firms, such as Bain, Booz-Allen & Hamilton, Boston
Consulting Group and McKinsey & Co.; and
. internal Internet services, technology, marketing and design
departments.
We believe the main competitive factors in the Internet professional
services market include Internet expertise and talent, reliability of a high
quality solution, pricing and speed of service, ability to provide an
integrated solution, technological knowledge, creative design skills, brand
name and recognition and client references. We believe that we compete
favorably on these criteria and distinguish ourselves from our competitors
based on our Me-business approach, which focuses on satisfying the needs of
our clients' customers.
Factors Affecting Our Future Performance
In evaluating our business, you should consider the following risk factors:
Risks Relating to Our Business
We have a history of operating losses, and we expect to incur net losses for
the foreseeable future
We have experienced operating or net losses in nine of the twelve quarters
in the period from January 1, 1997 to December 31, 1999. Although we have
experienced revenue growth and profitability in recent periods, our recent
growth may not be sustainable or indicative of future operating results. We
have incurred substantial costs to expand and integrate our operations, and we
intend to continue to invest heavily in global expansion efforts, sales and
marketing, technology platforms, infrastructure development and the hiring of
additional personnel. We have current plans to significantly increase our
hiring efforts and costs associated with these new hires will begin to accrue
before we are realizing corresponding revenues generated by them. As a result
of the amortization of goodwill related to the acquisition of Vivid, and these
increased costs, we expect to incur net losses for the foreseeable future.
Our operating results depend on our relationship with a limited number of
clients
Our results of operations and our business depend on our relationships with
a limited number of large clients. Set forth below are the percentages of
revenues during 1998 and 1999 for each of our clients that accounted for more
that 10% of our revenues and for our five largest clients combined:
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Year Ended December 31,
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Client 1998 1999
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AT&T............................................. 20.7% less than 10%
Citibank......................................... 12.8 13.8
Five largest clients combined.................... 53.4 45.1
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We cannot assure you that we will be able to maintain our historical rate
of growth or our current level of revenues derived from these clients or any
other client in the future. We resigned from our relationship with AT&T in
June 1999 and at this time do not expect AT&T to be a significant client of
ours in the future.
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We generally do not have long-term contracts with our clients. Our clients
typically hire us one project at a time. Moreover, our clients generally have
the right to terminate their relationships with us without penalty and with
relatively short or no notice. Once a project is completed we cannot assure
you 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. We expect a relatively
high level of client concentration to continue but not necessarily involve the
same clients from period to period. The termination of our business
relationships with any of our significant clients, 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 quarter to quarter operating results may impact our stock
price
Our quarterly 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:
. the loss of or resignation from a significant client;
. the timing of new hires in anticipation of growth in our business and
employee attrition;
. the timing and scope of new projects;
. the devotion of resources to new business development;
. reduction, cancellation or completion of major projects;
. the opening or closing of an office;
. costs related to the expansion of our business;
. our relative mix of domestic versus international business;
. changes in pricing by us or our competitors;
. employee utilization rates;
. integration of acquisitions; and
. use of more expensive temporary employees to provide our professional
services.
As a result of these fluctuations, we believe that period-to-period
comparisons of our operating results cannot be relied upon as indicators of
our future performance. In some periods our operating results may fall below
the expectations of securities analysts and investors due to any of the
factors described above. If this occurs, the trading price of our Class A
common stock would likely decline.
We also experience some variation in operating results throughout the year
that results in part from the Internet professional services spending patterns
and business cycles of our clients, and from Internet professional services
spending patterns in general. Our revenues have historically been higher
during the second half of our fiscal year. We expect this variation in
operating results to continue in the future.
If we fail to accurately estimate costs in fixed-fee projects, our operating
results may be adversely affected
In 1999, approximately 76% of our revenues were derived from fixed-fee
projects. Because of the complexity of many of our client engagements,
accurately estimating the cost, scope and duration of a particular project can
be a difficult task. With respect to any single fixed-fee project, if we fail
to estimate costs accurately, control costs or anticipate technical problems,
our future financial performance could be adversely affected. We may also be
forced to devote additional resources to these projects for which we will not
receive additional compensation. We recognize revenues from fixed-fee projects
as services are rendered. To the extent our estimates are inaccurate, the
revenues and operating profits, if any, we report for periods during which we
are
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working on a project may not accurately reflect the final results of the
project and we would be required to record an expense for such period equal to
the amount by which our revenues were previously overstated.
To succeed in our labor intensive business, we must recruit and retain
qualified professionals, who are currently in high demand
The labor-intensive Internet professional services industry currently faces
a shortage of qualified personnel, at all levels of experience, which we
expect to continue. We compete intensely with other companies to recruit and
hire from this limited pool. Our inability to hire and retain personnel would
cause our business results to suffer. 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
that we utilize. As a result, if we fail to retain existing employees or hire
new employees, we may not be able to complete or retain existing engagements
or bid for new engagements of similar scope or revenues and our business,
financial condition and operating results could be materially and adversely
affected. We are particularly dependent on a limited number of technical
personnel to develop our CentrPort technology. Losing any of these individuals
could delay the development of services related to the CentrPort technology.
The integration of Vivid and other companies that we may acquire may
materially and adversely affect our operating results
We recently acquired Vivid and may acquire other companies. We expect that
the integration of acquired operations will place a significant burden on our
management. Such integration is subject to risks and uncertainties, including:
. the inability to effectively assimilate the operations, services,
technologies, personnel and cultures of entities that we acquire;
. the diversion of management's attention;
. undisclosed or potential legal liabilities of Vivid or other acquired
businesses;
. the potential disruption of our business; and
. the impairment or loss of relationships with employees and clients.
We expect that our margins will decline until we successfully complete the
integration of the operations of Vivid with our own. As a result of the
amortization of goodwill related to the acquisition of Vivid and increased
costs that we expect to incur in connection with our expansion and development
efforts, we expect to incur net losses for the foreseeable future. If in
connection with acquiring new 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 affected.
Difficulties presented by international factors could negatively affect our
operating results
One component of our strategy is to expand into international markets, as
evidenced by the opening of offices in Europe and Asia, as well as by recent
acquisitions in those regions. Once we select a new location, we typically
devote substantial financial and management resources to launch and grow that
office. We cannot assure
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you that we will select appropriate markets to enter, open new offices
efficiently or manage new offices profitably. Any new office could
underperform relative to our expectations and we may not be able to achieve
the same levels of business growth and profitability as in our domestic
offices. We believe that we will face risks in doing business abroad that we
do not face domestically. Among the international factors we believe are most
likely to affect us are:
. difficulties and costs of staffing and managing international
operations;
. different rate structures based on local economies;
. longer payment cycles;
. problems in collecting accounts receivable;
. international currency issues, including fluctuations in currency
exchange rates and the conversion to the Euro by all countries of the
European Union by year end 2003;
. restrictions on the import and export of sensitive U.S. technologies,
such as data security and encryption technologies that we may wish to
use in solutions we develop for customers;
. more restrictive privacy regulations in different countries,
particularly in the European Union; and
. legal and regulatory requirements of different countries, such as
differing tax or labor laws.
Any of these factors or other factors not enumerated here could adversely
affect the results of our international operations.
Continued growth of our business will place increased demands on our systems
and resources and may adversely affect our operating results and our ability
to retain talented personnel
The expansion of our business and client 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 operating
results. We also cannot assure you that we will be able to sustain the rates
of growth that we have experienced in the past or manage our growth
effectively in the future.
We depend on our key management personnel for our future success
We rely on our key management personnel, including G. M. O'Connell, our
Chairman and Chief Executive Officer, and Robert C. Allen, II, our President
and Chief Operating Officer, because personal relationships are critical to
obtaining and retaining client engagements. We believe that our future success
will depend upon our ability to attract and retain additional key management
personnel. If any of our officers or key employees leaves our company, the
relationships that they have with our clients could be lost.
Our future success depends in part on our ability to provide our clients with
measurement and distribution services using our new CentrPort technology
We recently introduced new services based on our CentrPort technology for
measuring the effectiveness of distributing Me-business solutions over
multiple Internet-enabled communication channels. If these new services are
not successful, we will not be able to add a new source of revenue to
supplement our fees from our Internet professional services. There are
significant risks associated with our ability to deliver these services and to
make them commercially successful, including potential damage to our
reputation if we do not succeed.
9
<PAGE>
These services are based on new technology and, to date, we have offered
these services to a limited number of clients. Moreover, we are still in the
process of developing additional capabilities. We will need to invest in
technology development, hardware and hosting services to provide these
services and to broaden their scope and volume. We will be making these
investments in advance of client commitments to use our services. To the
extent that demand develops for these services, we do not have the experience
to know whether we will be able to expand our technology platform to meet this
demand.
In addition, our CentrPort technology and the Me-business Network depend on
our ability to develop relationships with service providers for each Internet-
enabled communication channel covered by our services. We have established
these relationships with an e-mail provider and an ad serving firm for
distribution to third- party websites and are in the process of developing
additional relationships and related technology. If we are unsuccessful in
these efforts, we may not realize the full potential of our CentrPort
technology and the Me-business Network, limiting the usefulness of these
services to our clients.
We have established a new pricing model for CentrPort and the related Me-
business Network services based on fees for measurement, distribution fees
based on volume and database maintenance fees based on records under
management. We have limited experience with this transactional pricing model
and we cannot be certain our clients will find this pricing acceptable.
As a result of all these considerations, we cannot be certain that our new
services will achieve commercial acceptance.
Disruption of our services due to unanticipated problems or failures could
harm our business
Our CentrPort technology is hosted by a third-party service provider. This
third-party service provider's continuing and uninterrupted performance is
critical to CentrPort's success. Our clients may become dissatisfied by any
system failure that interrupts our ability to provide CentrPort's services to
them, including failures affecting our ability to deliver information without
significant delay. Sustained or repeated system failures would reduce the
attractiveness of our Me-business solutions, supported by CentrPort, to our
clients. Slower response time or system failures may also result from
straining the capacity of our deployed software or hardware due to an increase
in the volume of information delivered through CentrPort's servers. To the
extent that we do not effectively address any capacity constraints or system
failures, our business, results of operations and financial condition could be
materially and adversely affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. In addition, interruptions in the delivery of our services could
result from the failure of our telecommunications providers to provide the
necessary data communications capacity in the time frame we require. Despite
precautions that we have taken, unanticipated problems affecting our systems
have from time-to-time in the past caused, and in the future could cause,
interruptions in the delivery of our services. Our business, results of
operations and financial condition could be materially and adversely affected
by any damage or failure that interrupts or delays our operations.
We may need additional capital in the future, which may not be available to
us. The raising of any additional capital may dilute your ownership in us
We may need to raise additional funds through public or private debt or
equity financing in order to:
. take advantage of business opportunities, including more rapid expansion
or acquisitions of, or investments in, businesses or technologies;
. develop new services; or
. respond to competitive pressures.
10
<PAGE>
Any additional capital raised through the sale of equity may dilute your
ownership percentage in our Class A common stock. Furthermore, we cannot
assure you that any additional financing we may need will be available on
terms favorable to us, or at all. Our failure to obtain additional capital may
have an adverse effect on our business results.
Risks Relating to Our Industry
Exclusivity arrangements with our clients may limit our ability to provide
services to others
It is customary in the Internet professional services industry to enter
into exclusivity arrangements with clients. We have entered into these
arrangements with a number of our largest clients that restrict our ability to
provide services to their competitors. We have in the past been, and may in
the future be, unable to take on new clients because such opportunities would
require us to provide services to direct competitors of our existing clients.
In addition, we risk harming relationships with existing clients if we agree
to provide services to their indirect competitors. Prospective clients may
also choose not to retain us for reasons of actual or perceived conflicts of
interest.
The Internet professional services market is highly competitive and has low
barriers to entry, which could affect our ability to compete and may cause
our revenues to decline
The Internet professional services market is relatively new and intensely
competitive. We expect competition to intensify even further as this market
evolves. 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 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 Internet professional
services industry, primarily because it is an 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 Internet professional 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.
The developing market for our Internet professional services is subject to
uncertainties
The market for Internet professional services 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 and online services;
. the development of technologies that facilitate the delivery and use of
interactive communications between organizations and targeted audiences;
and
. our ability to anticipate such technologies and incorporate them into
our services in a timely fashion.
We cannot assure you that the market for Internet professional services
will continue to grow, that demand for our services will continue or that
Internet-enabled communication channels or other interactive media will
continue to be used for commerce and communication. If the market for Internet
professional services 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.
11
<PAGE>
Our business will be negatively affected if we do not keep up with the
Internet's rapid technological change, evolving industry standards and
changing client requirements
The Internet professional services market is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to meet
these challenges. Among the most important challenges facing us are the need
to:
. effectively use and build leading technologies;
. continue to develop our strategic and technical expertise;
. influence and respond to emerging industry standards and other
technological changes;
. enhance our current services;
. develop new services that meet changing customer needs; and
. advertise and market our services.
All of these challenges must be met in a timely and cost-effective manner.
We cannot assure you that we will succeed in effectively meeting these
challenges and our failure to do so could have an adverse effect on our
operating results.
Our revenues may decrease if growth in the use of the Internet does not
increase
Our business is dependent upon continued growth in the use of the Internet
by our clients, prospective clients and their customers and suppliers.
Published reports indicate that capacity constraints caused by growth in
Internet usage may, unless resolved, impede further growth in Internet use. If
the number of users on the Internet does not increase and commerce over the
Internet does not become more accepted and widespread, demand for our services
may decrease and, as a result, our revenues would decline causing the value of
your investment also to decline. Factors that may affect Internet usage or the
adoption of electronic commerce include:
. actual or perceived lack of security of information;
. lack of access and ease of use;
. congestion of Internet traffic;
. inconsistent quality of service;
. increases in access costs to the Internet;
. excessive governmental regulation;
. uncertainty regarding intellectual property ownership;
. reluctance to adopt new business methods; and
. costs associated with the obsolescence of existing infrastructure.
Changes in government regulation could adversely affect our business
A number of the services that we provide are subject to extensive
government regulation, both domestic and foreign, with respect to the truth in
and fairness of advertising and other marketing-related regulations. To ensure
that our clients' communications with their customers do not violate these
regulations, 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. We cannot assure you 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.
12
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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, any number of state, federal, foreign 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, which could in turn decrease the demand
for our services or otherwise have a material adverse effect on our future
operating performance.
Customers' concerns about, or government regulation of, 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 non-personally identifiable information to
measure the effectiveness of the services our clients provide to their
customers. Through our Me-business Network and CentrPort technology we enable
our clients to capture non-personally identifiable information to measure the
effectiveness of their services and manage the distribution of services to
their customers. Additionally, we enable many of our clients to gather
personally identifiable information when their customers visit their websites
so that our clients may offer customized services to their customers.
However, privacy concerns may cause customers to resist providing the data
necessary to support these capabilities. 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. Lastly,
standard Internet browsers allow users to modify their browser settings to
remove "cookies" at any time or prevent cookies from being stored on their
hard drives. These cookies, information keyed to a specific server, file
pathway or directory location that is stored on a computer user's hard drive,
possibly without the user's knowledge or consent, are used by our CentrPort
technology. If the privacy concerns of customers are not adequately addressed,
we may not be able to collect data from the customers of our clients and, our
future operating performance could be materially and adversely affected.
Privacy concerns would be heightened by proposed legislative or regulatory
initiatives that mandate notification to Internet users that the data captured
on Internet sites will be used for marketing or other purposes. The Federal
Trade Commission is in the process of working with various industry groups to
determine if industry self-regulation will provide sufficient protection of
consumer information. If the Federal Trade Commission believes industry
efforts are inadequate, the Federal Trade Commission will likely recommend
legislation regarding the handling of information on the Internet. In
addition, the European Union has promulgated certain regulations regarding the
handling of data. Governments of various countries have adopted or are
considering other regulations regarding privacy. Regulations regarding the use
and collection of customer information or limitations on or elimination of the
use of cookies could reduce the effectiveness of our services, which would
make them less attractive to our clients and could have an adverse effect on
our business results.
We may face intellectual property claims that may be costly to resolve or
limit our ability to use intellectual property in the future
We are obligated under some agreements to indemnify other parties as a
result of claims that we infringe on the proprietary rights of third parties.
Although we do not believe that the Me-business solutions that we develop for
clients, or our CentrPort technology, infringe on any third-party proprietary
rights, we cannot assure you that third parties will not assert infringement
claims against us in the future or that these claims will not be successful.
We could incur substantial costs and management resources may be diverted to
defend any claims relating to proprietary rights. These costs and diversions
could cause our business results to suffer. If any party asserts a claim
against us relating to proprietary technology or information, we may need to
obtain licenses to the disputed intellectual property. We cannot assure you,
however, that we will be able to obtain these licenses on commercially
reasonable terms or that we will be able to obtain any licenses at all. The
failure to obtain necessary licenses or other rights may have an adverse
affect on our business results.
13
<PAGE>
We may not be able to protect our intellectual property.
As we develop technology platforms, including CentrPort, we will need to
protect our intellectual property interests in that technology. Our success
will depend, in part, on whether we can:
. obtain patents to protect our own products;
. obtain licenses to use certain technologies of third parties, which may
be protected by patents;
. protect our trade secrets and know-how; and
. operate without infringing the intellectual property and proprietary
right of others.
Despite our efforts to protect our intellectual property, unauthorized
parties may attempt to copy or otherwise obtain and use our proprietary
technology. Monitoring unauthorized use of our technology is difficult and
unauthorized use of our technology may occur. We cannot be certain that
patents will be issued nor can we be certain that any issued patents would
protect or benefit us or give us adequate protection from competing products.
For example, issued patents may be circumvented or challenged and declared
invalid or unenforceable. In addition, others may develop competing
technologies on their own. Any inability to adequately protect our
intellectual property interests could have an adverse effect on our business
results.
We may be liable to our clients for damages
Many of our engagements involve the development, implementation and
maintenance of Me-business solutions that are critical to our clients'
businesses. Our failure or inability to meet a client's expectations in the
performance or completion 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, in the course of providing
Internet professional services to our clients we may be given access to
confidential or proprietary client information. Although we have implemented
policies to prevent such client information from being disclosed to
unauthorized parties or used inappropriately, any such unauthorized disclosure
or use could result in a claim against us for substantial damages. Our
contractual provisions attempting to limit such damages may not be enforceable
in all instances or may otherwise fail to protect us from liability for
damages, which could adversely affect our future operating performance.
ITEM 2. PROPERTIES
Our headquarters are located in Norwalk, Connecticut where we lease
approximately 54,300 square feet of space. Under our lease agreement, we will
increase the space that we lease in Norwalk to 79,300 square feet in May 2000
and 114,300 square feet in September 2000. This lease expires in January 2009.
We maintain additional offices in New York City, San Francisco, Toronto,
London, Paris, Munich, Tokyo, Hong Kong, Singapore and Sao Paolo.
ITEM 3. LEGAL PROCEEDINGS
Modem Media is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 28, 1999, we obtained the written consent of the shares
representing a majority of the votes entitled to be cast at a duly called
meeting of stockholders in order to (1) approve the adoption of the 1999 Stock
Incentive Plan and (2) approve the amendment of our Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
our Class A and Class B common stock in order to effect a two-for-one stock
split of our Class A and Class B common stock. The written consent of True
North represented over 82% of our total voting power. On January 27, 2000,
pursuant to Rule 14c-2 under the Securities Exchange Act of 1934, as amended,
an information statement describing these matters was filed with the
Securities and Exchange Commission and distributed to our shareholders.
14
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A common stock is listed on the Nasdaq National Market under the
symbol "MMPT". The table below sets forth, for the periods indicated, the high
and low sales prices of our Class A common stock as reported and reflects all
stock splits effected by us. Our Class B common stock automatically converts
into Class A common stock upon sale or other transfer, therefore, there is no
public trading market for our Class B common stock.
<TABLE>
<CAPTION>
1999 High Low
---- ------ ------
<S> <C> <C>
First quarter (from February 5, 1999)...................... $27.56 $11.97
Second quarter............................................. 26.00 10.63
Third quarter.............................................. 20.86 8.88
Fourth quarter............................................. 39.50 17.78
</TABLE>
On March 1, 2000, there were 57 shareholders of record of our Class A common
stock and 5 shareholders of record of our Class B common stock.
We have never declared, nor have we paid, any cash dividends on our common
stock. Modem Media currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
common stock in the foreseeable future.
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 $21,200,000 to acquire and fund the operations of complementary
businesses in Tokyo, Munich, Paris and San Francisco. We have invested the
remainder of the net proceeds in short-term, interest-bearing, investment grade
obligations pending their use.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected 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 herein. The statements of operations data for the fiscal
years ended December 31, 1996 and 1995 and the balance sheet data as of
December 31, 1997, 1996 and 1995 are derived from our consolidated financial
statements that have been audited by Arthur Andersen LLP, independent public
accountants, which are not included herein. The statements of operations data
for the fiscal years ended December 31, 1999, 1998 and 1997 and the balance
sheet data as of December 31, 1999 and 1998 are derived from our consolidated
financial statements that have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere herein. Data for
1998 and later periods reflect our combination with the strategic interactive
marketing operations of Poppe Tyson, Inc.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- ------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues.......................... $ 74,036 $42,544 $25,497 $ 2,093 $ 438
Cost of revenues.................. 32,991 23,249 12,045 1,322 308
-------- ------- ------- ------- ------
Gross margin...................... 41,045 19,295 13,452 771 130
Sales and marketing............... 1,658 1,098 769 -- --
General and administrative........ 29,683 19,750 12,118 712 215
Amortization of goodwill.......... 2,959 1,768 1,666 -- --
Operating losses of True North
Units Held for Transfer.......... -- 13 2,180 1,309 1,766
-------- ------- ------- ------- ------
Operating income (loss)........... 6,745 (3,334) (3,281) (1,250) (1,851)
Interest income (expense), net.... 1,975 29 (76) -- --
-------- ------- ------- ------- ------
Income (loss) before income
taxes............................ 8,720 (3,305) (3,357) (1,250) (1,851)
Provision (benefit) for income
taxes............................ 5,703 (102) (248) (548) (873)
-------- ------- ------- ------- ------
Net income (loss)................. $ 3,017 $(3,203) $(3,109) $ (702) $ (978)
======== ======= ======= ======= ======
Basic net income (loss) per
share............................ $ 0.14 $ (0.21) $ (0.21) $(17.55) $ --
======== ======= ======= ======= ======
Diluted net income (loss) per
share............................ $ 0.13 $ (0.21) $ (0.21) $(17.55) $ --
======== ======= ======= ======= ======
<CAPTION>
December 31,
------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......... $ 30,265 $ 7,824 $ 7,056 $ 2,726 $ --
Short-term investments............ 16,859 -- -- -- --
Working capital (deficit)......... 37,687 (5,917) 3,269 3,428 548
Total assets...................... 145,732 71,286 59,024 54,022 753
Capital lease obligations, less
current portion.................. 471 323 472 193 --
Related party obligations, less
current portion.................. -- -- 9,346 6,000 620
Other long-term obligations....... 221 19 41 55 --
Total stockholders' equity
(deficit)........................ 111,476 35,560 35,618 40,493 (846)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 were formed by True North in October 1996 to acquire Modem Media
Advertising Limited Partnership (the "Modem Partnership") and to combine it
with True North's digital interactive marketing operations, including Northern
Lights Interactive. Effective October 1, 1998, we acquired the strategic
interactive marketing operations of Poppe Tyson from True North in exchange
for (1) our non-strategic digital interactive marketing operations and (2) an
aggregate of 1,619,028 shares of our Class B common stock. In conjunction with
this transaction, True North forgave $5,763,000 of intercompany borrowings and
transferred $1,624,000 of fixed assets to us. This transaction occurred among
companies under common control, and, accordingly, was recorded as of December
31, 1997, the date of True North's acquisition of the strategic interactive
marketing operations of Poppe Tyson, at historical cost. Poppe Tyson was
formed in December 1985 as a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt,
Inc., which was acquired by True North in December 1997 in a business
combination accounted for under the pooling-of-interests method (see Note 2 of
the notes to our consolidated financial statements).
During the fourth quarter of 1998, we integrated the domestic offices of
the strategic interactive marketing operations of Poppe Tyson with our own
operations. In 1999, we successfully deployed this additional capacity to
service additional business with existing clients. Internationally, we
resigned from low-margin engagements and utilized this capacity to service
global clients. As a result of these measures, we became profitable for the
three quarters ending December 31, 1999, after suffering a loss in 1998.
Our results of operations include the results of:
. the Modem Partnership;
. the digital interactive marketing operations contributed by True North
to us in 1996, including both Northern Lights Interactive and the non-
strategic digital interactive marketing operations that we sold back to
True North effective October 1, 1998; and
. the strategic interactive marketing operations of Poppe Tyson,
from their respective dates of acquisition by True North. The results of
operations of the businesses that we sold back to True North effective October
1, 1998 are included in our results through September 30, 1998 and are
presented as "Operating Losses of True North Units Held for Transfer" in our
consolidated financial statements.
The financial statements of the strategic interactive marketing operations
of Poppe Tyson as of and for the year ended December 31, 1997 are included
herein as the financial statements of a predecessor to us.
17
<PAGE>
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.
Our five largest clients accounted for 45.1%, 53.4% and 65.5% of
consolidated revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Citibank accounted for 13.8% and 12.8% of our consolidated
revenues for the years ended December 31, 1999 and 1998, respectively. AT&T
accounted for 20.7% and 36.2% of our consolidated revenues for the years ended
December 31, 1998 and 1997, respectively.
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 and costs for temporary
employees we use to provide professional services, as well as certain other
direct costs. As we generate revenue from our CentrPort technology, cost of
revenues will include our direct costs associated with the CentrPort
technology.
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 will substantially increase
our spending on marketing and advertising on a global basis to promote the
Modem Media brand. In addition, we will increase 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. During 2000, our general and administrative costs will increase in
connection with our expanded hiring efforts and costs associated with these
new hires. In February 2000, we completed our acquisition of Vivid, resulting
in approximately $63.3 million of goodwill, which will increase our goodwill
amortization by $3.2 million per quarter over five years.
We have experienced operating or net losses in nine of the twelve quarters
in the period January 1, 1997 through December 31, 1999. Although we have
experienced revenue growth in recent periods, these growth rates may not be
sustainable or indicative of future operating results. We have incurred
substantial costs to expand and integrate our operations and intend to
continue to invest heavily in global expansion and integration efforts, as
well as infrastructure development. As a result of the amortization of
goodwill related to the acquisition of Vivid and these increased costs, we
expect to incur net losses for the forseeable future.
During 1999, 83.2% of our revenues was domestic, 16.8% was 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.
18
<PAGE>
In November 1999, we entered into an agreement with five employees to form
CentrPort, LLC, a limited liability company focused on the development of
intelligent marketing platforms to build and enhance customer relationships
across multiple communication channels. We own 50.5%, and the employees own
49.5%, of the common interests in CentrPort. In addition, we have contributed
$1,500,000 under the agreement, in exchange for 100% of the preferred
interests of CentrPort. We may contribute additional funds to CentrPort
pursuant to the agreement. We have the option to purchase the common interests
of the employees for a purchase price indexed to the value of our Class A
common stock. We are managing the business and affairs of CentrPort and the
operating results of CentrPort have been included in our consolidated
financial statements from the date of its formation.
In February 2000 we acquired Vivid, a privately held Internet engineering
and information architecture specialist, for approximately $64 million in
cash, Class A common stock and Vivid stock options converted to Modem Media
stock options. We will account for the Vivid acquisition as a purchase and
include its results with ours from the date of acquisition. We believe that
Vivid strengthens us by:
. meeting strong client demand for a greater depth of expertise and
service offerings in systems architecture and web engineering,
information architecture and design, and strategic consulting; and
. combining our strength in guiding worldwide Me-business solutions for
the Global 500 with Vivid's capabilities for assisting in the
development of online ventures.
Vivid's engineering and information architecture capabilities, coupled with
our customer-focused Me-business approach should enhance our ability to
provide complete end-to-end solutions for our clients.
Results of Operations
The following table sets forth certain items from our statements of
operations as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues......................................... 100.0% 100.0% 100.0%
Cost of revenues................................. 44.6 54.6 47.2
------- ------- -------
Gross margin..................................... 55.4 45.4 52.8
------- ------- -------
Sales and marketing.............................. 2.2 2.6 3.0
General and administrative....................... 40.1 46.4 47.6
Amortization of goodwill......................... 4.0 4.2 6.5
Operating losses of True North Units Held for
Transfer........................................ -- -- 8.6
------- ------- -------
Operating (loss) income.......................... 9.1 (7.8) (12.9)
Interest (expense) income, net................... 2.7 0.1 (0.3)
(Benefit) provision for income taxes............. 7.7 (0.2) (1.0)
------- ------- -------
Net (loss) income................................ 4.1% (7.5)% (12.2)%
======= ======= =======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased by $31.5 million, or 74.0%, to $74.0 million
for 1999 from $42.5 million for 1998. Revenues increased primarily as a result
of increased services provided to existing clients, as well as the addition of
new clients.
Cost of Revenues and Gross Margin. Cost of revenues increased by $9.8
million, or 41.9%, to $33.0 million for 1999 from $23.2 million for 1998.
Gross margin improved to 55.4% of consolidated revenues for 1999 from 45.4%
for 1998. The increase in cost of revenues was primarily due to a company-wide
increase in headcount due to the growth of our existing client relationships,
as well as the addition of new client
19
<PAGE>
relationships. The improvement in gross margin in 1999 compared to 1998 was
primarily due to improved utilization and deployment of personnel to higher
margin work.
Sales and Marketing. Sales and marketing increased by $0.6 million, or
51.0%, to $1.7 million for 1999 from $1.1 million for 1998. Sales and
marketing represented 2.2% of revenues for 1999 and 2.6% for 1998. The dollar
increase in sales and marketing was primarily attributable to increased
salaries, benefits and incentive compensation associated with an increase in
headcount. The decrease in sales and marketing as a percentage of revenues was
due primarily to a higher percentage growth rate in revenues.
General and Administrative. General and administrative increased by $9.9
million, or 50.3%, to $29.7 million for 1999 from $19.8 million for 1998.
General and administrative represented 40.1% of revenues for 1999 and 46.4%
for 1998. The dollar increase in general and administrative was due primarily
to increased occupancy and office support expenses, as well as increased
salary, benefits and incentive compensation of administrative and other
nonbillable employees, incurred in connection with increases in headcount. The
decrease in office and general as a percentage of revenues was due primarily
to a higher percentage growth rate in revenues.
Amortization of Goodwill. Amortization of goodwill increased by $1.2
million, or 67.4%, to $3.0 million for 1999 from $1.8 million for 1998. The
increase is primarily a result of payments of additional purchase price for
the Modem Partnership by True North to the former owners of the Modem
Partnership of $18.5 million in February 1999 and $3.3 million in May 1998, as
well as our acquisitions in Japan and Germany during 1999 (see Note 2 of the
notes to our consolidated financial statements).
Operating Losses of True North Units Held for Transfer. We sold the non-
strategic digital interactive marketing operations to True North effective
October 1, 1998. Accordingly, the operating results of such entities are not a
part of our operating results for 1999.
Interest Income (Expense), Net. The increase in interest income, net to
$2.0 million for 1999 is principally attributable to interest income earned on
investments purchased with the proceeds from our initial public offering.
Income Taxes. We had a provision for income taxes of $5.7 million on pre-
tax income of $8.7 million for 1999 compared to a benefit of $0.1 million on a
pre-tax loss of $3.3 million for 1998. The effective income tax rate was 65.4%
in 1999 compared to an effective income tax benefit rate of 3.1% in 1998.
These 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 do not currently recognize tax benefits.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues increased $17.0 million, or 66.9%, to $42.5 million for
1998 from $25.5 million for 1997. Revenues increased $6.8 million, or 26.7%,
due to the addition of the revenues of the strategic interactive marketing
operations of Poppe Tyson as a result of the combination of those operations
with ours (see Note 2 of the notes to our consolidated financial statements),
and also as a result of increased services provided to existing clients and
the addition of new clients.
Cost of Revenues and Gross Margin. Cost of revenues increased by $11.2
million, or 93.0%, to $23.2 million for 1998 from $12.0 million for 1997.
Gross margin was reduced to 45.4% of consolidated revenues for 1998 from 52.8%
for 1997. The increase in cost of revenues was due to a company-wide increase
in headcount from our combination with the strategic interactive marketing
operations of Poppe Tyson, as well as recruiting efforts to manage our growth.
The reduction in gross margin in 1998 compared to 1997 was primarily due to
the integration of the strategic interactive marketing operations of Poppe
Tyson into ours.
Sales and Marketing. Sales and marketing increased $0.3 million, or 42.8%,
to $1.1 million for 1998 from $0.8 million for 1997. Sales and marketing
represented 2.6% of revenues for 1998 and 3.0% for 1997. The dollar
20
<PAGE>
increase in sales and marketing was primarily attributable to increased
salaries, benefits and incentive compensation associated with an increase in
headcount. The decrease in sales and marketing as a percentage of revenues is
due primarily to a higher percentage growth rate in revenues.
General and Administrative. General and administrative increased $7.7
million, or 63.0%, to $19.8 million for 1998 from $12.1 million for 1997.
General and administrative represented 46.4% of revenues for 1998 and 47.6%
for 1997. The dollar increase in general and administrative was primarily due
to the addition of the office and general expenses of the strategic
interactive marketing operations of Poppe Tyson, as well as increased
occupancy, office support and personnel costs of administrative and other
nonbillable employees incurred in connection with increases in headcount. The
decrease in office and general as a percentage of revenues is due primarily to
a higher percentage growth rate in revenues.
Amortization of Goodwill. Amortization of goodwill increased by $0.1
million, or 6.1%, to $1.8 million for 1998 from $1.7 million for 1997, as a
result of the payment of $3.3 million of additional purchase price for the
Modem Partnership by True North in May 1998 (see Note 2 of the notes to our
consolidated financial statements).
Operating Losses of True North Units Held for Transfer. The operating
losses of our non-strategic digital interactive marketing operations that we
sold back to True North effective October 1, 1998 decreased to breakeven
during the nine months ended September 30, 1998 (the period prior to their
sale to True North) from operating losses of $2.2 million during 1997,
principally due to the closure of one office and overhead reductions at other
locations.
Income Taxes. We had a benefit for income taxes of $0.1 million on a pre-
tax loss of $3.3 million for 1998 as compared to a benefit for income taxes of
$0.2 million on a pre-tax loss of $3.4 million for 1997. The effective income
tax benefit rates were 3.1% for 1998 and 7.4% for 1997. These rates differ
from the federal statutory rate primarily due to the effect of non-deductible
goodwill amortization, the tax effects of the non-strategic digital
interactive marketing operations that we sold back to True North effective
October 1, 1998, and, in 1998, losses of certain foreign subsidiaries on which
we do not currently recognize tax benefits.
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 quarter of 1999,
there can be no assurance that the variation will not return in future fiscal
years.
Liquidity and Capital Resources
We historically have financed our operations primarily from funds generated
from operations, and proceeds from our initial public offering. Net cash
provided by operating activities was $11.2 million, $6.3 million and $6.4
million for 1999, 1998 and 1997, respectively, including depreciation and
goodwill amortization totaling $6.4 million, $3.6 million and $2.9 million
during such years, respectively.
21
<PAGE>
Net cash used in investing activities was $31.8 million, $4.1 million and
$1.2 million for 1999, 1998 and 1997, respectively. In 1999, using the
proceeds of our initial public offering and cash generated from our
operations, we invested $10.4 million in capital expenditures, $4.6 million to
acquire our Japanese and German offices and $16.9 million in short-term
investments. In 1998 and 1997, our cash used in investing activities were
related to capital expenditures.
Net cash provided by (used in) financing activities was $43.0 million,
$(1.4) million and $(0.9) million, for 1999, 1998 and 1997, respectively. Our
primary sources of cash flows from financing activities during 1999 were
proceeds from the our initial public offering of $43.5 million and the
exercise of employee stock options of $4.7 million.
We used $10.2 million in cash in February 2000 in connection with the Vivid
acquisition. Our short-term capital commitments include lease payments over
the next twelve months aggregating approximately $4.8 million and the funding
of certain international operations which are not expected to be self-
sufficient in the near-term. Our long-term capital needs will depend on
numerous factors, including the rate 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. We have ongoing needs for capital, including working capital for
operations, project development costs and capital expenditures to maintain and
expand our operations. In conjunction with our acquisition in Japan during
1999, we are obligated to make payments to the former owners of the acquired
entity of up to approximately $3.2 million if the entity's operating results
exceed certain targeted levels annually through 2002. As a result of the
entity meeting its 1999 targets, we will make a payment of approximately $0.3
million to its former owners during 2000.
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. There can be no assurance that additional
funds will be available or on terms favorable to us. If additional funds are
raised through the issuance of equity securities, our existing shareholders
may experience significant dilution. If we are not able to raise additional
capital, we may need to limit our expansion plans.
Recently Issued Accounting Pronouncements
Derivative Instruments. In June 1999, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
137, Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133. The Statement defers for one
year the effective date of SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which was issued in June 1998 and 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 also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS No. 133 will now apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. We do not believe that the
implementation of SFAS No. 133 will have a material impact on our results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our consolidated financial statements are denominated in U.S. dollars. In
1999, we derived approximately 16.8% of our revenues from operations outside
of the United States. Currency fluctuations may give rise to translation gains
and losses when financial statements of foreign operating units are translated
into U.S. dollars. Significant strengthening or weakening of the U.S. dollar
against major foreign currencies could have an adverse impact on our results
of operations. In general, we incur most of our costs to support the related
revenues in the
22
<PAGE>
same currency in which these revenues are billed, thereby reducing exposure to
currency fluctuations. Currently, we do not hedge foreign currency
transactions into U.S. dollars because management believes that, over time,
the cost of a hedging program will outweigh any benefit of greater
predictability in our U.S.-dollar denominated results. However, as we continue
to extend the depth and breadth of our foreign operations, management will,
from time-to-time, reconsider the issue of whether a foreign currency hedging
program would be beneficial to our operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements commencing on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
23
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to our
executive officers and directors as of March 1, 2000.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- ----------
<S> <C> <C>
G. M. O'Connell......... 38 Chief Executive Officer and Chairman of the Board
Robert C. Allen, II..... 32 President, Chief Operating Officer and Director
Steven C. Roberts....... 38 Chief Financial Officer
John Nardone............ 35 President, International and Worldwide Director of Media
Sloane Levy............. 35 Vice President, General Counsel and Corporate Secretary
William Zierolf......... 41 Senior Vice President, Corporate Development
Amy Nenner.............. 45 Vice President, Human Resources
Robert H. Beeby......... 68 Director
Donald M. Elliman, Jr... 55 Director
Terry D. Peigh.......... 46 Director
Don Peppers............. 49 Director
Donald L. Seeley........ 56 Director
Joseph R. Zimmel........ 46 Director
</TABLE>
G. M. O'Connell has served as our Chief Executive Officer and Chairman of
our Board since November 1998. From October 1996 to November 1998, Mr.
O'Connell was our President and Chief Operating Officer. From 1987 to October
1996, Mr. O'Connell was a Managing Partner of the Modem Partnership, which he
co-founded in 1987. Mr. O'Connell is a director of the Direct Marketing
Association. Mr. O'Connell has been a director of ours since 1996.
Robert C. Allen, II has served as our President and Chief Operating Officer
since November 1998. From October 1996 to November 1998, Mr. Allen was
President of one of our divisions. From 1993 to October 1996, Mr. Allen served
as a Managing Partner of the Modem Partnership. From 1989 to 1992, Mr. Allen
was the Director of Business Development of the Modem Partnership. Mr. Allen
has been a director of ours since 1996.
Steven C. Roberts has served as our Chief Financial Officer since August
1998. From January 1997 to August 1998, Mr. Roberts served us in various
capacities, most recently as our 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.
John Nardone is currently our President, International and Worldwide
Director of Media, a position that he has held since December 1998. From
October 1995 to December 1998, he was our Vice President, Director of Media
and Research. From September 1994 to October 1995 he held the title of Account
Director with us.
Sloane Levy is currently our Vice President, General Counsel and Corporate
Secretary, a position she has held since May 1999. From April 1998 to May
1999, Ms. Levy was Director, Investor Relations of Witco Corporation, a
specialty chemical corporation. From January 1996 through March 1998, she was
Senior Attorney at Witco Corporation and from May 1994 through December 1995,
she was Corporate Counsel for OSi Specialties, Inc., which was subsequently
acquired by Witco Corporation. Prior to May 1994, Ms. Levy was associated with
the law firms Arent Fox Kitner Plotkin & Kahn and Weil, Gotshal & Manges.
William Zierolf was named as our Senior Vice President, Corporate
Development in October 1999. From 1997 until his appointment with us, Mr.
Zierolf was Vice President and General Manager of Aspect Development, Inc., a
leading provider of enterprise wide component and supplier management systems,
and President of ChipCenter.com, a company co-founded and partially owned by
Aspect Development, Inc. From 1994 to 1997, Mr. Zierolf was Chief Executive
Officer, President and Director of Teltech Resource Network, Inc.
24
<PAGE>
Amy Nenner was named as our Vice President, Human Resources in February
2000. From February 1994 until February 2000, Ms. Nenner was Vice President,
Human Resources and Administration of Labatt USA. Prior to joining Labatt USA,
Ms. Nenner held various positions in the human resources field including Vice
President, Human Resources of Reed Exhibition Companies and Director, Human
Resources of Book of the Month Club, Inc., a subsidiary of Time Warner, Inc.
Robert H. Beeby is the retired President and Chief Executive Officer of
Frito-Lay, Inc., a position he held from 1989 until his retirement in 1991.
Between 1984 and 1988, Mr. Beeby was the President and Chief Executive Officer
of Pepsi-Cola International. Prior to 1984, Mr. Beeby held a number of senior
management positions with Wilson Sporting Goods Company, Pepsi-Cola
International and Frito-Lay, Inc. He is a member of the board of directors of
A.C. Nielsen Co., Columbia Energy Group and Church & Dwight Co. Mr. Beeby has
been a director of ours since May 1999.
Donald M. Elliman, Jr. has served as President of Ascent Sports Holdings, a
sports and arena management firm, since January 2000. From 1995 to 1999, Mr.
Elliman served as a director and an Executive Vice President of Time Inc. Mr.
Elliman was the President of Sports Illustrated from September 1992 through
January 1998 and held various senior sales and marketing and publishing
positions with Time Inc. since 1967. Mr. Elliman has been a director of ours
since November 1998.
Terry D. Peigh is currently Executive Vice President, TN Services of True
North, a position that he has held since April 1998. Prior to April 1998, Mr.
Peigh held various positions with Foote, Cone and Belding, including acting as
its Senior Vice President, Worldwide Account Director commencing in 1993. Mr.
Peigh has been a director of ours since February 2000.
Don Peppers is a founder and partner of the Peppers and Rogers Group, a
customer relationship management and consulting company. Prior to establishing
the Peppers and Rogers Group in 1993, he was the Chief Executive Officer of
Perkins/Butler Direct Marketing, a direct-market advertising agency. Mr.
Peppers is a member of the board of directors of DoubleClick Inc. and Electric
SchoolHouse and is a member of the Advisory Board of Internet Capital Group,
Netcentives Inc., E.piphany, Chordiant Software Inc. and BroadVision, Inc. Mr.
Peppers has been a director of ours since May 1999.
Donald L. Seeley retired as Executive Vice President, Chief Financial
Officer of True North in March 2000, a position he had held since June 1997.
Currently, Mr. Seeley is a part-time employee and director of True North. Mr.
Seeley was the Vice Chairman of True North from May 1999 to March 15, 2000.
From 1993 through June 1997, Mr. Seeley was Chief Executive Officer of The
Alexander Consulting Group. Mr. Seeley has been a director of ours since
November 1998.
Joseph R. Zimmel has served as a managing director and head of the
Communications, Media & Entertainment Group for the Americas in the Investment
Banking Division at Goldman, Sachs & Co. since 1992. From 1988 to 1992, Mr.
Zimmel served as a managing director in the firm's Mergers and Acquisitions
Department. He is a member of the board of directors of the Student/Sponsor
Partnership in New York. Mr. Zimmel has been a director of ours since May
1999.
Messrs. O'Connell and Allen were elected to our board of directors pursuant
to an agreement with True North entered into in connection with our formation
in December 1996. In 1996, True North agreed to cause each of Messrs.
O'Connell and Allen to be elected to our board of directors as long as each
serves us as an executive officer and until their collective ownership of our
Class A common stock falls below 45% of the aggregate number of shares held by
them on December 31, 1996. Each of our officers serves at the discretion of
our board of directors.
Messrs. Beeby, Peppers and Zimmel were elected to our board of directors
under an agreement dated as of May 4, 1999, by and among us, True North, G.M.
O'Connell and Robert C. Allen, II.
There are no family relationships among any of our directors or officers.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received, for each of the last two years, for services rendered to us by our
current Chief Executive Officer and each of our other most highly-compensated
executive officers during the year ended December 31, 1999 whose total
compensation in 1999 equaled or exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Underlying
Name and Principal Positions Year Salary Bonus Options
---------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
G. M. O'Connell......................... 1999 $300,000 $150,000 --
Chief Executive Officer 1998 300,000 90,000 285,000
Robert C. Allen, II..................... 1999 300,000 150,000 --
President and Chief Operating Officer 1998 300,000 90,000 285,000
Steven C. Roberts....................... 1999 184,000 120,000 200,000
Chief Financial Officer 1998 175,000 85,000 120,908
Sloane Levy(1).......................... 1999 106,000 40,000 60,000
VP, General Counsel and Corporate
Secretary 1998 -- -- --
William Zierolf(2)...................... 1999 41,000 66,000(3) 500,000
Senior Vice President, Corporate
Development 1998 -- -- --
</TABLE>
- --------
(1) Ms. Levy commenced employment with us as Vice President and General
Counsel in May 1999.
(2) Mr. Zierolf commenced employment with us as Senior Vice President,
Corporate Development in October 1999.
(3) The amount shown includes a signing bonus of $50,000 paid to Mr. Zierolf
upon his employment with us.
The following table sets forth information as to options granted to our
executive officers during 1999.
Option/SAR Grants in Fiscal 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rate of Stock
Appreciation for
Option Term(3)
----------------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to Price
Options/SARs Employees in Per Expiration
Name Granted(1) (#)Fiscal Year Share(2) Date 5% 10%
- ---- ------------ ------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
G. M. O'Connell......... -- 0.00% $ -- -- $ -- $ --
Robert C. Allen, II..... -- 0.00% -- -- -- --
Steven C. Roberts....... 200,000 7.03% 9.78 7/28/09 1,230,275 3,117,759
Sloane Levy............. 20,000 0.70% 13.38 5/17/09 168,229 426,326
40,000 1.41% 29.81 12/6/09 749,957 1,900,538
William Zierolf......... 500,000 17.57% 21.41 10/18/09 6,730,745 17,057,029
</TABLE>
- --------
(1) Except as indicated below, the options vest as to one-third of the
underlying common stock on the first anniversary of the date of grant and
as to an additional one-third on each anniversary thereafter. With regard
to options to purchase 20,000 shares of Class A common stock granted to
Ms. Levy, 20% of the options vest on the date of grant and an additional
20% vest on each anniversary of the grant date thereafter. With regard to
options to purchase 200,000 shares of Class A common stock granted to Mr.
Zierolf, the options
26
<PAGE>
vest upon the sixth anniversary of the grant date, subject to acceleration
upon attainment of certain performance targets.
(2) Options were granted at an exercise price equal to 100% of the fair market
value of our Class A common stock on the date of grant, as determined by
our board of directors.
(3) These columns show 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 our estimate or projection of future
common stock prices.
The following table sets forth information with respect to option exercises
by each of our executive officers during 1999 as well as unexercised options
held by such officers as of December 31, 1999.
Aggregate Stock Option/SAR Exercises in Fiscal 1999 and Fiscal Year-End Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Shares Acquired Value Options/SARs as of the-Money Options/SARs as
on Exercise (#) Realized December 31, 1999 of December 31, 1999(1)
--------------- ---------- ------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. M. O'Connell......... -- $ -- 159,600 201,400 $4,722,051 $5,965,972
Robert C. Allen, II..... 100,000 2,912,472 59,600 201,400 1,767,885 5,965,972
Steven C. Roberts....... 58,898 1,701,053 19,000 292,238 563,588 7,807,922
Sloane Levy............. 4,000 85,500 -- 56,000 -- 564,000
William Zierolf......... -- -- -- 500,000 -- 6,891,250
</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, 1999.
Employment Agreements
In December 1996, we entered into a five-year employment agreement with
each of Messrs. O'Connell and Allen providing for an initial annual base
salary of $300,000, subject to increases at the discretion of our board of
directors. Each of Messrs. O'Connell and Allen currently receive base salaries
of $300,000. Pursuant to the employment agreements, if we terminate such
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. Pursuant to letter agreements between us and each
of Mr. O'Connell and Mr. Allen, each of their stock options granted prior to
January 2000 will be accelerated by one year upon (1) termination of each
person's employment by him for good reason within 18 months after a change of
control or (2) upon termination of his employment by us without cause within
18 months after a change of control. In addition, if the effective date of
such termination is six months or less from the next vesting date, an
additional prorated number of options will vest. Each of Messrs. O'Connell and
Allen has also agreed to certain confidentiality, noncompetition and
nonsolicitation provisions.
In December 1996, we entered into an employment agreement with Mr. Roberts
providing for an annual base salary of $150,000. Mr. Roberts currently
receives a base salary of $200,000. Pursuant to a letter agreement, if we, or
a successor, terminate Mr. Roberts' employment without cause or if Mr. Roberts
terminates his employment with good reason, he is entitled to receive
severance benefits equal to one year's salary plus any applicable bonuses.
Upon a change of control, the vesting of Mr. Roberts' stock options granted
prior to January 2000 will be accelerated by one year. If Mr. Roberts'
employment is terminated by us without cause or by him for good reason within
18 months following a change of control, the vesting of these options will be
accelerated by an additional one year period. If the effective date of such
termination is six months or less from the next vesting date, an additional
prorated number of options will vest. In addition, Mr. Roberts has agreed to
certain confidentiality, noncompetition and nonsolicitation provisions.
27
<PAGE>
In April 1999, we entered into an employment agreement with Ms. Levy for an
initial base salary of $170,000. Pursuant to the employment agreement, if we
terminate Ms. Levy's employment without cause, she is entitled to receive
severance benefits equal to one year of base salary plus any other payments to
which she may be entitled to at that time. Pursuant to a letter agreement
between us and Ms. Levy, Ms. Levy's stock options granted on May 17, 1999
shall be accelerated by one year and the options granted to Ms. Levy on
December 6, 1999 shall be fully accelerated upon (1) termination of her
employment by her for good reason within 18 months after a change of control
or (2) upon termination of her employment by us without cause within 18 months
after a change of control. In addition, if the effective date of such
termination is six months or less from the next vesting date, an additional
prorated number of options will vest. Ms. Levy has also agreed to certain
confidentiality, noncompetition and nonsolicitation provisions.
In October 1999, we entered into an employment agreement with Mr. Zierolf
providing for an initial base salary of $200,000 and a one-time signing bonus
of $50,000. Pursuant to the employment agreement, if Mr. Zierolf is terminated
without cause within 18 months following a change of control, the vesting of
options granted to him will be accelerated by one year. Mr. Zierolf has also
agreed to certain confidentiality and nonsolicitation provisions.
Stock Plans
The following is a description of our stock-based compensation plans in
which any of our executive officers may participate.
1999 Stock Incentive Plan
In December 1999, we adopted the Modem Media . Poppe Tyson, Inc. 1999 Stock
Incentive Plan, pursuant to which a total of 3,000,000 shares of Class A
common stock have been reserved for issuance in order to attract, retain and
provide additional incentive to highly qualified employees, directors and
consultants. Under the 1999 Stock Incentive Plan, we may grant stock options
(including incentive stock options and nonqualified options), stock
appreciation rights, restricted stock, merit awards, performance awards and
other stock-based awards to our employees, directors and consultants. The 1999
Stock Incentive Plan is administered by our board of directors or a
Compensation Committee consisting of two or more outside directors. Our board
of directors or Compensation Committee interprets and construes provisions of
the 1999 Stock Incentive Plan, adopts rules for administering the plan and
determines grants of equity awards under the plan. As of March 1, 2000, only
awards in the form of stock options have been granted under the 1999 Stock
Incentive Plan, relating to a total of 203,000 shares. Under the terms of the
1999 Stock Incentive Plan, if in one year following our change of control, a
participant's employment is terminated involuntarily by us other than for
cause, then each outstanding option will automatically vest and become fully
exercisable.
1997 Stock Option Plan
In 1997, we established the Modem Media . Poppe Tyson, Inc. 1997 Stock
Option Plan pursuant to which a total of 6,080,000 shares of Class A common
stock have been reserved for issuance to provide additional incentive to our
employees, officers, directors and consultants. Pursuant to the 1997 Stock
Option Plan, we may grant stock options (including incentive stock options and
nonqualified options) and stock purchase rights to our employees, officers,
directors and consultants. Our board of directors or Compensation Committee
interprets and construes provisions of the 1997 Stock Option Plan, adopts
rules for administering the plan and determines grants of equity awards under
the plan. As of March 1, 2000, options to purchase an aggregate of 6,728,258
shares of Class A common stock had been granted under the 1997 Stock Option
Plan. In connection with our transfer to True North of the non-strategic
digital interactive marketing operations originally contributed by True North
to us, True North has agreed to satisfy options to purchase up to an aggregate
of 579,032 shares of Class A common stock held under the 1997 Stock Option
Plan by employees of True North and its affiliates, including Poppe Tyson.
Accordingly, upon exercise of such options, the exercise price will be paid to
True North and True North will surrender an equivalent number of shares of our
common stock to us. As of March 1, 2000, options to purchase 223,060 shares of
Class A common stock remain outstanding to be satisfied by True North. Under
the
28
<PAGE>
terms of the options granted to date under the 1997 Stock Option Plan, if we
are acquired or merge with another entity or transfer all or substantially all
of our assets, then each outstanding option will 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.
Modem Media Advertising Limited Partnership 1996 Option Plan
In 1996, the Modem Partnership established the Modem Media Advertising
Limited Partnership 1996 Option Plan pursuant to which units ("Units")
representing assignments of beneficial ownership of the Modem Partnership were
reserved for issuance to provide additional incentives to the Modem
Partnership's key employees, consultants, officers and directors. The Modem
Partnership ceased to have its own separate existence prior to our initial
public offering in February 1999, and the terms and the conditions of the 1996
Option Plan were assumed by us. Pursuant to the terms of the 1996 Option Plan,
Units acquired under the plan were converted into shares of Class A common
stock, and options to acquire Units were converted into options to acquire our
Class A common stock. The 1996 Option Plan is administered by our board of
directors and the Compensation Committee of the board of directors. As of
March 1, 2000, options to purchase an aggregate of 690,492 shares of our Class
A common stock had been granted under the 1996 Option Plan. Upon the date of
grant, each option was fully vested. For the ninety-day period following an
option holder's termination of employment, we have the right to repurchase all
options held by the option holder under the 1996 Option Plan at a price equal
to the fair market value of the options as of the date of notice of
repurchase. As of March 1, 2000, all available options had been granted under
the 1996 Option Plan, and there will be no further grants under this plan.
Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by our board of directors
in February 1999. A total of 1,900,000 shares of our Class A common stock have
been reserved for sale. The Purchase Plan, which is intended to qualify as an
employee stock purchase plan within the meaning of Section 423 of the Code,
provides for consecutive, overlapping 24-month offering periods. Each offering
period contains four six-month purchase periods. Offering periods begin on the
first trading day on or after February 15 and August 15 of every year and
terminate 24 months later. Employees are eligible to participate if they are
employed by us or a subsidiary of ours designated by the board of directors
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 our Class A
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation, subject to certain limitations.
Each participant is 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 purchase period. The purchase price of each share of
our Class A common stock under the Purchase Plan is equal to 85% of the lesser
of the fair market value per share of our Class A common stock on the start
date of that offering period or on the date of the purchase. Employees may
modify or end their participation in the offering at any time during the
offering period or on the date of purchase, subject to certain limitations.
Participation ends automatically on termination of employment with us.
Director Compensation
Our directors who are not also our employees, or employees or directors of
True North, receive options to acquire 17,500 shares of Class A common stock
when they join the board of directors. In addition, such outside directors
receive options to acquire 5,000 shares of Class A common stock for each year
of service at the time of his or her re-election. Also, each such outside
director is paid $1,000 for each board or committee meeting.
Committees of the Board of Directors
We have established an Audit Committee composed of two directors, currently
Messrs. Zimmel and Beeby. No member of our Audit Committee is an employee of
ours or of True North or a director of True North. The
29
<PAGE>
Audit Committee reports to our board of directors regarding the appointment of
our independent public accountants, the scope and fees of prospective annual
audits and the results thereof, compliance with our accounting and financial
policies and management's procedures and policies relative to the adequacy of
our internal accounting controls.
Compensation Committee Interlocks and Insider Participation
Our board of directors has established a Compensation Committee comprised
of independent directors that makes determinations regarding the compensation
of our executive officers. The current members of the Compensation Committee
are Messrs. Peppers and Beeby. Before the board of directors established the
Compensation Committee, the compensation of our executive officers was
determined by our directors who were not also our officers. No interlocking
relationship exists between our 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
Our 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 us or our 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.
Our bylaws provide that we shall indemnify our directors and officers and
may indemnify our employees and agents to the fullest extent permitted by
Delaware law.
We have entered into agreements to indemnify certain of our directors and
officers in addition to the indemnification provided for in our certificate of
incorporation and bylaws. Under these agreements, we are obligated to
indemnify our 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
ours, any subsidiary of ours or any other company or enterprise to which the
person provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified individuals to serve
as our directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of ours where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
30
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 1, 2000 for:
. each person or entity who is known by us to beneficially own five
percent or more of the outstanding shares of either class of our common
stock;
. each director;
. each executive officer; and
. all directors and executive officers of Modem Media as a group.
<TABLE>
<CAPTION>
Class A Class B Common
Common Stock Common Stock Stock
---------------------- ------------ ----------------
Shares Percent Shares
Beneficially of Beneficially Percent of Total
Name Owned (1) Ownership Owned (1) Voting Power
- ---- ------------ --------- ------------ ----------------
<S> <C> <C> <C> <C>
True North Communications
Inc...................... -- -- 11,109,696 81.1%
101 East Erie Street
Chicago, Illinois 60611
(2)
Provident Investment
Counsel, Inc............. 795,700 6.2% -- 1.2%
300 North Lake Avenue
Pasadena, California
91101 (3)
GEOCapital LLC............ 1,461,800 11.3% -- 2.1%
767 Fifth Avenue, 45th
Floor
New York, NY 10153-4590
(4)
Gerald M. O'Connell (5)... 2,254,346 17.2% -- 3.3%
Douglas C. Ahlers (6)..... 2,110,748 16.2% -- 3.1%
Robert C. Allen, II (7)... 626,978 4.8% -- *
Robert H. Beeby (8)(9).... 37,000 * -- *
Donald M. Elliman, Jr.
(10)..................... -- -- 11,109,696 81.1%
Sloane Levy............... 644 * -- *
Terry D. Peigh (11)....... -- -- 11,109,696 81.1%
Don Peppers (9)........... 47,000 * -- *
Steven C. Roberts (12).... 37,152 * -- *
Donald L. Seeley (13)..... 1,000 * 11,109,696 81.1%
William Zierolf........... -- -- -- --
Joseph R. Zimmel (9)...... 35,000 * -- *
All directors and
executive officers as a
group (thirteen persons)
(14)(15)................. 3,213,962 23.8% 11,109,696 85.1%
</TABLE>
- --------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange 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
March 1, 2000 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) Includes shares of Class B common stock held by various wholly-owned
subsidiaries of True North.
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<PAGE>
(3) Provident Investment Counsel, Inc. ("Provident") and Robert M.
Kommerstad, a shareholder of a predecessor business of Provident, filed
a statement with the Commission on Schedule 13G/A under the Securities
Exchange Act of 1934, as amended, disclosing beneficial ownership of
greater than 5% of the Modem Media Class A common stock (795,700
shares). According to the statement, Provident's beneficial ownership of
the Class A common stock is direct as a result of Provident's
discretionary authority to buy, sell and vote shares of such common
stock for its investment advisory clients. Mr. Kommerstad no longer has
beneficial ownership of any of the Class A common stock and is no longer
a reporting person.
(4) GEOCapital LLC ("GEOCapital") filed a statement with the Commission on
Schedule 13G under the Securities Exchange Act of 1934, as amended,
disclosing beneficial ownership of greater than 5% of the Modem Media
Class A common stock (1,461,800 shares). According to the statement,
GEOCapital has sole dispositive power for 1,461,800 shares.
(5) Includes 174,800 shares of Class A common stock subject to options which
are exercisable within 60 days of March 1, 2000.
(6) Includes 60,800 shares of Class A common stock subject to options which
are exercisable within 60 days of March 1, 2000.
(7) Includes 74,800 shares of Class A common stock subject to options which
are exercisable within 60 days of March 1, 2000.
(8) Includes 2,000 shares of Class A common stock beneficially owned by Mr.
Beeby's wife.
(9) Includes 35,000 shares of Class A common stock subject to options which
are exercisable within 60 days of March 1, 2000.
(10) Includes 11,109,696 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Elliman, who is a
director of True North, disclaims beneficial ownership of such shares.
(11) Includes 11,109,696 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Peigh, who is an
Executive Vice President of True North, disclaims beneficial ownership
of such shares.
(12) Includes 34,028 shares of Class A common stock subject to options which
are exercisable within 60 days of March 1, 2000.
(13) Includes 11,109,696 shares of Class B common stock beneficially owned by
True North and its wholly-owned subsidiaries. Mr. Seeley, who is a part-
time employee and director of True North, disclaims beneficial ownership
of such shares.
(14) Includes an aggregate of 560,346 shares of Class A common stock subject
to options held by directors and executive officers of Modem Media,
which are exercisable within 60 days of March 1, 2000.
(15) The address of each of the individuals listed, with the exception of Mr.
Ahlers, is c/o Modem Media . Poppe Tyson, Inc., 230 East Avenue,
Norwalk, Connecticut 06855. Mr. Ahlers' address is 1942 Pacific Avenue,
San Francisco, CA 94109.
32
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Zimmel is a managing director of Goldman, Sachs & Co. This firm
provided us with investment banking services during 1999 and is expected to
provide us with similar services during 2000.
Currently, two of our eight directors are also employees of True North, and
are compensated by True North in connection with their employment by True
North. In addition, one of these directors and one of our other directors are
also directors of True North and were elected to our board of directors by
True North. These directors may have conflicts of interest in addressing
business opportunities and strategies in circumstances where our and True
North's interests differ.
In the normal course of business, we and True North have, from time to
time, entered into various business transactions and agreements, and we may
enter into additional transactions in the future. These transactions include
(1) an administrative services agreement whereby True North provides us with
administrative functions and other services including tax preparation,
insurance and treasury consulting; (2) intercompany credit agreements,
including a $3 million revolving credit facility (due to expire in February
2001 or upon 60 days' advance notice if True North's voting control falls
below 50% of total voting power) at an interest rate equal to True North's
cost of borrowing plus two percent, under which there are currently no
outstanding borrowings; (3) a sublease with Bozell, for office space in New
York City; and (4) a tax matters agreement whereby we and True North have
entered into an agreement to provide for certain unitary state tax-sharing
arrangements.
We believe that each of these transactions was made on terms no less
favorable than those that we could have obtained from unaffiliated third
parties. All future transactions, including loans, between us and our
officers, directors, principal stockholders or our affiliates will be approved
by a majority of our board of directors, including a majority of our
independent and disinterested directors, and will be on terms equivalent to
those that we could obtain from unaffiliated third parties.
Stockholders Agreement with True North, Mr. O'Connell and Mr. Allen
In May 1999, we, True North, G. M. O'Connell and Robert C. Allen, II
entered into a stockholders agreement. Under this agreement True North agreed
to convert all of its shares of our Class B common stock into shares of our
Class A common stock when it no longer owns 35% of the total outstanding
shares of our capital stock.
In connection with expanding our board of directors from five to eight
directors, we and the other parties to the stockholders agreement agreed that
until True North no longer owns at least 10% of our outstanding capital stock,
such parties would take all actions necessary in order to cause the election
of at least one director designated by True North to our board of directors.
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Financial Statements
Modem Media . Poppe Tyson, Inc. and Subsidiaries
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Poppe Tyson Strategic Interactive Marketing Operations
Report of Independent Public Accountants
Balance Sheet as of December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Equity (Deficit) for the year ended December
31, 1997
Statement of Cash Flows for the year ended December 31, 1997
Notes to Financial Statements
2. Financial Statement Schedules
All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or notes thereto.
34
<PAGE>
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1(a) Amended and Restated Certificate of Incorporation of the
Registrant (1)
3.1(b) Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant
3.2 Amended and Restated Bylaws of Registrant
4.1 Form of Registrant's Class A common stock certificate (1)
4.2 Stockholders Agreement dated as of May 4, 1999 by and among the
Registrant, True North Communications, Inc., Gerald M. O'Connell and
Robert C. Allen, II (2)
4.3 Registration Rights Agreement dated August 1, 1999 by and between
certain Class A Common Stock Holders, Class B Common Stock Holders and
the Registrant (3)
4.4 Warrant Agreement effective August 9, 1999 by and between Modem Media.
Poppe Tyson, Inc. and General Electric Capital Corporation (3)
4.5 Form of Warrant Exercise Agreement dated as of December 17, 1999 among
the Registrant, Vivid Holdings, Inc. and certain holders of warrants
to purchase shares of common stock of Vivid Holdings, Inc.
4.6 Form of Note Exchange Agreement dated as of December 17, 1999 among
the Registrant, Vivid Holdings, Inc. and certain holders of promissory
notes issued by Vivid Holdings, Inc.
4.7 Provisions of Stock Purchase Agreement among Vivid Holdings, Inc.,
Vivid Publishing, Inc., Computer Associates International, Inc. and
the Registrant dated as of December 17, 1999 relating to registration
rights (included in Exhibit 10.12) (6)
10.1(a) 1997 Stock Option Plan, as amended (1)
10.1(b) 1999 Employee Stock Purchase Plan (1)
10.1(c) Modem Media Advertising Limited Partnership 1996 Option Plan and its
amendment (2)
10.1(d) 1999 Stock Incentive Plan (4)
10.1(e) Vivid Holdings, Inc. 1999 Stock Incentive Plan (5)
10.2(a) Amended and Restated Employment Agreement between the Registrant and
Gerald M. O'Connell, dated as of January 1, 1997, as amended and
restated as of November 25, 1998 (1)
10.2(b) Amended and Restated Employment Agreement between the Registrant and
Robert C. Allen, II, dated as of January 1, 1997, as amended and
restated as of November 25, 1998 (1)
10.2(c) Letter Agreement between Registrant and Steven C. Roberts dated
December 2, 1996 (1)
10.2(d) Letter Agreement dated January 31, 2000 between the Registrant and
Gerald M. O'Connell
10.2(e) Letter Agreement dated January 31, 2000 between the Registrant and
Robert C. Allen, II
10.2(f) Letter Agreement dated December 15, 1999 between the Registrant and
Steven C. Roberts
10.2(g) Amendment dated January 31, 2000 to Letter Agreement dated December
15, 1999 between the Registrant and Steven C. Roberts
10.2(h) Letter Agreement dated April 19, 1999 from the Registrant to Sloane
Levy
10.2(i) Letter Agreement dated January 31, 2000 between the Registrant and
Sloane Levy
10.2(j) Letter Agreement dated October 18, 1999 between the Registrant and
William Zierolf
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.3(a) Covenant Not to Compete or Solicit Business between Registrant and
Gerald M. O'Connell, dated as of December 31, 1996 (1)
10.3(b) Covenant Not to Compete or Solicit Business between Registrant and
Douglas C. Ahlers, dated as of December 31, 1996 (1)
10.3(c) Covenant Not to Compete or Solicit Business between Registrant and
Robert C. Allen, II, dated as of December 31, 1996 (1)
10.3(d) Noncompetition, Confidentiality and Proprietary Rights Agreement
between Steven C. Roberts and the Registrant (1)
10.4 Douglas C. Ahlers Resignation Letter dated April 30, 1999 (3)
10.5 Form of Indemnification Agreement (1)
10.6 Sublease Agreement between the Registrant and Bozell, Jacobs, Kenyon &
Eckhardt, Inc., dated August 1, 1998 (1)
10.7 Form of Administrative Services Agreement between Registrant and True
North Communications Inc. (1)
10.8 Form of Intercompany Credit Agreement between the Registrant and True
North Communications Inc. (1)
10.9 Form of Affiliate Agreement by and between the Registrant and Modem
Media. Poppe Tyson do Brasil Ltda. (1)
10.10 Intercompany Demand Note dated November 24, 1998 issued by True North
Communications Inc. to the Registrant (1)
10.11 Agreement and Plan of Merger dated as of December 17, 1999 among the
Registrant, Modem Media. Poppe Tyson Merger Corp., Vivid Holdings,
Inc., Vivid Publishing, Inc. and the stockholders of Vivid Holdings,
Inc. (6)
10.12 Stock Purchase Agreement among Vivid Holdings, Inc., Vivid Publishing,
Inc., Computer Associates International, Inc. and the Registrant dated
as of December 17, 1999 (6)
10.13 Form of Asset Purchase Agreement by and between the Registrant and
True North Communications Inc. dated February 2, 1999 (1)
10.14 Form of Asset Purchase Agreement by and between the Registrant and
R/GA Media Group, Inc. dated February 2, 1999 (1)
10.15 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 2, 1999 (1)
10.16 Share Transfer Agreement dated October 4, 1999 of Mcx MULTIMEDIA
EXPERTS GmbH by Modem Media Germany Holding Company GmbH, a wholly-
owned subsidiary of the Registrant (3)
10.17 Master Services Agreement dated July 15, 1999 between and among
General Electric Corporation and the Registrant (3)
21.1 List of subsidiaries
27 Financial Data Schedule
- --------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-68057).
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1999.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1999.
(4) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 333-96483).
(5) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 333-30096).
(6) Incorporated by reference to the Registrant's Current Report on Form
8-K filed on February 25, 2000, as amended.
+ Modem Media was granted confidential treatment by the Commission for
portions of this document.
</TABLE>
(b) Reports on Form 8-K
Modem Media filed a Form 8-K, dated December 20, 1999, reporting in Item 5
Modem Media's definitive agreement to acquire vivid studios.
(c) The Exhibits filed with this report are listed in response to Item
14(a)3.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in
the City of Norwalk, State of Connecticut, on this 15th day of March, 2000.
Modem Media . Poppe Tyson, Inc.
By: /s/ Gerald M. O'Connell
----------------------------------
Gerald M. O'Connell
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gerald M. O'Connell, Robert C. Allen, II,
Steven C. Roberts, and Sloane Levy acting severally, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald M. O'Connell Chief Executive Officer and March 15, 2000
___________________________________________ Director (Principal Executive
Gerald M. O'Connell Officer)
/s/ Steven C. Roberts Chief Financial Officer March 15, 2000
___________________________________________ (Principal Financial and
Steven C. Roberts Accounting Officer)
/s/ Robert C. Allen, II Director March 15, 2000
___________________________________________
Robert C. Allen, II
/s/ Robert H. Beeby Director March 15, 2000
___________________________________________
Robert H. Beeby
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Donald M. Elliman, Jr. Director March 15, 2000
___________________________________________
Donald M. Elliman, Jr.
/s/ Terry D. Peigh Director March 15, 2000
___________________________________________
Terry D. Peigh
/s/ Don Peppers Director March 15, 2000
___________________________________________
Don Peppers
/s/ Donald L. Seeley Director March 15, 2000
___________________________________________
Donald L. Seeley
/s/ Joseph R. Zimmel Director March 15, 2000
___________________________________________
Joseph R. Zimmel
</TABLE>
39
<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, 1999 and 1998............ F-3
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997.................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31,
1999, 1998 and 1997.................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Poppe Tyson Strategic Interactive Marketing Operations
Report of Independent Public Accountants................................ F-25
Balance Sheet as of December 31, 1997................................... F-26
Statement of Operations for the year ended December 31, 1997............ F-27
Statement of Changes in Equity (Deficit) for the year ended December 31,
1997................................................................... F-28
Statement of Cash Flows for the year ended December 31, 1997............ F-29
Notes to Financial Statements........................................... F-30
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
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, 1999 and 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Stamford, Connecticut
February 4, 2000
F-2
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 30,265,000 $ 7,824,000
Short-term investments............................ 16,859,000 --
Accounts receivable, net of bad debt reserve of
$1,151,000 and $968,000, respectively............ 18,090,000 13,619,000
Unbilled revenues................................. 2,066,000 1,261,000
Unbilled charges.................................. 642,000 640,000
Deferred income taxes............................. 1,004,000 484,000
Prepaid expenses and other current assets......... 2,325,000 1,139,000
True North note receivable........................ -- 4,500,000
------------ ------------
Total current assets............................ 71,251,000 29,467,000
Property and equipment:
Leasehold improvements............................ 3,769,000 1,074,000
Computers and software............................ 11,158,000 6,731,000
Furniture and other............................... 4,969,000 2,156,000
------------ ------------
Total property and equipment.................... 19,896,000 9,961,000
Less: accumulated depreciation and amortization... (5,704,000) (3,135,000)
------------ ------------
Total property and equipment, net............... 14,192,000 6,826,000
Other assets:
Goodwill, net of accumulated amortization of
$6,391,000 and $3,433,000, respectively.......... 55,742,000 33,139,000
Deferred income taxes............................. 602,000 229,000
Other assets...................................... 3,945,000 1,625,000
------------ ------------
Total other assets.............................. 60,289,000 34,993,000
------------ ------------
Total assets.................................... $145,732,000 $ 71,286,000
============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable.................................. $ 5,346,000 $ 4,522,000
Pre-billed media.................................. 6,639,000 6,914,000
Advance billings.................................. 2,736,000 2,164,000
Deferred revenues................................. 4,125,000 5,484,000
Due to True North................................. -- 1,797,000
Note payable to True North........................ -- 6,000,000
Accrued expenses and other current liabilities.... 14,718,000 8,503,000
------------ ------------
Total current liabilities....................... 33,564,000 35,384,000
Noncurrent liabilities:
Capital lease obligations, less current portion... 471,000 323,000
Other liabilities................................. 221,000 19,000
Commitments and contingencies (see Note 9).........
Stockholders' equity:
Common stock, Class A, $.001 par value--
44,909,539 shares authorized, 12,115,970 and
4,848,270 issued................................. 12,000 5,000
Common stock, Class B, $.001 par value--
11,116,326 and 11,297,248 shares authorized,
issued and outstanding, respectively............. 11,000 11,000
Preferred stock, $.001 par value--5,000,000
shares authorized, none issued and outstanding... -- --
Paid-in capital................................... 121,151,000 47,211,000
Accumulated deficit............................... (8,604,000) (11,621,000)
Treasury stock, 184,834 shares of Class A common
stock, at cost................................... (1,118,000) --
Accumulated other comprehensive income............ 24,000 (46,000)
------------ ------------
Total stockholders' equity...................... 111,476,000 35,560,000
------------ ------------
Total liabilities and stockholders' equity...... $145,732,000 $ 71,286,000
============ ============
</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 December 31,
------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................. $74,036,000 $42,544,000 $25,497,000
Cost of revenues......................... 32,991,000 23,249,000 12,045,000
----------- ----------- -----------
Gross margin............................. 41,045,000 19,295,000 13,452,000
----------- ----------- -----------
Operating expenses:
Sales and marketing.................... 1,658,000 1,098,000 769,000
General and administrative............. 29,683,000 19,750,000 12,118,000
Amortization of goodwill............... 2,959,000 1,768,000 1,666,000
Operating losses of True North Units
Held for Transfer..................... -- 13,000 2,180,000
----------- ----------- -----------
Total operating expenses............. 34,300,000 22,629,000 16,733,000
----------- ----------- -----------
Operating income (loss).................. 6,745,000 (3,334,000) (3,281,000)
Interest income (expense), net........... 1,975,000 29,000 (76,000)
----------- ----------- -----------
Income (loss) before income taxes........ 8,720,000 (3,305,000) (3,357,000)
Provision (benefit) for income taxes..... 5,703,000 (102,000) (248,000)
----------- ----------- -----------
Net income (loss)........................ $ 3,017,000 $(3,203,000) $(3,109,000)
=========== =========== ===========
Net income (loss) per share:
Basic................................ $ 0.14 $ (0.21) $ (0.21)
=========== =========== ===========
Diluted.............................. $ 0.13 $ (0.21) $ (0.21)
=========== =========== ===========
Weighted-average number of common shares
outstanding:
Basic................................ 21,563,000 14,930,000 14,520,000
=========== =========== ===========
Diluted.............................. 22,958,000 14,930,000 14,520,000
=========== =========== ===========
</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>
Accumulated
Common Stock Other Total
--------------- Paid-in Accumulated Treasury Comprehensive Stockholders'
Class A Class B Capital Deficit Stock Income Equity
------- ------- ------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1996, as
previously reported.... $ 3,000 $ 5,000 $ 43,588,000 $ (3,103,000) $ -- $ -- $ 40,493,000
Effect of two-for-one
stock split effective
March 1, 2000.......... 2,000 6,000 -- (8,000) -- -- --
------- ------- ------------ ------------ ----------- -------- ------------
Balance as of December
31, 1996............... 5,000 11,000 43,588,000 (3,111,000) -- -- 40,493,000
Comprehensive income:
Net loss............... -- -- -- (3,109,000) -- -- (3,109,000)
Foreign currency
translation
adjustment............ -- -- -- -- -- 8,000 8,000
------------
Total comprehensive
income (loss)......... (3,101,000)
------------
Acquisition of Poppe
Tyson Strategic
Interactive Marketing
Operations............. -- -- -- (2,980,000) -- (34,000) (3,014,000)
Payment by True North to
former Modem
Partnership partners... -- -- 1,150,000 -- -- -- 1,150,000
Other, net.............. -- -- 90,000 -- -- -- 90,000
------- ------- ------------ ------------ ----------- -------- ------------
Balance as of December
31, 1997............... 5,000 11,000 44,828,000 (9,200,000) -- (26,000) 35,618,000
Comprehensive income:
Net loss............... -- -- -- (3,203,000) -- -- (3,203,000)
Foreign currency
translation
adjustment............ -- -- -- -- -- (20,000) (20,000)
------------
Total comprehensive
income (loss)......... (3,223,000)
------------
Forgiveness of
intercompany
borrowings............. -- -- 5,763,000 -- -- -- 5,763,000
Sale to True North of
True North Units Held
for Transfer........... -- -- (7,444,000) -- -- -- (7,444,000)
Acquisition of fixed
assets from True North
in connection with the
Combination............ -- -- 1,624,000 -- -- -- 1,624,000
Payment by True North to
former Modem
Partnership partners... -- -- 3,263,000 -- -- -- 3,263,000
Other, net.............. -- -- (823,000) 782,000 -- -- (41,000)
------- ------- ------------ ------------ ----------- -------- ------------
Balance as of December
31, 1998............... 5,000 11,000 47,211,000 (11,621,000) -- (46,000) 35,560,000
Comprehensive income:
Net income............. -- -- -- 3,017,000 -- -- 3,017,000
Foreign currency
translation
adjustment............ -- -- -- -- -- 70,000 70,000
------------
Total comprehensive
income............... 3,087,000
------------
Initial public offering,
net of offering costs.. 6,000 -- 42,045,000 -- -- -- 42,051,000
Exercise of stock
options................ 1,000 -- 3,704,000 -- -- -- 3,705,000
Tax benefit from the
exercise of stock
options................ -- -- 5,728,000 -- -- -- 5,728,000
Shares issued under
employee stock purchase
plan................... -- -- 956,000 -- -- -- 956,000
Purchases of treasury
stock.................. -- -- -- -- (1,118,000) -- (1,118,000)
Acquisition of MEX
Multimedia Experts
GmbH................... -- -- 2,400,000 -- -- -- 2,400,000
Payment by True North to
former Modem
Partnership partners... -- -- 18,518,000 -- -- -- 18,518,000
Other, net.............. -- -- 589,000 -- -- -- 589,000
------- ------- ------------ ------------ ----------- -------- ------------
Balance as of December
31, 1999............... $12,000 $11,000 $121,151,000 $ (8,604,000) $(1,118,000) $ 24,000 $111,476,000
======= ======= ============ ============ =========== ======== ============
</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 December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 3,017,000 $(3,203,000) $(3,109,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................ 3,463,000 1,846,000 1,189,000
Amortization of goodwill............ 2,959,000 1,768,000 1,666,000
Tax benefit from the exercise of
stock options...................... 5,703,000 -- --
Provision for doubtful accounts..... 316,000 660,000 517,000
Loss on disposal of equipment....... 268,000 155,000 98,000
Changes in assets and liabilities:
Accounts receivable............... (4,432,000) (6,865,000) (568,000)
Unbilled revenues................. (179,000) (217,000) (454,000)
Unbilled charges.................. 53,000 18,000 38,000
Prepaid expenses and other current
assets........................... (1,157,000) (798,000) (125,000)
Accounts payable, accrued expenses
and other current liabilities.... 6,405,000 7,839,000 1,106,000
Pre-billed media.................. (260,000) 3,028,000 2,543,000
Advance billings.................. 565,000 1,000 770,000
Deferred revenues................. (1,364,000) 3,868,000 1,442,000
Deferred income taxes............. (902,000) (326,000) (413,000)
Other, net........................ (3,276,000) (1,586,000) (22,000)
Net assets of True North Units
Held for Transfer................ -- 129,000 1,718,000
----------- ----------- -----------
Net cash provided by operating
activities..................... 11,179,000 6,317,000 6,396,000
Cash flows from investing activities:
Purchase of property and equipment.... (10,403,000) (4,133,000) (1,324,000)
Purchase of short-term investments.... (16,859,000) -- --
Acquisitions, net of cash acquired.... (4,624,000) -- --
Other, net............................ 115,000 -- 147,000
----------- ----------- -----------
Net cash used in investing
activities..................... (31,771,000) (4,133,000) (1,177,000)
Cash flows from financing activities:
Proceeds from initial public
offering............................. 43,459,000 -- --
Funding (to) from True North.......... (3,302,000) (1,015,000) 729,000
Purchases of treasury stock........... (1,118,000) -- --
Principal payments made under capital
lease obligations.................... (392,000) (361,000) (143,000)
Exercises of stock options............ 4,661,000 -- --
Other, net............................ (339,000) (40,000) (1,475,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities........... 42,969,000 (1,416,000) (889,000)
----------- ----------- -----------
Effect of exchange rates on cash and
cash equivalents....................... 64,000 -- --
----------- ----------- -----------
Net increase in cash and cash
equivalents............................ 22,441,000 768,000 4,330,000
Cash and cash equivalents, beginning of
the year............................... 7,824,000 7,056,000 2,726,000
----------- ----------- -----------
Cash and cash equivalents, end of the
year................................... $30,265,000 $ 7,824,000 $ 7,056,000
=========== =========== ===========
</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 and Summary of Significant Accounting Policies
Nature of Operations--Modem Media . Poppe Tyson, Inc. ("Modem Media" or the
"Company") is a subsidiary of True North Communications Inc. ("True North")
and 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, Singapore and Sao Paolo.
Principles of Consolidation--The accompanying consolidated financial
statements include all of the accounts of the Company and its subsidiaries.
All significant intercompany transactions have been eliminated in
consolidation.
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 consolidated financial statements to conform to the current period
presentation.
Revenue Recognition and Billing--A majority of the Company's revenues is
derived from fixed-fee assignments. Revenues are recognized as services are
rendered. Unbilled revenues represent labor costs incurred and estimated
earnings in excess of billings. Unbilled charges represent production and
other client reimbursable out-of-pocket costs in excess of billings. Revenue
is reported net of such reimbursable costs. Pre-billed media represents
amounts billed to customers for media placement in advance of the
advertisements being placed. Advance 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 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 estimated losses on
uncompleted projects are made in the period in which such losses are
determinable.
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.
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 one client representing 13.8% of
total revenues during the year ended December 31, 1999, two clients
representing 20.7% and 12.8% of total revenues during the year ended December
31, 1998, and one client representing 36.2% of total revenues during the year
ended December 31, 1997. The Company generally does not require its clients to
provide collateral.
The Company is subject to a concentration of credit risk with respect to
its accounts receivable. The Company had one client accounting for 18.7% of
total gross accounts receivable as of December 31, 1999 and four clients
accounting for 19.3%, 11.8%, 11.4% and 10.4% of total gross accounts
receivable as of December 31, 1998.
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. In accordance
F-7
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 income 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
income tax assets and liabilities are recognized in the period that includes
the enactment date.
Cash, Cash Equivalents and Short-Term Investments--The Company considers
all highly liquid investments with a maturity of three months or less at the
time of purchase to be cash equivalents. All investments with maturities
greater than three months at the time of purchase are accounted for under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. As
of December 31, 1999, all of the Company's short-term investments 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.
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
seven 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.
Goodwill--Goodwill represents acquisition costs in excess of the fair value
of tangible net assets acquired and is amortized using the straight-line
method over periods of five to twenty years. Carrying values are periodically
reviewed for impairment and adjusted, if necessary, based upon current facts
and circumstances and management's estimates of the undiscounted future cash
flows from the related businesses.
Long-Lived Assets--In accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, the
Company reviews its recorded long-lived 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.
Fair Value of Financial Instruments--The carrying values of the Company's
assets and liabilities approximate fair value because of the short maturities
of these financial instruments.
Net Income (Loss) 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
years ended December 31, 1998 and 1997; as a result, none of the options
outstanding during those periods was included in the computations of diluted
net loss per share since they were antidilutive.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted-average number of common
shares outstanding....................... 21,563,000 14,930,000 14,520,000
Potentially dilutive effect of stock
options and warrants..................... 1,395,000 -- --
---------- ---------- ----------
Diluted weighted-average number of common
shares outstanding....................... 22,958,000 14,930,000 14,520,000
========== ========== ==========
</TABLE>
F-8
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All historical weighted-average share and per-share amounts have been
restated to reflect the stock splits effected by the Company (see Note 4).
Initial Public Offering--In conjunction with the Company's initial public
offering of securities in February 1999 (see Note 4), the Company incurred
approximately $1,408,000 in offering-related costs through December 31, 1998
that were deferred until the consummation of such offering at which time they
were charged against paid-in capital.
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 and
losses are included in the accompanying consolidated statements of operations.
Such gains and losses were immaterial for each of the years ended December 31,
1999, 1998 and 1997.
Comprehensive Income--The Company reflects its comprehensive income, such
as unrealized gains and 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. The currency translation
adjustments are not adjusted for income taxes as they relate to indefinite
investments in international subsidiaries. There were no other items of
comprehensive income during the years ended December 31, 1999, 1998 or 1997.
Recently Issued Accounting Pronouncements--In June 1999, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133. The Statement defers for one year the effective
date of SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which was issued in June 1998 and 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 also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 will now apply to all fiscal quarters of all fiscal years
beginning after June 15, 2000. Management believes that the implementation of
SFAS No. 133 will not have a material impact on Modem Media's results of
operations.
2. Acquisitions
In June 1999, the Company acquired 100% of the outstanding capital stock of
a builder and marketer of e-businesses in Tokyo, Japan ("Modem Media Japan")
for approximately $1,400,000 in cash. Pursuant to the acquisition agreement,
the Company is obligated to make additional payments of up to approximately
$3,150,000 if the acquired entity's operating results exceed certain targeted
levels annually through 2002. Additional payments will be allocated to the
cost in excess of the fair value of tangible net assets acquired and amortized
by the Company over the remainder of the original amortization period. At the
Company's discretion, such payments may be comprised of cash and/or common
stock of the Company. The acquisition has been accounted for under the
purchase method of accounting and, accordingly, the operating results of Modem
Media Japan have been included in the Company's consolidated financial
statements from the date of its acquisition. The excess of purchase price over
the net assets acquired of approximately $1,950,000 is reflected in the
accompanying consolidated balance sheet as of December 31, 1999 and is being
amortized over a ten-year period. As a result of Modem Media Japan's operating
results meeting the aforementioned targeted levels during 1999, the Company
will make an additional payment of $274,000 to the former owners of Modem
Media Japan. Such amount was accrued as of December 31, 1999 and will be
amortized over the remainder of the original amortization period.
In October 1999, the Company acquired 100% of the outstanding capital stock
of MEX Multimedia Experts GmbH ("MEX"), a developer of interactive business
solutions in Munich, Germany, for approximately
F-9
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$5,400,000, which was comprised of $3,000,000 in cash and approximately
$2,400,000 in Class A common stock of the Company. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
operating results of MEX have been included in the Company's consolidated
financial statements from the date of its acquisition. The excess of purchase
price over the net assets acquired of approximately $5,600,000 is being
amortized over a ten-year period.
In November 1999, the Company entered into an agreement with certain
employees ("Members") to form CentrPort, LLC ("CentrPort"), a limited
liability company focused on the development of intelligent marketing
platforms to build and enhance customer relationships across multiple
communication channels. The Company and the Members own 50.5% and 49.5% of the
common interests of CentrPort, respectively. In addition, the Company has
contributed $1,500,000 in exchange for 100% of the preferred interests of
CentrPort. The Company may contribute additional funds to CentrPort pursuant
to the agreement. Upon the occurrence of certain events, the Company may have
the option to purchase the Members' interest for a purchase price indexed to
the value of the Company's Class A common stock. The Company is managing the
business and affairs of CentrPort and the operating results of CentrPort have
been included in the Company's consolidated financial statements from the date
of its formation.
Effective October 1, 1998, the Company acquired the strategic interactive
marketing operations of Poppe Tyson, Inc. (the "Poppe Tyson Strategic
Interactive Marketing Operations") from True North in exchange for (i) the
Company's non-strategic digital interactive marketing operations and (ii) an
aggregate of 1,619,028 shares of Class B common stock (the "Combination"). In
conjunction with the Combination, True North forgave $5,763,000 of
intercompany borrowings and transferred $1,624,000 of fixed assets to the
Company. The historical financial results of the Poppe Tyson Strategic
Interactive Marketing Operations have been prepared on a carved-out basis, and
are included in the consolidated financial statements of the Company from
December 31, 1997, the date of the merger of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("Bozell"), the former parent of Poppe Tyson, Inc., with True
North, and therefore the date on which the Company and the Poppe Tyson
Strategic Interactive Marketing Operations came under common control. Because
the Combination occurred among True North and majority-owned, controlled
subsidiaries, the transaction has been recorded at historical cost. The
accumulated deficit arising from the carved-out operating results of the Poppe
Tyson Strategic Interactive Marketing Operations for the period from December
31, 1997 to the date of its acquisition by the Company is reflected as a
reduction in paid-in capital. The pre-tax losses of the non-strategic digital
interactive marketing operations through the date of sale to True North have
been presented as one line, "Operating losses of True North Units Held for
Transfer," in the accompanying consolidated statements of operations in a
manner similar to that of entities held for sale. All adjustments necessary
for the fair presentation of the consolidated financial statements related to
the Poppe Tyson Strategic Interactive Marketing Operations are reflected
herein. The Poppe Tyson Strategic Interactive Marketing Operations is a
predecessor entity of the Company, and its financial statements as of and for
the year ended December 31, 1997 are included elsewhere in this Annual Report
on Form 10-K.
The following information reflects pro forma statement of operations data
for the year ended December 31, 1997 assuming that the acquisition of the
Poppe Tyson Strategic Interactive Marketing Operations was consummated on
January 1, 1997.
<TABLE>
<CAPTION>
Year Ended
December
31, 1997
-----------
<S> <C>
Revenues..................................................... $29,422,000
Loss before income taxes..................................... (6,005,000)
Net loss..................................................... (5,609,000)
Basic and diluted net loss per common share.................. (0.35)
</TABLE>
F-10
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma statement of operations data above give effect to the
issuance of shares of Class B common stock of the Company in conjunction with
the Combination. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have actually resulted had the acqusition of the Poppe Tyson
Strategic Interactive Marketing Operations occurred on January 1, 1997, or
which may result in the future.
On December 31, 1996, True North, through the Company, acquired a 64%
interest in Modem Media Advertising Limited Partnership (the "Modem
Partnership"). In addition to the consideration initially paid, True North was
obligated to make cash payments of up to $19,000,000 (reduced by the payments
discussed below) and issue $4,000,000 in shares of True North common stock to
the former owners of the Modem Partnership upon completion of an initial
public offering of the Company's common stock and/or certain other events. The
acquisition agreement also required additional payments contingent on future
earnings to be made in the event that an initial public offering had not
occurred, which payments would thereby reduce the aforementioned $19,000,000
obligation. Pursuant to the agreement, payments aggregating $1,150,000 and
$3,263,000 were made to the former owners in February 1997 and May 1998,
respectively, resulting in corresponding increases in goodwill on the books of
the Company. On February 10, 1999, the Company completed an initial public
offering of its common stock. As a result, True North paid $14,587,000 in cash
and issued $3,931,000 in True North common stock to the former owners of the
Modem Partnership, thereby resulting in corresponding increases in goodwill on
the books of the Company. Such amounts are being amortized over the remainder
of the original amortization period.
3. Debt
Restrictions on Indebtedness--Pursuant to certain agreements between True
North and its lenders, the Company is subject to certain limitations on
indebtedness. Such limitations could adversely affect the Company's ability to
secure debt financing in the future. Based on its internal projections and
business plans, management believes that cash flows from operations, together
with cash on-hand and short-term investments, will provide adequate funds to
support ongoing operations.
Interest Expense--The Company incurred interest expense on all borrowings,
including those from related parties, of $134,000, $185,000 and $119,000 for
the years ended December 31, 1999, 1998 and 1997, respectively. Related party
interest expense in the respective totals above are $63,000, $42,000 and
$46,000.
4. Equity
Change in Authorized Shares/Stock Splits--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. On that date, the Board of Directors also approved a 0.95-for-1
reverse split of both classes of the Company's outstanding common stock
effective upon completion of the acquisition of the Poppe Tyson Strategic
Interactive Marketing Operations, which occurred on February 3, 1999 (see Note
2).
On December 17, 1999, the Company's Board of Directors approved another
amendment to the Company's Certificate of Incorporation to provide for the
authorization of an aggregate of 44,909,539 shares of Class A common stock and
11,116,326 shares of Class B common stock. On that date, the Board of
Directors also approved a 2-for-1 stock split of both classes of the Company's
outstanding common stock to be paid in the form of a stock dividend to
shareholders of record at the close of trading on February 16, 2000.
All historical share and per-share amounts have been restated to reflect
the changes in authorized shares and stock splits.
F-11
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Initial Public Offering--On February 10, 1999, the Company completed an
initial public offering of 5,980,000 shares of its Class A common stock at an
initial public offering price of $8.00 per share. Total net proceeds from the
offering were approximately $42,051,000. The Company used $6,000,000 of these
proceeds to settle an intercompany note payable to True North, and
approximately $21,200,000 to acquire and fund the operations of complementary
businesses in Tokyo, Munich, Paris and San Francisco (see Notes 2 and 16). The
Company expects to use the remaining net proceeds for general corporate
purposes, strategic initiatives, additional geographic expansion and the
funding of certain international operations that are not expected to be self-
sufficient in the near-term. Pending the use of the net proceeds for the above
purposes, the Company has invested such funds in short-term, interest-bearing,
investment grade obligations that are reflected as cash equivalents and short-
term investments in the accompanying consolidated balance sheet as of December
31, 1999.
Stockholders and Registration Rights Agreements--In May 1999, the Company
and True North entered into a stockholders' agreement ("Stockholders'
Agreement") which stipulates, among other things, that upon the earlier of (i)
the date True North and its affiliates no longer own at least 35% of the
outstanding capital stock of the Company or (ii) June 30, 2000, True North and
its affiliates will convert all of their shares of Class B common stock of the
Company into shares of Class A common stock of the Company. On August 1, 1999,
as part of the Stockholders' Agreement, the Company and True North entered
into a registration rights agreement that contains provisions granting the
holders of Class B common stock, and certain holders of Class A common stock,
the right to participate in certain registrations of the Company's common
stock, subject to limitations outlined therein. In addition, the agreement
also provides the holders of Class B common stock of the Company the right to
initiate the registration of their securities, subject to certain timing and
other limitations.
Warrants--On August 9, 1999, the Company entered into an agreement to
provide $12,000,000 of services to General Electric Company ("GE") through
September 30, 2000. If GE fails to meet its obligation to purchase such
services prior to September 30, 2000, GE will make a cash payment to the
Company equal to the difference between the $12,000,000 commitment and the
actual amount of services purchased during such period. In conjunction with
GE's commitment to purchase the aforementioned services, the Company granted
General Electric Capital Corporation a warrant to purchase 190,000 shares of
the Company's Class A common stock at $12.16 per share, the average of the
high and low trading prices during the five trading days prior to the grant
date. The warrants vested immediately and expire on August 8, 2004. The fair
value of these warrants, as determined by independent appraisal, will result
in a non-cash charge of approximately $587,000, which is being reflected as a
reduction of revenues ratably as services are provided over the length of the
agreement. Revenues from GE for the year ended December 31, 1999 have been
reduced by a non-cash charge of approximately $234,000 in the accompanying
consolidated statement of operations.
Common Stock--The shares of Class A common stock and Class B common stock
are identical in all respects, except for voting rights and certain conversion
rights, as described below.
Each outstanding share of Class A common stock 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 is entitled to
five votes on each such matter. True North owns, directly or indirectly, all
of the outstanding shares of Class B common stock. Except as required by
applicable law, holders of Class A common stock and Class B common stock vote
together as a single class on all matters. 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 the Company receives
F-12
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
the Company's Board of Directors out of assets legally available therefor
after payment of dividends required to be paid on shares of preferred stock,
if any.
In the case of dividends or distributions payable in Class A common stock
or Class B common stock, only shares of Class A common stock will be
distributed with respect to the Class A common stock and only shares of Class
B common stock will be distributed with respect to the Class B common stock.
In the case of dividends or other distributions consisting of other of the
Company's voting shares, the Company 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, the
Company's voting securities, the Company will provide that such convertible or
exchangeable securities and the underlying securities be identical in all
respects, except that the voting rights of each security underlying the
convertible or exchangeable security paid to the holders of the Class A common
stock shall be one-fifth of the voting rights of each security underlying the
convertible or exchangeable security paid to the holders of Class B common
stock, and such underlying securities paid to the holders of Class B common
stock shall convert into the security paid to the holders of the Class A
common stock upon the same terms and conditions applicable to the conversion
of Class B common stock into Class A common stock.
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.
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 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, subsidiary or other related party of such holder or other
qualified recipient, or upon the occurrence of certain other events. 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.
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 Class A common stock and Class B common
stock will be entitled to receive an equal per share amount of stock,
securities, cash, and/or any other property, as the case may be, into which or
for which each share of any other class of common stock is exchanged or
changed; provided that in any transaction in which shares of capital stock are
distributed, such
F-13
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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.
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 each series.
5. Stock Purchase Plan
In February 1999, the Company's Board of Directors adopted the 1999
Employee Stock Purchase Plan (the "Purchase Plan") under which a total of
1,900,000 shares of Class A common stock have been reserved for issuance. 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, provides for
consecutive, overlapping 24-month offering periods. Each offering period
contains four six-month purchase periods. Offering periods begin on the first
trading day on or after February 15 and August 15 of every year and terminate
twenty-four months later. Employees are eligible to participate if they are
employed by the Company or a subsidiary of the Company designated by the Board
for at least 20 hours per week and for more than five months in any calendar
year. The Purchase Plan permits eligible employees to purchase Class A common
stock through payroll deductions, which may not exceed 15% of an employee's
compensation, subject to certain limitations.
Each participant will be granted an option to purchase stock on the first
day of each of the six-month purchase periods and such option will be
automatically exercised on the last day of each such purchase 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 starting date of that offering period or on the date of
the purchase. Employees may modify or end their participation in the offering
at any time during the offering period or on the date of purchase, subject to
certain limitations. Participation ends automatically on termination of
employment with Modem Media. The purchase plan will terminate in 2009 unless
sooner terminated by Modem Media's Board of Directors.
6. Stock-Based Compensation
The Company has established various stock option plans for its officers,
directors, key employees and consultants as described below.
1999 Stock Incentive Plan--During 1999, the Company adopted a stock
incentive plan pursuant to which a total of 3,000,000 shares of Class A common
stock have been reserved for issuance. Pursuant to the stock incentive plan,
the Company may grant stock options, stock appreciation rights, restricted
stock, merit awards, performance awards and other stock-based awards to the
Company's employees, directors and consultants. The plan is administered by
the Board of Directors or a committee of two or more outside directors. The
committee interprets and construes the provisions of the plan, adopts rules
for administering the plan and determines grants of equity awards under the
plan. As of December 31, 1999, no stock options were granted under this plan.
1997 Stock Option Plan--During 1997, the Company established a stock option
plan pursuant to which a total of 6,080,000 shares of Class A common stock
have been reserved for issuance. Pursuant to the stock option plan, the
Company may grant stock options and stock purchase rights to the Company's
employees, officers,
F-14
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
directors and consultants. The Board of Directors, or a committee to whom the
Board of Directors has delegated authority, 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. The maximum term
of an incentive stock option granted under the Plan is generally limited to
ten years. The exercise price of incentive stock options granted under the
stock option plan must be at least equal to the fair market value of the Class
A common stock of the Company on the date of grant.
In connection with the transfer to True North of the non-strategic digital
interactive marketing operations by the Company, True North agreed to satisfy
options to purchase up to an aggregate of 281,010 shares of the Company's
Class A common stock held by employees of such operations, as well as options
to purchase an aggregate of 298,022 shares of the Company's Class A common
stock held by former employees of the Poppe Tyson Strategic Interactive
Marketing Operations. As of December 31, 1999, options to purchase up to
229,690 shares of Class A common stock to be satisfied by True North remained
outstanding. Upon the exercise of such options, the exercise price will be
paid to True North and True North will surrender an equivalent number of
shares of common stock to the Company.
Modem Media Advertising Limited Partnership 1996 Option Plan--The Modem
Partnership established an option plan pursuant to which units ("Units")
representing assignments of beneficial ownership of the Modem Partnership were
reserved for issuance. The Modem Partnership ceased to have its own separate
existence prior to the Company's initial public offering in February 1999 and
the terms and the conditions of the option plan were assumed by the Company.
Pursuant to the terms of the option plan, Units acquired under the option plan
were converted into shares of Class A common stock and options to acquire
Units were converted into options to acquire shares of Class A common stock.
Options to purchase 690,492 shares of Class A common stock, which vested
immediately and expire on September 30, 2006, were issued under this plan at
an exercise price of $0.32 per share. As of December 31, 1999, all available
options had been granted under the option plan and no further grants will be
made. The plan is administered by the Board of Directors and the Compensation
Committee of the Board.
The Company follows the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, and applies Accounting Principles
Board Opinion ("APB") No. 25 and related interpretations in accounting for its
stock option plans. Under APB No. 25, because the exercise prices of the
Company's employee stock options are equal to the market prices of the
underlying common 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 in accordance with SFAS No. 123, the
Company's pro forma net income (loss) and pro forma net income (loss) per
share would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported........................ $ 3,017,000 $(3,203,000) $(3,109,000)
Pro forma.......................... (3,176,000) (5,324,000) (4,077,000)
Basic net income (loss) per share:
As reported........................ $ 0.14 $ (0.21) $ (0.21)
Pro forma.......................... (0.15) (0.36) (0.28)
Diluted net income (loss) per share:
As reported........................ $ 0.13 $ (0.21) $ (0.21)
Pro forma.......................... (0.15) (0.36) (0.28)
</TABLE>
F-15
<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 income (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>
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year.. 4,080,348 $ 4.74 1,936,440 $3.85 711,216 $0.48
Granted................. 3,118,042 15.67 2,327,856 5.55 1,388,374 5.79
Exercised............... 978,374 4.76 1,550 2.47 15,428 5.79
Forfeited............... 433,788 6.15 182,398 5.57 147,722 5.69
--------- --------- ---------
Outstanding at the end
of the year............ 5,786,228 4,080,348 1,936,440
========= ========= =========
Exercisable at the end
of the year............ 1,643,748 1,632,184 945,848
========= ========= =========
Weighted average fair
value of options
granted................ $11.02 $5.20 $4.19
</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 December 31,
--------------------------
1999 1998 1997
--------- -------- -------
<S> <C> <C> <C>
Risk-free interest rate........................ 5.89% 4.67% 6.75%
Expected life.................................. 4.3 years 10 years 9 years
Expected volatility............................ 88.49% 111.47% 52.77%
Expected dividend yield........................ -- -- --
</TABLE>
The following table summarizes information regarding the Company's stock
options outstanding and exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
----------------------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Price Shares Contractual Life Price Shares Price
-------------- --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.32................ 438,400 6.8 years $ 0.32 438,400 $ 0.32
$5.53--$6.80......... 2,548,624 8.1 years 5.66 966,348 5.62
$9.78--$13.38........ 1,516,204 9.4 years 10.68 112,000 11.44
$15.25--$18.88....... 343,000 9.6 years 17.97 127,000 17.91
$21.41............... 500,000 9.8 years 21.41 -- --
$29.82--$34.38....... 440,000 9.9 years 30.13 -- --
--------- ---------
5,786,228 1,643,748
========= =========
</TABLE>
F-16
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. 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. The following is a
summary of each of the material agreements between the Company and True North.
Administrative Services Agreement--Under an Administrative Services
Agreement, True North provides administrative functions and other services to
the Company, including tax preparation, insurance and treasury consulting.
During the period in which True North performs administrative functions for
the Company, expenses associated with such functions will be allocated to the
Company based on agreed upon rates. The Company may terminate this agreement
at any time upon 90 days' prior written notice and True North may terminate
the agreement at any time, but must give 180 days' written notice of such
intent to terminate.
Intercompany Credit Arrangements--The Company and True North are parties to
intercompany credit agreements. In August 1998, True North extended a credit
facility to the Company allowing for revolving borrowings in the amount of up
to $3,000,000 to be outstanding at any given time at an interest rate equal to
True North's cost of borrowing plus two percent. In addition, True North has
agreed at its discretion to provide guarantees for Modem Media's borrowings in
exchange for a fee of 0.5% per annum on the amount guaranteed. The credit
facility with True North expires in February 2001 or upon 60 days advance
notice if True North's voting control in the Company falls below 50% of total
voting power. In May 1998, the Company agreed to provide advances to True
North from time-to-time upon True North's request and subject to the Company's
discretion.
Sublease with Bozell--The Company entered into a sublease with Bozell
pursuant to which the Company leases office space in New York City. 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.
Tax Matters Agreement--In connection with the Combination, the Company and
True North entered into an agreement providing for certain unitary state tax-
sharing arrangements.
Parent Company Allocations--True North charges each of its operating units
for general corporate expenses incurred at the parent company level, including
costs to administer employee benefit plans; legal, accounting and treasury
services; use of office facilities; and other services for certain operations.
The amount of the charge is primarily based on budgeted revenue. The Company
believes that the method used to allocate these expenses is reasonable. These
charges amounted to approximately $308,000 and $291,000 for the years ended
December 31, 1998 and 1997, respectively, and are included in office and
general expenses in the consolidated statements of operations. True North
ceased charging allocations to the Company as of June 30, 1998, because the
Company has taken on responsibility for the majority of the functions that
generate the aforementioned corporate expenses.
As a result of the above agreements and other related transactions, the
accompanying consolidated financial statements reflect the following balances:
True North Note Receivable--On May 26, 1998, the Company entered into an
agreement to loan up to $3,000,000 to True North under a demand note facility.
Such agreement was amended on November 24, 1998 to increase the availability
under such facility to $10,000,000. The Company received repayments from True
North under such facility from time-to-time, on demand. The loan bore interest
at 5.75% per annum, payable quarterly, unless the parties agreed upon other
arrangements. The outstanding balance under this facility was $4,500,000 as of
December 31, 1998 and is reflected as "True North note receivable" in the
accompanying consolidated balance sheet. In February 1999, True North repaid
all amounts outstanding under this note.
F-17
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to True North--On December 31, 1996, the Company entered into a one-
year agreement with True North, whereby True North provided the Company with a
credit facility. The agreement has been extended indefinitely beyond the
initial one-year term by mutual consent and under the terms outlined
hereafter. The Company receives advances from True North under the facility
from time-to-time, as requested. Prior to 1998, outstanding borrowings bore
interest at LIBOR plus .75%, which was due monthly. In 1998, True North ceased
charging interest to the Company under this facility. The outstanding balance
as of December 31, 1998 was $1,797,000 and is reflected as "Due to True North"
in the accompanying consolidated balance sheet. In April 1999, the Company
repaid all amounts outstanding under this facility.
Note Payable to True North--The Company had a $6,000,000 intercompany note
payable to True North due upon completion of an initial public offering of the
Company's common stock. This $6,000,000 note payable was repaid to True North
in February 1999, upon completion of the Company's initial public offering
(see Note 4). Accordingly, such amount is reflected as a current liability in
the accompanying consolidated balance sheet as of December 31, 1998.
The Company believes that all of the transactions set forth above were made
on terms equivalent to those that the Company could have 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 equivalent to those that the Company could obtain 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. The aggregate cost of contributions made
by the Company to all employee benefit plans was $389,000, $217,000 and
$40,000 during the years ended December 31, 1999, 1998 and 1997, respectively.
In February 1999, the Company adopted the Purchase Plan (see Note 5).
F-18
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Commitments and Contingencies
Lease Obligations--The Company leases its office facilities and certain
equipment under both operating and capital leases, the expirations of which
extend through 2009. Future minimum lease payments under noncancellable leases
with lease terms in excess of one year as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
-------- -----------
<S> <C> <C>
2000............................................... $291,000 $ 4,517,000
2001............................................... 232,000 4,034,000
2002............................................... 203,000 3,582,000
2003............................................... 92,000 3,397,000
2004............................................... 2,000 3,061,000
Thereafter......................................... -- 14,751,000
-------- -----------
820,000 $33,342,000
===========
Less: amount representing interest................. (62,000)
--------
$758,000
========
</TABLE>
In connection with certain leases of office space, the Company has invested
$2,495,000 in highly liquid, short-term investments against which the
landlords of such space would be able to make claims in the event of default
by the Company of its lease obligations. Such amount is reflected as other
assets in the accompanying consolidated balance sheet as of December 31, 1999.
The Company is not aware of any defaults of its obligations under these
leases.
Rent expense, including rent expense resulting from leases with related
parties (see Note 7), was $3,716,000, $2,329,000 and $1,131,000 for the years
ended December 31, 1999, 1998 and 1997, 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 statement of
operations.
Employment Agreements--The Company has entered into five-year employment
agreements with two senior executives providing for initial annual base
salaries of approximately $300,000 each, subject to increases at the
discretion of the Company's Board of Directors. Pursuant to the agreements, if
the Company terminates either 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.
Accrued Bonuses--Accrued expenses and other current liabilities include
accrued bonuses of $4,513,000 and $2,307,000 as of December 31, 1999 and 1998,
respectively.
Litigation--From time-to-time, the Company becomes involved in various
routine legal proceedings in the ordinary course of its business. The Company
believes that the outcome of all pending legal proceedings and unasserted
claims in the aggregate will not have a material adverse effect on its
consolidated results of operations, consolidated financial position or
liquidity.
10. Income Taxes
The Company and its predecessor entities operated under tax-sharing
arrangements with their former parents. Until October 1, 1998, the effective
date of the Combination, the Poppe Tyson Strategic Interactive Marketing
Operations are included in the consolidated group of which True North is the
common parent for
F-19
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
federal income tax purposes. The Poppe Tyson Strategic Interactive Marketing
Operations' federal taxable income and losses through October 1, 1998 were
included in such group's consolidated tax return filed by True North.
Prospectively from the date of the Combination, the federal income and losses
of the Poppe Tyson Strategic Interactive Marketing Operations were included in
the consolidated tax return filed by the Company.
Prior to 1997, the Company was included in the consolidated federal and
state tax returns of True North. The settlement of tax provisions or benefits
with True North occurred in the subsequent year after True North filed its
related consolidated tax returns. In 1997, the Company filed a stand-alone
consolidated federal tax return. After the Company's initial public offering
(see Note 4), the Company and True North entered into a tax-sharing
arrangement whereby the Company provides for and pays or receives certain
state taxes.
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Domestic.......................... $10,449,000 $(2,489,000) $(1,258,000)
International..................... (1,729,000) (803,000) 81,000
True North Units Held for
Transfer......................... -- (13,000) (2,180,000)
----------- ----------- -----------
Total income (loss) before income
taxes............................ $ 8,720,000 $(3,305,000) $(3,357,000)
=========== =========== ===========
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Current provision (benefit):
Federal............................... $4,735,000 $ 175,000 $ 250,000
Foreign............................... 16,000 (17,000) 40,000
State................................. 1,845,000 71,000 68,000
---------- --------- ---------
6,596,000 229,000 358,000
---------- --------- ---------
Deferred benefit:
Federal............................... (639,000) (227,000) (458,000)
Foreign............................... (5,000) (25,000) (2,000)
State................................. (249,000) (79,000) (146,000)
---------- --------- ---------
(893,000) (331,000) (606,000)
---------- --------- ---------
Total provision (benefit)............... $5,703,000 $(102,000) $(248,000)
========== ========= =========
</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 December 31,
---------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Statutory federal tax rate.................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit........... 11.9 0.1 1.5
Goodwill amortization......................... 11.9 (20.9) (20.7)
Impact of foreign operations.................. (0.5) (2.1) (2.8)
Other......................................... 0.4 (4.4) (5.6)
------- -------- --------
58.7 7.7 7.4
Valuation allowance........................... 6.7 (4.6) --
------- -------- --------
Effective rate................................ 65.4% 3.1% 7.4%
======= ======== ========
</TABLE>
The deferred income tax assets and liabilities included in the consolidated
financial statements as of the balance sheet dates consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ---------
<S> <C> <C>
Current assets:
Accrued compensation.............................. $ 371,000 $ 122,000
Bad debt reserve.................................. 468,000 234,000
Other............................................. 255,000 133,000
---------- ---------
1,094,000 489,000
Valuation allowance............................... (90,000) (5,000)
---------- ---------
1,004,000 484,000
---------- ---------
Noncurrent assets (liabilities):
Net operating loss carryforwards.................. 1,516,000 148,000
Accelerated amortization.......................... (136,000) 109,000
Other............................................. (35,000) 120,000
---------- ---------
1,345,000 377,000
Valuation allowance............................... (743,000) (148,000)
---------- ---------
602,000 229,000
---------- ---------
Net deferred income tax assets.................... $1,606,000 $ 713,000
========== =========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
$4,289,000 available to offset future taxable income. These carryforwards
resulted from unused tax benefits from the exercise of stock options and
losses of certain foreign subsidiaries. Certain of the Company's net operating
losses may be carried forward for periods ranging from five to seven years and
others may be carried forward indefinitely.
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, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Domestic..................... $ 61,603,000 $ 37,348,000 $ 25,008,000
International................ 12,433,000 5,196,000 489,000
------------ ------------ ------------
$ 74,036,000 $42,544,000 $25,497,000
============ ============ ============
Income (loss) before income
taxes:
Domestic..................... $ 10,449,000 $ (2,489,000) $ (1,258,000)
International................ (1,729,000) (803,000) 81,000
True North Units Held for
Transfer.................... -- (13,000) (2,180,000)
------------ ------------ ------------
$ 8,720,000 $ (3,305,000) $ (3,357,000)
============ ============ ============
Net income (loss):
Domestic..................... $ 4,757,000 $ (2,312,000) $ (1,434,000)
International................ (1,740,000) (762,000) 43,000
True North Units Held for
Transfer.................... -- (129,000) (1,718,000)
------------ ------------ ------------
$ 3,017,000 $ (3,203,000) $ (3,109,000)
============ ============ ============
Identifiable assets:
Domestic..................... $126,521,000 $ 66,620,000
International................ 19,211,000 4,666,000
------------ ------------
$145,732,000 $71,286,000
============ ============
</TABLE>
12. Assets Under Capital Leases
Assets under capital leases are included in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Computers and software............................ $ 135,000 $ 387,000
Furniture and other............................... 977,000 862,000
---------- ----------
1,112,000 1,249,000
Less: accumulated depreciation and amortization... (386,000) (593,000)
---------- ----------
Total assets under capital leases, net.......... $ 726,000 $ 656,000
========== ==========
</TABLE>
Depreciation on assets under capital leases is included in depreciation
expense for all periods presented.
13. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest..................................... $134,000 $185,000 $119,000
Income taxes, net of refunds received........ 875,000 861,000 256,000
</TABLE>
F-22
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. Bad Debt Reserve
The bad debt reserve and related activity is as follows:
<TABLE>
<CAPTION>
Write-
Balance at Provision for offs,
Beginning of Doubtful Net of Balance at
Year Accounts Recoveries Other End of Year
------------ ------------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1999................... $968,000 $316,000 $(147,000) $14,000 $1,151,000
Year ended December 31,
1998................... 452,000 660,000 (144,000) -- 968,000
Year ended December 31,
1997................... 408,000 517,000 (489,000) 16,000 452,000
</TABLE>
"Other" represents bad debt reserve balances of acquired entities (see Note
2).
15. Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
September
March 31 June 30 30 December 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1999
Revenues................ $12,383,000 $16,042,000 $21,121,000 $24,490,000
Operating (loss)
income................. (614,000) 1,309,000 2,889,000 3,161,000
(Loss) income before
income taxes........... (277,000) 1,813,000 3,454,000 3,730,000
Net (loss) income....... (473,000) 581,000 1,308,000 1,601,000
Basic net (loss) income
per share.............. (0.02) 0.03 0.06 0.07
Diluted net (loss)
income per share....... (0.02) 0.03 0.06 0.06
1998
Revenues................ $ 9,016,000 $10,451,000 $10,930,000 $12,147,000
Operating income
(loss)................. 124,000 (817,000) (1,333,000) (1,308,000)
Income (loss) before
income taxes........... 123,000 (820,000) (1,334,000) (1,274,000)
Net loss................ (194,000) (768,000) (1,126,000) (1,115,000)
Basic and diluted net
loss per share......... (0.01) (0.05) (0.08) (0.07)
</TABLE>
16. Subsequent Events
In February of 2000, Modem Media 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 will be included in the
Company's consolidated financial statements from the date of its acquisition.
The excess of purchase price over the fair value of net assets acquired of
approximately $63,280,000 will be amortized over a period of five years.
F-23
<PAGE>
MODEM MEDIA . POPPE TYSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following information reflects pro forma statement of operations data
for the year ended December 31, 1999 assuming that the acquisition of Vivid
was consummated on January 1, 1999.
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Revenues..................................................... $ 81,067,000
Loss before income taxes..................................... (6,493,000)
Net loss..................................................... (11,096,000)
Basic and diluted net loss per common share.................. (0.50)
</TABLE>
The pro forma statement of operations data above give effect to goodwill
amortization, the elimination of interest expense related to the indebtedness
of Vivid settled upon closing of the acquisition, the reduction of the
Company's interest income attributable to the cash used to settle such
indebtedness, and income tax benefits related to the losses of Vivid which
would have been used to offset the Company's taxable income. Such amounts are
reflected net of the related tax effects, where applicable. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of the results of operations that would have actually resulted
had the acqusition of Vivid occurred on January 1, 1999, or which may result
in the future.
In February of 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 will be included in the
Company's consolidated financial statements from the date of its acquisition.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To True North Communications Inc.:
We have audited the accompanying balance sheet of the Poppe Tyson Strategic
Interactive Marketing Operations as of December 31, 1997 and the related
statements of operations, changes in equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
management of the Poppe Tyson Strategic Interactive Marketing Operations. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Poppe Tyson Strategic
Interactive Marketing Operations as of December 31, 1997 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Stamford, Connecticut
November 16, 1998
F-25
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1997
ASSETS ------------
<S> <C>
Current assets:
Cash............................................................ $ 147,000
Accounts receivable, net of bad debt reserve of $16,000......... 777,000
Unbilled charges................................................ 46,000
Prepaid expenses and other current assets....................... 60,000
-----------
Total current assets.......................................... 1,030,000
Property and equipment:
Leasehold improvements.......................................... 7,000
Furniture, computers and software............................... 693,000
-----------
Total property and equipment.................................. 700,000
Less: accumulated depreciation and amortization................. (168,000)
-----------
Total property and equipment, net............................. 532,000
Other assets...................................................... 3,000
-----------
Total assets.................................................. $ 1,565,000
===========
<CAPTION>
LIABILITIES AND EQUITY (DEFICIT)
<S> <C>
Current liabilities:
Accounts payable................................................ $ 366,000
Current portion of capital lease obligations.................... 139,000
Accrued liabilities............................................. 608,000
-----------
Total current liabilities..................................... 1,113,000
Noncurrent liabilities:
Due to Bozell, non-interest bearing............................. 3,346,000
Capital lease obligations, less current portion................. 120,000
Equity (deficit):
Accumulated deficit............................................. (2,980,000)
Accumulated other comprehensive income.......................... (34,000)
-----------
Total equity (deficit)........................................ (3,014,000)
-----------
Total liabilities and equity (deficit)........................ $ 1,565,000
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-26
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December
31,
1997
-----------
<S> <C>
Revenues.......................................................... $ 3,925,000
Costs and expenses:
Salaries and benefits........................................... 3,350,000
Office and general.............................................. 3,177,000
-----------
Total operating expenses...................................... 6,527,000
Operating loss.................................................... (2,602,000)
Interest expense, net............................................. (46,000)
-----------
Loss before income taxes.......................................... (2,648,000)
Benefit for income taxes.......................................... (148,000)
-----------
Net loss.......................................................... $(2,500,000)
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-27
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENT OF CHANGES IN EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Equity
Deficit Income (Deficit)
----------- ------------- -----------
<S> <C> <C> <C>
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 (loss).. (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 this
statement.
F-28
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
<S> <C>
Cash flows from operating activities:
Net loss........................................................ $(2,500,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................. 165,000
Provision for doubtful accounts............................... 16,000
Changes in assets and liabilities:
Accounts receivable......................................... (656,000)
Unbilled charges............................................ (46,000)
Prepaid expenses and other current assets................... (39,000)
Accounts payable............................................ 294,000
Accrued liabilities......................................... 375,000
Other, net.................................................. 1,000
-----------
Net cash used in operating activities..................... (2,390,000)
Cash flows from investing activities:
Purchase of property and equipment.............................. (289,000)
-----------
Net cash used in investing activities..................... (289,000)
Cash flows from financing activities:
Funding from parent company..................................... 2,622,000
Principal payments made under capital lease obligations......... (128,000)
-----------
Net cash provided by financing activities................. 2,494,000
-----------
Net decrease in cash.............................................. (185,000)
Cash, at beginning of the year.................................... 332,000
-----------
Cash, at end of the year.......................................... $ 147,000
-----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.......................... $ 46,000
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-29
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
1. Business and Significant Accounting Policies
Description of Business--Poppe Tyson, Inc. ("Poppe Tyson") was formed in
December 1985 as a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc.
("Bozell"), which was acquired by True North Communications Inc. ("True
North") in December 1997 in a business combination accounted for under the
pooling-of-interests method. Poppe Tyson includes the strategic interactive
marketing operations and website production and maintenance businesses of
Bozell.
The strategic interactive marketing operations of Poppe Tyson (the "Poppe
Tyson Strategic Interactive Marketing Operations" or the "Company") consist of
Poppe Tyson's strategic interactive marketing operations in the United
Kingdom, Hong Kong and the U.S., and certain fixed assets. The operations in
Hong Kong and the United States commenced during 1997.
Effective October 1, 1998, the Poppe Tyson Strategic Interactive Marketing
Operations were purchased by Modem Media . Poppe Tyson, Inc. ("Modem Media").
This transaction is further discussed in Note 2 to the consolidated financial
statements of Modem Media appearing elsewhere in this Annual Report on Form
10-K.
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. 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. One
customer accounted for 42.4% of the Company's revenues during the year ended
December 31, 1997. Two customers accounted for 34.7% of gross 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.
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 Statement of Financial Accounting
Standards ("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 income 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
income 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 and
losses are included in the accompanying statement of operations. Such gains
and losses were immaterial for the year ended December 31, 1997.
F-30
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments--The carrying value of the Company's
assets and 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 $231,000 for the year
ended December 31, 1997.
Future minimum 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, net.......................... $332,000
========
</TABLE>
3. Related Party Transactions
Due to Bozell--Amounts remitted to, and borrowed from, Bozell to fund
operations are non-interest bearing. Amounts owed to Bozell as of the
effective date of the sale of the Company to Modem Media (see Note 1) will be
contributed to paid-in capital. Accordingly, the balance outstanding as of
December 31, 1997 has been reflected as a noncurrent liability in the
accompanying balance sheet.
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 $115,000 for the year
ended December 31, 1997 and are included in office and general expenses in the
accompanying statement 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.
F-31
<PAGE>
POPPE TYSON STRATEGIC INTERACTIVE MARKETING OPERATIONS
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Income Taxes
The Company operates under a tax-sharing agreement with Bozell and, until
October 1, 1998, the effective date of the sale of the Company to Modem Media,
will continue to be, for federal income tax purposes, included in Bozell's
consolidated returns.
The components of loss before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
<S> <C>
Domestic.................................................... $ (352,000)
International............................................... (2,296,000)
-----------
$(2,648,000)
===========
</TABLE>
The benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997
------------
<S> <C>
Current benefit:
Federal.................................................... $(110,000)
Foreign.................................................... --
State...................................................... (38,000)
---------
$(148,000)
=========
</TABLE>
The Company's effective income tax rate 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.
5. Subsequent Events
Effective October 1, 1998, the Poppe Tyson Strategic Interactive Marketing
Operations were purchased by Modem Media. This transaction is further
discussed in Note 2 to the consolidated financial statements of Modem Media
appearing elsewhere in this Annual Report on Form 10-K.
F-32
<PAGE>
EXHIBIT 3.1(b)
CERTIFICATE OF AMENDMENT OF
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF MODEM MEDIA . POPPE TYSON, INC.
Modem Media . Poppe Tyson, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Modem Media . Poppe
Tyson, Inc., resolutions were duly adopted setting forth a proposed amendment to
the Amended and Restated Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling for the approval of said
amendment by the written consent of the holders of the shares representing a
majority of the votes entitled to be cast at a duly called meeting of
stockholders. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the first paragraph of Article FOURTH of the Amended and
Restated Certificate of Incorporation of the Company be amended to read as
follows:
"FOURTH: This Corporation is authorized to issue two classes of stock to
be designated, respectively "common stock" and "preferred stock". The total
number of shares which this Corporation is authorized to issue is
61,025,865 shares. 56,025,865 shares shall be designated common stock (the
"Common Stock"), of which 44,909,539 shares shall be designated as Class A
common stock (the "Class A Common Stock"), and of which 11,116,326 shares
shall be designated as Class B common stock (the "Class B Common Stock").
5,000,000 shares shall be undesignated preferred stock (the "Preferred
Stock"). Each share of Preferred Stock shall have a par value of $0.001 and
each share of Common Stock shall have a par value of $0.001."
SECOND: That in lieu of a meeting and vote of the stockholders of the
Corporation, the holders of a majority of the votes entitled to be cast at a
duly called meeting of stockholders have given written consent to said
amendment, in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Modem Media . Poppe Tyson, Inc. has caused this
certificate to be signed by Sloane Levy, its Vice President, General Counsel and
Corporate Secretary, this 23rd day of February, 2000.
MODEM MEDIA . POPPE TYSON, INC.
__________________________________
Sloane Levy
Vice President,
General Counsel and Corporate Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
MODEM MEDIA . POPPE TYSON, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES................................................... 1
1.1 REGISTERED OFFICE.............................................. 1
1.2 OTHER OFFICES.................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................................... 1
2.1 PLACE OF MEETINGS.............................................. 1
2.2 ANNUAL MEETING................................................. 1
2.3 SPECIAL MEETING................................................ 3
2.4 ORGANIZATION................................................... 3
2.5 NOTICE OF STOCKHOLDERS' MEETINGS............................... 4
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................... 4
2.7 QUORUM......................................................... 4
2.8 ADJOURNED MEETING; NOTICE...................................... 4
2.9 VOTING......................................................... 5
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.............. 5
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........ 6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.... 6
2.13 PROXIES........................................................ 7
2.14 INSPECTORS OF ELECTION......................................... 7
ARTICLE III DIRECTORS......................................................... 8
3.1 POWERS......................................................... 8
3.2 NUMBER AND TERM OF OFFICE...................................... 8
3.3 BOARD REPRESENTATION........................................... 8
3.4 RESIGNATION AND VACANCIES...................................... 9
3.5 REMOVAL........................................................ 10
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE....................... 10
3.7 FIRST MEETINGS................................................. 10
3.8 REGULAR MEETINGS............................................... 11
3.9 SPECIAL MEETINGS; NOTICE....................................... 11
3.10 QUORUM......................................................... 11
3.11 WAIVER OF NOTICE............................................... 11
3.12 ADJOURNMENT.................................................... 12
3.13 NOTICE OF ADJOURNMENT.......................................... 12
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............. 12
3.15 ORGANIZATION................................................... 12
3.16 FEES AND COMPENSATION OF DIRECTORS............................. 12
3.17 APPROVAL OF LOANS TO OFFICERS.................................. 12
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV COMMITTEES........................................................... 13
4.1 COMMITTEES OF DIRECTORS.......................................... 13
4.2 MEETINGS AND ACTION OF COMMITTEES................................ 13
ARTICLE V OFFICERS.............................................................. 14
5.1 OFFICERS......................................................... 14
5.2 ELECTION OF OFFICERS............................................. 14
5.3 SUBORDINATE OFFICERS............................................. 14
5.4 REMOVAL AND RESIGNATION OF OFFICERS.............................. 14
5.5 VACANCIES IN OFFICES............................................. 14
5.6 CHAIRMAN OF THE BOARD............................................ 15
5.7 CHIEF EXECUTIVE OFFICER.......................................... 15
5.8 PRESIDENT........................................................ 15
5.9 VICE PRESIDENTS.................................................. 15
5.10 SECRETARY........................................................ 16
5.11 CHIEF FINANCIAL OFFICER.......................................... 16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS............................................................. 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................ 16
6.2 INDEMNIFICATION OF OTHERS........................................ 17
6.3 INSURANCE........................................................ 17
6.4 EXPENSES......................................................... 17
6.5 NON-EXCLUSIVITY OF RIGHTS........................................ 18
6.6 SURVIVAL OF RIGHTS............................................... 18
6.7 AMENDMENTS....................................................... 18
ARTICLE VII RECORDS AND REPORTS................................................. 19
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................ 19
7.2 INSPECTION BY DIRECTORS.......................................... 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS................................. 20
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................... 20
ARTICLE VIII GENERAL MATTERS.................................................... 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............ 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................ 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED............... 21
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES........................... 21
8.5 SPECIAL DESIGNATION ON CERTIFICATES.............................. 21
8.6 LOST CERTIFICATES................................................ 22
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.7 CONSTRUCTION; DEFINITIONS................................... 22
ARTICLE IX AMENDMENTS...................................................... 22
ARTICLE X DISSOLUTION...................................................... 22
ARTICLE XI CUSTODIAN....................................................... 23
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES................. 23
11.2 DUTIES OF CUSTODIAN......................................... 23
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
MODEM MEDIA . POPPE TYSON, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the Certificate
of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Thursday in May of each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected, and
any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an
<PAGE>
annual meeting, business must be: (A) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (B)
otherwise properly brought before the meeting by or at the direction of the
board of directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 120 calendar days in advance of the date specified in
the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his or her
capacity as a proponent of a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting, a
stockholder must provide notice as required by the regulations promulgated under
the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he or she should so determine, he or
she shall so declare at the meeting that any such business not properly brought
before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the board of directors of the corporation
may be made at a meeting of stockholders by or at the direction of the board of
directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the board of directors, shall be made pursuant to timely notice
in writing to the secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 2.2. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are
being made by the
-2-
<PAGE>
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for elections of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being named
in the proxy statement, if any, as a nominee and to serving as a director if
elected); and (ii) as to such stockholder giving notice, the information
required to be provided pursuant to paragraph (b) of this Section 2.2. At the
request of the board of directors, any person nominated by a stockholder for
election as a director shall furnish to the secretary of the corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the facts
warrants, determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these Bylaws, and if he or she
should so determine, he or she shall so declare at the meeting, and the
defective nomination shall be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, the chairman of the board or the chief executive officer,
but such special meetings may not be called by any other person or persons.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, chief executive
officer, president, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
officer receiving the request shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.5
and 2.6, that a meeting will be held at the time requested by the person or
persons who called the meeting, not less than 10 nor more than 60 days after the
receipt of the request. If the notice is not given within 20 days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his or her absence by the vice chairman of the board, if
any, or in his or her absence by the chief executive officer, if any, or in his
or her absence by the president, if any, or in his or her absence a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting.
-3-
<PAGE>
2.5 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of stockholders
shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting. The
notice shall specify the place, date, and hour of the meeting and (i) in the
case of a special meeting, the general nature of the business to be transacted
(no business other than that specified in the notice may be transacted) or (ii)
in the case of the annual meeting, those matters which the board of directors,
at the time of giving the notice, intends to present for action by the
stockholders (but any proper matter may be presented at the meeting for such
action). The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees who, at the time of the notice, the
board intends to present for election.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The presence in person or by proxy of the holders of a majority of the
voting power of the shares entitled to vote thereat constitutes a quorum for the
transaction of business at all meetings of stockholders; provided, however, that
in the case of any vote to be taken by classes, the holders of a majority of the
votes entitled to be cast by the stockholders of a particular class shall
constitute a quorum for the transaction of business by such class. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the voting
power of the shares required to constitute a quorum.
2.8 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
voting power of the shares represented
-4-
<PAGE>
at that meeting, either in person or by proxy. In the absence of a quorum, no
other business may be transacted at that meeting except as provided in Section
2.7 of these Bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than 30 days from the date set for the original meeting,
then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each stockholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Sections 2.5 and
2.6 of these Bylaws. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
2.9 VOTING
Voting at any meeting of stockholders need not be by ballot; provided,
however, that elections for directors shall be by written ballot, unless
otherwise provided in the Certificate of Incorporation.
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these Bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Each stockholder shall be entitled to that number of votes for each share
held as is set forth in the Certificate of Incorporation of the corporation, as
amended or restated, or in the resolution or resolutions adopted by the board of
directors providing for the issuance of such stock, except as may otherwise be
required by law.
Any stockholder entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or, except
when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.
If a quorum is present, the affirmative vote of at least a majority of the
voting power of the shares represented, in person or by proxy, and voting at a
duly held meeting (which shares voting affirmatively also constitute at least a
majority of the voting power of the required quorum) shall be the act of the
stockholders, unless the vote of a greater number or a vote by classes is
required by law or by the Certificate of Incorporation.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before
-5-
<PAGE>
or after the meeting, each person entitled to vote, who was not present in
person or by proxy, signs a written waiver of notice or a consent to the holding
of the meeting or an approval of the minutes thereof. The waiver of notice or
consent or approval need not specify either the business to be transacted or the
purpose of any annual or special meeting of stockholders. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, for so long
as any shares of Class B Common Stock are outstanding, any action which may be
taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote on that action
were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than 60 days nor less than 10 days before the date of
any such meeting nor more than 60 days before any such action without a meeting,
and in such event only stockholders of record on the date so fixed are entitled
to notice and to vote or to give consents, as the case may be, notwithstanding
any transfer of any shares on the books of the corporation after the record
date.
If the board of directors does not so fix a record date:
-6-
<PAGE>
(a) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the business day preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day preceding the day on which
the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting (i) when no prior
action by the board of directors has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action by the board of
directors has been taken, shall be at the close of business on the day on which
the board of directors adopts the resolution relating to that action.
The record date for any other purpose shall be as provided in Article VIII
of these Bylaws.
2.13 PROXIES
Every person entitled to vote for Directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the Secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy which is not irrevocable by attending
the meeting and voting in person or by filing an instrument in writing revoking
the proxy or another duly executed proxy bearing a later date with the secretary
of the corporation.
2.14 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one or three. If inspectors are appointed
at a meeting pursuant to the request of one or more stockholders or proxies,
then the holders of a majority of the voting power of shares or their proxies
present at the meeting shall determine whether one or three inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
-7-
<PAGE>
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these Bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number of directors shall be eight. An indefinite number of
directors may be fixed, or the definite number of directors may be changed, by a
duly adopted amendment to the Certificate of Incorporation or by an amendment to
this bylaw adopted by the vote or written consent of holders of a majority of
the voting power of the outstanding shares entitled to vote or by resolution of
a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
3.3 BOARD REPRESENTATION
The corporation shall cause the election of the following individuals to
the board of directors: (i) so long as Gerald M. O'Connell and Robert C. Allen,
II (including spouses, members of their immediate family or their estate, heirs
and intestate successors, the "Limited Partners") collectively own at least 45%
of the aggregate number of the corporation's common stock held by them on
December 31, 1996 (the "Limited Partner Shares"), (a) Gerald M. O'Connell and
(b) Robert C. Allen, II so long as he continues to serve as a senior executive
of the corporation; and (ii) so long as
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the Limited Partners collectively own less than 45% but at least 30% of the
Limited Partner Shares, Gerald M. O'Connell so long as he continues to serve as
a senior executive officer of the corporation. The corporation and the Limited
Partners shall mutually agree upon two individuals to serve on the board of
directors. The balance of the board of directors shall be elected by the
stockholders of the corporation, or to the extent necessary to fill a vacancy on
the board of directors, by the balance of the board of directors.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the chairman
of the board, the chief executive officer, the secretary or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws, vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the voting power of shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
written consent of a majority of the voting power of shares entitled to vote
thereon. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors to be elected by all of the
stockholders entitled to vote, voting as a single class, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in the manner
prescribed by the provisions of the Certificate of Incorporation or these
Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.
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If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of the then outstanding shares having the right to
vote for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware so far
as applicable.
3.5 REMOVAL
Subject to Section 3.3 and any limitations imposed by law, and unless
otherwise provided in the Certificate of Incorporation, the board of directors,
or any individual director, may be removed from office at any time by the
affirmative vote of the holders of at least a majority of the voting power of
the then outstanding shares of the capital stock of the corporation entitled to
vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board of directors. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board of directors may be held at any
place within or outside the State of Delaware that has been designated in the
notice of the meeting or, if not stated in the notice or if there is no notice,
at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting, and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting so long as a quorum
is present at the first meeting of such newly elected board of directors. In
the event of the failure of the stockholders to fix the time or place of such
first meeting of the newly elected board of directors, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the board of directors, or
as shall be specified in a written waiver signed by all of the directors.
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3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the dates of such meetings are fixed by the board of directors.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, or in the absence of the
chairman of the board by the chief executive officer or by a majority of the
directors then in office.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least seven days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting. In
addition, if the meeting is to be held at the principal executive office of the
corporation, the notice need not specify the place of the meeting.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these Bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
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3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given if announced at the meeting at which the adjournment is taken, unless the
meeting is adjourned for more than 24 hours. If the meeting is adjourned for
more than 24 hours, then notice of the time and place of the adjourned meeting
shall be given before the adjourned meeting takes place, in the manner specified
in Section 3.9 of these Bylaws, to the directors who were not present at the
time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board of directors
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.15 ORGANIZATION
Meetings of the board of directors shall be presided over by the chairman
of the board, if any, or in his or her absence by the vice chairman of the
board, if any, or in his or her absence by the chief executive officer, or in
their absence by a chairman chosen at the meeting. The secretary shall act as
secretary of the meeting, but in his or her absence the chairman of the meeting
may appoint any person to act as secretary of the meeting.
3.16 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.16 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.17 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares
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of stock of the corporation. Nothing contained in this section shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of directors.
Any committee, to the extent provided in the resolution of the board, shall have
all the authority of the board, but no such committee shall have the power or
authority to (i) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the board of directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under Sections
251, 252, 255, 256, 257, 258, 263 or 264 of the General Corporation Law of
Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all
or substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the Bylaws of the corporation; and, unless the board
resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these Bylaws, Section 3.6
(place of meetings), Section 3.8 (regular meetings), Section 3.9 (special
meetings and notice), Section 3.10 (quorum), Section 3.11 (waiver of notice),
Section 3.12 (adjournment), Section 3.13 (notice of adjournment), and Section
3.14 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
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ARTICLE V
OFFICERS
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5.1 OFFICERS
The corporation shall have such officers as determined by the board of
directors, which officers may include a chairman of the board, a chief executive
officer, a president, a secretary, a chief financial officer and a treasurer.
The corporation may also have, at the discretion of the board of directors, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these Bylaws. Any number of offices may
be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these Bylaws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
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5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve as
the corporation's general manager, and shall have general supervision, direction
and control of the corporation's business and its officers, and, if present,
preside at meetings of the stockholders and the board of directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him or her by the board of directors or as may be prescribed by these Bylaws.
If there is no chief executive officer, then the chairman of the board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these Bylaws. The chairman of the board
shall report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the chief
executive officer of the corporation shall, subject to the control of the board
of directors, have general supervision, direction, and control of the business
and the officers of the corporation. He or she shall preside at all meetings of
the stockholders and, in the absence or nonexistence of a chairman of the board,
at all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the chief executive officer of a
corporation, and shall have such other powers and duties as may be prescribed by
the board of directors or these Bylaws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or whenever
the office of the chief executive officer is vacant. The president of the
corporation shall exercise and perform such powers and duties as may from time
to time be assigned to him or her by the board of directors or as may be
prescribed by these Bylaws. In the absence or nonexistence of the chairman of
the board and chief executive officer, he or she shall preside at all meetings
of the stockholders and at all meetings of the board of directors and shall
perform such other duties as the board of directors may from time to time
determine.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these Bylaws, the
chairman of the board or the chief executive officer.
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5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Bylaws. He or she shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these Bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
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6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably
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incurred in connection with any proceeding arising by reason of the fact that
such person is or was an agent of the corporation; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers and, provided, further, that
the corporation shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law, (ii) the
proceeding was authorized by the board of directors of the corporation, (iii)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the General Corporation
Law of Delaware or (iv) such indemnification is required to be made pursuant to
an individual contract. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.4 EXPENSES
The corporation shall advance to any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or
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officer of another corporation, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefor, all expenses incurred by such person in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Article VI or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made by the board of directors (i) by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, if
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, that the facts known to the determining party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe either to be
in or not to be opposed to the best interests of the corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this Bylaw shall not be exclusive of
any other right which such person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote
of stockholders or disinterested directors or otherwise, either as to action in
his or her official capacity or as to action in any other capacity while holding
office. The corporation is specifically authorized to enter into individual
contracts with any or all of its directors, officers, employees and agents
respecting indemnification and advances to the fullest extent not prohibited by
the General Corporation Law of Delaware.
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this Bylaw shall continue as to a
person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
6.7 AMENDMENTS
Any repeal or modification of this Bylaw shall have prospective effect
only, and shall not affect the rights of any person under this Bylaw as in
effect at the time of an alleged action or omission to act giving rise to a
proceeding against such person, if such alleged action or omission occurred
prior to the repeal or modification of this Bylaw.
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ARTICLE VII
RECORDS AND REPORTS
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7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep (i) a record of
its stockholders listing their names and addresses and the number and class of
shares held by each, (ii) a copy of these Bylaws as amended to date, and (iii)
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or other writing that authorizes the attorney or other agent to so act
on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of such stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger and the stock list and to make copies thereof or extracts
therefrom. The Court may, in its discretion, prescribe any limitations or
conditions with regard to the inspection, or award such other and further relief
as the Court may deem just and proper.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president, any
vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this corporation. The authority herein granted may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights, or for purposes
of determining the stockholders entitled to exercise any rights in respect of
any other lawful action (other than action by stockholders by written consent
without a meeting), the board of directors may fix, in advance, a record date,
which shall not be more than 60 days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution, or the
60th day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
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8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The officers of the corporation enumerated Section 5.1 of these Bylaws
shall have the authority to execute in the name of the corporation bonds,
contracts, deeds, leases and other written instruments to be executed by the
corporation. In addition, the board of directors, except as otherwise provided
in these Bylaws, may authorize any other officer or officers, or agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the corporation; such authority may be general or confined to
specific instances. Unless so authorized or ratified by the board of directors
or within the agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the corporation by any contract or
engagement, or to pledge its credit or render it liable for any purpose or for
any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, any holder of uncertificated shares shall, upon request, be
entitled to have a certificate signed by or in the name of the corporation by
the chairman or vice-chairman of the board of directors or the chief executive
officer, the president or a vice-president, and by the chief financial officer,
the secretary or an assistant secretary of the corporation, representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile(s). If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, such certificate may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, designations, preferences,
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock; provided, however, that, except as otherwise
provided in Section 202 of the General Corporation Law of
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Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of such certificate a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences, and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace previously issued certificates unless the latter are
surrendered to the corporation and canceled at the same time. The board of
directors may, if any share certificate or certificate for any other security is
lost, stolen or destroyed, authorize the issuance of a replacement certificate
on such terms and conditions as the board of directors may require; the board of
directors may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these Bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
ARTICLE IX
AMENDMENTS
----------
Subject to Section 6.7 hereof the Bylaws of the corporation may be adopted,
amended or repealed and new Bylaws adopted by the affirmative vote of
stockholders holding a majority of the voting power of stock entitled to vote,
or by the board of directors.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation be dissolved, the board, after the
adoption of a resolution to that effect by a majority of the whole board at any
meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the voting power of the outstanding stock of the
corporation entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance
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<PAGE>
with the provisions of Section 275 of the General Corporation Law of Delaware
and setting forth the names and residences of the directors and officers shall
be executed, acknowledged, and filed and shall become effective in accordance
with Section 103 of the General Corporation Law of Delaware. Upon such
certificate's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the
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Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 4.5
WARRANT EXERCISE AGREEMENT
This AGREEMENT dated as of December 17, 1999, is made and entered into
among MODEM MEDIA.POPPE TYSON, INC., a Delaware corporation (the "Purchaser"),
VIVID HOLDINGS, INC., a Delaware corporation (the "Company"), and the holder
(the "Holder") of warrants to purchase shares of common stock of the Company,
par value $0.001 per share (the "Common Stock"), specified on the signature page
hereto.
RECITALS
WHEREAS, the Purchaser, a subsidiary of Purchaser ("Acquisition Sub"), the
Company and a subsidiary of the Company are entering into an Agreement and Plan
of Merger (the "Merger Agreement") of even date herewith under the terms of
which Acquisition Sub will merge with and into the Company, with the Company
surviving and becoming a wholly-owned subsidiary of the Purchaser (the
"Merger");
WHEREAS, it is a condition to the consummation of the Merger Agreement (the
"Closing") that all outstanding warrants to purchase Common Stock be exercised
prior to Closing; and
WHEREAS, Holder wishes to agree to exercise its warrants to purchase Common
Stock prior to Closing.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, and intending to be legally bound, the parties to this
Agreement hereby agree as follows:
Section 1. Exercise of Warrants. Holder agrees to exercise immediately
prior to the Closing warrants to purchase the number of shares of Common Stock
set forth by Holder's name on the signature page hereto (the "Warrants"). Holder
agrees to execute the "Notice of Exercise" form attached to the Warrants and
deliver such form to the Company. The parties acknowledge and agree that, in
lieu of delivery by the Holder of the exercise price of the Warrants, the
exercise of the Warrants will be on a cashless basis, based on the Per Share
Value (as defined in the Merger Agreement) of the Common Stock.
Section 2. The Merger. (a) Holder understands that the shares of Common
Stock which he/she will receive upon the exercise of the Warrants will be
converted into shares of Class A common stock of the Purchaser, par value $.001
per share, (the "Purchaser Common Stock") upon consummation of the Merger, as
more fully described in the Merger Agreement.
<PAGE>
(b) Effective upon the exercise of the Warrants, Holder hereby irrevocably
consents to and approves of the Merger Agreement and the transactions
contemplated thereby. Holder agrees to execute a written consent or other
document expressing such approval as may be reasonably requested by the Company.
Section 3. Limitations on Transfer. Holder agrees that the former
employees and other security holders of the Company will, in any day,
collectively transfer no more than 6,000 shares of Purchaser Common Stock which
they received in connection with the Merger, including shares received upon the
exercise of the Warrants and converted to Purchaser Common Stock in connection
with the Merger. The allocation of the 6,000 share per day limit will be
determined by Mr. Craig Wingate or, if he is unavailable, by other officers
designated by Purchaser. Holder agrees to comply with whatever reasonable sales
procedures may be adopted by Purchaser to comply with these limits. For purposes
of this Section, "transfer" means (i) to sell, pledge or contract to sell any
Purchaser Common Stock, (ii) to sell any option or contract to purchase,
purchase any option or contract to sell or otherwise transfer or dispose of any
Purchaser Common Stock or securities exchangeable or convertible for Purchaser
Common Stock, or (iii) to enter into any swap, derivative or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of Purchaser Common Stock.
Section 4. Piggyback Registration Rights. (a) If Purchaser proposes to
register any Purchaser Common Stock under the Securities Act (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B)
relating to Purchaser Common Stock issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of Purchaser
or (C) in connection with a direct or indirect acquisition by Purchaser of
another entity), whether or not for sale for its own account, it will each such
time, subject to the provisions of Section 4(b), give prompt written notice at
least 20 days prior to the anticipated filing date of the registration statement
relating to such registration to Holder, which notice shall set forth Holder's
rights under this Section and shall offer Holder the opportunity to include in
such registration statement such number of shares of Registrable Stock as Holder
may request. Upon the written request of Holder made within 10 days after the
receipt of notice from Purchaser (which request shall specify the number of
shares of Registrable Stock intended to be disposed of by Holder), Purchaser
will use its best efforts to effect the registration under the Securities Act of
all Registrable Stock which Purchaser has been so requested to register by
Holder, to the extent requisite to permit the disposition of the Registrable
Stock so to be registered; provided that (x) if Holder requests to be included
in Purchaser's registration, Holder must sell its Registrable Stock to the
underwriters selected by Purchaser on the same terms and conditions as apply to
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<PAGE>
Purchaser and (y) if, at any time after giving written notice of its intention
to register any stock pursuant to this Section 4(a) and prior to the effective
date of the registration statement filed in connection with such registration,
Purchaser shall determine for any reason not to register such stock, Purchaser
shall give written notice to Holder and, thereupon, shall be relieved of its
obligation to register any Registrable Stock in connection with such
registration.
(b) If, in any registration pursuant to this Section, the managing
underwriter advises Purchaser that, in its view, the number of shares of
Purchaser Common Stock that Purchaser and its stockholders (including Holder)
intend to include in such registration exceeds the largest number of shares of
Purchaser Common Stock which can be sold without having an adverse effect on
such offering, including the price at which such shares can be sold (the
"Maximum Offering Size"), then Purchaser will include in such registration, in
the following priority, up to the Maximum Offering Size
(i) first, all shares of Purchaser Common Stock proposed to be
registered by Purchaser and other Purchaser stockholders having demand or
piggyback registration rights on the date hereof (other than the Vivid
Rollover Stock) up to the Maximum Offering Size; and
(ii) second, all Registrable Stock requested to be included in such
registration by Holder and all Vivid Rollover Stock requested to be
included in such registration by the holders thereof (allocated, if
necessary for the offering not to exceed the Maximum Offering Size, pro
rata among Holder's Registrable Stock and the Vivid Rollover Stock on the
basis of the relative number of shares of Registrable Stock so requested to
be included in such registration).
(c) Purchaser will pay all registration and filing fees in connection with
each registration of Registrable Stock requested pursuant to this Section.
Holder will pay the fees and expenses of any legal counsel retained by Holder
and any underwriting fees, discounts or commissions attributable to the sale of
Registrable Stock of Holder. Purchaser agrees to indemnify Holder with respect
to any registration of Holder's Registrable Stock pursuant to this Section on
the same basis as the Purchaser agreed to indemnify other Purchaser stockholders
having demand or piggyback registration rights on the date hereof.
(d) For purposes of this Section, the following terms have the following
meanings:
"Registrable Stock" means any shares of Purchaser Common Stock until (i) a
registration statement covering such shares has been declared effective by the
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<PAGE>
Securities and Exchange Commission and such shares have been disposed of
pursuant to such effective registration statement, (ii) such shares are sold
under circumstances in which all of the applicable conditions of Rule 144 are
met or under which they may be sold pursuant to Rule 144(k) or (iii) such shares
are otherwise transferred, Purchaser has delivered a new certificate or other
evidence of ownership for such shares not bearing the legend required pursuant
to this Agreement and such shares may be resold without subsequent registration
under the Securities Act. Purchaser agrees to use its best efforts to cause Rule
144 to be made available to Holder.
"Vivid Rollover Stock" means Purchaser Common Stock received upon the
conversion of Common Stock in connection with the Merger or in exchange for the
promissory notes issued by the Company, as maker, to founders and third
parties.
Section 5. Representations and Warranties. Holder represents and warrants
to the Purchaser and the Company as follows:
(a) Holder has good and marketable title to the Warrants.
(b) The Warrants are the only warrants to purchase Common Stock of the
Company beneficially owned by the Holder.
(c) Holder acknowledges and agrees with the Purchaser that the shares of
Common Stock to be received upon the exercise of the Warrants and the shares of
Purchaser Common Stock to be received upon the conversion of the Common Stock to
Purchaser Common Stock in connection with the Merger will not be registered
under the Securities Act of 1933, as amended, (the "Securities Act") and may not
be offered or sold except pursuant to registration or an exemption from the
registration requirements of the Securities Act. Holder further agrees that
he/she has not entered and will not enter into any transaction or arrangement
with respect to the sale, transfer or delivery of the Purchaser Common Stock,
other than pursuant to any transaction that does not require registration under
the Securities Act. Holder represents that he/she is an "accredited investor" as
that term is defined in Regulation D promulgated under the Securities Act.
Holder represents that he/she is a resident of the State of California and has
no present intention of becoming a resident of any other state or jurisdiction.
Holder has been given access to all Purchaser documents, records, and other
information of the Purchaser, has received physical delivery of all such
documents, records and information which such Holder has requested, and has had
adequate opportunity to ask questions of, and receive answers from, the
Purchaser as well as the Purchaser's officers, employees, agents, accountants,
and representatives concerning the Purchaser's business, operations, financial
condition, assets,
4
<PAGE>
liabilities, and all other matters relevant to his investment in the Common
Stock and the Purchaser Common Stock to be received upon conversion of the
Common Stock. Holder makes to Purchaser the representations and warranties
contained in the Notice of Exercise which he/she will make to the Company upon
exercise of the Warrants.
Section 6. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MODEM MEDIA.POPPE TYSON, INC.
By ______________________________________
Name:
Title:
VIVID HOLDINGS, INC.
By ______________________________________
Name:
Title:
HOLDER of Warrants to purchase __________
shares of Common Stock
_________________________________________
Name:
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<PAGE>
EXHIBIT 4.6
NOTE EXCHANGE AGREEMENT
This AGREEMENT dated as of December 17, 1999, is made and entered into
among MODEM MEDIA.POPPE TYSON, INC., a Delaware corporation (the "Purchaser"),
VIVID HOLDINGS, INC., a Delaware corporation (the "Company"), and the holder
(the "Holder") of promissory note or notes issued by the Company, as maker, with
aggregate principal amount specified on the signature page hereto (collectively,
the "Note").
RECITALS
WHEREAS, the Purchaser, a subsidiary of Purchaser (the "Acquisition Sub"),
the Company and a subsidiary of the Company (the "Operating Sub") are entering
into an Agreement and Plan of Merger (the "Merger Agreement") of even date
herewith under the terms of which Acquisition Sub will merge with and into the
Company, with the Company surviving and becoming a wholly-owned subsidiary of
the Purchaser (the "Merger");
WHEREAS, it is a condition to the consummation of the Merger Agreement (the
"Closing") that the promissory notes issued by the Company, as maker, to
Computer Associates International, Inc. and to a lender code named XYZ Corp.
shall be paid in full in cash, and that all other outstanding promissory notes
(including the Note) issued by the Company, as maker, be exchanged for shares of
Class A common stock of the Purchaser, par value $.001 per share (the "Purchaser
Common Stock"); and
WHEREAS, Holder wishes to exchange its Note for shares of Purchaser Common
Stock at the Effective Time (as defined in the Merger Agreement) on the terms
specified herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter contained, and intending to be legally bound, the parties to this
Agreement hereby agree as follows:
Section 1. Exchange of Notes. (a) Holder, the Company and Purchaser
agree that, at the Effective Time, by virtue of the Merger and without any
action on the part of Holder, the Note shall be exchanged for such number of
fully paid and nonassessable shares of Purchaser Common Stock as equals the
quotient of (x) the sum of the aggregate principal amount of the Note plus any
accrued but unpaid interest on the Note through the date of the Closing divided
by (y) the Stock Value (as defined in the Merger Agreement) (such shares to be
received, the "Note Consideration").
<PAGE>
(b) At the Effective Time, the Holder, upon surrender to the Purchaser of
the Note, shall be entitled to receive the Note Consideration. Until so
surrendered, the Note shall, after the Effective Time, represent for all
purposes only the right to receive such Note Consideration.
(c) No certificates or scrip representing fractional shares of Purchaser
Common Stock shall be issued upon the surrender for exchange of Note pursuant to
this Section and no dividend, stock split or other change in the capital
structure of Purchaser shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. In lieu of any such fractional shares of Purchaser
Common Stock, any Holder who would otherwise have been entitled to a fraction of
a share of Purchaser Common Stock upon surrender of Note for exchange pursuant
to this Section will be paid cash upon such surrender in an amount equal to the
product of such fraction multiplied by the Stock Value. For purposes of this
Section, a Note represented by two or more promissory notes may be aggregated,
and in no event shall any Holder be paid an amount of cash in respect of more
than one share of Purchaser Common Stock.
Section 2. Limitations on Transfer. Holder agrees that the former
employees and other security holders of the Company will, in any day,
collectively transfer no more than 6,000 shares of Purchaser Common Stock which
they received in connection with the Merger, including shares received by the
Holder in exchange for the Note. The allocation of the 6,000 share per day limit
will be determined by Mr. Craig Wingate or, if he is unavailable, by other
officers designated by Purchaser. Holder agrees to comply with whatever
reasonable sales procedures may be adopted by Purchaser to comply with these
limits. For purposes of this Section, "transfer" means (i) to sell, pledge or
contract to sell any Purchaser Common Stock, (ii) to sell any option or contract
to purchase, purchase any option or contract to sell or otherwise transfer or
dispose of any Purchaser Common Stock or securities exchangeable or convertible
for Purchaser Common Stock, or (iii) to enter into any swap, derivative or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of Purchaser Common Stock.
Section 3. Piggyback Registration Rights. (a) If Purchaser proposes to
register any Purchaser Common Stock under the Securities Act (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B)
relating to Purchaser Common Stock issuable upon exercise of employee stock
options or in connection with any employee benefit or similar plan of Purchaser
or (C) in connection with a direct or indirect acquisition by Purchaser of
another entity), whether or not for sale for its own account, it will each such
time, subject to the provisions of Section 3(b), give prompt written notice at
least 20 days prior to the
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anticipated filing date of the registration statement relating to such
registration to Holder, which notice shall set forth Holder's rights under this
Section and shall offer Holder the opportunity to include in such registration
statement such number of shares of Registrable Stock as Holder may request. Upon
the written request of Holder made within 10 days after the receipt of notice
from Purchaser (which request shall specify the number of shares of Registrable
Stock intended to be disposed of by Holder), Purchaser will use its best efforts
to effect the registration under the Securities Act of all Registrable Stock
which Purchaser has been so requested to register by Holder, to the extent
requisite to permit the disposition of the Registrable Stock so to be
registered; provided that (x) if Holder requests to be included in Purchaser's
registration, Holder must sell its Registrable Stock to the underwriters
selected by Purchaser on the same terms and conditions as apply to Purchaser and
(y) if, at any time after giving written notice of its intention to register any
stock pursuant to this Section 3(a) and prior to the effective date of the
registration statement filed in connection with such registration, Purchaser
shall determine for any reason not to register such stock, Purchaser shall give
written notice to Holder and, thereupon, shall be relieved of its obligation to
register any Registrable Stock in connection with such registration.
(b) If, in any registration pursuant to this Section, the managing
underwriter advises Purchaser that, in its view, the number of shares of
Purchaser Common Stock that Purchaser and its stockholders (including Holder)
intend to include in such registration exceeds the largest number of shares of
Purchaser Common Stock which can be sold without having an adverse effect on
such offering, including the price at which such shares can be sold (the
"Maximum Offering Size"), then Purchaser will include in such registration, in
the following priority, up to the Maximum Offering Size
(i) first, all shares of Purchaser Common Stock proposed to be
registered by Purchaser and other Purchaser stockholders having demand or
piggyback registration rights on the date hereof (other than the Vivid
Rollover Stock) up to the Maximum Offering Size; and
(ii) second, all Registrable Stock requested to be included in such
registration by Holder and all Vivid Rollover Stock requested to be
included in such registration by the holders thereof (allocated, if
necessary for the offering not to exceed the Maximum Offering Size, pro
rata among Holder's Registrable Stock and the Vivid Rollover Stock on the
basis of the relative number of shares of Registrable Stock so requested to
be included in such registration).
(c) Purchaser will pay all registration and filing fees in connection with
each registration of Registrable Stock requested pursuant to this Section.
Holder
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<PAGE>
will pay the fees and expenses of any legal counsel retained by Holder and any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Stock of Holder. Purchaser agrees to indemnify Holder with respect
to any registration of Holder's Registrable Stock pursuant to this Section on
the same basis as the Purchaser agreed to indemnify other Purchaser stockholders
having demand or piggyback registration rights on the date hereof.
(d) For purposes of this Section, the following terms have the following
meanings:
"Registrable Stock" means any shares of Purchaser Common Stock until (i) a
registration statement covering such shares has been declared effective by the
Securities and Exchange Commission and such shares have been disposed of
pursuant to such effective registration statement, (ii) such shares are sold
under circumstances in which all of the applicable conditions of Rule 144 are
met or under which they may be sold pursuant to Rule 144(k) or (iii) such shares
are otherwise transferred, Purchaser has delivered a new certificate or other
evidence of ownership for such shares not bearing the legend required pursuant
to this Agreement and such shares may be resold without subsequent registration
under the Securities Act. Purchaser agrees to use its best efforts to cause
Rule 144 to be made available to Holder.
"Vivid Rollover Stock" means Purchaser Common Stock received upon the
conversion of Common Stock in connection with the Merger or in exchange for the
promissory notes issued by the Company, as maker, to founders and third
parties, including the Note.
Section 4. Representations and Warranties. Holder represents and
warrants to the Purchaser and the Company as follows:
(a) Holder has good and marketable title to the Note.
(b) The Note is the only indebtedness for borrowed money owed by the
Company or the Operating Sub to Holder.
(c) Holder acknowledges and agrees with the Purchaser that the shares of
Purchaser Common Stock to be received by Holder in exchange for the Note will
not be registered under the Securities Act of 1933, as amended, (the "Securities
Act") and may not be offered or sold except pursuant to registration or an
exemption from the registration requirements of the Securities Act. Holder
further agrees that he/she has not entered and will not enter into any
transaction or arrangement with respect to the sale, transfer or delivery of the
Purchaser Common Stock, other than pursuant to any transaction that does not
require
4
<PAGE>
registration under the Securities Act. Holder represents that he/she is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act. Holder represents that he/she is a resident of the State of
California and has no present intention of becoming a resident of any other
state or jurisdiction. Holder has been given access to all Purchaser documents,
records, and other information of the Purchaser, has received physical delivery
of all such documents, records and information which such Holder has requested,
and has had adequate opportunity to ask questions of, and receive answers from,
the Purchaser as well as the Purchaser's officers, employees, agents,
accountants, and representatives concerning the Purchaser's business,
operations, financial condition, assets, liabilities, and all other matters
relevant to his investment in the Purchaser Common Stock to be received in
exchange for the Note.
Section 5. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MODEM MEDIA.POPPE TYSON, INC.
By _____________________________________________
Name:
Title:
VIVID HOLDINGS, INC.
By ____________________________________________
Name:
Title:
HOLDER of a promissory note or notes issued by
the Company, as maker, with aggregate principal
amount of $_____________________
_______________________________________________
Name:
6
<PAGE>
EXHIBIT 10.2(d)
January 31, 2000
G. M. O'Connell
347 Nod Hill Road
Wilton, CT 06897
Dear G.M.:
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 than 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
<PAGE>
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 the Board.
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.
By: _____________________________
Name:
Title:
ACCEPTED AND AGREED:
By: ____________________________
G. M. O'Connell
Date: __________________________
<PAGE>
EXHIBIT 10.2(e)
January 31, 2000
Robert C. Allen
121 St. John's Rd
Ridgefield, CT 06877
Dear Bob:
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
<PAGE>
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).
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.
By: __________________________
Name:
Title:
ACCEPTED AND AGREED:
By:____________________________
Robert C. Allen
Date:__________________________
<PAGE>
EXHIBIT 10.2(f)
December 15, 1999
Mr. Steven C. Roberts
76 Piper's Hill Road
Wilton, CT 06897
Dear Steve:
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 Change of Control. The vesting
----------------------------------------------------
of your Company stock options granted to you as of the date of this Agreement
will be accelerated by one year upon a Change of Control of the Company.
2. 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 6 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 4 below) within
eighteen (18) months after a Change of Control.
3. Other Termination Benefits. In the event of the termination of
--------------------------
your employment by the Company or its successors (other than for cause) or by
you for Good Reason you shall be eligible to receive the following upon the
termination of your employment:
A. Severance pay equivalent to twelve (12) months' base salary
at your rate of pay in effect on the date of termination, plus any applicable
bonuses. Such severance will be payable in a lump sum or as salary continuation,
at the sole option of the Company or its successor; and
B. Twelve (12) months' medical and dental coverage as provided
by the Company or its successor to its then-current employees, provided you pay
the applicable premiums paid by employees of the Company or its successor; and
provided further that the Company shall cease providing such coverage when and
if you become eligible for medial and dental coverage from another employer.
<PAGE>
4. 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.
5. 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).
6. 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.
Kindly indicate your agreement to the foregoing by signing in the
space provided below.
Very truly yours,
MODEM MEDIA . POPPE TYSON, INC.
By: ____________________________
Name:
Title:
ACCEPTED AND AGREED
By: ______________________________
Steven Roberts
Date: ____________________________
<PAGE>
EXHIBIT 10.2(g)
January 31, 2000
Steven C. Roberts
76 Piper's Hill Road
Wilton, CT 06897
Dear Steve:
This letter constitutes an amendment to the letter agreement
between you and Modem Media . Poppe Tyson, Inc. (the "Company") dated December
15, 1999 regarding benefits due you under certain circumstances as described
below. The following language shall be added to the end of Section 2 of that
letter agreement:
"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 ."
Kindly indicate your agreement to the foregoing by signing in the
space provided below.
Very truly yours,
MODEM MEDIA.POPPE TYSON, INC.
By:__________________________
Name:
Title:
ACCEPTED AND AGREED:
By:____________________________
Steven C. Roberts
Date:__________________________
<PAGE>
EXHIBIT 10.2(h)
April 19, 1999
Ms. Sloane Levy
16 Village Court
Wilton, CT 06897
Dear Sloane:
We are pleased to offer you the position of VP, General Counsel, with Modem
Media . Poppe Tyson, reporting to G.M. O'Connell starting on or before May 17,
1999.
The following confirms the specific agreements regarding your compensation if
you accept this position of VP, General Counsel, with Modem Media . Poppe Tyson:
. Your annual base salary on your start date will be $170,000.00, payable
bi-monthly.
. Pending Board approval, you will be granted on your date of hire 10,000
stock options. At the date of issue the options will be 20% vested, with
the remaining vesting scheduled at 20% annually for a period of four years.
You will participate in future grants of options to be determined by
Company management and the Board of Directors.
. You will be eligible for a merit bonus to the same extent all VP level
employees are eligible, which current range is 10-20%. Such bonus is
dependent upon your performance, the overall financial performance of the
Company, is at the discretion of the Company's senior management, and in
1999 will be prorated based upon your tenure with the Company.
. 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. We understand that you will be taking two
weeks paid vacation (10 working days) during the month of August, 1999.
. If you are involuntarily terminated from the company you will be paid the
equivalent of one year of your then current base salary as severance, plus
any other payments you may be entitled to at such time which will be paid
in a lump sum if you desire. However, if your termination is in response to
(i) your gross misconduct in the performance of your duties with the
company; (ii) your engaging in illegal conduct in connection with your
performance of duties for the company; or (iii) your material violation of
the company's written policies, this severance clause will be canceled.
Sloane, 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
Rose Zory
Associate Director, Human Resources
Accepted By:_______________
cc: G.M. O'Connell Date: ______________
<PAGE>
EXHIBIT 10.2(i)
January 31, 2000
Sloane Levy
16 Village Court
Wilton, CT 06897
Dear Sloane:
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 May 17 Stock Options Upon Termination. The
------------------------------------------------------
vesting of your Company stock options granted to you on May 17, 1999 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 5 below) within eighteen (18) months
after a "Change of Control" (as defined in Section 3 below); or
B. The termination of your employment by the Company
or its successor (other than for "Cause," as defined in Section 4 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. Acceleration of December Stock Options Upon Termination. The
-------------------------------------------------------
vesting of your Company stock options granted to you on December 6, 1999
will be fully accelerated upon either of the following events:
A. The termination of your employment by you for Good Reason
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") within eighteen (18) months after a
Change of Control.
3. Change of Control. For purposes of this Agreement, "Change
-----------------
of Control" shall mean the occurrence of any of the following events: (i)
the consummation
<PAGE>
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.
4. Termination for Cause. For purposes of this Agreement,
---------------------
"Cause" shall mean (i) your gross misconduct in the performance of your
duties for 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).
5. 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.
6. Non-Compete. In consideration of the agreements set forth
------------
above, you agree to the following:
A. You agree not to engage in any "Competitive Activity"
during a period of one-year following the termination of your employment or
your voluntary resignation from employment. For purposes of this Agreement,
Competitive Activity shall mean (i) the provision of services similar to
those provided by the Company, other than on the Company's behalf, to any
Client for whom the Company performed substantial services during the two-
year period immediately preceding the termination of your employment or
your voluntary resignation; (ii) the solicitation or inducement of any
employee to leave the employ of the Company or the hiring of any such
employee; or (iii) the request or advisement to any Client of the Company
to withdraw, curtail or cancel its business with the Company.
B. As used in this Agreement the term "Client" shall also
include any prospective client to whom a presentation (or similar offering
of services) has been made by the Company during the one-year period
immediately preceding the termination of you employment or your voluntary
resignation, in any case in which you
<PAGE>
have had access to Confidential Information concerning such prospective
client or such presentation.
7. Other Agreements. Except as specifically stated herein, all
----------------
other terms and conditions of prior written agreements regarding the
subject of your employment, including that certain letter dated April 19,
1999, 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.
By:____________________________
Name:
Title:
ACCEPTED AND AGREED:
By:____________________________
Sloane Levy
Date:__________________________
<PAGE>
EXHIBIT 10.2(j)
October 18, 1999
Mr. Bill Zierolf
417 Shrub Oak Lane
Fairfield, CT 06430
Dear Bill:
We are pleased that you are accepting the position of Senior Vice President,
Corporate Business Development, with Modem Media . Poppe Tyson, reporting to
G.M. O'Connell, Chairman and CEO, starting today. The following confirms the
specific agreements regarding your compensation:
. Your annual base salary on your start date will be $200,000.00.
. You will receive a one time sign-on bonus in the amount of $50,000.00.
. Pending Board approval, you will be granted a total of 250,000 stock options.
The exercise price of the granted options will be the current fair market
value on your date of hire.
. 150,000 options will be will be granted upon your start date as a
condition of hire. These 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.
. 100,000 options will be granted upon your start date as a condition of
hire. These options will vest on the sixth anniversary of date of the
grant.
- Upon meeting certain targets regarding the implementation of MMPT's
growth strategy as set forth in Attachment A, six months from your
date of hire, 50,000 shares will accelerate and vest the date such
targets are achieved
- Upon meeting certain revenue targets, 12 months from your date of
hire, 50,000 shares will accelerate and vest the date such targets
are achieved.
You will participate in future grants of options to be determined by Company
management and the Board of Directors.
. You will be eligible for a merit bonus to the same extent all other
employees are eligible, with a target of $50,000. Such bonus is dependent
upon your performance, the overall financial performance of the Company,
and is at the discretion of the Company's senior management, and for 1999
will be prorated.
<PAGE>
Page 2
Bill Zierolf
_____________________________________________________________________________
. The vesting schedule above shall accelerate by one year if within 18 months
following a change of control, your employment is terminated involuntarily.
However, if your termination is in response to your violating Company
policies, poor performance, and the commission of a business related
illegality or any other reason or lack thereof, this severance clause will be
canceled. Change of control shall mean 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 or (ii) the consummation of
the sale or disposition by the Company of all or substantially all of the
Company's assets.
Bill, we are looking forward to your joining Modem Media . Poppe Tyson, Inc.
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
Rose Zory
Director, Human Resources
Accepted By:_________________________
Date:____________________
cc: G.M. O'Connell
<PAGE>
ATTACHMENT A
Target 1: Create and Implement Strategy
. Work with Senior Team to refine corporate development vision and the
specific capabilities components and steps required to execute such vision.
. Create criteria to use as a model with potential partners and acquisition
targets, which model will support the strategy.
. Execute strategy by completing an alliance or joint venture in support of
such strategy
Target 2: Revenue
. Revenues of $2 million of new business that are based on "non-body" fees.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF MODEM MEDIA . POPPE TYSON, INC.
as of March 10, 2000
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Owned Directly or
Jurisdiction of Indirectly by
Subsidiary Name Incorporation Modem Media
--------------- --------------- -----------------
<C> <S> <C>
Modem Media, Inc. ............................. California 100%
Modem Media Holdings LLC....................... Delaware 100%
Modem Media Holding Inc. ...................... Delaware 100%
CentrPort, LLC................................. Delaware 50.5%
Modem Media . Poppe Tyson (Hong Kong) Limited.. Hong Kong 100%
Modem Media Japan, KK.......................... Japan 100%
Modem Media (UK) Limited....................... UK 100%
Modem Media Germany Holding GmbH............... Germany 100%
Modem Media MEx GmbH........................... Germany 100%
Modem Media France SAS......................... France 100%
Modem Media . Poppe Tyson, Inc. ............... Canada 100%
Modem Media Singapore Pte Ltd.................. Singapore 100%
Modem Media . Poppe Tyson do Brasil Ltda....... Brazil 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 30,265
<SECURITIES> 16,859
<RECEIVABLES> 19,241
<ALLOWANCES> 1,151
<INVENTORY> 0
<CURRENT-ASSETS> 71,251
<PP&E> 19,896
<DEPRECIATION> 5,704
<TOTAL-ASSETS> 145,732
<CURRENT-LIABILITIES> 33,564
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 111,453
<TOTAL-LIABILITY-AND-EQUITY> 145,732
<SALES> 74,036
<TOTAL-REVENUES> 74,036
<CGS> 32,991
<TOTAL-COSTS> 67,291
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,975)
<INCOME-PRETAX> 8,720
<INCOME-TAX> 5,703
<INCOME-CONTINUING> 3,017
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,017
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.13
</TABLE>
