<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999
REGISTRATION NO. 333-86433
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
AGENCY.COM LTD.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-3808969
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
------------------------
665 BROADWAY, 9TH FLOOR
NEW YORK, NEW YORK 10012
(212) 358-8220
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
MR. CHAN SUH
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
AGENCY.COM LTD.
665 BROADWAY, 9TH FLOOR
NEW YORK, NEW YORK 10012
(212) 358-8220
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. KEITH F. HIGGINS, ESQ.
SCOTT L. KAUFMAN, ESQ. JANE D. GOLDSTEIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP ROPES & GRAY
1633 BROADWAY, 47(TH) FLOOR ONE INTERNATIONAL PLACE
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02110
(212) 581-1600 (617) 951-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____________________________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED NOVEMBER 24, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
5,900,000 Shares
[LOGO]
Common Stock
-------------
This is an initial public offering of shares of common stock of
AGENCY.COM Ltd. All of the 5,900,000 shares of common stock are being sold by
AGENCY.COM.
At our request, the underwriters have reserved up to 500,000 shares of our
common stock for sale to Intel Corporation at the initial public offering price.
Intel has not committed to purchase these shares.
Before this offering, there has been no public market for the common stock.
AGENCY.COM currently anticipates that the initial public offering price will be
between $10.00 and $12.00 per share. The common stock has been approved for
quotation on the Nasdaq National Market under the symbol "ACOM", subject to
official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to AGENCY.COM.................... $ $
</TABLE>
To the extent that the underwriters sell more than 5,900,000 shares of
common stock, the underwriters have the option to purchase up to an additional
885,000 shares from AGENCY.COM at the initial public offering price less the
underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO. SALOMON SMITH BARNEY
HAMBRECHT & QUIST
------------
Prospectus dated , 1999.
<PAGE>
[Front Inside Cover--AGENCY.COM logo located at the top of the page. Below the
caption is a vertical column of text captioned "Our Values". Below the caption
"Our Values" is the following text: We succeed only when our clients benefit
from our work. We deliver excellence with the highest standards of integrity. We
honor the dignity and value of individuals working as a team. We celebrate
diversity of people, ideas and cultures. We seek to grow through learning and
knowledge gathering. We embrace change and encourage innovation.
Gatefold--Located in the left of the page is the AGENCY.COM logo with the
words "We are an Internet professional services company" beneath the logo. Below
the words "We are an Internet professional services company" is the following
text: We help our clients in four key areas of online business--Branding,
Content, Electronic Commerce and Customer Service. For example, we have
delivered these services to British Airways since 1996 and continue to work with
British Airways, developing strategies and fulfilling its needs for Internet
services around the world.
Across the top of the page are four photographs of a computer monitor
showing different Web pages from the British Airways Website, with the captions
"Branding", "Content", "Electronic Commerce", and "Customer Service" underneath
one photograph each from left to right.
Located in the bottom left is the Company's Integrated Capabilities graphic.
Next to the graphic is a caption "Integrated Capabilities". Below the caption
"Integrated Capabilities" is the following text: We deliver services through
teams of professionals who have expertise in strategy, creative and technology
disciplines, supported by project management and client services staff. Located
in the bottom right is a graphic depicting the Company's Compass Methodology.
Next to the graphic is a caption "Compass-TM- Methodology." Below the caption
"Compass Methodology" is the following text: Our Compass-TM- methodology
provides a common way of delivering services to clients across all our offices.
Located along the bottom right of the page is the following text: For the
first nine months of 1999, British Airways represented 13.5% of our actual
revenues.
Located in the upper right is a map of the world. Next to the map is the
caption "International Scale". Below the caption is the following text: With
offices in the U.S. and Europe and resources in Asia as well as a structure that
allows cross-office collaboration we provide local service to our global
clients.]
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS DO NOT EXERCISE
THE OPTION WE HAVE GRANTED TO THEM TO PURCHASE ADDITIONAL SHARES IN THIS
OFFERING. PLEASE SEE "UNDERWRITING".
AGENCY.COM
OUR COMPANY
AGENCY.COM is an international Internet professional services firm. We
provide our clients with an integrated set of strategy, creative and technology
services that take them from concept to launch and operation of their Internet
businesses.
Our strategy services include advising clients on business models for their
online businesses, devising strategies so that clients can open new online
distribution and sales channels, identifying opportunities to achieve
operational efficiencies by pursuing online initiatives, and planning for the
operations and organization necessary to support an online business. Our
creative services include advising clients on how to effectively bring their
brands online, developing graphic designs and Web site structure for client Web
sites, and coordinating online marketing campaigns with clients' traditional
advertising agencies. Our technology services include technical architecture and
design, integration between Internet and older information technology systems,
and implementation of electronic commerce systems to enable online sales,
support and communication.
We seek to empower our clients to gain competitive advantage by using the
Internet to create and enhance interactive relationships with their customers,
staff, business partners and suppliers. We accomplish this by enabling more
timely, convenient and efficient communications and transactions between a
company and these constituents. Since our founding in 1995, we have focused
exclusively on Internet technologies and their implications for businesses. We
serve a broad and diversified client base in a variety of industries, including
emerging Internet-focused businesses and businesses comprising Business Week
magazine's "Global 1000" list of companies with the largest market
capitalizations worldwide. We have worked with more than 200 companies to help
them develop and implement their Internet businesses. Our five largest clients
during the nine months ended September 30, 1999, on an actual basis, were
British Airways, Compaq, FT Group, Sprint and Unilever. We currently employ more
than 1,000 people in 10 offices in the United States and one office each in
Amsterdam, Copenhagen, London and Paris.
OUR MARKET OPPORTUNITY
Based on our experience, we believe many companies outsource some or all of
their growing Internet businesses, creating a large and expanding market for
providers of Internet professional services. Worldwide demand for Internet
professional services is expected to grow from $7.8 billion in 1998 to $78.5
billion in 2003, according to a report by International Data Corporation
("IDC"), a technology and Internet research and consulting company, titled
"Worldwide Internet Services Market and Trends Forecast, 1998-2003", published
in May 1999.
3
<PAGE>
A new breed of professional services firm devoted to the Internet has
emerged to provide companies with strategy, planning, design, development and
deployment services for their Internet resources. We believe these Internet
professional services providers must be able to serve their clients on an
international basis and offer integrated strategy, creative and technology
services.
RISK FACTORS
There are many risk factors associated with an investment in our common
stock. The market for Internet professional services is intensely competitive,
highly fragmented and subject to rapid technological change. Many of our
competitors have advantages over us. There are no substantial barriers to entry
into our business. We expect that competition will intensify and increase over
time. We have incurred significant losses since we were formed and have an
accumulated deficit of approximately $7.5 million as of September 30, 1999. We
incurred net losses of $6.6 million for the nine months ended September 30, 1999
on an actual basis and $16.7 million on a pro forma basis giving effect to our
recent acquisitions. Our directors, executive officers and affiliates will
beneficially own approximately 75% of our common stock after the offering, which
will limit the ability of unaffiliated stockholders to influence corporate
matters. Our largest stockholder has significant ownership positions in some of
our direct competitors and one of our directors is also a director of one of our
direct competitors. This ownership and directorship may create conflicts of
interests. These and other risks are addressed under the caption "Risk Factors"
beginning on page 8 of this prospectus.
OUR HISTORY
We were incorporated in New York on February 10, 1995. We reincorporated in
Delaware on August 30, 1999. Our principal executive offices are located at 665
Broadway, 9th Floor, New York, New York 10012 and our telephone number is
(212) 358-8220. Our Web site is WWW.AGENCY.COM. The information on our Web site
is not a part of this prospectus.
OUR TRADEMARK
AGENCY.COM is our registered trademark. All other trademarks and service
marks used in this prospectus are the property of their respective owners.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares offered by AGENCY.COM................. 5,900,000 shares
Shares to be outstanding after this
offering................................... 33,674,562 shares
Proposed Nasdaq National Market symbol....... ACOM
Use of proceeds.............................. To repay amounts borrowed under our credit
facility, expand our operations and for
general corporate purposes, including working
capital. We may also use a portion of the
proceeds for strategic investments or
acquisitions. Please see "Use of Proceeds".
</TABLE>
This information is based on our shares of common stock outstanding as of
November 4, 1999. This information does not include:
- 5,513,563 shares subject to options outstanding as of November 4, 1999 at
a weighted average exercise price of $2.64 per share;
- 5,722,698 additional shares that could be issued under our stock option
plans; and
- 7,400,000 shares subject to warrants to purchase our common stock at an
exercise price of $0.005 per share.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the financial data for our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes to those statements included elsewhere in this
prospectus. The pro forma data for the year ended December 31, 1998 and the nine
months ended September 30, 1998 give effect to the following acquisitions as if
each of these acquisitions had occurred on January 1, 1998:
- Ketchum Interactive, which was completed in April 1998;
- The Primary Group, which was completed in August 1998;
- Interactive Solutions, which was completed in April 1999;
- Eagle River Interactive, which was completed in April 1999;
- Digital Vision, which was completed in May 1999;
- Twinspark Interactive People, which was completed in August 1999;
- Interactive Traffic, known as "I-traffic", which was completed in
October 1999; and
- Visionik, which was completed in November 1999.
The pro forma data for the nine months ended September 30, 1999 give effect to
the acquisitions of Interactive Solutions, Eagle River Interactive, Digital
Vision, Twinspark Interactive People, I-traffic and Visionik as if each had
occurred on January 1, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 10,
1995
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
1995 -------------------------------------------------
-------------- 1996 1997 1998 1998
ACTUAL ACTUAL ACTUAL ACTUAL PRO FORMA
-------------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues............ $ 2,162 $ 6,095 $ 12,975 $ 26,452 $ 76,130
Gross profit........ 1,511 3,878 6,775 10,522 32,112
Income (loss) from
operations........ 868 2,862 2,056 (3,052) (20,199)
Net income (loss)... 791 1,502 1,182 (2,481) (20,900)
Minority interest... -- -- 167 (282) (282)
Basic net income
(loss) per common
share............. $ 439.47 $ 0.32 $ 0.07 $ (0.15) $ (0.78)
Diluted net income
(loss) per common
share............. $ 439.47 $ 0.31 $ 0.07 $ (0.15) $ (0.78)
Weighted average
shares outstanding
used in basic net
income (loss) per
common share
calculation....... 2 4,750 16,200 16,854 26,865
Weighted average
shares outstanding
used in diluted
net income (loss)
per common share
calculation....... 2 4,797 16,297 16,854 26,865
OTHER DATA:
EBITDA(1)........... $ 874 $ 2,923 $ 2,601 $ (1,301) $ (4,388)
Cash flows provided
by (used in) (2):
Operating
activities...... 186 952 632 902 (4,142)
Investing
activities...... (62) (515) (3,153) (9,583) (39,005)
Financing
activities...... (66) 18 2,396 9,071 46,216
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1999 1998 1999
ACTUAL ACTUAL PRO FORMA PRO FORMA
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues............ $ 18,956 $ 56,499 $55,962 $74,808
Gross profit........ 8,601 27,715 24,403 33,616
Income (loss) from
operations........ (796) (4,251) (12,996) (14,025)
Net income (loss)... (942) (6,615) (14,147) (16,748)
Minority interest... (282) -- (282) 51
Basic net income
(loss) per common
share............. $ (0.06) $ (0.29) $ (0.53) $ (0.57)
Diluted net income
(loss) per common
share............. $ (0.06) $ (0.29) $ (0.53) $ (0.57)
Weighted average
shares outstanding
used in basic net
income (loss) per
common share
calculation....... 16,587 23,187 26,597 29,242
Weighted average
shares outstanding
used in diluted
net income (loss)
per common share
calculation....... 16,587 23,187 26,597 29,242
OTHER DATA:
EBITDA(1)........... $ 278 $ 3,472 $(1,441) $ (549)
Cash flows provided
by (used in) (2):
Operating
activities...... (1,599) (10,948) (5,160) (21,775)
Investing
activities...... (5,507) (6,834) (37,270) (1,575)
Financing
activities...... 7,136 17,773 44,911 23,011
</TABLE>
6
<PAGE>
- ------------------------
(1) EBITDA represents earning or loss before other income and expense
(consisting of provision (benefit) from income taxes and net interest
expense), depreciation and amortization. We have provided EBITDA because it
is a measure of financial performance commonly used in the Internet
professional services industry and because management believes many
investors use EBITDA as a measure of a company's historical ability to
service its debt since EBITDA shows available cash before debt service and
before deducting non-cash charges, such as depreciation and amortization.
Other companies may calculate EBITDA differently from the way we do. EBITDA
is not a measurement of financial performance under GAAP. We believe you
should not consider EBITDA as an alternative to net income (loss) as an
indicator of our operating performance or as an alternative to cash flow as
a measure of our liquidity. You should be aware that items excluded from the
calculation of EBITDA are significant components in understanding and
assessing our financial performance.
(2) You should read the information in the table together with information
regarding our cash flows from operating, investing and financing activities
appearing on pages 39-40 of this prospectus, which is also an important
measure of our financial condition.
The following table is a summary of our balance sheet as of September 30,
1999. The pro forma data give effect to the acquisitions of I-traffic and
Visionik as if each had occurred on September 30, 1999. The pro forma as
adjusted data reflect the sale of 5,900,000 shares of common stock at an assumed
initial public offering price of $11.00 per share, after deducting the
underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------- --------
<CAPTION>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 726 $ 3,117 $ 40,724
Working capital............................................. 17,873 19,197 56,804
Total assets................................................ 107,488 127,903 165,510
Notes payable, excluding current portion.................... 66,807 70,374 50,124
Capital leases, excluding current installments.............. 1,709 1,717 1,717
Total stockholders' equity.................................. 17,238 28,120 85,977
</TABLE>
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS
OF OPERATIONS WOULD LIKELY SUFFER. IN THIS CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE WE ARE AN EARLY-STAGE COMPANY
Because we are in an early stage of development, we are subject to the risks
that we will fail to implement our business model and strategy successfully or
to revise our business model and strategy should industry conditions and
competition change. These risks are even greater because we are operating in a
new and rapidly evolving market. We cannot assure you that we will be successful
in addressing these risks. If we are not, our business, results of operations
and financial condition will be materially adversely affected.
OUR REVENUES COULD BE AFFECTED BY THE LOSS OF A MAJOR CLIENT
A substantial portion of our revenue is generated from a limited number of
major clients. In particular, on a pro forma basis our ten largest clients
accounted for approximately 42% of our revenues for the nine months ended
September 30, 1999 and 31% of our revenues for the year ended December 31, 1998.
For the nine months ended September 30, 1999, and for the year ended
December 31, 1998, British Airways accounted for more than 10% of our revenues
on an actual basis. For the nine months ended September 30, 1999, British
Airways accounted for more than 10% of our revenues on a pro forma basis. If one
of our major clients discontinues or reduces the use of our services, our
business, results of operations and financial condition could materially suffer.
We cannot assure you that our clients will continue to use our services in the
future. In addition, because a substantial portion of our revenue is generated
from a limited number of clients, the non-payment or late payment of amounts due
from a major client could have a material adverse effect on our business,
results of operations and financial condition.
IF CLIENTS PREMATURELY TERMINATE OR REDUCE THE SCOPE OF EXISTING CONTRACTS, OUR
REVENUES MAY DECLINE
Our services are often sold pursuant to short-term arrangements and most
clients can reduce or cancel their contracts for our services without penalty
and with little or no notice. These arrangements are in writing, are binding
contracts and typically range in term from three months to one year. If a major
client or a number of small clients were to terminate, significantly reduce or
modify their business relationships with us, then our business, results of
operations and financial condition would be materially adversely affected.
Consequently, you should not predict or anticipate our future revenue based upon
the number of clients we currently have or the number and size of our existing
projects.
OUR REVENUES ARE DIFFICULT TO PREDICT, WHICH COULD LEAD TO POOR OPERATING
RESULTS
We derive our revenues in part from fees for services generated on a
project-by-project basis. These projects vary in length and complexity, as well
as in the fee charged for our services. Our methods of recognizing revenue also
vary depending on whether we enter into a retainer, time-and-materials or fixed
8
<PAGE>
fee arrangement with the client. As a result, there may be significant
fluctuation in the amount of revenue generated by a particular client in
different periods. Aggregate quarterly results may fluctuate as well. We may be
unable to adjust our cost structure quickly enough to offset unexpected revenue
shortfalls due to the fact that many of our costs are fixed or are associated
with commitments which cannot be immediately terminated, which could cause our
operating results to suffer.
OUR RECENT ACQUISITIONS MAKE EVALUATING OUR BUSINESS DIFFICULT
In April 1999, we acquired all of the issued and outstanding stock of
Interactive Solutions Incorporated. Immediately prior to the acquisition,
Interactive Solutions acquired Quadris Consulting, Inc. The historical revenue
of Interactive Solutions and Quadris combined was $3.6 million for the three
months ended March 31, 1999 and was $15.4 million for the year ended
December 31, 1998. In April 1999, we acquired all of the issued and outstanding
stock of Eagle River Interactive Inc. The historical revenue of Eagle River was
$5.1 million for the three months ended March 31, 1999 and was $23.4 million for
the year ended December 31, 1998. In May 1999, we acquired Digital Vision
Communications Inc. The historical revenue for Digital Vision was $326,000 for
the six months ended June 30, 1999. In August 1999, we acquired Twinspark
Interactive People B.V. The historical revenue for Twinspark Interactive was
$2.4 million for the six months ended June 30, 1999 and was $2.7 million the
year ended December 31, 1998. In October 1999, we acquired all of the
outstanding stock of I-traffic, Inc. The historical revenue for I-traffic was
$4.3 million for the nine months ended September 30, 1999 and $3.5 million for
the year ended December 31, 1998. In November 1999, we acquired all of the
outstanding stock of Visionik A/S. The historical revenue for Visionik was $2.2
million for the nine months ended September 30, 1999 and $2.0 million for the
year ended December 31, 1998.
Our historical results of operations do not fully give effect to the
operations of the companies we have acquired and the pro forma financial
information included in this prospectus is based in part on the separate
pre-acquisition financial reports of these acquired companies. Consequently, our
historical results of operations and pro forma financial information may not
give you an accurate indication of how AGENCY.COM, together with these combined
entities, will perform in the future.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE TO US AND
MAY LIMIT OUR GROWTH
Our future liquidity and capital requirements are difficult to predict as
they depend upon numerous factors, including the success of our existing and new
service offerings and competing technological and market developments. We may
need to raise additional funds in order to meet additional working capital
requirements, support additional capital expenditures or take advantage of
acquisition opportunities. Our ability to obtain additional financing will be
subject to a number of factors, including market conditions, our operating
performance and investor sentiment. These factors may make the timing, amount,
terms and conditions of additional financing unattractive for us. If we are
unable to raise additional funds when needed or the terms are not favorable, our
growth could be impeded.
IF WE FAIL TO ACCURATELY ESTIMATE COSTS OF FIXED-FEE PROJECTS, OUR OPERATING
RESULTS
MAY SUFFER
We derive our revenues from services performed under one of three pricing
arrangements: retainer, time-and-materials and fixed-fee. The majority of our
revenues are derived from time and materials contracts. We
9
<PAGE>
assume greater financial risks on a fixed-fee project than on a
time-and-materials project because we may miscalculate the resources or time we
need for these projects, which may cause the costs of completing these projects
to exceed the fixed fee we receive and result in our performing contracts that
are not profitable, or which result in a lower gross margin. The extent to which
our operating results may be adversely affected depends on the extent to which
we miscalculate our expenses for completing the contract. We recognize revenues
from fixed-fee projects based on proportionate performance of the service to be
rendered under each contract in a reporting period. To the extent our estimates
of the costs associated with each fixed-fee project are inaccurate, the revenues
and operating profits, if any, that we report for periods during which we are
working on that project may not accurately reflect the final results of the
project. In this case, we may be required to record an expense in the period in
which additional anticipated costs are identified.
RISKS RELATED TO OUR STRATEGY AND MARKET
FAILURE TO PROPERLY MANAGE OUR EXPANDING OPERATIONS MAY ADVERSELY IMPACT OUR
BUSINESS
Our rapid growth has placed a significant strain on our managerial and
operational resources. From January 1, 1997 to November 4, 1999, our staff
increased from approximately 60 to approximately 1,000 employees. If we cannot
effectively manage our expanding operations, we may not be able to continue to
grow, or may grow at a slower pace. To manage any future growth we must continue
to improve our financial and management controls, reporting systems and
procedures, and expand and train our work force. We cannot assure you that our
controls, systems or procedures will be able to support our expanding operations
or that we will be able to manage both internal and acquisition-based growth
effectively.
IF WE ARE UNABLE TO FIND SUITABLE ACQUISITION CANDIDATES, OUR GROWTH COULD BE
IMPEDED
Our ability to identify and invest in suitable acquisition and investment
candidates on acceptable terms is crucial to our strategy. We cannot assure you
that we will be able to continue to identify, acquire or make investments in
promising acquisition candidates on acceptable terms. Moreover, in pursuing
acquisition and investment opportunities, we may be in competition with other
companies having similar growth and investment strategies. Competition for these
acquisitions or investment targets could also result in increased acquisition or
investment prices and a diminished pool of businesses, technologies, services or
products available for acquisition or investment.
OUR ACQUISITION STRATEGY COULD SUBJECT US TO SIGNIFICANT RISKS, ANY OF WHICH
COULD HARM OUR BUSINESS
Acquisitions involve a number of risks and present financial, managerial and
operational challenges, including:
- adverse effects on our reported operating results due to the amortization
of goodwill associated with acquisitions;
- diversion of management attention from running our existing business;
- increased expenses, including compensation expenses resulting from
newly-hired employees; and
- potential disputes with the sellers of acquired businesses, technologies,
services or products.
We may not be successful in integrating the technology, operations and
personnel of any acquired business. Client satisfaction or
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performance problems with an acquired business, technology, service or product
could also have a material adverse impact on our reputation as a whole. In
addition, any acquired business, technology, service or product could
significantly underperform relative to our expectations. For all these reasons,
our pursuit of an overall acquisition and investment strategy or any individual
acquisition or investment could have a material adverse effect on our business,
results of operations and financial condition. In four of our eleven
acquisitions, we have acquired companies owned or controlled by Omnicom Inc.,
our largest stockholder. In the future, we expect to primarily acquire companies
not owned or controlled by Omnicom, which may make acquiring companies
materially more difficult.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS, WHICH
LIMITS OUR BUSINESS OPPORTUNITIES
We have agreed with approximately ten of our clients, including three of our
20 largest clients, to limit our right to enter into business relationships with
competitors of that client for a specific time period. These provisions
typically prohibit us from performing a broad range of our Internet professional
services which we might otherwise be willing to perform for potential clients.
These provisions are generally limited to six months and are sometimes further
limited by office location or apply only to specific employees. These provisions
may limit our ability to enter into engagements with new clients for specified
periods of time. This may adversely affect our business opportunities and our
revenues.
WE FACE INTENSE COMPETITION, WHICH COULD HARM OUR BUSINESS
Our market is new, intensely competitive, highly fragmented and subject to
rapid technological change. We expect competition to intensify and increase over
time because
- there are no substantial barriers to entering the Internet professional
services market;
- our industry is consolidating; and
- many of our competitors are forming cooperative relationships.
We compete against other Internet professional services firms, as well as a
number of different types of companies that are not exclusively in the Internet
professional services business. These competitors, which generally offer some of
the Internet professional services we offer, include:
- traditional strategic consulting firms;
- interactive advertising agencies;
- professional services groups of computer equipment companies;
- traditional systems integrators; and
- internal groups of current or potential clients.
Many of our competitors have longer operating histories, greater name
recognition, larger established client bases, longer client relationships and
significantly greater financial, technical, personnel and marketing resources
than we do. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to potential clients, employees and strategic partners. Further, our
competitors may perform Internet services that are equal or superior to our
services or that achieve greater market acceptance than our services. We have no
patented or other proprietary technology that would preclude or inhibit
competitors from duplicating our services. We must rely on the skills of our
personnel and the quality of our client service.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which would have
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a material adverse effect on our business, results of operations and financial
condition. We cannot assure you that we will be able to compete successfully
against existing or future competitors.
IF WE ARE UNABLE TO IDENTIFY, HIRE, TRAIN AND RETAIN HIGHLY QUALIFIED INTERNET
PROFESSIONALS AND RETAIN CURRENT KEY PERSONNEL, OUR BUSINESS AND GROWTH WILL
SUFFER
Our success depends on our ability to identify, hire, train and retain
highly qualified Internet professionals. These individuals are in high demand
and we may not be able to attract and retain the number of highly qualified
Internet professionals that we need. Historically, we have experienced
significant employee turnover. If we cannot retain, attract and hire the
necessary Internet professionals, our ability to grow, complete existing
projects and bid for new projects would be adversely affected and our business,
results of operations and financial condition would suffer.
In addition, our future success depends, in part, upon the continued service
and performance of Chan Suh, our Chairman, Chief Executive Officer and
President, Kyle Shannon, our Chief Creative Officer, Kevin Rowe, our
President--North America and Eamonn Wilmott, our President--Europe. Particularly
in light of our relatively early stage of development, the fact that many of our
key personnel have worked together for only a short period of time and the
competitive nature of our industry, we cannot assure you that we will be able to
retain the services of our senior management and other key personnel. Losing the
services of any of these individuals at our current stage would impair our
ability to effectively deliver our services and manage our company. These
problems would negatively affect our business, results of operations and
financial condition, as well as our ability to grow.
IF NOT MANAGED EFFICIENTLY, OUR RAPID GROWTH IN PERSONNEL MAY DIVERT
MANAGEMENT'S ATTENTION FROM THE OPERATION OF OUR BUSINESS
From January 1, 1997 to November 4, 1999, our employee base has grown from
approximately 60 to over 1,000 employees. Our growth has placed significant
demands on our managerial and operational resources. Our failure to manage our
growth efficiently may further divert management's attention from the operation
of our business, which may result in increased expenses and interruptions in our
operations.
OUR EFFORTS TO RAISE AWARENESS OF THE AGENCY.COM BRAND MAY NOT BE SUCCESSFUL,
WHICH MAY LIMIT OUR ABILITY TO EXPAND OUR CLIENT BASE AND ATTRACT ACQUISITION
CANDIDATES AND EMPLOYEES
We believe that building the AGENCY.COM brand is critical for attracting and
expanding our targeted client base and attracting acquisition candidates and
employees. If we do not continue to build the AGENCY.COM brand on a global
basis, we may not be able to effect our strategy. We also believe that
reputation and name recognition will grow in importance as the number of
companies competing in the market for Internet professional services increases.
Promotion and enhancement of our name will depend largely on our success in
continuing to provide high quality, reliable and cost-effective services. If
clients do not perceive our services as meeting their needs, or if we fail to
market our services effectively, we will be unsuccessful in maintaining and
strengthening our brand. If we fail to promote and maintain our brand, or incur
excessive expenses to do so, our business, results of operations and financial
condition will materially suffer.
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OUR INTERNATIONAL EXPANSION STRATEGY COULD SUBJECT US TO SIGNIFICANT RISKS, MANY
OF WHICH COULD HARM OUR BUSINESS
We expect to expand our international operations and international sales and
marketing efforts. We commenced operations in Denmark in November 1999, the
Netherlands in August 1999, France in April 1999 and the United Kingdom in
October 1997, and made minority investments in a company in Singapore in
December 1998 and July 1999 and in a company in Paris in October 1999. Our
international offices offer Internet professional services similar to our
domestic offices. We have had limited experience in marketing, selling and
distributing our services internationally, and we cannot assure you that we will
be able to maintain and expand our international operations or successfully
market our services internationally. Failure to do so may negatively affect our
business, results of operations and financial condition, as well as our ability
to grow.
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE DIFFERENCES
ASSOCIATED WITH OPERATING INTERNATIONALLY
Our international operations began in October 1997 and we are initially
focusing our international operations in Europe and Asia. We have no current
plans to expand to any specific location internationally. Operating
internationally may require us to modify the way we conduct our business and
deliver our services in these markets. If we do not appropriately anticipate
changes and adapt our practices, our business, results of operations and
financial condition could materially suffer. We anticipate that we will face the
following challenges internationally:
- the burden and expense of complying with a wide variety of foreign laws
and regulatory requirements;
- potentially adverse tax consequences;
- longer payment cycles and problems in collecting accounts receivable;
- technology export and import restrictions or prohibitions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- political and economic instability;
- cultural and language differences;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity, especially during the summer
months in Europe and certain other parts of the world.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGES, OUR SERVICES MAY BECOME LESS
COMPETITIVE AND OUR BUSINESS COULD SUFFER
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, and evolving industry standards. If we cannot
keep pace with these changes our services could become less competitive and our
business could suffer. To achieve our goals, we need to provide strategic
business and Internet services that keep pace with continuing changes in
industry standards, information technology and client preferences. We may be
unable, for technological or other reasons, to develop and introduce new
services or enhancements to existing services in a timely manner or in response
to changing market conditions or client requirements. This would materially
adversely affect our business, results of operations and financial condition.
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THE MARKET FOR OUR SERVICES AND OUR REVENUE GROWTH DEPEND ON OUR CURRENT AND
POTENTIAL CLIENTS ACCEPTING AND EMPLOYING THE INTERNET
Since we expect to derive most of our revenues from providing Internet
professional services, our future success is dependent on the increased use of
the Internet. If the Internet fails to develop into a viable marketplace, or
develops more slowly than expected, our business, results of operations and
financial condition could materially suffer. Most of our current or potential
clients have limited experience with the Internet and may determine that the
Internet is not an effective method for expanding their businesses. We cannot
assure you that the market for Internet professional services will continue to
grow or become sustainable.
The Internet may not develop into a viable commercial marketplace because of
many factors, including:
- the inadequate development of the necessary infrastructure;
- a lack of development of complementary products (such as high speed modems
and high speed communication lines); and
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and volume of traffic. We cannot
assure you that the Internet infrastructure will be able to support the demands
placed on it by this continued growth. In addition to the Internet's uncertain
ability to expand to accommodate increasing traffic, critical issues concerning
the use of the Internet (including security, reliability, cost, ease of
deployment and administration and quality of service) remain unresolved. For
example, a number of states have recently permitted telephone companies to
charge increased rates for consumers connecting to the Internet. Concerns
regarding these issues may affect the growth of the use of Internet technologies
to solve business problems.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS AND SUBJECT US TO INCREASED EXPENSES
The Year 2000 problem is the potential for system and processing failures of
date-related data. Many currently installed computer systems and software
products are coded to accept or recognize only two-digit entries in the date
code field. These systems may mistakenly interpret a date entered as "00" as the
year 1900 rather than the year 2000. As a result, it is necessary to update the
computer systems and/or software used by many companies and governmental
agencies to comply with Year 2000 requirements. Companies that do not update
their systems and/or software risk system failure or miscalculation that could
cause disruptions of normal business activity.
Year 2000 problems could require us, or our clients, to incur delays and
unanticipated expenses. We, and many of our clients, rely on third party vendors
for service and equipment. A significant Year 2000 disruption of these services
or this equipment could require us to seek alternative providers. We may not be
able to immediately find alternative providers and we may not be able to enter
into commercially reasonable agreements with these providers. Similarly, our
clients may face the same obstacles. If our clients are not able to find
alternative providers for their normal business activities, they will likely not
seek to expand their business or utilize the Internet. This could decrease their
demand for our services.
Our failure to correct a material Year 2000 problem could have a material
adverse effect on our business, results of operations and financial condition.
We may experience
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operations difficulties because of undetected errors or defects in the
technology we use in our internal systems. Additionally, clients' and future
clients' purchasing patterns, especially in the fourth quarter of 1999, may be
affected by Year 2000 issues as companies expend significant resources to
correct or replace their current systems for Year 2000 compliance.
The services we provide to our clients integrate software and other
technology from different providers. If there is a Year 2000 problem with
respect to a service performed by us, it may be difficult to determine whether
the problem relates to services which we have performed or is due to the
software, technology or services of other providers. Furthermore, we have
entered into a few contracts, including contracts with some of our largest
clients, which have express or implied warranties with respect to Year 2000
readiness without limitation as to liability. We may be subjected to Year
2000-related lawsuits, whether or not the services that we have performed are
Year 2000 compliant. We cannot be certain what the outcomes of these types of
lawsuits may be.
Failure to provide to our clients services that are Year 2000 compliant,
whether or not in violation of any warranty, could have a material adverse
effect on our business, results of operations and financial condition.
RISKS RELATED TO LEGAL UNCERTAINTY
GOVERNMENTAL REGULATIONS REGARDING THE INTERNET MAY BE ENACTED WHICH COULD
IMPEDE OUR BUSINESS
To date, governmental regulations have not materially restricted the use of
the Internet by our clients in their markets. However, the legal and regulatory
environment that pertains to the Internet may change. New laws and regulations,
or new interpretations of existing laws and regulations, could impact us
directly, by regulating our operations or imposing additional taxes on the
services we provide, which could adversely impact our results and operations.
These regulations could restrict our ability to provide our services or increase
our costs of doing business.
In addition, new laws could impact us indirectly by preventing our clients
from delivering products and services over the Internet or slowing the growth of
the Internet. In particular, our business may be indirectly affected if new laws
inhibit the growth of the Internet. New laws relating to sales and other taxes,
user privacy, pricing controls, consumer protection and international commerce
may dampen the growth of the Internet as a communications and commercial medium.
For example, a number of proposals have been made at the federal, state and
local levels and by foreign governments that could impose taxes on the online
sales of goods and services and other Internet activities. In addition,
unfavorable judicial interpretation of existing laws, and the adoption of new
laws, regarding liability for libel and defamation and copyright, trademark and
patent infringement may extend liability to Web site owners. If these new laws
decrease the acceptance of e-commerce and other aspects of the Internet, our
clients may be harmed and, as a consequence, our revenue growth and growth in
demand for our services would be limited and our business, results of operations
and financial condition would be adversely affected.
WE MAY BECOME SUBJECT TO CLAIMS REGARDING FOREIGN LAWS AND REGULATIONS, WHICH
COULD SUBJECT US TO INCREASED EXPENSES
Because we have employees, property and business operations in the United
States, Denmark, France, the Netherlands, Singapore and the United Kingdom, we
are subject to the laws and the court systems of multiple
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jurisdictions. We may become subject to claims in foreign jurisdictions for
violations of their laws. In addition, these laws may change or new laws may be
enacted in the future. International litigation is often expensive, time-
consuming and distracting, and could have a material adverse effect on our
business, financial condition and results of operations.
UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY BY THIRD PARTIES MAY DAMAGE OUR
BRAND
Unauthorized use of our intellectual property by third parties may damage
our brand and our reputation. We do not have any patents or patent applications
pending and existing trade secret, trademark and copyright laws afford us only
limited protection. It may be possible for third parties to obtain and use our
intellectual property without our authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign jurisdictions may not protect our intellectual property rights to the
same extent as do the laws of the United States.
DEFENDING AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE
AND DISRUPTIVE TO OUR BUSINESS
We cannot be certain that our services, the finished products that we
deliver or materials provided to us by our clients for use in our finished
products do not or will not infringe valid patents, copyrights or other
intellectual property rights held by third parties. We may be subject to legal
proceedings and claims from time to time relating to the intellectual property
of others in the ordinary course of our business. Intellectual property
litigation is expensive and time consuming and successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
IF WE FAIL TO DELIVER QUALITY SERVICES OR FULFILL CLIENT NEEDS, OR IF OUR
SERVICES HARM OUR CLIENTS' BUSINESSES, WE MAY FACE ADDITIONAL EXPENSES, LOSSES
OR NEGATIVE PUBLICITY
Many of our engagements involve projects that are critical to the operations
of our clients' businesses. If we cannot complete engagements to our clients'
expectations, we could materially harm our clients' operations. This could
damage our reputation, subject us to increased risk of litigation or force us to
redesign the project. Any of these events could have a material adverse effect
on our business, results of operations and financial condition. While our
agreements with clients often limit our liability for damages arising from our
rendering of services, we cannot assure you that these provisions will be
enforceable in all instances or would otherwise protect us from liability.
Although we carry general liability insurance coverage, our insurance may not
cover all potential claims to which we are exposed or may not be adequate to
indemnify us for all liability that may be imposed. The successful assertion of
one or more significant claims against us could have a material adverse effect
on our business, results of operations and financial condition.
WE MAY BE SUBJECT TO CLAIMS FOR PAST ACTS OF THE COMPANIES THAT WE ACQUIRE,
WHICH MAY SUBJECT US TO INCREASED EXPENSES
We could experience financial or other setbacks if any of the businesses
that we acquire had problems in the past of which we are not aware. We are not
aware of any material legal liabilities of the companies we have acquired to
date. However, to the extent any client or other third party asserts any legal
claim against any of the companies we have acquired, our business, results of
operations and financial condition could be materially adversely affected.
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RISKS RELATED TO THIS OFFERING
MANAGEMENT MAY USE THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH
YOU DO NOT AGREE
Our management will have significant flexibility in applying the net
proceeds of this offering and may use the proceeds in ways with which
stockholders disagree. If we do not apply the funds we receive effectively, our
accumulated deficit may increase and we may lose significant business
opportunities.
AS AN INTERNET-RELATED COMPANY, OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
AND COULD DROP UNEXPECTEDLY
Following this offering, the price at which our common stock will trade is
likely to be highly volatile and may fluctuate substantially. As a result,
investors in our common stock may experience a decrease in the value of their
common stock regardless of our operating performance or prospects. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that have affected the market prices for the securities of
technology companies, particularly Internet companies. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation was often brought against that company. Many
technology-related companies have been subject to this type of litigation. We
may also become involved in this type of litigation. Litigation is often
expensive and diverts management's attention and resources, which could have a
material adverse effect upon our business, financial condition and results of
operations.
OUR DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATES OWN ENOUGH OF OUR SHARES TO
CONTROL AGENCY.COM, WHICH WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE MATTERS
Our directors, executive officers and affiliates currently beneficially own
approximately 86% of our common stock, and after the offering will beneficially
own approximately 75% of our common stock. Accordingly, these stockholders could
control the outcome of any corporate transaction or other matter submitted to
the stockholders for approval, including mergers, consolidations and the sale of
all or substantially all of our assets, and also could prevent or cause a change
in control. Third parties may be discouraged from making a tender offer or bid
to acquire us because of this concentration of ownership. The interests of these
stockholders may differ from the interests of the other stockholders. Omnicom,
together with its wholly-owned subsidiary Communicade, currently beneficially
own 49.9% of our common stock. Omnicom's and Communicade's beneficial ownership
of our common stock will only slightly decrease after the offering due to their
ability to purchase additional shares underlying their warrants and will be
approximately 47%, allowing them to continue to effectively control AGENCY.COM.
OUR STOCKHOLDERS COULD BE ADVERSELY AFFECTED AS A RESULT OF OMNICOM'S AND ITS
TWO DESIGNATED DIRECTORS' POTENTIAL CONFLICTS OF INTERESTS
Under a stockholders agreement that terminates upon the closing of this
offering, Communicade has the right to designate two of our five directors.
In addition, Omnicom has significant ownership positions in some of our
direct competitors. These ownership positions may create conflicts of interest
for Omnicom and its
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director nominees as a result of their access to information and business
opportunities possibly useful to us and to these competitors.
ONE OF OUR DIRECTORS IS ALSO A DIRECTOR OF ONE OF OUR DIRECT COMPETITORS
John D. Wren, one of Communicade's nominees to our Board of Directors, is
also a director of Razorfish, Inc., one of our direct competitors. This
directorship may create actual and perceived conflicts of interest for Mr. Wren
as a result of his access to information and business opportunities possibly
useful to us and this competitor.
OMNICOM HAS PROVIDED US WITH FINANCING AND IT HAS NO OBLIGATION TO RENEW OUR
CREDIT FACILITY BEYOND ITS TERMINATION DATE
We have received significant benefits from our relationship with Omnicom,
our largest shareholder. To date, our working capital and many of our
acquisitions have been financed on favorable terms by lines of credit advanced
by Omnicom. We currently have $73 million outstanding under our credit facility
provided by Omnicom. We are required to use 35% of the net proceeds of this
offering, up to a maximum of $25.0 million, to repay amounts borrowed under the
term loan portion of the credit facility. This credit facility provides for a
$25.0 million term loan facility, a $54.0 million revolving credit line and a
real property lease credit support facility providing letters of credit and/or
guarantees up to $6.0 million in the aggregate. The credit facility bears
interest at Omnicom's commercial paper rate, which was 5.3% on November 4, 1999,
plus 1.25%. The credit facility places restrictions on the conduct of our
business that stockholders may not consider favorable, including our ability to
pay dividends and incur additional debt. Omnicom is not obligated to extend this
credit facility beyond September 30, 2001. We cannot assure you that upon
termination of this facility we will be able to obtain any additional financing.
As a result, our financial condition might suffer.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
Based on shares outstanding on November 4, 1999, from time to time after
this offering, a total of 27,774,562 additional shares of common stock may be
sold in the public market by existing stockholders. The market price of our
common stock could decline as a result of sales by these existing stockholders
of their shares of common stock in the market after this offering, or the
perception that these sales could occur. These sales also might make it
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. In addition, Omnicom and Communicade together
hold warrants to purchase an aggregate of 6.0 million shares of our common
stock. If they exercise these warrants and sell the underlying shares of common
stock in the market, the market price of our common stock could decline.
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE
Provisions in our charter and bylaws, including those that provide for a
classfied board of directors, authorized but unissued shares of common and
preferred stock and notice requirements for stockholder meetings, and Delaware
law, regarding the ability to conduct specific types of mergers within specified
time periods, may have the effect of delaying or preventing a change of control
or changes in our management that stockholders may consider favorable or
beneficial or that would provide stockholders with a premium to the market price
of their common stock. A classified board of directors may inhibit acquisitions
in general and a tender offer not endorsed by our board in particular since only
one-third of our directors are reelected
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annually, thereby requiring two annual meetings before a majority of the
directors could be replaced. The authorization of undesignated preferred stock
gives our board the ability to issue preferred stock with voting or other rights
or preferences that could impede the success of any attempt to change control of
the company. If a change of control or change in management is delayed or
prevented, this premium may not be realized or the market price of our common
stock could decline.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share will significantly exceed the
net tangible book value per share. Accordingly, investors purchasing shares in
this offering will suffer immediate dilution of their investment equal to $10.45
per share.
FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions "Prospectus
Summary", "Risk Factors", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. Because these
forward looking-statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors".
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation
except as required by law, to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of common stock
offered by us are estimated to be $57.9 million, assuming an initial public
offering price of $11.00 per share and after deducting the underwriting discount
and estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds will be $66.9 million.
We have agreed under our credit facility to use 35% of the net proceeds from
this offering, up to a maximum of $25.0 million, to repay amounts borrowed under
the term loan portion of this credit facility. This credit facility bears
interest at Omnicom's commercial paper rate plus 1.25% and terminates on
September 30, 2001. As of November 4, 1999, Omnicom's commercial paper rate was
5.3%. We currently have approximately $73 million outstanding under this credit
facility, of which $25 million consists of term loans.
As of the date of this prospectus, we have not made any specific plans with
respect to the remaining proceeds of the offering. However, we currently intend
to use the remaining net proceeds of this offering over time:
- to expand our operations;
- for general corporate purposes, including working capital; and
- to expand through strategic investments or acquisitions.
Pending any use, the net proceeds of this offering will be invested in
short-term, interest-bearing securities.
We cannot specify with certainty the particular uses for the net proceeds to
be received upon completion of this offering. Accordingly, our management will
have significant flexibility in applying the net proceeds of this offering.
The principal purposes of this offering are to increase our working capital,
to create a public market for our common stock, to facilitate future access to
the public capital markets and to increase our visibility in the marketplace.
Although we engage in discussions with potential acquisition candidates from
time to time, we have no present commitments with respect to any acquisition. In
addition, as part of our overall acquisition strategy, we are currently engaged
in discussions with respect to the possible acquisition of a U.S. based
interactive direct marketing company.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock other
than a distribution to our stockholders prior to the September 1996 termination
of our status as an S-corporation. We currently intend to retain future
earnings, if any, to finance the expansion of our business. As a result, we do
not intend to pay cash dividends in the foreseeable future. Furthermore, our
credit facility prohibits us and our subsidiaries from paying cash dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the acquisitions of I-traffic, which was
completed in October 1999, and Visionik, which was completed in November
1999; and
- on a pro forma as adjusted basis to reflect our sale of shares of common
stock at an assumed initial public offering price of $11.00 per share,
after deducting the underwriting discount and estimated offering expenses
payable by us. Please see "Use of Proceeds".
You should read this information together with our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
------- -------- --------
<CAPTION>
(IN THOUSANDS)
Long-term debt, excluding current portion. $ 66,807 $ 70,374 $ 50,124
<S> <C> <C> <C>
------- -------- --------
Capital lease obligations under capital leases, excluding
current portion.......................................... 1,709 1,717 1,717
------- -------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized; no shares issued and outstanding (actual,
pro forma and pro forma as adjusted)...................
Common stock, $.001 par value, 200,000,000 shares
authorized; 26,789,538 shares issued and 26,666,164
shares outstanding (actual); 27,830,858 shares issued
and 27,707,484 shares outstanding (pro forma);
33,730,858 shares issued and 33,607,484 shares
outstanding (pro forma as adjusted).................... 26 27 33
Additional paid-in capital................................. 25,302 36,183 94,034
Accumulated deficit........................................ (7,461) (7,461) (7,461)
Deferred compensation...................................... (585) (585) (585)
Cumulative foreign currency translation.................... (44) (44) (44)
------- -------- --------
Total stockholders' equity................................. 17,238 28,120 85,977
------- -------- --------
Total capitalization................................... $85,754 $100,211 $137,818
======= ======== ========
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It does
not include:
- The following shares issued or to be issued in the merger with I-traffic:
- 160,680 shares underlying assumed stock options;
- 60,000 shares subject to newly-granted options at an exercise price of
$8.50; and
- 320,000 shares which may be issued on the first anniversary of closing
the I-traffic merger if I-traffic's business achieves specified revenue
and profitability targets;
- 67,078 shares issued upon option exercises between October 1, 1999 and
November 4, 1999;
- 5,513,563 shares subject to options outstanding as of November 4, 1999 at
a weighted average exercise price of $2.64 per share and any exercises
since this date;
- 5,722,698 additional shares that could be issued under our stock option
plans; and
- 7,400,000 shares subject to warrants to purchase our common stock at an
exercise price of $0.005 per share.
21
<PAGE>
DILUTION
Giving effect to our acquisition of I-traffic and Visionik, our pro forma
net tangible book value (deficit) as of September 30, 1999 was approximately
$(39.5) million, or $(1.42) per share of common stock. Pro forma net tangible
book value (deficit) per share is determined by dividing the amount of our total
tangible assets less total liabilities by the pro forma number of shares of
common stock outstanding at that date. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of common stock in this offering and the net tangible book value per
share of common stock immediately after the completion of this offering.
After giving effect to the issuance and sale of the shares of common stock
offered by us and after deducting the underwriting discount and estimated
offering expenses payable by us, our pro forma net tangible book value as of
September 30, 1999 would have been $18.4 million, or $0.55 per share. This
represents an immediate increase in pro forma net tangible book value of $1.97
per share to existing stockholders and an immediate dilution of $10.45 per share
to new investors purchasing shares in this offering. If the initial public
offering price is higher or lower, the dilution to the new investors will be
greater or less, respectively. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value (deficit) per share at
September 30, 1999...................................... $(1.42)
Increase in pro forma net tangible book value per share
attributable to this offering........................... 1.97
------
Pro forma net tangible book value per share after this
offering.................................................. 0.55
------
Dilution per share to new investors......................... $10.45
======
</TABLE>
------------------------
The following table summarizes, on a pro forma basis giving effect to our
acquisition of I-traffic and Visionik, as of September 30, 1999, the differences
between the number of shares of common stock purchased from us, the aggregate
cash consideration paid to us and the average price per share paid by existing
stockholders and new investors purchasing shares of common stock in this
offering. The calculation below is based on an assumed initial public offering
price of $11.00 per share, before deducting the underwriting discount and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 27,707,484 82% $26,060,552 29% $ 0.94
New investors.................... 5,900,000 18 64,900,000 71 $11.00
---------- ----- ----------- -----
Total.......................... 33,607,484 100% $90,960,552 100%
========== ===== =========== =====
</TABLE>
This discussion and table assume no exercise of any stock options
outstanding as of September 30, 1999 and exclude 7,400,000 shares subject to
warrants to purchase our common stock at an exercise price of $0.005 per share.
As of September 30, 1999, there were options outstanding to purchase a total of
4,923,239 shares of common stock with a weighted average exercise price of $1.94
per share. The discussion and table also exclude 160,680 shares underlying stock
options assumed in the I-traffic merger and 60,000 shares subject to
newly-granted options issued to I-traffic employees. To the extent that any of
these options are exercised, there will be further dilution to new investors.
Please see "Capitalization".
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data as of December 31, 1997 and
1998 and the selected consolidated statement of operations data for the years
ended December 31, 1996, 1997 and 1998 have been derived from our audited
consolidated financial statements included elsewhere in this prospectus. The
selected consolidated balance sheet data as of December 31, 1996 is derived from
our consolidated audited financial statements not included in this prospectus
and the selected consolidated balance sheet as of December 31, 1995 and the
selected consolidated statement of operations data for the period from
February 10, 1995 (inception) to December 31, 1995 are derived from our
unaudited consolidated financial statements not included in this prospectus.
The selected actual and pro forma consolidated balance sheet data as of
September 30, 1999 and the pro forma consolidated statement of operations data
for the year ended December 31, 1998 and the actual and pro forma consolidated
statement of operations data for the nine months ended September 30, 1998 and
1999 have been derived from unaudited consolidated financial statements included
elsewhere in this prospectus. The pro forma consolidated balance sheet data give
effect to the acquisitions of I-traffic and Visionik, which were completed in
October and November 1999, respectively, as if these acquisitions had occurred
on September 30, 1999. The pro forma consolidated statement of operations data
for the year ended December 31, 1998 and the nine months ended September 30,
1998 give effect to the acquisitions of Ketchum Interactive, which was completed
in April 1998, The Primary Group, which was completed in August 1998,
Interactive Solutions, which was completed in April 1999, Eagle River
Interactive, which was completed in April 1999, Digital Vision, which was
completed in May 1999, Twinspark Interactive People, which was completed in
August 1999, I-traffic, which was completed in October 1999 and Visionik, which
was completed in November 1999, as if the acquisitions had occurred on
January 1, 1998. The pro forma consolidated statement of operations data for the
nine months ended September 30, 1999 give effect to the acquisition of Eagle
River Interactive, Interactive Solutions, Digital Vision, Twinspark Interactive
People, I-traffic and Visionik as if these acquisitions had occurred on
January 1, 1998.
The unaudited consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, which, in the opinion of
management, are necessary for the fair presentation of our consolidated
financial position and the consolidated results of operations for those periods.
Results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the entire year
or for any future period.
You should read the following discussion of our financial condition and
results of operations in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the AGENCY.COM audited
consolidated financial statements and unaudited pro forma condensed consolidated
financial statements, the Interactive Solutions, Quadris Consulting, Eagle River
Interactive, Twinspark Interactive People, I-traffic and Visionik audited
financial statements, and the notes to those statements included elsewhere in
this prospectus.
23
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 10,
1995
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------
1995 1996 1997 1998 1998
ACTUAL ACTUAL ACTUAL ACTUAL PRO FORMA
-------------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $ 2,162 $6,095 $12,975 $26,452 $ 76,130
Direct salaries and costs........... 651 2,217 6,200 15,930 44,018
------- ------ ------- ------- --------
Gross profit........................ 1,511 3,878 6,775 10,522 32,112
Operating Expenses:
General and administrative........ 519 955 3,815 10,944 32,390
Sales and marketing............... 118 -- 528 596 3,819
Amortization of intangibles....... -- -- 72 893 14,480
Depreciation and amortization..... 6 61 304 1,141 1,622
------- ------ ------- ------- --------
Total operating expenses............ 643 1,016 4,719 13,574 52,311
------- ------ ------- ------- --------
Income (loss) from operations....... 868 2,862 2,056 (3,052) (20,199)
Other income (expense), net......... (77) 28 10 (360) (3,047)
Minority Interest................... -- -- 167 (282) (282)
Other............................... -- -- -- -- (9)
------- ------ ------- ------- --------
Income (loss) before provision for
(benefit from) income taxes....... -- 2,890 2,233 (3,694) (23,537)
Provision for (benefit from) income
taxes............................. -- 1,388 1,051 (1,213) (2,637)
------- ------ ------- ------- --------
Net income (loss)................... $ 791 $1,502 $ 1,182 $(2,481) $(20,900)
======= ====== ======= ======= ========
Basic net income (loss) per common
share(1).......................... $439.47 $ 0.32 $ 0.07 $ (0.15) $ (0.78)
Diluted net income (loss) per common
share(1).......................... $439.47 $ 0.31 $ 0.07 $ (0.15) $ (0.78)
======= ====== ======= ======= ========
Weighted average shares outstanding
used in basic net income (loss)
per common share calculation...... 2 4,750 16,200 16,854 26,865
======= ====== ======= ======= ========
Weighted average shares outstanding
used in diluted net income (loss)
per common share calculation...... 2 4,797 16,297 16,854 26,865
======= ====== ======= ======= ========
OTHER DATA:
EBITDA(2)......................... $ 874 $2,923 $ 2,601 $(1,301) $ (4,388)
======= ====== ======= ======= ========
Cash flows provided by (used
in)(3):
Operating activities............ $ 186 $ 952 $ 632 $ 902 $ (4,142)
Investing activities............ (62) (515) (3,153) (9,583) (39,005)
Financing activities............ (66) 18 2,396 9,071 46,216
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1998 1999 1998 1999
ACTUAL ACTUAL PRO FORMA PRO FORMA
-------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $18,956 $ 56,499 $ 55,962 $ 74,808
Direct salaries and costs........... 10,355 28,784 31,559 41,192
------- -------- -------- --------
Gross profit........................ 8,601 27,715 24,403 33,616
Operating Expenses:
General and administrative........ 7,744 21,652 22,904 30,117
Sales and marketing............... 298 2,591 2,658 4,090
Amortization of intangibles....... 583 4,574 10,707 10,067
Depreciation and amortization..... 772 3,149 1,130 3,367
------- -------- -------- --------
Total operating expenses............ 9,397 31,966 37,399 47,641
------- -------- -------- --------
Income (loss) from operations....... (796) (4,251) (12,996) (14,025)
Other income (expense), net......... (325) (2,125) (2,273) (2,965)
Minority Interest................... (282) -- (282) 51
Other............................... -- -- -- (10)
------- -------- -------- --------
Income (loss) before provision for
(benefit from) income taxes....... (1,403) (6,376) (15,551) (16,949)
Provision for (benefit from) income
taxes............................. (461) 239 (1,404) (201)
------- -------- -------- --------
Net income (loss)................... $ (942) $ (6,615) $(14,147) $(16,748)
======= ======== ======== ========
Basic net income (loss) per common
share(1).......................... $ (0.06) $ (0.29) $ (0.53) $ (0.57)
Diluted net income (loss) per common
share(1).......................... $ (0.06) $ (0.29) $ (0.53) $ (0.57)
======= ======== ======== ========
Weighted average shares outstanding
used in basic net income (loss)
per common share calculation...... 16,587 23,187 26,597 29,242
======= ======== ======== ========
Weighted average shares outstanding
used in diluted net income (loss)
per common share calculation...... 16,587 23,187 26,597 29,242
======= ======== ======== ========
OTHER DATA:
EBITDA(2)......................... $ 278 $ 3,472 $ (1,441) $ (549)
======= ======== ======== ========
Cash flows provided by (used
in)(3):
Operating activities............ $(1,599) $(10,948) $ (5,160) $(21,775)
Investing activities............ (5,507) (6,834) (37,270) (1,575)
Financing activities............ 7,136 17,773 44,911 23,011
</TABLE>
24
<PAGE>
- ------------------------
(1) The number of shares used to calculate basic and diluted net income or loss
per share was calculated in accordance with the treasury stock method. The
treasury stock method is a method for calculating outstanding shares that
adds to the actual number of shares outstanding additional shares issuable
upon the exercise of stock options and warrants based on a calculation that
assumes that any proceeds that could be obtained upon the exercise of
outstanding stock options and warrants during the applicable period would be
used to purchase common stock at the average market price during the period.
(2) EBITDA represents earning or loss before other income and expense
(consisting of provision (benefit) from income taxes and net interest
expense), depreciation and amortization. We have provided EBITDA because it
is a measure of financial performance commonly used in the Internet
professional services industry and because management believes many
investors use EBITDA as a measure of a company's historical ability to
service its debt since EBITDA shows available cash before debt service and
before deducting non-cash charges, such as depreciation and amortization.
Other companies may calculate EBITDA differently from the way we do. EBITDA
is not a measurement of financial performance under GAAP. We believe you
should not consider EBITDA as an alternative to net income (loss) as an
indicator of our operating performance or as an alternative to cash flow as
a measure of our liquidity. You should be aware that items excluded from the
calculation of EBITDA are significant components in understanding and
assessing our financial performance.
(3) You should read the information in the table together with information
regarding our cash flows from operating, investing and financing activities
appearing on pages 39-40 of this prospectus, which is also an important
measure of our financial condition.
The following balance sheet data are presented:
- on an actual basis;
- on a pro forma basis to reflect the acquisitions of I-traffic and
Visionik; and
- on a pro forma as adjusted basis as of September 30, 1999 to give effect
to the sale of 5,900,000 shares in this offering after deducting the
underwriting discount and estimated offering expenses payable by us,
assuming an initial public offering price of $11.00 per share.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
AS OF DECEMBER 31, --------------------------------------
----------------------------------------- PRO FORMA
1995 1996 1997 1998 ACTUAL PRO FORMA AS ADJUSTED
-------- -------- -------- -------- ---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 58 $ 513 $ 388 $ 769 $ 726 $ 3,117 $ 40,724
Working capital.............................. 734 1,633 4,353 1,327 17,873 19,197 56,804
Total assets................................. 1,083 4,100 11,291 24,860 107,488 127,903 165,510
Notes payable, excluding current portion..... -- -- 2,425 11,989 66,807 70,374 50,124
Capital leases, excluding current
installments............................... -- -- 116 848 1,709 1,717 1,717
Total stockholders' equity................... 791 2,260 3,449 2,060 17,238 28,120 85,977
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS IN CONJUNCTION WITH "SELECTED CONSOLIDATED FINANCIAL
DATA", THE AGENCY.COM CONSOLIDATED FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, THE INTERACTIVE SOLUTIONS, QUADRIS
CONSULTING, EAGLE RIVER INTERACTIVE, TWINSPARK INTERACTIVE PEOPLE, I-TRAFFIC AND
VISIONIK FINANCIAL STATEMENTS, AND THE NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
AGENCY.COM is an international Internet professional services firm. Our
revenues have grown from $2.2 million in 1995 to $26.5 million in 1998 on an
actual basis. We achieved this growth through significant long-term
relationships with multiple clients. Other than British Airways, no client
accounted for more than 10% of our revenues on an actual basis in 1998. For the
nine months ended September 30, 1999, British Airways, Compaq and Sprint
accounted for approximately 13%, 9% and 9% of our revenues, respectively, on an
actual basis. We have acquired 11 companies while expanding our geographic reach
to 12 cities in the United States and Europe and have made minority investments
in a company based in Singapore and a company based in France. Please see
note 9 to the AGENCY.COM consolidated financial statements for a summary of our
operations by geographic area.
We derive our revenues from services performed under one of three pricing
arrangements: retainer, time-and-materials and fixed-price. The services
performed under any of these arrangements are substantially identical.
We bill and recognize revenues from retainer agreements on a monthly basis
while the agreement is in effect. We believe that retainer arrangements are
indicative of our strong, long-term relationships with clients which yield
significant benefits both to our clients and to us. We believe that we will
achieve greater predictability of revenues and higher revenue growth with
clients who engage us in retainer-based relationships. Retainer agreements are
generally one year in length and include a renewal clause. Typically, retainer
relationships with clients result in additional fixed-price and
time-and-materials projects since retainer arrangements may not cover the full
cost of specific projects. Retainer fees represented approximately 5.4% of our
revenues for the nine months ended September 30, 1999 on an actual basis.
Revenue from clients with whom we have retainer relationships represented
approximately 40.7% of our revenues during this period. Consistent with our
focus on long-term relationships, our goal is to increase our number of
retainer-based arrangements. To the extent we acquire companies in the future
that differ in their allocation of contract types, the percentage of revenue we
derive from each type of contract may differ from that anticipated.
We bill and recognize revenues from time-and-materials projects on the basis
of costs incurred in the period. We estimate these costs according to an
internally developed process. This process takes into account the type and
overall complexity of the project, the anticipated number of personnel of
various skill sets needed and their associated billing rates, and the estimated
duration of and risks associated with the project. Management personnel familiar
with the production process evaluate and price all project proposals.
We recognize revenues from fixed-price projects when performance occurs
under the terms of each contract. Fees are billed to the client over the course
of the project. We estimate the price for fixed-price projects using
26
<PAGE>
the same methodology as time-and-materials projects. All fixed-price proposals
must first be approved by a member of our senior management team.
Provisions for estimated losses on all three types of contracts are made
during the period in which such losses become probable and can be reasonably
estimated. To date, such losses have not been significant. We report revenue net
of reimbursable expenses.
Our net income on an actual basis decreased from $791,000 for the year ended
December 31, 1995 to a net loss of $(6.6 million) for the nine months ended
September 30, 1999. This significant increase in net loss is primarily
attributable to increased general and administrative expenses related to growth
in our infrastructure, increased amortization of intangible assets resulting
from our acquisitions, increased depreciation and amortization expense from
capital expenditures incurred as a result of our continued growth and increased
interest expense resulting from financing our acquisitions. The increased
expenses were partially offset by increased revenues. We expect the trend toward
increased expenses in absolute dollar terms to continue as we further expand our
operations. However, we expect these increased expenses as a percentage of our
revenue to decrease in the future.
For the nine month period ended September 30, 1999, we incurred a net loss
of $(6.6 million). As a result of this and prior losses, our accumulated deficit
was $(7.5 million) at September 30, 1999. These losses resulted primarily from
amortization of intangibles of $4.6 million associated with our most recent
acquisitions, increased costs due to an increase in the number of employees as a
result of our decision to continue to build our infrastructure, and an increase
in depreciation and amortization expense due to significant capital
expenditures.
Our revenues and earnings are affected by a number of factors, including:
- the amount of business developed from existing relationships;
- our ability to meet the changing needs of the marketplace;
- employee retention;
- billing rates;
- our ability to deliver complex projects on time; and
- efficient utilization of our employees.
Many of our business initiatives, including our acquisition strategy, are aimed
at enhancing these factors. Further, we believe that our focus on retainer-based
arrangements will continue to improve the predictability of our
quarter-to-quarter results.
Our expenses include direct salaries and costs, sales and marketing, general
and administrative, depreciation and amortization of tangible assets, and
amortization of goodwill. Direct salaries and costs include salaries, benefits
and incentive compensation of billable employees. Billable employees are full
time employees whose time spent working on client projects is charged to that
client at agreed upon rates. Billable employees are our primary source of
revenue. Direct salaries and costs also include other direct costs associated
with revenue generation. Sales and marketing expenses include promotion and new
business generation expenses and the salary and benefit costs of personnel in
these functions. General and administrative expenses include the salaries and
benefits costs of management and other non-billable employees, rent, accounting,
legal and human resources costs. Depreciation and amortization expenses
primarily include depreciation of technology equipment, furniture and fixtures,
and leasehold improvements. Amortization of goodwill expenses includes charges
for the excess of purchase price over net tangible book value of acquired
companies. Personnel compensation and facilities costs represent a
27
<PAGE>
high percentage of our operating expenses and are relatively fixed in advance of
each quarter.
We disclose EBITDA because it is a measure of financial performance commonly
used in the Internet professional services industry. EBITDA shows available cash
before debt service and before deducting non-cash charges, such as depreciation
and amortization. We believe that EBITDA is a useful measure for analyzing the
company's financial results because it shows our historical ability to service
our debt. EBITDA on a pro forma and an actual basis for the nine months ended
September 30, 1999 was approximately $(549,000) and $3.5 million, respectively,
compared to $(1.4) million and $278,000, respectively, for the same period in
the prior year. We believe that the increase in EBITDA will continue as revenues
continue to increase, our margins continue to increase as a result of increased
utilization of billable employees and our fixed costs continue to decrease as a
percentage of our revenue.
We have achieved growth in revenues by pursuing a strategy of increasing
revenues from existing lines of businesses and through augmenting existing lines
of business with acquisitions.
Revenue from our international operations on an actual basis was $824,000 in
1997 and increased to $7.5 million in 1998, an increase of 810%. Net loss from
international operations on an actual basis was $70,929 in 1997 versus $155,000
in 1998, an increase of 118%. Revenue from our international operations on an
actual basis was $13.2 million for the nine month period ended September 30,
1999, compared to $5.6 million for the nine month period ended September 30,
1998. This represents an increase of 136% for the nine month period. Net income
from international operations on an actual basis was $812,000 for the nine month
period ended September 30, 1999 compared to $(85,000) for the nine month period
ended September 30, 1998. This represents an increase of 1055% for the nine
month period. All of our international revenues for 1997 came from our
acquisition of control of Online Magic. For the nine months ended September 30,
1999, $1.2 million of our international revenue was contributed by Eagle River
Interactive following our acquisition in April 1999 and $2.2 million was
contributed by Twinspark Interactive People following our acquisition in August
1999. The increased international revenue for the nine month period over the
prior year other than as a result of our acquisitions is primarily due to our
increased revenue from existing clients and our focus on growing our
international operations. We expect the trend of increased international revenue
to continue as we continue to expand our international base.
To date, we have experienced success in growing the size and scale of our
business by attracting new clients, attracting new professional staff and
expanding the range and complexity of the services that we offer. We seek to
grow our existing offices and lines of business on an ongoing basis.
ACQUISITIONS AND INVESTMENTS
A key component of our overall growth strategy is the acquisition of, or
investment in, complementary businesses, technologies, services and products. We
have acquired 11 companies since inception and intend to continue acquiring
similar businesses. We acquired Spiral Media, Online Magic, Ketchum Interactive,
The Primary Group, Interactive Solutions, Quadris Consulting (Quadris became a
wholly owned subsidiary of Interactive Solutions immediately prior to our
acquisition of Interactive Solutions), Eagle River Interactive, Digital Vision,
Twinspark Interactive People, I-traffic and Visionik. We have also made minority
investments in both The Edge Consultants, a technology and services company
based in Singapore, and Pictoris Interactive, a Paris-based Internet
professional services firm company. We are also in discussions with respect to a
possible
28
<PAGE>
acquisition of a U.S. based interactive direct marketing company.
All of the companies and businesses in which we have acquired a 100%
ownership interest have been incorporated into our operations or, with respect
to our two most recent acquisitions, are being incorporated into our operations.
In July 1997, we acquired 51% of Spiral Media, Inc., and in July 1998, we
acquired the remaining 49%. The total consideration for the acquisition was
approximately $6.2 million, consisting of a cash payment of $5.5 million,
relinquishment of debt due from Spiral Media stockholders of $128,000 and the
issuance of 480,626 shares of our common stock valued at $1.12 per share. Spiral
Media created new media services for businesses and consumers by offering
Internet-based and digital media communications strategies and development for
clients.
In October 1997, we acquired 42.5% of Online Magic Limited and acquired the
remaining equity interest in two steps in May 1998 and July 1998. The total
consideration for the acquisition was $2.2 million. The consideration was
comprised of a cash payment of $1.6 million and the issuance of 498,434 shares
of our common stock valued at $1.12 per share. Online Magic designed, built and
managed web sites for their clients.
In April 1998, we acquired assets from Ketchum Advertising Inc. The
consideration consisted of a cash payment of approximately $643,000. Ketchum
Interactive was an interactive marketing and branding agency, which developed
interactive communications for clients by utilizing strategic consulting, design
and production.
In August 1998, we acquired assets from Web Partners (doing business as The
Primary Group Inc). In consideration of the assets acquired, we paid
approximately $53,220 in cash. The Primary Group focused on online marketing
needs for luxury and style brands.
In December 1998, we entered into an agreement to acquire up to 60% of The
Edge Consultants PTE. LTD. in a staged transaction. In December 1998, we
consummated our investment of 12% of Edge's outstanding shares and in
July 1999, consummated our investment of an additional 18%. The total cash
consideration for the 30% investment was $3.1 million. The remaining 30% must be
purchased prior to January 2002 or our option will expire. The Edge offers
strategic, creative and technology services to its clients. Its core businesses
include Internet and electronic commerce applications and wireless/mobile
services. The Edge is a separate legal entity and will be accounted for under
the equity method of accounting.
In April 1999, we acquired Interactive Solutions Incorporated through a
merger in exchange for an aggregate of 4,171,846 shares of our common stock and
a warrant to purchase 3,071,248 shares of our common stock at a purchase price
of $0.005 per share. The total consideration of the acquisition was
approximately $8.2 million. Interactive Solutions created digital communications
strategies to help its clients increase sales, improve communications and create
brand identities.
In April 1999, we acquired Eagle River Interactive Inc. through a merger in
exchange for an aggregate of 3,659,548 shares of our common stock and a warrant
to purchase 4,328,752 shares of our common stock at a purchase price of $0.005
per share. In addition, we issued 80,690 shares of our common stock to Kevin
Rowe, the former President of Eagle River, in connection with his employment
agreement with Eagle River. The total consideration of the acquisition was
approximately $8.1 million. Eagle River created, developed and deployed online
marketing strategies to assist a variety of companies, primarily in the United
States, in communicating effectively with their targeted audiences.
29
<PAGE>
In May 1999, we purchased all of the issued and outstanding shares of
capital stock of Digital Vision Communications Inc. for $1.1 million in cash.
Digital Vision was an interactive securities firm that provided web site design
and development.
In August 1999, we purchased all of the issued and outstanding shares of
capital stock of Twinspark Interactive People B.V. for $700,000 in cash and
1,057,226 shares of our common stock valued at $5.95 per share, of which
1,047,226 shares were issued to the shareholders of Twinspark Interactive People
and 10,000 shares were issued to former employees of Twinspark Interactive
People, for a total aggregate purchase price of $7.0 million. Additional
consideration may be paid based upon future performance of Twinspark in the form
of 168,066 additional shares. Twinspark delivered Internet strategies to global
organizations including electronic commerce and strategic consultancy, building
and maintenance of Web sites, Intranet and Extranet and enterprise Web site
management systems.
In October 1999, we consummated our investment of 5% of the outstanding
equity in Pictoris Interactive from its existing shareholders for $500,000. We
have an option to purchase the remaining 95%, which expires October 1, 2000.
Pictoris' existing shareholders have the right, subject to conditions, to
require us to purchase all of their shares. The total value of the transaction
could be as high as $13.5 million, which includes a 10% contingent payment
payable upon Pictoris' achieving operating targets. Pictoris consults with its
clients to develop their overall Internet strategy and helps them implement that
strategy through design, programming and production of Internet sites.
In October 1999, we acquired Interactive Traffic, Inc., known as as
"I-traffic", through a merger. The consideration paid to the stockholders of
I-traffic could total $14.5 million, which includes $3.0 million in cash paid at
closing, $1.0 million to be paid on December 31, 1999, 469,320 shares of our
common stock, the assumption of options to purchase 160,680 shares of our common
stock and the issuance of newly-granted options to purchase 60,000 shares of our
common stock. The total consideration to be paid also includes performance-based
payments consisting of $2.0 million to be paid in four quarterly payments
starting in the fourth quarter of 1999 and 320,000 shares to be issued one year
from closing. I-traffic is a full service online direct marketing company
headquartered in New York with an office in San Francisco. They provide
strategic marketing services through media planning, development, tracking and
the creation of affiliation programs.
In November 1999, we acquired all of the issued and outstanding equity of
Visionik, a company based in Denmark. The total consideration for the
acquisition was $5.9 million, consisting of $500,000 in cash and 572,000 shares
of our common stock. Visionik is located in Copenhagen, Denmark and concentrates
on providing complete interactive television and Internet services to its
clients.
We believe our acquisitions have supported our ability to grow rapidly while
continually enhancing the quality of services we offer our clients. Our
acquisitions have allowed us to rapidly build our base of professionals in the
context of a tight labor market for experienced technical and creative
professionals. From January 1, 1997, to November 4, 1999, our staff increased
from approximately 60 to over 1,000 employees. The acquired entities
collectively employed approximately 650 individuals at the time we acquired
them. Broadening our geographic coverage, both within the United States and
internationally, allows us to better meet the needs of our global clients and to
attract new clients who seek integrated services across diverse geographic
areas. We have also been
30
<PAGE>
able to expand our service offerings through the acquisition of companies with
complementary products and skill sets. Additionally, we expect to achieve cost
synergies by consolidating management and back-office operations, and sharing
technical infrastructure. Please see "Business--AGENCY.COM Strategy" and
"--Acquisition and Integration".
We evaluate acquisitions based on numerous quantitative and qualitative
factors. Quantitative factors include historical and projected revenues and
profitability, geographic coverage and backlog of projects under contract.
Qualitative factors include strategic and cultural fit, management skills,
customer relationships and technical proficiency. We used cash as the primary
consideration for our early acquisitions but, more recently, have used our
common stock as the primary consideration. We anticipate that we will use common
stock as the primary form of consideration for future acquisitions.
We fully integrate all acquired companies into our operating organization.
This integration includes business development, delivery of services, managerial
and administrative support, benefits, purchasing and all other areas.
A significant differentiating factor in our growth strategy is that we
manage regional locations based on key success factors rather than traditional
profit-loss statements. In order to facilitate cooperation across our company
and prevent territorial conflicts, we evaluate Regional Presidents on the basis
of key success factors, including project profitability, utilization, retention,
client satisfaction and revenue per billable employee. We believe that managing
by these key success factors enables our offices to function more effectively as
a team and to jointly take advantage of greater opportunities for synergies and
additional revenues.
All of our acquisitions have been accounted for using the purchase method.
Under the purchase method, the financial data of the acquired entities are
consolidated with our financial results from the effective dates of their
acquisition. For each acquisition, a portion of the purchase price is allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their respective fair market values on the acquisition date.
The remaining unallocated portion of the purchase price of each of the
acquisitions is allocated to intangible assets, primarily goodwill, and
amortized on a straight-line basis over the estimated period of benefit, which
ranges from three to seven years. We evaluate the period of benefit on a
company-by-company basis. For the year ended December 31, 1998 and the nine
months ended September 30, 1999, amortization of intangibles expense was
$0.9 million and $4.6 million, respectively. We expect to incur amortization
expense on currently recorded intangibles of $2.8 million for the three months
ending December 31, 1999 and $11.2 million for the year ending December 31,
2000. In addition, we expect to incur additional acquisition-related
amortization expenses as a result of our acquisition program. Our investment in
Pictoris, where we own less than 20% of its equity, has been accounted for using
the cost method and our investment in The Edge, where we own greater than 20%
but less than 50% of its equity, has been accounted for using the equity method.
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<PAGE>
HISTORICAL RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues of certain items
included in our statement of operations for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Revenues................................................. 100% 100% 100% 100% 100%
Direct salaries and costs................................ 36 48 60 55 51
--- --- --- --- ---
Gross profit............................................. 64 52 40 45 49
Operating Expenses:
General and administrative............................. 16 30 42 41 38
Sales and marketing.................................... -- 4 2 2 5
Amortization of intangibles............................ -- -- 3 2 8
Depreciation and amortization.......................... 1 2 5 4 6
--- --- --- --- ---
Total operating expenses................................. 17 36 52 49 57
--- --- --- --- ---
Income (loss) from operations............................ 47 16 (12) (4) (8)
Interest income (expense), net........................... -- -- (1) (2) (3)
Minority interest........................................ -- 1 (1) (1) --
--- --- --- --- ---
Income (loss) before provision for (benefit from) income
taxes.................................................. 47 17 (14) (7) (11)
Provision (benefit) for income taxes..................... 22 8 (5) (2) --
--- --- --- --- ---
Net income (loss)........................................ 25% 9% (9)% (5)% (11)%
=== === === === ===
OTHER DATA:
EBITDA (1)............................................. 48% 20% (5)% 1% 6%
=== === === === ===
Cash flows provided by (used in) (2):
Operating activities................................. 16% 5% 3% (8)% (19)%
=== === === === ===
Investing activities................................. (8)% (24)% (36)% (29)% (12)%
=== === === === ===
Financing activities................................. --% 18% 34% 38% 31%
=== === === === ===
</TABLE>
- ------------------------
(1) EBITDA represents earning or loss before other income and expense
(consisting of provision (benefit) from income taxes and net interest
expense), depreciation and amortization. We have provided EBITDA because it
is a measure of financial performance commonly used in the Internet
professional services industry and because management believes many
investors use EBITDA as a measure of a company's historical ability to
service its debt since EBITDA shows available cash before debt service and
before deducting non-cash charges, such as depreciation and amortization.
Other companies may calculate EBITDA differently from the way we do. EBITDA
is not a measurement of financial performance under GAAP. We believe you
should not consider EBITDA as an alternative to net income (loss) as an
indicator of our operating performance or as an alternative to cash flow as
a measure of our liquidity. You should be aware that items excluded from the
calculation of EBITDA are significant components in understanding and
assessing our financial performance.
(2) You should read the information in the table together with information
regarding our cash flows from operating, investing and financing activities
appearing on pages 39-40 of this prospectus, which is also an important
measure of our financial condition.
32
<PAGE>
COMPARISON OF THE FISCAL YEARS 1996, 1997 AND 1998
The following discussion relates to our actual operating results for the
periods noted. The operating results discussed include the operations of
acquired companies from the effective dates of their acquisitions. Given that
each year includes revenues and expenses from new acquisitions, we believe that
the operating results for 1998 are not directly comparable to the operating
results for 1997, and, similarly, that 1997 results are not directly comparable
to those for 1996.
REVENUES. Revenues were $6.1 million in 1996 and grew to $13.0 million in
1997, an increase of 113%. 75% of this growth was attributed to growth from
existing operations and 38% of this growth was attributed to acquisitions.
Revenues were $26.5 million in 1998, an increase of 104% compared to 1997
revenue. 88% of this growth was attributed to growth from existing operations
and 16% of this growth was attributed to acquisitions. Revenues from clients of
acquired companies was $2.3 million in 1997 and was $2.1 million in 1998. We
added 112 employees as a result of our acquisitions in 1997 and added
approximately 15 employees as a result of our acquisitions in 1998. Revenues
from new geographic locations resulting from our acquisitions contributed
$1.0 million in 1997 and $2.0 million in 1998. We made no acquisitions in 1996.
The increase in revenues other than as a result of our acquisitions primarily
reflected the increase in the number of billable employees and to a lesser
extent reflected growing demand for Internet professional services, increases in
the number of our client relationships, the size of our relationships with
existing clients, increases in billing rates and the introduction of new
strategic, creative, and technological services to the marketplace.
DIRECT SALARIES AND COSTS. Direct salaries and costs were $6.2 million in
1997 and grew to $15.9 million in 1998, an increase of 156%. Direct salaries and
costs were $2.2 million in 1996. Direct salaries and costs represented 60%, 48%
and 36% of revenues in 1998, 1997 and 1996, respectively. For the years ended
December 31, 1996, 1997 and 1998, there were approximately 45, 90 and 160
employees, respectively, included in direct salaries and costs. The increase in
direct salaries and costs as a percentage of revenues in 1998 compared to 1997
was primarily due to the planned investment in additional employees in
anticipation of future growth. In the future, we expect direct salaries and
costs to increase in absolute dollar terms but to decrease as a percentage of
revenues due to our improved scale and the utilization of billable
professionals. Increases in utilization result in increased revenues with no
corresponding increase in salaries, which are fixed. Therefore, direct salaries
and costs as a percentage of revenues decreases as employee utilization
increases.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $3.8 million in 1997 and grew to $10.9 million in 1998, an increase of
187%. General and administrative expenses were $1.0 million in 1996. General and
administrative expenses represented 42% of revenues in 1998, 30% in 1997 and 16%
in 1996. The increase in general and administrative expenses in absolute dollar
terms and as a percentage of revenues in 1998 compared to 1997 was the result of
the expansion of the senior management team, an increase in the number of other
non-billable employees and in salary rates, and increases in many other types of
general and administrative expenses in anticipation of future growth and
increasing international reach. This included rent and other expenses incurred
in opening additional offices and hiring additional employees. In the future, we
expect general and administrative expenses to increase in absolute dollars but
to decrease as a percentage of revenues due to our improved scale, utilization
of billable professionals, increased efficiency of non-billable staff and higher
overall revenues.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $528,000 in
1997 and grew to $596,000 in 1998, an increase of 13%. We did not incur sales
and marketing expenses
33
<PAGE>
in 1996. Sales and marketing expenses represented 2% of revenues in 1998 and 4%
in 1997. The decrease in sales and marketing expenses as a percentage of
revenues from 1997 to 1998 was primarily due to higher overall revenues. The
increase of sales and marketing expenses in absolute dollar terms from 1997 to
1998 was attributable to the increase in the number of sales personnel and an
overall increase in our marketing and branding efforts. We expect sales and
marketing expenses to increase in absolute dollar terms as we continue to invest
in building our brand. We do not anticipate that sales and marketing expenses
will increase significantly as a percentage of revenue in future periods.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles was approximately
$72,000 in 1997 and grew to $893,000 in 1998. There was no amortization of
intangibles in 1996. Amortization of intangibles represented approximately 3% of
revenues in 1998 and less than 1% of revenues in 1997. The increase in
amortization of intangibles was due to the goodwill resulting from Spiral Media,
Online Magic, The Primary Group and Ketchum acquisitions, all of which were
completed during 1998. Goodwill generated from these acquisitions is being
amortized over a seven year period. We expect amortization of intangibles to
increase in absolute dollar terms as we acquire additional companies.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$304,000 in 1997 and grew to $1.1 million in 1998, an increase of 262%.
Depreciation and amortization was $61,000 in 1996. Depreciation and amortization
expenses represented 4% of revenues in 1998, 2% of revenues in 1997 and 1% in
1996. The increases in absolute dollar terms from year to year were related to
the investment in, and related depreciation of, technology equipment, furniture
and fixtures, and leasehold improvements, and the depreciation of the assets of
the companies we acquired. We expect these expenses to continue to grow in
absolute dollar terms as we continue to invest in growth and technology and
training to yield more efficient operations.
NET INCOME (LOSS). Net loss for 1998 was $(2.5) million compared to net
income of $1.2 million in 1997 and $1.5 million in 1996. The decrease in net
income from period to period was primarily caused by increased direct salaries
and costs, general and administrative expenses and depreciation and
amortization, which together increased at a greater rate than our increase in
revenues, all of which are discussed above.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
REVENUES. Revenues were $19.0 million for the nine months ended
September 30, 1998 and grew to $56.5 million for the nine months ended
September 30, 1999, an increase of 197%. 87% of this growth was attributed to
growth from existing operations and 110% of this growth was attributed to
acquisitions. Revenues from clients of acquired companies, all of whom were also
clients in locations where we did not then have offices was $20.8 million during
the nine months ended September 30, 1999. The number of employees assumed in
acquisitions during the nine months ended September 30, 1999 was approximately
400. The increase in revenues other than from our acquisitions primarily
reflected an increase in the number of billable professionals, and to a lesser
extent reflected growing demand for Internet professional services, addition of
new client relationships, expansion of existing client relationships, increases
in billing rates and the introduction of new strategy, creative and technology
services to the marketplace.
DIRECT SALARIES AND COSTS. Direct salaries and costs were $10.4 million for
the nine months ended September 30, 1998 and grew to $28.8 million for the nine
months ended September 30, 1999, an increase of 177%. As a percentage of
revenues, direct salaries and costs decreased from 55% for the nine months ended
September 30, 1998 to 51% for the nine
34
<PAGE>
months ended September 30, 1999. For the nine months ended September 30, 1998
and 1999, there were approximately 220 and 670 employees, respectively, included
in direct salaries and costs. The increase in absolute dollar terms was
primarily attributable to increases in salary rates and the hiring of additional
employees.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $7.7 million for the nine months ended September 30, 1998 and grew to
$21.7 million for the nine months ended September 30, 1999, an increase of 182%.
As a percentage of revenues, general and administrative expenses decreased from
41% for the nine months ended September 30, 1998 to 38% for the nine months
ended September 30, 1999. The decrease in percentage terms was primarily
attributable to improved scale. The increase in general and administrative
expenses in absolute dollar terms was the result of an increase in salary rates,
an increase in the number of non-billable employees as we expanded our
infrastructure to support growth and all other types of general and
administrative expenses.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $298,000
for the nine months ended September 30, 1998 and grew to $2.6 million for the
nine months ended September 30, 1999, an increase of 772%. As a percentage of
revenues, sales and marketing expenses increased from 2% for the nine months
ended September 30, 1998 to 5% for the nine months ended September 30, 1999.
Sales and marketing expenses increased in absolute dollar terms and as a
percentage of revenues primarily as a result of the increase in the number of
sales personnel and an overall increase in our marketing and branding efforts.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles was $583,000 for
the nine months ended September 30, 1998 and grew to $4.5 million for the nine
months ended September 30, 1999, an increase of 672%. As a percentage of
revenues, amortization of intangibles represented 2% of revenues in the first
nine months of 1998 and 8% of revenues in the first nine months of 1999. The
increase was due to the acquisitions of Eagle River Interactive, Interactive
Solutions (including Quadris), Twinspark and Digital Vision, the remainder of
stock of Spiral Media and Online Magic and the acquisition of all of the assets
of Ketchum Interactive and The Primary Group.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses were
$772,000 for the nine months ended September 30, 1998 and grew to $3.1 million
for the nine months ended September 30, 1999, an increase of 302%. As a
percentage of revenues, depreciation and amortization represented 4% of revenues
in the nine months ended September 30, 1998 and 6% of revenues in the nine
months ended September 30, 1999. The increases in absolute dollar terms from
year to year resulted from depreciation of growth related infrastructure
investments, including technology equipment, furniture and fixtures and
leasehold improvements and the depreciation of the assets of the companies that
we acquired.
NET INCOME (LOSS). Net loss for the nine months ended September 30, 1999
was $(6.6 million) compared to a net loss of $(942,000) for the same period in
1998. The increase in net loss between the periods was primarily caused by
increased direct salaries and costs, general and administrative expenses, sales
and marketing expenses, and depreciation and amortization, which together
increased at a greater rate than our increase in revenues, all of which are
discussed above.
QUARTERLY PRO FORMA RESULTS OF OPERATIONS
The following selected unaudited pro forma results of operations data gives
effect to our acquisitions since January 1, 1998 as if they had occurred on
January 1, 1998. We have included this table and the discussion below to assist
investors in evaluating our financial performance.
The pro forma financial statements do not purport to represent what the
results of our
35
<PAGE>
operations or financial condition would actually have been had the acquisitions
in fact occurred on January 1, 1998. The pro forma quarterly results of
operations should not be construed as being representative of future results of
operations. These pro forma amounts include the same adjustments that are
reflected in the pro forma consolidated statement of operations. The unaudited
pro forma consolidated financial data are based upon currently available
information, assumptions and estimates which our management believes are
reasonable. These assumptions and estimates, however, are subject to change,
including adjustments for potential cost savings or other synergies arising from
acquisitions we have made.
Investors should read these pro forma results of operations with the
unaudited pro forma condensed consolidated statement of operations and the
AGENCY.COM consolidated financial statements and unaudited pro forma condensed
consolidated financial statements, the Interactive Solutions, Quadris
Consulting, Eagle River Interactive, Twinspark Interactive People, I-traffic and
Visionik financial statements, and the notes to those statements appearing
elsewhere in this prospectus.
36
<PAGE>
PRO FORMA RESULTS OF OPERATIONS
The following tables set forth pro forma dollar amounts and percentage of
pro forma revenues of certain items included in our statement of operations for
the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
---------- --------- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Revenues................................ $16,572 $19,853 $19,538 $20,167 $20,505 $ 25,048 $ 29,256
Direct salaries and costs............... 9,365 10,356 11,838 12,459 11,766 13,345 16,081
------- ------- ------- ------- ------- -------- --------
Gross profit............................ 7,207 9,497 7,700 7,708 8,739 11,703 13,175
Operating expenses:
General and administrative............ 7,234 8,126 7,544 9,486 8,015 9,765 12,337
Sales and marketing................... 717 937 1,004 1,161 1,190 1,344 1,556
Amortization of intangibles........... 3,247 3,686 3,774 3,773 4,436 2,857 2,774
Depreciation and amortization......... 373 405 354 491 1,231 963 1,174
------- ------- ------- ------- ------- -------- --------
Total operating expenses................ 11,571 13,154 12,676 14,911 14,872 14,929 17,841
------- ------- ------- ------- ------- -------- --------
Loss from operations.................... (4,364) (3,657) (4,976) (7,203) (6,133) (3,226) (4,666)
Interest expense, net................... 672 712 888 775 901 921 1,143
Minority interest....................... 212 70 -- -- -- (51) --
Other................................... -- -- -- 9 -- 10 --
------- ------- ------- ------- ------- -------- --------
Loss before provision for (benefit from)
income taxes.......................... (5,248) (4,439) (5,864) (7,987) (7,034) (4,106) (5,809)
Provision for (benefit from) income
taxes................................. (299) (158) (948) (1,233) (487) 52 234
------- ------- ------- ------- ------- -------- --------
Net (loss).............................. $(4,949) $(4,281) $(4,916) $(6,754) $(6,547) $ (4,158) $ (6,043)
======= ======= ======= ======= ======= ======== ========
Revenues................................ 100% 100% 100% 100% 100% 100% 100%
Direct salaries and costs............... 57 52 61 62 57 53 55
------- ------- ------- ------- ------- -------- --------
Gross profit............................ 43 48 39 38 43 47 45
Operating expenses:
General and administrative............ 44 40 38 47 39 40 43
Sales and marketing................... 4 5 5 6 6 5 5
Amortization of intangibles........... 20 19 19 19 22 11 9
Depreciation and amortization......... 2 2 2 2 6 4 4
------- ------- ------- ------- ------- -------- --------
Total operating expenses................ 70 66 64 74 73 60 61
------- ------- ------- ------- ------- -------- --------
Loss from operations.................... (27) (18) (25) (36) (30) (13) (16)
Interest expense, net................... 4 5 5 4 4 4 4
Minority interest....................... 1 -- -- -- -- -- --
Other................................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- --------
Loss before provision for (benefit from)
income taxes.......................... (32) (23) (30) (40) (34) (17) (20)
Provision for (benefit from) income
taxes................................. (2) (1) (5) (6) (2) -- 1
------- ------- ------- ------- ------- -------- --------
Net (loss).............................. (30%) (22%) (25%) (34%) (32%) (17%) (21%)
======= ======= ======= ======= ======= ======== ========
</TABLE>
37
<PAGE>
As a result of our limited operating history, rapid growth and the emerging
nature of the markets in which we compete, we believe that quarter-to-quarter
comparisons of results of operations are not necessarily meaningful. Investors
should not rely on the results of any one quarter as an indication of our future
performance. Additionally, quarterly results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside of our control.
COMPARISON OF 1998 AND 1999 QUARTERLY PRO FORMA RESULTS OF OPERATIONS
REVENUES. Pro forma revenues increased by 17% in the third quarter of 1999
compared to the prior quarter and 33% for the nine month period ended
September 30, 1999 compared to the same period for 1998. This increase primarily
reflects the benefits achieved following the completion of our integration of
Spiral Media, Online Magic, Ketchum, Primary Group, Interactive Solutions, Eagle
River, Twinspark, I-traffic and Visionik. The increase also reflects the
following:
- growing demand for Internet professional services in our target market;
- the addition of new client relationships;
- expansion of existing client relationships, increases in billing rates and
the number of billable professionals and their utilization; and
- the introduction of new strategy, creative and technology services to the
marketplace.
Acquisitions contributed 68% of the pro forma revenues for 1998 and contributed
64% of the pro forma revenues for the nine months ended September 30, 1999.
Revenues for the quarters ended June 30, 1998, September 30, 1998, December 31,
1998 and March 31, 1999 quarters were relatively stable due to our focus on the
full integration of our acquisitions.
DIRECT SALARIES AND COSTS. Pro forma direct salaries and costs increased in
absolute dollar terms from the quarter ended March 31, 1998, through the quarter
ended December 31, 1998. This reflected our planned investment in additional
employees from approximately 190 employees as of March 31, 1998 to over 500 as
of December 31, 1998. The increase in pro forma direct salaries and costs in
absolute dollar terms and as a percentage of pro forma revenues in the quarter
ended December 31, 1998 was due to increased costs associated with one-time
charges of approximately $690,000 related to the Interactive Solutions merger.
These charges related primarily to one time payments made for accrued vacation,
special bonuses, travel bonuses and fringe benefits. Approximately $300,000 of
these charges were included in general and administrative expenses. The decrease
in these costs as a percentage of revenues from the first three quarters of 1998
to the first three quarters of 1999 was due to cost savings and efficiencies
achieved upon integration of operations and management. Year-over-year third
quarter direct salaries and costs decreased as a percentage of revenue primarily
because of an increase in billable employee utilization.
GENERAL AND ADMINISTRATIVE EXPENSES. The overall increase in pro forma
general and administrative expenses was primarily attributable to an increase in
the number of non-billable employees, from 60 as of March 31, 1998 to 228 as of
September 30, 1999, an increase in their salary rates and the expansion of
management infrastructure necessary to support the growth in operations,
including the Spiral Media, Online Magic, Ketchum, Interactive Solutions, The
Primary Group, Eagle River, Digital Vision, Twinspark, I-traffic and Visionik
acquisitions. The significant
38
<PAGE>
increase in pro forma general and administrative expenses for the quarter ended
December 31, 1998 compared to the quarter ended September 30, 1998 was due to an
increase in bad debt expense of $600,000 primarily attributable to accounts of
clients of Eagle River, one-time charges related to reconciliation of employee
benefits in connection with acquisitions, including payments made for accrued
vacation, special bonus, travel bonus and fringe benefits, and charges
associated with additional staffing.
The significant increase in pro forma general and administrative expenses
for the quarter ended September 30, 1999 compared to June 30, 1999 was primarily
due to the Twinspark acquisition and an increase in recruiting expenses due to
an increased use of outside employment agencies to recruit new employees.
SALES AND MARKETING EXPENSES. The overall increase in pro forma sales and
marketing expenses in absolute dollar terms through the third quarter of 1999
was primarily a result of the increase in the number of sales and marketing
personnel from 17 at March 31, 1998 to approximately 25 at September 30, 1999,
and an overall increase in our marketing and branding efforts.
AMORTIZATION OF INTANGIBLES. Pro forma amortization of intangibles expense
increased in absolute dollar terms through the quarter ended March 31, 1999 due
to goodwill recorded in connection with the Spiral Media, Online Magic, Ketchum
and Primary Group acquisitions. As a percentage of revenues, amortization of
intangibles remained relatively constant through the quarter ended March 31,
1999 as acquired companies contributed revenues consistent with acquired
goodwill. Pro forma amortization of intangibles at September 30, 1999 decreased
significantly compared to the same quarter in the prior year due to the
acquisitions of Eagle River and Interactive Solutions by the Company.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
generally increased over the period reflecting growth-related infrastructure
investment. On a year-over-year basis, third quarter depreciation and
amortization expenses increased as a percentage of revenue.
NET INCOME (LOSS). Net loss increased for the quarter ended September 30,
1999 compared to the same quarter for the prior year on a pro forma basis
primarily due to increased direct salaries and costs, general and administrative
expenses, sales and marketing expenses and depreciation and amortization, which
together increased at a greater rate than our increase in revenues, all of which
are discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in property
and equipment primarily through cash from operations, borrowings from Omnicom,
and capital leases.
At year end our cash and cash equivalents were $513,000 in 1996, $388,000 in
1997 and $769,000 in 1998, and our cash balance was approximately $726,000 at
September 30, 1999.
Cash provided by operating activities was $902,000 in 1998 compared to cash
provided by operating activities of $632,000 in 1997 and cash provided by
operating activities of $952,000 in 1996. Cash provided by operating activities
in 1998 was primarily due to depreciation and amortization of $2.0 million and
an increase in accounts payable and accrued expenses of $3.2 million offset by a
net loss of $2.5 million, deferred taxes of $1.6 million and an increase in
unbilled charges of $1.6 million. Cash provided by operating activities in 1997
was primarily due to net income of $1.2 million and an increase in accounts
payable and accrued expenses of $1.2 million offset by an increase in accounts
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receivable of $3.0 million. Cash provided by operating activities in 1996 was
primarily due to net income of $1.5 million and deferred taxes of $1.2 million
offset by an increase in accounts receivable of $1.6 million.
Cash used in operating activities was $10.9 million for the nine months
ended September 30, 1999 compared to $1.6 million for the nine months ended
September 30, 1998. Cash used in operating activities for the nine months ended
September 30, 1999 was primarily due to an increase in accounts receivable of
$17.3 million and an increase in prepaid and other charges of $2.5 million
offset by an increase in accounts payable and accrued expenses of $3.2 million
and an increase in depreciation and amortization of $6.4 million. This was
primarily a result of the acquisitions of Eagle River and Interactive Solutions.
Cash used in operating activities for the nine months ended September 30, 1998
was affected by an increase in accounts receivable and unbilled charges of
$3.0 million and deferred income taxes of $1.3 million offset by an increase in
accounts payable and accrued expenses of $1.3 million.
Cash used in investing activities was $9.6 million in 1998 compared to
$3.2 million in 1997 and $515,000 in 1996. Cash used in investing activities in
1998 was primarily the result of capital expenditures of $1.9 million and
acquisitions of $7.7 million. Cash used in investing activities in 1997 was
primarily the result of capital expenditures of $1.6 million and acquisitions of
$1.5 million. Cash used in investing activities in 1996 was primarily the result
of capital expenditures of $515,000.
Cash used in investing activities was $6.8 million for the nine months ended
September 30, 1999 compared to $5.5 million for the nine months ended
September 30, 1998, and was primarily due to capital expenditures, additional
investment in The Edge and acquisitions.
Cash provided by financing activities was $9.1 million in 1998 compared to
$2.4 million in 1997 and $18,000 in 1996. Cash provided by financing activities
in 1998 was primarily the result of an increase in borrowings from Omnicom of
$9.6 million. Cash provided by financing activities in 1997 was primarily the
result of an increase in borrowings from Omnicom of $2.4 million. Cash provided
by financing activities in 1996 was primarily the result of the repayment of
shareholder advances offset by a capital distribution.
Cash provided by financing activities was $17.8 million for the nine months
ended September 30, 1999 compared to cash provided by financing activities of
$7.1 million for the nine months ended September 30, 1998. Cash provided by
financing activities for the nine months ended September 30, 1998 and 1999 was
primarily the result of an increase in borrowings from Omnicom of $19.2 million
and $7.7 million, respectively.
On November 4, 1999, we entered into an $85.0 million credit facility with
Omnicom Finance, a wholly owned subsidiary of Omnicom, to replace our revolving
credit line and consolidate all of our previously outstanding indebtedness due
to Omnicom Finance. As of September 30, 1999, we had approximately
$66.8 million due to Omnicom Finance. The new credit facility, which terminates
on September 30, 2001, provides for a $25.0 million term loan facility, a
$54.0 million revolving credit line and a real property lease credit support
facility providing letters of credit and/or guarantees up to $6.0 million in the
aggregate. We are required by the credit facility to use 35% of the net proceeds
from this offering, up to a maximum of $25.0 million, to repay amounts borrowed
under the term loan portion of the new credit facility. This credit facility
bears interest at Omnicom's commercial paper rate plus 1.25%. As of November 4,
1999, Omnicom's commercial paper rate was 5.3%. The credit facility is secured
by substantially all of our
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assets, including the shares of our subsidiaries, is guaranteed by our domestic
subsidiaries and prohibits us and our subsidiaries from paying dividends other
than in shares of our stock. The credit facility requires compliance with a
number of covenants, including restrictions on asset sales, liens, the
incurrence of debt, making of loans and the repurchase, redemption or other
acquisition of our stock.
As of December 31, 1998 unbilled charges were $2.3 million compared to
$6.7 million as of September 30, 1999. As a percentage of revenue, unbilled
charges increased from approximately 8.8% to 11.8% as of the same dates.
Unbilled charges represent labor costs incurred and estimated earnings
production and other client reimbursable costs that have not yet been invoiced
to our clients. This significant increase in unbilled charges from the prior
year reflected our acquisitions completed in 1999, which have resulted in a
significant increase in projects. The increase in unbilled charges was funded
partially from operations and borrowings from Omnicom. This impacted our
liquidity by reducing available borrowings under our credit facility and
increasing our interest expense. Unbilled charges decreased from $17.3 million
at June 30, 1999 to $6.7 million at September 30, 1999 as a result of continued
focus by management on timely billing.
To date, our main sources of liquidity have been cash from operations and
borrowings from Omnicom. We believe that on a short-term basis we will have
sufficient funds for working capital and capital expenditures through additional
borrowings from Omnicom and increased cash flow from operations resulting from
the collection of outstanding accounts receivable and the billing and collection
of unbilled charges. We believe that on a long-term basis our liquidity will be
funded from increased cash flow from operations and, if necessary, equity
financings or borrowings from Omnicom. Omnicom has indicated that in the event
that our operations do not provide sufficient cash flows, $15 million in
additional financial support above the current credit facility will be made
available in the form of either further debt or equity investments until
November 2000 on market terms. In connection with our two acquisitions since
September 30, 1999, we borrowed an additional $3.5 million from Omnicom. The
borrowings directly reduced our available working capital. We believe that our
current cash, cash equivalents and short-term investments, available borrowings
under our credit facility and the net proceeds from this offering will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months. However, we cannot assure you that we will not
require additional financing within this time frame or that such additional
financing, if needed, will be available on terms acceptable to us, if at all.
MARKET RISK
INTEREST RATE RISK. To date, we have not utilized derivative financial
instruments or derivative commodity instruments. We invest our cash in money
market funds, which are subject to minimal credit and market risk. We believe
the market risks associated with these financial instruments are immaterial.
FOREIGN CURRENCY RISK. We face foreign currency risks primarily as a result
of the revenues we receive from services delivered through our foreign
subsidiaries. These subsidiaries incur most of their expenses in the local
currency. Accordingly, our foreign subsidiaries use the local currency as their
functional currency.
We are also exposed to foreign exchange rate fluctuations, primarily with
respect to the British Pound and the Euro, as the financial results of foreign
subsidiaries are translated into United States dollars for consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and adversely impact net income (loss) and overall
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profitability. The effect of foreign exchange rate fluctuation for the year
ended December 31, 1998 was not material.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded to
accept or recognize only two-digit entries in the date code field. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, it is necessary to update the computer systems and/or software used by
many companies and governmental agencies to comply with Year 2000 requirements
or risk system failure or miscalculations causing disruptions of normal business
activities.
We are exposed to the risk that the systems on which we depend to conduct
our operations are not Year 2000 compliant.
STATE OF READINESS
We have completed a preliminary assessment of our Year 2000 readiness and
are conducting ongoing testing and implementation of any necessary upgrades in
order to become Year 2000 compliant. Our assessment and testing has focused on
four areas as follows:
- MISSION CRITICAL SYSTEMS. Our mission critical systems are used for
timekeeping, accounting, and the production of financial statements.
Testing of this system is ongoing and final testing will be completed by
November 1999. We have received a Year 2000 warranty from the vendor who
licenses the mission critical systems to us, however monetary liability
may be limited.
- CRITICAL SYSTEMS. Our critical systems consist of Domain Name Services
(DNS), email, routers and switches, telephone, voice mail systems, and
desktop computers. All critical infrastructure machines have been verified
by their vendors as Year 2000 compliant. In addition, we are testing all
of our desktop computer systems and will install upgrades if appropriate.
DNS allow computers to find one another on the Internet by matching
alpha-numeric domain names to exact computer network addresses.
- EXTERNAL AGENTS. Our external agents include vendors and licensors of
other material hardware and software utilized by us. We are in the process
of contacting these vendors and licensors to request the status of Year
2000 readiness for those products. We will continue to attempt to obtain
verification from all remaining distributors, suppliers, and vendors that
their systems are Year 2000 compliant. If we do not receive verification
that the systems are compliant, we will upgrade to compliant products.
- INTERNALLY DEVELOPED PROPRIETARY SOFTWARE. Our internally developed
proprietary software consists of our software and hardware and includes
date-dependent code. We have evaluated and tested proprietary systems used
by us and believe that all material files and systems are Year 2000
compliant. Although we believe that substantially all of the software
developed by us is Year 2000 compliant, we have only performed compliancy
evaluation and testing for the clients that have requested us to do so.
We intend to complete our testing and replace or remediate any non-Year 2000
compliant technologies by the end of November 1999.
In addition, we face non-information technology Year 2000 related risks,
both internally and externally based. Internal non-information technology risks
include disruption to our security and mailing systems, mail room facilities,
fire and backup generator systems.
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External non-information technology risks include the possible interruption of
electrical power, water, sewage, telecommunications, mass transportation and
garbage collection. If a disruption in either internal or external non-
information technology systems occurs, we could experience a material disruption
in our business similar to other businesses in our geographic locations.
COSTS
We estimate that the total cost for our Year 2000 compliance efforts will be
approximately $250,000. Most of these expenses relate to the operating costs
associated with time spent by our employees in Year 2000 compliance matters. If
we encounter unexpected difficulties, or we are unable to obtain compliance
information from material third parties, we may need to spend additional amounts
to ensure that our systems are Year 2000 compliant.
RISKS
Although we have received compliance information from many of our material
third-party vendors, we have not received compliance information from all of our
third-party vendors. In addition, it is possible that our third-party vendors
were mistaken in certifying that their systems are Year 2000 compliant. We will
not conduct an end-to-end critical system test until November 1999. If we fail
to fix our internal systems or to fix or replace material third-party software,
hardware or services on a timely basis, we may suffer lost revenues, increased
operating costs and other business interruptions, any of which could have a
material adverse effect on our business, results of operations and financial
condition. Moreover, if we fail to adequately address Year 2000 compliance
issues, we may be subject to claims of mismanagement and related litigation,
which would be costly and time-consuming to defend. Furthermore, if services we
provided a client cause damage or injury to that client because the service was
not Year 2000 compliant, we could be liable to the client for breach of
warranty.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be Year 2000 compliant. If those entities fail to be
Year 2000 compliant, there may be a systemic failure beyond our control, such as
a prolonged Internet, telecommunications or electrical failure, which could have
a material adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN
We are engaged in an ongoing Year 2000 testing and have developed a
contingency plan to address the worst-case scenario that might occur if critical
technologies we depend upon actually are not Year 2000 compliant.
FORWARD-LOOKING STATEMENTS
The Year 2000 discussion above is provided as a "Year 2000 Readiness
Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act
of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998 and
contains forward-looking statements. These statements are based on management's
best current estimates, which were derived from a number of assumptions about
future events, including the continued availability of resources,
representations received from third parties and other factors. However, we
cannot assure you that these estimates will be achieved, and our actual results
could differ materially from those anticipated. Specific factors that might
cause material differences include:
- the ability to identify and remediate all relevant systems;
- results of Year 2000 testing;
- adequate resolution of Year 2000 issues by governmental agencies,
businesses and other third parties who are our
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outsourcing service providers, suppliers, and vendors;
- unanticipated system costs; and
- our ability to implement adequate contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 130
offers alternatives for presentation of disclosures required by the standard. We
adopted this statement in 1998 and the adoption of this statement did not have
an impact on our financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. The statement also establishes standards for related
disclosure about products and services, geographic areas and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997 and need not be applied to interim periods in the initial year
of application. Comparative information for earlier years presented is to be
restated. We currently believe that we operate in one segment and that the
adoption of SFAS No. 131 will not materially affect our current disclosure of
geographic information.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. We adopted SOP 98-1 in 1999 and there has not
been any material effect on our consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contrats, and for hedging activities. We do not currently engage in
derivative activity and do not expect the adoption of this standard to have a
material effect on our results of consolidated operations, financial position or
cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
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BUSINESS
OVERVIEW
OUR COMPANY
AGENCY.COM is an international Internet professional services firm. We
provide our clients with an integrated set of strategy, creative and technology
services that take them from concept to launch and operation of their Internet
business. We deliver our services through our multidisciplinary teams of
strategy, creative and technology specialists. These services help our clients
create and enhance relationships with their customers, staff, business partners
and suppliers.
Our strategy services include advising clients on business models for their
online businesses, devising strategies so that clients can open new online
distribution and sales channels, identifying opportunities to achieve
operational efficiencies by pursuing online initiatives, and planning for the
operations and organization necessary to support an online business. Our
creative services include advising clients on how to effectively bring their
brands online, developing graphic designs and Web site structure for client Web
sites, and coordinating online marketing campaigns with clients' traditional
advertising agencies. Our technology services include technical architecture and
design, integration between Internet and older information technology systems,
and implementation of electronic commerce systems to enable online sales,
support and communication.
We believe that our experience in providing Internet professional services
enhances our ability to meet the needs of clients. Since our inception in 1995,
we have provided services to more than 200 clients. Our five largest clients
during the nine months ended September 30, 1999, on an actual basis, were
British Airways, Compaq, FT Group, Sprint and Unilever. We believe that our
focus on long-term relationships with clients allows us to provide a broader and
more effective range of services.
Since 1997, we have acquired 11 companies and integrated them and now
deliver our services through ten offices located in the United States (including
I-traffic's New York and San Francisco offices which will be combined with our
existing offices in these cities next year) and one office each in Amsterdam,
Copenhagen, Paris and London. We also have minority investments in a technology
company in Singapore and an Internet professional services company in Paris.
We believe the Internet is particularly effective when used to extend and
enhance the relationship that exists between a company and its customers, staff,
partners and suppliers. We intend to be the Internet professional services firm
of choice for companies comprising Business Week magazine's Global 1000, which
includes companies with the largest market capitalizations worldwide.
INDUSTRY BACKGROUND
The Internet is becoming an integral part of many people's lives.
Individuals and businesses are increasingly using the Internet to find
information, communicate and conduct business. In a report by IDC titled "The
Global Market Forecast for Internet Usage and Commerce: Based on Internet
Commerce Market Model-TM-, Version 5" published in June 1999, IDC estimates that
the number of Internet users worldwide will grow from an estimated 142 million
at the end of 1998 to approximately 500 million at the end of 2003. Also
according to IDC in this same report, worldwide commerce conducted over the
Internet totaled approximately $50 billion in 1998, with the business to
business market accounting for $35 billion and the consumer market accounting
for $15 billion. IDC projects
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the overall market to exceed $1.3 trillion by the end of 2003.
The increasing acceptance of the Internet has created numerous opportunities
for companies that seek to grow and are challenged by highly competitive and
rapidly changing markets, and demands for increased efficiencies. Already,
companies are taking advantage of the Internet's opportunities to strengthen
customer relationships, improve operational efficiency and spur product
innovation. Initially, companies developed "read-only," or brochure-ware, Web
sites that lowered marketing and service costs and that increased customer
awareness. Companies later added transaction and commerce capabilities to their
online resources to enable two-way sharing of data and information among
businesses and their constituents, including end-customers, suppliers, business
partners and employees. These transaction and commerce capabilities have changed
the business landscape by introducing new channels, catalyzing competition and
prompting new customer needs.
Today, many companies realize that the Internet is no longer an adjunct to
their operations and is redefining all aspects of their businesses, including
the way they interact with their customers. The Internet enables consumers,
business partners, suppliers and employees to transact on a one-to-one basis
with companies at any time and from any location.
We believe that companies have found that merely enabling online
transactions and commerce does not ensure success in doing business on the
Internet. Consumers want more than the mechanical ability to transact with a
company online. They want to interact with a company that not only markets to
them but is responsive to their needs. By successfully satisfying these needs,
we believe that businesses can build a long-lasting, ongoing interactive
relationship that fosters customer loyalty, increases margins and enables new
markets.
Developing successful Internet businesses that promote interactive
relationships requires a special set of capabilities. Developers of these
businesses must provide integrated strategy, creative and technology services.
In addition, developers must have the ability to understand the needs of
customers and fulfill them. Few companies possess this multi-disciplinary
expertise as it is usually divided into separate information technology,
marketing and planning groups. Further, companies lack the management and
technical infrastructure required to develop and support Internet services.
Therefore, companies seeking to do business on the Internet are increasingly
engaging Internet professional services firms to provide integrated strategy,
creative and technology services. We believe that companies are best served by
firms that have overcome the cultural and operational challenges of integrating
strategy, creative and technology services into a single offering and that have
a proven methodology centered on the needs of customers.
AGENCY.COM APPROACH
AGENCY.COM provides a broad range of integrated services that enable
businesses to use the Internet and Internet technologies to develop and enhance
long-term interactive relationships with their customers. AGENCY.COM's approach
includes the following key elements:
INTEGRATED FULL-SERVICE OFFERING
We provide integrated strategy, creative and technology services in a
seamless package. We start from the initial assessment of a client's positioning
and needs and work through post-implementation analysis and development. We
believe that our comprehensive integrated service offering results in time and
cost savings for our clients
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and also increases the likelihood that their projects will be completed
successfully.
INTERNET FOCUS AND EXPERIENCE
Since our founding in 1995, we have focused exclusively on Internet
technologies and their implications for businesses. Our Internet focus allows us
to best fulfill our clients' needs and continuously refine our services by
staying at the forefront of the Internet's rapid evolution.
CUSTOMER DRIVEN
In planning, designing and deploying Internet services and strategies, we
base our work on the needs of our clients' customers. We focus on our clients'
customers because these individuals ultimately determine the success of our
clients' Internet businesses. Our approach enables us to establish a solid and
effective base from which our clients may develop their interactive
relationships. We work with our clients to analyze their customers' needs to
create Internet strategies best-suited for the client and these customers. This
analysis includes usability studies.
RELATIONSHIPS WITH CLIENTS
We seek to develop long-term relationships with our clients. We become
familiar with their businesses and work closely with senior management to
understand, predict and address our clients' evolving strategic business needs.
Upon engagement, we assign to the client a dedicated multi-disciplinary team of
professionals which works with our client during each phase of the initial
project and on future projects. We share our experience and knowledge with our
clients to enhance their familiarity with the Internet and its capabilities. We
also establish extranets with our clients to improve the exchange of information
on all ongoing projects.
AGENCY.COM CULTURE
Our culture is based on the principles of honoring the value of individuals
working as a team, growing through learning and knowledge-gathering, embracing
change and encouraging innovation. We recognize that we succeed as a firm only
when clients benefit from our work. We believe that nurturing our culture and
values enables us to deliver innovative solutions and attract and retain top
professionals. Our management and operational infrastructure foster our culture.
For example, substantially all of our employees have an equity stake in the
company through our stock option plan, and we have developed and put into
practice a number of internal mentoring and learning programs.
AGENCY.COM STRATEGY
AGENCY.COM's goal is to build upon our position as an international provider
of Internet professional services. To achieve this goal, we are pursuing the
following strategies:
CONTINUE TO BUILD LONG-TERM RELATIONSHIPS WITH OUR CLIENTS AND OTHER
INTERNATIONAL COMPANIES
We believe that strong, long-term relationships with clients yield
significant benefits both to our clients and to our business. The depth and
breadth of our client relationships are demonstrated by our integral involvement
in developing Internet strategies, including the planning and budgeting process,
for a number of our large clients. In addition, we have retainer-based
relationships with a number of these clients and plan to increase the number of
clients on retainer. We believe that our record of client satisfaction has
contributed to an increase in the amount, scope and complexity of services
requested by many of our clients. As an indication of our success, 18 of our top
20 clients in 1998 continued to engage us in 1999.
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FURTHER ENHANCE OUR MULTI-DISCIPLINARY TEAM APPROACH
Because our work requires expert knowledge of multiple disciplines, we
believe that Internet professional services are most effective when delivered
through integrated, multi-disciplinary client teams. We provide all our services
through client-centered teams that include strategy, creative, technology,
project management and client services professionals. Our client teams, and the
culture of teamwork that they enforce, shape the overall structure and operation
of our company. In order to deliver to our clients a broad range of
sophisticated services on an international basis, all of our offices operate
together as a single, unified organization rather than a set of competing
entities. We will continue to invest in and nurture our team-based organization
in order to better fulfill our clients' needs.
DEVELOP STRONG POSITIONS IN SERVICES TO BENEFIT OUR CLIENTS
We will continue to build strong positions in services such as Internet
advisory, consulting and planning services, Internet commerce and communication
services and online branding and marketing services. We believe that these
services provide opportunities for strong growth, and help differentiate us from
our competitors. We have developed, and will continue to develop, new
interactive strategies as our clients' needs evolve and as new technologies
emerge. As with our current offerings, any new service that we offer to our
clients will incorporate a mix of our strategy, creative and technology
capabilities. We are currently working with many emerging technologies and stay
current with industry developments through our dedicated team of technical
specialists who continually evaluate new technologies and develop innovative
strategies. Our future strategies may incorporate technologies such as wireless
devices and devices suited to high bandwidth Internet connections for
transmission of voice, video, data and fax, known as broadband network devices.
COMPLEMENT OUR GROWTH WITH TARGETED ACQUISITIONS
We believe that expanding our skill set, geographic locations and industry
reach through acquisitions will enable us to better serve our existing clients,
attract new clients and take advantage of new markets for our services. We
integrate each acquired company into our operations and culture. All of our
acquisitions have met some or all of the following characteristics:
- cultural fit;
- quality management;
- highly motivated and skilled staff;
- market leadership position in complementary skills and/or in a
strategically important location;
- ability to provide service to a strong client base; and
- strong future revenue growth and profitability.
We have successfully acquired 11 companies over the last two years and made
minority investments in a company based in Paris and a company based in
Singapore.
EXTEND OUR GEOGRAPHIC REACH
We believe that significant opportunities exist for our services beyond our
current locations, including serving existing and new clients in other markets.
We have expanded, and intend to continue to expand, our geographic presence in
key locations based on our clients' needs and market opportunities. We will
continue to expand through a combination of organic growth and acquisitions.
Extending our geographic reach allows us to better serve our multi-national
clients by providing services locally through our regional offices while taking
advantage of our international resources and knowledge
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base. We believe our ability to provide Internet professional services
internationally provides us with a competitive advantage. We currently have
offices located in the United States and Europe, and have resources in
additional locations through our minority investments.
ATTRACT AND RETAIN THE HIGHEST QUALITY PROFESSIONALS AND FACILITATE EMPLOYEE
DEVELOPMENT THROUGH TRAINING, CULTURE AND SUPPORT
We believe that attracting and retaining high quality professionals is
critical to our success. Our culture is an integral part of our ability to
attract and retain quality professionals. We provide a stimulating and nurturing
work environment to increase employee satisfaction. We will continue to invest
in knowledge transfer, training and staff development resources for our
employees. In addition, we offer a competitive compensation package, including
broad-based equity ownership through our stock option plan.
ENHANCE AWARENESS OF AGENCY.COM AS AN INTERNATIONAL PROVIDER OF INTERNET
PROFESSIONAL SERVICES
AGENCY.COM has built a recognized brand in the Internet professional
services market. Our internal marketing and corporate communications teams
promote our brand through speaking engagements, event sponsorships, interviews
and industry conferences. We receive additional promotion from media coverage
and from the numerous awards we have received for our work. Our brand enables us
to more effectively attract clients, employees and acquisition candidates. We
seek to be the most recognized Internet professional services firm and to be
among the few firms that the Global 1000 consider when choosing an Internet
professional services provider.
AGENCY.COM SERVICES
We provide fully integrated Internet professional services to our clients
that enhance the development of their interactive relationships. We conceive and
implement Internet services and strategies that add value to our clients'
businesses. We deliver to our clients services that include strategic business
planning, Web site content development, graphic design and computer programming.
Each client benefits from our fully integrated service offering delivered by a
team of strategy, creative and technology professionals. Each engagement has a
project manager who coordinates and oversees the team. The project manager
reports to the relationship manager who has direct responsibility for the client
relationship. The following is a description of the primary components of our
service offerings:
STRATEGIC SERVICES
AGENCY.COM helps clients translate their corporate goals and objectives into
Internet strategies. We work closely with our clients to understand and analyze
their businesses. We help our clients formulate and execute their Internet
strategies in the context of their business and marketing goals, operational
methods and success criteria. Our strategic services include assisting our
clients in:
- establishing the operational guidelines and management structure necessary
to execute their Internet strategies;
- helping clients to formulate Internet strategies to reach new customers;
- reducing the costs of serving existing customers;
- improving the efficiency of internal operations; and
- promoting customer loyalty and designing appropriate and innovative ways
to extend our clients' brands on the Internet.
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INTERNET COMMERCE AND COMMUNICATION SERVICES
We help our clients use the Internet as an effective means of communicating
and transacting with customers. We create Internet resources such as Web sites
for our clients that encompasses the entire customer relationship, including:
- introducing relevant, customized information, products and services;
- demonstrating the benefits of their products and services and gaining
customer acceptance;
- facilitating transactions; and
- providing ongoing service tailored to the needs of and based on the
feedback from each customer.
CREATIVE SERVICES
We assist clients in designing online resources, including Web sites, that
are easy for customers and others to use and that effectively present our
clients' brands. In all of our creative work, we work closely with our clients
to understand their brands and the needs of their customers. We advise clients
on how they can bring their brands online in a manner consistent with their
other marketing and product branding. We often create the graphical elements for
our clients' Web sites and gauge their effectiveness through sample group
testing. We often coordinate online marketing campaigns with clients'
traditional advertising agencies.
SYSTEMS INTEGRATION
We design, develop and implement the technical architecture and systems that
support our clients' Internet strategies. We provide the data integration and
transaction processing systems required for functional transaction and
commerce-focused resources. We often integrate Internet-based technologies with
our clients' older information technology systems, such as legacy and
client-server systems. We also adapt and develop custom software solutions and
build add-on components to our clients' existing software applications. Systems
integration projects have included the integration of sales systems, accounting
systems and inventory systems to function over the Internet.
EMERGING AND OTHER TECHNOLOGIES
The Internet is constantly changing. AGENCY.COM employs emerging
technologies and capitalizes on new media developments to provide services that
improve its clients' businesses. For example, we provide our clients with
broadband and multimedia capabilities through our dedicated film, audio and
video (FAV) group, and provide clients with interactive television services
through our dedicated iTV group. These applications include live, realtime
Internet-based video broadcasts, known as Web-casting, motion graphics, music
and streaming media. We work with many emerging technologies and stay current
with industry developments through our dedicated team of technical specialists
who continually evaluate new technologies and develop innovative services.
AGENCY.COM COMPASS METHODOLOGY
[GRAPHIC DEPICTING THE AGENCY.COM COMPASS METHODOLOGY]
Our "Compass" methodology guides project management and execution. We
believe this methodology enables us to provide consistent quality on all
engagements and maximizes the value we deliver to our clients. Compass can be
employed on projects of all types, sizes and geographic boundaries. Our
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process follows four distinct phases: DISCOVERY, DESIGN, PRODUCTION AND
DEPLOYMENT. Within any phase of our methodology, we incorporate a series of
steps--Check, Adjust and Assess--that ensure that our client's expectations for
quality are met in each stage. We refine our methods within Compass's four
phases based on input from clients and client teams. We also integrate the best
practices of the companies we acquire into Compass.
DISCOVERY
During the Discovery phase, we assess the client's positioning and needs,
with an emphasis on the client's customers, and analyze the tasks and resources
required to deliver an effective Internet strategy. Based on this understanding,
we develop an initial plan for designing and completing the project. AGENCY.COM
works closely with the client to formulate and finalize the strategy and
services to be provided.
DESIGN
During the Design phase, we define the creative components, technical design
and information architecture. These components are integrated and represented in
a detailed Design document, which is reviewed by the client at numerous stages.
We build a prototype and conduct usability testing during this phase to ensure
that the design is best suited to the client's needs. The final design document
serves as a blueprint for the ensuing phases.
PRODUCTION
During the Production phase, we develop and integrate all of the creative,
technical and information components. We then test the system jointly with the
client and optimize the performance of the hardware and software. At the end of
this phase, we deliver to our client a product that is ready for deployment.
DEPLOYMENT
During the Deployment phase, we formally "launch" the client's Internet
system following all final testing and acceptance. We also educate and train our
client to use and maintain the finished application and, where appropriate,
transfer full control of the product to our client. We finish projects with a
post-implementation evaluation, including measurement against initial benchmarks
and a client evaluation of AGENCY.COM's work. Following the completion of a
project, we document non-proprietary knowledge and experiences, such as revised
work plans or enhanced knowledge of a particular technology, through
post-engagement, internal reviews. This information is then disseminated to our
employees both through our internal intranet and specific training sessions. By
broadening our professionals' knowledge base and improving their understanding
of their field, we are able to assist them in better serving client needs.
Following the completion of the Deployment phase, at the request of the
client, the AGENCY.COM client team often returns to the Discovery phase in order
to further develop and evolve our client's Internet business.
PEOPLE AND CULTURE
We believe that our people and culture represent a significant competitive
advantage and that our ability to scale innovation and creativity is at the core
of our success to date. To successfully compete in the future, we must continue
to identify, recruit, hire and retain outstanding professionals. We continually
nurture, develop and evolve a culture that supports innovation and creativity.
RECRUITING, RETAINING AND GROWING
We promote and support each employee's personal growth through a variety of
career development programs. Internal knowledge management resources gather the
collective experience of client teams and individuals.
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Informal, internal educational programs expose staff to new experiences.
Examples include InspireU, a collection of employee-led training courses, and
URBAN DESIRES, an online magazine owned by our founders that is used to explore
advanced and artistic interactive experiences. More formal programs, involving
internal and external resources, focus growth along specific career tracks.
Examples include seminars with outside experts and multi-day training workshops.
Recruiting and training are important to us. A dedicated recruitment group
works with management to fulfill staffing objectives on a regional and
international basis. New hires are commonly obtained through referrals from
current and former staff as well as from recruiters and self-initiated
referrals.
Once we have hired an employee, our focus shifts to retention. In addition
to offering competitive compensation, we believe that we retain employees by
offering them a meaningful career path. Each employee is assigned a career
manager who provides regular coaching and helps the employee to establish goals
and objectives and to achieve them. Employees are reviewed by supervisors,
co-workers and employees they supervise in a 360-degree review process that is
integral to our team approach.
SCALING INNOVATION AND CREATIVITY
We believe that possessing a single, unified culture in all offices
internationally is critical to fulfilling our business objectives. We pursue a
number of initiatives to emphasize and reinforce our culture and values. We
encourage regional managers to share resources across offices. Our client teams
combine individuals with experience in a variety of backgrounds to collaborate,
innovate and deliver services as a single unit. We instill and maintain our
culture throughout our company by promoting our core values:
- - We succeed only when our clients benefit from our work
- - We deliver excellence with the highest standards of integrity
- - We honor the dignity and value of individuals working as a team
- - We celebrate diversity of people, ideas and cultures
- - We seek to grow through learning and knowledge gathering
- - We embrace change and encourage innovation
CLIENTS AND CASE STUDIES
We provide Internet professional services to a variety of clients in a range
of industries. We focus on long-term relationships with Global 1000 companies.
Our top ten clients provided approximately 31% of our revenues on a pro forma
basis. For the nine months ended September 30, 1999, our top ten clients
provided approximately 42% of our revenues on a pro forma basis and 51% on an
actual basis. For the nine months ended September 30, 1999, British Airways
accounted for more than 10% of our revenues on a pro forma basis. For the nine
months ended September 30, 1999 and year ended December 31, 1998, British
Airways accounted for more than 10% of our revenues on an actual basis. The
following lists companies that, in terms of pro forma revenues, were among our
largest 25 clients in 1998 and/or 1999:
<TABLE>
<S> <C> <C>
3M Countrywide SmithKline-Beecham
British Airways DIRECTV Sprint
Colgate-Palmolive FT Group (Financial Times) Texaco
Compaq Enron Unilever
</TABLE>
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BRITISH AIRWAYS: COMPREHENSIVE SERVICES
We began our relationship with British Airways in 1996 with a redesign and
redevelopment of its existing Web site. From that initial project, this
relationship has evolved to now include advising on the strategic, operational,
management, technological and creative elements of British Airways' Internet
strategy. We work with British Airways out of our New York and London offices,
as well as a number of other locations. We have expanded British Airways' online
commerce efforts, united its broad product range and global sales channels, and
extended its customer service operations online in a manner consistent with its
high-quality reputation.
[GRAPHIC DEPICTING SCREENSHOTS OF
BRITISH AIRWAYS' WEB SITE]
<TABLE>
<S> <C> <C> <C>
ONLINE BRANDING SYSTEMS DEVELOPMENT E-COMMERCE RELATIONSHIP
ENHANCEMENT
Extend one of the Establish a transaction Create selling Enhance relationships
world's most respected infrastructure that experiences that open between British Airways
brands online enables sales, service new channels for and its customers with
and distribution purchasing, including realtime, personalized
online sales online customer support
</TABLE>
We have provided to British Airways a wide range of services. Illustrative
work includes:
- working with British Airways staff and senior management to devise and
execute an Internet strategy to increase online sales, operating
efficiencies, repeat business and customer satisfaction;
- creating strategies and processes for managing sales, distribution and
service for multiple channels;
- establishing companywide guidelines so that internal British Airways
groups can autonomously develop resources, such as email systems, Web
sites and foreign language content for themselves and their customers and
suppliers;
- enabling online customer service; and
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- introducing the use of interactive TV as a medium for sales, distribution
and service.
Today, British Airways customers have access to customer service, flight
information and ticket sales 24 hours a day, seven days a week. British Airways
believes its Internet initiatives have successfully extended its brand and
enhanced its reputation for superior customer service. In May, 1999, British
Airways was judged one of the 100 "hottest companies on the Net" by BUSINESS
2.0, a United States magazine that covers the Internet industry and new
technologies. British Airways has won numerous awards for its Internet presence,
including the designation by CIO Magazine as one of the top 50 Internet sites of
1999, the 1998 @d:tech Gold award for "Best Direct Marketing Web Site" and the
1997 Advertising Age award for "Best Interactive Site".
We continue to work with British Airways, developing strategies and
fulfilling its needs for Internet services around the world.
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DIRECTV: IMPROVING OPERATIONS WITH EASE
DIRECTV is one of the nation's leading providers of digital television
entertainment with more than 7 million customers, including customers
subscribing to the PRIMESTAR by DIRECTV medium-power digital broadcast service.
We began our relationship with DIRECTV by creating a floppy disk-based
client-server application for order processing. Working with DIRECTV, we have
developed further applications that have improved the quality and decreased the
operation costs of DIRECTV's computerized ordering systems.
[GRAPHIC DEPICTING SCREENSHOTS OF
DIRECTV'S WINDOWS-BASED PROGRAMS AND WEB SITE]
<TABLE>
<S> <C> <C> <C>
TECHNICAL ARCHITECTURE E-COMMERCE, PRE- WEB WEB-BASED SEAMLESS SALES
Design and implement a Create an e- commerce Provide a web interface Use computer system to
technical architecture dial up system for a to the system for automate cross- selling
that allows non- technical audience greater accessibility and up-selling for the
distribution and sales and lower costs sales force
through multiple
computer systems
</TABLE>
Our work for DIRECTV includes:
- creating a client-server application for then partner United States
Satellite Broadcasting, Inc. (USSB), to eliminate order processing
complications associated with its retailers' reliance on facsimile
transmission. Our solution to the often inaccurate and costly fax and data
entry method used by these companies was EASe, a client-server software
application which allowed retailers to enter orders and establish
subscriber accounts directly with USSB through a digital modem connection.
EASe provided automated customer sign-up and support functionalities
capable of guarding against fraudulent order entry. The system also
provided systematic feedback that enabled retailers to determine their
eligibility for commission credit;
- modifying the EASe system (prior to DIRECTV's merger with USSB in early
1999) to include business orders from DIRECTV, a significant
accomplishment given DIRECTV's presence in more than 26,000 retail
locations nationwide;
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- designing and developing a technical architecture that integrated the EASe
application with several enterprise systems. The integration allowed
DIRECTV to serve both its retail dealers and new customers more
efficiently by transmitting new customer accounts directly to DIRECTV's
billing system and thereby expediting the set-up process; and
- distributing the EASe software application to retailers over the Internet,
further cutting costs and facilitating business between DIRECTV and its
retailers.
Using EASe software from AGENCY.COM, DIRECTV dealers enjoyed a simplified
customer account set-up and benefited from fewer processing errors. As a result,
DIRECTV believes that it has achieved increased retailer loyalty and reduced
operating costs. Today, the majority of small-to-medium DIRECTV retailers and
franchise dealers use the EASe application to transmit new customer orders to
DIRECTV. One of our currently scheduled projects is to extend EASe to
Web-enabled access, which will allow dealers to work with the system on-line.
The projects illustrate the continuation of our successful relationship with
DIRECTV.
SPRINT: LEVERAGING THE INTERNET
In late 1997, Sprint first enlisted the help of AGENCY.COM to redesign its
existing web site. That initial relationship has expanded to include a range of
strategy, creative and technology services that support Sprint's online sales,
distribution, marketing and customer service efforts. We currently deliver
services to Sprint through client teams collaborating in three offices across
the United States. Through our relationship with Sprint, we have helped to
improve Sprint's ability to conduct business online, assisted in enabling Sprint
to present a consistent brand image across a diverse product range and begun the
process of helping Sprint to better fulfill the needs of customers online.
Sprint has enlisted the help of AGENCY.COM for a number of projects.
Illustrative work includes:
- redesigning the sprint.com Web site interface, information architecture
and branding to provide a more consistent and unified online experience
and to serve the needs of distinct customer groups across multiple Sprint
business units, as well as working with Sprint to maintain and update the
site;
- creating a set of Internet standards and guidelines for Sprint that allows
content and services to be added to Sprint's online presence in a
consistent manner;
- assisting Sprint in identifying and evaluating opportunities for
additional, enhanced interactions with customers and for increased
electronic commerce and customer service offerings for customers;
- participating in the Sprint steering organization that sets the strategic
Internet agenda across Sprint business units;
- developing an online strategy to support the launch of Sprint's ION
service, an integrated, broadband network that can support voice, video,
data, fax and Internet communications over a single connection; and
- enhancing online sales of Sprint products and services through online
media and marketing strategy and implementation.
As a result of this relationship, both Sprint and we believe that Sprint has
significantly improved its online presence and success in doing business on the
Internet. Both Sprint and we believe that Sprint has achieved substantial
increases in online sales, reduced cost of sales, more effective branding and a
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significant increase in customer satisfaction with Sprint's online services.
We continue to work with Sprint to anticipate the needs of its customers
online and to improve, extend and enhance its Internet presence.
SALES AND MARKETING
We seek to generate revenues from our existing and new clients. We continue
to work with many of our early clients. We target the Global 1000, top private
companies and new e-businesses.
EXISTING RELATIONSHIPS
We focus on long-term relationships with our clients. To facilitate this, we
assign a relationship manager to each of our clients. This relationship manager
leads the client engagement and proactively works with the client to refine and
further develop its Internet strategies. Our client team, led by a relationship
manager, identifies areas for potential business growth and positions AGENCY.COM
as the provider of these services.
NEW BUSINESS DEVELOPMENT
To target new clients, we have more than 20 New Business Development
professionals located in our regional offices who seek to develop relationships
with companies that have businesses that can benefit from Internet services and
strategies, are willing to make a significant commitment to pursuing interactive
opportunities and are located in the same geographic regions as our offices.
MARKETING EFFORTS
Our marketing program focuses on extending our brand, generating incremental
revenue and increasing our visibility. We supplement our marketing efforts with
our marketing and technology alliances. Marketing and technology alliances
provide mutually beneficial staff cross-training opportunities and business
development opportunities to enhance the services we provide to our clients and
to increase our technical awareness and internal capabilities.
ACQUISITIONS AND INTEGRATION
We evaluate potential acquisitions based on strategic and geographic fit.
After determining that an acquisition candidate meets one of these two criteria,
we then focus on its cultural fit. We target companies that will help us become
the leading global provider of Internet professional services. Acquired
companies benefit from our management expertise, international infrastructure,
long-term client focus, track record, brand awareness and brand strength.
ACQUISITIONS
Since our founding in 1995, we have acquired the following companies:
- Spiral Media, completed in July 1998;
- Online Magic, completed in July 1998;
- Ketchum Interactive, completed in April 1998;
- Web Partners, doing business as The Primary Group, completed in August
1998;
- Interactive Solutions, completed in April 1999;
- Quadris Consulting, completed in April 1999;
- Eagle River Interactive, completed in April 1999;
- Digital Vision, completed in May 1999;
- Twinspark Interactive People, completed in August 1999:
- I-traffic, completed in October 1999; and
- Visionik, completed in November 1999.
In addition to these acquisitions, we have an investment in 30% of the
outstanding equity of The Edge Consultants and have an option to acquire an
additional 30% of its equity and have an investment in 5% of the outstanding
equity of Pictoris Interactive and have an option to acquire the remaining 95%.
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INTEGRATION
We are able to provide the flexible, seamless service demanded by our
clients by fully integrating acquired companies, both operationally and
culturally. One of our key strengths is our ability to successfully instill our
culture after we acquire new companies. Our acquisition and integration approach
includes the following elements:
- MANAGEMENT INTEGRATION. We integrate members of the acquired company's
senior management into AGENCY.COM's management. This allows the senior
management of the acquired company to learn our culture, increases the
effectiveness of the acquired company's integration and increases loyalty
to the combined organization.
- STAFF INTEGRATION. We integrate the acquired company's staff into our
existing structure. Strategy, creative and technology personnel are
assigned, where geography permits, to existing client teams in order to
integrate new skill sets into our knowledge base. We also meld the sales
staff of the acquired company into our New Business Development
organization. Additionally, where appropriate, we transfer staff between
new and old offices to further allow staff to share experiences and learn
from one another.
- OPERATIONAL INTEGRATION. Our financial and information technology
infrastructure are designed so that new acquisitions of any size can be
efficiently integrated into our financial control, accounting structure
and technology systems. We integrate the phones, computers and other
technology into our existing infrastructure in order to provide a seamless
working environment between AGENCY.COM and the acquired company. This
fosters the feeling of one firm and one culture and enables collaboration
among offices.
- INTERNAL COMMUNICATION. We use internal publications, Web-casts, online
chats and intranet initiatives as well as frequent office visits by our
senior management to facilitate communication between older and newer
offices and to encourage camaraderie among our employees.
- METHODOLOGY INTEGRATION. We study the methodology and practices of the
acquired company and may incorporate them into our Compass methodology,
allowing us to use the best practices of the combined entity.
COMPETITION
We compete with other providers of Internet professional services. The
market for these services has grown dramatically in recent years as a result of
the increasing use of the Internet by businesses for communication, marketing
and information dissemination to their customers, suppliers, business partners
and employees. Our market is intensely competitive, highly fragmented and
subject to rapid technological change. We expect competition to persist and
intensify in the future. Our current and potential competitors include:
- Internet professional services firms, such as iXL, Organic Online,
Proxicom, Razorfish, Scient, USWeb/CKS and Viant;
- traditional strategic consulting firms, such as Booz-Allen & Hamilton,
Boston Consulting Group and McKinsey;
- interactive advertising agencies, such as Modem Media.Poppe Tyson and
OgilvyOne;
- professional services groups of computer equipment companies, such as
Hewlett-Packard and IBM;
- traditional systems integrators, such as Andersen Consulting, Cambridge
Technology Partners, EDS and Sapient; and
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- internal resources of current or potential clients.
We believe the principal competitive factors in our market are:
- breadth and integration of service offerings;
- cost and quality of service;
- client relationships;
- technical knowledge and creative skills;
- reliability;
- ability to attract and retain quality professionals;
- brand recognition;
- reputation; and
- vertical industry knowledge.
We believe that we compete favorably with respect to these factors, but we
cannot assure you that we will continue to do so in the future.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our copyrights, service marks, trademarks, trade secrets and other
intellectual property as critical to our success. Unauthorized use of our
intellectual property by third parties may damage our brand and our reputation.
We rely on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our intellectual property rights. Despite our
precautions, it may be possible for third parties to obtain and use our
intellectual property without our authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries do not protect intellectual property to the same extent as do
the laws of the United States.
We pursue the registration of our trademarks in the United States and
internationally in France, Germany, the Netherlands, Singapore and the United
Kingdom. We may not be able to secure adequate protection of our trademarks in
the United States and other countries. We currently hold trademark registrations
in the United States, France and Germany for the AGENCY.COM trademark and have
applied for the registration of "Interactive Relationship Management" in the
United States, the United Kingdom and Singapore. Effective trademark protection
may not be available in all the countries in which we conduct business.
Our application to register the AGENCY.COM trademark in the United Kingdom
was initially denied. Although we have filed an appeal, the outcome of the
appeal is uncertain. We have also filed to register the AGENCY.COM trademark in
the United Kingdom together with our logo and believe that this registration
will be accepted. We have also filed applications to register the AGENCY.COM
trademark in Singapore and the Netherlands, however, we have not received any
responses to date. As we begin operations in new countries, it is our intention
to file trademark applications for the AGENCY.COM trademark in these countries.
We cannot assure you that any of these applications will be accepted.
Policing unauthorized use of our marks is difficult and expensive. In
addition, it is possible that our competitors will adopt product or service
names similar to ours, thereby impeding our ability to build brand identity and
possibly leading to customer confusion.
We may be subject to legal proceedings and claims from time to time relating
to the intellectual property of others in the ordinary course of our business.
We may incur substantial expenses in defending against these third-party
infringement claims, regardless of their merit. Successful infringement claims
against us may result in substantial monetary liability or may materially
disrupt the conduct of our business.
EMPLOYEES
As of November 4, 1999, we had approximately 1,000 full-time employees. None
of our employees are represented by a labor
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union. We have experienced no work stoppages and we believe our relationship
with our employees is good.
FACILITIES
Our principal executive offices are currently located in a leased facility
in New York, New York, consisting of an aggregate of approximately 37,000 square
feet. We expect to move our principal executive offices by January 2000 to
another leased facility in New York, New York, consisting of an aggregate of
approximately 100,000 square feet. The lease for this new office space expires
on April 15, 2014. We also lease space for our operations in California,
Colorado, Illinois, Massachusetts, New Jersey, Oregon and Texas, as well as in
Denmark, France, the Netherlands and the United Kingdom. While I-traffic
currently maintains offices in New York and San Francisco, we expect the
operations of I-traffic to be combined with our existing offices in these cities
in the second quarter of 2000. We believe that our existing facilities, together
with our newly-leased facilities, are adequate for our current needs and that
additional space will be available as needed.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
The following table sets forth the executive officers, directors, director
nominee and key employees of AGENCY.COM, their ages and the positions they hold:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------------------------------------------
<S> <C> <C>
Chan Suh.................. 38 Chairman of the Board, Chief Executive Officer and President
Kyle Shannon.............. 34 Chief Creative Officer and Director
Kenneth Trush............. 44 Executive Vice President, Treasurer and Director
Charles Dickson........... 45 Executive Vice President and Chief Financial Officer
Janet Ambrosi Wertman..... 37 Executive Vice President, General Counsel and Secretary
Kevin Rowe................ 40 President, North America
Eamonn Wilmott............ 38 President, Europe
Larry Krakauer............ 43 Chief Technology Officer
Gerald Bruce Redditt...... 48 Director
John D. Wren.............. 47 Director
Jeffrey Rayport........... 39 Director-Nominee
Thomas DeLong............. 49 Director-Nominee
</TABLE>
CHAN SUH co-founded AGENCY.COM in February 1995 and has served as the President,
Chief Executive Officer and Chairman of the board of directors since that time.
From June 1992 to January 1995, Mr. Suh was with Time Inc., most recently as
Marketing Director of VIBE MAGAZINE, where he was involved in the
conceptualization and launching of Pathfinder, Time Warner's service on the
World Wide Web, and created Vibe Online, the online service for VIBE MAGAZINE.
Prior to joining Time Inc., Mr. Suh held various marketing positions at Conde
Nast and NewsCorp. In addition, since February 1995, Mr. Suh has been publisher
of URBAN DESIRES, one of the first online magazines for art and culture.
KYLE SHANNON co-founded AGENCY.COM in February 1995 and has served as Chief
Creative Officer and a director since that time. From April 1993 to
January 1995, Mr. Shannon served as Manager, Image Processing for YAR
Communications, a communications agency specializing in multicultural
advertising. With a B.F.A. in performance from Penn State University,
Mr. Shannon pursued a professional acting and screenwriting career from 1987 to
1995. In addition, in November 1994, Mr. Shannon launched URBAN DESIRES, one of
the first online magazines for art and culture, and founded the World Wide Web
Artists' Consortium, a group dedicated to exploring new media in New York City.
KENNETH TRUSH has served as AGENCY.COM's Executive Vice President and Treasurer
since July 1997 and has served as a director since September 1996. Mr. Trush was
appointed Executive Vice President for Corporate Development in November 1999.
From July 1997 until November 1999, Mr. Trush served as Chief Financial Officer.
From November 1984 to June 1997, Mr. Trush owned his own certified public
accounting firm. Before founding his own accounting firm, Mr. Trush was a
Supervisor at Ernst & Young LLP.
CHARLES DICKSON has served as Executive Vice President and Chief Financial
Officer since November 1999. From December 1997 until October 1999, Mr. Dickson
served as Executive Vice President and Chief Financial Officer at WinStar
Communications Inc., a provider of broadband communications services to business
customers. From January 1994 until November 1997, Mr. Dickson served as Chief
Financial Officer at General Instrument
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Corporation, a broadband equipment and services provider. From April 1984 until
December 1993, Mr. Dickson served as a senior financial executive of MCI
Communications Corporation, most recently as Vice President for Finance and
Administration, National Accounts.
JANET AMBROSI WERTMAN has served as Executive Vice President, General Counsel
and Secretary of AGENCY.COM since January 1998. From 1988 until August 1997,
Ms. Ambrosi Wertman was an attorney with the law firm of Davis & Gilbert, most
recently as a partner in the firm.
KEVIN ROWE has served as AGENCY.COM's President of North American operations
since April 1999 and has acted in this capacity since June 1998, presiding over
Eagle River Interactive, an interactive agency acquired by AGENCY.COM. From
December 1996 to April 1999, Mr. Rowe served as President of Eagle River
Interactive. From October 1991 to September 1996, Mr. Rowe was Executive Vice
President and General Manager of the Midwest Region of MCI Systemhouse Inc., a
division of MCI Communications Inc. Prior to joining MCI Systemhouse, Mr. Rowe
held various positions at Andersen Consulting, most recently as an Associate
Partner, and Ferrin Corporation.
EAMONN WILMOTT has served as President of European operations since June 1999
and acted as Managing Director of the London office of AGENCY.COM from May 1997
until June 1999. Prior to joining AGENCY.COM, Mr. Wilmott served as Director of
Online Magic Limited, an interactive agency that he founded in the United
Kingdom in 1994, which was acquired by AGENCY.COM in July 1998. Prior to
founding Online Magic, Mr. Wilmott founded, and served as President of Supernet
International, one of the world's first commercial Internet service.
LARRY KRAKAUER has served as Chief Technology Officer since April 1999 and has
acted in such capacity since July 1998, presiding over Quadris Consulting until
it was acquired by AGENCY.COM in April 1999. From January 1995 to April 1999,
Mr. Krakauer served as President of Quadris Consulting, which began as a
division of JYACC, Inc., an information technology consulting company and became
an independent company in 1998. From 1989 to 1995, Mr. Krakauer served in
various capacities at JYACC.
GERALD BRUCE REDDITT has served as a director of AGENCY.COM since January 1999.
Since May 1998, Mr. Redditt has served as Executive Vice President of Omnicom.
From 1995 to 1998, Mr. Redditt served as Head of Communications and Governmental
Relations at Sony Pictures Entertainment. Prior to 1995, Mr. Redditt served for
nine years in various capacities at GTE, a global telecommunications company,
most recently as Head of Corporate Communications. Mr. Redditt has been
nominated to our board of directors by Communicade, a subsidiary of Omnicom,
pursuant to a shareholders agreement.
JOHN D. WREN has served as a director of AGENCY.COM since September 1996.
Mr. Wren has served as Chief Executive Officer of Omnicom since January 1997 and
has also been President of Omnicom since September 1995. From May 1993 until
June 1998, he served as Chairman and Chief Executive Officer of the Diversified
Agency Services division of Omnicom. Mr. Wren was appointed to Omnicom's Board
of Directors in May 1993. Mr. Wren also serves on the Board of Directors of
Razorfish, Inc. Mr. Wren has been nominated to our board of directors by
Communicade, a subsidiary of Omnicom, pursuant to a shareholders agreement.
JEFFREY RAYPORT has agreed to serve as a director of AGENCY.COM upon the
completion of the initial public offering. Mr. Rayport has been an associate
professor of business administration in the Service Management Unit at the
Harvard Business School since
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September 1991. Mr. Rayport has developed a specialized course on "Managing
Marketspace Service Interfaces", which focuses on electronic commerce and
technology-mediated service channels. Mr. Rayport currently serves as director
on the boards of Global Sports, Be Free, edu.com and Andrews McMeel Universal.
THOMAS DELONG has agreed to serve as a director of AGENCY.COM upon the
completion of the initial public offering. Mr. DeLong has been a senior lecturer
and professor of management at the Harvard Business School since January 1997.
From 1993 to December 1997, Mr. DeLong was the Chief Development Officer and
head of Human Resources at Morgan Stanley.
CLASSIFIED BOARD OF DIRECTORS
Upon the closing of this offering, our board of directors will be divided
into three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
These provisions, when coupled with the provision of our amended and restated
certificate of incorporation authorizing the board of directors to fill vacant
directorships or increase the size of the board of directors, may delay a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies with its own nominees.
Messrs. Rayport and DeLong will be Class I directors whose terms expire at the
2000 annual meeting of shareholders; Messrs. Redditt, Trush and Shannon will be
class II directors whose terms expire at the 2001 annual meeting of
shareholders; and Messrs. Suh and Wren will be class III directors whose terms
expire at the 2002 annual meeting.
Messrs. Redditt and Wren had originally been elected to our board of
directors under an agreement we entered into with Communicade, a wholly-owned
subsidiary of Omnicom, in order for Omnicom as our majority stockholder to have
an active role in board decisions. The provision of the agreement providing
Communicade with the right to select two directors does not extend to future
elections.
BOARD COMMITTEES
The audit committee reports to the board regarding the appointment of our
independent public accountants, the scope and results of our annual audits,
compliance with our accounting and financial policies and management's
procedures and policies relative to the adequacy of our internal accounting
controls. Upon the completion of this offering, the audit committee will consist
of Jeffrey Rayport and Thomas DeLong. In compliance with Nasdaq National Market
rules and regulations, our audit committee will consist of at least two
independent directors after the closing of this offering.
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our executive officers and directors. In
addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. Upon the completion of this
offering, the members of the compensation committee will be Jeffrey Rayport and
Thomas DeLong. No interlocking relationships exist between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past. Our compensation committee will consist of at least two directors,
both of whom will be independent. This permits options granted by the
compensation committee to receive favorable treatment under applicable federal
securities and tax law.
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DIRECTOR COMPENSATION
We do not currently compensate directors for attending meetings of the board
of directors or committee meetings of the board of directors, but we do
reimburse directors for their reasonable travel expenses incurred in connection
with attending these meetings.
Under the automatic option grant program of the 1999 Stock Option/Stock
Issuance Plan, which is described below under "--1999 Stock Option/Stock
Issuance Plan", and subject to the last sentence of this paragraph, each
individual who is serving as a non-employee member of the board of directors on
the date the underwriting agreement is executed and who has not previously been
in our employ will receive at that time an option to purchase 50,000 shares of
common stock with an exercise price equal to the public offering price set forth
on the cover page of this prospectus. Each individual who first joins the board
of directors after the completion of this offering as a non-employee member of
the board of directors will also receive an option grant for 50,000 shares of
common stock at the time of his or her commence of service on the board of
directors, provided such individual has not otherwise been in our prior employ
and has not received options to purchase, in the aggregate, more than 40,000
shares of common stock in the last 12 months. In addition, at each annual
meeting of stockholders, beginning with the 2000 annual meeting, each individual
who is to continue to serve as a non-employee member of the board of directors
will receive an option to purchase 15,000 shares of common stock, provided such
individual has served as a non-employee board member for at least six months.
Messrs. Rayport and DeLong have agreed to be named as director-nominees for
this prospectus and to serve as directors of AGENCY.COM upon the closing of this
offering. Upon agreeing to serve as directors, Messrs. Rayport and DeLong were
issued options to purchase 50,000 shares of our common stock at an exercise
price of $1.225 and $9.35 per share, respectively, under our 1999 Stock
Option/Stock Issuance Plan. These options become exercisable at the time each is
elected as a director of AGENCY.COM.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our Chief
Executive Officer, Chief Creative Officer and our four most highly compensated
executive officers (collectively, the "named executive officers") during the
fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------------
--------------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- --------- --------- ----------------- --------------
<S> <C> <C> <C> <C>
Chan Suh........................... $ 75,000 $ -- -- $ 563(1)
Chief Executive Officer
Kyle Shannon....................... 75,000 -- -- 563(1)
Chief Creative Officer
Kenneth Trush...................... 150,000 2,000 -- 1,140(2)
Chief Financial Officer
Kevin Rowe (3)..................... 250,000 320,000 -- 12,685
President, North America
Eamonn Wilmott..................... 107,868(4) -- -- --
President, Europe
Larry Krakauer (5)................. 146,410 39,646 185,144 13,421
Chief Technology Officer
</TABLE>
- ------------------------
(1) AGENCY.COM paid $563 in matching 401(k) contributions to each of
Messrs. Suh and Shannon.
(2) Mr. Trush received $378 as payment for long-term disability premiums and
$762 as matching 401(k) contributions.
(3) Mr. Rowe was appointed AGENCY.COM's President, North America, in April 1999.
The amounts stated above were paid to Mr. Rowe by Eagle River Interactive.
Mr. Rowe received a car allowance of $7,800, a matching 401(k) contribution
of $2,000 and $2,885 for unused time off.
(4) Mr. Wilmott's annual salary was paid in pounds sterling (L). The dollar
amount reflects a conversion rate of 1.6595 dollars per pound sterling as of
December 31, 1998.
(5) Mr. Krakauer was appointed AGENCY.COM's Chief Technology Officer in April
1999. The amounts stated above were paid to Mr. Krakauer by Quadris
Consulting. Mr. Krakauer received a $3,316 matching 401(k) contribution and
$10,105 for unused time off.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options for the year ended
December 31, 1998 to each of the named executive officers. We have never granted
any stock appreciation rights. The potential realizable value is calculated
based on the term of the option at its time of grant. It is calculated assuming
that the fair market value of common stock on the date of grant appreciates at
the indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
POTENTIAL
PERCENT REALIZABLE VALUE
OF FAIR AT ASSUMED ANNUAL
TOTAL MARKET RATES
NUMBER OF OPTIONS VALUE OF STOCK PRICE
SECURITIES GRANTED EXERCISE PER APPRECIATION
UNDERLYING TO PRICE SHARE ON FOR OPTION TERM
OPTIONS EMPLOYEES PER DATE EXPIRATION -------------------
NAME GRANTED IN 1998 SHARE OF GRANT DATE 5% 10%
- ------------------------------ --------- --------- -------- -------- -------- -------- --------
Chan Suh...................... -- --% $ -- $ -- -- $ -- $ --
Kyle Shannon.................. -- -- -- -- -- -- --
Kenneth Trush................. -- -- -- -- -- -- --
Kevin Rowe.................... -- -- -- -- -- -- --
Eamonn Wilmott................ -- -- -- -- -- -- --
Larry Krakauer (1)............ 185,144 9.8 0.44 0.44 12/30/08 51,232 129,832
</TABLE>
(1) These represent options issued to Mr. Krakauer while he was an employee of
Quadris Consulting which converted into AGENCY.COM options upon the closing
of the acquisition.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options held by each of the named executive officers at
December 31, 1998. There was no public trading market for the common stock as of
December 31, 1998. Accordingly, the values set forth below have been calculated
on the basis of an assumed initial public offering price of $11.00 per share,
less the applicable exercise price per share, multiplied by the number of shares
underlying the options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
----------------------- ------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------ ------- -------- ---------- --------
Chan Suh.................................. -- -- $ -- $ --
Kyle Shannon.............................. -- -- -- --
Kenneth Trush............................. 278,730 -- 2,745,491 --
Kevin Rowe................................ -- -- -- --
Eamonn Wilmott............................ -- -- -- --
Larry Krakauer............................ 185,144 -- 1,955,121 --
</TABLE>
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EMPLOYMENT AGREEMENTS
In April 1999, we entered into employment agreements with each of
Messrs. Suh, Shannon, Trush, Rowe, Wilmott and Krakauer and Ms. Ambrosi Wertman.
In October 1999, we entered into an employment agreement with Mr. Dickson.
Mr. Suh's employment agreement provides for an annual base salary of
$155,000. If Mr. Suh's employment agreement is terminated for reasons other than
for cause or if Mr. Suh should resign for good reason, he will be entitled to
receive his annual base salary payable through March 31, 2004 if the date of
termination occurs on or prior to March 31, 2003 or one year from the date of
termination, if such termination occurs after March 31, 2003. In addition, all
stock options that would vest during this period are accelerated to vest and
become exercisable prior to the date of termination. Mr. Suh's employment
agreement has a term ending in March 2004, but will continue indefinitely until
terminated on one year's notice by either party.
Mr. Shannon's employment agreement provides for an annual base salary of
$150,000. If Mr. Shannon's employment agreement is terminated for reasons other
than for cause or if Mr. Shannon should resign for good reason, he will be
entitled to receive his annual base salary payable through March 31, 2004 if the
date of termination occurs on or prior to December 31, 2003 or 90 days from the
date of termination, if such termination occurs after December 31, 2003. In
addition, all stock options that would vest during this period are accelerated
to vest and become exercisable prior to the date of termination. Mr. Shannon's
employment agreement has a term ending in March 2004, but will continue
indefinitely until terminated on 90 days' notice by either party.
Mr. Rowe's employment agreement provides for an annual base salary of
$150,000. Mr. Rowe is entitled to receive an annual bonus of $100,000. In
addition, based on criteria agreed to by Mr. Rowe and the chief executive
officer, Mr. Rowe will be eligible to receive an annual discretionary
performance-based bonus of up to $250,000. Mr. Rowe also receives an automobile
allowance of $600 per month. If Mr. Rowe's employment agreement is terminated
for reasons other than for cause or if Mr. Rowe should resign for good reason,
he will be entitled to receive his annual base salary payable through April 30,
2002 if the date of termination occurs on or prior to January 31, 2002 or
90 days from the date of termination, if such termination occurs after
January 31, 2002. In addition, all stock options that would vest during this
period are accelerated to vest and become exercisable prior to the date of
termination. Mr. Rowe's employment has a term ending in April 2002 but will
continue indefinitely until terminated on 90 days' notice by either party.
At the time that Mr. Rowe became an employee of AGENCY.COM, we made a
restricted stock grant to him of 80,690 shares of our common stock. Provided
Mr. Rowe remains in our continuous employ, 33 1/3% of the restricted shares will
automatically vest on each of the first three anniversaries of the date of
grant. If Mr. Rowe retires or his employment is involuntarily terminated prior
to any of the first three anniversaries, the pro rata portion of the number of
restricted shares that would have vested as of such termination date will vest.
The board of directors has sole discretion to increase the number of shares that
will vest on retirement or involuntary termination.
Messrs. Trush, Wilmott and Krakauer and Ms. Ambrosi Wertman have employment
agreements with substantially the same terms. Messrs. Trush and Krakauer receive
annual base salaries of $150,000 and Ms. Ambrosi Wertman receives an annual base
salary of $120,000. Mr. Wilmott receives an annual base salary of L93,050, which
is approximately $150,000. Each agreement has a term ending on March 31, 2002,
but will continue
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indefinitely until terminated on 90 days' notice by either party. If any of
these persons should resign for good reason or are terminated for reasons other
than for cause, all stock options which would have vested during the term of the
agreement will automatically vest. In addition, in cases of termination other
than for cause or resignation for good reason, he or she will be entitled to
receive his or her annual base salary payable through March 31, 2002 if the date
of termination occurs on or prior to December 31, 2001 or 90 days from the date
of termination, if termination occurs after December 31, 2001.
Mr. Dickson's employment agreement provides for an annual base salary of
$250,000, with a guaranteed annual bonus of $100,000 and a discretionary annual
bonus of up to $100,000. The agreement has a term ending on October 31, 2002,
but will be automatically renewed for successive three year terms unless either
party gives the other party written notice no more than nine and no less than
six months before the expiration of the term. If Mr. Dickson is terminated for
cause, he will be entitled to all unpaid salary compensation and a pro rata
share of the guaranteed bonus through the termination date. In addition,
Mr. Dickson would have the right to exercise any vested stock options, and the
vesting of any unvested options will be determined in accordance with the plan
under which the options were granted. If Mr. Dickson is terminated without
cause, he will be entitled to severance compensation equal to his then-
applicable base salary and a pro-rated guaranteed bonus for twelve months
following the date of termination. In addition, Mr. Dickson would have the right
to exercise any vested options in accordance with the terms of the plan under
which the options were granted, and all unvested options which would have vested
during the year following the date of termination would be accelerated to
precede the date of termination.
Each executive officer serves at the discretion of the board of directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
INTRODUCTION
The 1999 Amended and Restated Stock Option/Stock Issuance Plan is the
successor program to our 1996 Stock Option Plan and 1997 Stock Option Plan. The
1999 plan was initially adopted by our board of directors and our stockholders
in February 1999 and became effective as of that date. All outstanding options
under our 1996 Stock Option Plan and 1997 Stock Option Plan will be transferred
to the 1999 plan upon the closing of this offering, and no further option grants
will be made under the predecessor plans. The transferred options will continue
to be governed by their existing terms. All outstanding options currently under
our 1996 and 1997 plans are currently exercisable in full. Except as otherwise
noted, the transferred options have substantially the same terms as those for
grants to be made under the discretionary option grant program of the 1999 plan.
SHARE RESERVE
9,676,178 shares of our common stock have been authorized for issuance under
the 1999 plan. This share reserve consists of the number of shares carried over
from the 1996 and 1997 plans plus an additional increase of 8,823,266 shares,
for a total of 9,676,178 shares. The share reserve will automatically increase
on the first trading day in January each year, by an amount equal to 3% of the
total number of shares of common stock outstanding on the last trading day of
the prior year, but in no event will this annual increase exceed 1,500,000
shares. In addition, no participant in the 1999 plan may be granted stock
options, separately exercisable stock
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appreciation rights or direct stock issuances for more than 1,100,000 shares of
common stock in total in any calendar year.
PROGRAMS
The 1999 plan has three separate programs:
- the discretionary option grant program, under which our board of directors
or compensation committee may grant eligible individuals in our service
(1) options to purchase shares of our common stock at an exercise price
determined by the plan administrator and (2) stock appreciation rights;
- the stock issuance program, under which eligible individuals may be issued
shares of common stock upon the attainment of performance milestones, upon
the completion of a period of service or as a bonus for past services; and
- the automatic option grant program, under which option grants will be made
at periodic intervals to eligible non-employee board members to purchase
shares of common stock at an exercise price equal to the fair market value
of those shares on the grant date.
The individuals eligible to participate in our 1999 plan include our
officers, employees, board members and consultants.
ADMINISTRATION
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a nonstatutory stock option under
the federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to remain
outstanding. The administration of the automatic option grant program will be
self-executing in accordance with its terms.
PLAN FEATURES
The 1999 plan includes the following additional features:
- Options granted under the plan may be exercised by payment in cash or
(i) by payment of shares of our common stock valued at fair market value
on the exercise date or (ii) through a same-day sale program without any
cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options with the consent of the holder under the discretionary option
grant program, including any transferred options from our 1996 and 1997
plans, in return for the grant of new options for the same or different
number of options shares with an exercise price per share based upon the
fair market value of our common stock on the new grant date.
- Stock appreciation rights will provide the holders with the election to
surrender their outstanding options for a payment from AGENCY.COM equal to
the fair market value of the shares subject to the surrendered options
less the exercise price payable for those shares. We may make the payment
in cash or in shares of our common stock.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the automatic option grant program. Options with
this feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock or
a change in
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the majority of our board through one or more contested elections. In
return for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based upon
the fair market value per share upon the date of surrender or, if in
connection with a hostile tender offer, the highest price per share of our
common stock paid in that tender offer.
CHANGE IN CONTROL
The 1999 plan includes the following change in control provisions which may
result in the accelerated vesting of outstanding option grants and stock
issuances:
- In the event that we are acquired by merger or asset sale or a board-
approved sale of more than 50% of our stock, each outstanding option under
the discretionary option grant program which is not to be assumed or
continued by the successor corporation will immediately become exercisable
for all the option shares, and all outstanding unvested shares will
immediately vest, except to the extent our repurchase rights with respect
to those shares are assigned to the successor corporation.
- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with AGENCY.COM or the acquiring entity is subsequently
terminated. The vesting of any outstanding shares under the stock issuance
program may be accelerated upon similar terms and conditions.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.
AUTOMATIC OPTION GRANT PROGRAM
Each eligible individual who is serving as a non-employee board member on
the date the underwriting agreement for this offering is executed will
automatically receive on such date an option to purchase 50,000 shares of our
common stock. Each eligible individual who first becomes a non-employee board
member at any time after this offering will automatically receive on the date of
his or her appointment, an option to purchase 50,000 shares of our common stock.
A non-employee board member will receive an option grant on the underwriting
agreement date for this offering or when he or she first joins the board only if
he or she (i) has not been in the prior employ of AGENCY.COM, (ii) had not
received options to purchase more than 40,000 shares of our common stock in the
12 month period preceding the underwriting agreement date for this offering or
the date of the initial appointment or election and (iii) is not a
representative of, or affiliated with, any of our shareholders who, directly or
indirectly, own 30% or more of our voting stock. On the date of each annual
stockholders meeting following this offering, each individual who is to continue
to serve as a non-employee board member will automatically be granted an option
to purchase 15,000 shares of our common stock, provided he or she has served on
the board for at least six months and is not a representative of, or affiliated
with, any of our shareholders who, directly or indirectly, own 30% or more of
our voting stock.
Each automatic grant will have a term of ten years, subject to earlier
termination
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following the optionee's cessation of board service. The option will be
immediately exercisable for all of the option shares; however, any unvested
shares purchased under the option will be subject to repurchase by us, at the
exercise price paid per share, should the optionee cease board service prior to
vesting of those shares. The shares subject to each 50,000 share initial
automatic option grant will vest over a four-year period in successive equal
annual installments upon the individual's completion of each year of board
service over the four-year period measured from the option grant date. Each
15,000 share subsequent automatic option grant will vest upon the individual's
completion of one year of board service measured from the option grant date.
However, the shares subject to each automatic grant will immediately vest in
full upon certain changes in control or ownership of AGENCY.COM or upon the
optionee's death or disability while a board member.
The board may amend or modify the 1999 plan at any time, subject to any
required stockholder approval. The 1999 plan will terminate no later than
January 31, 2009.
ASSUMED OPTION PLANS
Pursuant to the terms of the merger agreement between AGENCY.COM and
Interactive Solutions, we assumed the Quadris Consulting 1998 Equity Incentive
Plan and all outstanding options thereunder and the Interactive Solutions
Incorporated 1996 Stock Option Plan and all outstanding options thereunder. In
connection with the merger, the plans were terminated, however, the assumed
options outstanding at the time of such termination will continue to be governed
by their existing terms. As of June 30, 1999 1,399,410 shares of AGENCY.COM
common stock were reserved for issuance pursuant to the assumed options. The
exercise price per share under each plan was determined by the Quadris
Consulting board or the Interactive Solutions board in its discretion and was
based upon the fair market value of the stock at the time of grant. Incentive
options granted under the plans have an exercise price per share not less than
100% of the fair market value at the time of grant. The exercise price for any
options granted the plans may be paid in cash or, after the initial public
offering, in shares of our common stock valued at fair market value on the
exercise date. In the event that we are acquired by merger or asset sale, each
outstanding option under the plans which is not assumed by the acquiring company
will immediately become exercisable for all the option shares, and all
outstanding unvested shares will immediately vest.
Pursuant to the terms of the merger agreement between AGENCY.COM and
I-traffic, all options outstanding at the effective time of the acquisition to
purchase I-traffic common stock were assumed and will be exercisable to purchase
an aggregate of 160,680 shares of AGENCY.COM common stock. In connection with
the acquisition, the I-traffic plan was terminated with respect to any future
option grants. However, the converted options will continue to be governed by
their existing terms. The exercise price of each I-traffic option under the plan
was based on the fair market value of the stock at the time of grant. Incentive
options granted under the plan have an exercise price of no less than 100% of
the fair market value at the time of grant. The exercise price for any options
granted under the plan may be paid in cash, or after the initial public
offering, in shares of our common stock valued at fair market value on the
exercise date. In the event we are acquired by merger or asset sale, each
outstanding option under the plan which is unvested will vest and shall be
terminated unless exercised at the effective time of any such transaction or
unless assumed by the successor corporation in connection with the transaction.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
OMNICOM'S ORIGINAL INVESTMENT IN AGENCY.COM
In September 1996, Communicade, Inc. (formerly known as JWL Associates
Corp.), a wholly owned subsidiary of Omnicom, paid $11.7 million for an
aggregate of 6,272,278 shares of the then outstanding shares of our common stock
from the holders of our outstanding shares, Chan Suh, Kyle Shannon, Kenneth
Trush and Paul Galli. Communicade's interest in AGENCY.COM as a result of this
transaction was 40% of the outstanding common stock of AGENCY.COM. Communicade
also consented to the creation of a stock option plan, which provided AGENCY.COM
the ability to issue up to 10% of AGENCY.COM's equity in the form of stock
options.
Under a shareholders agreement entered into by these parties in connection
with Communicade's investment:
- these individuals granted Communicade options to purchase additional
shares sufficient to give Communicade 51% or 80% of AGENCY.COM's
outstanding shares, depending on the circumstances;
- the parties agreed to a board of five members, two of whom would be
designated by Communicade as long as it owned less than 50% of
AGENCY.COM's outstanding capital stock; and
- the parties agreed that as long as Communicade owned less than 51% of
AGENCY.COM's common stock, specified transactions would require
Communicade's prior consent.
This shareholders agreement with Communicade was superseded by a new
shareholders agreement entered into in April 1999 which will terminate on the
closing of this offering. Under this new agreement, Communicade's options to
acquire additional shares were removed and the working capital line was
increased to $10.0 million. The other material provisions of the 1996
shareholders agreement such as the acquisition line, the director nomination
rights and the size of the board, and Communicade's consent rights on specified
transactions were continued on similar terms. Messrs. Redditt and Wren, the
executive vice president and chief executive officer of Omnicom, respectively,
also serve as directors of AGENCY.COM.
OMNICOM FINANCING ARRANGEMENTS
In November 1999, we entered into a new $85.0 million credit facility with
Omnicom Finance, a wholly owned subsidiary of Omnicom, which replaced our
revolving credit line and consolidated all of our previously outstanding
indebtedness due to Omnicom Finance. The credit facility, which terminates on
September 30, 2001, provides for a $25.0 million term loan facility, a
$54.0 million revolving credit line and a real property lease credit support
facility providing letters of credit and/or guarantees up to $6.0 million in the
aggregate. We are required by the credit facility to use 35% of the net proceeds
from this offering, subject to a maximum of $25.0 million, to repay amounts
borrowed under the term loan portion of the new credit facility. This credit
facility bears interest at Omnicom's commercial paper rate, which on
November 4, 1999 was 5.3%, plus 1.25%. The credit facility is secured by
substantially all of our assets including the shares of our subsidiaries, is
guaranteed by our domestic subsidiaries and prohibits us and our subsidiaries
from paying dividends other than in shares of our stock. The credit facility
requires compliance with a number of covenants, including restrictions on asset
sales, liens, the incurrence of debt, making of loans and the repurchase,
redemption or other acquisition of our stock.
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Under the 1996 shareholders agreement with Communicade, Communicade agreed
that it, or Omnicom or its affiliates, would lend AGENCY.COM $1.0 million on a
revolving basis for its working capital needs. Substantially all of AGENCY.COM's
assets, including the shares of its subsidiaries, were pledged to secure this
working capital line. Communicade also agreed that it, or Omnicom or its
affiliates, would provide financing to AGENCY.COM to finance "new media"
acquisitions approved by Communicade or its designated directors. Interest on
the revolving credit line and the acquisition line accrued on a non-cash basis
and was payable when the line terminated. As discussed above, this agreement was
superceded in April 1999. The credit agreement provisions under the shareholders
agreement were terminated upon the effectiveness of the new credit facility.
ACQUISITION OF OMNICOM SUBSIDIARIES
In April 1998, AGENCY.COM purchased certain assets and assumed certain
liabilities from Ketchum Advertising Inc., a wholly owned subsidiary of Omnicom,
relating to its Ketchum Interactive business. The purchase price was $643,000 in
cash.
In December 1998, Communicade purchased 60% of Interactive Solutions' shares
from Interactive Solutions' former President for a purchase price of $1.6975 per
share, resulting in Communicade holding all of Interactive Solutions'
outstanding shares, other than a de minimis number of shares held by third
parties as a result of stock option exercises. Before the AGENCY.COM-Interactive
Solutions merger, Communicade sold to a group of AGENCY.COM employees, Quadris
employees and Eagle River Interactive employees, including all of AGENCY.COM's
executive officers, a portion of the Interactive Solutions shares purchased from
Interactive Solutions' former President aggregating 4.47% of Interactive
Solutions' outstanding shares. The purchase price was $1.6975 per share, for an
aggregate purchase price of $412,492.
In April 1999, Interactive Solutions merged with Quadris Consulting, a
company in which it held preferred stock. The transaction was valued at
$1.9 million. The Quadris preferred stock held by Interactive Solutions was
convertible into 60% of Quadris's outstanding common stock. Quadris'
stockholders, other than Interactive Solutions, received Interactive Solutions
shares in the merger. Immediately after this merger, Interactive Solutions
merged with AGENCY.COM.
AGENCY.COM acquired Interactive Solutions through a merger. Pursuant to this
merger, the Interactive Solutions stockholders other than Communicade received
an aggregate of 330,860 shares of AGENCY.COM common stock and the former Quadris
stockholders received an aggregate of 1,244,534 shares of AGENCY.COM common
stock. The aggregate value of these shares was approximately $1.9 million.
AGENCY.COM also assumed $12.7 million of indebtedness owed by Interactive
Solutions to Omnicom and assumed the Quadris and Interactive Solutions stock
option plans covering options now exercisable for an aggregate of 1,399,410
shares of AGENCY.COM common stock. In connection with this merger, Communicade
received 2,596,452 shares of common stock and a 20-year warrant to purchase
3,071,248 shares of AGENCY.COM common stock at an exercise price of $0.005 per
share. The transaction was valued at $8.2 million. Following the consummation of
this transaction, Communicade held 35.4% of our outstanding shares of common
stock, in addition to the shares of common stock underlying their warrants. The
warrant provides that if Communicade and Omnicom beneficially own in the
aggregate less than 50% of AGENCY.COM's outstanding shares of common stock at
the time of exercise, the warrant may be exercised only to the extent that the
number of shares of common stock beneficially owned after such exercise remains
less than 50% of the outstanding shares.
In April 1999, AGENCY.COM merged with Eagle River Interactive, a wholly
owned
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subsidiary of Omnicom. In connection with the merger, AGENCY.COM assumed
$22.6 million of indebtedness owed by Eagle River Interactive to Omnicom.
Pursuant to this merger, Omnicom received 3,659,548 shares of AGENCY.COM common
stock and a 20-year warrant to purchase 4,328,752 shares of AGENCY.COM common
stock at an exercise price of $0.005 per share. In addition, we issued 80,690
shares of our common stock to Kevin Rowe in connection with his employment with
the company. Following this transaction, Omnicom, together with Communicade,
held 49.9% of our outstanding shares of common stock, in addition to shares of
common stock underlying its and Communicade's warrants. The transaction was
valued at approximately $8.1 million. This value was established in July 1998 at
the time the transaction was announced. Omnicom negotiated the merger with
AGENCY.COM's directors, other than Communicade's two nominees. As a result of
these negotiations, each company was valued based on a multiple of revenues, and
a discount was applied to Eagle River Interactive's value based on its losses.
The warrant issued to Omnicom provides that if Communicade and Omnicom
beneficially own in the aggregate less than 50% of AGENCY.COM's outstanding
shares of common stock at the time of exercise, the warrant may be exercised
only to the extent that the number of shares of common stock beneficially owned
after such exercise remains less than 50% of the outstanding shares. In
September 1997, a wholly owed subsidiary of Omnicom acquired Eagle River
Interactive's assets for an aggregate of $13.5 million, which includes cash paid
at closing and additional payments based on Eagle River Interactive's earnings.
At the time of the AGENCY.COM-Eagle River merger, Eagle River settled
obligations due by it under an earn-out provision from an earlier transaction
with certain employees, including Kevin Rowe. Omnicom settled these obligations
by causing Communicade to transfer 13,322 shares of our common stock to these
employees, including 4,084 shares to Mr. Rowe. In connection with this
settlement, Rowe released Communicade, Omnicom, Eagle River and any or their
affiliates from any further obligations.
OMNICOM REGISTRATION RIGHTS
In November 1999, we entered into a registration rights agreement with
Omnicom. Under the registration rights agreement, from time to time after
180 days after the date of this prospectus, Omnicom and its affiliates may, on
up to three occasions, require us to register for sale under the securities laws
all or a portion of their shares of AGENCY.COM common stock. In addition, if at
any time we propose to file a registration statement under the securities laws
with respect to any class of equity securities, Omnicom and its affiliates may
require us to include in the registration as many shares as it shall request,
subject to reduction, based on the opinion of the managing underwriter of the
offering. The registration rights do not expire, but are not assignable. We may
not issue registration rights to any other person that are senior in right to
those of Omnicom under the registration rights agreement without Omnicom's
consent. We have agreed to bear all expenses associated with the registration of
Omnicom's and its affiliates' securities, other than underwriting discounts and
commissions and fees of Omnicom's counsel.
ACQUISITIONS AND INVESTMENTS FINANCED
BY OMNICOM
The table below sets forth the amount borrowed for each acquisition of or
investment in a "new media" company that AGENCY.COM funded with a loan from
Communicade or assumed in connection with an acquisition or investment:
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<TABLE>
<CAPTION>
ACQUISITION OR INVESTMENT AMOUNT BORROWED
- ------------------------- ---------------
(IN THOUSANDS)
<S> <C>
Spiral Media............................................... $ 5,480
Online Magic............................................... 1,450
Ketchum Interactive........................................ 643
The Primary Group.......................................... 53
The Edge Consultants....................................... 3,005
Eagle River Interactive (Omnicom debt assumed)............. 22,569
Interactive Solutions (Omnicom debt assumed)............... 12,646
Digital Vision............................................. 1,100
Twinspark Interactive People............................... 700
I-traffic.................................................. 3,000
Pictoris Interactive....................................... 500
Visionik................................................... 500
--------
Total................................................ $ 51,646
========
</TABLE>
AGREEMENT WITH UNDERWRITER
In the past, we provided Internet professional services to Salomon Smith
Barney pursuant to an agreement negotiated at arm's length. We entered into this
agreement prior to our selection of the underwriters for this offering. Our
revenues from this contract were $131,000 in 1998 and $110,000 for the nine
months ended September 30, 1999.
OTHER TRANSACTIONS
AGENCY.COM provides services on an informal basis to URBAN DESIRES, an
online magazine for art and culture. URBAN DESIRES was founded by Kyle Shannon,
our Chief Creative Officer and a director, and is owned by Mr. Shannon and Chan
Suh, our Chairman, Chief Executive Officer and President. We billed URBAN
DESIRES approximately $345,976, $244,219, $115,000 and $135,000 in 1996, 1997,
1998 and in the first nine months of 1999, respectively, for our services and
are providing services to URBAN DESIRES currently.
In September 1996, each of Messrs. Suh and Shannon agreed with Communicade
not to sell any portion of his interest in URBAN DESIRES to any competitor of
Communicade or Omnicom.
It is our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates be entered into only if they are approved by a
majority of the disinterested independent directors, are on terms no less
favorable to us than could be obtained from unaffiliated parties and are
reasonably expected to benefit us.
We have entered into consulting agreements with Messrs. Rayport and DeLong
relating to their service as directors. The terms of each agreement are
substantially similar. Each agreement provides that each director-nominee will
serve as one of our directors and will render services to us on an as-needed
basis. In exchange for their services, we will issue to each of Messrs. Rayport
and DeLong options to purchase 50,000 shares of our common stock pursuant to the
Company's 1999 Stock Option/Stock Issuance Plan at the closing of this offering
with an exercise price of $1.225 for Mr. Rayport and $9.35 for Mr. DeLong.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of November 4, 1999 and as adjusted to reflect
the sale of common stock offered by us in this offering for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table;
- each of our directors and our director-nominee; and
- all of our executive officers, directors, and director nominee as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Unless otherwise indicated, the address for those
listed below is c/o AGENCY.COM Ltd., 665 Broadway, 9th Floor, New York, New York
10012. Except as indicated by footnote, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them. The number of shares of common stock outstanding used in calculating the
percentage for each listed person includes the shares of common stock underlying
options held by such persons that are exercisable within 60 days of November 4,
1999, but excludes shares of common stock underlying options held by any other
person. Percentage of beneficial ownership is based on 27,774,562 shares of
common stock outstanding as of November 4, 1999, and 33,674,562 shares of common
stock outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED
--------------------
<S> <C> <C> <C>
SHARES BENEFICIALLY PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ------------------------------------------------- ---------- ---- ----
Chan Suh (2)..................................... 4,755,902 17.1% 14.1%
Kyle Shannon (3)................................. 4,579,900 16.5 13.6
Kenneth Trush (4)................................ 599,856 2.1 1.8
Kevin Rowe (5)................................... 114,774 * *
Eamonn Wilmott (6)............................... 407,971 1.5 1.2
Larry Krakauer (7)............................... 934,692 3.3 2.7
Gerald Bruce Redditt (8)......................... 15,246,283 49.9 46.7
John D. Wren (9)................................. 15,246,283 49.9 46.7
Jeffrey Rayport (10)............................. 50,000 * *
Thomas DeLong (11)............................... 50,000 * *
Communicade Inc. (12)............................ 11,586,735 38.0 32.5
Omnicom Group Inc. (13).......................... 15,246,283 49.9 46.7
All directors, director-nominees and executive
officers as a group (12 persons) (14).......... 26,946,770 86.4 74.9
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
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(1) Assumes that the underwriters' over-allotment option to purchase up to an
additional 885,000 shares from AGENCY.COM is not exercised.
(2) Includes 190,000 shares of common stock held by the Chan Suh 1999
Grantor-Retained Annuity Trust.
(3) Includes 400,000 shares of common stock held by the Shannon Family Trust.
(4) Includes 278,730 shares of common stock issuable upon the exercise of stock
options that are exercisable within 60 days. Also includes 30,000 shares of
common stock held by The Daniel N. Trush 1999 Trust and 30,000 shares of
common stock held by The Michael J. Trush 1999 Trust.
(5) Includes 80,690 shares of restricted common stock subject to a Restricted
Stock Agreement, dated April 16, 1999 between AGENCY.COM and Mr. Rowe.
(6) Does not include 76,977.80 shares of common stock held in an escrow account,
which are eligible to be released pending the financial results of
AGENCY.COM for fiscal 1999. Mr. Wilmott does not have voting or dispositive
control over these shares while held in escrow.
(7) Includes 185,986 shares of common stock issuable upon the exercise of stock
options that are exercisable within 60 days and 2,500 shares held by
Mr. Krakauer's children.
(8) Includes 8,868,730 shares of common stock held by Communicade and 3,659,548
shares of common stock held by Omnicom. Shares beneficially owned prior to
the offering includes 2,718,005 shares of common stock issuable upon the
exercise of the currently exercisable portion of warrants to purchase
2,928,752 shares of common stock held by Omnicom and warrants to purchase
3,071,248 shares of common stock held by Communicade. Each warrant provides
that if Communicade and Omnicom beneficially own in the aggregate less than
50% of our outstanding shares of common stock at the time of exercise, it
may be exercised only to the extent that the number of shares of common
stock beneficially owned by Communicade and Omnicom remains less than 50% of
the outstanding shares. Shares beneficially owned after the offering will be
18,528,278, which includes all 6,000,000 shares of common stock issuable
upon the exercise of these warrants. Mr. Redditt serves as an Executive Vice
President of Omnicom. In this capacity, Mr. Redditt may be deemed to be the
beneficial owner of these shares, although he disclaims beneficial ownership
of these shares except to the extent of his pecuniary interest. The address
of Mr. Redditt is c/o Omnicom Group Inc., 437 Madison Avenue, New York, New
York 10022.
(9) Includes 8,868,730 shares of common stock held by Communicade and 3,659,548
shares of common stock held by Omnicom. Shares beneficially owned prior to
the offering includes 2,718,005 shares of common stock issuable upon the
exercise of warrants to purchase 2,928,752 shares of common stock held by
Omnicom and warrants to purchase 3,071,248 shares of common stock held by
Communicade. Each warrant provides that if Communicade and Omnicom
beneficially own in the aggregate less than 50% of our outstanding shares of
common stock at the time of exercise, it may be exercised only to the extent
that the number of shares of common stock beneficially owned by Communicade
and Omnicom remains less than 50% of the outstanding shares. Shares
beneficially owned after the offering will be 18,528,278, which includes
6,000,000 shares of common stock issuable upon the exercise of these
warrants. Mr. Wren serves as a Chief Executive Officer and President of
Omnicom. In this capacity, Mr. Wren may be deemed to be the beneficial owner
of these shares, although he
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disclaims ownership of these shares except to the extent of his pecuniary
interest. The address of Mr. Wren is c/o Omnicom Group Inc., 437 Madison
Avenue, New York, New York 10022.
(10) Shares beneficially owned after the offering include 50,000 shares of
common stock issuable upon the exercise of stock options that are
exercisable at the time Mr. Rayport is elected as a director, which is
expected to occur upon the closing of this offering.
(11) Shares beneficially owned after the offering include 50,000 shares of
common stock issuable upon the exercise of stock options that are
exercisable at the time Mr. DeLong is elected as a director, which is
expected to occur upon the closing of this offering.
(12) Shares beneficially owned prior to the offering include 2,718,005 shares of
common stock issuable upon the exercise of the currently exercisable portion
of a warrant to purchase 3,071,248 shares of common stock held by
Communicade. The warrant provides that if Communicade and Omnicom
beneficially own in the aggregate less than 50% of our outstanding shares of
common stock at the time of exercise, the warrant may be exercised only to
the extent that the number of shares of common stock beneficially owned by
Communicade and Omnicom remains less than 50% of the outstanding shares.
Shares beneficially owned after the offering will be 11,939,978, which
includes all 3,071,248 shares of common stock issuable upon the exercise of
this warrant. The address of Communicade, Inc. is 437 Madison Avenue, New
York, New York 10022.
(13) Shares beneficially owned prior to the offering include 2,718,005 shares of
common stock issuable upon the exercise of the currently exercisable portion
of warrants to purchase 2,928,752 shares of common stock held by Omnicom and
warrants to purchase 3,071,248 shares of common stock held by Communicade.
Each warrant provides that if Communicade and Omnicom beneficially own in
the aggregate less than 50% of our outstanding shares of common stock at the
time of exercise, the warrant may be exercised only to the extent that the
number of shares of common stock beneficially owned by Communicade and
Omnicom does not exceed 50% of the outstanding shares. Shares beneficially
owned after the offering will be 18,528,278, which includes all 6,000,000
shares of common stock issuable upon the exercise of these warrants. The
address of Omnicom Group, Inc. is 437 Madison Avenue, New York, New York
10022.
(14) Shares beneficially owned prior to the offering includes 2,718,005 shares
of common stock issuable upon the exercise of currently exercisable portions
of the Omnicom and Communicade warrants. Also includes 100,000 shares of
common stock issuable upon the exercise of stock options granted to
Mr. Dickson that are exercisable within 60 days and 22,850 shares of common
stock issuable upon the exercise of stock options granted to
Ms. Ambrosi Wertman that are exercisable within 60 days. Shares beneficially
owned after the offering will be 30,228,765, which includes all 6,000,000
shares of common stock issuable upon the exercise of the warrants held by
Communicade and Omnicom described above.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
AGENCY.COM's amended and restated certificate of incorporation, which will
become effective upon the closing of this offering, authorizes the issuance of
up to 200,000,000 shares of common stock, par value $.001 per share, and
10,000,000 shares of preferred stock, par value $.001 per share, the rights and
preferences of which may be established from time to time by our board of
directors. As of November 4, 1999, 27,774,562 shares of common stock were
outstanding and we had 328 stockholders of record.
COMMON STOCK
Under our amended and restated certificate of incorporation, holders of our
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, including the election of
directors. They do not have cumulative voting rights. Subject to preferences
that may be applicable to any then-outstanding preferred stock, holders of our
common stock are entitled to receive ratably dividends, if any, as may be
declared by the board of directors out of legally available funds. In case of a
liquidation, dissolution or winding up of AGENCY.COM, the holders of common
stock will be entitled to share ratably in the net assets legally available for
distribution to shareholders after payment of all of our liabilities and any
preferred stock then outstanding. Holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. The rights, preferences
and privileges of holders of common stock are subject to the rights of the
holders of shares of any series of preferred stock that we may designate and
issue in the future. After the closing of this offering, there will be no shares
of preferred stock outstanding.
PREFERRED STOCK
Under our amended and restated certificate of incorporation, our board of
directors has the authority, without further action by the stockholders, to
issue from time to time, shares of preferred stock in one or more series. The
board of directors may fix the number of shares, designations, preferences,
powers and other special rights of the preferred stock. The preferences, powers,
rights and restrictions of different series of preferred stock may differ. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock. Such
issuance may also have the effect of delaying, deferring or preventing a change
in control of AGENCY.COM. We have no current plans to issue any shares of
preferred stock.
WARRANTS
As of the date of this prospectus, Communicade held a warrant to purchase
3,071,248 shares of our common stock at an exercise price of $0.005 per share,
Omnicom held a warrant to purchase 2,928,752 shares of our common stock at an
exercise price of $0.005 per share and another holder holds warrants to purchase
1,400,000 shares of our common stock at an exercise price of $0.005 per share.
The Omnicom and Communicade warrants provide that if Communicade and Omnicom
beneficially own in the aggregate less than 50% of our outstanding shares of
common stock at the time of exercise, the warrants may be exercised only to the
extent that the number of shares of common stock beneficially owned by
Communicade and Omnicom after such exercise remains less than 50% of the
outstanding shares. Each warrant expires on March 31, 2019.
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ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND BYLAWS
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws, which are summarized in the following paragraphs,
may have an anti-takeover effect and may delay, defer or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the board of
directors will be elected each year. These provisions, when coupled with the
provision of our amended and restated certificate of incorporation authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may delay a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our amended and restated certificate of incorporation eliminates the ability
of stockholders to act by written consent. It further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Our amended and restated by-laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be received
at our principal executive offices not less than 60 days nor more than 90 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders. In the event that the annual meeting is called for a date that is
not within thirty (30) days before or after the anniversary date, in order to be
timely, notice from the stockholder must be received no later than the tenth day
following the date on which notice of the annual meeting was mailed to
stockholders or made public, whichever occurred earlier. In the case of a
special meeting of stockholders called for the purpose of electing directors,
notice by the stockholder in order to be timely must be received not later than
the close of business on the tenth day following the day on which notice was
mailed or public disclosure of the date of the special meeting was made,
whichever first occurs. Our amended and restated by-laws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual or
special meeting of stockholders or from making nominations for directors at
these meetings.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
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The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage. Our amended and restated certificate of
incorporation imposes a two-thirds supermajority vote requirement in connection
with various corporate governance actions and the amendment of various
provisions of our amended and restated certificate of incorporation, including
those provisions relating to the classified board of directors, and special
meetings of stockholders. In addition, a two-thirds supermajority vote of
stockholders is required to amend our amended and restated bylaws.
REGISTRATION RIGHTS
In November 1999, we entered into a registration rights agreement with
Omnicom. Under the registration rights agreement, from time to time after
180 days after the date of this prospectus, Omnicom and its affiliates may, on
up to three occasions, require us to register for sale under the securities laws
all or a portion of their shares of AGENCY.COM common stock. In addition, if at
any time we propose to file a registration statement under the securities laws
with respect to any class of equity securities, Omnicom and its affiliates may
require us to include in the registration as many shares as it shall request,
subject to reduction, based on the opinion of the managing underwriter of the
offering. The registration rights do not expire, but are not assignable. We may
not issue registration rights to any other person that are senior in right to
those of Omnicom under the registration rights agreement without Omnicom's
consent. We have agreed to bear all expenses associated with the registration of
Omnicom's and its affiliates' securities, other than underwriting discounts and
commissions and fees of Omnicom's counsel.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for AGENCY.COM's common stock will be
American Stock Transfer & Trust Company, New York, New York.
LISTING
Our common stock has been approved for quotation on the Nasdaq National
Market under the trading symbol "ACOM", subject to official notice of issuance.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares held by our existing stockholders will be available for sale
shortly after this offering because of the contractual and legal restrictions on
resale described below, sales of substantial amounts of common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
33,674,562 shares of our common stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless the shares
are purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. The remaining 27,774,562 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public market
following registration or pursuant to an exemption from registration under
Rule 144 promulgated under the Securities Act, which rules are summarized below.
LOCK-UP AGREEMENTS
All of our officers and directors and most of our stockholders, who together
hold an aggregate of at least 95% of our currently outstanding shares, have
signed lock-up agreements under which they agreed not to transfer or dispose of,
directly or indirectly, or hedge any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Transfers or
dispositions can be made sooner with the prior written consent of Goldman,
Sachs & Co.
As a result of these lock-up agreements and the provisions of Rules 144 and
701, additional shares will be available for sale in the public market as
follows:
- approximately 826,000 restricted securities will be eligible for sale
beginning 90 days after the date of this prospectus, subject in some cases
to compliance with Rule 144;
- approximately 24,760,000 additional restricted securities will be eligible
for sale beginning 180 days after the effective date of this offering upon
expiration of the lock-up agreements, subject in some cases to compliance
with Rule 144; and
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, which is the minimum period that we must be subject
to the reporting requirements of the Exchange Act as specified by Rule 144, a
person who has beneficially owned shares of our common stock for at least one
year, including the holding period of any prior owner other than an affiliate,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 336,746 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
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National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at anytime during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us
pursuant to securities, prior to our public offering, issued under a
compensatory stock plan or other written agreement is eligible to resell such
shares 90 days after the effective date of this offering in reliance on
Rule 144, but without compliance with some of the restrictions, including the
holding period, contained in Rule 144.
STOCK PLANS
Promptly after this offering, we intend to file a registration statement
under the Securities Act covering 11,236,261 shares of common stock consisting
of 9,676,178 shares reserved for issuance under our 1999 Plan and 1,560,083
shares reserved for issuance upon the exercise of outstanding stock options
assumed by us in connection with our Interactive Solutions and I-traffic
acquisitions. This registration statement is expected to be filed as soon as
practicable after the effective date of this offering.
At November 4, 1999, options to purchase 5,513,563 shares were issued and
outstanding under our plans and otherwise. Once this registration statement has
been filed, all of these shares will be eligible for sale in the public market
from time to time, subject to vesting provisions, Rule 144 volume limitations
applicable to our affiliates and, in the case of some of the options, the
expiration of lock-up agreements.
REGISTRATION RIGHTS
Beginning 180 days after this offering, Omnicom and its affiliates will be
entitled to require us to register their shares of AGENCY.COM common stock for
sale under the Securities Act. See "Description of Capital Stock--Registration
Rights".
VALIDITY OF COMMON STOCK
The validity of the shares of the common stock offered hereby will be passed
upon for AGENCY.COM by Brobeck, Phleger & Harrison LLP, New York, New York and
for the underwriters by Ropes & Gray, Boston, Massachusetts.
83
<PAGE>
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement other than for I-traffic and
Visionik have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The audited financial statements of Interactive Traffic, Inc. presented in
this prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report thereon appears herein. Such financial statements have
been so included in reliance on the report of such independent accountants given
on the authority of said firm as experts in auditing and accounting.
The audited financial statements included in this prospectus and elsewhere
in the registration statement for Visionik have been audited by Moore Stephens,
Denmark, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
CHANGE IN ACCOUNTANTS
In July 1998, we determined to replace Ernst & Young LLP and engaged Arthur
Andersen LLP as our independent accountants to audit our financial statements as
of, and for the period ended December 31, 1997. The decision to change
independent accountants from Ernst & Young LLP to Arthur Andersen LLP was
approved by our board of directors. We believe, and have been advised by
Ernst & Young LLP that it concurs in this belief, that, for the period from
January 1, 1996 through the date of dismissal (the entire period of its
engagement), AGENCY.COM and Ernst & Young LLP did not have any disagreement on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, that if not resolved to the satisfaction of
Ernst & Young LLP, would have caused it to make reference in connection with its
report on our financial statements to the subject matter of the disagreement.
Ernst & Young LLP's report on our financial statements for the period from
January 1, 1996 through December 31, 1996 did not contain an adverse opinion or
a disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During that year there were no "reportable
events" within the meaning of Item 304(a)(1)(v)of Regulation S-K promulgated
under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including exhibits and schedules thereto) under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information with respect to us and our common stock, reference is made
to the registration statement and the exhibits and schedules thereto.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in our files in the Commission's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C., 20549 and at the regional offices of the Commission located at
84
<PAGE>
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee, by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our filings, including the registration
statement, will also be available to you on the Commission's Internet site
(www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
in accordance with these requirements, will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
Upon approval of the common stock for the quotation on the Nasdaq National
Market, these reports, proxy and information statements and other information
may also be inspected at the offices of Nasdaq Operations, 9801 Washingtonian
Boulevard, 5th Floor, Gaithersburg, MD, 20878.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and to make
available to our stockholders quarterly reports containing unaudited financial
data for the first three quarters of each fiscal year.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AGENCY.COM AND SUBSIDIARIES
Report of Independent Public Accountants.................... F-4
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999..................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the nine months
ended September 30, 1998 and 1999.......................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998 and for the
nine months ended September 30, 1999....................... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the nine months
ended September 30, 1998 and 1999.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
EAGLE RIVER INTERACTIVE
Report of Independent Public Accountants.................... F-33
Report of Independent Public Accountants.................... F-34
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999......................................... F-35
Combined/Consolidated Statements of Operations for the
predecessor company for the year ended December 31, 1996
and for the period ended September 26, 1997; and for the
successor company for the period from inception
(September 26, 1997) through December 31, 1997, for the
year ended December 31, 1998 and for the three months ended
March 31, 1998 and 1999.................................... F-36
Combined/Consolidated Statements of Divisional Equity
(Deficit) and Stockholders' Deficit for the predecessor
company for the year ended December 31, 1996 and for the
period between January 1, 1997 through September 26, 1997;
and for the successor company for the period from inception
(September 26, 1997) through December 31, 1997, for the
year ended December 31, 1998 and for the three months ended
March 31, 1999............................................. F-37
Combined/Consolidated Statements of Cash Flows for the
predecessor company for the year ended December 31, 1996
and for the period between January 1, 1997 through
September 26, 1997; and for the successor company for the
period from inception (September 26, 1997) through
December 31, 1997, for the year ended December 31, 1998 and
for the three months ended March 31, 1998 and 1999......... F-38
Notes to Combined/Consolidated Financial Statements......... F-39
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
Report of Independent Public Accountants.................... F-53
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999......................................... F-54
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999.............................. F-55
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1999.................. F-56
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999.............................. F-57
Notes to Consolidated Financial Statements.................. F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
QUADRIS CONSULTING
Report of Independent Public Accountants.................... F-74
Balance Sheets as of December 31, 1997 and March 15, 1998... F-75
Statements of Operations for the years ended December 31,
1996 and 1997 and for the period from January 1 to
March 15, 1998............................................. F-76
Statements of Divisional Equity for the years ended
December 31, 1996 and 1997 and for the period from
January 1 to March 15, 1998................................ F-77
Statements of Cash Flows for the years ended December 31,
1996 and 1997 and for the period from January 1 to
March 15, 1998............................................. F-78
Notes to Financial Statements............................... F-79
TWINSPARK INTERACTIVE PEOPLE B.V.
Report of Independent Public Accountants.................... F-85
Balance Sheets as of December 31, 1997 and 1998 and
June 30, 1999.............................................. F-86
Statements of Operations for the years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998
and 1999................................................... F-87
Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1998 and for the six months ended
June 30, 1999.............................................. F-88
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998
and 1999................................................... F-89
Notes to Financial Statements............................... F-90
INTERACTIVE TRAFFIC, INC.
Report of Independent Accountants........................... F-98
Balance Sheets as of December 31, 1998 and September 30,
1999....................................................... F-99
Statements of Operations for the year ended December 31,
1998 and for the nine months ended September 30, 1998 and
1999....................................................... F-100
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1998 and for the nine months ended
September 30, 1999......................................... F-101
Statements of Cash Flows for the year ended December 31,
1998 and for the nine months ended September 30, 1998 and
1999....................................................... F-102
Notes to Financial Statements............................... F-103
VISIONIK A/S
Report of Independent Public Accountants.................... F-111
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999..................................... F-112
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1998 and for the nine months ended
September 30, 1999......................................... F-113
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1998 and for the nine
months ended September 30, 1999............................ F-114
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1998 and for the nine months ended
September 30, 1999......................................... F-115
Notes to Financial Statements............................... F-116
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................. F-123
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1999......................................... F-124
Notes to Pro Forma Condensed Consolidated Balance Sheet..... F-125
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1999................... F-128
Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 30, 1998................... F-129
Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1998........................... F-130
Notes to Pro Forma Condensed Consolidated Statements of
Operations................................................. F-131
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AGENCY.COM Ltd.:
We have audited the accompanying consolidated balance sheets of AGENCY.COM Ltd.
(a Delaware corporation) and subsidiaries, as of December 31, 1997 and 1998 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AGENCY.COM Ltd. and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years ended December 31,
1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
November 10, 1999
F-4
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 387,739 $ 769,358 $ 725,863
Accounts receivable, net of allowance for doubtful
accounts of $43,362, $825,576 and $5,327,125,
respectively............................................ 5,484,004 4,658,365 24,141,609
Unbilled charges.......................................... 700,060 2,345,752 6,682,710
Prepaid expenses and other current assets................. 218,931 193,060 3,579,670
Income tax receivable..................................... -- -- 2,130,945
Due from related parties.................................. 298,484 141,847 295,968
----------- ----------- ------------
Total current assets.............................. 7,089,218 8,108,382 37,556,765
Property and Equipment, net of accumulated depreciation and
amortization of $486,092, $1,627,397 and $7,928,884,
respectively.............................................. 2,032,008 4,215,128 11,653,923
Intangibles, net of accumulated amortization of $72,264,
$965,029 and $5,539,250, respectively..................... 1,502,338 7,827,717 52,631,655
Deferred Tax Assets......................................... 558,660 2,758,610 1,010,396
Investments and other assets................................ 108,629 1,950,035 4,635,757
----------- ----------- ------------
Total assets...................................... $11,290,853 $24,859,872 $107,488,496
=========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 1,725,226 $ 4,879,775 $ 14,920,232
Line of credit............................................ 86,273 -- 177,000
Income taxes payable...................................... 202,528 194,631 1,061,458
Deferred revenue.......................................... 596,882 688,953 2,426,901
Current portion of capital lease obligations.............. 124,968 564,536 1,097,956
Due to related parties.................................... -- 453,408 --
----------- ----------- ------------
Total current liabilities......................... 2,735,877 6,781,303 19,683,547
----------- ----------- ------------
Long-Term Liabilities:
Due to Omnicom Group Inc.................................. 2,424,969 11,989,373 66,806,568
Deferred tax liabilities.................................. 2,418,790 2,967,008 458,498
Capital lease obligations................................. 115,599 848,321 1,709,425
Due to related parties.................................... -- -- 390,000
Other long-term liabilities............................... 146,806 213,786 1,202,042
----------- ----------- ------------
Total long-term liabilities....................... 5,106,164 16,018,488 70,566,533
----------- ----------- ------------
Total liabilities................................. 7,842,041 22,799,791 90,250,080
----------- ----------- ------------
Commitments And Contingencies (Note 10)
Stockholders' Equity (Note 8):
Common stock, $0.001 par value, 200,000,000 shares
authorized; 16,200,000, 17,425,810 and 26,789,538 shares
issued; and 16,200,000, 17,179,060 and 26,666,164 shares
outstanding at December 31, 1997, 1998 and
September 30, 1999 (unaudited), respectively............ 16,200 17,178 26,664
Additional paid-in capital................................ 1,797,691 2,898,270 25,302,044
Retained earnings (deficit)............................... 1,634,921 (846,059) (7,461,088)
Deferred compensation..................................... -- -- (585,070)
Cumulative foreign currency translation................... -- (9,308) (44,134)
----------- ----------- ------------
Total stockholders' equity........................ 3,448,812 2,060,081 17,238,416
----------- ----------- ------------
Total liabilities and stockholders' equity........ $11,290,853 $24,859,872 $107,488,496
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $6,094,784 $12,975,575 $26,452,191 $18,956,267 $56,499,289
Direct salaries and costs..................... 2,216,830 6,200,216 15,930,029 10,355,373 28,784,372
---------- ----------- ----------- ----------- -----------
Gross profit.............................. 3,877,954 6,775,359 10,522,162 8,600,894 27,714,917
General and administrative.................... 954,409 3,815,045 10,944,441 7,743,832 21,652,390
Sales and marketing........................... -- 527,432 595,886 297,942 2,590,637
Amortization of intangibles................... -- 72,264 892,765 582,855 4,574,221
Depreciation and amortization................. 61,356 304,491 1,141,305 772,094 3,149,130
---------- ----------- ----------- ----------- -----------
Income (loss) from operations............. 2,862,189 2,056,127 (3,052,235) (795,829) (4,251,461)
Interest income (expense), net................ 28,201 9,924 (359,761) (325,491) (2,124,962)
---------- ----------- ----------- ----------- -----------
Income (loss) before minority interest and
income taxes............................ 2,890,390 2,066,051 (3,411,996) (1,121,320) (6,376,423)
Minority interest............................. -- 167,468 (281,559) (281,559) --
---------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes........................ 2,890,390 2,233,519 (3,693,555) (1,402,879) (6,376,423)
Provision (benefit) for income taxes.......... 1,388,000 1,051,373 (1,212,575) (460,565) 238,606
---------- ----------- ----------- ----------- -----------
Net income (loss)......................... $1,502,390 $ 1,182,146 $(2,480,980) $ (942,314) $(6,615,029)
========== =========== =========== =========== ===========
Per share information:
Net income (loss) per common share
Basic..................................... $ 0.32 $ 0.07 $ (0.15) $ (0.06) $ (0.29)
========== =========== =========== =========== ===========
Diluted................................... $ 0.31 $ 0.07 $ (0.15) $ (0.06) $ (0.29)
========== =========== =========== =========== ===========
Weighted average common shares used in
computing per share amounts:
Basic..................................... 4,750,313 16,200,000 16,854,499 16,586,538 23,186,818
========== =========== =========== =========== ===========
Diluted................................... 4,796,943 16,297,345 16,854,499 16,586,538 23,186,818
========== =========== =========== =========== ===========
Pro forma net income (loss) data (Unaudited)
(Note 7):
Net income (loss) before provision
(benefit) for income taxes.............. $2,890,390
Pro forma income tax provision
(benefit)............................... 1,405,577
==========
Pro forma net income (loss)............... $1,484,813
==========
Pro forma per share information (Unaudited)
(Note 7):
Pro forma net income (loss) per common
share:
Basic..................................... $ 0.32
==========
Diluted................................... $ 0.31
==========
Weighted average common shares used in
computing pro forma per share amounts:
Basic..................................... 4,750,313
==========
Diluted................................... 4,796,943
==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL RETAINED FOREIGN TOTAL
--------------------- PAID-IN EARNINGS/ DEFERRED CURRENCY STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION TRANSLATION EQUITY
---------- -------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996...... 1,800 $ 2 $ 98 $ 791,048 $ -- $ -- $ 791,148
Distribution to
shareholders.............. -- -- -- (42,205) -- -- (42,205)
Common stock issued upon S-
Corporation termination... 16,198,200 16,198 (7,298) -- -- -- 8,900
Termination of
S-Corporation............. -- -- 1,798,458 (1,798,458) -- -- --
Net income.................. -- -- -- 1,502,390 -- -- 1,502,390
---------- ------- ----------- ----------- --------- -------- -----------
Balance, December 31, 1996.... 16,200,000 16,200 1,791,258 452,775 -- -- 2,260,233
Capital contribution........ -- -- 6,433 -- -- -- 6,433
Net income.................. -- -- -- 1,182,146 -- -- 1,182,146
---------- ------- ----------- ----------- --------- -------- -----------
Balance, December 31, 1997.... 16,200,000 16,200 1,797,691 1,634,921 -- -- 3,448,812
Common stock issued in
connection with Spiral
Media Inc. acquisition.... 480,626 480 535,425 -- -- -- 535,905
Common stock issued in
connection with Online
Magic Ltd. acquisition.... 498,434 498 555,255 -- -- -- 555,753
Capital contribution........ -- -- 9,899 -- -- -- 9,899
Foreign currency translation
adjustment................ -- -- -- -- -- (9,308) (9,308)
Net loss.................... -- -- -- (2,480,980) -- -- (2,480,980)
---------- ------- ----------- ----------- --------- -------- -----------
Balance, December 31, 1998.... 17,179,060 17,178 2,898,270 (846,059) -- (9,308) 2,060,081
Common stock issued in
connection with Eagle
River Interactive
acquisition............... 3,740,238 3,740 4,497,584 -- -- -- 4,501,324
Warrants issued in
connection with Eagle
River Interactive
acquisition............... -- -- 3,428,471 -- -- -- 3,428,471
Common stock issued in
connection with
Interactive Solutions
acquisition............... 4,171,846 4,172 5,127,199 -- -- -- 5,131,371
Stock options issued in
connection with
Interactive Solutions
acquisition............... -- -- 722,191 -- -- -- 722,191
Warrants issued in
connection with
Interactive Solutions
acquisition............... -- -- 2,424,620 -- -- -- 2,424,620
Common stock issued in
connection with Twinspark
Interactive............... 1,057,226 1,057 4,296,567 -- -- -- 4,297,624
Common stock issued as
contingent consideration
in connection with Online
Magic Ltd. acquisition.... 123,376 123 917,794 -- -- -- 917,917
Foreign currency translation
adjustment................ -- -- -- -- -- (34,826) (34,826)
Deferred compensation....... -- -- 601,786 -- (585,070) -- 16,716
Exercise of stock options... 394,418 394 387,562 -- -- -- 387,956
Net loss (unaudited)........ -- -- -- (6,615,029) -- -- (6,615,029)
---------- ------- ----------- ----------- --------- -------- -----------
Balance, September 30, 1999
(unaudited)................. 26,666,164 $26,664 $25,302,044 $(7,461,088) $(585,070) $(44,134) $17,238,416
========== ======= =========== =========== ========= ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- --------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $1,502,390 $ 1,182,146 $(2,480,980) $ (942,314) $ (6,615,029)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities-
Allowance for doubtful accounts.................. 15,207 142,589 785,235 369,434 337,475
Depreciation and amortization.................... 61,356 376,755 2,034,070 1,354,949 7,723,351
Deferred income taxes............................ 1,198,000 529,863 (1,595,818) (1,336,380) (760,296)
Changes in operating assets and liabilities:
Accounts receivable.............................. (1,600,317) (3,030,333) 43,425 (577,634) (17,331,647)
Unbilled charges................................. -- (700,060) (1,645,692) (2,446,642) 2,081,197
Prepaid expenses and other current assets........ (73,120) (139,455) 25,871 89,881 (2,503,690)
Income tax receivable............................ -- -- -- -- 945,055
Due from related parties......................... (383,693) 99,999 156,637 174,695 --
Other assets..................................... (117,126) 8,704 (123,904) (174,174) 202,605
Accounts payable and accrued expenses............ 280,325 1,244,575 3,154,549 1,268,875 3,212,327
Deferred revenue................................. -- 596,882 92,072 (304,698) 634,367
Due to related parties........................... -- -- 453,408 225,614 (728,866)
Income taxes payable............................. 69,046 173,517 (63,811) 648,671 866,827
Other long-term liabilities...................... -- 146,806 66,980 50,235 988,256
---------- ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities................................. 952,068 631,988 902,042 (1,599,488) (10,948,068)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (514,658) (1,578,515) (1,880,846) (464,733) (5,017,854)
Trademark costs.................................... -- (112,222) (3,024) -- --
Acquisitions, net of cash acquired................. -- (1,462,380) (7,698,689) (5,043,205) (328,007)
Investment in Affiliate............................ -- -- -- -- (1,487,980)
---------- ----------- ----------- ----------- ------------
Net cash used in investing activities........ (514,658) (3,153,117) (9,582,559) (5,507,938) (6,833,841)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable due to Omnicom.......... -- 2,424,969 9,564,404 7,713,039 19,231,187
Payments under capital lease obligations........... -- (122,066) (271,290) (491,078) (670,117)
Net proceeds (borrowings) under line of credit..... -- 86,273 (86,273) (86,273) 121,934
Repayments of shareholder advances................. 60,213 -- -- -- --
Deferred registration costs........................ -- -- (145,296) -- (1,297,720)
Capital (distribution) contribution................ (42,205) 6,433 9,899 -- --
Proceeds from exercise of stock options............ -- -- -- -- 387,956
---------- ----------- ----------- ----------- ------------
Net cash provided by financing activities.... 18,008 2,395,609 9,071,444 7,135,688 17,773,240
---------- ----------- ----------- ----------- ------------
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS........................................ -- -- (9,308) 11,062 (34,826)
---------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents........................................ 455,418 (125,520) 381,619 39,324 (43,495)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 57,841 513,259 387,739 387,739 769,358
---------- ----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 513,259 $ 387,739 $ 769,358 $ 427,063 $ 725,863
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income taxes paid.................................. $ 96,722 $ 472,637 $ 315,449 $ 337,328 $ 564,917
========== =========== =========== =========== ============
Interest paid...................................... $ -- $ 2,000 $ 1,805 $ 1,805 $ 119,493
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Equipment acquired under capital leases............ $ -- $ 362,633 $ 1,443,579 $ 470,150 $ 2,064,641
========== =========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Common stock issued for acquisitions............... $ -- $ -- $ 1,091,658 $ -- $ 13,924,952
========== =========== =========== =========== ============
Warrants issued for acquisitions................... $ -- $ -- $ -- $ -- $ 5,853,091
========== =========== =========== =========== ============
Stock options issued for acquisitions.............. $ -- $ -- $ -- $ -- $ 722,191
========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
AGENCY.COM Ltd. and subsidiaries (collectively the "Company" or
"AGENCY.COM") is an international Internet professional services firm. The
Company provides clients with an integrated set of strategy, creative and
technology services that take them from concept to launch and operation of their
Internet businesses. The Company's services include: advising, consulting and
planning on the strategic implications of the Internet for a company's business;
designing creative, content, interface and information architecture elements of
Internet resources such as Web sites; programming, technical architecture
development and systems integration to implement complex information technology
systems such as electronic commerce platforms; and planning and executing online
marketing strategies that build audiences and develop brand awareness of
Internet resources. In order to serve its global clients, AGENCY.COM has
completed nine acquisitions since 1997, and currently has offices in New York;
Avon, Colorado; Chicago; Dallas; Portland, Oregon; San Francisco; Cambridge,
Massachusetts; Woodbridge, New Jersey; London; Paris; and Amsterdam.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
The Company's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for using the equity method. Accordingly, the Company's share of
the earnings and losses of these companies is included in consolidated net
income (loss). As of December 31, 1998 and September 30, 1999, the Company had a
12% and 30% investment in an affiliate (Note 2) which was accounted for under
the cost method and the equity method, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized for time-and-materials projects on the basis of
costs incurred in the period. Revenue from fixed-fee contracts, which are
primarily three to twelve months in length, is recognized as performance occurs
under each contract. Costs incurred under fixed fee arrangements are recognized
in the same period that revenue is recorded. Unbilled charges represent labor
costs incurred and estimated earnings, production and other client reimbursable
costs. Provisions for estimated losses on uncompleted contracts are made in the
period in which
F-9
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
such losses are probable. Amounts billed, which are not yet earned, are
classified as deferred revenue in the accompanying consolidated balance sheets.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt and equity instruments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include investments in money market funds and are stated at cost,
which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Property and equipment is depreciated on a straight-line basis
over their estimated useful lives of three to seven years. Leasehold
improvements and equipment held under capital leases are amortized utilizing the
straight-line method over the lesser of the estimated useful life of the asset
or the remaining term of the related lease.
INTANGIBLE ASSETS
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired, is included in intangible assets and is
presently being amortized over a period of seven years on a straight-line basis.
Customer base and workforce are being amortized over a period of five years and
three years, respectively, on a straight-line basis. The Company reviews its
intangible assets to be held and used for impairment whenever events or changes
in circumstances indicate that the carrying amount of the intangible asset
exceeds the fair value of the asset. If circumstances indicate that the carrying
amount of the intangible asset that the Company expects to hold and use may not
be recoverable, the Company will estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. Future cash flows
are the future cash inflows expected to be generated by an asset less the future
cash outflows expected to be necessary to obtain those inflows. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, the Company will recognize an
impairment loss equal to the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The fair value of the asset is the amount
at which the asset could be bought or sold in a current transaction between
willing parties or determined by calculating the present value of estimated
expected future cash flows using a discount rate commensurate with the risks
involved. Management has evaluated the amortization periods in the current
period and has determined that no impairment currently exists. These
amortization periods will be evaluated by management on a continuing basis, and
will be adjusted if the lives of the related intangible assets are impaired.
F-10
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING FOR LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." This statement establishes
financial accounting and reporting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. The Company reviews long-lived assets and certain
identifiable intangibles to be held and used for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset exceeds
the fair value of the asset. If other events or changes in circumstances
indicate that the carrying amount of an asset that the Company expects to hold
and use may not be recoverable, the company will estimate the future cash flows
expected to result from the use of the asset and its eventual disposition.
Management has performed a review of all long-lived assets and has determined
that no impairment of the respective carrying values has occurred as of
December 31, 1997 and 1998.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement requires an asset and liability
approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at
each balance sheet date using enacted tax rates for the years in which the taxes
are expected to be paid or recovered. The effect on deferred tax assets or
liabilities of a change in tax rates is recognized in the period in which the
tax change occurs. The Company has elected to file its income tax returns using
the cash basis of accounting. Subsequent to the year ending December 31, 1998,
the Company has elected to file its income tax returns using the accrual basis
of accounting.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year. The
resulting translation adjustments are recorded as a component of stockholders'
equity in the accompanying consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, due
from related parties and accounts payable approximate fair value due to the
short-term maturity of these instruments. The carrying amounts of due to Omnicom
Group Inc. and capital lease obligations, including current portions,
approximate fair value.
F-11
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
primarily concentrated in the United States and Europe. The Company performs
ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information.
For the year ended December 31, 1996, 4 clients accounted for 26%, 19%, 12%
and 12%, of total revenues.
For the year ended December 31, 1997, 4 clients accounted for 18%, 17%, 14%
and 10%, of total revenues.
For the year ended December 31, 1998, 1 client accounted for 16% of total
revenues.
For the nine months ended September 30, 1998 (unaudited), 1 client accounted
for 13%, of total revenues.
For the nine months ended September 30, 1999 (unaudited), 1 client accounted
for 13% of total revenues.
As of December 31, 1997, 2 clients accounted for 22% and 12%, of total
accounts receivable and unbilled charges.
As of December 31, 1998, 1 client accounted for 31% of total accounts
receivable and unbilled charges.
As of September 30, 1999 (unaudited), 2 clients accounted for 14% and 12% of
total accounts receivable and unbilled charges.
NET INCOME (LOSS) PER COMMON SHARE
The Company computes net income (loss) per common share in accordance with
SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98
("SAB No. 98"). Under the provisions of SFAS No. 128 and SAB No. 98, basic net
income (loss) per common share ("Basic EPS") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted net
income (loss) per common share ("Diluted EPS") is computed by dividing net
income (loss) by the weighted average number of common shares and
F-12
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dilutive common share equivalents then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the consolidated
statements of operations.
A reconciliation between the numerator and denominator of Basic EPS and
Diluted EPS is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------
WEIGHTED NET INCOME PER
NET INCOME AVERAGE SHARES COMMON SHARE
---------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock.......... $1,502,390 4,750,313 $0.32
Stock options.................................... -- 46,630 (0.01)
---------- --------- -----
Diluted EPS........................................ $1,502,390 4,796,943 $0.31
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
WEIGHTED NET INCOME PER
NET INCOME AVERAGE SHARES COMMON SHARE
---------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock.......... $1,182,146 16,200,000 $0.07
Stock options.................................... -- 97,345 --
---------- ---------- -----
Diluted EPS........................................ $1,182,146 16,297,345 $0.07
========== ========== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
WEIGHTED NET (LOSS) PER
NET (LOSS) AVERAGE SHARES COMMON SHARE
----------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net (loss) attributable to common stock......... $(2,480,980) 16,854,499 $(0.15)
Stock options................................... -- -- --
----------- ---------- ------
Diluted EPS....................................... $(2,480,980) 16,854,499 $(0.15)
=========== ========== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
--------------------------------------------
WEIGHTED NET (LOSS) PER
NET (LOSS) AVERAGE SHARES COMMON SHARE
---------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock.......... $(942,314) 16,586,538 $(0.06)
Stock options.................................... -- -- --
--------- ------------- ------
Diluted EPS........................................ $(942,314) 16,586,538 $(0.06)
========= ============= ======
</TABLE>
F-13
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
---------------------------------------------
WEIGHTED NET (LOSS) PER
NET (LOSS) AVERAGE SHARES COMMON SHARE
----------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net (loss) attributable to common stock......... $(6,615,029) 23,186,818 $(0.29)
Stock options................................... -- -- --
----------- ---------- ------
Diluted EPS....................................... $(6,615,029) 23,186,818 $(0.29)
=========== ========== ======
</TABLE>
Diluted EPS for the year ended December 31, 1998 and the nine months ended
September 30, 1998 and 1999 (unaudited), respectively, does not include the
impact of stock options then outstanding, as the effect of their inclusion would
be antidilutive.
STOCK-BASED COMPENSATION
In 1998, the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," by continuing to apply the provisions of Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees," ("APB
No. 25") while providing the necessary pro forma disclosures as if the fair
value method had been applied (Note 8).
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. The components of comprehensive
income are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)............. $1,502,390 $1,182,146 $(2,480,980) $(942,314) $(6,615,029)
Foreign currency translation
adjustment.................. -- -- (9,308) (6,981) (34,826)
---------- ---------- ----------- --------- -----------
Comprehensive income
(loss).................... $1,502,390 $1,182,146 $(2,490,288) $(949,295) $(6,649,855)
========== ========== =========== ========= ===========
</TABLE>
PROPOSED PUBLIC OFFERING
In connection with its contemplated initial public offering of Common Stock,
the Company has incurred approximately $145,000 and $1,298,000, respectively, in
registration related costs for the year ended December 31, 1998 and the nine
months ended September 30, 1999 (unaudited). These costs are being deferred
until the consummation of the offering, at which time they will be
F-14
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
charged against additional paid-in capital. If the offering is not consummated,
the deferred registration costs will be expensed. These amounts are included in
other assets in the accompanying consolidated balance sheets.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement also
establishes standards for related disclosure about products and services,
geographic areas and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997 and need not be applied
to interim periods in the initial year of application. Comparative information
for earlier years presented is to be restated. The Company currently believes
that it operates in one segment and that the adoption of SFAS No. 131 will not
materially affect the Company's current disclosure of geographic information
(Note 9).
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The Company does not expect the adoption of
SOP 98-1 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of
September 30, 1999 for the nine months ended September 30, 1998 and 1999, have
been prepared in accordance with generally accepted accounting principles for
interim financial statements. In the opinion of the
F-15
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company, these unaudited consolidated financial statements, reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The consolidated results for interim periods are not
necessarily indicative of the results expected for a full year.
2. ACQUISITIONS AND INVESTMENTS
SPIRAL MEDIA INC.
In July 1997, the Company purchased 51% of the outstanding shares of Spiral
Media Inc. ("Spiral Media"). The Company purchased the remaining portion of
outstanding shares in July 1998. The total consideration for all of the stock
acquired was $6,165,880. This consideration was comprised of a cash payment of
$5,501,766, relinquishment of debt due from Spiral Media stockholders totaling
$128,209 and the issuance of 480,626 shares of the Company's common stock valued
at $1.12 per share, which in management's opinion was the fair market value of
the common stock at the date of issuance. This acquisition has been accounted
for under the purchase method of accounting and, accordingly, the purchase price
has been allocated to the tangible and intangible assets acquired and
liabilities assumed on the basis of their respective fair values on the
respective acquisition dates. As a result of this acquisition, the Company has
recorded goodwill of approximately $6,111,199, which is the cost in excess of
net assets acquired and is being amortized over a period of seven years.
ONLINE MAGIC LIMITED
In October 1997, the Company purchased 42.5% of the outstanding shares of
Online Magic Limited ("Online Magic"), a United Kingdom company, which
represented the controlling interest in Online Magic. The outstanding shares
acquired were deemed to be a controlling interest as after the investment, the
Company had the ability to direct or cause the direction of the management and
operating and financing policies of Online Magic. In May 1998 and July 1998, the
Company acquired all of the remaining outstanding shares of Online Magic through
two separate purchase agreements. The total consideration paid was approximately
$2,196,905. The consideration is comprised of a cash payment of $1,641,152 and
the issuance of 498,434 shares of the Company's common stock value at $1.12 per
share, which in management's opinion was the fair market value of the common
stock at the date of issuance. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the respective acquisition
dates. As a result of this acquisition, the Company has recorded goodwill of
approximately $1,872,456, which is the cost in excess of net assets acquired and
is being amortized over a period of seven years. Furthermore, the purchase
agreements call for certain earn-out payments to former shareholders of Online
Magic based upon the achievement of targeted operating performance of Online
Magic through December 1999. These payments are payable in the form of 246,750
shares of the Company's common stock which are currently held in
F-16
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
escrow and are considered issued but not outstanding (Note 8). No earn-out
amounts have been earned as of December 31, 1998. Future payments, if any, will
be recorded as additional purchase price and, as such, an adjustment to
goodwill.
KETCHUM ADVERTISING INC.
In April 1998, the Company acquired certain assets and assumed certain
liabilities from Ketchum Advertising Inc. ("Ketchum"). Ketchum was a subsidiary
of the Omnicom Group Inc. ("Omnicom"), which is a significant shareholder of the
Company's common stock both directly and through a wholly owned subsidiary. In
consideration for the net assets acquired, the Company paid approximately
$643,000 in cash. This acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis
of their respective fair values on the acquisition date. As a result of this
acquisition, the Company has recorded goodwill of approximately $643,000, which
is being amortized over a period of seven years.
PRIMARY GROUP INC.
In August 1998, the Company acquired certain assets from Primary Group Inc.
("Primary Group") and assumed certain liabilities. In consideration for the net
assets acquired, the Company paid approximately $53,220 in cash. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. As a result of this acquisition,
the Company has recorded goodwill of approximately $50,845, which is being
amortized over a period of seven years.
The acquisitions described were valued based on management's estimate of the
fair value of the net assets acquired at the date of acquisition. Costs in
excess of net assets acquired were recorded as intangible assets. Presented
below is the allocation of the purchase price among assets acquired, liabilities
assumed and intangible assets.
<TABLE>
<CAPTION>
SPIRAL MEDIA ONLINE MAGIC KETCHUM PRIMARY GROUP
------------ ------------ --------- -------------
<S> <C> <C> <C> <C>
Accounts receivable....................... $ 402,412 $ 1,079,719 $ -- $ --
Fixed assets.............................. 201,973 345,299 -- 2,375
Other assets.............................. 131,627 797,202 -- --
Intangible assets......................... 6,111,199 1,872,456 643,000 50,845
Current liabilities....................... (615,277) (1,313,073) -- --
Long-term liabilities..................... (66,054) (584,698) -- --
---------- ----------- -------- -------
Total purchase price.................... $6,165,880 $ 2,196,905 $643,000 $53,220
========== =========== ======== =======
</TABLE>
F-17
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
THE EDGE CONSULTANTS PTE. LTD.
In December 1998, the Company entered into an agreement to acquire 60% of
the outstanding shares of The Edge Consultants PTE. LTD. ("Edge") in a step
transaction. In accordance with the agreement, in December 1998, the Company
purchased 12% of the outstanding shares of Edge for $1,572,203 in cash. In
July 1999, the Company purchased an additional 18% under the agreement for a
cash payment of approximately $1,500,000 and will account for this investment
under the equity method of accounting in future periods. Prior to the additional
18% investment, the Company accounted for this investment under the cost method
of accounting. The Company may purchase an additional 30% for an amount that is
contingent upon the achievement of targeted operating performance goals by Edge.
INTERACTIVE SOLUTIONS INCORPORATED AND QUADRIS CONSULTING, INC.
In April 1999, the Company acquired all of the issued and outstanding shares
of capital stock of Interactive Solutions Incorporated ("ISI") from the ISI
shareholders (including Communicade Inc., a wholly owned subsidiary of Omnicom)
in exchange for an aggregate of 4,171,846 shares of the Company's common stock
and a warrant to purchase 3,071,248 shares of the Company's common stock at a
purchase price of $0.005 per share. Such warrant was valued at $0.80 per share
and the fair value of the Company's common stock on the date of purchase was
$1.23 per share, each as determined by an independent third-party valuation.
Immediately, prior to the acquisition of ISI, ISI acquired all of the issued
and outstanding shares of capital stock of Quadris Consulting, Inc. ("Quadris")
from the Quadris shareholders in exchange for an aggregate of 1,869,528 shares
of ISI common stock. Prior to both acquisitions, Communicade sold 485,999.64
shares of ISI common stock to certain of the Company's shareholders for an
aggregate price of $412,492.
Outstanding stock options under the stock option plans of Quadris and ISI
were converted into approximately 1,406,000 options to purchase the Company's
common stock. Included in these options were 557,978, 185,988 and 662,412
options which were converted at exercise prices of $0.41, $0.45 and $1.21,
respectively, which were lower than the fair market value of the Company's
common stock at the date of grant, which was $1.23. Accordingly, the Company has
recorded additional purchase price of approximately $623,000 for the difference
between the exercise price and the fair market value of the underlying common
shares relating to these options.
EAGLE RIVER INTERACTIVE INC.
In April 1999, the Company acquired all of the issued and outstanding shares
of capital stock of Eagle River Interactive Inc. ("ERI") from Omnicom, ERI's
sole shareholder, in exchange for an aggregate of 3,659,548 shares of the
Company's common stock and a warrant to purchase 4,328,752 shares of the
Company's common stock at a purchase price of $0.005 per share. Such warrant was
valued at $0.80 per share and the fair value of the Company's common stock on
the date of purchase was $1.23 per share, each as determined by an independent
third-party valuation.
F-18
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
In addition, at this time, Omnicom caused Communicade to transfer 13,322 shares
of the Company's common stock to certain participants of the ERI Key Executive
Incentive Program in settlement of all obligations due under the program. 80,690
shares were issued to an executive of ERI in connection with his employment
agreement (Note 10). These shares have been considered additional purchase price
at $1.23 per share, the then fair market value of the Company's common stock and
the total value of approximately $99,000 has been allocated to workforce as the
cost of retaining this employee at the date of acquisition.
DIGITAL VISION COMMUNICATIONS INC.
In May 1999, the Company purchased all of the issued and outstanding shares
of capital stock of Digital Vision Communications Inc. ("Digital Vision") for
$1,100,000 in cash. This acquisition has been accounted for under the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis
of their respective fair values on the acquisition date.
TWINSPARK INTERACTIVE PEOPLE B.V.
In August 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Twinspark Interactive People B.V. ("Twinspark") for
$700,000 in cash and 1,057,226 shares of the Company's common stock valued at
$5.95 per share, of which 1,047,226 shares will be given to the shareholders of
Twinspark and 10,000 to former employees of Twinspark, for a total aggregate
purchase price of $7,000,000. The Company also granted 75,000 stock options to
former employees of Twinspark at an exercise price equal to the then fair market
value of the Company's common stock. This acquisition has been accounted for
under the purchase method of accounting and, accordingly, the purchase price has
been allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
Furthermore, the purchase agreement calls for certain earn-out payments to the
former shareholders of Twinspark based upon the achievement of certain targeted
operating results of Twinspark through December 1999. These payments are payable
in the form of 168,066 shares of the Company's common stock which are currently
held in escrow. Future payments, if any, will be recorded as additional purchase
price and, accordingly, an adjustment to goodwill.
INTERACTIVE TRAFFIC, INC.
In October 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Interactive Traffic, Inc. ("I-traffic") for
$3,000,000 in cash, a $1,000,000 short-term note payable due at the earlier of
December 31, 1999 or thirty days following the completion of the Company's
initial public offering, 469,320 shares of the Company's common stock valued at
$9.35 per share, the assumption of options to purchase 160,680 shares of the
Company's common stock at an average exercise price of $2.54 per share, and the
issuance of newly-granted options to purchase 60,000 shares of the Company's
common stock at an exercise price of $8.50 per share,
F-19
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
which options were valued at less than the fair market value of the Company's
common stock on the date of grant, valued at $1,145,231, for a total aggregate
purchase price of $9,533,373. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair value on the acquisition date.
Furthermore, the purchase agreement calls for certain earn-out payments to the
former shareholders of I-traffic based upon the achievement of certain future
targeted operating results of I-traffic one year from the date of the closing of
the transaction. These payments are payable in cash and additional shares of the
Company's common stock and future payments, if any, will be recorded as
additional purchase price and, accordingly, an adjustment to goodwill.
VISIONIK A/S
In November 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Visionik A/S ("Visionik"), a Danish corporation, for
$500,000 in cash and 572,000 shares of the Company's common stock valued at
$9.35 per share for a total aggregate purchase price of $5,848,200. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma consolidated statement of operations data
for the year ended December 31, 1998 and the nine months ended September 30,
1998 give effect to the acquisitions of Ketchum, Primary Group, ISI, ERI,
Digital Vision and Twinspark as if each of these acquisitions had occurred on
January 1, 1998. The pro forma consolidated statement of operations data for the
nine months ended September 30, 1999 give effect to the acquisition of Twinspark
as if it had occurred on January 1, 1999. All of the following unaudited pro
forma consolidated results of operations give effect to purchase accounting
adjustments. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results would have
been had the acquisitions actually taken place on January 1, 1998 and
January 1, 1999 and may not be indicative of future operating results.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED -----------------------
DECEMBER 31, 1998 1998 1999
------------------------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma: Revenues...................... $ 76,130 $ 55,962 $ 74,808
Net loss...................... (20,900) (14,147) (16,748)
Basic net loss per share...... (0.78) (0.53) (0.57)
Diluted net loss per share.... (0.78) (0.53) (0.57)
</TABLE>
F-20
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
On September 12, 1996, the controlling shareholders of the Company entered
into a shareholder's agreement (the "Shareholders Agreement") with
Communicade Inc., a wholly owned subsidiary of Omnicom. The Shareholders
Agreement provided a line of credit for working capital purposes of up to
$1,000,000 (subsequently amended to $2,500,000) at the same interest rate
charged by Omnicom to its subsidiaries under the Omnicom cash management system,
which was approximately 6.50%. Borrowings were secured by a first priority lien
on all assets. In addition, the Shareholders Agreement provided for additional
financing to the Company for "new media" acquisitions at the same interest rate
charged by Omnicom to its subsidiaries under the Omnicom cash management system.
On April 28, 1999, the Company entered into a new shareholder's agreement
(the "New Agreement") with Omnicom. The New Agreement nullified and superseded
the previous Shareholders Agreement dated September 12, 1996. The New Agreement
provides a line of credit for working capital purposes of not less than
$10,000,000 at the same interest rate charged by Omnicom to its subsidiaries
under the Omnicom cash management system, which was approximately 5.89%.
Borrowings are secured by a first priority lien on all assets. In addition, the
New Agreement provides for additional financing to the Company for "new media"
acquisitions at the same interest rate charged by Omnicom to its subsidiaries
under the Omnicom cash management system. Interest on any such loans shall be
paid quarterly on the then outstanding principal balance. Principal shall be
repaid quarterly in equal installments over a five-to-ten-year period.
At December 31, 1997 and 1998 and September 30, 1999 (unaudited), there were
approximately $1.0 million, $2.5 million and $27.8 million outstanding,
respectively, on the working capital line of credit at an interest rate of 6%.
At December 31, 1997 and 1998 and September 30, 1999 (unaudited), there were
approximately $1.4 million, $9.5 million and $39.0 million outstanding,
respectively, on the acquisition loans at an average rate of 6%. The amounts
owed as of September 30, 1999, include amounts assumed in the Eagle River and
ISI acquisitions. Related interest expense under the financing arrangements was
$0, $34,106 and $377,086, respectively, for the three years ended December 31,
1998 and approximately $309,000 and $2,019,000, respectively, for the nine
months ended September 30, 1998 and 1999 (unaudited).
In November 1999, the Company entered into a new credit facility with
Omnicom (See Note 13).
F-21
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
DUE FROM/TO RELATED PARTIES
Due from related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1997 1998 1999
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Urban Desires Inc........................ $272,322 $130,093 $266,871
ISI...................................... -- 11,754 --
Due from shareholders.................... 26,162 -- --
Other.................................... -- -- 29,097
-------- -------- --------
Due from related parties............. $298,484 $141,847 $295,968
======== ======== ========
</TABLE>
Certain of the primary shareholders of the Company own Urban Desires Inc.
The Company provides services at its normal rates to Urban Desires Inc. for
which the Company is reimbursed. The total amount billed to Urban Desires Inc.
was not material to the accompanying consolidated financial statements.
Due to related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Quadris.......................................... $252,680 $ --
ERI.............................................. 33,987 --
Loan payable to shareholders..................... 166,741 --
Tridion BV....................................... -- 390,000
-------- --------
Due to related parties....................... $453,408 $390,000
======== ========
</TABLE>
There were no outstanding amounts to related parties as of December 31,
1997.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Equipment under capital leases....... $ 362,633 $1,804,702 $ 2,807,381
Equipment............................ 936,711 801,932 1,734,262
Computer equipment................... 470,796 1,948,470 9,657,316
Furniture and fixtures............... 553,939 806,454 2,689,530
</TABLE>
F-22
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Leasehold improvements............... $ 194,021 $ 480,967 $ 2,694,318
---------- ---------- ------------
Total property and equipment..... 2,518,100 5,842,525 19,582,807
Less--Accumulated depreciation and
amortization....................... (486,092) (1,627,397) (7,928,884)
---------- ---------- ------------
Property and equipment, net...... $2,032,008 $4,215,128 $ 11,653,923
========== ========== ============
</TABLE>
Depreciation and amortization expense was $61,356, $304,491 and $1,141,305,
respectively, for the three years ended December 31, 1998 and $772,094 and
$3,149,130, respectively, for the nine months ended September 30, 1998 and
September 30, 1999 (unaudited).
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.............................. $1,462,380 $8,677,500 $49,888,659
Customer base......................... -- -- 5,840,000
Workforce............................. -- -- 2,327,000
Trademark............................. 112,222 115,246 115,246
Less--Accumulated amortization.... (72,264) (965,029) (5,539,250)
---------- ---------- -----------
Intangible assets, net................ $1,502,338 $7,827,717 $52,631,655
========== ========== ===========
</TABLE>
Amortization expense was $0, $72,264 and $892,765, respectively, for the
three years ended December 31, 1998 and $582,855 and $4,574,221, respectively,
for the nine months ended September 30, 1998 and September 30, 1999 (unaudited).
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Accounts payable...................... $1,130,815 $3,103,991 $10,253,054
Accrued expenses--other............... 467,716 1,370,289 4,564,579
Accrued professional fees............. 126,695 405,495 102,599
---------- ---------- -----------
$1,725,226 $4,879,775 $14,920,232
========== ========== ===========
</TABLE>
F-23
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES (CONTINUED)
There were no other individual items greater than 5% of current liabilities
as of December 31, 1997, December 31, 1998 and September 30, 1999 (unaudited).
7. INCOME TAXES
Income (loss) before income taxes and minority interest and the provision
(benefit) for taxes on income (loss) consisted of the following:
<TABLE>
<CAPTION>
NINE
YEAR ENDED DECEMBER 31, MONTHS ENDED
------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Income (loss) before income taxes and
minority interest:
Domestic............................... $2,890,390 $2,226,890 $(3,760,644) $(6,782,328)
International.......................... -- (160,839) 348,648 405,905
---------- ---------- ----------- -----------
$2,890,390 $2,066,051 $(3,411,996) $(6,376,423)
========== ========== =========== ===========
Provision (benefit) for taxes on income
(loss):
Current--
Federal.............................. $ 78,000 $ 257,568 $ 160,684 $ 1,184,307
State and local...................... 112,000 176,153 104,617 377,027
International........................ -- (56,294) 122,027 137,986
Deferred--
Federal.............................. 711,892 414,417 (971,405) (2,259,181)
State and local...................... 486,108 259,529 (628,498) (719,217)
International........................ -- -- -- --
Valuation Allowance.................. -- -- -- 1,517,684
---------- ---------- ----------- -----------
$1,388,000 $1,051,373 $(1,212,575) $ 238,606
========== ========== =========== ===========
</TABLE>
F-24
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
A reconciliation of the difference between the statutory U.S. Federal Income
Tax Rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
NINE
YEAR ENDED DECEMBER 31, MONTHS ENDED
------------------------------------- SEPTEMBER 30,
1996 1997 1998 1999
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Statutory federal income tax rate........ $1,011,636 $ 723,118 $(1,194,198) $(2,231,748)
State and local taxes on income, net of
federal income tax benefit............. 376,364 283,193 (340,523) (222,424)
Goodwill amortization.................... -- 25,292 286,449 1,109,998
Nondeductible expense.................... -- 19,770 30,595 69,177
Other.................................... -- -- 5,102 (4,081)
Valuation allowance...................... -- -- -- 1,517,684
---------- ---------- ----------- -----------
Effective rate........................... $1,388,000 $1,051,373 $(1,212,575) $ 238,606
========== ========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1997 1998 1999
----------- ---------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Current deferred income tax assets
(liabilities) net:
Accrual to cash adjustments........ $ (489,087) $ (182,048) $ (156,807)
Allowance for doubtful accounts and
other non-deductible accruals.... 14,939 541,494 3,893,030
Noncurrent deferred tax asset
(liabilities), net:
Accrual to cash adjustments........ (1,467,262) (546,144) (470,421)
Net operating loss................. 120,884 -- 967,463
Goodwill amortization.............. -- -- 302,266
Other.............................. (39,604) (21,700) 50,360
Valuation allowance................ -- -- (1,517,684)
----------- ---------- -----------
Total deferred income taxes,
net............................ $(1,860,130) $ (208,398) $ 3,068,207
=========== ========== ===========
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Deferred tax assets result principally from recording certain expenses in the
financial statements, which are not currently deductible for tax purposes, and
differences between the tax and book basis of assets and liabilities recorded in
F-25
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
connection with the acquisitions. Deferred tax liabilities result principally
from expenses which are currently deductible for tax purposes, but have not yet
been expensed in the financial statements.
The Company has concluded that it is probable that it will be able to
realize its deferred tax assets as of December 31, 1998, however a full
valuation allowance has been recorded as of September 30, 1999.
On September 12, 1996, pursuant to the Shareholder Agreement (Note 3), the
Company's S Corporation status was terminated and the Company began operations
as a C Corporation. Accordingly, the Company became subject to federal and state
income taxes and the retained deficit of the Company was transferred to
additional paid-in capital.
If the Company operated as a C corporation since its inception, the pro
forma income tax provision would have been $1,405,577 (unaudited), without
contemplating any applicable tax laws related to the utilization of net
operating losses. No pro forma adjustments are required for the years ended
December 31, 1997 and 1998 as the Company was operating as a C Corporation
during those years.
Management believes that amortization relating to certain goodwill generated
from international acquisitions is deductible under the Internal Revenue Code.
The Company may be restricted to the use of its net operating losses as a result
of the aforementioned acquisitions (Note 3).
8. STOCKHOLDERS' EQUITY
COMMON SHARES
In August 1999, the certificate of incorporation was amended to increase the
number of authorized shares of common stock, $0.001 par value, to 200,000,000.
STOCK SPLITS
On October 31, 1996, the Board of Directors authorized a 1.8 for 1 stock
split of the Company's common stock. On November 21, 1997, the Board of
Directors authorized a 5 for 1 stock split of the Company's common stock. On
July 15, 1998, the Board of Directors authorized a 1.8 for 1 stock split of the
Company's common stock. In June 1999, the Board of Directors authorized a 2 for
1 stock split of the Company's common stock. All share and per-share amounts in
the accompanying consolidated financial statements and footnotes have been
restated to give effect to these stock splits.
STOCK OPTIONS
On November 1, 1996, the Board of Directors adopted the 1996 Stock Option
Plan (the "1996 Plan"). The 1996 Plan authorizes the granting of awards, the
exercise of which would allow up to an aggregate of 1,800,000 shares of the
Company's common stock to be acquired by the holders of said awards, to key
employees.
F-26
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
On November 24, 1997, the Board of Directors adopted the 1997 Stock Option
Plan (the "1997 Plan"). The 1997 Plan authorizes the granting of awards, the
exercise of which would allow up to an aggregate of 2,078,730 shares of the
Company's common stock to be acquired by the holders of said awards, to key
employees.
The awards under both plans take the form of nonqualified stock options and
expire five years from the date of grant. In the opinion of management, the
exercise price of options granted is equal to the fair market value of the
Company's common stock on the date of grant.
Options granted under the 1996 Plan and 1997 Plan vest upon the happening of
either an initial public offering of the common stock of the Company or a change
in control of the Company. Additionally, the 1997 Plan offers a discretionary
five-year vesting schedule in the event that either of the preceding events does
not occur, based upon the approval of the Board of Directors.
A summary of stock option activity for the 1996 Plan and 1997 Plan is as
follows:
<TABLE>
<CAPTION>
1996 PLAN 1997 PLAN
------------------------- -------------------------
<S> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- ----- ------- -----
Balance at December 31, 1996................................ 154,800 $0.86 -- $ --
Granted................................................... 164,088 1.05 332,730 1.12
Exercised................................................. -- -- -- --
Canceled.................................................. (9,000) 0.86 -- --
-------- -------
Balance at December 31, 1997................................ 309,888 0.96 332,730 1.12
Granted................................................... 96,030 1.12 148,560 1.12
Exercised................................................. -- -- -- --
Canceled.................................................. (75,960) 0.99 (20,000) 1.12
-------- -------
Balance at December 31, 1998................................ 329,958 $1.00 461,290 $1.12
======== =======
</TABLE>
No options were exercisable at December 31, 1998. In the aggregate, at
December 31, 1998, there were 791,248 options outstanding. Of this amount,
149,688 were outstanding with an average remaining contractual life of
2.98 years, and a weighted average exercise price of $0.86, and 641,560 were
outstanding with an average remaining contractual life of 4.14 years, and a
weighted average exercise price of $1.12. At December 31, 1998, there were
1,470,042 options and 1,617,440 options available for future grant under the
1996 Plan and 1997 Plan, respectively.
The 1999 Stock Option/Stock Issuance Plan is the successor program to the
1996 Plan and 1997 Plan. The 1999 Plan was adopted in February 1999 and became
effective as of that date. All outstanding options under the 1996 Plan and 1997
Plan will be transferred to the 1999 Plan upon the closing of the Company's
initial public offering, and no further option grants will be made under the
predecessor plans. The transferred options will continue to be governed by their
existing terms.
F-27
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
Except as otherwise noted, the transferred options have substantially the same
terms as those for grants to be made under the discretionary option grant
program of the 1999 Plan.
9,601,178 shares of our common stock have been authorized for issuance under
the 1999 Plan. This share reserve consists of the number of shares carried over
from the 1996 and 1997 Plans plus an additional increase of 8,748,266 shares.
The share reserve will automatically increase on the first trading day in
January each year, by an amount equal to 3% of the total number of shares of
common stock outstanding on the last trading day of the prior year, but in no
event will this annual increase exceed 1,500,000 shares. In addition, no
participant in the 1999 Plan may be granted stock options, separately
exercisable stock appreciation rights or direct stock issuances for more than
1,100,000 shares of common stock in total in any calendar year. Of the 9,601,178
shares 5,722,698 remained available for issuance at the close of business on
September 30, 1999.
The Company accounts for the stock option plans in accordance with APB
No. 25, under which no compensation has been recognized for stock options
granted. Had compensation for the stock option plans been determined consistent
with the provisions of SFAS No. 123, the effect on the Company's net income
(loss) and basic and diluted net income (loss) per common share would have been
the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
<S> <C> <C>
1997 1998
---------- ------------
Net income (loss), as reported................... $1,182,146 $ (2,480,980)
Net income (loss), pro forma..................... 1,182,146 (2,480,980)
Basic income (loss) per share, as reported....... 0.07 (0.15)
Basic income (loss) per share, pro forma......... 0.07 (0.15)
Diluted income (loss) per share, as reported..... 0.07 (0.15)
Diluted income (loss) per share, pro forma....... 0.07 (0.15)
</TABLE>
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
------- -------
Expected option lives..................................... 5 years 5 years
Risk-free interest rates.................................. 5.88% 5.04%
Expected volatility....................................... 99.89% 99.89%
Dividend yield............................................ 0% 0%
Fair value................................................ $0.85 $0.86
</TABLE>
F-28
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
On February 22, 1999, the Company's Board of Directors adopted and the
Company's shareholders approved the 1999 Stock Option/Stock Issuance Plan (the
"1999 Plan"). The 1999 Plan is divided into the following three separate equity
programs:
a) Discretionary Option Grant Program-under which eligible persons may, at
the discretion of the Plan Administrator, be granted options to purchase
shares of common stock.
b) Stock Issuance Program-under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of common stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered.
c) Automatic Option Grant Program-under which eligible non-employee Board
members shall automatically receive options at periodic intervals to
purchase shares of common stock.
The maximum number of shares of common stock initially reserved for issuance
over the term of the 1999 Plan is 9,601,178 shares. The number of shares
available for issuance automatically increase on the first trading day of each
calendar year during the term of the 1999 Plan, beginning with the 2000 calendar
year (by an amount equal to 3% of the shares outstanding on the last trading day
of the preceding calendar year, but in no event shall any such annual increase
exceed 1,500,000 shares). No option shall have a term in excess of 10 years
measured from the option grant date.
In April 1999, the Company issued options to purchase 50,000 shares of
common stock at an exercise price of $1.225 per share, which was then the fair
market value of the Company's common stock, to an individual who agreed to serve
as a director of the Company upon the closing of the Company's initial public
offering. The options will only become exercisable at the time the director-
nominee is elected to serve as a director of the Company.
9. GEOGRAPHIC REPORTING
The Company began operations outside of the United States during 1997. A
summary of the Company's operations by geographical area as of December 31, 1997
and 1998 and for the years then ended is presented below:
As of and for the year ended December 31, 1997:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues............................ $12,151,636 $ 823,939 $12,975,575
Income (loss) from operations....... 2,213,374 (157,247) 2,056,127
Net income (loss)................... 1,253,075 (70,929) 1,182,146
Long--lived assets.................. 3,337,743 196,603 3,534,346
Current assets...................... 6,100,383 988,835 7,089,218
Other assets........................ 107,261 1,368 108,629
</TABLE>
F-29
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. GEOGRAPHIC REPORTING (CONTINUED)
As of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues............................ $18,936,199 $ 7,515,992 $26,452,191
Income (loss) from operations....... (3,158,477) 106,242 (3,052,235)
Net income (loss)................... (2,325,823) (155,157) (2,480,980)
Long--lived assets.................. 11,645,479 397,366 12,042,845
Current assets...................... 6,460,598 1,647,784 8,108,382
Other assets........................ 1,945,464 4,571 1,950,035
</TABLE>
As of and for the nine months ended September 30, 1999 (unaudited):
<TABLE>
<CAPTION>
Revenues. $43,276,409 $13,222,880 $56,499,289
<S> <C> <C> <C>
Income (loss) from operations....... (5,113,013) 861,552 (4,251,461)
Net income (loss)................... (7,426,931) 811,902 (6,615,029)
Long--lived assets.................. 62,803,362 1,482,216 64,285,578
Current assets...................... 31,512,175 6,044,590 37,556,765
Other assets........................ 4,426,054 209,703 4,635,757
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As of December 31, 1998 and September 30, 1999 (unaudited), respectively,
the Company was committed under operating leases, principally for office space
and equipment, expiring through 2003. Subsequent to December 31, 1998, the
Company entered into a lease agreement for new office space for its headquarters
in New York and its Boston location. Certain leases are subject to rent reviews
and require payment of expenses under immaterial escalation clauses. Rent
expense was $71,000, $232,913 and $671,759, respectively, for the three years
ended December 31, 1998 and $503,819 and $2,134,000, respectively, for the nine
months ended September 30, 1998 and 1999 (unaudited). Future minimum base rents
under terms of noncancellable operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 846,653
2000...................................................... 4,189,138
2001...................................................... 4,090,397
2002...................................................... 4,084,131
2003...................................................... 4,295,534
Thereafter................................................ 29,896,623
</TABLE>
F-30
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AGREEMENTS
In April 1999 the Company entered into employment agreements with Chan Suh,
Chief Executive Officer, and Kyle Shannon, Chief Creative Officer. Mr. Suh and
Mr. Shannon's agreements obligate the Company to pay an annual salary of
$155,000 and $150,000, respectively, through March 31, 2004. Under the
provisions of the agreements, if early termination occurs any options that would
have vested during this employment period are accelerated to vest and become
exercisable prior to the date of termination. The Company also has an employment
agreement with its President, North America, who was formerly with ERI, whereby
the executive receives an annual salary of $150,000, entitled to receive an
annual bonus of $100,000 and is eligible for an annual discretionary bonus of up
to $250,000. The Company also made a restricted stock grant to this executive of
80,690 shares of common stock in connection with the acquisition of ERI. These
shares become unrestricted in three equal amounts on each of the first three
anniversaries of the date of the grant. These shares have been considered
additional purchase price based upon a fair market value of $1.23 per share and
the total value of approximately $99,000 has been allocated to workforce in the
September 30, 1999 consolidated balance sheet (unaudited). In addition during
April 1999, the Company entered into employment agreements under similar terms
with five other key members of management that expire on various dates through
March 2004.
Future minimum compensation for all of these agreements is as follows.
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 741,666
2000...................................................... 1,375,000
2001...................................................... 1,375,000
2002...................................................... 789,166
2003...................................................... 305,000
Thereafter................................................ 76,250
</TABLE>
LITIGATION
The Company, from time to time, 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.
11. CAPITAL LEASE OBLIGATIONS
At December 31, 1997 and 1998, the Company was committed under capital
leases, principally for computer equipment and office equipment, expiring
through 2003. The assets and liabilities under the capital leases are recorded
at the lower of the present value of minimum lease payments or the fair market
value of the assets. The assets are depreciated over their estimated useful
lives. The average interest rate on the capital leases is 5.6%.
F-31
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CAPITAL LEASE OBLIGATIONS (CONTINUED)
Future minimum payments under the lease agreements are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 613,021
2000...................................................... 529,532
2001...................................................... 317,363
2002...................................................... 21,395
2003...................................................... 15,825
-----------
Total minimum lease payments.......................... 1,497,136
Less--Amounts representing interest....................... 84,279
Less--Current portion..................................... 564,536
-----------
Present value of net minimum lease payments........... $ 848,321
===========
</TABLE>
12. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all of its eligible
employees in the U.S. The Plan was effective from January 1, 1996 and is
qualified under Section 401(k) of the Internal Revenue Code. Employees may begin
participation on monthly enrollment dates provided that they have reached
21 years of age and 6 months of service. The Company may make matching and/or
profit sharing contributions to the plan at its discretion. Contribution expense
was $16,095 and $45,320, respectively, for the years ended December 31, 1997 and
1998 and $0 and $417,833, respectively, for each of the nine months ended
September 30, 1998 and 1999 (unaudited).
13. SUBSEQUENT EVENTS
The Company is pursuing an initial public offering of its securities. The
offering contemplates the sale of shares of common stock at an offering price of
$11.00 per share, before underwriting discounts and commissions and offering
expenses. The Company plans to use 35% of the net proceeds of this offering
subject to a maximum of $25 million to repay amounts borrowed under the term
loan portion of the new Omnicom credit facility (see below).
In November 1999, the Company entered into a new $85 million credit facility
with Omnicom Finance, a wholly owned subsidiary of Omnicom, which replaced the
Company's revolving credit lines and consolidates all of the Company's
previously outstanding indebtedness due to Omnicom. The credit facility provides
for a $25 million term loan, a $54 million revolving credit line and a
$6,000,000 lease credit support facility. Under the term sheet, the Company must
use 35% of the net proceeds from its initial public offering, up to a maximum of
$25 million, to repay amounts borrowed under the term loan. The remaining
amounts will be due in full on September 30, 2001. This credit facility bears
interest at the rate of Omnicom's commercial paper rate plus 1.25% and
terminates in September 2001.
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle River Interactive:
We have audited the accompanying combined statements of operations, divisional
equity (deficit) and cash flows of Eagle River Interactive (formerly a division
of Mastering, Inc., the "Predecessor" see Note 1) for the year ended
December 31, 1996 and the period from January 1, 1997 through September 26,
1997. These financial statements are the responsibility of the management of
Eagle River Interactive Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Eagle River
Interactive (formerly a division of Mastering, Inc.) for the year ended
December 31, 1996 and the period from January 1, 1997 through September 26, 1997
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
July 19, 1999
F-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle River Interactive Inc.:
We have audited the accompanying consolidated balance sheets of Eagle River
Interactive Inc. (a Delaware corporation) (the "Successor Company" see Note 1),
as of December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the period from inception
(September 26, 1997) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eagle River Interactive Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from inception (September 26, 1997) to December 31, 1997
and the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
July 19, 1999
F-34
<PAGE>
EAGLE RIVER INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 632,000 $ 711,000 $ 683,000
Accounts receivable, net of allowance for doubtful
accounts of $184,000, $2,784,000 and $2,784,000
(unaudited), respectively............................... 3,600,000 4,525,000 521,000
Unbilled charges.......................................... 1,344,000 139,000 2,912,000
Prepaid expenses and other current assets................. 975,000 1,000 251,000
Due from affiliates....................................... -- 34,000 670,000
----------- ----------- -----------
Total current assets.................................. 6,551,000 5,410,000 5,037,000
Property and Equipment, net of accumulated depreciation and
amortization of $1,572,000, $2,888,000 and $3,280,000
(unaudited), respectively................................. 3,384,000 2,406,000 2,132,000
Goodwill, net of accumulated amortization of $1,076,000,
$5,398,000 and $6,479,000 (unaudited), respectively....... 11,889,000 7,567,000 6,486,000
Other Assets................................................ 64,000 52,000 43,000
----------- ----------- -----------
Total assets.......................................... $21,888,000 $15,435,000 $13,698,000
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses..................... $ 4,966,000 $ 7,300,000 $ 4,139,000
Line of credit due to Omnicom............................. 3,128,000 2,160,000 5,162,000
Deferred revenue.......................................... 1,012,000 429,000 115,000
Current portion of capital lease obligations.............. 352,000 150,000 150,000
Management fee due to Omnicom Finance Inc................. -- 182,000 182,000
Due to affiliates......................................... -- 111,000 710,000
Other current liabilities................................. 208,000 259,000 414,000
----------- ----------- -----------
Total current liabilities............................. 9,666,000 10,591,000 10,872,000
Long-term Liabilities:
Due to Omnicom Finance Inc................................ 15,968,000 17,063,000 17,407,000
Capital lease obligations................................. 103,000 -- --
Other long-term liabilities............................... 81,000 -- --
----------- ----------- -----------
Total liabilities..................................... 25,818,000 27,654,000 28,279,000
----------- ----------- -----------
Commitments and Contingencies
Shareholders' Deficit:
Common stock, no par value, 1,500 shares authorized, 100
shares issued and outstanding, respectively............. -- -- --
Accumulated deficit....................................... (3,941,000) (12,194,000) (14,524,000)
Cumulative foreign currency translation................... 11,000 (25,000) (57,000)
----------- ----------- -----------
Total shareholders' deficit........................... (3,930,000) (12,219,000) (14,581,000)
----------- ----------- -----------
Total liabilities and shareholders' deficit........... $21,888,000 $15,435,000 $13,698,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-35
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------------- ------------------------------------------------------------
PERIOD
PERIOD FROM FROM INCEPTION
JANUARY 1, (SEPTEMBER 26,
1997 1997) THREE MONTHS ENDED
YEAR ENDED THROUGH THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 26, DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998 1998 1999
-------------- -------------- --------------- -------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $15,439,000 $ 12,927,000 $ 4,984,000 $23,442,000 $ 5,063,000 $ 5,072,000
Direct salaries and
costs................. 14,327,000 10,252,000 3,347,000 11,782,000 2,742,000 2,885,000
----------- ------------ ----------- ----------- ----------- -----------
Gross profit........ 1,112,000 2,675,000 1,637,000 11,660,000 2,321,000 2,187,000
General and
administrative........ 2,957,000 6,649,000 3,755,000 12,022,000 2,275,000 2,452,000
Sales and marketing..... 2,987,000 4,631,000 427,000 1,958,000 355,000 602,000
Amortization of
goodwill.............. -- -- 1,076,000 4,322,000 1,081,000 1,081,000
----------- ------------ ----------- ----------- ----------- -----------
Loss from
operations........ (4,832,000) (8,605,000) (3,621,000) (6,642,000) (1,390,000) (1,948,000)
Other expense, net...... 500,000 1,100,000 5,000 10,000 -- --
Interest expense net.... -- -- 315,000 1,601,000 368,000 382,000
----------- ------------ ----------- ----------- ----------- -----------
Loss before income
taxes............. (5,332,000) (9,705,000) (3,941,000) (8,253,000) (1,758,000) (2,330,000)
Benefit for income
taxes................. -- -- -- -- -- --
----------- ------------ ----------- ----------- ----------- -----------
Net loss............ ($5,332,000) ($ 9,705,000) ($3,941,000) ($8,253,000) ($1,758,000) ($2,330,000)
=========== ============ =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements.
F-36
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF DIVISIONAL EQUITY (DEFICIT)
AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996--
PREDECESSOR
COMPANY
------------
<S> <C>
Divisional Deficit, December 31, 1995....................... ($ 1,853,000)
Net loss for the period................................... (5,332,000)
Advances from Parent...................................... 13,664,000
------------
Divisional Equity, December 31, 1996........................ 6,479,000
Net loss for the period................................... (9,705,000)
Advances from Parent...................................... 5,140,000
------------
Divisional Equity, September 26, 1997....................... $ 1,914,000
============
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION (SEPTEMBER 26, 1997)
THROUGH DECEMBER 31, 1998--SUCCESSOR COMPANY
-------------------------------------------------------------------------
COMMON STOCK CUMULATIVE TOTAL
------------------- ACCUMULATED FOREIGN CURRENCY STOCKHOLDERS'
SHARES AMOUNT DEFICIT TRANSLATION DEFICIT
-------- -------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, September 26,
1997.................. -- $ -- $ -- $ -- $ --
Common stock issued in
connection with
acquisition........... 100 -- -- -- --
Foreign currency
translation
adjustment............ -- -- -- 11,000 11,000
Net loss.............. -- -- (3,941,000) -- (3,941,000)
--- ---- ------------ -------- ------------
Balance, December 31,
1997.................. 100 -- (3,941,000) 11,000 (3,930,000)
Foreign currency
translation
adjustment............ -- -- -- (36,000) (36,000)
Net loss.............. -- -- (8,253,000) -- (8,253,000)
--- ---- ------------ -------- ------------
Balance, December 31,
1998.................. 100 -- (12,194,000) (25,000) (12,219,000)
Foreign currency
translation
adjustment............ -- -- -- (32,000) (32,000)
Net loss
(unaudited)......... -- -- (2,330,000) -- (2,330,000)
--- ---- ------------ -------- ------------
Balance, March 31, 1999
(unaudited)........... 100 $ -- ($14,524,000) ($57,000) ($14,581,000)
=== ==== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements.
F-37
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
---------------------------- ----------------------------------------------------------
PERIOD FROM
PERIOD FROM INCEPTION
JANUARY 1, (SEPTEMBER 26,
1997 1997) THREE MONTHS ENDED
YEAR ENDED THROUGH THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, SEPTEMBER 26, DECEMBER 31, DECEMBER 31, -------------------------
1996 1997 1997 1998 1998 1999
------------ ------------- --------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ ($5,332,000) ($ 9,705,000) ($3,941,000) ($8,253,000) ($1,758,000) ($2,330,000)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Impairment of long-lived
assets........................ -- -- -- -- --
Loss on disposal of fixed
assets........................ -- -- 199,000 543,000 --
Write-off of software........... -- -- -- -- --
Write-off of prepaid expenses
and other current assets...... -- 344,000 -- -- -- --
Allowance for doubtful
accounts...................... -- 980,000 44,000 2,600,000 --
Amortization of goodwill........ -- -- 1,076,000 4,322,000 1,081,000 1,081,000
Depreciation and amortization... 1,096,000 1,086,000 234,000 1,686,000 391,000 393,000
Change in assets and
liabilities:
Increase (decrease) in
deferred revenue............ (60,000) 168,000 531,000 (583,000) 820,000 (314,000)
(Increase) decrease in
accounts receivable......... (2,444,000) 278,000 (846,000) (3,525,000) (1,283,000) 4,003,000
Increase (decrease) due
to/from affiliates.......... -- -- -- 77,000 -- (38,000)
(Increase) decrease in
unbilled charges............ (2,123,000) 219,000 330,000 1,205,000 (772,000) (2,774,000)
(Increase) decrease in prepaid
expenses and other current
assets...................... (143,000) 239,000 (814,000) 986,000 304,000 (238,000)
Increase (decrease) in other
current liabilities......... 58,000 (320,000) 77,000 233,000 82,000 155,000
Increase (decrease) in other
long-term liabilities....... -- -- (18,000) (81,000) (81,000) --
Increase (decrease) in
accounts payable and accrued
expenses.................... (599,000) 2,428,000 700,000 2,334,000 1,314,000 (3,161,000)
----------- ------------ ----------- ----------- ----------- -----------
Net cash (used in) provided
by operating activities... (9,547,000) (4,283,000) (2,428,000) 1,544,000 98,000 (3,223,000)
----------- ------------ ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................ (3,140,000) (677,000) (520,000) (1,251,000) (265,000) (119,000)
Acquisition of subsidiary........... (349,000) (26,000) -- -- -- --
Acquisition of software............. (241,000) -- -- -- -- --
----------- ------------ ----------- ----------- ----------- -----------
Net cash (used in) in
investing activities...... (3,730,000) (703,000) (520,000) (1,251,000) (265,000) (119,000)
----------- ------------ ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease
obligations....................... (117,000) (154,000) (34,000) (305,000) (142,000) --
Payments under note payable......... (270,000) -- -- -- -- --
Net change in due to/from
corporate......................... 13,664,000 5,140,000 -- -- -- --
Proceeds from issuance of long-term
debt and line of credit........... -- -- 3,596,000 19,451,000 3,033,000 8,005,000
Repayment of long-term debt and line
of credit......................... -- -- -- (19,324,000) (2,000,000) (4,660,000)
----------- ------------ ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities................ 13,277,000 4,986,000 3,562,000 (178,000) 891,000 3,345,000
----------- ------------ ----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATES ON CASH...... -- -- 11,000 (36,000) (34,000) (31,000)
----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in
cash...................... -- -- 625,000 79,000 690,000 (28,000)
----------- ------------ ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... -- -- 7,000 632,000 632,000 711,000
----------- ------------ ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ -- $ -- $ 632,000 $ 711,000 $ 1,322,000 $ 683,000
=========== ============ =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH
INVESTING ACTIVITIES:
Equipment acquired under capital
leases............................ $ 452,000 -- -- -- -- --
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements
F-38
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BUSINESS
Eagle River Interactive ("ERI") refers to the interactive marketing
solutions division of Eagle River Interactive, Inc., subsequently renamed
Mastering, Inc. ("Parent"). During 1996, the Parent completed a merger with
Graphic Media, Inc. ("GM"), which was accounted for as a pooling of interests.
In addition, during 1996, the Parent acquired SRC Localisation ("SRC"), a 99%
owned subsidiary, which is located in Paris, France. Collectively ERI, GM and
SRC are referred to as the "Predecessor." All significant intercompany accounts
and transactions have been eliminated in the accompanying financial statements.
For the year ended December 31, 1996, and for the period January 1, 1997
through September 26, 1997, the accompanying financial statements were derived
from the historical accounting records maintained by the Parent and were
prepared on the accrual basis of accounting. Historically, the Parent maintained
separate records of revenues of the Predecessor and direct expenses and costs
that were clearly identifiable for the Predecessor, were recorded as expenses of
the Predecessor. For purposes of the accompanying statements of operations, the
Predecessor has made an allocation of the expenses of centralized functions such
as human resources, in-house legal and other such shared services, based upon
the estimated expected usage of such services by the Predecessor. This
allocation was based on levels of relative employees, business activity and
similar measures, of the Predecessor as compared to the other businesses of the
Parent. No allocations of corporate expenses for corporate executives, corporate
functions and similar expenses were made. The results of operations for the
periods presented are not necessarily indicative of results to be expected in
the future.
The Predecessor created, developed and deployed interactive marketing
strategies to assist a variety of companies, primarily in the United States, in
communicating effectively with their targeted audiences. The Predecessor created
these strategies by combining its knowledge of leading technologies with its
creative expertise and strategic marketing experience.
On September 26, 1997, substantially all of the assets and liabilities of
the Predecessor were sold to a newly formed wholly-owned subsidiary of the
Omnicom Group Inc. ("Omnicom"), which was subsequently renamed Eagle River
Interactive Inc., which will be referred to hereafter as the "Company" or
"Successor." The transaction was accounted for as a purchase transaction. The
purpose of the business and its operations remained the same after the
acquisition.
In April 1999, the Company was purchased by AGENCY.COM Ltd. ("AGENCY.COM")
under a merger agreement (Note 14).
All footnotes to follow for the year ended December 31, 1996, and for the
period from January 1, 1997 through September 26, 1997, will refer to the
Predecessor while the footnotes for the period from September 27, 1997 through
December 31, 1997, the year ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 will refer to the Successor.
F-39
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the operations of
Eagle River Interactive and its 99% owned subsidiary, SRC. All significant
intercompany accounts and 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized as services are rendered and performance occurs
under each contract. Unbilled charges represent labor costs incurred and
estimated earnings, production and other client reimbursable costs in excess of
related billings. Deferred revenues represent billings of production and other
client reimbursable out-of-pocket costs in excess of revenues earned. Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Revenue from time and material jobs is recognized on
the basis of costs incurred during the period.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost or fair market value as determined
when acquired on September 26, 1997, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over estimated useful lives of three to five years. Leasehold improvements and
equipment held under capital leases are amortized utilizing the straight-line
method over the lesser of the estimated useful life of the asset or the
remaining term of the related lease.
GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired on September 26, 1997, is presently being
amortized over a period of three years on a straight-line basis. Management has
evaluated the amortization period in the current period and has determined that
no impairment currently exists. This amortization period will be evaluated by
management on a continuing basis, and will be adjusted if the lives of the
related intangible assets are impaired.
F-40
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING FOR LONG-LIVED ASSETS
The Predecessor and Successor account for long-lived assets under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of. The
Company reviews long-lived assets and certain identifiable intangibles to be
held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset exceeds the fair value of the
asset. If other events or changes in circumstances indicate that the carrying
amount of an asset that the Company expects to hold and use may not be
recoverable, the Company will estimate the future cash flows expected to result
from the use of the asset and its eventual disposition. Future cash flows are
the future cash inflows expected to be generated by an asset less the future
cash outflows expected to be necessary to obtain those inflows. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, the Company will recognize an
impairment loss equal to the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The fair value of the asset is the amount
at which the asset could be bought or sold in a current transaction between
willing parties or can be determined by calculating the present value of
estimated expected future cash flows using a discount rate commensurate with the
risks involved. Management has performed a review of all long-lived assets and
has determined that no impairment of the respective carrying value has occurred
at December 31, 1998 and March 31, 1999 (unaudited).
INCOME TAXES
As a division of Mastering, Inc., the Predecessor was not directly subject
to Federal, state and local income taxes. Provisions for deferred taxes were not
reflected on the Predecessor's books and records, but were reflected on
Mastering, Inc.'s books and records. Mastering, Inc. and its subsidiaries filed
a consolidated Federal income tax return. SRC filed a separate return in Paris.
The Predecessor's results of operations were combined with those of the
remainder of the Parent for tax reporting purposes. The Predecessor was
allocated a portion of the Parent's tax benefit or provision determined as if
the Predecessor was a separate tax paying entity. Because the Predecessor has
reported net losses since inception, no tax benefit or provision was recorded.
Beginning September 26, 1997, the Successor became fully subject to income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases for
operating profit and tax liability carryforward. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those
F-41
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets or liabilities of a change in tax rates is recognized in the
period that the tax change occurs.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's foreign subsidiary are
translated into U.S. dollars at fiscal year-end exchange rates. Income and
expense items are translated at average exchange rates prevailing during the
fiscal year. The resulting translation adjustments are recorded as a component
of shareholders' deficit in the accompanying consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, due to/from affiliates,
accounts payable and the line of credit approximate fair value due to the
short-term maturity of these instruments. The carrying amounts of due to
Ominicom Finance Inc. and capital lease obligations approximate fair value.
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and trade accounts receivable. The Company
maintains cash with various financial institutions. The Company performs
periodic evaluations of the relative credit standing of these institutions. The
Company's clients are primarily concentrated in the United States. The Company
performs ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information.
For the year ended December 31, 1996 and the period from January 1, 1997
through September 26, 1997 there were no customers whose revenues represented a
significant amount of total revenues.
For the period from September 27, 1997 through December 31, 1997, 1 client
accounted for 24% of total revenues.
For the year ended December 31, 1998, 1 client accounted for 21% of total
revenues.
For the three months ended March 31, 1998, 1 client accounted for 25% of
total revenues.
For the three months ended March 31, 1999, 2 clients accounted for 24% and
12%, respectively, of total revenues.
As of December 31, 1997, 1 client accounted for 24% of total accounts
receivable.
As of December 31, 1998, 3 clients accounted for 21%, 20% and 17%,
respectively, of total accounts receivable.
F-42
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
As of March 31, 1999, 1 client accounted for 14% of total accounts
receivable.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. The components of comprehensive
income are as follows:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY
-------------------------------------------
PREDECESSOR COMPANY PERIOD FROM
---------------------------------------------- INCEPTION
YEAR ENDED PERIOD FROM (SEPTEMBER 26, 1997) YEAR ENDED
DECEMBER 31, JANUARY 1, 1997 THROUGH THROUGH DECEMBER 31, DECEMBER 31,
1996 SEPTEMBER 26, 1997 1997 1998
------------------ ------------------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Net loss................ $(5,332,000) $ (9,705,000) $(3,941,000) $(8,253,000)
Foreign currency
translation
adjustment............ -- -- 11,000 (36,000)
----------- ------------ ----------- -----------
Comprehensive loss.. $(5,332,000) $ (9,705,000) $(3,930,000) $(8,289,000)
=========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Net loss.................................................... $(1,758,000) $ (2,330,000)
Foreign currency translation adjustment..................... (9,000) (32,000)
----------- ------------
Comprehensive loss...................................... $(1,767,000) $ (2,362,000)
=========== ============
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement also
establishes standards for related disclosure about products and services,
geographic areas and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997 and need not be applied
to interim periods in the initial year of application. Comparative information
for earlier years presented is to be restated. The Company currently believes
that it operates in one segment and that the adoption of SFAS No. 131 will not
materially affect the Company's current disclosure of geographic information
(Note 9).
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal
F-43
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Use" ("SOP 98-1"), which provides guidance for determining whether computer
software is internal-use software and on accounting for the proceeds of computer
software originally developed or obtained for internal use and then subsequently
sold to the public. It also provides guidance on capitalization of the costs
incurred for computer software developed or obtained for internal use. SOP 98-1
is effective for fiscal years beginning after December 31, 1998. The Company
does not expect the adoption of SOP 98-1 to have a material effect on its
financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of
March 31, 1999 and for the three months ended March 31, 1998 and 1999, have been
prepared in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of the Company, these unaudited
consolidated financial statements, reflect all adjustments necessary, consisting
of normal recurring adjustments, for a fair presentation of such data on a basis
consistent with that of the audited data presented herein. The consolidated
results for interim periods are not necessarily indicative of the results
expected for a full year.
2. MERGER
On June 21, 1996, pursuant to an Agreement and Plan of Merger, the Parent
completed a merger of a wholly-owned subsidiary with GM, an Oregon corporation.
As a result of the merger, GM became a wholly-owned subsidiary of the Parent and
a component of the Predecessor. The business combination was accounted for by
the Parent as a pooling of interests. The Parent incurred approximately $500,000
to complete the GM merger, which has been reflected as Other Expense in the
accompanying 1996 statement of operations.
The merger was accounted for as a pooling of interests and, accordingly, the
historical financial statements for the Parent and GM for periods prior to
consummation of the merger were restated as though the companies had been
combined for all periods reported. The Predecessor's financial statements have
been correspondingly restated.
F-44
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGER (CONTINUED)
The following table provides information about revenues and earnings
reported by the Predecessor prior to the merger for the six months ended
June 30, 1996:
<TABLE>
<CAPTION>
ERI GM TOTAL
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................... $6,971,000 $2,519,000 $9,490,000
---------- ---------- ----------
Net loss............................................... $ (14,000) $ (150,000) $ (164,000)
========== ========== ==========
</TABLE>
3. RELATED PARTY TRANSACTIONS
OMNICOM FINANCE INC.
In September 1997, Omnicom Finance Inc. ("OFI"), a wholly-owned subsidiary
of Omnicom, loaned the Company $15,500,000 to acquire the assets of the
interactive services business of Mastering, Inc., then known as Eagle River
Interactive. This amount bears interest at the rate charged by Omnicom to its
subsidiaries under Omnicom's cash management program ("the Applicable Rate"),
which was 6.85%, 6.00%, 6.63% and 5.93% as of December 31, 1997 and 1998, and
for the three months ended March 31, 1998 and 1999, respectively.
In September 1997, OFI agreed to provide a line of credit to the Company.
Amounts borrowed under the line of credit bear interest at the rate then in
effect charged by Omnicom to its subsidiaries under Omnicom's cash management
program which ranged from 6.63% to 6.85%, 6.00% to 6.70%, 6.6% to 6.65% and
5.91% to 5.95% for the years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999, respectively. The Company had
approximately $3,128,000, $2,160,000 and $5,162,000 of the line of credit
outstanding at December 31, 1997 and 1998 and March 31, 1999 (unaudited),
respectively. All outstanding amounts are repayable on demand.
Interest expense on all amounts due OFI amounted to approximately $315,000
and $1,601,000 for the years ended December 31, 1997 and 1998, respectively, and
$368,000 and $382,000 for the three months ended March 31, 1998 and 1999,
respectively.
On May 15, 1998, Omnicom entered into a letter of credit guarantee, not to
exceed approximately $645,000 on behalf of the Company. Under the terms of the
agreement, Omnicom guarantees the payment of all sums under one of ERI's leases
for office space. The letter of credit expires on May 31, 2001.
DUE FROM/TO AFFILIATES
The Company provides and receives consulting services from/to affiliated
companies.
F-45
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Due from affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
AGENCY.COM.................................................. $34,000 $ --
Online Magic Limited........................................ -- 366,000
Quadris Consulting, Inc..................................... -- 234,000
Other affiliates............................................ -- 70,000
------- --------
$34,000 $670,000
======= ========
</TABLE>
Due to affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Interactive Solutions Inc................................... $111,000 $ 51,000
AGENCY.COM.................................................. -- 659,000
-------- --------
$111,000 $710,000
======== ========
</TABLE>
There were no outstanding amounts due from/to related parties as of
December 31, 1997.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Software............................................. $ 793,000 $ 833,000 $ 870,000
Furniture and fixtures............................... 2,473,000 3,032,000 3,054,000
Leasehold improvements............................... 1,690,000 1,429,000 1,488,000
----------- ----------- -----------
Total property and equipment..................... 4,956,000 5,294,000 5,412,000
Less--Accumulated depreciation and amortization...... (1,572,000) (2,888,000) (3,280,000)
----------- ----------- -----------
Property and equipment, net...................... $ 3,384,000 $ 2,406,000 $ 2,132,000
=========== =========== ===========
</TABLE>
Depreciation and amortization expense was approximately $1,096,000 and
$1,086,000 for the year ended December 31, 1996 and for the period from
January 1, 1997 through September 26, 1997, respectively. Depreciation and
amortization expense was approximately $234,000, $1,686,000, $391,000 and
$393,000 for the period September 27, 1997 through December 31, 1997, the year
ended 1998 and for the three months ended March 31, 1998 and 1999 (unaudited),
respectively.
F-46
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL
Goodwill consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................ $12,965,000 $12,965,000 $12,965,000
Less--Accumulated amortization...................... (1,076,000) (5,398,000) (6,479,000)
----------- ----------- -----------
Goodwill, net................................... $11,889,000 $ 7,567,000 $ 6,486,000
=========== =========== ===========
</TABLE>
Amortization expense was approximately $1,076,000 and $4,322,000,
respectively, for the years ended December 31, 1997 and 1998 and $1,081,000 and
$1,081,000, respectively, for the three months ended March 31, 1998 and 1999.
The Predecessor did not have any goodwill or related amortization expense
prior to September 26, 1997.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable...................................... $ 376,000 $1,474,000 $ 429,000
Accrued stay bonuses.................................. 1,206,000 641,000 --
Accrued project costs................................. 327,000 561,000 --
Accrued merger expenses............................... 379,000 -- --
Accrued vacation...................................... 254,000 221,000 101,000
Accrued professional fees............................. -- 364,000 364,000
Accrued expenses...................................... 2,424,000 4,039,000 3,245,000
---------- ---------- ----------
Total............................................. $4,966,000 $7,300,000 $4,139,000
========== ========== ==========
</TABLE>
There were no other individual items greater than 5% of current liabilities
as of December 31, 1997, December 31, 1998 and March 31, 1999 (unaudited).
F-47
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Loss before income taxes and the provision for (benefit from) income taxes
consisted of the amounts shown below:
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(SEPTEMBER 26, 1997) THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
-------------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income (loss) before income taxes:
Domestic........................ $(3,773,000) $(8,201,000) $(1,794,000) $(2,338,000)
International................... (168,000) (52,000) 36,000 8,000
----------- ----------- ----------- -----------
$(3,941,000) $(8,253,000) $(1,758,000) $(2,330,000)
=========== =========== =========== ===========
(Benefit from) income taxes:
Current--Federal................ $ (770,000) $(1,798,000) $ (356,000) $ (508,000)
Deferred--Federal............... (539,000) (1,064,000) (267,000) (303,000)
Valuation allowance............. 1,309,000 2,862,000 623,000 811,000
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
A reconciliation of the difference between the statutory U.S. Federal Income
Tax Rate and the Company's effective tax rate follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(SEPTEMBER 26, 1997) THREE MONTHS
THROUGH YEAR ENDED ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
---------------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory Federal income
Tax Rate........................ $(1,380,000) $(2,889,000) $ (615,000) $ (816,000)
International operations........ 71,000 27,000 (8,000) 5,000
Valuation allowance............. 1,309,000 2,862,000 623,000 811,000
----------- ----------- ----------- -----------
Effective rate................ $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
F-48
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to a significant
portion of the deferred income tax assets (liabilities), net, are as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(SEPTEMBER 26, 1997)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998 MARCH 31, 1999
---------------------- ------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Goodwill amortization...................... $298,000 $1,222,000 $1,525,000
Allowance for doubtful accounts............ 288,000 366,000 366,000
Other...................................... 15,000 15,000 15,000
-------- ---------- ----------
Total deferred tax assets.................... 601,000 1,603,000 1,906,000
-------- ---------- ----------
Deferred tax liabilities:
Other...................................... (62,000) -- --
-------- ---------- ----------
Total deferred tax liabilities............... (62,000) -- --
Less: Valuation allowance.................... (539,000) (1,603,000) (1,906,000)
-------- ---------- ----------
Net deferred tax asset....................... $ -- $ -- $ --
======== ========== ==========
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Deferred tax assets result principally from recording certain expenses in the
financial statements, which are not currently deductible for tax purposes and
differences between the tax and book basis of assets and liabilities recorded in
connection with the acquisitions. Deferred tax liabilities result principally
from expenses which are currently deductible for tax purposes, but have not yet
been expensed in the financial statements.
The Company has concluded that it is probable that it will be able to
realize these net deferred tax assets in future periods.
8. STOCKHOLDERS' DEFICIT
The Company has 1,500 authorized shares of Common Stock, no par value, of
which 100 were issued and outstanding as of December 31, 1997 and 1998 and
March 31, 1999 (unaudited).
F-49
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. GEOGRAPHIC REPORTING
The Company began operations outside of the United States during 1996. A
summary of the Company's operations and financial position by geographical area
is presented below:
For the period January 1, 1997 through September 26, 1997:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues........................................... $ 12,422,000 $ 505,000 $ 12,927,000
Income (loss) from operations...................... (8,277,000) (328,000) (8,605,000)
Net income (loss).................................. (9,712,000) 7,000 (9,705,000)
</TABLE>
For the period September 26, 1997 through December 31, 1997 and as of
December 31, 1997:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues........................................... $ 4,791,000 $ 193,000 $ 4,984,000
Income (loss) from operations...................... (3,459,000) (162,000) (3,621,000)
Net income (loss).................................. (3,773,000) (168,000) (3,941,000)
Long-lived assets.................................. 15,189,000 84,000 15,273,000
Current assets..................................... 6,322,000 229,000 6,551,000
Other assets....................................... 45,000 19,000 64,000
</TABLE>
As of and for the year ended December 31, 1998:
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues........................................... $ 21,875,000 $1,567,000 $ 23,442,000
Income (loss) from operations...................... (6,601,000) (41,000) (6,642,000)
Net income (loss).................................. (8,201,000) (52,000) (8,253,000)
Long-lived assets.................................. 9,868,000 105,000 9,973,000
Current assets..................................... 4,947,000 463,000 5,410,000
Other assets....................................... 32,000 20,000 52,000
</TABLE>
As of and for the three months ended March 31, 1999 (unaudited):
<TABLE>
<CAPTION>
UNITED STATES INTERNATIONAL CONSOLIDATED
------------- ------------- ------------
<S> <C> <C> <C>
Revenues........................................... $ 4,575,000 $ 497,000 $ 5,072,000
Income (loss) from operations...................... (1,956,000) 8,000 (1,948,000)
Net income (loss).................................. (2,338,000) 8,000 (2,330,000)
Long-lived assets.................................. 8,501,000 117,000 8,618,000
Current assets..................................... 4,700,000 337,000 5,037,000
Other assets....................................... 26,000 17,000 43,000
</TABLE>
F-50
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is committed under operating leases, principally for office
space. Certain leases are subject to rent reviews and require payment of
expenses under escalation clauses. Rent expense was approximately $281,000,
$1,070,000, $288,000 and $261,000 for the period from September 27, 1997 through
December 31, 1997, the year ended December 31, 1998 and for the three months
ended March 31, 1998 and 1999 (unaudited), respectively. Future minimum base
rents under terms of noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,244,000
2000........................................................ 1,259,000
2001........................................................ 984,000
2002........................................................ 688,000
2003........................................................ 634,000
Thereafter.................................................. 2,493,000
----------
$7,302,000
==========
</TABLE>
LITIGATION
The Company, from time to time, 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.
11. CAPITAL LEASE OBLIGATIONS
At December 31, 1998, the Company was committed under capital leases,
principally for computer equipment and office equipment. The assets and
liabilities under the capital leases are recorded at the lower of the present
value of minimum lease payments or the fair market value of the assets. The
assets are depreciated over their estimated useful lives. The interest rate on
the capital leases ranges from 5.00% to 10.25%.
Future minimum payments under the lease agreements are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999........................................................ $165,000
--------
Total minimum lease payments............................ 165,000
Less--Amounts representing interest......................... 15,000
--------
Present value of net minimum lease payments............. $150,000
========
</TABLE>
F-51
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") covering all of its
eligible employees in the U.S. The Plan became effective on October 1, 1997 and
is qualified under Section 401(k) of the Internal Revenue Code of 1996.
Employees may begin participation on monthly enrollment dates provided that they
have completed three months of service. The Company may make matching and/or
profit sharing contributions to the Plan at its discretion.
Contribution expense was $24,000, $225,000, $64,000, and $57,000 for the
period September 27, 1997 through December 31, 1997, the year ended
December 31, 1998 and for the three months ended March 31, 1998 and 1999
(unaudited), respectively.
13. ORGANIZATIONAL REALIGNMENT
In the second quarter of 1997 the Parent completed an organizational
realignment, which included moving the Parent's corporate office to Scottsdale,
Arizona and the Predecessor's headquarters to Chicago, Illinois. The Predecessor
incurred approximately $1.1 million of expenses in connection with the
realignment for severance charges, moving costs, and similar charges, which were
recorded in Other Expense in the accompanying statement of operations for the
period from January 1, 1997 through September 26, 1997. Substantially all of
this amount was disbursed prior to the sale to Omnicom on September 26, 1997.
14. SUBSEQUENT EVENT
Pursuant to an Agreement and Plan of Merger dated April 28, 1999, the
Company was acquired by AGENCY.COM effective April 1, 1999. As a result of the
sale, the separate existence of the Company ceased. Under the merger agreement,
the 100 outstanding shares of the Company's common stock was converted into
3,659,548 of AGENCY.COM common shares and a warrant to purchase 4,328,752
AGENCY.COM common shares.
F-52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interactive Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Interactive
Solutions, Inc. (a Massachusetts corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interactive Solutions, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
July 16, 1999
F-53
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $ 422,114 $ 880,663 $ 325,279
Accounts receivable, net of allowance for doubtful
accounts of $37,481, $310,000 and $310,000
(unaudited), respectively........................ 1,301,208 2,871,281 810,562
Unbilled charges................................... 206,277 219,228 3,281,020
Prepaid expenses and other current assets.......... 491 173,359 --
Due from affiliates................................ -- 351,770 --
Income tax receivable.............................. 54,262 147,992 147,992
---------- ----------- -----------
Total current assets........................... 1,984,352 4,644,293 4,564,853
Property and Equipment, net of accumulated
depreciation and amortization of $92,787,
$388,061 and $485,003 (unaudited),
respectively..................................... 357,539 1,109,914 1,026,136
Goodwill, net of accumulated amortization of $0,
$1,953,783 and $3,233,779 (unaudited),
respectively..................................... -- 5,450,026 14,446,736
Deferred Tax Assets.................................. 258,550 1,798,932 2,254,479
Other Assets......................................... -- 33,545 52,025
---------- ----------- -----------
Total assets................................... $2,600,441 $13,036,710 $22,344,229
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses.............. $ 627,855 $ 2,186,909 $ 1,298,297
Due to Omnicom Finance Inc......................... -- 2,358,106 2,786,024
Deferred revenue................................... 618,440 519,320 828,745
Due to affiliates.................................. -- -- 305,316
Deferred tax liabilities........................... 157,987 94,893 96,938
---------- ----------- -----------
Total current liabilities...................... 1,404,282 5,159,228 5,315,320
========== =========== ===========
Due To Omnicom Finance Inc........................... 828,346 9,737,645 9,904,727
---------- ----------- -----------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common stock, $.01 par value, 7,000,000 shares
authorized, 4,500,000, 4,505,500 and 4,505,500
(unaudited) shares issued and outstanding,
respectively..................................... 45,000 45,055 45,055
Additional paid-in capital......................... 486,375 495,120 10,771,825
Accumulated deficit................................ (163,562) (2,400,338) (3,692,698)
---------- ----------- -----------
Total stockholders' equity (deficit)........... 367,813 (1,860,163) 7,124,182
---------- ----------- -----------
Total liabilities and shareholders' equity
(deficit).................................... $2,600,441 $13,036,710 $22,344,229
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-54
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................ $1,513,027 $4,187,300 $15,370,470 $1,805,075 $ 3,598,106
Direct Salaries and Costs....................... 803,991 2,432,179 9,659,366 1,256,519 2,207,841
---------- ---------- ----------- ---------- -----------
Gross profit................................ 709,036 1,755,121 5,711,104 548,556 1,390,265
General and Administrative...................... 385,396 1,467,918 6,220,344 780,152 1,509,291
Sales and Marketing............................. 66,028 692,288 482,952 84,697 39,898
Amortization Of Goodwill........................ -- -- 1,953,783 102,771 1,279,996
Depreciation and Amortization................... 12,819 79,969 295,274 36,235 96,942
---------- ---------- ----------- ---------- -----------
Income (loss) from operations................. 244,793 (485,054) (3,241,249) (455,299) (1,535,862)
Interest Expense, net........................... -- 22,444 599,003 45,464 210,000
---------- ---------- ----------- ---------- -----------
Income (loss) before (provision) benefit for
income taxes................................ 244,793 (507,498) (3,840,252) (500,763) (1,745,862)
(Provision) Benefit For Income Taxes............ (100,192) 199,335 1,603,476 206,430 453,502
---------- ---------- ----------- ---------- -----------
Net income (loss)......................... $ 144,601 $ (308,163) $(2,236,776) $ (294,333) $(1,292,360)
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-55
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
-------------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
--------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996....... 4,500,000 $45,000 $ (13,625) $ -- $ 31,375
Capital contribution......... -- -- 500,000 -- 500,000
Net income................... -- -- -- 144,601 144,601
--------- ------- ----------- ----------- -----------
Balance, December 31, 1996..... 4,500,000 45,000 486,375 144,601 675,976
Net income................... -- -- -- (308,163) (308,163)
--------- ------- ----------- ----------- -----------
Balance, December 31, 1997..... 4,500,000 45,000 486,375 (163,562) 367,813
Exercise of stock options.... 5,500 55 8,745 -- 8,800
Net loss..................... -- -- -- (2,236,776) (2,236,776)
--------- ------- ----------- ----------- -----------
Balance, December 31, 1998..... 4,505,500 45,055 495,120 (2,400,338) (1,860,163)
Allocation from parent of
costs over fair value of
assets acquired............ -- -- 10,276,705 -- 10,276,705
Net loss (unaudited)......... -- -- -- (1,292,360) (1,292,360)
--------- ------- ----------- ----------- -----------
Balance, March 31, 1999
(Unaudited).................. 4,505,500 $45,055 $10,771,825 $(3,692,698) $ 7,124,182
========= ======= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-56
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- --------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 144,601 $(308,163) $(2,236,776) $ (294,333) $(1,292,360)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Amortization of goodwill........................ -- -- 1,953,783 102,771 1,279,996
Depreciation and amortization................... 12,819 79,969 295,274 36,235 96,942
Allowance for doubtful accounts................. 6,000 86,481 261,537 59,509 --
Changes in operating assets and liabilities:
Accounts receivable......................... (402,331) (730,680) (72,425) (611,044) 2,060,719
Unbilled charges............................ -- (206,277) 376,037 287,205 (3,061,792)
Prepaid expenses and other current assets... (557) 66 (172,868) (39,176) 173,359
Income tax receivable....................... (82,886) (54,262) (93,730) -- --
Due from affiliates......................... -- -- (351,770) -- 657,086
Deferred tax assets......................... -- (175,664) (1,041,037) (208,473) (455,547)
Other assets................................ (528) 836 35,566 35,866 (18,480)
Accounts payable and accrued expenses....... 66,634 561,221 929,954 281,316 (888,613)
Deferred revenue............................ 123,787 494,653 (485,975) 122,952 309,425
Deferred tax liabilities.................... 181,657 (23,670) (562,439) 2,044 2,045
--------- --------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities...................................... 49,196 (275,490) (1,164,869) (225,128) (1,137,220)
--------- --------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.............. -- (300,000) (8,827,538) (8,827,538) --
Capital expenditures............................ (98,403) (281,635) (825,249) (111,999) (13,164)
--------- --------- ----------- ----------- -----------
Net cash used in investing activities..... (98,403) (581,635) (9,652,787) (8,939,537) (13,164)
--------- --------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Omnicom Finance Inc.:........... -- 828,346 11,267,405 9,451,463 595,000
Proceeds from exercise of stock option.......... -- -- 8,800 --
Proceeds from capital contribution.............. 500,000 -- -- -- --
--------- --------- ----------- ----------- -----------
Net cash provided by financing activities..... 500,000 828,346 11,276,205 9,451,463 595,000
--------- --------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 450,793 (28,779) 458,549 286,798 (555,384)
CASH AND CASH EQUIVALENTS, beginning of year...... 100 450,893 422,114 422,114 880,663
--------- --------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year............ $ 450,893 $ 422,114 $ 880,663 $ 708,912 $ 325,279
========= ========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Income taxes.................................. $ 160,400 $(104,620) $ 62,200 $ -- $ --
Interest...................................... -- -- 37,598 -- --
========= ========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITY:
Increase in goodwill resulting from allocation
from Parent of cost over fair value of assets
acquired........................................ $ -- $ -- $ -- $ -- $10,276,706
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-57
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Interactive Solutions, Inc. and subsidiary (collectively known as the
"Company" or "Interactive") is a digital communications services provider. Prior
to December 31, 1998, Interactive was owned 60% by its majority shareholder and
40% by Communicade Inc. ("Communicade"), formerly known as JWL Associates,
Corp., a wholly-owned subsidiary of the Omnicom Group Inc. ("Omnicom")--See
Notes 3 and 12. The Company creates digital communications strategies to help
its clients increase sales, improve communications and create brand identities.
The Company's integrated service offering includes strategic consulting, design
of information architecture and end-user interfaces and customization and
implementation of enabling software technologies. The Company primarily uses
Internet-based technologies to create digital communications strategies and is
building capabilities in additional technologies.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Interactive and its subsidiary, Quadris Consulting, Inc. ("Quadris"). The
Company had no subsidiary prior to March 16, 1998 (See Note 2). All significant
intercompany accounts and 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue from contracts is recognized as services are rendered on the
percentage-of-completion method of accounting based on the ratio of costs
incurred to total estimated costs. Unbilled charges represent labor costs
incurred and estimated earnings, production and other client reimbursable costs
in excess of related billings. Deferred revenue represents billings of
production and other client reimbursable out-of-pocket costs in excess of
revenues earned. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Revenue from time and
material jobs is recognized on the basis of costs incurred during the period.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-58
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over estimated useful lives ranging from three to seven years. Leasehold
improvements are amortized utilizing the straight-line method over the lesser of
the estimated useful life of the asset or the remaining term of the related
lease.
GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired, is being amortized over a period of three
years on a straight-line basis. Management has evaluated the amortization period
in the current period and has determined that no impairment currently exists.
This amortization period will be evaluated by management on a continuing basis,
and will be adjusted if the life of the goodwill is impaired.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable tangibles to be disposed of. The Company reviews long-lived
assets and certain identifiable intangibles to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset exceeds the fair value of the asset. If other events or changes in
circumstances indicate that the carrying amount of an asset that the Company
expects to hold and use may not be recoverable, the Company will estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. Future cash flows are the future cash inflows expected to be
generated by an asset less the future cash outflows expected to be necessary to
obtain those inflows. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, the
Company will recognize an impairment loss equal to the amount by which the
carrying amount of the asset exceeds the fair value of the asset. The fair value
of the asset is the amount at which the asset could be bought or sold in a
current transaction between willing parties or can be determined by calculating
the present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved. Management has performed a review of all
long-lived assets and has determined that no impairment of the respective
carrying value has occurred as of December 31, 1997 and 1998.
INCOME TAXES
The Company accounts for income taxes under the provisions of the SFAS
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets
and liabilities are
F-59
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their tax bases for operating profit and tax liability carryforward. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets or
liabilities of a change in tax rates is recognized in the period that the tax
change occurs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, due
from affiliates, accounts payable and due to Omnicom Finance Inc. approximate
fair value due to the short-term maturity of these instruments. The carrying
amount of due to Omnicom approximates fair value.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that stock
awards granted subsequent to January 1, 1995, be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a company
may use Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and disclose pro forma income amounts which would
have resulted from recognizing such awards at their fair value. The Company has
elected to account for stock-based compensation expense under APB No. 25 and
make the required pro forma disclosures for compensation (See Note 8).
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement also
establishes standards for related disclosure about products and services,
geographic areas and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997 and need not be applied
to interim periods in the initial year of application. Comparative information
for earlier years presented is to be restated. The Company currently believes
that it operates in one segment and that the adoption of SFAS No. 131 will not
materially affect the Company's current disclosure of geographic information.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use.
F-60
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOP 98-1 is effective for fiscal years beginning after December 31, 1998. The
Company does not expect the adoption of SOP 98-1 to have a material effect on
its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of
March 31, 1999 and for the three months ended March 31, 1998 and 1999, have been
prepared in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of the Company, these unaudited
consolidated financial statements, reflect all adjustments necessary, consisting
of normal recurring adjustments, for a fair presentation of such data on a basis
consistent with that of the audited data presented herein. The consolidated
results for interim periods are not necessarily indicative of the results
expected for a full year.
2. ACQUISITIONS
QUADRIS CONSULTING, INC.
On March 16, 1998, the Company purchased 60% of the equity of a newly formed
corporation, Quadris. Concurrent with this transaction, Quadris acquired
substantially all of the assets and liabilities of the Quadris division of
JYACC, Inc. The total consideration for the net assets acquired was $8,827,538.
The remaining 40% of Quadris is owned by Quadris' management.
This acquisition was accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. As a result of this acquisition,
the Company has recorded goodwill of $7,403,809, which is the cost in excess of
net assets acquired and is being amortized over a period of three years.
ECHO STRATEGIES GROUP
On June 20, 1997, the Company purchased substantially all of the assets of
Echo Strategies Group ("Echo") for cash consideration of $300,000. This
acquisition was accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the
F-61
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
tangible and intangible assets acquired on the basis of their respective fair
values on the acquisition date. In conjunction with the purchase of Echo, the
Company signed employment contracts with two former Echo employees and issued to
them a total of 200,000 stock options with a five-year vesting period,
exercisable at $1.60 per share. These options vested and converted to options to
acquire AGENCY.COM LTD. ("AGENCY.COM") shares on April 28, 1999 (See Note 12).
As a result of the acquisition, the separate existence of the Company ceased to
exist.
The acquisitions described above were valued based on management's estimates
of the fair value of the assets and liabilities acquired at the date of
acquisition. An independent third party valuation corroborating management's
estimates for the Quadris acquisition was obtained. Assets and liabilities
acquired were recorded as follows:
<TABLE>
<CAPTION>
QUADRIS ECHO
---------------- ----------------
<S> <C> <C>
Accounts receivable..................................... $1,759,185 $229,403
Unbilled charges........................................ 388,988 --
Fixed assets............................................ 222,400 70,289
Other assets............................................ 69,111 308
Goodwill................................................ 7,403,809 --
Accounts payable and accrued expenses................... (385,986) --
Deferred revenue........................................ (386,855) --
Accrued loss on contracts............................... (243,114) --
---------- --------
Total purchase price.................................. $8,827,538 $300,000
========== ========
</TABLE>
The results of the acquired businesses have been included in the
consolidated financial statements from their respective acquisition dates.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma consolidated results of operations reflect
the results of operations as if Quadris had been acquired January 1, 1998 and
Echo had been acquired January 1, 1997, and after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what operating
results would have been had the acquisitions actually taken place on January 1,
1998 and 1997, respectively, or of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED MARCH 31,
1997 1998 1998
---------- ----------- ---------------
<S> <C> <C> <C>
Pro forma:
Revenues............................... $4,777,217 $17,097,861 $3,602,466
Net loss............................... 277,671 2,107,423 164,980
</TABLE>
F-62
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
COMMUNICADE, INC.
During December 1996, the Company entered into a shareholder agreement with
Communicade. The shareholder agreement stipulates that Omnicom Finance Inc., a
wholly owned subsidiary of Omnicom, provide the Company with a line of credit
for working capital purposes of up to $2.5 million and additional financing, in
connection with the Company's acquisition of "new media companies," as defined
in the shareholder agreement, provided that Communicade remains a shareholder of
the Company.
Amounts borrowed for working capital and acquisition funding under the line
of credit bear interest at the same rate charged by Omnicom Finance Inc. to
subsidiaries of Omnicom under a cash management program. The interest rates
ranged from 6.63% to 6.85%, 6.00% to 6.70%, for the years ended December 31,
1997 and 1998 and 6.60% to 6.65% and 5.91% to 5.95% for the three months ended
March 31, 1998 and 1999 (unaudited), respectively. Interest expense amounted to
$0, $22,444, $599,003 for the years ended December 31, 1996, 1997 and 1998 and
$45,464 and $210,000 for the three months ended March 31, 1998 and 1999
(unaudited), respectively. All outstanding amounts are secured by a priority
lien on all of the Company's assets.
At December 31, 1997 and 1998 and March 31, 1999, zero, $2,358,106 and
$2,786,024, respectively, were outstanding under the working capital line of
credit, repayable in full upon the closing of the initial public offering of
AGENCY.COM's common stock (See Note 12). In addition, the Company has $828,346,
$9,737,645 and $9,904,727 of acquisition funding outstanding as of December 31,
1997 and 1998 and March 31, 1999 (unaudited), respectively, in connection with
the acquisition of "new media companies" with repayments falling due in the
principal amount of $300,000 and $8,886,000 (unaudited) and accumulated interest
in the years 2003 and 2004, respectively.
AGENCY.COM
During the year ended December 31, 1998, the Company provided $240,928 of
consulting services to AGENCY.COM, an affiliated company. At December 31, 1998
and March 31, 1999, the Company had net receivables from and payables to
AGENCY.COM of $240,928 and $703,914 (unaudited), respectively.
EAGLE RIVER INTERACTIVE
During the year ended December 31, 1998, the Company provided $110,842 of
consulting services to Eagle River Interactive ("Eagle River"), an affiliated
company. At December 31, 1998, the Company had net receivables from Eagle River
of $110,842. At March 31, 1999 no amounts were due to or from Eagle River.
Prior to January 1, 1998, the Company had not provided any services to
AGENCY.COM and Eagle River and consequently, had no amounts receivable from
either company.
F-63
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
For the three months ended March 31, 1998 and 1999, the Company had not
provided any consulting services to AGENCY.COM or Eagle River.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment..................................... $312,925 $1,008,289 $1,021,453
Furniture and fixtures................................. 120,977 422,508 422,508
Leasehold improvements................................. 16,424 67,178 67,178
-------- ---------- ----------
Total property and equipment..................... 450,326 1,497,975 1,511,139
Less--Accumulated depreciation and amortization........ 92,787 388,061 485,003
-------- ---------- ----------
Property and equipment, net...................... $357,539 $1,109,914 $1,026,136
======== ========== ==========
</TABLE>
Depreciation and amortization expense aggregated $12,819, $79,969 and
$295,274 for the years ended December 31, 1996, 1997 and 1998 and $36,235 and
$96,942 for the three months ended March 31, 1998 and 1999 (unaudited),
respectively.
5. GOODWILL
Goodwill consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Goodwill.................................................... $7,403,809 $17,680,515
Less--Accumulated amortization............................ (1,953,783) (3,233,779)
---------- -----------
Goodwill, net........................................... $5,450,026 $14,446,736
========== ===========
</TABLE>
Amortization expense aggregated $1,953,783 and $1,279,996 for the year ended
December 31, 1998 and for the three months ended March 31, 1999 (unaudited),
respectively. The Company did not have any goodwill prior to March 15, 1998.
F-64
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued bonuses.......................................... $173,055 $ 700,687 $ 60,008
Accrued payroll.......................................... 84,508 554,081 --
Accrued expenses......................................... 52,556 176,749 525,289
Accrued professional fees................................ 109,623 518,981 471,500
Accounts payable......................................... 208,113 163,403 241,500
Accrued loss on contract................................. -- 73,008 --
-------- ---------- ----------
$627,855 $2,186,909 $1,298,297
======== ========== ==========
</TABLE>
There were no other individual items greater than 5% of current liabilities
as of December 31, 1997, December 31, 1998 and March 31, 1999 (unaudited).
7. INCOME TAXES
Income (loss) before (provision) benefit for income taxes and the
(provision) benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) before income
taxes:........................ $ 244,793 $(507,498) $(3,840,252) $(500,763) $(1,745,862)
========= ========= =========== ========= ===========
(Provision for) benefit from
income taxes:
Current--
Federal................... $ (1,086) $ 155,794 $ 598,816 $ 93,665 $ 160,155
State and local........... (335) 48,328 164,536 26,779 43,274
Deferred--
Federal................... (75,470) (3,658) 643,203 65,784 191,476
State and local........... (23,301) (1,129) 196,921 20,202 58,597
--------- --------- ----------- --------- -----------
$(100,192) $ 199,335 $ 1,603,476 $ 206,430 $ 453,502
========= ========= =========== ========= ===========
</TABLE>
F-65
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The differences between the tax (provision) benefit from continuing
operations reflected in the financial statements and the amounts calculated at
the federal statutory income tax rate of 34% are as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income tax (provision) benefit at
statutory rate.................... $ (83,230) $172,549 $1,305,686 $170,259 $593,593
State and local taxes on income, net
of federal tax (provision)
benefit........................... (15,600) 30,412 303,985 38,290 86,923
Other............................... (1,362) (3,626) (6,195) (2,119) (227,014)
--------- -------- ---------- -------- --------
$(100,192) $199,335 $1,603,476 $206,430 $453,502
========= ======== ========== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred income tax assets (liabilities), net, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Cash basis to accrual basis adjustment............. $ -- $ -- $ --
Goodwill amortization.............................. -- 628,502 826,976
Bad debt........................................... 34,826 124,837 144,972
Net operating loss carryforward.................... 204,122 967,473 1,170,903
Others............................................. 19,602 78,120 111,628
---------- ---------- ----------
Total deferred tax assets.............................. 258,550 1,798,932 2,254,479
Less: valuation allowance.............................. -- -- --
---------- ---------- ----------
Net deferred tax assets................................ 258,550 1,798,932 2,254,479
---------- ---------- ----------
Deferred tax liabilities:
Cash basis to accrual basis adjustment............. (142,545) (71,273) (53,454)
Others............................................. (15,442) (23,620) (43,484)
---------- ---------- ----------
Total deferred tax liabilities......................... (157,987) (94,893) (96,938)
---------- ---------- ----------
Net deferred tax asset................................. $ 100,563 $1,704,039 $2,157,541
========== ========== ==========
</TABLE>
F-66
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
As of December 31, 1997 and 1998 and March 31, 1999, the Company has
$513,383, $2,418,683 and $2,927,258 (unaudited), respectively net operating loss
carryforwards available to offset future taxable income through 2012.
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Deferred tax assets result principally from recording certain expenses in the
financial statements, which are not currently deductible for tax purposes, and
differences between the tax and book bases of assets and liabilities recorded in
connection with the acquisitions. Deferred tax liabilities result principally
from expenses which are currently deductible for tax purposes but have not yet
been expensed in the financial statements.
Interactive has elected to file its income tax return using the accrual
basis of accounting for the year ended December 31, 1998. For the years ended
December 31, 1997 and 1996, the Company filed on the cash basis. Quadris has
elected to file its income tax return using the accrual basis of accounting from
inception (March 16, 1998) to December 31, 1998.
8. STOCKHOLDERS' EQUITY (DEFICIT)
CAPITAL CONTRIBUTION
On December 6, 1996, the Company and Communicade entered into a Stock
Purchase Agreement (See Note 3) by which the Company received a $500,000 capital
contribution from Communicade, who had previously purchased shares of the
Company's common stock from the founder.
STOCK SPLITS
On January 10, 1996, the Company's Board of Directors authorized an 18 to 1
stock split of the Company's common stock effective immediately. This resulted
in the issuance of 170,000 additional shares of common stock.
On April 28, 1998, the Company's Board of Directors authorized a 25 to 1
stock split of its common stock effective immediately. This resulted in the
issuance of 4,320,000 additional shares of common stock.
All share amounts in the accompanying consolidated financial statements and
footnotes have been restated to give effect to these stock splits as of
December 31,1995.
STOCK OPTIONS
INTERACTIVE
Interactive has a Stock Option and Incentive Plan (the "Interactive Plan"),
that provides for the granting of stock options to employees. Pursuant to the
Interactive Plan, an aggregate of 500,000 shares of common stock has been
reserved for issuance. Under the Interactive Plan, the optionees
F-67
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
will receive options to purchase shares in Interactive if, and only if,
Interactive merges into AGENCY.COM (See Note 12).
A summary of the status of the Interactive Plan as of December 31, 1996,
1997, 1998 and March 31, 1999 and the changes during the periods then ended is
presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 MARCH 31, 1999
-------------------- -------------------- -------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- --------- -------- --------- -------- --------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................ -- $ -- -- $ -- 420,000 $1.60 494,500 $1.60
Granted......................... -- -- 420,000 1.60 212,000 1.60 -- --
Exercised....................... -- -- -- -- (5,500) 1.60 -- --
Cancelled....................... -- -- -- -- (132,000) 1.60 -- --
---- ----- ------- ----- -------- ----- ------- -----
Outstanding at end of period.... -- $ -- 420,000 $1.60 494,500 $1.60 494,500 $1.60
==== ===== ======= ===== ======== ===== ======= =====
</TABLE>
The following table summarizes information on stock options outstanding and
exercisable under the Interactive Plan at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE NUMBER LIFE PRICE NUMBER PRICE
- -------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
$1.60..................................... 494,500 9 years $1.60 167,830 $1.60
</TABLE>
Options outstanding under the Interactive Plan have been granted at prices
above the fair market value of the stock on the date of grant.
The Company has elected, in accordance with the provisions of SFAS No. 123,
to apply the current accounting rules under APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for the stock option plan.
Had compensation for those awards been determined based on the fair value at
the grant dates for those awards consistent with the method in SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below. The pro forma effects of applying SFAS No. 123 are not indicative of
future amounts because this statement does not apply to
F-68
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
awards granted prior to fiscal year 1996. Additional stock option awards are
anticipated in future years.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1997 1998
--------- ----------
<S> <C> <C>
Net Loss
As reported............................................... $308,163 $2,236,776
Pro forma................................................. 308,458 2,237,366
</TABLE>
The plan was not in existence prior to December 31, 1997.
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made in 1997 and 1998. There were no grants made prior to
1997. The following assumptions were applied in determining the pro forma
compensation cost:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Expected option life....................................... 9.5 years 9.3 years
Risk free interest rate.................................... 6.36% 5.25%
Expected stock price volatility............................ 0.00% 0.00%
Expected dividend yield.................................... 0.00% 0.00%
Fair value of options granted.............................. $ 0.02 $ --
</TABLE>
QUADRIS
Quadris has a Stock Option and Incentive Plan (the "Quadris' Plan") that
provides for the granting of 1,500,000 of options to employees of Quadris. These
options give the optionee the right to purchase common stock of Quadris. Under
the Quadris' Plan, the optionees will receive options to purchase shares in
Interactive if, and only if, Interactive merges into AGENCY.COM (See Note 12).
F-69
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
A summary of the status of the Quadris' Plan as of December 31, 1998 and
March 31, 1999 and the changes during the periods then ended is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at beginning of period......... -- $ -- 1,500,000 $0.20
Granted.................................... 1,500,000 0.20 --
--------- ----- --------- -----
Outstanding at end of period............... 1,500,000 $0.20 1,500,000 $0.20
========= ===== ========= =====
</TABLE>
The plan was not in existence prior to 1998.
The following table summarizes information on stock options outstanding and
exercisable under the Quadris Plan at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE REMAINING EXERCISE EXERCISE
RANGE NUMBER LIFE PRICE NUMBER PRICE
- -------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
$0.20-0.22............................... 1,500,000 10 years $0.20 -- $ --
</TABLE>
Options outstanding under the Quadris' Plan have been granted at prices at
or above the fair market value of the stock on the date of grant.
The Company has elected, in accordance with the provisions of SFAS No. 123,
to apply the current accounting rules under APB Opinion No. 25. Accordingly, no
compensation cost has been recognized for the stock option plan.
Had compensation for those awards been determined based on the fair value at
the grant dates for those awards consistent with the method in SFAS No. 123,
there would have been no impact on the Company's net loss for December 31, 1998
as the options were granted on December 31, 1998. The pro forma effects of
applying SFAS No. 123 are not indicative of future amounts because this
statement does not apply to awards granted prior to fiscal year 1996. Additional
stock option awards are anticipated in future years.
F-70
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The Company used the Black-Scholes option-pricing model to determine the
fair value of grants made in 1998. There were no grants made prior to 1998. The
following assumptions were applied in determining the pro forma compensation
cost:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Expected option life........................................ 10 years
Risk free interest rate..................................... 4.65%
Expected stock price volatility............................. 0.00%
Expected dividend yield..................................... 0.00%
Fair value of options granted............................... $0.06-0.07
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is committed under operating leases, principally for office
space and equipment. Certain leases are subject to rent reviews and require
payment of expenses under escalation clauses. Rent expense and equipment rental
were $48,099, $203,042, $1,064,650 for the years ended December 31, 1996, 1997
and 1998 and $125,509 and $360,046 for the three months ended March 31, 1998 and
1999, (unaudited) respectively. Future minimum base rents under terms of
non-cancelable operating leases are as follows:
<TABLE>
<CAPTION>
RENTAL
PAYMENTS
----------
<S> <C>
Years ending December 31:
1999........................................................ $ 726,861
2000........................................................ 598,735
2001........................................................ 603,968
2002........................................................ 603,968
2003........................................................ 298,401
Thereafter.................................................. 48,538
----------
$2,880,471
==========
</TABLE>
LITIGATION
The Company, from time to time, 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.
F-71
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all of its eligible
employees. The Plan became effective on February 1, 1997 and is qualified under
Section 401(k) of the Internal Revenue Code of 1996. The Company matches
employee contributions to the plan at a rate of 50%, up to a total match of 3%
of the participating employee's salary. Expenses related to the Company's
contributions to the Plan amounted to $125,850 for the year ended December 31,
1998 and $35,956 and $87,071 for the three months ended March 31, 1998 and 1999
(unaudited), respectively. The Company started the matching program in 1998 and,
therefore, there are no contributions for 1996 and 1997.
This plan was terminated in May of 1999 and replaced with the AGENCY.COM
401K plan. Under the AGENCY.COM plan, participants are eligible for a
discretionary employer match equal to 50% of the first 6% of the participating
employee's compensation, with vesting in this match occurring over a five-year
period.
11. BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consisted primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
primarily concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral, and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information. To date, such losses have
been within management's expectations.
For the year ended December 31, 1996, one client accounted for 69% of total
revenues.
For the year ended December 31, 1997, one client accounted for 68% of total
revenues.
For the year ended December 31, 1998, two clients accounted for 25% and 11%,
respectively, of total revenues.
For the three months ended March 31, 1998, two clients accounted 31% and
17%, (unaudited) respectively, of total revenues.
For the three months ended March 31, 1999, one client accounted for 12% of
total revenues.
As of December 31, 1997, two clients accounted for 48% and 18%,
respectively, of total accounts receivable.
As of December 31, 1998, two clients accounted for 26% and 17%, (unaudited)
respectively, of total accounts receivable.
As of March 31, 1999, four clients accounted for 25%, 20%, 16% and 11%,
(unaudited) respectively, of total accounts receivable.
F-72
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
On January 27, 1999, the majority shareholder of Interactive sold 2,700,000
shares of common stock (100% of his interest) to Communicade. Communicade paid
$3,000,000 in consideration for the shares. As part of the transaction,
Communicade also paid this stockholder $1,500,000 to settle the earnout
associated with Communicade's initial investment in the Company, as noted in the
stock purchase agreement dated December 6, 1996. As a result of the transaction,
Interactive became a wholly-owned subsidiary of Communicade. This transaction
was accounted for by Communicade under the purchase method of accounting and
resulted in Communicade recording $10,276,706 of costs over fair value of the
assets acquired. As a result, Communicade allocated these costs to the Company.
These costs are reflected in the accompanying March 31, 1999 financial
statements as goodwill (net of amortization expense for the period) and
additional paid-in capital.
Pursuant to an Agreement and Plan of Merger dated April 1, 1999, a merger
was consummated between AGENCY.COM and the Company. The stock-for-stock
transaction was approved by the shareholders of both companies after which the
Company was merged with and into AGENCY.COM, with AGENCY.COM continuing as the
surviving corporation in the merger. As a result of the merger, the separate
existence of the Company ceased. Under the merger agreement, the Company
received 24.6% of the outstanding shares in AGENCY.COM.
In conjunction, with the transaction, the Company issued 934,763 shares of
common stock and created 558,742 new options to acquire the minority interest of
Quadris (See Note 8).
As a result of Interactive being acquired by AGENCY.COM, the options granted
under both the Interactive Plan and the Quadris Plan convert to options to
acquire AGENCY.COM shares.
F-73
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Quadris Consulting:
We have audited the accompanying balance sheets of Quadris Consulting, a
division of JYACC, Inc. (a New York corporation) as of December 31, 1997 and
March 15, 1998, and the related statements of operations, divisional equity and
cash flows for each of the two years ended December 31, 1997 and the period from
January 1, 1998 to March 15, 1998. These financial statements are the
responsibility of the management of JYACC, Inc. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Quadris Consulting as of
December 31, 1997 and March 15, 1998, and the results of its operations and its
cash flows for each of the two years ended December 31, 1997 and the period from
January 1, 1998 to March 15, 1998 and, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
July 16, 1999
F-74
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 15,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Accounts receivable....................................... $1,823,385 $1,750,197
Unbilled charges.......................................... -- 385,094
Prepaid expenses and other current assets................. 4,822 35,866
---------- ----------
Total current assets.................................. 1,828,207 2,171,157
Property and Equipment, net of accumulated depreciation and
amortization of $670,287 and $693,941, respectively....... 291,330 270,247
Other Assets................................................ 39,941 33,245
---------- ----------
Total assets.......................................... $2,159,478 $2,474,649
========== ==========
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 577,317 $ 385,986
Accrued loss on contract.................................. 249,277 243,113
Deferred revenue.......................................... 423,253 386,855
---------- ----------
Total current liabilities............................. 1,249,847 1,015,954
---------- ----------
Commitments and Contingencies (Note 6)
Divisional Equity........................................... 909,631 1,458,695
---------- ----------
Total liabilities and divisional equity............... $2,159,478 $2,474,649
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-75
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1 TO
------------------------------------------------- MARCH 15,
1996 1997 1998
----------------------- ----------------------- ------------
<S> <C> <C> <C>
Revenues......................................... $8,138,275 $8,914,995 $1,727,391
Direct Salaries and Costs........................ 4,634,533 6,050,616 1,144,664
---------- ---------- ----------
Gross profit................................. 3,503,742 2,864,379 582,727
Sales and Marketing.............................. 18,714 5,560 1,577
General and Administrative....................... 1,707,854 1,585,467 362,872
---------- ---------- ----------
Income from operations....................... 1,777,174 1,273,352 218,278
Interest Expense, net............................ -- -- 1,925
---------- ---------- ----------
Income before provision for income taxes..... 1,777,174 1,273,352 216,353
Provision for Income Taxes....................... 711,000 509,000 87,000
---------- ---------- ----------
Net income................................... $1,066,174 $ 764,352 $ 129,353
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-76
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1 TO
------------------------ MARCH 15,
1996 1997 1998
----------- ---------- ------------
<S> <C> <C> <C>
Divisional Equity, beginning of period.................. $ 722,626 $ 404,712 $ 909,631
Net income............................................ 1,066,174 764,352 129,353
Less-- Net (decrease) increase in investment with
JYACC, Inc.......................................... (1,384,088) (259,433) 419,711
---------- --------- ----------
Divisional Equity, end of period........................ $ 404,712 $ 909,631 $1,458,695
========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-77
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1 TO
----------------------- MARCH 15,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................... $1,066,174 $ 764,352 $ 129,353
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Depreciation and amortization.................... 122,680 123,749 23,654
Changes in assets and liabilities:
Accounts receivable............................ (573,616) (236,287) 73,188
Unbilled charges............................... -- -- (385,094)
Prepaid expenses and other current assets...... -- (4,822) (31,044)
Other assets................................... (3,250) (22,386) 6,696
Accounts payable and accrued expenses.......... 171,143 (143,765) (191,331)
Accrued loss on contracts...................... 406,769 (157,492) (6,164)
Deferred revenue............................... 299,439 123,814 (36,398)
---------- ---------- ---------
Net cash provided by (used in) operating
activities................................. 1,489,339 447,163 (417,140)
---------- ---------- ---------
Cash Flows From Investing Activities:
Capital expenditures................................. (105,251) (187,730) (2,571)
---------- ---------- ---------
Net cash received from (remitted to)
JYACC, Inc................................. $1,384,088 $ 259,433 $(419,711)
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-78
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Quadris Consulting ("Quadris" or the "Company") is a division of
JYACC, Inc. ("JYACC") and is not a separate legal entity. On March 16, 1998,
Quadris was acquired by Quadris Consulting, Inc. (a majority--owned subsidiary
of Interactive Solutions, Inc.--See Note 9). Interactive Solutions, Inc. is
owned 40% by Communicade, Inc., formerly known as JWL Associates Corp., a
wholly--owned subsidiary of the Omnicom Group Inc. ("Omnicom") and 60% by its
majority shareholder. Quadris is a systems integrator and developer of custom
software solutions. Quadris creates digital communications strategies to help
its clients increase sales and improve communications. Quadris' integrated
service offering includes strategic consulting, user requirements analysis,
technical and functional systems design, software development and systems
integration, quality assurance, documentation, and software deployment services.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value due to the short-term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Quadris has
estimated that all accounts receivable are collectible and, therefore, has not
recorded an allowance for doubtful accounts.
DIVISIONAL EQUITY
Divisional equity as used in these financial statements represents a summary
of all intercompany activity between Quadris and JYACC as well as the
accumulation of earnings.
REVENUE RECOGNITION
Revenues from contracts are recognized as services are rendered and
performance occurs under each contract. Unbilled charges represent labor costs
incurred and estimated earnings, production and other client reimbursable costs
in excess of billings. Deferred revenue represents billings of production and
other client reimbursable out-of-pocket costs in excess of revenues earned.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Revenue from time and material jobs is
recognized on the basis of costs incurred during the period.
F-79
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of three to seven years. Leasehold
improvements are amortized utilizing the straight-line method over the lesser of
the estimated useful life of the asset or the remaining term of the related
lease.
ACCOUNTING FOR LONG-LIVED ASSETS
Quadris accounts for long-lived assets under the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This statement establishes financial accounting and
reporting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of. The Company reviews long-lived assets and certain identifiable
intangibles to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset exceeds the fair
value of the asset. If other events or changes in circumstances indicate that
the carrying amount of an asset that the Company expects to hold and use may not
be recoverable, the Company will estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. Future cash flows
are the future cash inflows expected to be generated by an asset less the future
cash outflows expected to be necessary to obtain those inflows. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, the Company will recognize an
impairment loss equal to the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The fair value of the asset is the amount
at which the asset could be bought or sold in a current transaction between
willing parties or can be determined by calculating the present value of
estimated expected future cash flows using a discount rate commensurate with the
risks involved. Management has performed a review of all long-lived assets and
has determined that no impairment of the respective carrying value has occurred
as of December 31, 1997 and March 15, 1998.
INCOME TAXES
As a division of JYACC, Quadris was not subject to federal, state and local
income taxes. The effective rate herein reflects the rate that would have been
applicable had Quadris been independent. Provisions for deferred taxes were not
reflected on Quadris' books, but were reflected on JYACC's books and records.
Going forward, Quadris will record deferred taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes."
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes
F-80
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The statement also establishes
standards for related disclosure about products and services, geographic areas
and major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997 and need not be applied to interim
periods in the initial year of application. Comparative information for earlier
years presented is to be restated. The Company currently believes that it
operates in one segment and that the adoption of SFAS No. 131 will not
materially affect the Company's current disclosure.
2. RELATED PARTY TRANSACTIONS
JYACC has provided services to Quadris including, but not limited to,
financial, systems and legal services, administration of benefit and insurance
programs, income tax management, cash management and treasury services. These
financial statements include an allocation of JYACC's administrative expenses.
The allocation was based on a percentage of the number of employees working for
Quadris in relation to the total number of employees of JYACC taken as a whole.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 15,
1997 1998
------------ ---------
<S> <C> <C>
Computer equipment.................................. $731,974 $734,545
Furniture and fixtures.............................. 81,402 81,402
Computer software................................... 89,586 89,586
Leasehold improvements.............................. 58,655 58,655
-------- --------
Total property and equipment.................... 961,617 964,188
Less--Accumulated depreciation and amortization..... 670,287 693,941
-------- --------
Property and equipment, net..................... $291,330 $270,247
======== ========
</TABLE>
Depreciation and amortization aggregated $122,680, $123,749, and $23,654,
respectively, for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 to March 15, 1998, respectively.
F-81
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 15,
1997 1998
------------ ---------
<S> <C> <C>
Accounts payable.................................... $ 77,855 $ 64,709
Accrued payroll..................................... 156,940 --
Accrued vacation.................................... 241,771 286,826
Accrued expenses--other............................. 100,751 34,451
-------- --------
$577,317 $385,986
======== ========
</TABLE>
5. INCOME TAXES
The financial statements reflect an effective tax rate of 40%, which
reasonably reflects what Quadris' tax rate would have been as a separate entity.
Deferred taxes are reflected as a component of divisional equity as JYACC is the
taxable legal entity. If Quadris were a separate taxable entity, the components
of the temporary differences would be primarily due to customer reserves and
allowances, unbilled charges, deferred revenue, depreciation, and accrued
vacation.
For the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 to March 15, 1998, the following provisions for income taxes
were made:
<TABLE>
<CAPTION>
YEARS ENDED PERIOD
DECEMBER 31, FROM JANUARY 1
--------------------- TO MARCH 15,
1996 1997 1998
--------- --------- --------------
<S> <C> <C> <C>
Current:
Federal............................... $604,350 $432,650 $73,950
State................................. 106,650 76,350 13,050
-------- -------- -------
Provision for income taxes.......... $711,000 $509,000 $87,000
======== ======== =======
</TABLE>
F-82
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The difference between Quadris' effective tax rate and the statutory federal
income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED PERIOD
DECEMBER 31, FROM JANUARY 1
----------------------- TO MARCH 15,
1996 1997 1998
---------- ---------- --------------
<S> <C> <C> <C>
Provision for income taxes.......... $ 711,000 $ 509,000 $ 87,000
Income before taxes................. 1,777,174 1,273,352 216,353
Effective tax rate.................. 40% 40% 40%
Net state tax....................... 6% 6% 6%
Federal statutory rate.............. 34% 34% 34%
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Quadris is committed under operating leases, principally for office space
and equipment. Rent expense and equipment rental were $222,973, $323,860 and
$116,599, respectively, for the years ended December 31, 1996 and 1997 and the
period from January 1, 1998 to March 15, 1998. Future minimum base rents under
the terms of the noncancelable operating leases are as follows:
<TABLE>
<S> <C>
Period from March 16, 1998 to December 31, 1998............. $ 501,000
Year ending December 31:
1999...................................................... 636,000
2000...................................................... 616,000
2001...................................................... 604,000
2002...................................................... 604,000
Thereafter................................................ 347,000
----------
$3,308,000
==========
</TABLE>
LITIGATION
The Company, from time to time, 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.
7. EMPLOYEE BENEFIT PLAN
JYACC maintains a defined contribution plan covering all eligible employees,
which also covers Quadris employees. The plan is qualified under Section 401(k)
of the Internal Revenue Code. Under the plan, JYACC was required to make certain
matching contributions as defined.
F-83
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLAN (CONTINUED)
This plan was terminated in May of 1999 and replaced with the AGENCY.COM
401(k) plan. Under the AGENCY.COM plan participants are eligible for a
discretionary employer match equal to 50% of the first 6% of the participating
employees compensation.
8. BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments which subject Quadris to concentrations of credit risk
consist primarily of trade accounts receivable. Quadris' clients are primarily
concentrated in the United States. Quadris performs ongoing credit evaluations,
generally does not require collateral, and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends and other information. To date, such losses have been within management's
expectations.
For the year ended December 31, 1996, two clients accounted for 39% and 29%,
respectively, of total revenues.
For the year ended December 31, 1997, two clients accounted for 47% and 21%,
respectively, of total revenues.
For the period from January 1, 1998 to March 15, 1998, two clients accounted
for 40% and 18%, respectively, of total revenues.
As of December 31, 1997, five clients accounted for 27%, 16%, 14%, 13% and
10%, respectively, of total accounts receivable.
As of March 15, 1998, four clients accounted for 27%, 19%, 15% and 14%,
respectively, of total accounts receivable.
9. SUBSEQUENT EVENT
On March 16, 1998, Quadris Consulting, Inc. (a majority--owned subsidiary of
Interactive Solutions, Inc.) purchased the remaining 60% of Quadris for
approximately $8,828,000.
F-84
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Twinspark Interactive People B.V.:
We have audited the accompanying balance sheets of Twinspark Interactive People
B.V. (a Dutch corporation), as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
years ended December 31, 1997 and December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 1997 and 1998 financial statements based on our
audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Twinspark Interactive People
B.V. as of December 31, 1997 and 1998, and the results of their operations and
their cash flows for each of the years then ended in conformity with United
States generally accepted accounting principles.
ARTHUR ANDERSEN
Rotterdam, The Netherlands
August 9, 1999
F-85
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- -----------
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ -- $ 97,946 $ --
Accounts receivable, net of allowance for doubtful
accounts of $0, $44,090 and $181,370 (unaudited),
respectively......................................... 318,042 1,583,016 1,040,445
Unbilled charges....................................... 43,595 110,123 156,426
Prepaid expenses and other current assets.............. 48,548 97,416 141,399
Due from affiliates.................................... -- 19,589 279,030
-------- ---------- ----------
Total current assets............................... 410,185 1,908,090 1,617,300
Property and Equipment, net of accumulated depreciation
and amortization of $121,370, $211,245 and $256,810
(unaudited), respectively.............................. 81,245 292,778 511,086
Intangibles, net of accumulated amortization of $9,908,
$21,178 and $30,534(unaudited), respectively........... 39,631 31,766 100,996
-------- ---------- ----------
Total assets....................................... $531,061 $2,232,634 $2,229,382
======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses.................. $193,699 $ 819,568 $1,380,124
Line of credit......................................... 93,629 -- 537,392
Income taxes payable................................... -- 55,591 --
Deferred revenue....................................... -- 362,135 108,982
Due to affiliates...................................... 80,749 10,059 32,413
-------- ---------- ----------
Total current liabilities.......................... 368,077 1,247,353 2,058,911
-------- ---------- ----------
Long-term Liabilities:
Bank loans............................................. 49,539 63,532 52,142
-------- ---------- ----------
Total long-term liabilities........................ 49,539 63,532 52,142
-------- ---------- ----------
Total liabilities.................................. 417,616 1,310,885 2,111,053
-------- ---------- ----------
Commitments and Contingencies (Note 9)
Stockholders' Equity:
Common stock, $0.05 par value, 15,000,000 shares
authorized; 0, 15,000,000 and 15,000,000 (unaudited)
shares issued respectively........................... -- 755,705 755,705
Retained earnings (deficit)............................ 152,773 158,819 (546,076)
Cumulative translation adjustment...................... (39,328) 7,225 (91,300)
-------- ---------- ----------
Total stockholder's equity......................... 113,445 921,749 118,329
-------- ---------- ----------
Total liabilities and stockholders' equity......... $531,061 $2,232,634 $2,229,382
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-86
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- -------------------------
1997 1998 1998 1999
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................... $1,287,802 $2,690,816 $ 746,270 $2,417,259
Direct salaries and costs.................. 1,020,127 1,771,878 582,120 1,467,849
---------- ---------- ---------- ----------
Gross profit............................. 267,675 918,938 164,150 949,410
General and administrative................. 360,646 469,545 150,920 1,524,269
Sales and marketing........................ -- -- -- 94,000
Depreciation and amortization.............. 73,049 91,189 34,300 79,659
---------- ---------- ---------- ----------
Income (loss) from operations............ (166,020) 358,204 (21,070) (748,518)
Interest expense........................... 8,173 12,091 6,370 6,164
---------- ---------- ---------- ----------
Income (loss) before (provision) benefit
for income taxes....................... (174,193) 346,113 (27,440) (754,682)
Provision for (benefit from) income
taxes.................................... -- 52,899 -- (49,787)
---------- ---------- ---------- ----------
Net income (loss)........................ $ (174,193) $ 293,214 $ (27,440) $ (704,895)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL FOREIGN
---------------------- PAID-IN RETAINED CURRENCY
SHARES AMOUNT CAPITAL EARNINGS/(DEFICIT) TRANSLATION TOTAL
---------- --------- ---------- ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997.... -- $ -- $ -- $ 326,966 $ -- $ 326,966
Translation adjustment.... -- -- -- -- (39,328) (39,328)
Net loss.................. -- -- -- (174,193) -- (174,193)
---------- -------- ----- ---------- -------- ---------
Balance, December 31, 1997.. -- -- -- 152,773 (39,328) 113,445
Translation adjustment.... -- -- -- -- 46,553 46,553
Issuance of shares........ 15,000,000 287,168 -- (287,168) -- --
Capital contribution...... -- 468,537 -- -- -- 468,537
Net income................ -- -- -- 293,214 -- 293,214
---------- -------- ----- ---------- -------- ---------
Balance, December 31, 1998.. 15,000,000 755,705 -- 158,819 7,225 921,749
Translation adjustment.... -- -- -- -- (98,525) (98,525)
Net loss (unaudited)...... -- -- -- (704,895) -- (704,895)
---------- -------- ----- ---------- -------- ---------
Balance, June 30, 1999
(unaudited)............... 15,000,000 $755,705 $ -- $ (546,076) $(91,300) $ 118,329
========== ======== ===== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-88
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- -------------------------
1997 1998 1998 1999
--------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................... $(174,193) $ 293,214 $ (27,440) $ (704,895)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities--
Depreciation and amortization......... 73,049 91,189 34,300 79,659
Allowance for doubtful accounts....... -- 44,090 -- 132,780
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable.......................... (318,042) (1,309,064) (52,430) 405,291
(Increase) in unbilled charges........ (43,595) (66,528) (96,530) (46,303)
(Increase) decrease in prepaid
expenses and other current assets... (48,548) (48,868) 32,830 (43,983)
(Increase) in due from affiliates..... -- (19,589) -- (259,441)
Increase in accounts payable and
accrued expenses.................... 193,699 607,581 144,550 560,556
Increase (decrease) in deferred
revenue............................. -- 362,135 77,420 (253,153)
Increase in due to affiliates......... 80,749 (70,690) 19,600 22,354
Increase (decrease) in income taxes
payable............................. -- 55,591 -- (55,591)
--------- ----------- --------- ----------
Net cash provided by (used in)
operating activities.............. (236,881) (60,939) 132,300 (162,726)
--------- ----------- --------- ----------
Cash Flows From Investing Activities:
Capital expenditures, net................. 182,580 (277,092) (132,300) --
Acquisition of subsidiary, net of cash
acquired................................ (49,539) -- -- (362,697)
--------- ----------- --------- ----------
Net cash provided by (used in)
investing activities.............. 133,041 (277,092) (132,300) (362,697)
--------- ----------- --------- ----------
Cash Flows From Financing Activities:
Borrowings under bank loans, net.......... 49,539 13,993 -- (11,390)
Proceeds from capital contribution........ -- 468,537 -- --
Borrowings under line of credit........... 93,629 -- -- 537,392
--------- ----------- --------- ----------
Net cash provided by financing
activities........................ 143,168 482,530 -- 526,002
--------- ----------- --------- ----------
Net increase (decrease) in cash and cash
equivalents............................... 39,328 144,499 -- 579
Effect of Exchange Rates on Cash............ (39,328) (46,553) -- (98,525)
Cash and Cash Equivalents, beginning of
period.................................... -- -- -- 97,946
--------- ----------- --------- ----------
Cash and Cash Equivalents, end of period.... $ -- $ 97,946 $ -- $ --
========= =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-89
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Twinspark Interactive People B.V. (the "Company" or "Twinspark") is an
Internet professional services firm. The Company provides a broad range of
interactive services that enable businesses to develop and implement interactive
media products.
Effective January 1, 1997, Topics Interactive factory B.V. (Topics)
contributed its business to Twinspark Interactive People B.V. i.c.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized for time and materials-based arrangements on the
basis of costs incurred in the period. Revenue from fixed-fee arrangements is
recognized as services are rendered and performance occurs. Unbilled charges
represent labor costs incurred and estimated earnings, production and other
client reimbursable costs. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Amounts
billed, which are not yet earned, are classified as deferred revenue in the
accompanying consolidated balance sheets.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt and equity instruments with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Property and equipment is depreciated on a straight-line basis
over their estimated useful lives of three to seven years. Leasehold
improvements and equipment held under capital leases are amortized utilizing the
straight-line method over the lesser of the estimated useful life of the asset
or the remaining term of the related lease.
INTANGIBLES
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired, is included in intangible assets and is
presently being amortized over a period of five years on a straight-line basis.
The Company reviews its intangible assets to be held and used for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the intangible asset exceeds the fair value of the asset. If circumstances
indicate that the carrying amount of the intangible asset that the Company
expects to hold and use may not be recoverable,
F-90
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company will estimate the future cash flows expected to result from the use
of the asset and its eventual disposition. Management has evaluated the
amortization periods in the current period and has determined that no impairment
currently exists. These amortization periods will be evaluated by management on
a continuing basis, and will be adjusted if the lives of the related intangible
assets are impaired.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." This statement establishes
financial accounting and reporting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed. The Company reviews long-lived assets and certain identifiable
intangibles to be held and used for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset exceeds the fair
value of the asset. If other events or changes in circumstances indicate that
the carrying amount of an asset that that the Company expects to hold and use
may not be recoverable, the Company will estimate the future cash flows expected
to result from the use of the asset and its eventual disposition. Future cash
flows are the future cash inflows expected to be generated by an asset less the
future cash outflows expected to be necessary to obtain those inflows. If the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, the Company will
recognize an impairment loss equal to the amount by which the carrying amount of
the asset exceeds the fair value of the asset. The fair value of the asset is
the amount at which the asset could be bought or sold in a current transaction
between willing parties or can be determined by calculating the present value of
estimated expected future cash flows using a discount rate commensurate with the
risks involved. Management has performed a review of all long-lived assets and
has determined that no impairment of the respective carrying values has occurred
as of December 31, 1998 and March 31, 1999 (unaudited).
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement requires an asset and liability
approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at
each balance sheet date using enacted tax rates for the years in which the taxes
are expected to be paid or recovered. The effect on deferred tax assets or
liabilities of a change in tax rates is recognized in the period that the tax
change occurs. The Company has elected to file its income tax returns using the
cash basis of accounting.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into Dutch
guilders at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates prevailing during the fiscal year.
F-91
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable, due
from/to affiliates and accounts payable approximate fair value due to the
short-term maturity of these instruments.
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
primarily concentrated in The Netherlands. The Company performs ongoing credit
evaluations, generally does not require collateral, and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information.
For the year ended December 31, 1997, 2 clients accounted for 22% and 12%,
respectively, of total revenues.
For the year ended December 31, 1998, 3 clients accounted for 16%, 10% and
10% of total revenues.
As of December 31, 1997, 1 client accounted for 26% of total accounts
receivable and unbilled charges.
As of December 31, 1998, 2 clients accounted for 18% and 9% respectively of
total accounts receivable and unbilled charges.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. The components of comprehensive
income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------------- ---------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss).............................. $(174,193) $293,214 $ (27,440) $(704,895)
Foreign currency translation adjustment........ (39,328) 46,553 23,276 (98,525)
--------- -------- --------- ---------
Comprehensive income (loss).................. $(213,521) $339,767 $ (4,164) $(803,420)
========= ======== ========= =========
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement also
F-92
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
establishes standards for related disclosure about products and services,
geographic areas and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997 and need not be applied
to interim periods in the initial year of application. Comparative information
for earlier years presented is to be restated. The Company only has operations
in the Netherlands and currently believes that it operates in one segment,
therefore, the adoption of SFAS No. 131 will not materially affect the Company's
current disclosure.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The Company does not expect the adoption of
SOP 98-1 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of
June 30, 1999 and for the three months ended June 30, 1998 and 1999, have been
prepared in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of the Company, these unaudited
consolidated financial statements, reflect all adjustments necessary, consisting
of normal recurring adjustments, for a fair presentation of such data on a basis
consistent with that of the audited data presented herein. The consolidated
results for interim periods are not necessarily indicative of the results
expected for a full year.
2. ACQUISITIONS
COOL B.V.
As of January 9, 1999 the Company signed a letter of intent to acquire all
activities of a Dutch entity called Cool B.V. The goodwill which will be paid
and included in the letter of intent is approximately $95,300. Per date of the
issuance of these financial statements, the acquisition is not completed.
F-93
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS
Due from affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
3WIS Beheer B.V............................................. $ -- $19,589 $ 17,850
Tridion B.V................................................. -- -- 261,180
----- ------- --------
Due from affiliates....................................... $ -- $19,589 $279,030
===== ======= ========
</TABLE>
Due to affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
3WIS Beheer B.V............................................. $49,044 $ -- $ --
Topics Interactive Factory B.V.............................. 31,705 10,059 32,413
------- ------- -------
Due to affiliates......................................... $80,749 $10,059 $32,413
======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment.......................................... $ 24,274 $ 87,886 $ 574,972
Computer equipment........................................ 153,076 374,312 111,658
Technical infrastructure.................................. 25,265 41,825 81,266
--------- --------- ---------
Total property and equipment............................ 202,615 504,023 767,896
Less--Accumulated depreciation and amortization........... (121,370) (211,245) (256,810)
--------- --------- ---------
Property and equipment, net............................. $ 81,245 $ 292,778 $ 511,086
========= ========= =========
</TABLE>
Depreciation expense was approximately $62,832, $81,112 and $45,565,
respectively, for the years ended December 31, 1997 and 1998 and period ending
June 30, 1999 (unaudited).
F-94
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill.................................................... $49,539 $52,944 $131,530
Less--Accumulated amortization.............................. (9,908) (21,178) (30,534)
------- ------- --------
Intangibles, net.......................................... $39,631 $31,766 $100,996
======= ======= ========
</TABLE>
Amortization expense was approximately $10,217, $10,076 and $9,356 for the
years ended December 31, 1997 and 1998 and the six months ended June 30, 1999
(unaudited), respectively.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable.......................................... $100,070 $360,546 $ 964,373
Accrued expenses--other................................... 85,703 441,021 401,659
Accrued professional fees................................. 7,926 18,001 14,092
-------- -------- ----------
$193,699 $819,568 $1,380,124
======== ======== ==========
</TABLE>
7. INCOME TAXES
The provision for income taxes is based upon the regular corporate Dutch tax
rate of 35%. The pre incorporation result (January 1, 1997--December 22, 1998)
of Twinspark Interactive People B.V. in corporation can be contributed to
Twinspark Interactive People B.V.
Income (loss) before income taxes and the provision (benefit) per taxes on
income (loss) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
--------------------- ENDED
1997 1998 JUNE 30, 1999
--------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic............................................... $ -- $ -- $ --
International.......................................... (174,193) 346,113 (754,682)
--------- -------- ---------
$(174,193) $346,113 $(754,682)
========= ======== =========
Provision (benefit) for taxes on income (loss):
Current--International................................. $ (47,968) $ 52,899 $ (49,787)
Deferred--International................................ -- -- --
--------- -------- ---------
$ (47,968) $ 52,899 $ (49,787)
========= ======== =========
</TABLE>
F-95
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
A reconciliation of the difference between the statutory U.S. Federal Income
Tax Rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
-------------------- ENDED
1997 1998 JUNE 30, 1999
-------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Statutory federal income tax rate......................... $(59,226) $117,678 $(256,592)
Local taxes on income (additional Dutch rate)............. (1,742) 3,461 (7,547)
Other..................................................... 13,000 (12,000) --
Valuation allowance....................................... 47,968 (56,240) 214,352
-------- -------- ---------
Effective rate............................................ $ -- $ 52,899 $ (49,787)
======== ======== =========
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred income tax assets (liabilities) net:
Other..................................................... $ -- $ -- $ 7,547
Noncurrent deferred income tax assets (liabilities) net:
Net operating loss........................................ 47,968 -- 256,592
Valuation allowance....................................... (47,968) -- (214,352)
-------- -------- ---------
Total deferred income taxes, net...................... $ -- $ -- $ 49,787
======== ======== =========
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Deferred tax assets result principally from recording certain expenses in the
financial statements, which are not currently deductible for tax purposes, and
differences between the tax and book basis of assets and liabilities recorded in
connection with the acquisitions. Deferred tax liabilities result principally
from expenses which are currently deductible for tax purposes, but have not yet
been expensed in the financial statements.
8. STOCKHOLDERS' EQUITY
COMMON SHARES
The Company has 15,000,000 authorized shares of Common Stock, of which
15,000,000 shares were issued as of December 31, 1998 and June 30, 1999.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES AND RENT COMMITMENTS
The Company is committed under operating leases, principally for office
space and cars expiring through 2002. As of December 31, 1998, the Company has a
total car lease commitment of $126,455.
F-96
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In February 1999, the Company signed a letter of intent to rent an office
building in Diemen for a 10- year period. The rent will start between June 1,
2000 and August 31, 2000. The total rent commitment over the 10-year period is
$5,909,618.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999........................................................ $ 30,000
2000........................................................ 305,000
2001........................................................ 581,000
2002........................................................ 581,000
2003........................................................ 551,000
Thereafter.................................................. 3,581,000
</TABLE>
CREDIT FACILITIES
The Company has credit facilities available for an amount of $156,683 and a
5 year loan agreement with the bank of $50,380 to be repaid in 20 quarter terms,
commencing January 1, 1998. The Company pledged its office equipment and
accounts receivable. In addition the payables of the Company to related parties
at any date are subordinated against the payables of the Company to the bank.
Finally, the bank requires that the equity of the Company is at least 30% of
balance sheet total.
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all of its eligible
employees in The Netherlands. The Plan is effective from March 18, 1999.
Employees may begin participation on monthly enrollment dates provided that they
have reached 25 years of age and permanent employment.
11. SUBSEQUENT EVENTS
Effective January 1, 1999, all assets and liabilities related to Interactive
Products Solutions will be transferred to a newly established company called
Tridion B.V. for approximately $100,000.
In August 1999, the Company was acquired by AGENCY.COM Ltd. ("AGENCY.COM")
for $700,000 in cash and 1,057,226 shares of AGENCY.COM's common stock valued at
$5.95 per share, of which 1,047,226 shares were given to the shareholders of the
Company and 10,000 shares to employees of the Company, for a total aggregate
purchase price of $7,000,000. Employees of the Company also received 75,000
stock options to purchase shares of AGENCY.COM's common stock. Furthermore, the
purchase agreement calls for certain earn-out payments to the former
shareholders of the Company based upon the achievement of certain targeted
operating results of the Company through December 1999. These payments are
payable in the form of 168,066 shares of AGENCY.COM's common stock which are
currently held in escrow.
F-97
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Interactive Traffic, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Interactive Traffic, Inc. at
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
September 23, 1999, except for Note 12,
as to which the date is October 21, 1999
F-98
<PAGE>
INTERACTIVE TRAFFIC, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 742,151 $ 2,037,391
Accounts receivable, net of allowance for doubtful
accounts of $18,300 and $0.............................. 601,401 1,369,228
Prepaid expenses and other current assets................. 45,353 96,495
---------- -----------
Total current assets.................................... 1,388,905 3,503,114
Property and equipment, net................................. 345,042 469,391
Security deposits........................................... 71,298 110,004
---------- -----------
Total assets............................................ $1,805,245 $ 4,082,509
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 214,396 $ 395,077
Customer advances......................................... 1,088,025 2,450,329
Deferred revenues......................................... 259,500 677,276
Current portion of long-term debt......................... 36,217 41,151
Line of credit............................................ -- 200,000
Other..................................................... 41,710 26,710
Stockholder loans......................................... 42,475 84,064
---------- -----------
Total current liabilities............................... 1,682,323 3,874,607
Long-term debt.............................................. 69,495 67,204
---------- -----------
Total liabilities....................................... 1,751,818 3,941,811
========== ===========
Stockholders' equity:
Common stock, par value $.01, 300,000 and 500,000 shares
authorized in 1998 and 1999, respectively; 212,387 and
213,733 shares issued and outstanding in 1998 and 1999,
respectively............................................ 2,124 2,137
Series A Convertible Preferred stock, par value $.01, 0
and 37,041 shares authorized in 1998 and 1999,
respectively; 0 and 37,041 shares issued and outstanding
in 1998 and 1999, respectively.......................... -- 370
Stockholder receivable.................................... (26,461) (28,782)
Additional paid-in capital................................ 727,403 3,731,591
Deferred compensation..................................... -- (1,157,584)
Accumulated deficit....................................... (649,639) (2,407,034)
---------- -----------
Total stockholders' equity.............................. 53,427 140,698
---------- -----------
Total liabilities and stockholders' equity.............. $1,805,245 $ 4,082,509
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE>
INTERACTIVE TRAFFIC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues............................................ $3,506,833 $2,309,796 $ 4,286,931
Cost of revenues.................................... 2,788,220 1,836,845 4,045,756
---------- ---------- -----------
Gross profit...................................... 718,613 472,951 241,175
Operating expenses:
General and administrative........................ 1,189,557 775,216 1,703,707
Sales and marketing............................... 218,604 143,575 318,556
---------- ---------- -----------
Total operating expenses........................ 1,408,161 918,790 2,022,263
Operating loss.................................. (689,548) (445,839) (1,781,088)
Other income (expense)
Interest income................................... 42,108 30,683 57,941
Interest expense.................................. (14,257) (10,040) (24,248)
Loss on disposal of equipment..................... (9,399) -- (10,000)
---------- ---------- -----------
18,452 20,642 23,693
---------- ---------- -----------
Net loss............................................ $ (671,096) $ (425,197) $(1,757,395)
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE>
INTERACTIVE TRAFFIC, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1999
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED COMMON RETAINED
STOCK STOCK ADDITIONAL EARNINGS
------------------- ------------------- STOCKHOLDER PAID-IN DEFERRED (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL COMPENSATION DEFICIT)
-------- -------- -------- -------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... -- $ -- 195,523 $ 1,955 $(25,008) $ 181,947 $ -- $ 21,457
Issuance of common
stock.................. -- -- 9,009 90 -- 299,910 -- --
Stock-based compensation
on restricted shares... -- -- 7,855 79 -- 245,546 -- --
Advances to stockholder.. -- -- -- -- (1,453) -- -- --
Net loss................. -- -- -- -- -- -- -- (671,096)
------ ------- ------- ------- -------- ---------- ----------- -----------
Balance, December 31,
1998................... -- 212,387 2,124 (26,461) 727,403 -- (649,639)
Stock-based compensation
on restricted shares... -- -- 1,346 13 -- 175,766 -- --
Advances to stockholder.. -- -- -- -- (2,321) -- -- --
Issuance of preferred
stock.................. 37,041 370 -- -- -- 1,495,710 -- --
Issuance of stock
options................ -- -- -- -- -- 1,332,712 (1,332,712) --
Stock-based compensation
on stock options....... -- -- -- -- -- -- 175,128 --
Net loss................. -- -- -- -- -- -- -- (1,757,395)
------ ------- ------- ------- -------- ---------- ----------- -----------
Balance, September 30,
1999................... 37,041 $ 370 213,733 $ 2,137 $(28,782) $3,731,591 $(1,157,584) $(2,407,034)
====== ======= ======= ======= ======== ========== =========== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
--------------
<S> <C>
Balance, December 31,
1997................... $ 180,351
Issuance of common
stock.................. 300,000
Stock-based compensation
on restricted shares... 245,625
Advances to stockholder.. (1,453)
Net loss................. (671,096)
----------
Balance, December 31,
1998................... 53,427
Stock-based compensation
on restricted shares... 175,779
Advances to stockholder.. (2,321)
Issuance of preferred
stock.................. 1,496,080
Issuance of stock
options................ --
Stock-based compensation
on stock options....... 175,128
Net loss................. (1,757,395)
----------
Balance, September 30,
1999................... $ 140,698
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-101
<PAGE>
INTERACTIVE TRAFFIC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(671,096) $(425,197) $(1,757,395)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.................................... 92,603 46,396 141,805
Provision for doubtful accounts................. (21,489) (39,789) (18,300)
Stock-based compensation........................ 245,625 151,327 350,907
Loss on disposal of equipment................... 9,399 -- 10,000
Changes in assets and liabilities:
Accounts receivable........................... (44,308) (66,271) (749,527)
Prepaid expenses and other.................... (15,026) (19,823) (41,046)
Accounts payable and accrued expenses......... 32,612 (607) 180,678
Customer advances............................. 543,479 401,933 1,362,305
Deferred revenues............................. 63,942 196,092 417,776
--------- --------- -----------
Net cash provided by (used in) operating
activities................................ 235,741 244,061 (102,797)
--------- --------- -----------
Cash flows from investing activities:
Purchases of fixed assets......................... (253,603) (199,157) (251,856)
Security deposits................................. (33,333) (13,703) (38,706)
--------- --------- -----------
Net cash used in investing activities....... (286,936) (212,860) (290,562)
--------- --------- -----------
Cash flows from financing activities:
Proceeds from bank borrowings..................... 39,016 29,638 210,746
Payments of bank borrowings....................... (63,280) (47,658) (28,747)
Proceeds from stockholder loans................... 13,507 12,039 56,089
Payments of stockholder loans..................... -- -- (14,500)
Payments of other loans........................... -- -- (15,000)
Payments of capital lease obligation.............. (11,754) (8,700) (13,748)
Advances to stockholder........................... (20,787) (17,978) (10,321)
Proceeds from stockholder receivable.............. 19,336 12,247 8,000
Issuance of preferred stock....................... -- -- 1,496,080
Issuance of common stock.......................... 300,000 300,000 --
--------- --------- -----------
Net cash provided by financing activities... 276,038 279,588 1,688,599
--------- --------- -----------
Net increase in cash and cash equivalents........... 224,843 310,789 1,295,240
Cash and cash equivalents, beginning of period...... 517,308 517,308 742,151
--------- --------- -----------
Cash and cash equivalents, end of period............ $ 742,151 $ 828,097 $ 2,037,391
========= ========= ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest.......... $ 14,030 $ 10,040 $ 18,159
Supplemental disclosure of non-cash investing and
financing activities:
Capitalized lease obligations incurred............ 13,321 13,327 34,393
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-102
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Interactive Traffic, Inc. (the "Company") is an interactive direct marketing
agency and was organized as a Delaware corporation in July 1995 and commenced
operations on that date. The Company works with electronic commerce companies to
maximize the return on their investment in online marketing programs.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, recent development of the Internet
advertising market and unproven acceptance and effectiveness of web advertising,
unproven business model, risks associated with technological change, and the
limited history of commerce on the Internet. The Company's success may depend in
part upon the emergence of the Internet as a communications medium, prospective
product development efforts, and the acceptance of the Company's solutions by
the marketplace.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM BASIS OF PRESENTATION
The interim financial statements as of September 30, 1999 and for the nine
months ended September 30, 1998 and 1999 are unaudited and reflect adjustments,
consisting only of normal recurring accruals, which are, in the opinion of the
Company's management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. Operating results
for any interim period are not necessarily indicative of the results for the
full year.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with a maturity of three
months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues are derived primarily from the delivery of services rendered to
clients. For these services the Company receives base fees. In addition to these
base fees, certain client agreements contain incentive fee schedules, whereby
the Company receives additional revenues based on increased sales levels that
its clients achieve from the direct result of services performed by the Company.
Revenues are recognized in the period in which the services are performed and
the period in which any incentives are earned.
DEFERRED REVENUES
The Company bills its customers for base fees at the beginning of a month
for services to be rendered during the following month. The Company defers these
revenues until the services are performed. The Company has recorded deferred
revenues of $259,500 and $677,276 for such billings as of December 31, 1998 and
September 30, 1999, respectively.
F-103
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CUSTOMER ADVANCES
In connection with performing direct marketing consulting services for its
customers, the Company purchases advertising on Web sites on behalf of its
customers. The Company invoices its customers for the cost of media placements
and remits payments to the Web sites but does not assume any credit risk
associated with the transactions. The Company does not recognize any revenue or
expenses associated with the purchasing and re-invoicing of advertising
placements in its statement of operations. As of December 31, 1998 and
September 30, 1999, the Company received $1,088,025 and $2,450,329,
respectively, of cash advances from its customers for the purchase of
advertising on Web sites.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies which have
stock-based compensation arrangements with employees to adopt a new fair-value
basis of accounting for stock options and other equity instruments, or to
continue to apply the existing accounting required by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company has elected to account for its stock-based compensation arrangements for
employees under APB 25 and related interpretations. Under APB 25, compensation
is recorded on the date of grant to the extent the fair value of the underlying
stock exceeds the exercise price.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
leases, whichever is shorter.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company places its cash with high quality financial
institutions. The Company performs ongoing credit evaluations of its customers
and generally requires no collateral.
For the year ended December 31, 1998, five customers accounted for
approximately 69% of revenues, individually ranging from 10%--19%. Approximately
82% of accounts receivable at December 31, 1998 was due from five customers.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences
F-104
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and to operating
losses and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the results of operations in the period that includes the
enactment date.
MANAGEMENT'S 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 amounts reported in the financial statements and
footnotes thereto. Actual results may differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1998 1999
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and purchased software............. 3 years $315,411 $426,736
Furniture and fixtures................................ 5 years 114,324 238,555
Leasehold improvements................................ 4-5 years 37,387 46,427
--------- -------- --------
467,122 711,718
Less accumulated depreciation and amortization........ (122,080) (242,327)
-------- --------
$345,042 $469,391
======== ========
</TABLE>
4. LEASE COMMITMENTS
The Company leases its facilities pursuant to noncancellable operating
leases. The future minimum lease payments under such leases at December 31, 1998
are as follows:
<TABLE>
<S> <C>
1999........................................................ $285,738
2000........................................................ 311,683
2001........................................................ 281,514
2002........................................................ 85,302
--------
$964,237
========
</TABLE>
F-105
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LEASE COMMITMENTS (CONTINUED)
Rent expense under operating leases for the year ended December 31, 1998 and
for the nine months ended September 30, 1998 and 1999 was approximately
$187,000, $131,000 and $321,000, respectively.
5. STOCKHOLDERS' EQUITY
In March 1999, the Board of Directors amended the Certificate of
Incorporation to effect an increase in the number of shares the Company has the
authority to issue to 537,041 shares, including 500,000 shares of Common Stock
and 37,041 shares of Series A Convertible Preferred Stock.
CONVERTIBLE PREFERRED STOCK
In March 1999, the Company issued 37,041 shares of Series A Convertible
Preferred Stock, (the "Series A shares") at a share price of $43.33. The
Series A shares were recorded at their fair value on the date of issuance of
approximately $1,605,000, net of related issuance costs of $108,920.
The principal terms of the Series A shares are as follows:
LIQUIDATION PREFERENCE
In the event of a liquidation of the Company, the holders of the Series A
shares are entitled to receive an amount equal to $43.33 per share, plus a
further amount per share equal to dividends, if any, then declared but unpaid on
the Series A shares, before any distribution or payment is made upon any shares
of Common Stock.
PARTICIPATION RIGHTS
In the event of a liquidation, dissolution, or winding up of the Company
(which includes a merger or acquisition where the Company is not the surviving
entity), the Series A stockholders initially receive the liquidation preference
noted above, and then any remaining amounts are distributed to all remaining
stockholders on a pro-rata basis after the Series A shares are converted to
common shares.
CONVERSION
The holders of the Series A shares have the right, at any time, to convert
such shares into common stock on a share-for-share basis. All outstanding
Series A shares shall automatically convert into common stock upon the
consummation of a firm commitment underwritten public offering of the Company's
common stock where the gross proceeds from the offering are not less than
$15 million.
F-106
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDENDS
The Company may not pay dividends to the common stockholders unless a
dividend has been paid or set aside on account of all Series A shares. No
dividends have been declared on the Series A shares.
VOTING RIGHTS
The Series A stockholders will have one vote for each full share of common
stock, into which their respective Series A shares are convertible on the record
date for the vote.
PREEMPTIVE RIGHTS
The Company grants to each holder of Series A shares the right to purchase
such holder's pro rata share of any new securities which the Company may, from
time to time, propose to sell and issue.
BOARD OF DIRECTORS REPRESENTATION
The holders of Series A shares, voting together as a class, shall be
entitled to elect one director of the Company at each annual election of
directors.
6. STOCK INCENTIVE PLAN
From July 1995 to December 30, 1998, certain employees were granted
restricted shares of common stock. The restricted shares generally vested 25%
after one year of service and 18.75% each six month period of service
thereafter. If employment was terminated prior to vesting, unless otherwise
determined by the Company, any unvested shares were forfeited. On December 30,
1998, the Company entered into an agreement with its employees to cancel their
unvested shares and replace them with stock options, at a future date, in
accordance with a stock incentive plan which was being implemented by the
Company. As of December 30, 1998, all unvested shares were canceled by the
Company.
The following table summarizes the restricted share awards activity during
1998:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Restricted share awards at December 31, 1997................ 17,984
Granted during 1998....................................... 55,320
Vested during 1998........................................ (7,855)
Forfeited during 1998..................................... (4,528)
Cancelled during 1998..................................... (60,921)
-------
Restricted share awards at December 31, 1998................ --
=======
</TABLE>
F-107
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK INCENTIVE PLAN (CONTINUED)
The Company continued to recognize compensation expense during the period
from December 31, 1998 through June 30, 1999, based on the terms of the original
restricted share awards.
In July 1999, the Company adopted the 1999 Stock Incentive Plan (the "Plan")
under which the Company may issue awards including shares, incentive stock
options or non-qualified stock options. The awards, other than incentive stock
options, may be granted to the Company's directors, employees and consultants.
Incentive stock options may only be granted to employees of the Company. The
maximum aggregate number of shares which may be issued pursuant to all awards is
200,000.
During July and August 1999, the Board granted 89,137 incentive stock
options to its employees, of which 87,937 have an exercise price of $4.33 and
1,200 have an exercise price of $10. The fair market value of the Company's
common stock, as determined by the Company's management, exceeded the exercise
price of the stock options on the date of grant, and accordingly the Company
recognized deferred compensation. The deferred compensation is being amortized
over the vesting period of the stock options. The options generally vest over a
three year period, 25% after one year and 18.75% each six month period
thereafter. In accordance with the plan, an option term will not be more than
10 years from the date of grant, with the exception of incentive stock options
in which the term will not exceed 5 years from the date of grant. Under certain
conditions, these options may vest on an accelerated basis.
In accordance with the Plan, all outstanding awards issued will become fully
vested and exercisable upon the consummation of a corporate transaction, as
defined in the Plan, which includes the acquisition of the Company.
7. LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Note payable to bank, bearing interest at .75% above prime,
8.5% at December 31, 1998 and 9% at September 30, 1999,
maturing August 2002. The note requires certain members of
the Company's management to personally maintain a
compensating cash balance................................. $ 86,000 $ 68,000
Capitalized leases payable to various companies to be paid
ratably over periods of three years or less............... 19,712 40,355
-------- --------
105,712 108,355
Less current portion of note payable and capitalized
leases.................................................... (36,217) (41,151)
-------- --------
Total long-term debt........................................ $ 69,495 $ 67,204
======== ========
</TABLE>
F-108
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LINE OF CREDIT
During February 1999, the Company entered into a line of credit agreement
with a financial institution in the amount of $200,000. The line of credit is
collateralized by the Company's assets and personally guaranteed by certain
members of the Company's management. Borrowings under the line bear interest at
1% above prime, 9.25% at September 30, 1999. The line is required to be repaid
once a year. Subsequent to repayment, the Company may not borrow against the
line for a period of thirty days.
9. RELATED PARTY TRANSACTIONS
STOCKHOLDER RECEIVABLE
The stockholder receivable reflected as a reduction in stockholders' equity
consists of advances made to an officer who is also a stockholder of the
Company. The advances are non-interest bearing and have no established payment
terms.
STOCKHOLDER LOANS
Stockholder loans consists of amounts due to two stockholders of the
Company. The amounts bear interest, at rates ranging from 6% to 13.5%, and are
due on demand.
10. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under
SFAS 109, deferred income tax assets and liabilities are based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-109
<PAGE>
INTERACTIVE TRAFFIC, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
Significant components of the Company's net deferred income taxes are as
follows:
INCOME TAXES
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward........................... $341,040
Deferred income........................................... 110,275
Other..................................................... 99,918
--------
Total deferred tax assets................................... 551,233
Deferred tax liabilities:
Accounts receivable....................................... 263,342
Other..................................................... 37,888
--------
Total deferred tax liabilities.............................. 301,230
Deferred Tax Asset.......................................... 250,003
Valuation Allowance......................................... 250,003
--------
Net Deferred Tax Asset...................................... $ --
========
</TABLE>
A valuation allowance is required to reduce the existing deferred tax
assets, if, based on the weight of all positive and negative evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. Management of the Company has evaluated the available evidence
regarding the realizability of its deferred tax assets and concluded that it is
more likely than not that the Company will not realize these favorable tax
attributes and accordingly, has provided a valuation allowance for the net
deferred tax asset. The Company has a net operating loss carryforward equal to
approximately $802,000 as of December 31, 1998. Under current Federal income tax
law approximately $217,000 and $585,000 of such carryforwards will expire on
December 31, 2013 and 2018, respectively.
11. SUBSEQUENT EVENT
The Company was acquired by AGENCY.COM Ltd. on October 21, 1999.
F-110
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO VISIONIK A/S:
We have audited the accompanying consolidated balance sheets of Visionik A/S
(a Danish corporation) and subsidiaries, as of December 31, 1997 and 1998, and
the related statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 1997 and 1998 financial
statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visionik A/S and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
United States generally accepted accounting principles.
MOORE STEPHENS DENMARK
COPENHAGEN, DENMARK
November 2, 1999
F-111
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $273,757 $ 226,038 $ 354,221
Work in progress, net............................. 14,726 50,551 79,666
Accounts receivable............................... 205,526 544,288 686,486
Prepaid expenses and other current assets......... 19,231 31,296 128,614
Marketable securities available for sale.......... 111,553 122,424 66,690
-------- ---------- ---------------
Total current assets.......................... 624,793 974,597 1,315,677
======== ========== ===============
Property and Equipment, net of accumulated
amortization of $79,005, $77,046 and $35,439,
(unaudited) respectively.......................... 64,872 54,413 46,238
-------- ---------- ---------------
Total assets.................................. $689,665 $1,029,010 $ 1,361,915
======== ========== ===============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Subordinated debt................................. $ -- $ -- $ 287,203
Accounts payable and accrued expenses............. 311,912 508,029 465,201
Prepayments from customers........................ 54,016 103,934 33,698
Income taxes payable.............................. 73,949 93,778 177,981
Other current liabilites.......................... 12,818 7,829 107,701
-------- ---------- ---------------
Total current liabilities..................... 452,695 713,570 1,071,784
-------- ---------- ---------------
Long-term Liabilities:
Deferred tax...................................... -- 5,649 12,144
Other long-term liabilities....................... 19,294 14,994 7,504
-------- ---------- ---------------
Total long-term liabilities................... 19,294 20,643 19,648
-------- ---------- ---------------
Total liabilities............................. 471,989 734,213 1,091,432
-------- ---------- ---------------
Commitments (Note 7)
Stockholders' Equity:
Common stock, $168 par value, 500 shares
authorized, 500, 500 and 500 (unaudited) shares
issued and outstanding, respectively............ 84,055 84,055 84,055
Retained earnings................................. 162,183 216,448 220,894
Cumulative translation adjustment................. (28,562) (11,255) (40,352)
Unrealized gains on marketable securities......... -- 5,549 5,886
-------- ---------- ---------------
Total stockholders' equity.................... 217,676 294,797 270,483
-------- ---------- ---------------
Total liabilities and stockholders' equity.... $689,665 $1,029,010 $ 1,361,915
======== ========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-112
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED NINE MONTHS,
DECEMBER 31, DECEMBER 31, ENDED SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues....................................... $1,811,295 $2,041,596 $2,242,049
Direct salaries and costs...................... 1,131,369 1,179,145 1,257,579
---------- ---------- ----------
Gross profit............................... 679,926 862,451 984,470
General and administrative..................... 371,427 436,873 492,561
Sales and marketing............................ 137,971 256,788 319,598
Depreciation and amortization.................. 79,005 77,046 39,653
---------- ---------- ----------
Income from operations..................... 91,523 91,744 132,658
Income from affiliated company................. -- -- 50,996
Interest income................................ 10,757 15,269 9,662
Interest expense............................... (3,813) (498) (17,243)
---------- ---------- ----------
Income before income taxes................. 98,467 106,515 176,073
Provision for income taxes..................... 35,716 38,872 63,589
---------- ---------- ----------
Net income................................. $ 62,751 $ 67,643 $ 112,484
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-113
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
COMMON COMMON GAINS ON CUMMULATIVE
STOCK STOCK MARKETABLE RETAINED FOREIGN CURRENCY
SHARES AMOUNT SECURITIES EARNINGS TRANSLATION TOTAL
-------- -------- ---------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997......... 500 $84,055 $ -- $106,757 $ -- $190,812
Translation adjustment......... -- -- -- -- (28,562) (28,562)
Net Income..................... -- -- -- 62,751 -- 62,751
Dividend....................... -- -- -- (7,325) -- (7,325)
--- ------- ------ -------- -------- --------
Balance, December 31, 1997....... 500 84,055 -- 162,183 (28,562) 217,676
Translation adjustment......... -- -- -- -- 17,307 17,307
Net Income..................... -- -- 5,549 62,094 -- 67,643
Dividend....................... -- -- -- (7,829) -- (7,829)
--- ------- ------ -------- -------- --------
Balance, December 31, 1998....... 500 84,055 5,549 216,448 (11,255) 294,797
Translation adjustment......... -- -- -- -- (29,097) (29,097)
Net Income (unaudited)......... -- -- 337 112,147 -- 112,484
Dividend....................... -- -- -- (107,701) -- (107,701)
--- ------- ------ -------- -------- --------
Balance, September 30, 1999
(unaudited).................... 500 $84,055 $5,886 $220,894 $(40,352) $270,483
=== ======= ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-114
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income........................................ $ 62,751 $ 67,643 $112,484
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 79,005 77,046 39,653
Dividend.......................................... (7,325) (7,829) (107,701)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........ (7,949) (338,762) (142,198)
(Increase) in work in progress.................... 222,598 (35,825) (29,115)
(Increase) decrease in prepaid expenses and other
current assets.................................. (8,344) 12,065 (97,318)
(Increase) in securities.......................... (42,219) (10,871) 55,734
Increase (decrease) in long-term liabilities...... (8,875) 1,349 (995)
Increase (decrease) in accounts payable and
accrued expenses................................ 136,939 196,117 (42,828)
Increase (decrease)in accounts prepayments from
customers....................................... (7,620) 49,918 (70,236)
Increase (decrease) in income taxes payable....... (5,335) 19,829 84,203
Increase (decrease) in dividend................... 4,412 (4,989) 99,872
-------- --------------- --------
Net cash provided by (used in) operating
activities.................................. 418,038 25,691 (98,445)
-------- --------------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital Expenditures, net......................... (79,875) (90,717) (31,478)
-------- --------------- --------
Net cash (used in) investing activities....... (79,875) (90,717) (31,478)
-------- --------------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in subordinated debt.......... (50,433) -- 287,203
-------- --------------- --------
Net cash provided by financing activities..... (50,433) -- 287,203
-------- --------------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 287,730 (65,026) 157,280
Effect of Exchange Rates on Cash.................... (28,562) 17,307 (29,097)
CASH AND CASH EQUIVALENTS, beginning of period...... 14,589 273,757 226,038
-------- --------------- --------
CASH AND CASH EQUIVALENTS, end of period............ $273,757 $ 226,038 $354,221
======== =============== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Income taxes.................................... $ 30,526 $ 20,527 $ --
======== =============== ========
Interest........................................ $ 6,944 $ 14,771 $ 7,581
======== =============== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-115
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Visionik A/S and subsidiaries (collectively known as the "Company") is a
digital business development partner. The Company develops and drives
interactive digital channels across different platforms for its customers.
Visionik A/S is owned 75% by Visionik Holding ApS and 25% by Associated
Management Services A/S. The Visionik Group consist of the parent company
Visionik A/S and the 100% owned subsidiaries Visionik E-COM ApS and Visionik
Interactive TV A/S. Visionik E-COM ApS is developing professional internet
services for The Copenhagen Stock Exchange and a number of other customers in
Denmark. Visionik Interactive TV A/S is a developer of interactive services and
backend systems for digital TV. The Company is working for clients in
Scandinavia, England, Ireland, Holland, Germany and France among others.
ACCOUNTING PRINCIPLES IN GENERAL
The Company's financial statements have been prepared in accordance with US
GAAP.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Visionik A/S and its subsidiaries, Visionik E-COM ApS and Visionik Interactive
TV A/S. All significant intercompany accounts and 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized for time and materials arrangements on the basis of
costs incurred in the period. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Amounts
billed, which are not yet earned, are classified as deferred revenue in the
accompanying consolidated balance sheets.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt and equity instruments with an
original maturity of three months or less to be cash equivalents.
F-116
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN MARKETABLE SECURITIES
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with this
pronouncement, the investment and debt securities held by the Company and
included in the accompanying consolidated balance sheets that may be sold in
response to changes in interest rates, prepayments, and other factors have been
classified as available-for-sale. Such securities are reported at fair value,
with unrealized gains and losses excluded from earnings and reported in a
separate component of shareholders' equity (on an after-tax basis). Gains and
losses on the disposition of securities are recognized on the specific
identification method in the period in which they occur.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Property and equipment is depreciated on a straight-line basis
over their estimated useful lives of two to five years. Leasehold improvements
and equipment held under capital leases are amortized utilizing the
straight-line method over the lesser of the estimated useful life of the asset
or the remaining term of the related lease.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of." This statement establishes
financial accounting and reporting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used, and for long-lived assets and certain identifiable intangibles
to be disposed. Management has performed a review of all long-lived assets and
has determined that no impairment of the respective carrying values has occurred
as of December 31, 1998 and September 31, 1999 (unaudited).
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." This statement requires an asset and liability
approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at
each balance sheet date using enacted tax rates for the years in which the taxes
are expected to be paid or recovered. The effect on deferred tax assets or
liabilities of a change in tax rates is recognized in the period that the tax
change occurs.
F-117
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign subsidiaries are translated into
Danish kroner at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates during the fiscal year.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term maturity of these
instruments.
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. The Company maintains cash and cash equivalents with various
financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
concentrated in Denmark and throughout Europe. The Company performs ongoing
credit evaluations, generally does not require collateral, and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of customers, historical trends and other information. There has been no
allowances for doubtful accounts in the periods presented.
COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, NINE MONTHS, ENDED
1997 1998 SEPTEMBER 30, 1999
------------ ------------ --------------------
(UNAUDITED)
<S> <C> <C> <C>
Net Income..................................... $ 62,751 $67,643 $112,484
Foreign currency translation adjustment........ (28,562) 17,307 (29,097)
Unrealized gains on marketable securities...... -- 5,549 337
-------- ------- --------
Comprehensive income......................... $ 34,189 $90,499 $ 83,724
======== ======= ========
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The statement also
establishes standards for related disclosure about products and services,
geographic areas and
F-118
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997 and need not be applied to interim
periods in the initial year of application. Comparative information for earlier
years presented is to be restated. The Company only has operations in the
Netherlands and currently believes that it operates in one segment, therefore,
the adoption of SFAS No. 131 will not materially affect the Company's current
disclosure.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The Company does not expect the adoption of
SOP 98-1 to have a material effect on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company does not currently
engage in derivative activity and does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position or cash flows.
In July 1999, the FASB approved SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133", which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000.
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of the
nine months ended September 30, 1999, have been prepared in accordance with
generally accepted accounting principles for interim financial statements. In
the opinion of the Company, these unaudited consolidated financial statements,
reflect all adjustments necessary, consisting of normal recurring adjustments,
for a fair presentation of such data on a basis consistent with that of the
audited data presented herein. The consolidated results for interim periods are
not necessarily indicative of the results expected for a full year.
2. SUBSIDIARIES
On July 1, 1998 the activity in Visionik A/S was transferred into two new
established 100% owned companies Visionik Interactive TV A/S (was established as
an ApS but has been changed to an A/S in 1999) and Visionik E-COM ApS by way of
a tax-free transfer of assets.
F-119
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Office and computer equipment....................... $271,554 $338,141 $365,405
-------- -------- --------
Total property and equipment.................... 271,554 338,141 365,405
Less--Accumulated depreciation and amortization..... 206,682 283,728 319,167
-------- -------- --------
Property and equipment, net..................... $ 64,872 $ 54,413 $ 46,238
======== ======== ========
</TABLE>
Depreciation expense was approximately $79,005, $77,046 and $35,439,
respectively, for the years ended December 31, 1997 and 1998 and the nine months
ending September 30, 1999 (unaudited).
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable.................... $ -- $ -- $ 93,158
Accrued expenses--other............. 311,912 508,029 372,043
-------- -------- --------
$311,912 $508,029 $465,201
======== ======== ========
</TABLE>
5. INCOME TAXES
Income before (provision for) income taxes and the (provision for) income
taxes consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Income before income taxes:......... $ 98,467 $106,515 $176,073
======== ======== ========
(Provisions for) income taxes:
Current--State.................... $(35,716) $(33,223) $(56,627)
Deferred--State................... -- (5,649) (6,962)
-------- -------- --------
$(35,716) $(38,872) $(63,589)
======== ======== ========
</TABLE>
F-120
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to a significant
portion of the deferred income tax assets (liabilities), net, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1997 1998 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Property and equipment............................ $ -- $30,787 $ 15,910
-------- ------- --------
Total deferred tax assets........................... -- 30,787 15,910
-------- ------- --------
Net deferred tax assets............................. -- 30,787 15,910
-------- ------- --------
Deferred tax liabilities:
Cash basis to accrual basis adjustment............ -- (2,858) (7,275)
Work in progress.................................. -- (33,578) (20,779)
-------- ------- --------
Total deferred tax liabilities...................... -- (36,436) (28,054)
-------- ------- --------
Net deferred tax liabilities........................ $ -- $(5,649) $(12,144)
======== ======= ========
</TABLE>
Deferred income taxes are provided for the temporary difference between the
financial reporting basis and tax basis of the Company's assets and liabilities.
Deferred tax assets result principally from recording certain expenses in the
financial statements, which are not currently deductible for tax purposes, and
differences between the tax and book bases of assets and liabilities recorded in
connection with the acquisitions. Deferred tax liabilities result principally
from expenses which are currently deductible for tax purposes but have not yet
been expensed in the financial statements.
6. STOCKHOLDERS' EQUITY
COMMON SHARES
The Company has 500 authorized shares of Common Stock.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES AND RENT COMMITMENTS
The Company is committed under operating leases, principally for office
space and equipment expiring through 2002. As of December 31, 1998, the Company
has a total equipment lease commitment of $9,513.
F-121
<PAGE>
VISIONIK A/S AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On November 1, 1999, the Company signed a contract to rent office space on a
new location in Copenhagen. There are two years security of tenure starting from
January 1, 2000, where the rent will start. The total rent commitment over the
2-year period is $254,796.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999........................................................ $ 2,216
2000........................................................ 130,031
2001........................................................ 130,031
2002........................................................ 2,031
</TABLE>
8. CREDIT FACILITIES
The Company has an overdraft facility available for an amount of $42,500.
The interest rate on the overdraft is 6%.
9. SUBORDINATED DEBT
There is a subordinated debt of $287,203 obtained by the shareholders. As an
effect of the AGENCY.COM acquisition of the Company, the loan will be redeemed.
A payment of the subordinated debt will not have any tax consequences for the
companies in the group.
10. SUBSEQUENT EVENTS
In November 1999, the Company was acquired by AGENCY.COM Ltd. ("AGENCY.COM")
for 572,000 shares of AGENCY.COM's common stock valued at $9.35 per share, and
$500,000 in cash, for a total aggregate purchase price of $5,848,200. Employees
of the Company also received 68,000 stock options to purchase shares of
AGENCY.COM's common stock.
F-122
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements as of September 30, 1999 and for the nine months ended September 30,
1998 and 1999 and the year ended December 31, 1998, have been derived from the
application of pro forma adjustments to the historical consolidated financial
statements of AGENCY.COM, Eagle River Interactive, Interactive Solutions,
Twinspark Interactive People, I-traffic and Visionik which are included
elsewhere in this prospectus and the historical financial statements of the
other acquisitions, which are not included in this prospectus. The unaudited pro
forma condensed consolidated balance sheet gives effect to the acquisition of
I-traffic and Visionik as if such transactions had occurred on September 30,
1999. The unaudited pro forma consolidated statement of operations information
for the nine months ended September 30, 1999 gives effect to the acquisitions
that AGENCY.COM completed in 1999 as if such transactions had occurred on
January 1, 1998. The unaudited pro forma consolidated statements of operations
information for the nine months ended September 30, 1998 and for the year ended
December 31, 1998, gives effect to the acquisitions that AGENCY.COM completed in
1998 and 1999 as if such transactions had occurred on January 1, 1998.
The unaudited pro forma condensed consolidated financial statements do not
purport to be indicative of what AGENCY.COM's actual results of operations or
financial condition would have been assuming the acquisitions that AGENCY.COM
completed in 1998 and 1999 had been completed on such dates, nor does it purport
to be indicative of results of operations or financial condition that may be
achieved in the future.
Each of the acquisitions that AGENCY.COM completed in 1998 and 1999 has been
accounted for using the purchase method of accounting. The purchase method of
accounting allocates the aggregate purchase price to the assets acquired and
liabilities assumed based upon their respective fair values. The excess purchase
price over the fair value of net assets acquired is as follows: $22.257 million
for Eagle River Interactive, of which $1.292 million was allocated to workforce,
$3.240 million to customer base and $17.725 million to goodwill; $1.718 million
for Interactive Solutions of which $1.035 million was allocated to workforce,
$2.600 million to customer base and $12.739 million to goodwill and,
$7.371 million for Twinspark Interactive People, $9.393 million for I-traffic,
$5.578 million for Visionik and an aggregate of $2.129 million for the other
acquisitions, all of which has been allocated to goodwill. Management considers
such estimates to be reasonable.
F-123
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
AGENCY.COM I-TRAFFIC VISIONIK ADJUSTMENTS PRO FORMA
------------- ---------- ---------- ------------ -------------
(A) (B)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 725,863 $2,037,391 $ 354,221 $ -- $ 3,117,475
Accounts receivable, net..................... 24,141,609 1,369,228 686,486 -- 26,197,323
Unbilled charges............................. 6,682,710 -- 79,666 -- 6,762,376
Prepaid expenses and other current assets.... 3,579,670 96,495 128,614 -- 3,804,779
Income tax receivable........................ 2,130,945 -- -- -- 2,130,945
Due from related parties..................... 295,968 -- -- -- 295,968
------------ ---------- ---------- ----------- ------------
Total current assets....................... 37,556,765 3,503,114 1,248,987 -- 42,308,866
Property and Equipment, net.................... 11,653,923 469,391 46,238 -- 12,169,552
Intangibles, net (a) (b)....................... 52,631,655 -- 14,970,392 67,602,047
Deferred Tax Assets............................ 1,010,396 -- -- 1,010,396
Investments and Other Assets................... 4,635,757 110,004 66,690 -- 4,812,451
------------ ---------- ---------- ----------- ------------
Total assets............................... $107,488,496 $4,082,509 $1,361,915 $14,970,392 $127,903,312
============ ========== ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses........ $ 14,920,232 $ 395,077 $ 465,201 $ -- $ 15,780,510
Short-term debt.............................. 177,000 200,000 287,203 1,000,000 1,664,203
Income taxes payable......................... 1,061,458 -- 177,981 -- 1,239,439
Other current liabilities.................... -- 84,064 107,701 -- 191,765
Deferred revenue............................. 2,426,901 677,276 33,698 -- 3,137,875
Current portion of capital lease
obligations................................ 1,097,956 -- -- -- 1,097,956
------------ ---------- ---------- ----------- ------------
Total current liabilities.................. 19,683,547 1,356,417 1,071,784 1,000,000 23,111,748
Long-term Liabilities:
Due to Omnicom Group, Inc.................... 66,806,568 -- -- 3,500,000 70,306,568
Deferred tax liabilities..................... 458,498 -- 12,144 -- 470,642
Capital lease obligations.................... 1,709,425 -- 7,504 -- 1,716,929
Due to related parties....................... 390,000 -- -- -- 390,000
Bank loans................................... -- 67,204 -- -- 67,204
Other liabilities............................ 1,202,042 2,518,190 -- -- 3,720,232
------------ ---------- ---------- ----------- ------------
Total liabilities.......................... 90,250,080 3,941,811 1,091,432 4,500,000 99,783,323
------------ ---------- ---------- ----------- ------------
Stockholders' Equity (c):
Common stock................................. 26,664 2,137 84,055 (85,151) 27,705
Preferred stock.............................. -- 370 -- (370) --
Stockholder receivable....................... -- (28,782) -- 28,782 --
Additional paid-in capital................... 25,302,044 3,731,591 -- 7,148,941 36,182,576
Retained earnings (deficit).................. (7,461,088) (2,407,034) 220,894 2,186,140 (7,461,088)
Deferred compensation........................ (585,070) (1,157,584) 1,157,584 (585,070)
Unrealized gain on marketable securities..... 5,886 (5,886) --
Cumulative foreign translation adjustments... (44,134) (40,352) 40,352 (44,134)
------------ ---------- ---------- ----------- ------------
Total stockholders' equity................. 17,238,416 140,698 270,483 10,470,392 28,119,989
------------ ---------- ---------- ----------- ------------
Total liabilities and stockholders'
equity................................... $107,488,496 $4,082,509 $1,361,915 $14,970,392 $127,903,312
============ ========== ========== =========== ============
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-124
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(a) In October 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Interactive Traffic, Inc. ("I-traffic") for
$3,000,000 in cash, a $1,000,000 short-term note payable due at the earlier
of December 31, 1999 or thirty days following the completion of the
Company's initial public offering, 469,320 shares of the Company's common
stock valued at $9.35 per share, the assumption of options to purchase
160,680 shares of the Company's common stock at an average exercise price of
$2.54 per share, and the issuance of newly-granted options to purchase
60,000 shares of the Company's common stock at an exercise price of $8.50
per share, which options were valued at less than the fair market value of
the Company's common stock on the date of grant, valued at $1,145,231, for a
total aggregate purchase price of $9,533,373. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible and intangible assets
acquired and liabilities assumed on the basis of their respective fair
values on the acquisition date. Furthermore, the purchase agreement calls
for certain earn-out payments to the former shareholders of I-traffic based
upon the achievement of certain future targeted operating results for
I-traffic one year from the closing of the transaction. These payments are
payable in cash and additional shares of the Company's common stock and
future payments, if any, will be recorded as additional purchase price and,
accordingly, an adjustment to goodwill.
Set forth below is AGENCY.COM's allocation of the purchase price of the
I-traffic acquisition:
<TABLE>
<S> <C>
Aggregate purchase price.................................... $ 9,533,373
-----------
Less book value of net assets acquired.................... 140,698
-----------
Excess of cost over book value of net assets acquired....... $ 9,392,675
===========
Allocation of excess of cost over book value of assets
acquired:
Goodwill.................................................. $ 9,392,675
===========
</TABLE>
The allocation of excess cost over book value of net assets acquired to the
intangible assets relating to I-traffic will be amortized over a useful life of
seven years.
(b) In November 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Visionik A/S ("Visionik"), a Danish corporation,
for $500,000 in cash and 572,000 shares of the Company's common stock valued
at $9.35 per share for a total aggregate purchase price of $5,848,200. This
acquisition has been accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date.
F-125
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
Set forth below is AGENCY.COM's allocation of the purchase price of the
Visionik acquisition:
<TABLE>
<S> <C>
Aggregate purchase price.................................... $5,848,200
Less book value of net assets acquired.................... 270,483
----------
Excess of cost over book value of net assets acquired....... $5,577,717
==========
Allocation of excess of cost over book value of net assets
acquired.................................................. $5,577,717
==========
</TABLE>
The allocation of excess cost over book value of net assets acquired to the
intangible assets relating to Visionik will be amortized over a period of seven
years.
(c) Reflects the adjustments to shareholders' equity as follows:
<TABLE>
<CAPTION>
ACQUISITIONS
------------
<S> <C>
Common stock
Elimination of I-traffic Common Stock..................... $ (2,137)
Elimination of Visionik Common Stock...................... (84,055)
Issuance of Common Stock in connection with the
acquisition of: I-traffic and Visionik.................. 1,041
-----------
Subtotal.............................................. (85,151)
-----------
Preferred stock:
Elimination of I-traffic preferred stock.................. (370)
-----------
Additional paid-in capital:
Elimination of I-traffic additional paid-in capital....... (3,731,591)
Additional paid-in capital from issuance of Common Stock
and stock options: I-traffic and Visionik............... 10,880,532
-----------
Subtotal................................................ 7,148,941
-----------
Retained earnings (accumulated deficit):
Elimination of I-traffic historical accumulated deficit... 2,407,034
Elimination of Visionik historical retained earnings...... (220,894)
-----------
Subtotal................................................ 2,186,140
-----------
Elimination of I-traffic deferred compensation.............. 1,157,584
Elimination of I-traffic stockholder receivable............. 28,782
Elimination of Visionik unrealized gain on marketable
securities................................................ (5,886)
Elimination of Visionik historical cumulative foreign
translation adjustment.................................... 40,352
-----------
Total................................................... $10,470,392
===========
</TABLE>
F-126
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
The following summarizes how the amounts relating to the issuance of shares
in connection with the acquisitions described above were determined:
<TABLE>
<S> <C> <C>
I-traffic
Total Common Stock issued................................... 469,320
Fair market value of Common Stock per share................. $ 9.35
----------
Total value of Common Stock issued.......................... $4,388,142
Total Common Stock issued................................... 469,320
Par value of Common Stock................................... $ 0.001
----------
Adjustment to Common Stock.................................. (469)
----------
Adjustment to additional paid-in capital.................... $4,387,673
==========
Visionik
Total Common Stock issued................................... 572,000
Fair market value of Common Stock per share................. $ 9.35
----------
Total value of Common stock issued.......................... $5,348,200
Total Common Stock issued................................... 572,000
Par value of Common Stock................................... $ 0.001
----------
Adjustment to Common Stock.................................. (572)
----------
Adjustment to additional paid-in capital.................... $5,347,628
==========
</TABLE>
F-127
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
EAGLE RIVER INTERACTIVE OTHER PRO FORMA
AGENCY.COM INTERACTIVE SOLUTIONS I-TRAFFIC ACQUISITIONS ADJUSTMENTS
---------- ----------- ----------- ----------- ------------ ------------
(A) (B) (C) (D)(E)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $56,499,289 $5,072,000 $ 3,598,106 $ 4,286,931 $ 5,352,108 $ --
Direct salaries and costs............. 28,784,372 2,885,000 2,207,841 4,045,756 3,268,534 --
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.......................... 27,714,917 2,187,000 1,390,265 241,175 2,083,574 --
General and administrative............ 21,652,390 2,452,000 1,509,291 1,703,707 2,800,030 --
Sales and marketing................... 2,590,637 602,000 39,898 318,556 538,706 --
Amortization of intangibles........... 4,574,221 1,081,000 1,279,996 -- -- 3,132,467 (h)
Depreciation and amortization......... 3,149,130 -- 96,942 -- 121,261 --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations....... (4,251,461) (1,948,000) (1,535,862) (1,781,088) (1,376,423) (3,132,467)
Interest income (expense), net........ (2,124,962) (382,000) (210,000) 33,693 (51,425) (230,033)(k)
Minority interest..................... -- -- -- 50,996 --
Loss on disposal...................... -- -- 10,000 -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes... (6,376,423) (2,330,000) (1,745,862) (1,757,395) (1,376,852) (3,362,500)
----------- ----------- ----------- ----------- ----------- -----------
Provision (benefit) for income
taxes............................... 238,606 (453,502) -- 13,802 --
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................... $(6,615,029) $(2,330,000) $(1,292,360) $(1,757,395) $(1,390,654) $(3,362,500)
=========== =========== =========== =========== =========== ===========
Per share information:
Net loss per share--................
Basic................................. $ (0.29)
===========
Diluted............................... $ (0.29)
===========
Weighted average common shares
outstanding--.......................
Basic................................. 23,186,818
===========
Diluted............................... 23,186,818
===========
<CAPTION>
PRO FORMA
--------------
<S> <C>
Revenues.............................. $ 74,808,434
Direct salaries and costs............. 41,191,503
------------
Gross profit.......................... 33,616,931
General and administrative............ 30,117,418
Sales and marketing................... 4,089,797
Amortization of intangibles........... 10,067,684
Depreciation and amortization......... 3,367,333
------------
Income (loss) from operations....... (14,025,301)
Interest income (expense), net........ (2,964,727)
Minority interest..................... 50,996
Loss on disposal...................... 10,000
------------
Income (loss) before income taxes... (16,949,032)
------------
Provision (benefit) for income
taxes............................... (201,094)
------------
Net income (loss)................... $(16,747,938)
============
Per share information:
Net loss per share--................
Basic................................. $ (0.57)
============
Diluted............................... $ (0.57)
============
Weighted average common shares
outstanding--.......................
Basic................................. 29,241,541 (n)
============
Diluted............................... 29,241,541 (n)
============
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-128
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
EAGLE RIVER INTERACTIVE OTHER PRO FORMA
AGENCY.COM INTERACTIVE SOLUTIONS I-TRAFFIC ACQUISITIONS ADJUSTMENTS
-------------- ----------- ----------- ----------- ------------ ------------
(A) (B) (C) (D)(F)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $18,956,267 $17,249,142 $10,869,920 $ 2,309,796 $6,577,369 $ --
Direct salaries and costs............. 10,355,373 8,525,789 6,891,620 1,836,845 3,949,469 --
----------- ----------- ----------- ----------- ---------- ------------
Gross profit.......................... 8,600,894 8,723,353 3,978,300 472,951 2,627,900 --
General and administrative............ 7,743,832 8,559,117 4,184,022 775,216 1,642,216 --
Sales and marketing................... 297,942 1,454,485 347,806 143,574 414,327 --
Amortization of intangibles........... 582,855 3,242,776 1,336,029 -- -- 5,545,345 (i)
Depreciation and amortization......... 772,094 -- 221,456 -- 136,468 --
----------- ----------- ----------- ----------- ---------- ------------
Income (loss) from operations....... (795,829) (4,533,025) (2,111,013) (445,839) 434,889 (5,545,345)
Interest income (expense), net........ (325,491) (1,137,424) (413,827) 20,642 (14,484) (402,693)(l)
Minority interests.................... (281,559) -- -- -- -- --
----------- ----------- ----------- ----------- ---------- ------------
Income (loss) before income taxes... (1,402,879) (5,670,449) (2,524,840) (425,197) 420,405 (5,948,038)
Provision (benefit) for income
taxes............................... (460,565) -- (1,058,916) -- 115,139 --
----------- ----------- ----------- ----------- ---------- ------------
Net income (loss)................... $ (942,314) $(5,670,449) $(1,465,924) $ (425,197) $ 305,266 $(5,948,038)
=========== =========== =========== =========== ========== ============
Per share information:
Net loss per share--
Basic................................. $ (0.06)
===========
Diluted............................... $ (0.06)
===========
Weighted average common shares
outstanding--.......................
Basic................................. 16,586,538
===========
Diluted............................... 16,586,538
===========
<CAPTION>
PRO FORMA
--------------
<S> <C>
Revenues.............................. $ 55,962,494
Direct salaries and costs............. 31,559,096
------------
Gross profit.......................... 24,403,398
General and administrative............ 22,904,403
Sales and marketing................... 2,658,134
Amortization of intangibles........... 10,707,005
Depreciation and amortization......... 1,130,018
------------
Income (loss) from operations....... (12,996,162)
Interest income (expense), net........ (2,273,277)
Minority interests.................... (281,559)
------------
Income (loss) before income taxes... (15,550,998)
Provision (benefit) for income
taxes............................... (1,404,342)
------------
Net income (loss)................... $(14,146,656)
============
Per share information:
Net loss per share--
Basic................................. $ (0.53)
============
Diluted............................... $ (0.53)
============
Weighted average common shares
outstanding--.......................
Basic................................. 26,597,168 (o)
============
Diluted............................... 26,597,168 (o)
============
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-129
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EAGLE
RIVER INTERACTIVE OTHER PRO FORMA PRO
AGENCY.COM INTERACTIVE SOLUTIONS I-TRAFFIC ACQUISITIONS ADJUSTMENTS FORMA
-------------- ----------- ----------- ---------- ------------ ------------ ------------
(A) (B) (C) (D)(G)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $26,452,191 $23,442,000 $15,370,470 $3,506,833 $8,706,557 $(1,348,436)(q) $ 76,129,615
Direct salaries and
costs.................... 15,930,029 11,782,000 9,659,366 2,788,220 5,206,710 (1,348,436)(q) 44,017,889
----------- ----------- ----------- ---------- ---------- ------------ ------------
Gross profit............... 10,522,162 11,660,000 5,711,104 718,613 3,499,847 -- 32,111,726
General and
administrative........... 10,944,441 12,022,000 6,220,344 1,189,557 2,013,958 -- 32,390,300
Sales and marketing........ 595,886 1,958,000 482,952 218,604 563,309 -- 3,818,751
Amortization of
intangibles.............. 892,765 4,322,000 1,953,783 -- -- 7,311,072(j) 14,479,620
Depreciation and
amortization............. 1,141,305 -- 295,274 -- 185,193 -- 1,621,772
----------- ----------- ----------- ---------- ---------- ------------ ------------
Income (loss) from
operations............... (3,052,235) (6,642,000) (3,241,249) (689,548) 737,387 (7,311,072) (20,198,717)
Interest income (expense),
net...................... (359,761) (1,611,000) (599,003) 27,851 (14,742) (491,167)(m) (3,047,822)
Minority interests......... (281,559) -- -- -- -- -- (281,559)
Loss on disposal........... -- -- -- (9,399) -- -- (9,399)
----------- ----------- ----------- ---------- ---------- ------------ ------------
Income (loss) before income
taxes.................... (3,693,555) (8,253,000) (3,840,252) (671,096) 722,645 (7,802,239) (23,537,497)
Provision (benefit) for
income taxes............. (1,212,575) -- (1,603,476) 178,771 -- (2,637,280)
----------- ----------- ----------- ---------- ---------- ------------ ------------
Net income (loss).......... $(2,480,980) $(8,253,000) $(2,236,776) $(671,096) $ 543,874 $(7,802,239) $(20,900,217)
=========== =========== =========== ========== ========== ============ ============
Per share information:
Net loss per share--
Basic...................... $ (0.15) $ (0.78)
=========== ============
Diluted.................... $ (0.15) $ (0.78)
=========== ============
Weighted average common
shares outstanding--
Basic...................... 16,854,499 26,865,129(p)
=========== ============
Diluted.................... 16,854,499 26,865,129(p)
=========== ============
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-130
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) EAGLE RIVER INTERACTIVE INC.
In April 1999, the Company acquired all of the issued and outstanding shares
of capital stock of Eagle River Interactive from the Eagle River Interactive
shareholder, Omnicom, in exchange for an aggregate 3,646,226 shares of
AGENCY.COM's common stock and a warrant to purchase 4,328,752 shares of
AGENCY.COM's common stock at a purchase price of $0.005 per share. Such warrant
was valued at $0.80 per share and the fair value of the Company's common stock
on the date of purchase was $1.23 per share, each as determined by an
independent third-party valuation. In addition, 13,322 shares of AGENCY.COM's
common stock were issued to certain participants of the Eagle River Interactive
Key Executive Incentive Program in settlement of all obligations due under the
program and 80,690 shares were issued to an executive of Eagle River
Interactive. These shares have been considered additional purchase price. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. The acquisition is effective as
of March 31, 1999, and accordingly, the operating results of Eagle River since
March 31, 1999 have been included in AGENCY.COM's consolidated financial
statements.
(b) INTERACTIVE SOLUTIONS INCORPORATED AND QUADRIS CONSULTING, INC.
In April 1999, the Company acquired all of the issued and outstanding shares
of capital stock of Interactive Solutions from the Interactive Solutions
shareholders (including Communicade Inc., a wholly owned subsidiary of Omnicom)
in exchange for an aggregate of 4,171,846 shares of AGENCY.COM's common stock
and a warrant to purchase 3,071,248 shares of AGENCY.COM's common stock at a
purchase price of $0.005 per share. Such warrant was valued at $0.80 per share
and the fair value of the AGENCY.COM's common stock on the date of purchase was
$1.23 per share, each as determined by an independent third-party valuation.
Immediately, prior to the acquisition of Interactive Solutions, Interactive
Solutions acquired all of the issued and outstanding shares of capital stock of
Quadris Consulting from the Quadris Consulting shareholders in exchange for an
aggregate of 1,869,528 shares of Interactive Solutions common stock. Prior to
both acquisitions, Communicade sold 485,999.64 shares of Interactive Solutions
common stock to certain of the AGENCY.COM's shareholders for an aggregate price
of $412,492.
Outstanding stock options under the stock option plans of Interactive
Solutions and Quadris Consulting were converted into approximately 1,402,382
options to purchase the AGENCY.COM's common stock. Certain of these options were
converted at excercise prices that were lower than the fair market value of the
Company's common stock at the date of grant. Accordingly, the Company has
recorded additional purchase price for the difference between the excercise
price and the fair market value of the underlying common shares relating to
these options.
These acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis of
their respective fair values on the acquisition dates. These acquisitions are
effective as of March 31, 1999, and accordingly, the operating results of
Interactive since March 31, 1999 have been included in AGENCY.COM's consolidated
financial statements.
F-131
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(c) INTERACTIVE TRAFFIC, INC. In October 1999, the Company purchased all
of the issued and outstanding shares of capital stock of Interactive
Traffic, Inc. ("I-traffic") for $3,000,000 in cash, a $1,000,000 short-term note
payable due at the earlier of December 31, 1999 or thirty days following the
completion of the Company's initial public offering, 469,320 shares of the
Company's common stock valued at $9.35 per share, the assumption of options to
purchase 160,680 shares of the Company's common stock at an exercise price of
$2.54 per share, and the issuance of newly-granted options to purchase 60,000
shares of the Company's common stock at an exercise price of $8.50 per share
which options were valued at less than the fair market value of the Company's
common stock on the date of grant, valued at $1,145,231, for a total aggregate
purchase price of $9,533,373. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date.
Furthermore, the purchase agreement calls for certain earn-out payments to the
former shareholders of I-traffic based upon the achievement of certain future
targeted operation results for I-traffic one-year from the date of the closing
of the transaction. These payments are payable in cash and additional shares of
the Company's common stock and future payments, if any, will be recorded as
additional purchase price and, accordingly, an adjustment to goodwill.
(d) OTHER ACQUISITIONS:
VISIONIK A/S
In November 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Visionik A/S ("Visionik"), a Danish corporation, for
$500,000 in cash and 572,000 shares of the Company's common stock valued at
$9.35 per share for a total aggregate purchase price of $5,848,200. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date.
TWINSPARK INTERACTIVE
In August 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Twinspark Interactive for $700,000 in cash and
1,057,226 shares of the AGENCY.COM's common stock valued at $5.95 per share, of
which 1,047,226 shares were given to the shareholders of Twinspark and 10,000
shares to former employees of Twinspark, for a total aggregate purchase price of
$7,000,000. The Company also granted 75,000 stock options to former employees of
Twinspark at an exercise price equal to the then fair market value of the
Company's common stock. This acquisition has been accounted for under the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date.
Furthermore, the purchase agreement calls for certain earn-out payments to the
former shareholders of Twinspark based upon the achievement of certain targeted
operating results of Twinspark through December 1999. These payments are payable
in the form of 168,066 shares of the Company's common stock which are currently
held in escrow. Future payments, if any, will be recorded as additional purchase
price and, accordingly, an adjustment to goodwill.
F-132
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
DIGITAL VISION
On May 13, 1999, the Company purchased all of the issued and outstanding
shares of capital stock of Digital Vision for $1,100,000 in cash. This
acquisition has been accounted for under the purchase method of accounting and,
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values on the acquisition date. The acquisition is effective as
of May 31, 1999, and accordingly, the operating results of Digital Vision since
May 31, 1999 have been included in AGENCY.COM's consolidated financial
statements.
KETCHUM ADVERTISING
On April 1, 1998, the Company acquired certain assets and assumed certain
liabilities from Ketchum Advertising. Ketchum was a subsidiary of Omnicom, which
is a significant shareholder of AGENCY.COM's common stock both directly and
through a wholly owned subsidiary. In consideration for the net assets acquired,
AGENCY.COM paid approximately $643,000 in cash. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible and intangible assets acquired
and liabilities assumed on the basis of their respective fair values on the
acquisition date. As a result of this acquisition, AGENCY.COM has recorded
goodwill of approximately $643,000, which is being amortized over a period of
seven years. The acquisition is effective as of March 31, 1998, and accordingly,
the operating results of Ketchum Advertising since March 31, 1998 have been
included in AGENCY.COM's consolidated financial statements.
PRIMARY GROUP
On August 31, 1998, AGENCY.COM acquired certain assets from Primary Group
and assumed certain liabilities. In consideration for the net assets acquired,
the Company paid approximately $53,220 in cash. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible and intangible assets acquired
and liabilities assumed on the basis of their respective fair values on the
acquisition date. As a result of this acquisition, the Company has recorded
goodwill of approximately $50,845, which is being amortized over a period of
seven years. The acquisition is effective as of August 31, 1998, and
accordingly, the operating results of the Primary Group since August 31, 1998
have been included in AGENCY.COM's consolidated financial statements.
F-133
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(e) Set forth below are the unaudited results of operations of the other
acquisitions for the period of January 1, 1999 through September 30, 1999:
<TABLE>
<CAPTION>
DIGITAL TWINSPARK TOTAL OTHER
VISION INTERACTIVE VISIONIK ACQUISITIONS
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................. $ 325,800 $ 2,784,259 $ 2,242,049 $ 5,352,108
Direct salaries and costs............ 306,106 1,704,849 1,257,579 3,268,534
------------ ------------ ------------ ------------
Gross profit............... 19,694 1,079,410 984,470 2,083,574
General and administrative........... 231,200 2,076,269 492,561 2,800,030
Sales and marketing.................. 125,108 94,000 319,598 538,706
Amortization of intangibles.......... -- -- -- --
Depreciation and amortization........ 5,949 75,659 39,653 121,261
------------ ------------ ------------ ------------
Income (loss) from
operations................... (342,563) (1,166,518) 132,658 (1,376,423)
Interest income (expense), net....... (17,680) (26,164) (7,581) (51,425)
Minority interests................... -- -- 50,996 50,996
------------ ------------ ------------ ------------
Income (loss) before income
taxes........................ (360,243) (1,192,682) 176,073 (1,376,852)
Provision (benefit) for income
taxes........................ -- (49,787) 63,589 13,802
------------ ------------ ------------ ------------
Net income (loss).......... $ (360,243) $ (1,142,895) $ 112,484 $ (1,390,654)
============ ============ ============ ============
</TABLE>
F-134
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(f) Set forth below are the unaudited results of operations of the other
acquisitions for the period of January 1, 1998 through September 30, 1998:
<TABLE>
<CAPTION>
QUADRIS KETCHUM PRIMARY DIGITAL TWINSPARK TOTAL OTHER
CONSULTING ADVERTISING GROUP VISION INTERACTIVE VISIONIK ACQUISITIONS
----------- ----------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $1,727,391 $680,000 $ 167,057 $1,049,824 $1,458,770 $1,494,327 $6,577,369
Direct salaries and
costs.............. 1,144,664 353,600 131,790 458,454 1,018,120 842,841 3,949,469
---------- -------- ---------- ---------- ---------- ---------- ----------
Gross profit..... 582,727 326,400 35,267 591,370 440,650 651,486 2,627,900
General and
administrative..... 362,872 251,600 120,392 281,835 306,420 319,097 1,642,216
Sales and marketing.. 1,577 27 -- 221,442 -- 191,281 414,327
Amortization of
intangibles........ -- -- -- -- -- --
Depreciation and
amortization....... -- 14 3,869 12,059 56,800 63,726 136,468
---------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss)
from
operations..... 218,278 74,759 (88,994) 76,034 77,430 77,382 434,889
Interest income
(expense), net..... (1,925) -- -- (14,136) (9,870) 11,447 (14,484)
Minority interests... -- -- -- -- -- -- --
---------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes.......... 216,353 74,759 (88,994) 61,898 67,560 88,829 420,405
Provision (benefit)
for income
taxes............ 87,000 -- -- -- -- 28,139 115,139
---------- -------- ---------- ---------- ---------- ---------- ----------
Net income
(loss)......... $ 129,353 $ 74,759 $ (88,994) $ 61,898 $ 67,560 $ 60,690 $ 305,266
========== ======== ========== ========== ========== ========== ==========
</TABLE>
(g) Set forth below are the unaudited results of operations of the other
acquisitions for the period of January 1, 1998 through December 31, 1998:
<TABLE>
<CAPTION>
QUADRIS KETCHUM PRIMARY DIGITAL TWINSPARK TOTAL OTHER
CONSULTING ADVERTISING GROUP VISION INTERACTIVE VISIONIK ACQUISITIONS
----------- ----------- --------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues......................... $1,727,391 $680,000 $167,057 $1,399,697 $2,690,816 $2,041,596 $8,706,557
Direct salaries and costs........ 1,144,664 353,600 131,790 625,633 1,771,878 1,179,145 5,206,710
---------- -------- -------- ---------- ---------- ---------- ----------
Gross profit................. 582,727 326,400 35,267 774,064 918,938 862,451 3,499,847
General and administrative....... 362,872 251,600 120,392 372,676 469,545 436,873 2,013,958
Sales and marketing.............. 1,577 27 -- 304,917 256,788 563,309
Amortization of intangibles...... -- -- -- -- -- -- --
Depreciation and amortization.... -- 14 3,869 13,075 91,189 77,046 185,193
---------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) from
operations................. 218,278 74,759 (88,994) 83,396 358,204 91,744 737,387
Interest income (expense), net... (1,925) -- -- (15,497) (12,091) 14,771 (14,742)
Minority interests............... -- -- -- -- -- -- --
---------- -------- -------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes...................... 216,353 74,759 (88,994) 67,899 346,113 106,515 722,645
Provision (benefit) for income
taxes.......................... 87,000 -- -- -- 52,899 38,872 178,771
---------- -------- -------- ---------- ---------- ---------- ----------
Net income (loss)............ $ 129,353 $ 74,759 $(88,994) $ 67,899 $ 293,214 $ 67,643 $ 543,874
========== ======== ======== ========== ========== ========== ==========
</TABLE>
F-135
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(h) Amortization of intangibles for the nine months ended September 30, 1999,
for the following acquisitions, based upon a useful life of seven years for
goodwill, five years for customer base and three years for workforce:
<TABLE>
<S> <C>
Eagle River Interactive..................................... $ 768,759
Interactive Solutions....................................... 147,802
Twinspark Interactive....................................... 526,522
Digital Vision.............................................. 85,413
I-traffic................................................... 1,006,358
Visionik.................................................... 597,613
----------
Total pro forma intangible amortization adjustments..... $3,132,467
==========
</TABLE>
(i) Amortization of intangibles for the nine months ended September 30, 1998,
for the following acquisitions, based upon a useful life of seven years for
goodwill, five years for customer base and three years for workforce:
<TABLE>
<S> <C>
Eagle River Interactive..................................... $2,306,276
Interactive Solutions....................................... 443,407
Twinspark Interactive....................................... 789,784
Digital Vision.............................................. 153,745
Quadris Consulting.......................................... 220,351
Ketchum Advertising......................................... 22,964
Primary Group............................................... 4,847
I-traffic................................................... 1,006,358
Visionik.................................................... 597,613
----------
Total pro forma intangible amortization adjustments..... $5,545,345
==========
</TABLE>
(j) Amortization of intangibles for year ended December 31, 1998, for the
following acquisitions, based upon a useful life of seven years for
goodwill, five years for customer base and three years for workforce:
<TABLE>
<S> <C>
Eagle River Interactive..................................... $3,075,034
Interactive Solutions....................................... 591,209
Twinspark Interactive....................................... 1,053,045
Digital Vision.............................................. 204,993
Quadris Consulting.......................................... 220,351
Ketchum Advertising......................................... 22,964
Primary Group............................................... 4,848
I-traffic................................................... 1,341,811
Visionik.................................................... 796,817
----------
Total pro forma intangible amortization adjustments..... $7,311,072
==========
</TABLE>
F-136
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(k) Interest expense (income), net
The following reflects additional interest expense for AGENCY.COM for
borrowings made from Omnicom to fund acquisitions. The funding would have been
in accordance with AGENCY.COM's Shareholders Agreement with Omnicom whereby
AGENCY.COM is to receive funding for the acquisition of "new media" companies at
the same interest rate charged by Omnicom to its subsidiaries under the Omnicom
cash management system. Interest on such loans is payable quarterly in equal
installments over a five-to-ten-year period.
Additional interest expense to fund acquisitions for the nine months ended
September 30, 1999 based upon an average interest rate of 6%:
<TABLE>
<S> <C>
Twinspark Interactive....................................... $ 23,450
Digital Vision.............................................. 30,708
I-traffic................................................... 150,750
Visionik.................................................... 25,125
--------
Total pro forma interest expense adjustments............ $230,033
========
</TABLE>
(l) Interest expense (income), net
Additional interest expense to fund acquisitions for the nine months ended
September 30, 1998 based upon an average interest rate of 6%:
<TABLE>
<S> <C>
Ketchum Advertising......................................... $ 10,770
Primary Group............................................... 2,380
Quadris Consulting.......................................... 123,218
Twinspark Interactive....................................... 35,175
Digital Vision.............................................. 55,275
I-traffic................................................... 150,750
Visionik.................................................... 25,125
--------
Total pro forma interest expense adjustments............ $402,693
========
</TABLE>
F-137
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(m) Interest expense (income), net
Additional interest expense to fund acquistions for the year ended December
31, 1998 based upon an average interest rate of 6%:
<TABLE>
<S> <C>
Ketchum Advertising......................................... $ 10,770
Primary Group............................................... 2,380
Quadris Consulting.......................................... 123,218
Twinspark Interactive....................................... 46,900
Digital Vision.............................................. 73,399
I-traffic................................................... 201,000
Visionik.................................................... 33,500
--------
Total pro forma interest expense adjustments............ $491,167
========
</TABLE>
(n) Set forth below are the weighted average shares of Common Stock outstanding
during the periods for the basic and diluted computation for the nine months
ended September 30, 1999:
<TABLE>
<S> <C>
Basic:
Historical AGENCY.COM basic............................... 23,186,818
Shares issued in acquisition of Eagle River Interactive... 1,870,254
Shares issued in acquisition of Interactive Solutions..... 2,085,923
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
----------
Pro forma basic......................................... 29,241,541
==========
Diluted:
Historical AGENCY.COM diluted............................. 23,186,818
Shares issued in acquisition of Eagle River Interactive... 1,870,254
Shares issued in acquisition of Interactive Solutions..... 2,085,923
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
----------
Pro forma diluted....................................... 29,241,541
==========
</TABLE>
The historical AGENCY.COM diluted weighted average shares of Common stock
outstanding for the nine months ended September 30, 1999 does not include the
impact of stock options and warrants then outstanding, as the effect of their
inclusion would be antidilutive.
F-138
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(o) Set forth below are the weighted average shares of Common Stock outstanding
during the periods for the basic and diluted computation for the nine months
ended September 30, 1998:
<TABLE>
<S> <C>
Basic:
Historical AGENCY.COM basic............................... 16,586,538
Shares issued in acquisition of Eagle River Interactive... 3,740,238
Shares issued in acquisition of Interactive Solutions..... 4,171,846
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
-----------
Pro forma basic......................................... 26,597,168
===========
Diluted:
Historical AGENCY.COM diluted............................. 16,586,538
Shares issued in acquisition of Eagle River Interactive... 3,740,238
Shares issued in acquisition of Interactive Solutions..... 4,171,846
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
-----------
Pro forma diluted....................................... 26,597,168
===========
</TABLE>
The historical AGENCY.COM diluted weighted average shares of Common stock
outstanding for the nine months ended September 30, 1998 does not include the
impact of stock options then outstanding, as the effect of their inclusion would
be antidilutive.
F-139
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(p) Set forth below are the weighted average shares of Common Stock outstanding
during the periods for the basic and diluted computation for the year ended
December 31, 1998:
<TABLE>
<S> <C>
Basic:
Historical AGENCY.COM basic............................... 16,854,499
Shares issued in acquisition of Eagle River Interactive... 3,740,238
Shares issued in acquisition of Interactive Solutions..... 4,171,846
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
-----------
Pro forma basic......................................... 26,865,129
===========
Diluted:
Historical AGENCY.COM diluted............................. 16,854,499
Shares issued in acquisition of Eagle River Interactive... 3,740,238
Shares issued in acquisition of Interactive Solutions..... 4,171,846
Shares issued in acquisition of Twinspark Interactive..... 1,057,226
Shares issued in acquisition of I-traffic................. 469,320
Shares issued in acquisition of Visionik.................. 572,000
-----------
Pro forma diluted....................................... 26,865,129
===========
</TABLE>
The historical AGENCY.COM diluted weighted average shares of Common stock
outstanding for the year ended December 31, 1998 does not include the impact of
stock options then outstanding, as the effect of their inclusion would be
antidilutive.
(q) Revenue/Direct salaries and costs
Reflects the elimination of revenues earned and costs incurred totaling
$996,666 between AGENCY.COM and Eagle River Interactive in the fourth quarter of
1998, totaling $240,928 between Interactive Solutions and AGENCY.COM for the
year ended December 31, 1998 and totaling $110,842 between Interactive Solutions
and Eagle River Interactive for the year ended December 31, 1998, respectively.
F-140
<PAGE>
UNDERWRITING
AGENCY.COM and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to the
conditions in the underwriting agreement, each underwriter has severally agreed
to purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Salomon Smith Barney Inc. and Hambrecht & Quist LLC are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ -----------------
<S> <C>
Goldman, Sachs & Co......................................
Salomon Smith Barney Inc. ...............................
Hambrecht & Quist LLC....................................
--------
Total.................................................. 5,900,000
========
</TABLE>
------------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 885,000
shares from AGENCY.COM to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
AGENCY.COM will sell the shares to the underwriters at a per share price of
$ , which represents a $ discount from the initial public offering price
set forth on the cover page of this prospectus. This discount is the
underwriters' compensation. The following table shows the per share and total
underwriting discounts to be paid to the underwriters by AGENCY.COM. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Underwriters' Discount
--------------------------
<S> <C> <C>
Full
No Exercise Exercise
-------- --------
Underwriting Discount
Per Share.......... $ $
Total Underwriting
Discount........... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may from time to time reduce the
offering price and change the other selling terms.
AGENCY.COM and its directors, officers and holders of substantially all of
its common stock have agreed with the underwriters not to dispose of or hedge
any of their common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to any existing employee benefit plans. Please see "Shares Eligible for
Future Sale" for a discussion of transfer restrictions.
At AGENCY.COM's request, the underwriters have reserved up to 500,000 shares
of AGENCY.COM's common stock for
U-1
<PAGE>
sale to Intel Corporation at the initial public offering price. Intel has not
committed to purchase these shares. At AGENCY.COM's request, the underwriters
have reserved up to 413,000 shares of the common stock offered by this
prospectus for sale, at the initial public offering price, to certain of
AGENCY.COM's directors, employees and associates of AGENCY.COM through a
directed share program. The number of shares available for sale to the general
public will be reduced to the extent these persons purchase the reserved shares.
There can be no assurance that any of the reserved shares will be so purchased.
Any reserved shares not so purchased will be offered to the general public on
the same basis as the other shares offered by this prospectus.
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among AGENCY.COM and the
representatives. The primary factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be AGENCY.COM's historical performance, estimates of the
business potential and earnings prospects of AGENCY.COM, an assessment of
AGENCY.COM's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "ACOM", subject to official notice of issuance.
AGENCY.COM has engaged Wasserstein Perella & Co., Inc. to provide it with
financial advisory services for which it will pay $250,000 plus expenses.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The representatives, on behalf of the underwriters, also may impose a
penalty bid. This occurs when a particular underwriter repays to the other
underwriters a portion of the underwriting discount received by it because the
representatives have repurchased shares sold by or for the account of such
underwriter in stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
AGENCY.COM estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$2,500,000.
AGENCY.COM has agreed to indemnify the several underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
AGENCY.COM has in the past provided Internet professional services to
Salomon Smith Barney Inc., one of the Underwriters. Please see "Certain
Transactions--Agreement with underwriter".
U-2
<PAGE>
[Back Inside Cover--AGENCY.COM logo located in bottom right of the page with the
words "Our people are our power" located in the upper left of the page. In the
center of the page is a vertical column of photographs of 18 employees.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Forward Looking Statements........... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 22
Selected Consolidated Financial
Data............................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 45
Management........................... 61
Certain Relationships and Related
Party Transactions................. 72
Principal Stockholders............... 76
Description of Capital Stock......... 79
Shares Eligible for Future
Sale............................... 82
Validity of Common Stock............. 83
Experts.............................. 84
Changes in Accountants............... 84
Where You Can Find More Information.. 84
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
------------------
Through and including , 1999 (the 25(th) day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
5,900,000 Shares
AGENCY.COM LTD.
Common Stock
-------------
[LOGO]
-------------
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the issuance and distribution of the common stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 22,635
NASD filing fee............................................. 9,300
Nasdaq National Market listing fee.......................... 95,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 1,500,000
Printing and engraving...................................... 300,000
Blue sky fees and expenses (including legal fees)........... 15,000
Transfer Agent and Registrar fees and expenses.............. 15,000
Miscellaneous............................................... 43,065
----------
Total..................................................... $2,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof (the "Certificate") provides that, except to the extent
prohibited by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Registrant. Under the DGCL, the directors have a fiduciary duty to the
Registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
Registrant has applied for liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or
(iv) for any transaction from which the director
II-1
<PAGE>
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest extent
permitted by Section 102(b)(7) of the DGCL and provides that the Registrant may
fully indemnify 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 such person is or was a director or officer of the Registrant, or is or was
serving at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since July 1,
1996:
In July 1998, as a result of Online Magic acquisition, the Registrant issued
an aggregate of 745,185 shares of its common stock in exchange for all of the
outstanding shares of Online Magic to Eamonn Wilmott and Andrew Hobsbawm, of
which 246,750 shares are being held in escrow pending financial results for
1999. Such shares of common stock were sold in reliance upon an exemption from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
In July 1997, the Registrant acquired 51% of the outstanding shares of
Spiral Media, Inc. In July 1998, the Registrant acquired the remaining 49% of
Spiral Media that it did not own. In connection with these purchases, the
Registrant issued an aggregate of 480,625 shares of its common stock in exchange
for all outstanding shares of Spiral Media to Arthur Williams, Mitchell Golden,
Bradford Justus, Thomas Lanzetta, Ralph Seaman, Eric Vallinsky and Pall Walton.
Such shares of common stock were sold in reliance upon an exemption from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
In April 1999, Interactive Solutions Incorporation merged with and into the
Registrant (the "Interactive Solutions Merger"), the Registrant issued an
aggregate of 1,568,070 shares of common stock in exchange for all outstanding
shares of Interactive Solutions to Lawrence Krakauer, Andrew Kerr, Jeffrey
Richman, Michael Benyo, John Morgan, Barry Goldberg, David Janowski, Jerry
Newmark, Priya Ramanathan, James Ronan, David Seitelmen, Lee Tuttle, Ting Tang
Wu and Betsy January, Christian Leland, Thomas Rohrer, Chan Suh, Kyle Shannon,
Kenneth Trush, Eamonn Wilmott, Janet Ambrosi Wertman, David Krunnfusz, Arthur
Williams, Andrew Hobsbawm, Aaron Sugarman, Rosemary Haefner, Monica Fried and
Peter Kestenbaum. In addition, in connection with the mergers, the Registrant
issued to Communicade, 2,596,452 shares of common stock. Communicade also
received a 20-year warrant to purchase 3,071,248 shares of the Registrant's
common stock at an exercise price of $0.005 per share. Such shares of common
stock were sold in reliance upon an exemption from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof.
II-2
<PAGE>
In April 1999, Eagle River Interactive merged with and into the Registrant
(the "Eagle River Merger"), the Registrant issued an aggregate of 80,690 shares
of common stock to Kevin Rowe and 3,659,548 shares of common stock to Omnicom
and a 20-year warrant to purchase 4,328,752 shares of the Registrant's common
stock at an exercise price of $0.005 per share. Such shares of common stock were
sold in reliance upon an exemption from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof.
In August 1999, Twinspark Interactive People B.V. merged with and into the
Registrant (the "Twinspark Merger"). As a result of the Twinspark Merger, the
Registrant issued 1,047,226 shares of its common stock to Topics Interactive
Factory B.V. and 10,000 shares of its common stock to former employees of
Twinspark Interactive in exchange for all outstanding shares of Twinspark
Interactive. Such shares of common stock were sold in reliance upon an exemption
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof.
In October 1999, Interactive Traffic, Inc. merged with a wholly-owned
subsidiary of the Registrant (the "I-traffic Merger"). In connection with the
I-traffic Merger, the Registrant issued 469,320 shares of its common stock to
I-traffic's former stockholders, and issued 60,000 shares subject to stock
options to I-traffic employees. These securities were sold in reliance on an
exemption from registration under the Securities Act pursuant to Section 4(2)
thereof or Rule 701 promulgated under the Securities Act.
In November 1999, in connection with the Visionik A/S acquisition, the
Registrant issued 572,000 shares of common stock. Such securities were sold in
reliance upon an exemption from registration under the Securities Act pursuant
to Section 4(2) thereof.
OPTIONS. The Registrant from time to time has granted stock options to
employees in reliance upon exemption from registration pursuant to either
(i) Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) Rule 701 promulgated under the Securities Act. The following
table sets forth certain information regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
--------- ----------
<S> <C> <C>
January 1, 1996 to December 31, 1996................. 101,250 $0.86
January 1, 1997 to December 31, 1997................. 812,010 $0.86-1.21
January 1, 1998 to December 31, 1998................. 1,181,684 $0.41-1.67
January 1, 1999 to present........................... 3,878,313 $0.41-8.50
</TABLE>
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1+ Form of underwriting agreement.
3.1+ Amended and restated certificate of incorporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
3.2 Form of amended and restated certificate of incorporation to
be in effect upon the closing of the offering.
3.3+ By-laws.
3.4 Form of amended and restated by-laws to be in effect upon
the closing of this offering.
4.1 Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ 1999 Stock Option/Stock Issuance Plan (as Amended Restated
on October 13, 1999).
10.2+ Interactive Solutions Incorporated 1996 Stock Option Plan.
10.3+ 1998 Quadris Consulting, Inc. Equity Incentive Plan.
10.4+ Employment Agreement, dated April 28, 1999, by and between
Chan Suh and the Registrant.
10.5+ Employment Agreement, dated April 28, 1999, by and between
Kyle Shannon and the Registrant.
10.6+ Employment Agreement, dated April 28, 1999, by and between
Kevin Rowe and the Registrant.
10.7+ Employment Agreement, dated April 28, 1999, by and between
Kenneth Trush and the Registrant.
10.8+ Employment Agreement, dated April 28, 1999, by and between
Eamonn Wilmott and the Registrant.
10.9+ Employment Agreement, dated April 28, 1999, by and between
Lawrence Krakauer and the Registrant.
10.10+ Employment Agreement, dated April 28, 1999, by and between
Janet Ambrosi Wertman and the Registrant.
10.11+ Restricted Stock Agreement, dated April 16, 1999, by and
between Kevin Rowe and the Registrant.
10.12+ Credit Agreement dated as of November 4, 1999 between
Omnicom Finance Inc. and the Registrant and Subsidiary
Guarantors.
10.13+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Interactive Solutions Incorporated and Quadris
Consulting, Inc.
10.14+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Interactive Solutions Incorporated and the
Registrant.
10.15+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Eagle River Interactive Inc. and the Registrant.
10.16+ Agreement, dated April 27, 1999, by and between Jeffrey
Rayport and the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
10.17+ Stock Purchase Agreement, dated July 23, 1999, by and
between Topics Interactive Factory B.V. and the Registrant,
as amended.
10.18 Registration Rights Agreement, dated November 23, 1999, by
and among the Registrant and Omnicom.
10.19+ Employment Agreement, dated October 28, 1999, by and between
Charles Dickson and the Registrant.
10.20+ Agreement and Plan of Merger, dated October 21, 1999, by and
among the Registrant ITI Acquisition Inc., Interactive
Traffic, Inc., and the Stockholders listed therein.
10.21 Acquisition Agreement, dated October 23, 1999, by and
between the Registrant and the Stockholders listed therein
and In-Com.
10.22 Stock Exchange Agreement, dated November 3, 1999, by and
between the Registrant and Visionik Holding ApS, Associated
Management Services A/S and Jrgen Lembke and Sren
Hougaard-Hansen.
10.23+ 1999 Employee Stock Purchase Plan.
10.24 Consulting Agreement, dated November 22, 1999, by and
between Thomas DeLong and the Registrant.
10.25++ Warrant Agreement, dated November 24, 1999, by and between
Omnicom Group Inc. and the Registrant.
10.26 Warrant Agreement, as amended, dated April 28, 1999, by and
between Communicade, Inc. and the Registrant (formerly
Exhibit 4.4).
11.1+ Statement re: Supplemental Net Loss Per Share.
16.1+ Letter from Ernst & Young LLP re Change in Certifying
Accountants.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP--New York, New York.
23.2 Consent of Arthur Andersen LLP--Denver, Colorado.
23.3 Consent of Arthur Andersen--Rotterdam, The Netherlands.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Moore Stephens Denmark.
23.6 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1+ Powers of attorney.
24.2+ Power of attorney of Charles Dickson.
27.1+ Financial Data Schedule.
99.1+ Consent of Director Nominee Jeffrey Rayport (included in
Exhibit 10.16).
99.2 Consent of Director Nominee Thomas DeLong (included in
Exhibit 10.24).
</TABLE>
- ------------------------
+ Previously filed.
++ Replaces exhibit previously filed as Exhibit 4.3.
II-5
<PAGE>
(b) Financial Statement Schedules.
<TABLE>
<S> <C>
Schedule II -- Schedule of Valuation and Qualifying Accounts (AGENCY.COM
Ltd. and Subsidiaries)
Schedule II -- Schedule of Valuation and Qualifying Accounts (Eagle
River Interactive)
Schedule II -- Schedule of Valuation and Qualifying Accounts (Eagle
River Interactive Inc.)
Schedule II -- Schedule of Valuation and Qualifying Accounts
(Interactive Solutions, Inc. and Subsidiary)
Schedule II -- Schedule of Valuation and Qualifying Accounts (Twinspark
Interactive People B.V.)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424 (b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on this 24th day of
November, 1999.
<TABLE>
<S> <C> <C>
AGENCY.COM LTD.
By: /s/ Kenneth Trush
-----------------------------------------
Name: Kenneth Trush
Title: Executive Vice President, Treasurer
and Director
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to the Registration Statement has been signed by the following
persons in the capacities indicated on November 24, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<C> <S>
* President and Chief Executive Officer, and
------------------------------------------- Chairman of the Board of Directors
Chan Suh (principal executive officer)
*
------------------------------------------- Chief Creative Officer and Director
Kyle Shannon
/s/ Kenneth Trush
------------------------------------------- Executive Vice President, Treasurer and
Kenneth Trush Director
* Executive Vice President and Chief Financial
------------------------------------------- Officer
Charles Dickson (principal financial and accounting officer)
*
------------------------------------------- Director
Gerald Bruce Redditt
*
------------------------------------------- Director
John D. Wren
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ Kenneth Trush
--------------------------------------
Kenneth Trush
Attorney-in-fact
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AGENCY.COM Ltd.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of AGENCY.COM Ltd. and subsidiaries included
in this registration statement and have issued our report thereon dated
November 10, 1999. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule of valuation and
qualifying accounts is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange Commissions
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
November 10, 1999
S-1
<PAGE>
SCHEDULE II
AGENCY.COM LTD. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended December 31, 1996
Allowance for doubtful accounts.......... $ -- $ 15 $ -- $ -- $ 15
==== ==== ==== ==== ====
For the fiscal year ended December 31, 1997
Allowance for doubtful accounts.......... $ 15 $143 $ -- $115 $ 43
==== ==== ==== ==== ====
For the fiscal year ended December 31, 1998
Allowance for doubtful accounts.......... $ 43 $785 $ -- $ 2 $826
==== ==== ==== ==== ====
</TABLE>
S-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle River Interactive:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Eagle River Interactive included in this
registration statement and have issued our report thereon dated July 19, 1999.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation and qualifying accounts
is the responsibility of the management of Eagle River Interactive Inc. and is
presented for purposes of complying with the Securities and Exchange Commissions
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
July 19, 1999
S-3
<PAGE>
EAGLE RIVER INTERACTIVE
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended December 31, 1996
Allowance for doubtful accounts.......... $ -- $ -- $ -- $ -- $ --
==== ==== ==== ==== ====
For the period January 1, 1997 through
September 26, 1997
Allowance for doubtful accounts.......... $ -- $980 $ -- $ -- $980
==== ==== ==== ==== ====
</TABLE>
S-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle River Interactive Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Eagle River Interactive Inc. included in this
registration statement and have issued our report thereon dated July 19, 1999.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation and qualifying accounts
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
July 19, 1999
S-5
<PAGE>
SCHEDULE II
EAGLE RIVER INTERACTIVE INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the period from inception
(September 26, 1997) through
December 31, 1997
Allowance for doubtful accounts.......... $140 $ 44 $ -- $ -- $ 184
==== ====== ==== ==== ======
For the fiscal year ended December 31, 1998
Allowance for doubtful accounts.......... $184 $2,600 $ -- $ -- $2,784
==== ====== ==== ==== ======
</TABLE>
S-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interactive Solutions, Inc. and Subsidiary:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Interactive Solutions, Inc. and Subsidiary
included in this registration statement and have issued our report thereon dated
July 16, 1999. Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule of valuation and
qualifying accounts is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange Commissions
rules and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
July 16, 1999
S-7
<PAGE>
SCHEDULE II
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended December 31, 1996
Allowance for doubtful accounts.......... $ -- $ 6 $ -- $ -- $ 6
==== ==== ==== ==== ====
For the fiscal year ended December 31, 1997
Allowance for doubtful accounts.......... $ 6 $ 86 $ -- $ 55 $ 37
==== ==== ==== ==== ====
For the fiscal year ended December 31, 1998
Allowance for doubtful accounts.......... $ 37 $273 $ -- $ -- $310
==== ==== ==== ==== ====
</TABLE>
S-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Twinspark Interactive People B.V.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Twinspark Interactive People B.V. included in this
registration statement and have issued our report thereon dated August 9, 1999.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of valuation and qualifying accounts
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commissions rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN
New York, New York
August 9, 1999
S-9
<PAGE>
SCHEDULE II
TWINSPARK INTERACTIVE PEOPLE B.V.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
For the fiscal year ended December 31, 1997
Allowance for doubtful accounts.......... $ -- $ -- $ -- $ -- $ --
==== ==== ==== ==== ====
For the fiscal year ended December 31, 1998
Allowance for doubtful accounts.......... $ -- $ 44 $ -- $ -- $ 44
==== ==== ==== ==== ====
</TABLE>
S-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1+ Form of underwriting agreement.
3.1+ Amended and restated certificate of incorporation.
3.2 Form of amended and restated certificate of incorporation to
be in effect upon the closing of the offering.
3.3+ By-laws.
3.4 Form of amended and restated by-laws to be in effect upon
the closing of this offering.
4.1 Specimen common stock certificate.
4.2 See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining the rights of holders of Common Stock of the
Registrant.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ 1999 Stock Option/Stock Issuance Plan (as Amended Restated
on October 13, 1999).
10.2+ Interactive Solutions Incorporated 1996 Stock Option Plan.
10.3+ 1998 Quadris Consulting, Inc. Equity Incentive Plan.
10.4+ Employment Agreement, dated April 28, 1999, by and between
Chan Suh and the Registrant.
10.5+ Employment Agreement, dated April 28, 1999, by and between
Kyle Shannon and the Registrant.
10.6+ Employment Agreement, dated April 28, 1999, by and between
Kevin Rowe and the Registrant.
10.7+ Employment Agreement, dated April 28, 1999, by and between
Kenneth Trush and the Registrant.
10.8+ Employment Agreement, dated April 28, 1999, by and between
Eamonn Wilmott and the Registrant.
10.9+ Employment Agreement, dated April 28, 1999, by and between
Lawrence Krakauer and the Registrant.
10.10+ Employment Agreement, dated April 28, 1999, by and between
Janet Ambrosi Wertman and the Registrant.
10.11+ Restricted Stock Agreement, dated April 16, 1999, by and
between Kevin Rowe and the Registrant.
10.12+ Credit Agreement dated as of November 4, 1999 between
Omnicom Finance Inc. and the Registrant and Subsidiary
Guarantors.
10.13+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Interactive Solutions Incorporated and Quadris
Consulting, Inc.
10.14+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Interactive Solutions Incorporated and the
Registrant.
10.15+ Agreement and Plan of Merger, dated April 28, 1999, by and
between Eagle River Interactive Inc. and the Registrant.
10.16+ Agreement, dated April 27, 1999, by and between Jeffrey
Rayport and the Registrant.
10.17+ Stock Purchase Agreement, dated July 23, 1999, by and
between Topics Interactive Factory B.V. and the Registrant,
as amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
10.18 Registration Rights Agreement, dated November 23, 1999, by
and among the Registrant and Omnicom.
10.19+ Employment Agreement, dated October 28, 1999, by and between
Charles Dickson and the Registrant.
10.20+ Agreement and Plan of Merger, dated October 21, 1999, by and
among the Registrant ITI Acquisition Inc., Interactive
Traffic, Inc., and the Stockholders listed therein.
10.21 Acquisition Agreement, dated October 23, 1999, by and
between the Registrant and the Stockholders listed therein
and In-Com.
10.22 Stock Exchange Agreement, dated November 3, 1999, by and
between the Registrant and Visionik Holding ApS, Associated
Management Services A/S and Jrgen Lembke and Sren
Hougaard-Hansen.
10.23+ 1999 Employee Stock Purchase Plan.
10.24 Consulting Agreement, dated November 22, 1999, by and
between Thomas DeLong and the Registrant.
10.25++ Warrant Agreement, dated November 24, 1999, by and between
Omnicom Group Inc. and the Registrant.
10.26 Warrant Agreement, as amended, dated April 28, 1999, by and
between Communicade, Inc. and the Registrant (formerly
Exhibit 4.4).
11.1+ Statement re: Supplemental Net Loss Per Share.
16.1+ Letter from Ernst & Young LLP re Change in Certifying
Accountants.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP--New York, New York.
23.2 Consent of Arthur Andersen LLP--Denver, Colorado.
23.3 Consent of Arthur Andersen--Rotterdam, The Netherlands.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Moore Stephens Denmark.
23.6 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1+ Powers of attorney.
24.2+ Power of attorney of Charles Dickson.
27.1+ Financial Data Schedule.
99.1+ Consent of Director Nominee Jeffrey Rayport (included in
Exhibit 10.16).
99.2 Consent of Director Nominee Thomas DeLong (included in
Exhibit 10.24).
</TABLE>
- ------------------------
+ Previously filed.
++ Replaces exhibit previously filed as Exhibit 4.3.
<PAGE>
Exhibit 3.2
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AGENCY.COM LTD.
(Pursuant to Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware)
AGENCY.COM LTD. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware,
and the date of its filing of its original Certificate of Incorporation with the
Secretary of State of Delaware was June 1, 1998. An Amended and Restated
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on August 13, 1999.
SECOND: That the Board of Directors duly adopted resolutions proposing
to amend and restate the Certificate of Incorporation of the Corporation,
declaring said amendment and restatement to be advisable and in the best
interests of the Corporation and its stockholders, and authorizing the
appropriate officers of the Corporation to solicit the consent of the
stockholders of the issued and outstanding Common Stock, $0.001 par value, in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware;
THIRD: That the resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Amended and Restated of Certificate of Incorporation
of the Corporation be amended and restated in its entirety as follows:
<PAGE>
ARTICLE I
Name
The name of the Corporation is AGENCY.COM LTD.
ARTICLE II
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, State of Delaware 19801, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
Powers/Term
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law. The Corporation is to have perpetual existence.
ARTICLE IV
Capital Stock
A. CLASSES OF STOCK. The total number of shares of stock which the
Corporation shall have authority to issue is two hundred and ten million
(210,000,000), consisting of ten million (10,000,000) shares of Preferred Stock,
par value $.001 per share (the "Preferred Stock"), and two hundred million
(200,000,000) shares of Common Stock, par value $.001 per share (the "Common
Stock").
B. PREFERRED STOCK. The Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is hereby authorized to provide
for the issuance of shares of Preferred Stock in one or more series and, by
filing a certificate pursuant to the applicable law of the State of Delaware
(the "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the Board
of Directors with respect to each series shall include, but not be limited to,
determination of the following:
2
<PAGE>
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred Stock
Designation) increase or decrease (but not below the number of shares thereof
then outstanding).
(c) The amounts payable on, and the preferences, if any, of shares of
the series in respect of dividends, and whether such dividends, if any, shall be
cumulative or noncumulative.
(d) Dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares of
the series.
(f) The terms and amount of any sinking funds provided for the purchase
or redemption of shares of the series.
(g) The amounts payable on, and the preferences, if any, of shares of
the series in the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other security, of
the Corporation or any other corporation, and, if so, the specification of such
other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates at which
such shares shall be convertible or exchangeable and all other terms and
conditions upon which such conversion or change may be made.
(i) Restrictions on the issuance of shares of the same series or of any
other class or series.
(j) The voting rights, if any, of the holders of shares of the series.
C. COMMON STOCK; VOTING. The Common Stock shall be subject to the
express terms of the Preferred Stock and any series thereof. Except as may
otherwise be provided in this Certificate of Incorporation, in a Preferred Stock
Designation or by applicable law, the holders of shares of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to vote at or receive notice of any meeting of
stockholders.
The number of shares of authorized Common Stock may be increased or
decreased (but not below the number then outstanding) by the affirmative vote of
the holders of a majority in voting power of the outstanding shares of capital
stock of the Corporation entitled to vote thereon, voting together as a single
class notwithstanding the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware.
3
<PAGE>
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to, or interest in, such
share on the part of any other person whether or not the Corporation shall have
notice thereof, except as expressly provided by applicable law.
ARTICLE V
Directors
A. NUMBER. The number of directors of the Corporation shall be such
number, not less than six (6) nor more than fifteen (15) (exclusive of
directors, if any, to be elected by holders of preferred stock of the
Corporation, voting separately as a class), as shall be set forth from time to
time in the bylaws, provided that no action shall be taken to decrease the
number of directors to under six (6) or increase the number of directors to over
fifteen (15) unless at least 66.67% of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose approve such decrease or increase. Vacancies in the
Board of Directors of the Corporation, however caused, and newly created
directorships shall be filled by a vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
the class to which the director has been chosen expires and when the director's
successor is elected and qualified.
B. CLASSIFIED BOARD OF DIRECTORS. The Board of Directors shall be and
is divided into three classes: Class I, Class II and Class III, each of which
shall be as nearly equal in number as possible. Each director shall serve for a
term ending on the date of the third annual meeting of stockholders following
the annual meeting at which the director was elected; provided, however, that
each initial director in Class I shall hold office until the annual meeting of
stockholders in 2000; each initial director in Class II shall hold office until
the annual meeting of stockholders in 2001; and each initial director in Class
III shall hold office until the annual meeting of stockholders in 2002.
Notwithstanding the foregoing provisions of this ARTICLE V, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal.
In the event of any increase or decrease in the authorized number of
directors, (1) each director than serving as such shall nevertheless continue as
a director of the class of which he is a member until the expiration of his
current term, or his earlier resignation, removal from office or death, and (2)
the newly created or eliminated directorship resulting from such increase
4
<PAGE>
or decrease shall be appointed by the Board of Directors among the three classes
of directors so as to maintain such classes as nearly equal as possible.
C. REMOVAL OF DIRECTORS. Notwithstanding any other provisions of this
Amended and Restated Certificate of Incorporation or the bylaws of the
Corporation, any director or the entire Board of Directors of the Corporation
may be removed, at any time, but only for cause or by the affirmative vote of
the holders of not less than 50% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the stockholders
called for that purpose. Notwithstanding the foregoing, whenever the holders of
any one or more series of preferred stock of the Corporation shall have the
right, voting separately as a class, to elect one or more directors of the
Corporation, the preceding provisions of this ARTICLE V shall not apply with
respect to the director or directors elected by such holders of preferred stock.
ARTICLE VI
Stockholder Meetings
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the Corporation. The stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
ARTICLE VII
Limitation of Directors' Liability
A director of the Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the Corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal. If the General Corporation Law of the State of Delaware is amended after
approval by the stockholders of this ARTICLE VII to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
5
<PAGE>
ARTICLE VIII
Indemnification
A. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person (a "Covered Person") who was or
is made is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or,
while a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, enterprise or nonprofit
entity, including service with respect to employee benefit plans, against all
liability and loss suffered and expenses (including attorneys' fees) reasonably
incurred by such Covered Person. Notwithstanding the preceding sentence, except
as otherwise provided in this Article VIII, the Corporation shall be required to
indemnify a Covered Person in connection with a proceeding (or part thereof)
commenced by such Covered Person only if the commencement of such proceeding (or
part thereof) by the Covered person was authorized by the Board of Directors of
the Corporation.
B. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a Covered person in defending any
proceeding in advance of its final disposition, PROVIDED, HOWEVER, that, to the
extent required by law, such payment of expenses in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the Covered Person to repay all amounts advanced if it should be ultimately
determined that the Covered person is not entitled to be indemnified under this
Article VIII or otherwise.
C. CLAIMS. If a claim for indemnification or advancement of expenses
under this Article VIII is not paid in full within thirty days after a written
claim therefor by the Covered Person has been received by the Corporation, the
Covered Person may file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the expense of
prosecuting such claim. In any such action the corporation shall have the burden
of proving that the Covered Person is not entitled to the requested
indemnification or advancement of expenses under applicable law.
D. NONEXCLUSIVITY OF RIGHTS. The rights conferred on any Covered Person
by this Article VIII shall not be exclusive of any other rights which such
Covered Person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
E. OTHER SOURCES. The Corporation's obligation, if any, to indemnify or
to advance expenses to any Covered person who was or is serving at its request
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or nonprofit entity shall be reduced by any
amount such Covered Person may collect as indemnification or advancement of
expenses from such other corporation, partnership, joint venture, trust,
enterprise or non-profit enterprise.
6
<PAGE>
F. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing
provisions of this Article VIII shall not adversely affect any right or
protection hereunder of any Covered Person in respect of any act or omission
occurring prior to the time of such repeal or modification.
G. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES. This Article VIII
shall not limit the right to the Corporation to the extent and in the manner
permitted by law, to indemnify and to advance expenses to persons other than
Covered Persons when and as authorized by appropriate corporate action.
ARTICLE IX
Amendment of Bylaws
In furtherance of and not in limitation of powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by vote of 66.67%
of the Board of Directors.
ARTICLE X
Amendment of Certificate of Incorporation
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding the
foregoing, the provisions set forth in ARTICLES V, VI, VII, VIII, IX and this
ARTICLE X may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders of not less
than 66.67% of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed repeal, alteration, amendment or
rescission is included in the notice of such meeting).
* * *
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Sections 242 and 245 of the General Corporation Law.
7
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chief Executive Officer and the Secretary
of the Corporation this __th day of December, 1999.
------------------------------------------
Chan Suh, Chief Executive Officer
------------------------------------------
Janet Ambrosi Wertman, Secretary
8
<PAGE>
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
AGENCY.COM, LTD.
ARTICLE I
CERTIFICATE OF INCORPORATION AND BYLAWS
Section 1. These By-Laws are subject to the Certificate of
Incorporation of the Corporation, as amended to date. In these By-Laws,
references to law, the Certificate of Incorporation and By-Laws mean the law,
the provisions of the Certificate of Incorporation and the By-Laws as from time
to time in effect.
ARTICLE II
OFFICES
Section 1. The registered office of the Corporation in the State of
Delaware shall be at 1013 Centre Road, in the city of Wilmington, state of
Delaware. The registered agent at such address shall be the Company Corporation.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
<PAGE>
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which they shall elect by a plurality
vote the directors to be elected at such meeting, and transact such other
business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. 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 each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the chairman of the board and shall be called by
the chairman of the board, the president or secretary at the request in writing
of two-thirds of the Board of Directors.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of fifty percent (50%) of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
Section 11. Unless otherwise provided in the Certificate of
Incorporation, the Chairman of the Board may adjourn a meeting of stockholders
from time to time, without notice other than announcement at the meeting. No
notice of the time and place of an adjourned meeting need be given except as
required by law.
Section 12.
A. Annual Meetings of Stockholders
1. Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders only (a) pursuant to the Corporation's notice of
meeting (or any supplement thereto), (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this Section 12, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 12.
2. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of
this Section 12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the date of the preceding year's
annual meeting; provided, however, that if either the date of the annual meeting
is more than thirty (30) days before or after such anniversary date, notice by
the stockholder to be timely must be so delivered not later than the close of
business on the tenth (10th) day following the earlier of the day on which
public announcement of the date of such meeting was first made by the
Corporation and the day on which notice of such meeting was mailed to
stockholders. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such
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person's written consent to being named in the proxy statement as a nominee and
to serving as a director it elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the By-laws of the
Corporation, the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner, (ii) the class and number of shares of capital stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner, (iii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to propose such
business or nomination, and (iv) a representation whether the stockholder or the
beneficial owner, if any, intends or is part of a group which intends (a) to
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt the proposal or elect the nominee and/or (b) otherwise to solicit proxies
from stockholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
3. Notwithstanding anything in the second sentence of paragraph (a)(2)
of this Section 12 to the contrary, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 12 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
B. Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time notice provided for in
this Section 12 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and upon such election, who complies with the
notice procedures set forth in this Section 12. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder entitled to vote in
such election of directors may nominate a person or persons (as the case may
be), for election to such position(s) as specified in the Corporation's notice
of meeting, if the stockholder's notice required by paragraph (A)(2) of this
Section 12 shall be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of business on the one
hundred
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twentieth (120) day prior to such special meeting and not later than the later
of (x) the close of business of the ninetieth (90th) day prior to such special
meeting or (y) the close of business of the tenth (10th) day following the day
on which public announcement is first made of the date of such special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment or
postponement of a special meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above.
C. General.
1. Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to be elected at an
annual or special meeting of stockholders of the Corporation to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 12. Except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws, the chairman of the meeting shall
have the power and duty (a) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 12 (including
whether the stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case may be, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (A)(2)(c)(iv) of this Section 12) and (b)
if any proposed nomination or business was not made or proposed in compliance
with this Section 12, to declare that such nomination shall be disregarded or
that such proposed business shall not be transacted.
2. For purposes of this Section 12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 and 15(d) of the Exchange Act.
3. Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 12 shall be deemed to affect any rights
(i) of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of Preferred Stock to elect directors pursuant to any applicable
provisions of the certificate of incorporation.
Notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, and notwithstanding the fact that a lesser
percentage may be specified by law, the affirmative vote of the holders of at
least 66.67% of the votes which all the stockholders would be entitled to cast
at any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Section 12.
ARTICLE IV
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DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article. The Board shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected and qualified.
The Board of Directors shall be classified in accordance with the provisions of
the Corporation's Certificate of Incorporation. Directors need not be
stockholders.
Section 2. Vacancies and new created directorships resulting from any
increase in the authorized number of directors may be filled by 66.67% of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election at which such director's class is to be elected and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole Board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding 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.
Section 3. The business of the Corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done by the stockholders.
Meetings of the Board of Directors
Section 4. The Board of Directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board. Members of the Board of Directors may participate in
regular or special meetings by means of conference telephone or similar
communications equipment by which all persons participating in the meeting can
hear each other. Such participation shall constitute presence in person.
Section 6. Special meetings of the Board may be called by the president
on two (2) days' notice to each director by mail or forty-eight (48) hours
notice to each director either personally or by telegram; special meetings shall
be called by the president or secretary in like manner and on like notice on the
written request of two directors unless the Board consists of only one director,
in which case special meetings shall be called by the chairman of the board
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or the president or secretary in like manner and on like notice on the written
request of the sole director.
Section 7. At all meetings of the Board a majority of the directors
fixed by Section 1 shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 8. Unless otherwise restricted by the Certificate of
Incorporation of these By-Laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Committees of Directors
Section 10. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws of the Corporation; and,
unless the resolution or the Certificate of Incorporation
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expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
Section 11. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
Compensation of Directors
Section 12. Unless otherwise restricted by the Certificate of
Incorporation or these By-Laws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Director and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Removal of Directors
Section 13. Any director or the entire Board of Directors may be
removed only in accordance with the provisions of the Corporation's Certificate
of Incorporation.
ARTICLE V
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VI
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OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board
of Directors and shall consist of a chief executive officer, chief financial
officer, president, treasurer and a secretary. The Board of Directors may elect
from among its members a Chairman of the Board and a Vice Chairman of the Board.
The Board of Directors may also choose one or more vice-presidents, assistant
secretaries and assistant treasurers. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these By-Laws otherwise
provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a chief executive officer, a
president, a treasurer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
The Chairman of the Board
Section 6. The Chairman of the Board shall be the chief executive
officer of the Corporation and shall preside at all meetings of the stockholders
and directors. The Chairman shall conduct general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the Chairman of the Board, to any other officer or officers of the
Corporation. The Chairman shall have the general powers and duties of
supervision and management usually vested in the office of Chairman of the Board
of a corporation. Such individual shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some officer or agent of the Corporation.
President
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Section 7.
The President shall conduct general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect, subject, however, to the right of the directors
to delegate any specific powers, except such as may be by statute exclusively
conferred on the President, to any other officer or officers of the Corporation.
The President shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation. In the
absence of the Chairman and Vice Chairman of the Board, the President shall
preside at all meetings of the stockholders and the Board of Directors
Such individual shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
The Vice-Presidents
Section 8.
In the absence of the president or in the event of his inability or
refusal to act, the vice-president, if any, (or in the event there be more than
one vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform 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 perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
The Secretary and Assistant Secretary
Section 9.
The secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the proceedings of the meetings
of the Corporation and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
Such individual shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or president,
under whose supervision such individual shall be. Such individual shall have
custody of the corporate seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The Board of Directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary
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and shall perform such other duties and have such other powers as the Board of
directors may from time to time prescribe.
The Treasurer and Assistant Treasurers
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 12. The treasurer shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 13. If required by the Board of Directors, such individual
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by, or in the name of the Corporation by, the
chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the Corporation, certifying the number of shares owned
by him in the Corporation.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative,
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participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions or such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, 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.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
individual were such office, transfer agent or registrar at the date of issue.
Lost Certificates
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Transfer of Stock
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Fixing Record Date
Section 5. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholder or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
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in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Registered Stockholders
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
GENERAL PROVISIONS
Dividends
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Checks
Section 3. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Fiscal Year
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Section 4. The fiscal year of the Corporation shall end on December 31,
unless otherwise fixed by resolution of the Board of Directors.
Seal
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
Section 6. No contract or transaction between the Corporation and one
or more of the directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of the directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
such director or officer is present at or participates in the meeting of the
Board of Directors or a committee of the Board of Directors which authorizes the
contract or transaction or solely because his, her or their votes are counted
for such purpose, if:
(1) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum;
(2) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
AMENDMENTS
These By-Laws may be repealed, altered, amended or rescinded by the
stockholders of the Corporation by vote of not less than 66.67% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered
14
<PAGE>
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose (provided that notice of such proposed repeal, alteration,
amendment or rescission is included in the notice of such meeting). In addition,
in accordance with the Corporation's Certificate of Incorporation, the Board of
Directors may repeal, alter, amend or rescind these By-Laws by vote of 66.67% of
the Board of Directors.
15
<PAGE>
AG
AGENCY.COM LTD.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 008447 10 4
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.001 PER
SHARE, OF
AGENCY.COM LTD.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officer.
/s/ Janet Ambrosi Wertman
EXECUTIVE VICE PRESIDENT
AND SECRETARY
/s/ Chan W. Suh
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish to any shareholder upon request and without charge
a full statement of the designation, relative rights, preferences and
limitations of the shares of each class authorized to be issued and the
designation, relative rights, preferences and limitations of each series of
preferred shares which the Corporation is authorized to issue so far as the same
have been fixed, and the authority of the Board of Directors of the Corporation
to designate and fix the relative rights, preferences and limitations of other
series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
- -D
- -D
- -D
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-D Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
NOTICE:
<PAGE>
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
By
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 5.1
November 24, 1999
AGENCY.COM Ltd.
665 Broadway
New York, NY 10012
Re: AGENCY.COM Ltd. Registration Statement on Form S-1
for 6,785,000 Shares of Common Stock
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to AGENCY.COM Ltd., a Delaware corporation
(the "Company"), in connection with the proposed issuance and sale by the
Company of up to 6,785,000 shares of the Company's Common Stock (the "Shares")
pursuant to the Company's Registration Statement on Form S-1 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements
of Item 16(a) of Form S-1.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Shares. Based on such review, we are of the opinion that the Shares have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
Exhibit 10.18
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and
entered into as of November 23, 1999, by and among AGENCY.COM LTD., a Delaware
corporation (the "Company"), and OMNICOM GROUP INC., a New York corporation (the
"Stockholder").
RECITALS
A. The Stockholder owns (together with its affiliates) 12,528,278
shares of Common Stock (the "Currently Owned Shares") and warrants (the
"Warrants") to acquire an additional 6,000,000 shares of Common Stock (the
"Warrant Shares"). The Currently Owned Shares, the Warrant Shares and any Other
Equity Securities from time to time owned by the Stockholder or any of its
Affiliates are collectively referred to herein as the "Shares."
B. The Company has agreed to provide certain registration rights with
respect to the Registrable Securities on the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, the parties hereto hereby agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, in addition to the
terms defined elsewhere herein, the following terms have the following meanings
when used herein with initial capital letters:
"AFFILIATE" has the meaning given to that term in Rule 405 under the
Securities Act.
"COMMON STOCK" means the common stock of the Company.
"OTHER EQUITY SECURITIES" means any shares of capital stock of the
Company and any other securities issued by the Company that are exercisable to
purchase, convertible into or exchangeable for shares of capital stock of the
Company that are owned of record or beneficially by the Stockholder or any of
its owned of record or beneficially by the Stockholder or any of its Affiliates,
whether acquired prior to, on or after the date hereof.
"PROSPECTUS" means the prospectus included in any Registration
Statement (including without limitation a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to such
prospectus, including without limitation post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such prospectus.
"REGISTRABLE SECURITIES" means the Shares that are issued to the
Stockholder, any of its Affiliates, and any other securities issued to any of
the foregoing upon any stock split, stock
<PAGE>
dividend, recapitalization or other distribution with respect to, conversion or
exchange of or in replacement of such Shares or other securities, until, in the
case of any such security, (i) it is effectively registered under the Securities
Act and disposed of in accordance with the Registration Statement covering it,
(ii) it is saleable by the holder thereof pursuant to Rule 144 (k) without any
limitation at to volume, or (iii) it is distributed to the public pursuant to
Rule 144.
"REGISTRATION STATEMENT" means any registration statement under the
Securities Act that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including without limitation the related
Prospectus, all amendments and supplements to such registration statement
(including post-effective amendments), all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"RULE 144" means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SPECIAL COUNSEL" has the meaning set forth in Section 7 (b) hereof.
"UNDERWRITTEN REGISTRATION" OR "UNDERWRITTEN OFFERING" means a
distribution, registered pursuant to the Securities Act in which securities of
the Company are sold to an underwriter for reoffering to the public.
2. HOLDERS OF REGISTRABLE SECURITIES. Whenever a number or percentage
of Registrable Securities is to be determined hereunder, each then-outstanding
other Equity Security that is exercisable to purchase, convertible into or
exchangeable for shares of capital stock of the Company will be deemed to be
equal to the number of shares of Common Stock for which such Other Equity
Security (or the security into which such Other Equity Security is then
convertible) is then so purchasable, convertible or exercisable.
3. DEMAND REGISTRATION. (a) REQUESTS FOR REGISTRATION. At any time and
from time to time after one hundred and eighty days (180) after the date on
which a registration statement filed by the Company becomes effective, the
holders of Registrable Securities constituting at least 10% of the total number
of Registrable Securities then outstanding will have the right by written notice
delivered to the Company (a "Demand Notice") to require the Company to register
(a "Demand Registration") under and in accordance with the provisions of the
Securities Act the number of Registrable Securities requested to be so
registered (but not less than 10% of the total number of Registrable Securities
then outstanding); PROVIDED, HOWEVER, that no Demand Notice may be given prior
to 60 calendar days after the effective date of the immediately preceding Demand
Registration. The number of Demand Registrations pursuant to this Section 3 (a)
may not exceed three; PROVIDED, HOWEVER, that (i) in determining the number of
Demand Registrations to which the holders of Registrable Securities are
entitled, there shall be excluded (A) any Demand Registration that is an
underwritten registration if the managing underwriter or underwriters have
advised the holders of Registrable Securities that the total number of
Registrable Securities requested to be included therein exceeds the number of
Registrable Securities that can be sold in such offering in accordance with the
provisions of this Agreement
2
<PAGE>
without materially and adversely affecting the success of such offering, (B) any
Demand Registration that does not become effective or is not maintained
effective for the period required pursuant to Section 3 (b) hereof, unless in
the case of this clause (C) such Demand Registration does not become effective
after being filed by the Company solely by reason of the refusal to proceed by
the holders of Registrable Securities unless (1) the refusal to proceed is based
upon the advice of counsel relating to a matter with respect to the Company or
(2) the holders of the Registrable Securities elect to pay all Registration
Expenses in connection with such Demand Registration, (D) any Demand
Registration in connection with which any other stockholder of the Company
exercises a right of first refusal which it may otherwise have and purchases all
the stock registered and to be sold pursuant to the Demand Registration, and (E)
any Demand Registration as to which the Company exercises any rights under
Sections 3 (d) or 4 (b) hereof and (ii) in connection with the issuance of more
than 10% of the then-outstanding Common Stock in any acquisition, business
combination or other transaction (an "Acquisition"), any holder of Registerable
Securities (regardless of the amount of Registerable Securities so held) may by
notice given to the Company within 30 calendar days after the first public
announcement by the Company that it has entered into a definitive agreement
providing for such Acquisition require that the Company register for resale to
the public pursuant to any Registration Statement for the issuance of securities
in such Acquisition the number of Registerable Securities requested to be so
registered (and such registration will not be deemed to be one of the five
demand registrations provided for herein).
(b) FILING AND EFFECTIVENESS. The Company will file a Registration
Statement relating to any Demand Registration within 30 calendar days, and will
use its best efforts to cause the same to be declared effective by the SEC
within 90 calendar days, of the date on which the holders of Registrable
Securities first give the Demand Notice required by Section 3 (a) hereof with
respect to such Demand Registration. All requests made pursuant to this Section
3 will specify the number of Registrable Securities to be registered and will
also specify the intended methods of disposition thereof; PROVIDED, that if the
holder demanding such registration specifies one particular type of underwritten
offering, such method of disposition shall be type of underwritten offering or a
series of such underwritten offerings (as such demanding holders of Registrable
Securities may elect) during the period which the Registration Statement is
effective. If any Demand Registration is requested to be effected as a "shelf"
registration by the holders of Registrable Securities demanding such Demand
Registration or otherwise contemplated by Rule 415 under the Securities Act, the
Company will keep the Registration Statement filed in respect thereof effective
for such period as may be requested by the holder demanding such registration,
but will not be required to keep the Registration Statement effective in respect
of any single Demand Registration for longer than 6 months from the date on
which the SEC declares such Registration Statement effective (subject to
extension pursuant to Sections 5 and 6 hereof) or such shorter period that will
terminate when all Registrable Securities covered by such Registration Statement
have been sold pursuant to such Registration Statement. Within five calendar
days after receipt of such Demand Notice, the Company will serve written notice
thereof (the "Notice") to all other holders of Registrable Securities and will ,
subject to the provisions of Section 3 (c) hereof, include in such registration
all Registrable Securities with respect to which the Company receives written
requests for inclusion therein within 15 calendar days after the receipt of the
Notice by the applicable holder. The holders of Registrable Securities will be
permitted to withdraw Registrable Securities from a Registration at any time
prior to the effective date of such Registration provided that the remaining
number of Registrable Securities
3
<PAGE>
subject to a Demand Notice is at least 10% of the total number of Registrable
Securities then outstanding.
(c) PRIORITY ON DEMAND REGISTRATION. With respect to any Demand
Registration of Registrable Securities to be sold in one or more firm commitment
underwritten offerings, the Company may also provide written notice to holders
of its equity securities (other than Registrable Securities), if any, who have
piggyback registration rights with respect thereto and permit all such holders
who request to be included in the Demand Registration to include any or all
equity securities held by such holders in such Demand Registration on the same
terms and conditions as the Registrable Securities. Notwithstanding the
foregoing, if the managing underwriter or underwriters of the offering to which
such Demand Registration relates advise the holders of Registrable Securities
that the total amount of Registrable Securities and securities that such equity
security holders intend to include in such Demand Registration is in the
aggregate such as to adversely affect the success of such offering, then (i)
first, the amount of securities to be offered for the account of the holders of
such other equity securities (other than Registrable Securities until two
registrations have been effected to which this clause (i) applied) will be
reduced, to zero if necessary ( PRO RATA among such holders on the basis of the
amount of such other securities to be included therein by each such holder), and
(ii) second, the number of Registrable Securities included in such Demand
Registration will, if necessary, be reduced and there will be included in such
firm commitment underwritten offering only the number of Registrable Securities
and, after clause (i) ceases to be applicable, such other securities that, in
the opinion of such managing underwriter or underwriters, can be sold without
adversely affecting the success of such offering, allocated PRO RATA among the
holders of Registrable Securities and, after clause (i) ceases to be applicable,
the holders of such other securities on the basis of the amount of Registrable
Securities and, when applicable, other securities to be included therein by each
such holder.
(d) POSTPONEMENT OF DEMAND REGISTRATION. The Company will be entitled
to postpone the filing period (or suspend the effectiveness) of any Demand
Registration for a reasonable period of time not in excess of 90 calendar days,
if the Company determines, in the good faith exercise of its reasonable business
judgment, that such registration and offering would materially interfere with
BONA FIDE financing plans of the Company approved by its Board of Directors or
would require disclosure of information, the premature disclosure of which could
materially and adversely affect the Company. If the Company postpones the filing
of a Registration Statement, it will promptly notify the holders of Registrable
Securities in writing of the postponement, the reasons therefor and the proposed
length of the postponement and promptly notify such holders in writing when the
events or circumstances permitting such postponement have ended. The rights
provided hereunder may be exercised on not more than three occasions and in no
event more than once in any 12-month period, notwithstanding any other provision
hereto.
4. PIGGYBACK REGISTRATION. (a) RIGHT TO PIGGYBACK. If at any time the
Company proposes to file a registration statement under the Securities Act with
respect to an offering of any class of equity securities (other than a
registration statement (i) on Form S-4, S-8 or any successor form thereto or
(ii) filed solely in connection with an offering made solely to employees of the
Company), whether or not for its own account, then the Company will give written
notice of such proposed filing to the holders of Registrable Securities
promptly, but in
4
<PAGE>
any event at least 15 calendar days before the anticipated filing date. Such
notice will offer such holders the opportunity to register such amount of
Registrable Securities as each such holder may request (a "Piggyback
Registration"). Subject to Section 4 (b) hereof, the Company will include in
each such Piggyback Registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein. The
holders of Registrable Securities will be permitted to withdraw all or part of
the Registrable Securities from a Piggyback Registration at any time prior to
the effective date of such Piggyback Registration.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company will cause the
managing underwriter or underwriters of a proposed underwritten offering to
permit holders of Registrable Securities requested to be included in the
registration for such offering to include therein all such Registrable
Securities requested to be so included on the same terms and conditions as any
similar securities, if any, of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering deliver
an opinion to the holders of Registrable Securities to the effect that the total
amount of securities which such holders, the Company and any other persons
having rights to participate in such registration propose to include in such
offering is such as to adversely affect the success of such offering, then:
(i) if such registration is a primary registration on behalf of
the Company, the amount of securities to be included therein for the
account of all persons other than the Company will be reduced (to zero
if necessary) PRO RATA in proportion to the respective amounts of
securities requested to be included --- ---- therein to the extent
necessary to reduce the total amount of securities to be included in
such underwriter or underwriters; PROVIDED, HOWEVER, that the Company
may exercise the right under this -------- ------- Section 4 (b) on not
more than three occasions (after which, any prorations provided for
herein will be calculated on a pro rata basis including in such
calculation the number of Shares sought to be sold by the Company); and
(ii) if such registration is an underwritten secondary
registration on behalf of holders of securities of the Company other
than the Company or holders of Registrable Securities, then the
priority provisions applicable to demand registrations under Section 3
(c) will apply.
(c) REGISTRATION OF SECURITIES OTHER THAN REGISTRABLE SECURITIES.
Without the written consent of the holders of a majority of then-outstanding
Registrable Securities, the Company will not grant to any person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject to the prior rights of
the holders of Registrable Securities set forth herein and, if exercised, would
not otherwise conflict or be inconsistent with the provisions of, this
Agreement.
5. RESTRICTIONS ON SALE BY HOLDERS OF REGISTRABLE SECURITIES. Each
holder of Registrable Securities whose Registrable Securities are covered by a
Registration Statement filed pursuant to Section 3 or Section 4 hereof agrees,
and will confirm such agreement in writing if such holder is so requested
(pursuant to a timely written notice) by the managing underwriter or
underwriters in an underwritten offering, not to effect any public sale or
distribution of any of the Company's equity securities (except as part of such
underwritten offering), including a sale pursuant to Rule 144, during the
10-calendar day period prior to, and during the 180-calendar day period (or such
5
<PAGE>
shorter period as to which the managing underwriter or underwriters may require
of any officer, director or other stockholder to be bound by any similar
limitation in connection with any underwritten public offering) beginning on,
the closing date of each underwritten offering made pursuant to such
Registration Statement.
6. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Sections 3 and 4 hereof, the Company will
use its reasonable commercial efforts to effect such registrations to permit the
sale of such Registrable Securities in accordance with the intended method or
methods of disposition thereof, and pursuant thereto the Company will as use its
reasonable commercial efforts to expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof in
accordance with the intended method or methods of distribution thereof , and
cause each such Registration Statement to become effective and remain effective
as provided herein; PROVIDED, HOWEVER, that before filing a Registration
Statement or Prospectus or any amendments or supplements thereto (including
documents that would be incorporated or deemed to be incorporated therein by
reference), the Company will furnish to the holders of the Registrable
Securities covered by such Registration Statement, the Special Counsel and the
managing underwriters, if any, copies of all such documents proposed to be
filed, and will provide such holders, the Special Counsel and such underwriters
a reasonable period of time to review and comment on such documents. The Company
will not file any such Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (including such documents which, upon
filing, would or would be incorporated or deemed to be incorporated by reference
therein) to which the holders of a majority of the Registrable Securities
covered by such Registration Statement, the Special Counsel or the managing
underwriter, if any, shall reasonably object on a timely basis;
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 3; cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
the Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
as so amended or to such Prospectus as so supplemented;
(c) Notify the selling holders of Registrable Securities, the Special
Counsel and the managing underwriters, if any, promptly, and (if requested by
any such person) confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any other federal
or state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or
6
<PAGE>
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the occurrence of any event which makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or which requires the making of any changes in a Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, in the case of the Prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated or is necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate;
(d) Use every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment;
(e) If requested by the managing underwriters, if any, or the holders
of a majority of the Registrable Securities being registered, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such holders reasonably
agree should be included therein as may be required by applicable law and (ii)
make all required filings of such Prospectus supplement or such post-effective
amendment as soon as practicable after the Company has received notification of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment; PROVIDED, HOWEVER, that the Company will not be required to take any
actions under this Section 6 (e) that are not, in the opinion of counsel for the
Company, in compliance with applicable law;
(f) Furnish to each selling holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at least
one conformed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements (but excluding schedules, all
documents incorporated or deemed incorporated therein by reference and all
exhibits, unless requested in writing by such holder, counsel or underwriter);
(g) Deliver to each selling holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such persons reasonably may request; and the Company hereby consents to the
use of such Prospectus or each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request; and the Company
hereby consents to the use of such Prospectus or each amendment or supplement
thereto by each of the selling holders of Registrable Securities and the
underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto;
(h) Prior to any public offering of Registrable Securities, to register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their
7
<PAGE>
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdiction of the Registrable
Securities covered by the applicable Registration Statement; PROVIDED, HOWEVER
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction in which it is not then so qualified or (ii) take any action
that would subject it to general service of process in any such jurisdiction in
which it is not then so subject;
(i) Cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates will not bear any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters, if any, shall request at least two business days prior to
any sale of Registrable Securities to the underwriters;
(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States except as may be
required solely as a consequence of the nature of such selling holder's
business, in which case the Company will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(k) Upon the occurrence of any event contemplated by Section 6 (c) (vi)
or 6 (c) (vii) hereof, prepare a supplement or post-effective amendment to each
Registration Statement or a supplement to the related Prospectus or any document
incorporated therein by reference or file any other required document so that as
thereafter delivered to the Stockholders of the Registrable Securities being
sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(l) Use its best efforts to cause all Registrable Securities covered by
such Registration Statement to be listed on each securities exchange, if any, on
which similar securities issued by the Company are then listed;
(m) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other actions in
connection therewith (including those reasonably requested by the holders of a
majority of the Registrable Securities being sold or, in the event of an
underwritten offering, those requested by the managing underwriters) in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, if the registration is an underwritten registration, (i) make
such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, with respect to the business of the
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Company and its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated by reference, if any,
in each case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to such selling holders of
Registrable Securities and each of the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such holders and
underwriters, including without limitation the matters referred to in clause (i)
above; (iii) use its reasonable commercial efforts to obtain "comfort" letters
and updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data is, or is required to be, included in
the Registration Statement), addressed to each of the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "comfort" letters in connection with underwritten offerings; and (iv)
deliver such documents and certificates as may reasonably be requested by the
holders of a majority of the Registrable Securities being sold, the Special
Counsel and the managing underwriters, if any, to evidence the continued
validity of the representations and warranties of the Company and its
subsidiaries made pursuant to clause (i) above and to evidence compliance with
any customary conditions contained in the underwriting agreement or similar
agreement entered into by the Company. The foregoing actions will be taken in
connection with each closing under such underwriting or similar agreement as and
to the extent required thereunder;
(n) Make available for inspection by a representative of the holders of
Registrable Securities being sold, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant retained
by such selling holders or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; PROVIDED, HOWEVER, that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such records, information or documents will be kept
confidential by such persons unless (i) such records, information or documents
are in the public domain or otherwise publicly available, (ii) disclosure of
such records, information or documents is required by court or administrative
order or (iii) disclosure of such records, information or documents, in the
reasonable opinion of counsel to the Company, is otherwise required by law
(including without limitation pursuant to the requirements of the Securities
Act);
(o) In connection with an underwritten offering, cause the officers of
the Company to participate in, and assist in the preparation of, any "road show"
presentation to potential investors as the managing underwriter may determine;
and
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its security holders earning statements satisfying
the provisions of Section 11(a) of the Securities
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Act and Rule 158 thereunder (or any similar rule promulgated under the
Securities Act) no later than 45 calendar days after the end of any 12-month
period (or 90 calendar days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts underwritten offering, and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company, after the effective date of a Registration Statement, which statements
shall cover said 12-month period.
The Company may require each seller of Registrable Securities as to
which any registration is being effect to furnish to the Company such
information regarding the distribution of such Registrable Securities
as the Company may, from time to time, reasonably request in writing
and the Company may exclude from such registration the Registrable
Securities of any seller who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
Each holder of Registrable Securities will be deemed to have agreed by
virtue of its acquisition of such Registrable Securities that, upon
receipt of any notice from the Company of the occurrence of any event
of the kind described in Section 6(c)(ii), 6(c)(iii), 6(c)(v), 6(c)(vi)
or 6(c)(vii) hereof, such holder shall forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(k)
hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such
Prospectus. In the event the Company shall give any such notice, the
time period prescribed in Section 3(a) hereof will be extended by the
number of days during the time period from and including the date of
the giving of such notice to and including the date when each seller of
Registrable Securities covered by such Registration Statement shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof or (y) the Advice.
7. REGISTRATION EXPENSES. (a) All Registration Expenses will be borne
by the Company whether or not any of the Registration Statements become
effective. "Registration Expenses" will mean all fees and expenses incident to
the performance of or compliance with this Agreement by the Company, including
without limitation (i) all registration and filing fees (including without
limitation fees and expenses (x) with respect to filings required to be made
with the National Association of Securities Dealers, Inc. and (y) in compliance
with securities or "blue sky" laws (including without limitation reasonable fees
and disbursements of counsel for the underwriters or selling holders in
connection with "blue sky" qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
holders of a majority of the Registrable Securities being sold may designate)),
(ii) printing expenses (including printing of prospectuses if requested by the
holders of a majority of the Registrable Securities included in any Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) reasonable
fees and disbursements of counsel for the Company and the Special Counsel for
the sellers of the Registrable Securities, (v) fees and disbursements of all
independent certified public accountants referred to in Section 6(m)(iii) hereof
(including the expenses of any special audit and "comfort" letters required by
or incident to such performance), (vi) Securities Act liability insurance if the
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Company so desires such insurance, and (vii) fees and expenses of all other
persons retained by the Company, PROVIDED, HOWEVER, that Registration Expenses
will not include fees and expenses of counsel for the holders of Registrable
Securities other than as provided herein nor shall it include underwriting
discounts and commissions relating to the offer and sale of Registrable
Securities, all of which shall be borne by such holders. In addition, the
Company will pay its internal expenses (including without limitation all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange on which similar securities issued by the Company are
then listed and the fees and expenses of any person, including special experts,
retained by the Company.
(b) In connection with any Demand Registration of Piggy back
Registration hereunder, the Company will reimburse the holders of the
Registrable Securities being registered in such registration for the reasonable
fees and disbursements of not more than one counsel (the "Special Counsel"),
together with appropriate local counsel, chosen by the holders of a majority of
the Registrable Securities being registered.
8. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. The Company
will, without limitation as to time, indemnify and hold harmless, to the fullest
extent permitted by law, each holder of Registrable Securities registered
pursuant to this Agreement, the officers, directors and agents and employees of
each of them, each person who controls such holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of any such controlling person, from
and against all losses, claims, damages, liabilities, costs (including without
limitation the costs of investigation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or based upon any untrue
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or form of Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by such holder expressly for use therein; PROVIDED,
HOWEVER, that the Company will not be liable to any holder of Registrable
Securities to the extent that any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if either (A) (i) such holder failed to send
or deliver a copy of the Prospectus with or prior to the delivery of written
confirmation of the sale by such holder of a Registrable Security to the person
asserting the claim from which such Losses arise and (ii) the Prospectus would
have completely corrected such untrue statement or alleged untrue statement or
such omission or alleged omission; or (B) such untrue statement or alleged
untrue statement or such omission or alleged omission is completely corrected in
an amendment or supplement to the Prospectus previously furnished by or on
behalf of the Company with copies of the Prospectus as so amended or
supplemented, and such holder thereafter fails to deliver such Prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting the claim from which such Losses arise.
The rights of any holder of Registrable Securities hereunder will not
be exclusive of the rights of any holder of Registrable Securities under any
other agreement or instrument of any
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<PAGE>
holder of Registrable Securities to which the Company is a party. Nothing in
such other agreement or instrument will be interpreted as limiting or otherwise
adversely affecting a holder of Registrable Securities hereunder and nothing in
this Agreement will be interpreted as limiting or otherwise adversely affecting
the holder of Registrable Securities' rights under any such other agreement or
instrument, PROVIDED, HOWEVER, that no indemnified party will be entitled
hereunder to recover more than its indemnified Losses.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection
with any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities will furnish to the Company
in writing such information as the Company reasonably requests for use in
connection with any Registration Statement or Prospectus and will severally
indemnify, to the fullest extent permitted by law, the Company, its directors
and officers, agents and employees, each person who controls the Company (within
the meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
persons, from and against all Losses arising out of or based upon any untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus or arising out of or based upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission was relied upon by the Company in the preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event will
the liability of any selling holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses and underwriter's discounts and commissions) received by such holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any person shall become
entitled to indemnify hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any action or
proceeding with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; PROVIDED, HOWEVER, that the failure to so notify
the indemnifying party will not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such failure. All fees and expenses (including any
fees and expenses incurred in connection with investigating or preparing to
defend such action or proceeding) will be paid to the indemnified party, as
incurred, within five calendar days of written notice thereof to the
indemnifying party (regardless of whether it is ultimately determined that an
indemnified party is not entitled to indemnification hereunder). The
indemnifying party will not consent to entry of any judgment or enter into any
settlement or otherwise seek to terminate any action or proceeding in which any
indemnified party is or could be a party and as to which indemnification or
contribution could be sought by such indemnified party under this Section 8,
unless such judgment, settlement or other termination includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance satisfactory to the
indemnified party, from all liability in respect of such claim or litigation for
which such indemnified party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this Section 8
is unavailable to an indemnified party under Section 8(a) or 8(b) hereof in
respect of any Losses or is insufficient to hold such indemnified party
harmless, then each applicable indemnifying party, in
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<PAGE>
lieu of indemnifying such indemnifying party, will, jointly and severally,
contribute to the amount paid or payable by such indemnified party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or indemnifying parties, one the one hand, and
such indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
or indemnifying parties, on the one hand, and such indemnified party, on the
other hand, will be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or related to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses will
be deemed to include any legal or other fees or expenses incurred by such party
in connection with any action or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provision of this Section
8(d), an indemnifying party that is a selling holder of Registrable
Securities will not be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities
sold by such indemnifying party and distributed to the public exceeds
the amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
The provisions of this Section 8 will survive so long as Registrable
Securities remain outstanding, notwithstanding any transfer of the
Registrable Securities by any holder thereof or any termination of this
Agreement.
9. RULES 144 AND 144A. The Company will file the reports required to be
filed by it under the Securities Act and the Exchange Act in a timely manner,
and will cooperate with any holder of Registrable Securities (including without
limitation by making such representations as any such holder may reasonably
request), all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitations of the exemptions provided by Rules 144 and 144A (including
without limitation the requirements of Rule 144A(d)(4)). Upon the request of any
holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such filing requirements.
10. UNDERWRITTEN REGISTRATIONS. If any of the Registrable Securities
covered by any Demand Registration are to be sold in an underwritten offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Company; provided, that such
investment banker or manager shall be reasonably satisfactory to the holder of
Registrable Securities that gave the Demand Notice with respect to such
offering.
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<PAGE>
If any Piggyback Registration is an underwritten offering, the Company will have
the right to select the investment banker or investment bankers and managers to
administer the offering.
11. MISCELLANEOUS. (a) REMEDIES. In the event of a breach by the
Company of its obligations under this Agreement, each holder of Registrable
Securities, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it will
waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, and will not, on or after the date hereof, enter into any agreement with
respect to its securities which is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of holders of a
majority of the then-outstanding Registrable Securities. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by holders of at least 51% of the
Registrable Securities being sold by such holders; PROVIDED, HOWEVER, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing and will be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by fax, or (iii)
one business day after being deposited with a reputable next-day courier,
postage prepaid, to the parties as follows:
(1) If to the Company:
AGENCY.COM LTD.
665 Broadway
New York, New York 10012
Attention: Chief Financial Officer
With a copy to:
AGENCY.COM LTD.
1111 Chautauqua Boulevard
Pacific Palisades, California 90272
Attention: General Counsel
14
<PAGE>
and thereafter at such other address, notice of which is given to the
holders of Registrable Securities in accordance with the provisions of
this Section 11(d);
(2) If to the Stockholder:
Communicade Inc.
c/o Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Attention: Chief Financial Officer
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
32nd Floor
New York, New York 10022
Attention: Robert A. Profusek
and thereafter at such other address, notice of which is given to the
holders of Registrable Securities in accordance with the provisions of
this Section 11(d); and
(3) if to any other holder of Registrable Securities, at
the most current address given by such holder to the
Company in accordance with the provisions of this
Section 11(d).
(e) OWNER OF REGISTRABLE SECURITIES. The Company will maintain, or will
cause its registrar and transfer agent to maintain, a stock book with respect to
the Common Stock, in which all transfers of Registrable Securities of which the
Company has received notice will be recorded. The Company may deem and treat the
person in whose name Registrable Securities are registered in the stock book of
the Company as the owner thereof for all purposes, including without limitation
the giving of notices under this Agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by any
party hereto without the prior written consent of the other party hereto.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will be deemed to be an original and all of which taken
together will constitute one and the same instrument.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES OF SUCH STATE.
15
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(j) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein will remain in full force and effect and will in
no way be affected, impaired or invalidated, and the parties hereto will use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(k) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the registration rights granted by the Company with respect to the
Registrable Securities. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such registration rights.
(l) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, or where any provision hereof is validly asserted as a defense,
the prevailing party, as determined by the court, will be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[Remainder of the page intentionally blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
AGENCY.COM LTD.
By: _____________________________________
Name:____________________________________
Title:___________________________________
OMNICOM GROUP INC.
By: _____________________________________
Name:____________________________________
Title:___________________________________
17
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Exhibit 10.20
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
AGENCY.COM LTD.,
ITT ACQUISITION INC.
INTERACTIVE TRAFFIC INC.,
and
THE STOCKHOLDERS LISTED ON ANNEX I
- --------------------------------------------------------------------------------
Dated as of October 21, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I ................................................................... 2
THE MERGER .................................................................. 2
Section 1.1 The Merger ................................................... 2
Section 1.2 Effective Time ............................................... 2
Section 1.3 Certificate of Incorporation and By-Laws of the
Surviving Corporation ........................................ 2
1.3.1 Certificate of Incorporation ................................. 2
1.3.2 By-Laws ...................................................... 2
Section 1.4 Directors and Officers of the Surviving Corporation .......... 3
1.4.1 Directors of the Surviving Corporation ....................... 3
1.4.2 Officers of the Surviving Corporation ........................ 3
ARTICLE II .................................................................. 3
CONVERSION OF STOCK AND COMMON STOCK ........................................ 3
Section 2.1 Definitions .................................................. 3
Section 2.2 Conversion of Shares ......................................... 4
2.2.1 MergerSub Common Stock ....................................... 4
2.2.2 Preferred Stock .............................................. 4
2.2.3 Company Common and Preferred Stock ........................... 5
2.2.4 Calculation of Revenues and PBT .............................. 7
2.2.5 Accounting/Dispute Procedures ................................ 8
2.2.6 Examination of Books and Records ............................. 8
2.2.78 Earn-Out Consideration ....................................... 9
2.2.8 Acceleration of Certain Payments ............................. 9
2.2.9 Company Treasury Stock ....................................... 9
Section 2.3 Stock Options ................................................ 9
2.3.1 Conversion of Outstanding Options ............................ 9
2.3.2 Agency Action ................................................ 10
Section 2.4 Surrender of Stock Certificates .............................. 10
2.4.1 Preferred Stock .............................................. 10
2.4.2 Company Common and Preferred Stock ........................... 11
2.4.3 Additional Cash Payment ...................................... 11
Section 2.5 Tangible Net Worth Adjustment ................................ 11
2.5.1 Payment of Reconciled Purchase Price ......................... 11
2.5.2 Other Definitions ............................................ 12
2.5.3 Accounting Procedures ........................................ 12
2.5.4 Examination of Books and Records ............................. 13
Section 2.6 Payment of the Purchase Price ................................ 13
2.6.1 Purchase Price ............................................... 13
<PAGE>
2.6.2 No Fractional Shares ......................................... 14
Section 2.7 Indemnity Escrow ............................................. 14
Section 2.8 Closing ...................................................... 14
Section 2.9 Appointment of Representative ................................ 14
2.9.1 Appointment of Representative ................................ 14
2.9.2 Indemnification of Representative ............................ 15
ARTICLE III ................................................................. 15
REPRESENTATIONS OF THE STOCKHOLDERS AND THE COMPANY ......................... 15
Section 3.1 Execution and Validity of Agreements; Restrictive Documents .. 15
3.1.1 Execution and Validity ....................................... 15
3.1.2 No Restrictions .............................................. 16
3.1.3 Non-Contravention ............................................ 16
3.1.4 Approvals and Consents ....................................... 16
Section 3.2 Execution and Validity of Agreement; Existence and
Good Standing ................................................ 17
Section 3.3 Subsidiaries and Investments; Capital Stock .................. 17
3.3.1 Subsidiaries and Investments ................................. 17
3.3.2 Capital Stock; Options ....................................... 17
Section 3.4 Financial Statements and No Material Changes ................. 18
Section 3.5 Books and Records ............................................ 18
Section 3.6 Title to Properties; Encumbrances ............................ 18
Section 3.7 Real Property ................................................ 19
3.7.1 Owned Real Property .......................................... 19
3.7.2 Leased Real Property ......................................... 19
Section 3.8 Contracts .................................................... 20
Section 3.9 Non-Contravention; Approvals and Consents .................... 21
3.9.1 Non-Contravention ............................................ 21
3.9.2 Approvals and Consents ....................................... 21
Section 3.10 Litigation ................................................... 21
Section 3.11 Taxes ........................................................ 22
Section 3.12 Liabilities .................................................. 23
Section 3.13 Insurance .................................................... 23
Section 3.14 Intellectual Properties ...................................... 23
3.14.1 Definitions .................................................. 23
3.14.2 Registrations ................................................ 24
Section 3.15 Compliance with Laws; Licenses and Permits ................... 24
3.15.1 Compliance ................................................... 24
3.15.2 Licenses ..................................................... 25
Section 3.16 Client Relations ............................................. 25
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable ....... 25
Section 3.18 Employment Relations ......................................... 26
Section 3.19 Employee Benefit Matters ..................................... 26
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3.19.1 List of Plans ................................................ 26
3.19.2 Severance .................................................... 27
3.19.3 Multi-Employer Plans ......................................... 27
3.19.4 Welfare Benefit Plans ........................................ 27
3.19.5 Administrative Compliance .................................... 27
3.19.6 Tax-Qualification ............................................ 28
3.19.7 Funding; Excise Taxes ........................................ 28
3.19.8 Tax Deductions ............................................... 28
Section 3.20 Interests in Customers, Suppliers, Etc........................ 29
Section 3.21 Bank Accounts; Powers of Attorney; Authority of
Representative ............................................... 29
Section 3.22 Compensation of Employees .................................... 29
Section 3.23 No Changes Since the Balance Sheet Date ...................... 30
Section 3.24 Corporate Controls ........................................... 31
Section 3.25 Disclosure ................................................... 31
Section 3.26 Brokers ...................................................... 31
Section 3.27 Year 2000 Compliant .......................................... 32
3.27.1 Definition ................................................... 32
3.27.2 Computer Systems ............................................. 32
3.27.3 Other Products and Services .................................. 32
Section 3.28 Copies of Documents .......................................... 33
ARTICLE IV .................................................................. 33
REPRESENTATIONS OF MERGERSUB AND PARENT ..................................... 33
Section 4.1 Existence and Good Standing .................................. 33
Section 4.2 Execution and Validity of Agreements ......................... 33
Section 4.3 Non-Contravention; Approvals and Consents .................... 34
4.3.1 Non-Contravention ............................................ 34
4.3.2 Approvals and Consents ....................................... 34
Section 4.4 Agency Shares ................................................ 34
Section 4.5 MergerSub .................................................... 34
Section 4.6 Brokers ...................................................... 35
Section 4.7 Litigation ................................................... 35
Section 4.8 Disclosure ................................................... 35
ARTICLE V ................................................................... 35
ACTIONS AT CLOSING BY THE COMPANY AND THE STOCKHOLDERS ...................... 35
Section 5.1 Required Approvals and Consents .............................. 35
Section 5.2 Regulatory Consents and Approvals ............................ 36
Section 5.3 Good Standing Certificates ................................... 36
Section 5.4 Certified Resolutions ........................................ 36
Section 5.5 Employment Agreements ........................................ 36
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Section 5.6 Non-Solicitation/Non-Servicing Agreement ..................... 36
Section 5.7 Opinion of Counsel ........................................... 36
Section 5.8 Investment Representation Certificate ........................ 37
Section 5.9 Lockup Agreement ............................................. 37
Section 5.10 Repayment of Loans ........................................... 37
Section 5.11 Appointment of Representative ................................ 37
Section 5.12 Optionholder Forbearance Agreements .......................... 37
Section 5.13 Indemnity and Escrow Agreement ............................... 37
Section 5.14 Proceedings .................................................. 37
ARTICLE VI .................................................................. 37
ACTIONS AT CLOSING BY PARENT AND MERGERSUB .................................. 37
Section 6.1 Required Approvals, Notices and Consents ..................... 38
Section 6.2 Regulatory Consents and Approvals ............................ 38
Section 6.3 Certified Resolutions ........................................ 38
Section 6.4 Opinion of Counsel ........................................... 38
Section 6.5 Employment Agreements ........................................ 38
Section 6.6 Non-Solicitation/Non-Servicing Agreements .................... 38
Section 6.7 Agency.Com Options ........................................... 38
Section 6.8 Indemnity and Escrow Agreement ............................... 39
Section 6.9 Proceedings .................................................. 39
ARTICLE VII ................................................................. 39
OTHER AGREEMENTS ............................................................ 39
Section 7.1 Separate Subsidiary .......................................... 39
Section 7.2 Management of the Surviving Corporation ...................... 39
Section 7.3 Private Placement and Registration and Listing ............... 39
Section 7.4 Release of Stockholder Guarantees ............................ 39
Section 7.5 Autonomy ..................................................... 40
ARTICLE VIII ................................................................ 42
SURVIVAL; INDEMNITY ......................................................... 42
Section 8.1 Survival ..................................................... 42
Section 8.2 Obligation of the Company and the Stockholders to Indemnify .. 42
8.2.1 General Indemnity ............................................ 42
8.2.2 Special Indemnity ............................................ 43
8.2.3 Clarification of the term .................................... 43
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Section 8.3 Obligation of Parent to Indemnify ............................ 44
Section 8.4 Indemnification Procedure for Third Party Claims ............. 44
Section 8.6 Limitations on and Other Matters Regarding Indemnification ... 46
8.6.1 Indemnity Cushion and Cap .................................... 46
8.6.2 Termination of Indemnification Obligations of the
Stockholders ................................................. 47
8.6.3 Termination of Indemnification Obligations of Parent ......... 47
8.6.4 Treatment .................................................... 47
8.6.5 Exceptions ................................................... 47
ARTICLE IX .................................................................. 48
MISCELLANEOUS ............................................................... 48
Section 9.1 Expenses ..................................................... 48
Section 9.2 Governing Law ................................................ 48
Section 9.3 "Person" Defined ............................................. 48
Section 9.4 "Knowledge" Defined .......................................... 49
Section 9.5 "Affiliate" Defined .......................................... 49
Section 9.6 Material Adverse Effect Defined .............................. 49
Section 9.7 Captions ..................................................... 49
Section 9.8 Publicity .................................................... 49
Section 9.9 Notices ...................................................... 49
Section 9.10 Parties in Interest .......................................... 50
Section 9.11 Severability ................................................. 51
Section 9.12 Counterparts ................................................. 51
Section 9.13 Entire Agreement ............................................. 51
Section 9.14 Amendments ................................................... 51
Section 9.15 Third Party Beneficiaries .................................... 51
Section 9.16 Use of Terms ................................................. 51
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of October 21,
1999 by and among AGENCY.COM LTD., a Delaware corporation ("Parent"), ITI
ACQUISITION INC., a Delaware corporation and wholly-owned subsidiary of Parent
("MergerSub"), INTERACTIVE TRAFFIC, INC., a Delaware corporation (the
"Company"), and the PERSONS LISTED ON ANNEX I hereto, (individually, a
"Stockholder," and collectively, the "Stockholders").
WITNESSETH:
WHEREAS, the authorized capital stock of the Company consists of 500,000
shares of common stock, par value $.01 per share, of which 213,483.32 shares are
issued and outstanding, and 37,041 shares of Series A Convertible preferred
stock, $.01 par value per share, all of which are issued and outstanding, and
there are outstanding options to acquire 93,116 shares of common stock of the
Company pursuant to the Company's option plan;
WHEREAS, the authorized capital stock of MergerSub consists of 1,000
shares of common stock, $01 par value, of which 100 shares are issued and
outstanding;
WHEREAS, the Boards of Directors of Parent, MergerSub and the Company each
have determined that it is advisable and in the best interests of the
corporations and their respective shareholders to consummate, and have approved
the business combination transaction provided for herein, in which the Company
would merge with and into MergerSub (the "Merger") upon the terms and subject to
the conditions of this Agreement; and
WHEREAS, Parent, MergerSub, the Company and the Stockholders desire to
make certain representations, warranties, covenants and agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, Parent, MergerSub, the
Company and the Stockholders hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2), the Company shall
be merged with and into MergerSub and the separate corporate existence of the
Company shall thereupon cease. MergerSub (i) shall be the successor or surviving
corporation in the Merger (sometimes herein referred to as the "Surviving
Corporation"), (ii) shall continue to be governed by the laws of the State of
Delaware, and (iii) the separate corporate existence of MergerSub with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. The Merger shall have the effects of Section 259 of the Delaware
General Corporation Law.
Section 1.2 Effective Time. Parent, MergerSub, and the Company will cause
an executed original of an appropriate Certificate of Merger (the "Certificate
of Merger") to be filed on the Closing Date (as defined in Section 2.8) with the
Secretary of State of the State of Delaware. The Merger shall become effective
on the date on which the Certificate of Merger has been duly filed with the
Secretary of State of Delaware, and such time is hereinafter referred to as the
"Effective Time." Notwithstanding the Effective Time, it is agreed that the
economic effort of the merger, for purposes of Parent's and Surviving
Corporation's internal accounting and recordkeeping purposes, will be deemed to
be October 1, 1999.
Section 1.3 Certificate of Incorporation and By-Laws of the Surviving
Corporation.
1.3.1 Certificate of Incorporation. The Certificate of Incorporation of
the Surviving Corporation in the form of Exhibit A hereto shall be at and as of
the Effective Time the Certificate of Incorporation of MergerSub immediately
prior to the Effective Time (except that the name of the Surviving Corporation
shall be changed to "Interactive Traffic Inc.").
1.3.2 By-Laws. The By-Laws of the Surviving Corporation in the form of
Exhibit B hereto shall be at and as of the Effective Time the By-Laws of
MergerSub immediately prior to the Effective Time.
Section 1.4 Directors and Officers of the Surviving Corporation.
1.4.1 Directors of the Surviving Corporation. The directors of the
Surviving Corporation at the Effective Time shall, from and after the Effective
Time, be the Persons (as defined in Section 9.3 below) listed on Schedule 1.4.1
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
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1.4.2 Officers of the Surviving Corporation. The officers of the Surviving
Corporation shall, from and after the Effective Time, be the Persons listed on
Schedule 1.4.2 until their successors have been duly elected or appointed and
qualified or until their death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and By-Laws.
ARTICLE II
CONVERSION OF PREFERRED STOCK AND COMMON STOCK
Section 2.1 Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
(a) "Agency Shares" shall mean shares of common stock, par value $.001 per
share, of Parent.
(b) "Company Common Stock" shall mean each issued and outstanding share of
common stock, par value $.01 per share, of the Company.
(c) "Indemnity Escrow" shall mean an aggregate of 236,250 of the Agency
Shares otherwise payable to the holders of Company Common and Preferred
Stock pursuant to Section 2.2.3(i) hereof and 37.5% of the Agency Shares
(allocated in accordance with Schedule I to the Indemnity and Escrow
Agreement) payable pursuant to Section 2.2.3(iv) to the holders of Company
Common and Preferred Stock and (following exercise of the converted ITI
Options pursuant to Section 2.3.1 hereof), to holders of ITI Options, to
be held by Parent in escrow, in accordance with Section 2.7 hereof
(d) "Payment Acceleration Event" shall mean the occurrence, prior to
December 31, 2000 of (i) a merger, consolidation, combination,
reorganization or other transaction involving MergerSub that results in
less than 80% of the combined voting power of the surviving or resulting
entity being owned directly or indirectly by Parent, or the sale, transfer
or other disposition of all or substantially all of the assets or business
of MergerSub other than to Parent or a controlled affiliate of Parent;
(ii) the acquisition (whether by merger, consolidation, combination,
reorganization or other transaction) by Parent or any controlled affiliate
of Parent of any company engaged in the internet traffic-driving business
and having annualized revenues from such activity (based upon such
acquired company's actual revenues during the calendar quarter immediately
preceding such acquisition) of $5 million or more; or (iii) the breach by
Parent of its obligations under Section 7.1 hereof
(e) "Preferred Stock" shall mean each issued and outstanding share of
Series A Preferred Stock, par value $.01 per share, of the Company.
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(f) "Securities Act" means the Securities act of 1933, as amended, or any
similar or successor statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same
shall be in effect at the time.
(g) "Representative" shall have the meaning set forth in Section 2.9.1
below.
Section 2.2 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof
2.2.1 MergerSub Common Stock. Each issued and outstanding share of the
common stock, par value $0.01 per share, of MergerSub ("MergerSub Common Stock")
shall be unchanged and remain as one fully paid and non-assessable share of
common stock, $0.01 par value per share, of the Surviving Corporation
("Surviving Corporation Common Stock"). Each certificate representing
outstanding shares of MergerSub Common Stock shall at the Effective Time
represent an equal number of shares of the Surviving Corporation Common Stock.
2.2.2 Preferred Stock. Each issued and outstanding share of Preferred
Stock shall be canceled and converted into and shall represent the following:
(i) a right to receive, at the Closing, a cash payment of $32.33 and
one (1) Agency Share, collectively representing the per share liquidation
preference of the Preferred Stock; provided however, that none of such
Agency Shares shall be issued or delivered to a stockholder of the Company
unless and until such stockholder shall have executed and delivered to
Parent a Lock-up Agreement and Certificate of Investment Representation in
the forms of Exhibits G and F hereto respectively; and
(ii) a right to receive the Agency Shares and cash amounts set forth
in 2.2.3 below.
2.2.3 Company Common and Preferred Stock. Each issued and outstanding
share of Company Common Stock and Preferred Stock shall be converted into and
shall represent the following:
(i) subject to the Indemnity Escrow, a right to receive, at the
Closing, payment of 1.725522 Agency Shares in accordance with Section
2.4.2; provided however, that none of such Agency Shares shall be issued
or delivered to a stockholder of the Company unless and until such
stockholder shall have executed and delivered to Parent a Lock-up
Agreement and Certificate of Investment Representation in the forms of
Exhibits G and F hereto respectively;
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(ii) together with each outstanding ITI Option to acquire shares of
Company common Stock, a right to receive, a cash payment of the Reconciled
Purchase Price, subject to and in accordance with Section 2.5.
(iii) together with each outstanding ITI Option to acquire shares of
Company common Stock, a right to receive, upon the earlier of (A) 30
business days after the Parent has closed its firm commitment underwritten
initial public offering of Agency Shares pursuant to an effective
registration statement under the Securities Act, and (B) March 31, 2000, a
payment of cash equal to $2.91, in accordance with Section 2.4.
(iv) together with each outstanding ITI Option to acquire shares of
Company common Stock, the contingent right to receive, within 5 business
days after the Determination shall have become final and subject to the
Indemnity Escrow, such stockholder's proportional amount of that number of
Agency Shares determined as follows:
Schedule 2.2.3 sets forth a certain revenue target (the "Revenue Target")
and a certain profit before tax target (the "PBT Target") in respect of
the operations of the Company for the period commencing October 1, 1999
and ending September 30, 2000 (the "Measuring Period"). Subject to the
Surviving Corporation's achievement of the Revenue Target and the PBT
Target, Parent will deliver certificates registered in the name of the
respective Company stockholders and holders of ITI Options representing an
aggregate of 320,000 additional Agency Shares or such lesser number of
Agency Shares determined as follows (to such Persons and to Escrow Agent
for deposit as part of the Indemnity Escrow pursuant to Section 2.7
hereof):
(a) if both the Revenue Target and the PBT Target are achieved,
320,000 Agency Shares;
(b) if Revenues are less than 80% of the Revenue Target and/or PBT
is less than 80% of the PBT Target, 0 (none) Agency Shares;
(c) if the Revenue Target is met and PBT is at least 80% of the PBT
Target, then a number of Agency Shares determined under the following
formula:
(the average of (x) 100% and (y) PBT divided by the PBT Target)
times 320,000;
(d) if the PBT Target is met and Revenues are less than the Revenue
Target but at least 80% of the Revenue Target, then a number of Agency
Shares determined under the following formula:
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(the average of (x) 100% and (y) Revenues divided by the Revenue
Target) times 320,000;
(e) If Revenues are less than the Revenue Target but at least 80% of
the Revenue Target and PBT is less than the PBT Target but at least 80% of
the PBT Target, then a number of Agency Shares determined under the
following formula:
(the average of (x) Revenues divided by the Revenue Target and (y)
PBT divided by the PBT Target) times 320,000.
For example, if Revenues are 85 and Revenue Target is 100 and PBT is
95 and PBT Target is 100:
Revenues = 85 = .85
Revenue Target 100
PBT = 95 = .95
PBT Target 100
(.85 + .95) x 320,000 = 288,000 shares
---------------------
2
2.2.4 Calculation of Revenues and PBT.
(i) For the purpose of determining the Surviving Corporation's
revenues and profitability, the following terms shall have the meanings
assigned to them in this clause 2.4.4:
"Revenues" shall mean the commissions and fees, mark-ups and hourly
charges earned by the Surviving Corporation (excluding pass-through
expenses) during the measuring period for work generated or performed by
employees or contractors and charged to clients, determined in accordance
with U.S. generally accepted accounting principles ("GAAP");
"PBT" shall mean the net income (loss) of the Surviving Corporation
before provision for all income-based taxes determined in accordance with
GAAP; provided that in making such determinations:
(i) neither the proceeds from nor any dividends or refunds xvith
respect to, nor any increases in the cash surrender value of, any life
insurance policy under which the Surviving Corporation is the named
beneficiary or otherwise entitled to recovery, shall be included as
income, and the premium
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expense related to any such life insurance policy shall not be included as
an expense;
(ii) any write-off or amortization of goodwill arising out of the
merger of the Company shall not be treated as an expense;
(iii) intercompany management fees charged by Parent to the
Surviving Corporation shall not be treated as an expense;
(iv) any Losses (as defined in Section 8.2.3) of Parent and/or the
Surviving Corporation which give rise to an indemnity payment pursuant to
the indemnification provisions of Section 8.2 and which are assumed by one
or more of the Stockholders or as to which Parent and/or the Surviving
Corporation has been reimbursed, shall not be treated as an expense, and
there shall be excluded from income any amount received by the Surviving
Corporation pursuant thereto;
(v) any expenses of the Company prior to the Closing incurred in
connection with the negotiation, preparation and execution of this
Agreement and the other documents to be delivered at the Closing hereunder
(including without limitation the fees and disbursements of their
respective attorneys and accountants and any brokers or finders fees)
shall not be treated as an expense;
(vi) any stock or stock option based compensation shall not be
treated as an expense;
(vii) any indemnity payments made by a Parent Indemnifying Party to
any Stockholder Indemnified Party shall not be treated as income;
(viii) any costs and expenses incurred by the Stockholders in
contesting the Determination or in pursuing any indemnity claim under
Section 8.3 shall not be treated as an expense.
2.2.5 Accounting/Dispute Procedures. On or prior to November 15, 2000,
Parent shall deliver to the Representative a report setting forth the Revenues
and PBT of the Surviving Corporation for the Measuring Period, together with a
calculation of the payment due under Section 2.2.3(iii) (the "Determination").
If the Stockholders do not agree that the Determination correctly states the
Revenues or Profit Margin for the Measuring Period, or properly calculates the
payment due under Section 2.2.3(iii), the Representative shall promptly (but not
later than 15 days after the delivery of the Determination) give written notice
to Parent of any exceptions thereto (in reasonable detail describing the nature
of the disagreement asserted). If the Representative and Parent reconcile their
differences, the determination shall be adjusted accordingly and shall thereupon
become binding, final and conclusive upon all of
7
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the parties hereto and enforceable in a court of law. If the Representative and
Parent are unable to reconcile their differences in writing within 30 days after
written notice of exceptions is delivered to Parent, the items in dispute shall
be submitted to the New York City office of a mutually-acceptable accounting
firm selected from among the six largest accounting firms in the United States
in terms of gross revenues (the "Independent Auditors") for final determination,
and the Determination shall be deemed adjusted in accordance with the findings
of the Independent Auditors and shall become final and conclusive upon all of
the parties hereto and enforceable in a court of law. The Independent Auditors
shall consider only the items in dispute and shall be instructed to act within
20 days (or such longer period as the Representative and Parent may agree) to
resolve all items in dispute. If the Representative does not give notice of any
exception within 15 days after the delivery of the Determination, or if the
Representative gives written notification of the Stockholders' acceptance of the
Determination prior to the end of such 15-day period, the amounts set forth in
the Determination shall thereupon become binding, final and conclusive upon all
of the parties hereto and enforceable in a court of law.
2.2.6 Examination of Books and Records. The books and records of the
Surviving Corporation shall be made available during normal business hours upon
reasonable advance notice at the principal office of the Surviving Corporation
to the parties hereto, and the Independent Auditors to the extent required to
make the calculations required under Section 2.2.5. The parties hereto shall
cause the Surviving Corporation to make arrangements to make available to the
Independent Auditors and the Representative any back-up materials generated by
the Surviving Corporation, Parent and/or their respective representatives in
preparing the Determination and/or to support a position which is contrary to
the decision taken by the other party with respect to the Determination.
2.2.7 Earn-Out Consideration. Provided that the Company achieves certain
agreed-upon key success factors (employee retention, utilization and monthly
revenue per billable head for each of the quarterly periods referred to below)
described on Schedule 2.2.7, Parent will pay to the holders of Company Common
Stock, the holders of options to purchase Company Common Stock and the holders
of Preferred Stock, pro rata in accordance with their respective interests, up
to an aggregate of $500,000 in respect of each of the four calendar quarters
(commencing October 1, 1999) that the Company shall achieve such quarterly
targets up to a maximum aggregate amount of $2,000,000. Payment of such earn-out
amounts will be made within 30 days following the audited close of the calendar
quarter to which such payment relates.
2.2.8 Acceleration of Certain Payments. Upon the occurrence of a Payment
Acceleration Event, each of the Revenue Target and the PBT Target will be deemed
to have been achieved and each of the key success factors described on Schedule
2.2.7 for the calendar quarter in which such Payment Acceleration Event occurs
and each subsequent quarter, will be deemed to have been achieved, and all
amounts due to the Company stockholders and holders of ITI Options (subject to
the Indemnity Escrow) as a result thereof,
8
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will be paid to them by Parent within 30 days following the completion of the
transaction constituting the Payment Acceleration Event.
2.2.9 Company Treasury Stock. Each share of Company Common Stock or
Preferred Stock that is owned by the Company as treasury stock shall be canceled
and retired and shall cease to exist and no consideration shall be delivered in
exchange therefor.
Section 2.3 Stock Options.
2.3.1 Conversion of Outstanding Options. Options to purchase shares of
Company Stock that have been issued by the Company and which are outstanding at
the Effective Time (each, an "ITT Option") pursuant to the ITI 1999 Stock
Incentive Plan (the "ITI Option Plan") shall be automatically converted into
options to purchase Agency Shares as follows:
(a) in the case of each holder of outstanding and unexercised ITI
Options at the Effective Time, the aggregate number of Agency Shares issuable
upon the exercise of the converted ITI Options after the Effective Time shall be
equal to the product of 1.725522 multiplied by the number of shares of the
Company Common Stock issuable upon exercise of the ITI Options immediately prior
to the Effective Time, such product to be rounded down to the nearest whole
share of Agency Shares; and
(b) the exercise price per share of each converted ITI Option shall
be equal to the quotient of the exercise price of each such ITI Option at the
Effective Time divided by 1.725522, such quotient to be rounded up to the
nearest whole cent;
PROVIDED, however, that, in the case of any ITI Option that is intended to
qualify as an incentive stock option under Section 422 of the Code, the number
of Agency Shares issuable upon exercise of and the exercise price per share for
such converted ITI Option determined in the manner provided above shall be
further adjusted as necessary to conform to the requirements of Section 424(b)
of the Code. Options to purchase Agency Shares that arise from the operation of
this Section 2.3.1 shall be referred to as the "Converted Options." All
Converted Options shall be exercisable for the same period and otherwise have
the same terms and conditions applicable to the ITI Options which they replace,
as provided under the current terms of the ITI Options. Prior to the Effective
Time, Agency shall take, or cause to be taken, all necessary action to effect
the intent of the provisions set forth in this Section 2.3.1.
(c) a right to receive the Agency Shares and cash amounts set forth
in 2.2.3 (ii) and (iv) above.
2.3.2 Agency Action. Agency shall, prior to the Effective Time, take all
corporate action necessary to reserve for future issuance a sufficient
additional number of Agency Shares to provide for the satisfaction of its
obligations with respect to the Converted Options.
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As soon as practicable following the effective time of Agency's pending
Registration (S-1) Statement with the Securities and Exchange Commission, Agency
shall file a registration statement on Form S-8 of the Securities and Exchange
Commission (or any successor or other appropriate form) with respect to the
Agency Shares issuable upon exercise of the Converted Options to persons who
become employees of the Surviving Corporation at the Effective Time.
Section 2.4 Surrender of Stock Certificates. At the Closing (as defined in
Section 2.8 below):
2.4.1 Preferred Stock. Each holder of Preferred Stock shall surrender the
certificate(s) representing his/her shares of Preferred Stock, and in exchange
therefor he/she shall receive the cash payment and that number of Agency Shares
set forth in Section 2.2.2 and 2.2.3, as applicable.
2.4.2 Company Common and Preferred Stock. Each holder of Company Common
Stock shall surrender the certificate(s), if any, representing his/her shares of
Company Stock, and in exchange therefor and together with each holder of
Preferred Stock he/she shall receive the cash payment and that number of Agency
Shares set forth in Section 2.2.3, as applicable, subject to the Indemnity
Escrow.
2.4.3 Additional Cash Payment. Upon the earlier of (i) 30 business days
after Parent shall have closed its firm commitment underwritten initial public
offering referred to in Section 2.2.3(iii), and (ii) March 31, 2000, the holders
of the Company Common Stock, the holders of Preferred Stock and holders of ITI
Options, shall receive the cash payment referred to therein.
Section 2.5 Tangible Net Worth Adjustment. If the Tangible Net Worth is a
positive number, the purchase price payable to the holders of Company Common
Stock, the holders of Preferred Stock and holders of ITI Options pursuant to
Section 2.2.3(ii) in the aggregate shall be $1,802,464.50 (the "Net Worth
Amount"). If the Tangible Net Worth is a negative number, the Net Worth Amount
will be reduced by the amount of such negative Tangible Net Worth (as so
adjusted, the "Adjusted Net Worth Amount"). The Net Worth Amount or the Adjusted
Net Worth Amount, whichever is applicable, divided by 343,640.32 (is referred to
herein as the "Reconciled Purchase Price").
2.5.1 Payment of Reconciled Purchase Price.
(i) On the Closing Date, the Stockholders shall deliver to Parent
and MergerSub an estimated balance sheet of the Company immediately prior
to the Effective Time (the "Estimated Closing Balance Sheet") and,
provided that the Tangible Net Worth reflected on the Estimated Closing
Balance Sheet is a positive number, Parent shall pay, at Closing, to the
holders of Company Common Stock, the
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holders of Preferred Stock and holders of ITI Options, the aggregate
amount of $1,400,000 as an advance against the aggregate Reconciled
Purchase Price.
(ii) Within 10 days following the Special Determination, Parent
shall pay to the holders of Company Common Stock, the holders of Preferred
Stock and holders of ITI Options, the remainder, if any, of the aggregate
Reconciled Purchase Price, provided, however, that if the aggregate
Reconciled Purchase Price shall be less than $1,400,000, the Stockholders
shall immediately pay over to Parent, in cash, the full amount of such
shortfall.
2.5.2 Other Definitions. "Tangible Net Worth" shall mean the combined
stockholders' equity (deficit) of the Company (exclusive of goodwill and other
like intangibles) immediately prior to the Effective Time, prepared in
accordance with GAAP and as finally determined pursuant to Section 2.5.2 below.
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2.5.3 Accounting Procedures.
(i) Parent shall cause Arthur Andersen LLP, or another independent
accounting firm chosen by Parent (the "Accountants") as soon as practicable
after the Closing, to prepare in accordance with GAAP, a report containing an
audited balance sheet of the Company immediately prior to the Effective Time
(the "Closing Balance Sheet"), together with a statement of the Accountants
based upon such report and stating that it was prepared in accordance with this
Agreement and setting forth the Tangible Net Worth and all adjustments required
to be made to such audited balance sheet in order to make the calculations
required by this Section 2.5 (the "Special Determination"). If the Stockholders
do not agree that the Special Determination correctly states the Tangible Net
Worth, the Representative shall promptly (but not later than 45 days after the
delivery to them of the Special Determination) give written notice to Parent of
any exceptions thereto (in reasonable detail describing the nature of the
disagreement asserted). If the Representative and Parent reconcile their
differences, the Tangible Net Worth calculation shall be adjusted accordingly
and shall thereupon become binding, final and conclusive upon all of the parties
hereto and enforceable in a court of law. If the Representative and Parent are
unable to reconcile their differences in writing within 20 days after written
notice of exceptions is delivered to Parent (the "Reconciliation Period"), the
items in dispute shall be submitted to a mutually acceptable accounting firm
(other than the Accountants) selected from any of the five largest accounting
firms in the United States in terms of gross revenues (the "Independent
Auditors") for final determination, and the Tangible Net Worth calculation shall
be deemed adjusted in accordance with the determination of the Independent
Auditors and shall become binding, final and conclusive upon all of the parties
hereto and enforceable in a court of law. The Independent Auditors shall
consider only the items in dispute and shall be instructed to act within 20 days
(or such longer period as the Stockholders and Parent may agree) to resolve all
items in dispute. If the Representative does not give notice of any exception
within 45 days after the delivery to them of the Special Determination or if the
Representative gives written notification of the Stockholders' acceptance of the
Tangible Net Worth prior to the end of such 45 day period, the Tangible Net
Worth set forth in the Special Determination shall thereupon become binding,
final and conclusive upon all the parties hereto and enforceable in a court of
law.
(ii) In the event the Independent Auditors are for any reason unable or
unwilling to perform the services required of it under this Section 2.5, then
Parent and the Representative agree to select another accounting firm from among
the five largest accounting firms in the United States in terms of gross
revenues to perform the services to be performed under this Section 2.5.3 by the
Independent Auditors. If Parent and the Representative fail to select the
Independent Auditors as required by clause (i) above within seven days after the
expiration of the Reconciliation Period or fail to select another accounting
firm within seven days after it is determined that the Independent Auditors will
not perform the services required, either Parent or the Representative may
request the American Arbitration Association in New York, New York to appoint an
independent firm of certified public accountants to perform the services
required under this Section 2.5 by the Independent Auditors. The fees of the
American
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Arbitration Association shall be shared equally by Parent, on the one hand, and
the Stockholders on the other hand. For purposes of this Section 2.5 the term
"Independent Auditors" shall include such other accounting firm chosen in
accordance with this clause (ii).
(iii) The Independent Auditors shall determine the party (i.e., Parent or
the Stockholders, as the case may be) whose asserted position as to the amount
of Purchase Price payment for the period under examination before the
Independent Auditors is furthest from the determination of the Reconciled
Purchase Price payment by the Independent Auditors, which non-prevailing party
shall pay the fees and expenses of the Independent Auditors.
2.5.4 Examination of Books and Records. The books and records of the
Surviving Corporation and its subsidiaries (if any) shall be made available
during normal business hours upon reasonable advance notice at the principal
office of the Surviving Corporation, to the parties, the Accountants and the
Independent Auditors to the extent required to determine the calculations
required under this Section 2.5. The parties hereto shall cause the Surviving
Corporation to make reasonable arrangements to make available to Parent, the
Representative and their representatives (including auditors) any back-up
materials generated by the Surviving Corporation or the Accountants, as the case
may be, with respect to any adjustments made by them to the financial statements
in the process of preparing the Special Determination. In addition, the
Representative, on the one hand, and Parent, on the other hand, shall make
available to the other party and their representatives (including auditors) any
back-up materials generated by them to support a position which is contrary to
the position taken by the other party.
Section 2.6 Payment of the Purchase Price.
2.6.1 Purchase Price. Payment of each cash component of the Purchase Price
under Section 2.4 or 2.5, shall be made by Parent in cash by direct wire
transfer (of immediately available funds) to one or more accounts of the
Stockholders as set forth on Schedule 2.6 hereto, or as the Stockholders may
otherwise direct. The Stockholders assume responsibility for distribution of the
cash component of Purchase Price among the stockholders and option holders of
the Company.
2.6.2 No Fractional Shares. No fractional shares of Agency Stock shall be
issued, but in lieu thereof each Stockholder will be paid in cash the value of
any such fractional shares of Agency Stock such Stockholder would have otherwise
be entitled to receive based on a stipulated value of $10.00 per share.
Section 2.7 Indemnity Escrow. Solely to fund and secure the payment
obligations of the Stockholders to a Parent Indemnified Party (as defined in
Section 8.2.1), the Stockholders shall deliver to the corporate secretary and
general counsel of Parent as Escrow Agent, an aggregate of 236,250 of the Agency
Shares issuable to Company stockholders at Closing, and 37.5% of the Agency
Shares payable to Company stockholders and holders of ITI
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Options pursuant to Section 2.2.3(iv), in accordance with and subject to the
terms of the Indemnity and Escrow Agreement among Parent, MergerSub, the Company
and the Company stockholders and holders of ITI Options in the form annexed
hereto as Exhibit K.
Section 2.8 Closing. The Closing under this Agreement (the "Closing") is
taking place simultaneously with the execution and delivery of this Agreement at
10:00 A.M. on October 20, 1999, at the offices of Davis & Gilbert LLP, 1740
Broadway, New York, New York 10019, or such other date and place as agreed to
the parties hereto. Such date is herein referred to as the "Closing Date".
Section 2.9 Appointment of Representative.
2.9.1 Appointment of Representative. The approval by the shareholders of
the Company of this Agreement and the transactions contemplated hereby shall
include the approval of Scott Heiferman as representative and agent (the
"Representative") to act on behalf of all of the stockholders of the Company in
the matters, and in the manner, described in this Section 2.9. The
Representative shall act as representative for and agent of the stockholders of
the Company, and shall use his best efforts to carry out his duties under this
Agreement, with respect to the following: (i) responding to and making
determinations in respect of the assertion of any and all claims for
indemnification by the stockholders of the Company; (ii) giving and receiving
notices and communications with respect to the provisions of this Agreement, and
negotiating, agreeing to, and entering into settlements or compromises of
matters arising under this Agreement; and (iii) taking all such other actions as
may be necessary or desirable on behalf of the stockholders of the Company,
including hiring advisors, accountants or attorneys, and asserting claims or
defenses through judicial proceedings, as agent for the stockholders of the
Company in respect of this Agreement. No party dealing with the Representative
hereunder need inquire concerning such approval and such party shall be entitled
to rely exclusively upon the decisions, notices or other acts of the
Representative as being the fully authorized acts of the Representative under
this Agreement. By execution of this Agreement, the Representative agrees to
accept his appointment upon and effective as of the subsequent approval of this
Agreement by appropriate stockholder action.
Section 2.9.2 Indemnification of Representative. Nothing in this Agreement
is intended, and nothing in this Agreement shall be interpreted as, imposing
upon the Representative, as Representative, any personal liability, personal
economic obligation, or personal guarantee in favor of any party to this
Agreement or any third party. The stockholders of the Company, by approving this
Agreement and the transactions contemplated hereby, agree to severally indemnify
and hold the Representative harmless against any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of
Representative, arising out of or in connection with carrying out his duties
hereunder, including the costs and expenses of defending himself against any
claim of
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liability in connection with the exercise or performance of any of his powers or
duties hereunder (including reasonable fees, expenses and disbursements of his
counsel).
ARTICLE III
REPRESENTATIONS OF THE STOCKHOLDERS AND THE COMPANY
A. Each of the Stockholders severally, and not jointly, represents and
warrants to MergerSub and Parent as follows:
Section 3.1 Execution and Validity of Agreements; Restrictive Documents.
3.1.1 Execution and Validity. The Stockholder has the legal right and
capacity to enter into this Agreement and to perform his/her obligations
hereunder. This Agreement has been duly and validly executed and delivered by
such Stockholder and, assuming due authorization, execution and delivery by
MergerSub and Parent, constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
in each case, except as enforceability may be limited by bankruptcy, insolvency
reorganization, moratorium and other laws affecting creditors' rights generally,
or by general equitable principles (regardless of whether enforcement is sought
in a proceeding at law or in equity), and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal, state or
securities laws.
3.1.2 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any Governmental or Regulatory Authority (as defined in Section
3.1.3), and no legal, administrative or arbitration proceeding pending or, to
such Stockholder's knowledge, threatened against such Stockholder or any of such
Stockholder's properties or assets, with respect to the execution, delivery and
performance of this Agreement or the transactions contemplated hereby or any
other agreement entered into by such Stockholder in connection with the
transactions contemplated hereby.
3.1.3 Non-Contravention. The execution, delivery and performance by such
Stockholder of his/her obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) result in the violation by such
Stockholder of any statute, law, rule, regulation or ordinance (collectively,
"Laws"), or any judgment, decree, order, writ, permit or license (collectively,
"Orders"), of any court, tribunal, arbitrator, authority, agency, commission,
official or other instrumentality of the United States, any foreign country or
any domestic or foreign state, county, city or other political subdivision (a
"Governmental or Regulatory Authority"), applicable to such Stockholder or any
of his/her assets or properties, or (b) conflict with, result in a violation or
material breach of, constitute (with or without notice or lapse of time or both)
a default under, or require such Stockholder to obtain any consent, approval or
action of, make any filing with or give any
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notice to, or result in or give to any Person any right of payment or
reimbursement, termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any Lien upon any of the Company stock
held by such Stockholder under any of the terms, conditions or provisions of any
agreement, commitment, lease, license, evidence of indebtedness, note, bond,
mortgage, security agreement, indenture, franchise, permit, concession,
contract, or other instrument, obligation or agreement of any kind
(collectively, "Contracts") or license, permit and other governmental
certificate, authorization and approval, including applications therefor
(collectively, "Licenses") to which such Stockholder is a party or by which such
Stockholder or any of the Company stock held by such Stockholder is bound.
3.1.4 Approvals and Consents. No consent, approval or action of, filing
with or notice to any Governmental or Regulatory Authority or other Person is
necessary or required under any of the terms, conditions or provisions of any
Law or Order of any Governmental or Regulatory Authority or any Contract to
which such Stockholder is a party or his/her assets or properties are bound for
the execution and delivery of this Agreement by such Stockholder, the
performance by such Stockholder of his/her obligations hereunder or the
consummation by such Stockholder of the transactions contemplated hereby.
B. Each of the Stockholders and the Company, jointly and severally,
represents and warrants to MergerSub and Parent, as follows:
Section 3.2 Execution and Validity of Agreement; Existence and Good
Standing. The Company has the full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company and the Company stockholders, and no other corporate
proceedings on the part of the Company or its stockholders are necessary to
authorize the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and, assuming due authorization, execution and delivery by MergerSub and
Parent, constitutes the legal, valid and binding obligations of the Company
enforceable against it in accordance with its terms, in each case, except as
enforceability may be limited by bankruptcy, insolvency reorganization,
moratorium and other laws affecting creditors' rights generally, or by general
equitable principles (regardless of whether enforcement is sought in a
proceeding at law or in equity), and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal, state or
securities laws. The Company is duly organized and validly existing and in good
standing under the laws of the State of Delaware, with the full corporate power
and authority to own its property and to carry on its business as such business
is now being conducted. Schedule 3.2 sets forth each jurisdiction in which the
Company is qualified to do business. Except as set forth on Schedule 3.2, there
is no jurisdiction in which the character of the property owned or leased by the
Company or the nature of its business
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activities requires qualification of the Company in such jurisdiction, except
where such failure to qualify would not reasonably be expected to have a
Material Adverse Effect.
Section 3.3 Subsidiaries and Investments; Capital Stock.
3.3.1 Subsidiaries and Investments. The Company does not own any capital
stock or other equity or ownership or proprietary interest in any Person, other
than investments in publicly traded debt or equity securities held for
investment.
3.3.2 Capital Stock; Options. The Company has an authorized capitalization
consisting of 500,000 shares of common stock, par value $.0l per share, of which
213,483.32 shares were issued and outstanding, and 37,041 shares of Series A
Convertible preferred stock, $.01 par value per share, all of which are issued
and outstanding. No other classes of capital stock of the Company are authorized
or outstanding. There are 93,116 options to acquire shares of Company Common
Stock outstanding pursuant to the ITI Option Plan. Except as set forth on
Schedule 3.3.2, there are no outstanding subscriptions, options, warrants,
rights (including "phantom stock rights"), calls, commitments, understandings,
conversion rights, rights of exchange, plans or other Contracts of any kind
providing for the purchase, issuance or sale of any shares of the capital stock
of the Company by the Company.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4
sets forth the following: (a) unaudited balance sheet of the Company as at
December 31, 1997 and audited balance sheet of the Company as at December 31,
1998 and the related combined statements of income, stockholders' equity and
cash flows for the year then ended, as reported on by PriceWaterhouse Coopers
Certified Public Accountants, and (b) an unaudited combined balance sheet of the
Company as at June 30, 1999 (the "Balance Sheet"), and the related unaudited
combined statements of income, stockholders' equity and cash flows for the nine
months then ended. Such financial statements have been prepared in accordance
with GAAP throughout the periods indicated except as set forth on Schedule
3.4.1. Each balance sheet fairly presents the combined financial condition of
the Company at the respective date thereof and reflects all claims against and
all debts and liabilities of the Company, fixed or contingent, as at the date
thereof, required to be shown thereon under GAAP and the related combined
statements of income, stockholders' equity and cash flows fairly present the
results of operations, stockholders' equity and cash flows of the Company for
the respective periods indicated. Since June 30, 1999 (the "Balance Sheet
Date"), there has been no material adverse change in the assets or liabilities,
or in the business or condition, financial or otherwise, or in the results of
operations of the Company.
Section 3.5 Books and Records. All accounts, books, ledgers and official
and other records material to the Company have been properly and accurately kept
and are complete in all material respects, and there are no material
inaccuracies or discrepancies of any kind contained or reflected therein. Except
as set forth on Schedule 3.5, the Company's records, systems, controls, data or
information recorded, stored, maintained, operated, or otherwise wholly or
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partly dependent on or held by any means (including any electronic, mechanical
or photographic process, whether computerized or not) which (including all means
of access thereto and therefrom) are under the exclusive ownership and
possession of the Company.
Section 3.6 Title to Properties: Encumbrances. The Company has good and
valid title to, or enforceable leasehold interests in, or valid rights under
contract to use, all the properties and assets owned or used by it (real and
personal, tangible and intangible), including, without limitation (a) all the
properties and assets reflected in the Balance Sheet, and (b) all the properties
and assets purchased or otherwise contracted for by the Company since the
Balance Sheet Date (except for properties and assets reflected in the Balance
Sheet or acquired or otherwise contracted for since the Balance Sheet Date, that
have been sold or otherwise disposed of in the ordinary course of business), in
each case free and clear of all Liens, except for Liens set forth on Schedule
3.6, and except for those Liens, which individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. The property,
plant and equipment owned or otherwise contracted for by the Company are in a
state of good maintenance and repair (ordinary wear and tear excepted) and are
adequate and suitable for the purposes for which they are presently being used.
"Liens" shall mean and include security interests, mortgages, liens, pledges,
guarantees, easements, reservations, restrictions, clouds, equities, rights of
way, options, rights of first refusal and all other encumbrances, whether or not
relating to the extension of credit or the borrowing of money, except for any of
the foregoing for (i) which taxes or other charges are not due and payable, (ii)
which workmen's, repairmen's or other similar Liens (inchoate or otherwise) have
arisen or been incurred in the ordinary course of business, and (iii) minor
title defects, easements or other Liens affecting real property, which do not
materially impair the continued use, occupancy, value or marketability of title
of the real property to which they relate.
Section 3.7 Real Property.
3.7.1 Owned Real Property. The Company does not own any real property
including ground leases) or hold any option or right of first refusal or first
offer to acquire any real property, and the Company is not obligated by Contract
or otherwise to purchase any real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
complete list of all real property leases to which the Company is a party ("Real
Property Leases"), including without limitation, any modification, amendment or
supplement thereto and any other related document or agreement executed or
entered into by the Company (including without limitation, any Real Property
Lease which the Company has subleased or assigned to another Person and as to
which the Company remains liable). With respect to each Real Property Lease set
forth on Schedule 3.7.2 (or required to be set forth on Schedule 3.7.2): (a) the
Real Property Lease is valid, binding and in full force and effect; (b) all
rents and additional rents and other sums, expenses and charges due to date have
been paid; (c) the lessee has been in peaceable possession since the
commencement of the original term thereon (d) no waiver, indulgence or
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postponement of the lessee's obligations thereunder has been granted by the
lessor; (e) there exists no default or event of default by the Company or to the
knowledge of the Company and the Stockholders, by any other party thereto; (f)
there exists no occurrence, condition or act (including the transactions
contemplated hereunder) which, with the giving of notice, the lapse of time or
the happening of any further event or condition, would become a default or event
of default by the Company thereunder; and (g) there are no outstanding claims of
breach or indemnification or notice of default or termination thereunder. The
Company holds the leasehold estate on all Real Property Leases, free and clear
of all Liens, except as set forth on Schedule 3.6 and the liens of mortgagees of
the real property in which such leasehold estate is located. The real property
leased by the Company is adequate and suitable for the purposes for which it is
presently being used, and there are no material repair or restoration works
likely to be required in connection with any of the leased real properties. The
Company is in physical possession and actual and exclusive occupation of the
whole of each of its leased properties. The Company does not owe any brokerage
commission with respect to any Real Property Lease.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following Contracts of the Company: (a) all Plans (as such
term is defined in Section 3.19); (b) any personal property lease with a fixed
annual rental of $10,000 or more; (c) any Contract relating to capital
expenditures which involves payments of $25,000 or more in any single
transaction or series of related transactions; (d) any Contract relating to the
making of a loan or advance to, or investment in, any other Person, which loan
or investment exceeds $10,000; (e) any Contract evidencing or relating in any
way to indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of loan, purchase money obligation, guarantee (other than the
endorsement of negotiable instruments for collection in the ordinary course of
business), conditional sale, purchase or otherwise; (f) any management service,
employment, consulting or similar type of Contract which is not cancelable by
the Company without significant (i.e., in excess of $5000) penalty or other
financial obligation within 30 days; (g) any Contract limiting the freedom of
the Company party thereto to engage in any line of business or to compete with
any other Person, including agreements limiting the ability of the Company or
any of its affiliates to service competitive accounts during or after the term
thereof; (h) any collective bargaining or union agreement; (i) any Contract with
any of its officers or directors or the Stockholders not covered by subsection
(f) above (including indemnification agreements); (j) any secrecy or
confidentiality agreement (other than standard confidentiality agreements in
computer software license agreements or agreements with clients entered into in
the ordinary course of business and other than the Company's standard employee
confidentiality agreement which has been signed by each of the Company's
employees and directors, unless otherwise disclosed under this Agreement); (k)
any Contract with respect to any Intellectual Property of the Company (as
defined in Section 3.14 below), other than "shrink-wrap" and similar end-user
licenses; (1) any agreement with a client which generates annual revenues of
$25,000 or more; (m) any joint venture agreement involving a sharing of profits
not covered by clauses (a) through (1) above; and (n) any Contract (not covered
by another subsection of this Section 3.8) which involves $25,000 or more over
the
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unexpired term thereof and is not cancelable by the Company without significant
penalty or other financial obligation within 30 days. Notwithstanding the
foregoing, (x) commitments to media and production expenses which are fully
reimbursable from clients, and (y) estimates or purchase orders given in the
ordinary course of business relating to the execution of projects, do not have
to be set forth on Schedule 3.8. Each Contract to which a Company is a party,
including, but not limited to those set forth on Schedule 3.8, is in full force
and effect, and there exists no default or event of default by the Company or to
the knowledge of the Stockholders and the Company, by any other Person, or
occurrence, condition, or act (including the Merger) which, with the giving of
notice, the lapse of time or the happening of any other event or condition,
would become a default or event of default thereunder by the Company, and there
are no outstanding claims of breach or indemnification or notice of default or
termination of any such Contract.
Section 3.9 Non-Contravention; Approvals and Consents.
3.9.1 Non-Contravention. The execution, delivery and performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the certificate or articles of incorporation or by-laws (or
other comparable corporate charter documents) of the Company, or (b) result in
the violation by the Company of any Laws or Orders of any Governmental or
Regulatory Authority, applicable to the Company or any of its assets or
properties, or (c) if the consents and notices set forth on Schedule 3.9.2 are
obtained, given or waived, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under, or
(except as set forth on Schedule 3.9.2) require the Company to obtain any
consent, approval or action of, make any filing with or give any notice to, or
result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company, under any of the terms, conditions or provisions of any Contract to
which the Company is a party or by which the Company or any of its assets or
properties are bound, except where such violation, conflict, breach, default or
failure would not reasonably be expected to have a Material Adverse Effect.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other Person is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which the Company is a party or by which
its assets or properties are bound for the execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder or the consummation by the Company of the transactions contemplated
hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is no
action, suit, proceeding at law or in equity by any Person, or any arbitration
or any administrative or other
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proceeding by or before (or to the knowledge of the Company and the
Stockholders, any investigation by) any Governmental or Regulatory Authority,
pending or, to the knowledge of the Company and the Stockholders, threatened
against the Company with respect to this Agreement or the transactions
contemplated hereby, or against or affecting the Company or its properties or
assets; and, to the knowledge of the Company or the Stockholders, no acts,
facts, circumstances, events or conditions occurred or exist which are a basis
for any such action, proceeding or investigation. Schedule 3.10 also sets forth
with respect to each pending or threatened action, suit or proceeding listed
thereon, the amount of costs, expenses or damages the Company has incurred to
date and reasonably expects to incur through conclusion thereof. The Company is
not subject to any Order entered in any lawsuit or proceeding.
Section 3.11 Taxes. The Company has timely filed, or caused to be filed,
taking into account any valid extensions of due dates, completely and
accurately, all federal, state, local and foreign tax or information returns
(including estimated tax returns) required under the statutes, rules or
regulations of such jurisdictions to be filed by such Company. The term "Taxes"
means taxes, duties, charges or levies of any nature imposed by any taxing or
other Governmental or Regulatory Authority, including without limitation income,
gains, capital gains, surtax, capital, franchise, capital stock, value-added
taxes, taxes required to be deducted from payments made by the payor and
accounted for to any tax authority, employees' income withholding, back-up
withholding, withholding on payments to foreign Persons, social security,
national insurance, unemployment, worker's compensation, payroll, disability,
real property, personal property, sales, use, goods and services or other
commodity taxes, business, occupancy, excise, customs and import duties,
transfer, stamp, and other taxes (including interest, penalties or additions to
tax in respect of the foregoing), and includes all taxes payable by the Company
pursuant to Treasury Regulations ss. 1.1502-6 or any similar provision of state,
local or foreign law. All Taxes shown on said returns to be due and all
additional assessments received prior to the date hereof have been paid or are
being contested in good faith, in which case, such contested assessments are set
forth on Schedule 3.11. The Company has collected all sales, use, goods and
services or other commodity Taxes required to be collected and remitted or will
remit the same to the appropriate taxing authority within the prescribed time
periods. The Company has withheld all amounts required to be withheld on account
of Taxes from amounts paid to employees, former employees, directors, officers,
residents and non-residents and remitted or will remit the same to the
appropriate taxing authorities within the prescribed time periods. The amount
set up as an accrual for Taxes on the Balance Sheet is sufficient for the
payment of all unpaid Taxes of the Company, whether or not disputed, for all
periods ended on and prior to the date thereof. Since the Balance Sheet Date,
the Company has not incurred any liabilities for Taxes other than in the
ordinary course of business. The Company has delivered to Parent correct and
complete copies of all federal income tax returns filed with respect to the
Company for all taxable periods beginning on or after January 1, 1996. None of
the Federal, state or local income tax returns of the Company have ever been
audited by the Internal Revenue Service or any other Governmental or Regulatory
Authority. No examination of any return of the Company is currently in progress,
and the Company has not received notice of any proposed audit or examination.
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No deficiency in the payment of Taxes by the Company for any period has been
asserted in writing by any taxing authority and remains unsettled at the date of
this Agreement. The Company has not made any agreement, waiver or other
arrangement providing for an extension of time with respect to the assessment or
collection of any Taxes against it. The Company has not been a member of an
affiliated group filing consolidated Federal income tax returns nor has it been
included in any combined, consolidated or unitary state or local income tax
return.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet, the
Company has no outstanding claims, liabilities or indebtedness of any nature
whatsoever (collectively in this Section 3.12, "Liabilities"), whether accrued,
absolute or contingent, determined or undetermined, asserted or unasserted, and
whether due or to become due, other than (i) Liabilities specifically disclosed
in any Schedule hereto; (ii) Liabilities under Contracts of the type required to
be disclosed by the Company and the Stockholders on any Schedule and so
disclosed or which because of the dollar amount or other qualifications are not
required to be listed on such Schedule; and (iii) Liabilities incurred in the
ordinary course of business and consistent with past practice since the Balance
Sheet Date not involving borrowings by the Company.
Section 3.13 Insurance. Schedule 3.13 is a schedule of all insurance
policies (including life insurance) or binders maintained by the Company. All
such policies are in full force and effect and all premiums that have become due
have been currently paid. None of such policies shall lapse or terminate by
reasons of the Merger. The Company has not received any notice of cancellation
of any such policy or binder. Except as set forth on Schedule 3.13, within the
last two years the Company has not filed for any claims exceeding $25,000
against any of its insurance policies, exclusive of automobile policies.
Section 3.14 Intellectual Properties.
3.14.1 Definitions. For purposes of this Agreement, the following terms
have the following definitions:
"Intellectual Property" shall include, without limitation, any or
all of the following and all rights associated therewith: (a) all domestic and
foreign patents and applications therefor and all reissues, divisions, renewals,
extensions, continuations and continuations-in-part thereof; (b) all inventions
(whether patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, rights of privacy and publicity, and all documentation relating to any of
the foregoing; (c) all copyrights, copyright registrations and applications
therefor, and all other rights corresponding thereto throughout the world; (d)
all mask works, mask work registrations and applications therefor; (e) all
industrial designs and any registrations and applications therefor; (f) all
trade names, logos, common law trademarks and service marks; trademark and
service mark registrations and applications therefor and all goodwill associated
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therewith; and (g) all computer software including all source code, object code,
firmware, development tools, files, records and data, all media on which any of
the foregoing is recorded, and all documentation related to any of the
foregoing.
"Intellectual Property of the Company" shall mean any Intellectual
Property that: (a) is owned by or exclusively licensed to the Company, or (b)
which is necessary to the operation of the Company, including the design,
manufacture and use of the products of the Company as it currently is operated
or is reasonably anticipated to be operated in the future, but shall
specifically not include any rights in or to materials created for clients as
"work-made-for-hire" or which are subject to an exclusive assignment or license
in favor of clients of the Company.
3.14.2 Registrations. The registrations of the Intellectual Property
listed on Schedule 3.14 are valid and subsisting, all necessary registration and
renewal fees in connection with such registrations have been made and all
necessary documents and certificates in connection with such registrations have
been filed with the relevant patent, copyrights and trademark authorities in the
United States or other jurisdiction for the purposes of maintaining such
Intellectual Property registrations, except such filings as will not result in
the loss of any such registration, abandonment of any mark or proprietary right,
or the assessment of any significant (i.e., in excess of $5,000) penalty or
charge. Except as set forth in Schedule 3.14 (a) no Person has any rights to use
any of the Intellectual Property of the Company; and (b) the Company has not
granted to any Person, nor authorized any Person to retain, any rights in the
Intellectual Property of the Company. Except as set forth on Schedule 3.14 and
for "shrink wrap" and similar commercial end-user licenses, the Company Owns and
has good and exclusive title to each item of Intellectual Property of the
Company, free and clear of any Lien; and the Company owns, or has the right,
pursuant to a valid Contract to use or operate under, all other Intellectual
Property of the Company. To the knowledge of the Company and the Stockholders,
the operation of the businesses of the Company as it is currently conducted does
not infringe the Intellectual Property of any other Person. The Company has not
received notice from any Person that the operation of its business infringes the
Intellectual Property of any Person. There are no Contracts between the Company
and any other Person with respect to the Intellectual Property of the Company in
respect of which there is any dispute known to the Company or the Stockholders
regarding the scope of such agreement, or performance under such Contract,
including with respect to any payments to be made or received by the Company. To
the knowledge of the Company and the Stockholders, no Person is infringing or
misappropriating any of the Intellectual Property of the Company.
Section 3.15 Compliance with Laws; Licenses and Permits.
3.15.1 Compliance. The Company is, and its business has been conducted, in
compliance with all applicable Laws and Orders, except in each case (other than
with respect to compliance with Laws and Orders relating to the regulation or
protection of the environment; "Environmental Laws and Orders") where the
failure to so comply would not reasonably be
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expected to have a Material Adverse Effect, including without limitation: (a)
all Laws and Orders promulgated by the Federal Trade Commission or any other
Governmental or Regulatory Authority; (b) all Environmental Laws and Orders; and
(c) all Laws and Orders relating to labor, civil rights, and occupational safety
and health laws, worker's compensation, employment and wages, hours and
vacations, or pay equity. The Company has not been charged with, or, to the
knowledge of the Company and the Stockholders, threatened with or under any
investigation with respect to, any charge concerning any violation of any Laws
or Orders.
3.15.2 Licenses. The Company has all Licenses required by any Governmental
or Regulatory Authority for the operation of its business and the use of its
assets and properties as presently operated or used, except where the failure to
have such Licenses would not reasonably be expected to have a Material Adverse
Effect. All of the Licenses are in full force and effect and no action or claim
is pending, nor to the knowledge of the Company and the Stockholders is
threatened, to revoke or terminate any of such Licenses or declare any such
License invalid in any material respect.
Section 3.16 Client Relations. Schedule 3.16 sets forth for the Company
(a) the 10 largest clients (measured by revenues), and the revenues from each
such client and from all clients (in the aggregate) for the calendar year ended
December 31, 1998 and the nine months ended September 30, 1999 and (b) the
clients projected to be the 10 largest clients (measured by revenues) based on
the current profit plans of the Company for the twelve months ending December
31, 1999, together with the estimated revenues from each such client and all
clients (in the aggregate) for such period. The Stockholders and the Company do
not warrant that the estimated revenues set forth on Schedule 3.16 will prove to
be accurate; provided, however, the Stockholders and the Company do represent
that they were made in good faith and on a reasonable basis. Except as set forth
on Schedule 3.16, no client of the Company has advised the Company or the
Stockholders in writing that it is (x) terminating or considering terminating
the handling of its business by the Company as a whole or in respect of any
particular product, project or service or (y) planning to reduce its future
spending with the Company in any material manner; and to the knowledge of the
Company and the Stockholders (without making any special inquiry of any
clients), no client has orally advised the Company, the Stockholders or any of
the Company's executive or other employees at or above the Account Director
level of any of the foregoing events.
Section 3.17 Accounts Receivable; Work-in-Process: Accounts Payable. The
amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company as being due to the Company and reflected on the Balance Sheet or the
Closing Balance Sheet represent or will represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business and are or will be good and collectible in full (less the amount of any
provision, reserve or similar adjustment therefor reflected on the Balance Sheet
or the Closing
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Balance Sheet) in the ordinary course of business, and none of the accounts
receivable or other debts (or accounts receivable arising from any such
work-in-process or unbilled invoices) is or will be subject to any counterclaim
or set-off except to the extent of any such provision, reserve or adjustment.
There has been no material adverse change since the Balance Sheet Date in the
amount or aging of the work-in-process, accounts receivable, unbilled invoices,
or other debts due to the Company, or the reserves with respect thereto, or
accounts payable of the Company.
Section 3.18 Employment Relations. (a) To the knowledge of the Company and
the Stockholders, the Company is not engaged in any unfair labor practice; (b)
no unfair labor practice complaint against the Company is pending before any
Governmental or Regulatory Authority; (c) there is no organized labor strike,
dispute, slowdown or stoppage actually pending or to the knowledge of the
Company and the Stockholders threatened against or involving the Company; (d)
there are no labor unions representing or, to the knowledge of the Company and
the Stockholders, attempting to represent the employees of the Company; (e) no
claim or grievance nor any arbitration proceeding arising out of or under any
collective bargaining agreement is pending and to the knowledge of the Company
and the Stockholders, no such claim or grievance has been threatened; (f) no
collective bargaining agreement is currently being negotiated by the Company;
and (g) the Company has not experienced any work stoppage or similar organized
labor dispute during the last three years. There is no legal action, suit,
proceeding or claim pending or, to the knowledge of the Company and the
Stockholders, threatened between the Company and any of its employees, former
employees, agents, former agents, job applicants or any association or group of
any of its employees, except as set forth on Schedule 3.10.
Section 3.19 Employee Benefit Matters.
3.19.1 List of Plans. Schedule 3.8 to this Agreement lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all termination,
severance or other Contracts, whether covering one Person or more than one
Person, and whether or not subject to any of the provisions of ERISA, which are
or have been maintained, contributed to or sponsored by the Company or any ERISA
Affiliate (as defined in Section 3.19.3 below) for the benefit of any employee
(each item listed on Schedule 3.8 being referred to herein individually, as a
"Plan" and collectively, as the "Plans"). The Company has made available to
Parent, to the extent applicable, a complete and accurate copy of (a) each
written Plan and descriptions of any unwritten Plan (including all amendments
thereto whether or not such amendments are currently effective); (b) each
summary plan description and summary of material modifications relating to a
Plan; (c) each trust agreement or other funding arrangement with respect to each
Plan, including insurance contracts; (d) the most recently filed Internal
Revenue Service Form 5500 relating to each Plan; (e) the most recently received
Internal Revenue Service determination letter for each Plan; and (f) the three
most recently prepared actuarial reports and financial statements in connection
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[ILLEGIBLE] ch Plan. Except as set forth on Schedule 3.19.1, neither the
Stockholders nor any [ILLEGIBLE] has made any commitment, (i) to create or cause
to exist any Plan not set forth on [ILLEGIBLE] le 3.8 & (ii) to modify, change
or terminate any Plan. [ILLEGIBLE]
3.19.2 Severance. Except as set forth on Schedule 3.19.2, none of the Plans, or
any [ILLEGIBLE] ment agreement or other Contract to which the Company is a party
or bound, (a) [ILLEGIBLE] s for the payment of or obligates the Company to pay
separation, severance, termination [ILLEGIBLE] lar-type benefits to any Person;
or (b) obligates the Company to pay separation, [ILLEGIBLE] ze, termination or
similar-type benefits solely as a result of any transaction [ILLEGIBLE] Aated by
this Agreement or as a result of a "change in control," within the meaning of
[ILLEGIBLE] m under Section 280G of the Code.
[ILLEGIBLE] 3.19.3 Multi-Employer Plans. Neither the Company nor any ERISA
Affiliate (as [ILLEGIBLE] fter defined) has maintained, contributed to or
participated in a multi-employer plan [ILLEGIBLE] the meaning of Section 3(37)
or 4001(a)(3) of ERISA) or a multiple employer plan [ILLEGIBLE] to Sections 4063
and 4064 of ERISA, nor has any obligations or liabilities, including [ILLEGIBLE]
wal or successor liabilities, regarding any such plan. As used herein, the term
"ERISA [ILLEGIBLE] e" means any Person that, together with the Company, is
considered a "single [ILLEGIBLE] er" pursuant to Section 4001(b) of ERISA.
[ILLEGIBLE] 3.19.4 Welfare Benefit Plans. The Company has expressly reserved the
right, in all [ILLEGIBLE] ocuments relating to welfare benefits provided to
employees, former employees, [ILLEGIBLE] , directors and other participants and
beneficiaries, to amend, modify or terminate at [ILLEGIBLE] ne the Plans which
provide for welfare benefits, and the Company and the [ILLEGIBLE] lders are not
aware of any fact, event or condition that could reasonably be expected
[ILLEGIBLE] ct or impair such right.
[ILLEGIBLE] 3.19.5 Administrative Compliance. Each Plan is now and has been
operated in all [ILLEGIBLE] 1 respects in accordance with the requirements of
all applicable Laws, including, [ILLEGIBLE] limitation, ERISA, the Health
Insurance Portability and Accountability Act of 1996 [ILLEGIBLE] Code, and the
regulations and authorities published thereunder. The Company has [ILLEGIBLE] ed
all material obligations required to be performed by it under, is not in any
respect [ILLEGIBLE] At under or in violation of, and neither the Company nor the
Stockholders have [ILLEGIBLE] dge of any default or violation by any Person to,
any Plan. Except as set forth on [ILLEGIBLE] le 3.10, no legal action, suit,
audit, investigation or claim is pending or, to the [ILLEGIBLE] dge of the
Company and the Stockholders threatened with respect to any Plan (other
[ILLEGIBLE] urns for benefits in the ordinary course), and no fact, event or
condition exists that [ILLEGIBLE] be reasonably likely to provide a legal basis
for any such action, suit, audit, [ILLEGIBLE] ation or claim. All reports,
disclosures, notices and filings with respect to such Plans [ILLEGIBLE] d to be
made to employees, participants, beneficiaries, alternate payees and any
[ILLEGIBLE] mental or Regulatory Authority have been timely made or an extension
has been obtained.
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Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth
on Schedule 3.20, (x) no Stockholder nor any Person controlled by a Stockholder
nor (y) to the knowledge of the Company and the Stockholders (without making any
inquiry of any member of the Related Group, as hereinafter defined), any
officer, director, or employee of the Company, (collectively, the "Related
Group"), or any entity controlled by anyone in the Related Group:
(i) owns, directly or indirectly, any interest in (excepting for
ownership, directly or indirectly, of less than 2% of the issued and
outstanding shares of any class of securities of a publicly held and
traded company) or received or has any right to receive payments from, or
is an officer, director, employee or consultant of, any Person which is,
or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or client of the Company;
(ii) owns, directly or indirectly (other than by virtue of their ownership
of stock of the Company), in whole or in part, any tangible or intangible
property (including, but not limited to Intellectual Property) that the
Company uses in the conduct of the business of such Company, other than
immaterial personal items owned and used by employees at their work
stations; or
(iii) has any significant cause of action or other claim whatsoever
against, or owes any amount to, the Company, except for claims in the
ordinary course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
existing on the date hereof
Section 3.21 Bank Accounts; Powers of Attorney: Authority of
Representative. Set forth in Schedule 3.21 is an accurate and complete list
showing (a) the name of each bank in which the Company has an account, credit
line or safe deposit box and the names of all Persons authorized to draw thereon
or to have access thereto, and (b) the names of all Persons, if any, holding
powers of attorney from the Company and a summary statement of the terms thereof
The Representative is duly authorized and empowered to act on behalf of each of
the Stockholders and each of the other holders of Common and Preferred Stock and
options to acquire common stock of the Company pursuant to the ITI Option Plan,
as set forth in Section 2.9.1 hereof.
Section 3.22 Compensation of Employees. Schedule 3.22 is an accurate and
complete list showing (a) the names and positions of all employees and exclusive
consultants who are currently employed by the Company, together with a statement
of the current annual salary, and the annual salary, bonus and incentive
compensation paid or payable with respect to calendar years 1997 and 1998, and
the material fringe benefits of such employees and exclusive consultants not
generally available to all employees of the Company, if any; (b) all bonus and
incentive compensation paid or payable (whether by agreement, custom or
understanding) to
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any employee of the Company not listed in clause (a) above for services rendered
during calendar years 1997 and 1998; (c) the names of all retired employees, if
any, of the Company who are receiving or entitled to receive any healthcare or
life insurance benefits or any payments from the Company not covered by any
pension plan to which the Company is a party, their ages and current unfunded
pension rate, if any; and (d) a description of the current severance and
vacation policy of the Company. The Company has not, because of past practices
or previous commitments with respect to its employees, established any rights on
the part of any of its employees to additional compensation (including grant of
options) with respect to any period after the Closing Date (other than wage
increases in the ordinary course of business).
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date, except as specifically stated on Schedule 3.23, the Company has not
(a) incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except in the ordinary course of business;
(b) permitted any of its assets to be subjected to any Lien; (c) sold,
transferred or otherwise disposed of any of its assets except in the ordinary
course of business; (d) made any capital expenditure or commitment therefor
which individually or in the aggregate exceeded $25,000; (e) declared or paid
any dividends or made any distributions on any shares of its capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital stock or any
option, warrant or other right to purchase or acquire any such shares; (f) made
any bonus or profit sharing distribution; (g) increased or prepaid its
indebtedness for borrowed money, except current borrowings under credit lines
listed on Schedule 3.8, or made any loan to any Person other than to any
employee for normal travel and expense advances; (h) written down the value of
any work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which, individually or in the aggregate, is material to the
Company; (i) granted any increase in the rate of wages, salaries, bonuses or
other remuneration of any employee who, whether as a result of such increase or
prior thereto, receives aggregate compensation from the Company at an annual
rate of $50,000 or more, or except in the ordinary course of business to any
other employees; (j) entered into an employment or exclusive consultant
agreement which is not cancelable without significant penalty or other financial
obligation within 30 days; (k) canceled or waived any claims or rights of
material value; (1) made any change in any method of accounting procedures; (m)
otherwise conducted its business or entered into any transaction, except in the
usual and ordinary manner and in the ordinary course of its business; (n)
amended or terminated any agreement which is material to its business; (o)
renewed, extended or modified any Real Property Lease or except in the ordinary
course of business, any lease of personal property; (p) adopted, amended or
terminated any Plan; or (q) agreed, whether or not in writing, to do any of the
actions set forth in any of the above clauses.
Section 3.24 Corporate Controls. None of the Stockholders, nor, to the
knowledge of the Company and the Stockholders, any officer, authorized agent,
employee or any other Person while acting on behalf of the Company, has,
directly or indirectly: used any corporate fund for unlawful contributions,
gifts, or other unlawful expenses relating to political activity;
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made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on its
books or records; made any bribe, rebate, payoff, influence payment, kickback,
or other unlawful payment, or other payment of a similar or comparable nature,
to any Person, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained, and the Company has not participated in any illegal boycott or other
similar illegal practices affecting any of its actual or potential customers.
Section 3.25 Disclosure. No representation or warranty of the Company or
the Stockholders contained in this Agreement, and no statement contained in any
Schedule or in any certificate, list or other writing furnished to Parent by the
Company or the Stockholders pursuant to any provision of this Agreement
(including without limitation any financial statements), contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
Section 3.26 Brokers. Except as set forth on Schedule 3.26, no broker,
finder, agent or similar intermediary has acted on behalf of the Company or the
Stockholders in connection with this Agreement or the transactions contemplated
hereby, and no brokerage commissions, finder's fees or similar fees or
commissions are payable by the Company or the Stockholders in connection
therewith based on any agreement, arrangement or understanding with any of them.
Section 3.27 Year 2000 Compliant.
3.27.1 Definition. The term "Year 2000 Compliant" shall mean:
(i) the functions, calculations and other computer processes of all
computer hardware, software and systems, including but not limited to
internal and outsourced MIS systems and embedded computer features within
other systems of the Company (collectively, "Processes"), perform properly
in a consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the date of input to
the software, whether before, on or after January 1, 2000 and whether or
not the dates are affected by leap years;
(ii) the computer hardware, software and systems accept, calculate,
compare, sort, extract, sequence and otherwise process data inputs and
date values, and return and display date values, in a consistent manner
regardless of the dates used, whether before, on or after January 1, 2000;
and
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(iii) the computer hardware, software and systems will function
properly without interruptions or extraordinary manual intervention caused
by the date in time on which the Processes are actually performed or by
the date of input to the software, whether before, on or after January 1,
2000.
3.27.2 Computer Systems. The Company has used its reasonable commercial
efforts so that, to the knowledge of the Company and the Stockholders, current
computer hardware, software and systems, and accompanying documentation, of such
Company will be Year 2000 Compliant in a full production version, with
accompanying documentation, in all material respects, on or before November 1,
1999. The Company has used its reasonable commercial efforts so that, to the
knowledge of the Company and the Stockholders, receipt of Year 2000 Compliant
computer hardware, software and systems will be provided to the Company in a
timely manner under current supplier contracts or standard maintenance and
support plans without additional fee or charge of any kind (including any
installation, freight, or other costs or fees) to the Company.
3.27.3 Other Products and Services. The Company has used its reasonable
commercial efforts so that, to the knowledge of the Company and the
Stockholders, the products of the Company will be delivered and its services
will be scheduled and performed in a timely manner without interruptions caused
by the date in time on which the product is ordered or is actually delivered or
the services are scheduled or actually performed under normal procedures in the
ordinary course, whether before, on or after January 1, 2000. The Company has
used its reasonable commercial efforts so that, to the knowledge of the Company
and the Stockholders, the essential suppliers of products and services of the
Company, including the suppliers of its infrastructure systems, have Year 2000
Compliant programs in place to avoid interruptions in the supplier-customer
trading relationship which could have a Material Adverse Effect, whether before,
on or after January 1, 2000, except as set forth on Schedule 3.27.
Section 3.28 Copies of Documents. The Company has caused to be made
available for inspection and copying by Parent and its advisers, complete and
correct copies of all documents referred to in this Article III or in any
Schedule. Summaries of all oral contracts contained in Schedule 3.8 are complete
and accurate in all material respects.
ARTICLE IV
REPRESENTATIONS OF MERGERSUB AND PARENT
Parent and MergerSub, jointly and severally, represent and warrant to the
Company and the Stockholders as follows:
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Section 4.1 Existence and Good Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. MergerSub is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and
MergerSub has all requisite corporate power and authority to own its assets and
to carry on its business as presently conducted.
Section 4.2 Execution and Validity of Agreements. Each of Parent and
MergerSub has the full corporate power and authority to enter into this
Agreement, to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and MergerSub and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all required
corporate action on behalf of Parent and MergerSub. This Agreement has been duly
and validly executed and delivered by Parent and MergerSub and, assuming due
authorization, execution and delivery by the Company and the Stockholders,
constitutes the legal, valid and binding obligation of Parent and MergerSub,
enforceable against each of them in accordance with its terms in each case,
except as enforceability may be limited by bankruptcy, insolvency
reorganization, moratorium and other laws affecting creditors' rights generally,
or by general equitable principles (regardless of whether enforcement is sought
in a proceeding at law or in equity), and to the extent any indemnification or
contribution provisions thereof may be limited by applicable federal state or
securities laws.
Section 4.3 Non-Contravention; Approvals and Consents.
4.3.1 Non-Contravention. The execution, delivery and performance by Parent
and MergerSub of their obligations hereunder and the consummation of the
transactions contemplated hereby will not conflict with, result in a violation
or breach of, constitute (with or without notice or lapse of time or both) a
default under, or require Parent or MergerSub to obtain any consent, approval or
action of, make any filing with or give any notice to, or result in or give to
any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets or properties of Parent or MergerSub, under any of
the terms, conditions or provisions of (a) the certificate of incorporation or
by-laws of Parent or MergerSub, or (b) subject to the taking of the actions
described in Section 4.3.2, (i) any Laws or Orders of any Governmental or
Regulatory Authority applicable to Parent or MergerSub or any of their assets or
properties, or (ii) any Contract to which Parent or MergerSub is a party or by
which Parent or MergerSub or any of its assets or properties are bound.
4.3.2 Approvals and Consents. Except for (a) the filing of the Certificate
of Merger with the Secretary of State of Delaware and any other appropriate
documents with the relevant authorities of other states in which the Company
and/or MergerSub is qualified to do business, and (b) as described on Schedule
4.3.2, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Person is necessary or required
under any of the terms, conditions or provisions of any Law or Order of any
Governmental or
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Regulatory Authority or any Contract to which Parent or MergerSub is a party or
by which Parent or MergerSub or any of their respective assets or properties are
bound for the execution and delivery of this Agreement by Parent or MergerSub,
the performance by Parent and MergerSub of their respective obligations
hereunder or the consummation of the transactions contemplated hereby.
Section 4.4 Agency Shares. The Agency Shares to be delivered to the
Stockholders pursuant to this Agreement have been duly authorized for issuance
by all requisite corporate action by Parent, and when delivered as provided
herein, will be validly issued and outstanding shares of voting common stock of
Parent, fully paid and non-assessable, and will not be subject to preemptive
rights of any Person.
Section 4.5 MergerSub. MergerSub was formed solely for the purpose of the
Merger and engaging in the transactions contemplated hereby. As of the date
hereof and the Effective Time, the capital stock of MergerSub is and will be
directly owned 100% by Parent. Further, there are not as of the date hereof and
there will not be at the Effective Time any outstanding or authorized options,
warrants, calls, rights, commitments or any other Contracts requiring MergerSub
to issue, transfer, sell, purchase, redeem or acquire any shares of capital
stock. As of the date hereof and the Effective Time, MergerSub has not and will
not have incurred any obligations or liabilities or engaged in any business or
activities of any type of kind whatsoever or entered into any Contract with any
Person.
Section 4.6 Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of Parent or MergerSub or their affiliates in connection with
this Agreement or the transactions contemplated thereby, and no brokerage
commissions, finders' fees or similar fees or commissions are payable by Parent
or MergerSub or their affiliates in connection therewith based on any Contract
or understanding with either of them.
Section 4.7 Litigation. There is no action, suit, proceeding at law or in
equity by any Person, or any arbitration or any administrative or other
proceeding by or before (or to the knowledge of Parent or MergerSub any
investigation by) any Governmental or Regulatory Authority, pending or, to the
knowledge of Parent or MergerSub threatened against Parent or MergerSub with
respect to this Agreement or the transactions contemplated hereby, or against or
affecting Parent or MergerSub the properties or assets of either of them; and,
to the knowledge of Parent or MergerSub, no acts, facts, circumstances, events
or conditions occurred or exist which are a basis for any such action,
proceeding or investigation.
Section 4.8 Disclosure. No representation or warranty of Parent or
MergerSub contained in this Agreement, and no statement contained in any
Schedule or in any certificate, list or other writing furnished by Parent or
MergerSub to the Company and the Stockholders pursuant to any provision of this
Agreement, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.
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ARTICLE V
ACTIONS AT CLOSING BY THE COMPANY AND THE STOCKHOLDERS
Simultaneously herewith:
Section 5.1 Required Approvals and Consents. The Stockholders and the
Company shall have obtained or given, at no expense to Parent or MergerSub, and
there shall not have been withdrawn or modified, any consents or approvals or
other actions listed on Schedule 3.9.2 hereof (including without limitation, all
consents, approvals and/or waivers required under the Contracts listed on
Schedule 3.8 in order to permit the consummation of the transactions
contemplated by this Agreement without causing or resulting in a default, event
of default, acceleration event or termination event under any of such documents
and without entitling any party to any of such documents to exercise any other
right or remedy adverse to the interests of Parent or MergerSub or the Company
thereunder). Each such consent or approval shall be in form satisfactory to
counsel for Parent and MergerSub.
Section 5.2 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit the Company and the Stockholders to perform their respective
obligations under this Agreement and to consummate the transactions contemplated
thereby shall have been duly obtained, made or given and shall be in full force
and effect, and all waiting periods imposed by any Governmental or Regulatory
Authority necessary for the consummation of the transactions contemplated by
this Agreement, shall have terminated or expired.
Section 5.3 Good Standing Certificates. The Company shall have delivered
to Parent and MergerSub: a copy of the Company's certificate of incorporation
(or other comparable corporate charter documents), including all amendments,
certified by the Secretary of State of the State of Delaware and a certificate
from the Secretary of State in each state in which the Company is qualified as a
foreign corporation to do business to the effect that such Company is in good
standing in such state (in each case together with the applicable tax status
certificate).
Section 5.4 Certified Resolutions. The Company shall have delivered to
Parent and MergerSub a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated hereby, certified by an
officer of the Company as of the Closing Date.
Section 5.5 Employment Agreements. Each of Scott Heiferman, Ron Kovas, Ed
Dintrone and Peter Meluso shall have entered into an Employment Agreement with
MergerSub in the form of Exhibit C hereto.
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Section 5.6 Non-Solicitation/Non-Servicing Agreement. Each of Scott
Heiferman, Ron Kovas, Ed Dintrone and Peter Meluso shall have entered into a
Non-Solicitation/Non-Servicing Agreement with Parent and MergerSub in the form
of Exhibit D hereto.
Section 5.7 Opinion of Counsel. MergerSub shall have received the opinion
of Morrison & Foerster LLP, counsel to the Company and the Stockholders, dated
the Closing Date, substantially in the form and to the effect of Exhibit E
hereto.
Section 5.8 Investment Representation Certificate. Each of the holders of
Company Common Stock shall have executed and delivered an Investment
Representation Certificate in the form of Exhibit F hereto.
Section 5.9 Lockup Agreement. Each of the holders of Company Common Stock
and each Optionholder under the ITI Option Plan shall have entered into a Lockup
Agreement with Parent in the form of Exhibit G hereto.
Section 5.10 Repayment of Loans. All indebtedness of the Company
stockholders to the Company shall have been repaid in full, and each of the
stockholders shall have delivered to Parent and MergerSub a certificate in the
form of Exhibit H hereto.
Section 5.11 Appointment of Representative. The Stockholders shall have
appointed Scott Heiferman, to act as the Representative.
Section 5.12 Optionholder Forbearance Agreements. Each holder of
outstanding and unexercised ITI Options at the Effective Time shall have entered
into an Optionholder Forbearance Agreement in the form annexed as Exhibit I.
Section 5.13 Indemnity and Escrow Agreement. Each of the Stockholders and
the Company shall have entered into the Indemnity and Escrow Agreement in the
form and to the effect of Exhibit K hereto.
Section 5.14 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto must be reasonably satisfactory in form and substance to Parent and
MergerSub and their counsel, and Parent and MergerSub shall have received copies
of all such documents and other evidences as it or its counsel reasonably
requested in order to establish the consummation of such transactions and the
taking of all proceedings in connection therewith.
ARTICLE VI
ACTIONS AT CLOSING BY PARENT AND MERGERSUB
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Simultaneously herewith:
Section. 6.1 Required Approvals, Notices and Consents. Parent and
MergerSub shall have obtained or given, at no expense to the Company and the
Stockholders, and there shall not have been withdrawn or modified any notices,
consents, approvals or other actions listed on Schedules 4.3.2 hereof. Each such
consent or approval shall be in form reasonably satisfactory to counsel for the
Company and the Stockholders.
Section 6.2 Regulatory Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory Authority
necessary to permit Parent and MergerSub to perform their respective obligations
under this Agreement and to consummate the transactions contemplated thereby
shall have been duly obtained, made or given and shall be in full force and
effect, and all waiting periods imposed by any Governmental or Regulatory
Authority necessary for the consummation of the transactions contemplated by
each of the Transaction Documents, shall have terminated or expired.
Section 6.3 Certified Resolutions. Each of Parent and MergerSub shall have
delivered to the Stockholders a copy of the resolutions of their respective
Boards of Directors authorizing the execution, delivery and performance this
Agreement and the transactions and other agreements contemplated thereby,
certified to by an officer of Parent or MergerSub, as the case may be.
Section 6.4 Opinions of Counsel. The Company and the Stockholders shall
have received the opinion of Davis & Gilbert LLP, counsel to Parent and
MergerSub, and of Janet Ambrosi-Wertinan, general counsel of Parent, each dated
the Closing Date, substantially in the form and to the effect of Exhibits J-1
and J-2.
Section 6.5 Employment Agreements. MergerSub shall have entered into an
Employment Agreement with each of Scott Heiferman, Ron Kovas, Ed Dintrone and
Peter Meluso in the form of Exhibit C hereto.
Section 6.6 Non-Solicitation/Non-Servicing Agreements. MergerSub and
Parent shall have entered into a Non-Solicitation/Non-Servicing Agreement with
each of Scott Heiferman, Ron Kovas, Ed Dintrone and Peter Meluso, in the form of
Exhibit D hereto.
Section 6.7 Agency.Com Options. Parent shall have granted options pursuant
to the Agency.Com Option Plan in the amounts and to the several Company
employees listed on Schedule 6.7 hereto.
Section 6.8 Indemnity and Escrow Agreement. Parent shall have entered into
the Indemnity and Escrow Agreement in the form and to the effect of Exhibit K.
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Section 6.9 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents incident
thereto must be reasonably satisfactory in form and substance to the
Stockholders, the Company and their counsel and the Stockholders shall have
received copies of all such documents and other evidences as they or their
counsel may reasonably request in order to establish the consummation of such
transaction and the taking of all proceedings in connection therewith.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 Separate Subsidiary. Parent and the Stockholders agree that
from and after the Closing Date through September 30, 2000 (the "Earn-Out
Period"), Parent shall cause the operations of the Surviving Corporation to be
conducted and managed as a separate subsidiary, in substantially the same manner
(except as modified by the provisions of Section 7.2 below) as the operations of
the Company were conducted prior to the Closing Date.
Section 7.2 Management of the Surviving Corporation. The operations of the
Surviving Corporation shall be conducted to: (i) participate in Parent's overall
cash management program and abide by Parent's dividend and management fee
policies as from time to time in effect; (ii) comply on a timely basis with the
financial reporting and budgeting procedures of Parent as from time to time in
effect, which procedures require the approval of profit and capital expenditure
plans; and (iii) comply with Agency.Com's general business procedures for its
operating units.
Section 7.3 Private Placement and Registration and Listing. The Agency
Shares to be issued to the Stockholders will not be registered under the
Securities Act based upon the "private offering exemption" under the Securities
Act, in reliance on the Letters of Investment Intent to be delivered by
Stockholders at the Closing.
Section 7.4 Release of Stockholder Guarantees. Parent agrees that promptly
following the Closing, Parent will use its best efforts to execute any and all
documents reasonably necessary to fully discharge any and all Stockholders from
any and all personal guarantees or assurances made by such Stockholder(s) in
respect of any indebtedness or other obligations of the Company, to the extent
that such indebtedness or other obligation is reflected in the Balance Sheet or
otherwise disclosed in this Agreement.
Section 7.5 Autonomy.
(a) From the Closing Date through September 30, 2000 (the "Autonomy
Period"), the business of the Surviving Corporation shall be operated by the
Persons listed on Schedule 1.4.2 (for so long as they shall remain employees of
the Surviving Corporation or Parent, as the case may be), reporting to and
subject to the authority of the President, North America of
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Parent and Boards of Directors of the Surviving Corporation and Parent.
Notwithstanding the foregoing, none of the Stockholders, individually and
collectively, shall have the power or authority to authorize any of the
following actions, and such actions shall require the affirmative authorization
of the President, North America of Parent or the Board of Directors of Parent or
such other Person as may be designated from time to time by the Chief Executive
Officer of Parent:
(i) any merger, consolidation, or acquisition of or with any other
business enterprise, or the dissolution of the Surviving Corporation;
(ii) the establishment or dissolution of any subsidiary,
partnership, corporation or any other business enterprise or the entering
into of any joint ventures;
(iii) the incurrence of any expenditure, including any capital
expenditure, in excess of amounts budgeted for such expenditure or any
aggregate expenditures in excess of amounts budgeted for such aggregate
expenditures, in budgets of the Surviving Corporation having received the
prior approval of the Board of Directors of Parent (the "Budget");
(iv) the sale of all or any substantial portion of the assets of the
Surviving Corporation
(v) the issuance or sale of capital stock of the Surviving
Corporation or any securities or instruments convertible into or
exercisable for capital stock of the Surviving Corporation;
(vi) the borrowing of funds or the issuance of bonds or other
evidence of indebtedness or the making of guarantees or the lending of
funds, but excluding travel and other advances to employees made in the
ordinary course of business;
(vii) the pledge of assets other than to secure office equipment
lease obligations or office equipment purchase money indebtedness not in
excess of the amount budgeted therefor in the Budget;
(viii) any material changes in business activities or of any changes
in place of business;
(ix) the making in any fiscal year of any commitment or the entering
into of any contract (other than employment contracts) which conflicts
with the Budget for that fiscal year or which provides for expenditures in
any future fiscal year;
(x) the leasing or purchase of any real property;
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(xi) the making of any employment contract which has not been
approved by corporate counsel;
(xii) the amendment of the Certificate of Incorporation or the
Bylaws of the Surviving Corporation;
(xiii) providing any services to or purchasing any materials or
services from an Affiliate of any Stockholder;
(xiv) the commencement of settlement of any claims, suits or
proceedings without the approval of the general counsel of Parent;
provided that they shall be authorized to settle any dispute relating to
collections in the ordinary course of business that do not exceed $10,000
as to which no legal proceeding has commenced;
(xv) taking any action outside the ordinary course of business; and
(xvi) agreeing to do any of the foregoing.
(b) Notwithstanding anything contained in this Section 7.5 to the
contrary, Parent shall have the right in its sole discretion to cause the
business of the Surviving Corporation to be integrated into the business and
operations of Parent, subject to the provisions of Section 2.2.8 hereof and the
terms of the Stockholders' individual Employment Agreements, as applicable and
in such case the provisions of Section 7.5(a) will cease to apply.
(c) Notwithstanding anything to the contrary, during the Autonomy Period,
the President, North America of Parent and the Board of Directors of Parent or
such other Person as may be designated from time to time by the Chief Executive
Officer of Parent, acting separately, shall each have the right to terminate the
employment of any of the Surviving Corporation's employees (other than the
Stockholders whose employment will be governed by the terms of their individual
Employment Agreements) for "cause" and to cause the Surviving Corporation to
resign any account due to a conflict.
(i) For the purposes of this Section 7.5(c), the term "cause" shall
be deemed to mean and include the failure of an employee, in the judgment
of the President, North America, of Parent or other person specified
above, to adequately perform the duties, responsibilities and/or
obligations of his employment continuing for more than 15 days after
warning; dishonesty, theft, conviction of a crime, drunkenness, unethical
business conduct, nonconformance with the Surviving Corporation's or
Parent's standard business practices and policies, including without
limitation, policies against racial or sexual discrimination or
harassment, or the commission in bad faith of any act which injures or
could reasonably be expected to injure the reputation, business or
business relationships of the Surviving Corporation and/or Parent.
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(ii) In the event that during the Measuring Period, Parent shall
require the Surviving Corporation to resign any account due to a conflict
with any client or account of Parent or any Affiliate of Parent, then the
Revenue and PBT Targets set forth on Schedule 2.2.3 and the key success
factors set forth on Schedule 2.2.7 shall be adjusted, as appropriate upon
the mutual good faith agreement of Parent and the Representative, taking
into account, historical and anticipated results in respect of such
resigned client during the remainder of the Measuring Period; provided,
however, that any such Revenues, PBT or KSF amounts attributable to such
resigned client shall be offset and reduced by the Revenue, PBT or key
success factors derived during the Measuring Period from any client or
account contributed or referred to the Surviving Corporation by Parent or
any Affiliate of Parent (other than the Surviving Corporation).
ARTICLE VIII
SURVIVAL: INDEMNITY
Section 8.1 Survival. Notwithstanding any right of any party hereto fully
to investigate the affairs of any other party, and notwithstanding any knowledge
of facts determined or determinable pursuant to such investigation or right of
investigation, each party hereto shall have the right to rely fully upon the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement and the Schedules, if any, furnished by any other
party pursuant to this Agreement, or in any certificate delivered at the Closing
by any other party. Subject to the limitations set forth in Sections 8.6.2,
8.6.3 and 8.6.5, the respective representations, warranties, covenants and
agreements of the Company, the Stockholders, Parent and MergerSub contained in
this Agreement shall survive the Closing, as provided in Sections 8.6.2 and
8.6.3.
Section 8.2 Obligation of the Stockholders to Indemnify
8.2.1 General Indemnity Subject to the limitations contained in Sections
8.6.1 and 8.6.2, each of the Stockholders hereby agree, jointly and severally,
to indemnify Parent, the Surviving Corporation and their respective affiliates,
shareholders, officers, directors, employees, agents, representatives and
successors, permitted assignees (individually an "Parent Indemnified Party" and
collectively, the "Parent Indemnified Parties") against, and to protect, save
and keep harmless Parent Indemnified Parties from, and to pay on behalf of or
reimburse Parent Indemnified Parties as and when incurred for, any and all
liabilities (including liabilities for Taxes), obligations, losses, damages,
penalties, demands, claims, actions, suits, judgments, settlements, penalties,
interest, out-of-pocket costs, expenses and disbursements (including reasonable
costs of investigation, and reasonable attorneys', accountants' and expert
witnesses' fees) of whatever kind and nature (collectively, "Losses"), that may
be imposed on or incurred by any Parent Indemnified Party as a consequence of,
in connection with, incident to, resulting from or arising out of or in any way
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related to or by virtue of (a) any misrepresentation, inaccuracy or breach of
any warranty or representation contained in Article III.B hereof or in any
certificate delivered by the Company or either Stockholder at the Closing; (b)
any action, demand, proceeding, investigation or claim by any third party
(including any Governmental or Regulatory Authority) against or affecting any
Parent Indemnified Party which may give rise to or evidence the existence of or
relate to a misrepresentation or breach of any of the representations and
warranties of the Company or the Stockholders contained in Article III.B hereof
or in any certificate delivered by the Company or either Stockholders at the
Closing; or (c) any breach or failure by the Company or the Stockholders to
comply with perform or discharge any obligation, agreement or covenant by the
Company or the Stockholders contained in this Agreement.
8.2.2 Special Indemnity. Subject to the limitations contained in Sections
8.6.1 and 8.6.2, each of the Stockholders hereby severally and not jointly
agrees to indemnify Parent Indemnified Parties against, and to protect, save and
keep harmless Parent Indemnified Parties from, and to assume liability for, the
payment of all Losses that may be imposed on or incurred by any Parent
Indemnified Party as a consequence of or in connection with, incident to,
resulting from or arising out of or in any way related to or by virtue of: (a)
any misrepresentation, inaccuracy or breach of a representation or warranty by
any Stockholder contained in Article III.A hereof; and (b) any action, demand,
proceeding, investigation or claim by any third party (including any
Governmental or Regulatory Authority) against or affecting any Parent
Indemnified Party which may give rise to or evidence the existence of or relate
to a misrepresentation or breach of any of the representations and warranties of
any Stockholder contained in Article III.A hereof or in any certificate
delivered by any Stockholder at the Closing. Any claim for indemnity made under
this Section 8.2.2 shall not be construed as a claim under Section 8.2.1 hereof
even if an Parent Indemnified Party could have made a claim under Section 8.2.1
hereof in respect of the same matters.
8.2.3 Clarification of the term "Losses". The term "Losses" as used in
this Agreement is not limited to matters asserted by third parties against an
Parent Indemnified Party, but includes Losses incurred or sustained by an Parent
Indemnified Party in the absence of third party claims. For purposes of
clarification, any liabilities (including liabilities for Taxes), obligations,
losses, damages, penalties, demands, claims, actions, suits, judgments,
settlements, penalties, interest, out-of-pocket costs, expenses and
disbursements (including reasonable costs of investigation, and reasonable
attorneys', accountants' and expert witnesses' fees) of whatever kind and nature
suffered by the Surviving Corporation by virtue of a state of facts which
constitutes a misrepresentation, inaccuracy or breach of a warranty or
representation by the Company or any Stockholder shall be deemed to have been
suffered by Parent.
Section 8.3 Obligation of Parent to Indemnify. Subject to the limitations
set forth in Section 8.6.3 hereof, Parent hereby agrees to indemnify the
Stockholders against, and to protect, save and keep harmless the Stockholders
from, and to pay on behalf of or reimburse the
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Stockholders as and when incurred for, any and all Losses that may be imposed on
or incurred by either Stockholder as a consequence of, in connection with,
incident to, resulting from or arising out of or in any way related to or by
virtue of: (a) any misrepresentation, inaccuracy or breach of any warranty or
representation contained in Article IV hereof or in any certificate delivered by
MergerSub or Parent at the Closing; (b) any action, demand, proceeding,
investigation or claim by any third party (including any Governmental or
Regulatory Authority) against or affecting any Stockholder which may give rise
to or evidence the existence of or relate to a misrepresentation or breach of
any of the representations and warranties contained in Article IV hereof or in
any certificate delivered by MergerSub or Parent at the Closing; or (c) any
breach or failure by MergerSub or Parent to comply with, perform or discharge
any obligation, agreement or covenant by MergerSub or Parent contained in this
Agreement.
Section 8.4 Indemnification Procedure for Claims. In the event that any
Person entitled to indemnification under this Agreement (an "Indemnified Party")
asserts a claim for indemnification or receives notice of the assertion of any
claim or of the commencement of any action or proceeding by any Person who is
not a party to this Agreement or an affiliate of a party to this Agreement (a
"Third Party Claim") against such Indemnified Party, against which a party to
this Agreement is required to provide indemnification under this Agreement (an
"Indemnifying Party"), the Indemnified Party shall give written notice together
with a statement of any available information regarding such claim to the
Indemnifying Party within 30 days after learning of such claim (or within such
shorter time as may be necessary to give the Indemnifying Party a reasonable
opportunity to respond to such claim). The Indemnifying Party shall have the
right, upon written notice to the Indemnified Party (the "Defense Notice")
within 15 days after receipt from the Indemnified Party of notice of such claim,
which notice by the Indemnifying Party shall specify the counsel it will appoint
to defend such claim ("Defense Counsel"), to conduct at its expense the defense
against such claim in its own name, or if necessary in the name of the
Indemnified Party; provided, however, that the Indemnified Party shall have the
right to approve the Defense Counsel, which approval shall not be unreasonably
withheld or delayed, and in the event the Indemnifying Party and the Indemnified
Party cannot agree upon such counsel within 10 days after the Defense Notice is
provided, then the Indemnifying Party shall propose an alternate Defense
Counsel, which shall be subject again to the Indemnified Party's approval which
approval shall not be unreasonably withheld or delayed. If the parties still
fail to agree on the Defense Counsel, then, at such time, they shall mutually
agree in good faith on a procedure to determine the Defense Counsel.
(a) In the event that the Indemnifying Party shall fail to give the
Defense Notice within such 15 day period, it shall be deemed to have
elected not to conduct the defense of the subject claim, and in such event
the Indemnified Party shall have the right to conduct the defense and to
compromise and settle the claim with prior consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed, and
the Indemnifying Party will be liable for all reasonable costs,
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expenses, settlement amounts or other Losses paid or incurred in
connection therewith.
(b) In the event that the Indemnifying Party does deliver a Defense
Notice and thereby elects to conduct the defense of the subject claim, the
Indemnifying Party shall be entitled to have the exclusive control over
the defense and settlement of the subject claim and the Indemnified Party
will cooperate with and make available to the Indemnifying Party such
assistance and materials as it may reasonably request, all at the expense
of the Indemnifying Party; the Indemnified Party shall have the right at
its expense to participate in the defense assisted by counsel of its own
choosing. In such an event, the Indemnifying Party will not settle the
subject claim without the prior written consent of the Indemnified Party,
which consent will not be unreasonably withheld or delayed.
(c) Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive relief or specific
performance would be imposed against the Indemnified Party, or (ii) such
settlement or cessation would lead to liability or create any financial or
other obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder.
(d) If an Indemnified Party refuses to consent to a bona fide offer
of settlement which provides for a full release of the Indemnified Party
and its affiliates and solely for a monetary payment which the
Indemnifying Party wishes to accept, the Indemnified Party may continue to
pursue such matter, free of any participation by the Indemnifying Party,
at the sole expense of the Indemnified Party. In such an event, the
obligation of the Indemnifying Party shall be limited to the amount of the
offer of settlement which the Indemnified Party refused to accept plus the
costs and expenses of the Indemnified Party incurred prior to the date the
Indemnifying Party notified the Indemnified Party of the offer of
settlement.
(e) Notwithstanding clause (b) above, the Indemnifying Party shall
not be entitled to control, but may participate in, and the Indemnified
Party shall be entitled to have sole control over, the defense or
settlement of any claim (i) that seeks a temporary restraining order, a
preliminary or permanent injunction or specific performance against the
Indemnified Party, (ii) to the extent such claim involves criminal
allegations against the Indemnified Party, (iii) that if unsuccessful,
would set a precedent that would materially interfere with, or have a
material adverse effect on, the business or financial condition of the
Indemnified Party or (iv) if such claim would impose liability on the part
of the Indemnified Party for which the Indemnified Party is not entitled
to indemnification hereunder. In such an event, the Indemnifying Party
will still have all of its obligations hereunder provided that the
Indemnified
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Party will not settle the subject claim without the prior written consent
of the Indemnifying Party, which consent will not be unreasonably withheld
or delayed.
(f) Any final judgment entered or settlement agreed upon in the
manner provided herein shall be binding upon the Indemnifying Party, and
shall conclusively be deemed to be an obligation with respect to which the
Indemnified Party is entitled to prompt indemnification hereunder.
(g) A failure by an Indemnified Party to give timely, complete or
accurate notice as provided in this Section 8.4 will not affect the rights
or obligations of any party hereunder except and only to the extent that,
as a result of such failure, any party entitled to receive such notice was
deprived of its right to recover any payment under its applicable
insurance coverage or was otherwise directly and materially damaged as a
result of such failure to give timely notice.
[Section 8.5 Intentionally omitted.]
Section 8.6 Limitations on and Other Matters Regarding Indemnification.
8.6.1 Indemnity Cushion and Cap. Subject to Section 8.6.5 below, the
Stockholders shall have no liability to any Parent Indemnified Party with
respect to Losses arising out of any of the matters referred to in Sections
8.2.1 or 8.2.2 until such time as the amount of such liability shall exceed
$70,000 in the aggregate (in which case the Stockholders shall be liable for all
Losses up to and in excess of $70,000); provided, however, that this Section
8.6.1 shall not apply to Losses relating to a breach of a representation or
warranty contained in Section 3.26 or 3.2.7 (for which there is no cushion).
Subject to Section 8.6.5 below, the maximum liability of the Stockholders for
indemnity payments under Sections 8.2.1 and 8.2.2 shall be limited to and shall
be paid solely from the Escrow Fund in accordance with the terms and provisions
of the Indemnity and Escrow Agreement.
8.6.2 Termination of Indemnification Obligations of the Stockholders. The
obligation of the Stockholders to indemnify under Section 8.2 hereof shall
terminate on April 30, 2001, except (a) as to matters as to which Parent
Indemnified Party has made a claim for indemnification on or prior to such date
and (b) with respect to any claim for Losses pertaining to a misrepresentation
or a breach of representation or warranty under Sections 3.11 or 3.19 or any
other Section of Article III of this Agreement relating to Taxes. The obligation
to indemnify referred to in:
(i) the preceding clause (a) shall survive the expiration of such period
until such claim for indemnification is finally resolved and any
obligations with respect thereto are fully satisfied; and
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(ii) the preceding clause (b) shall terminate 120 days after the
expiration of the relevant Federal, state or local statute of limitations
(taking into account any extensions or waivers thereof), except as to
matters as to which any Indemnified Party has made a claim for
indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive the expiration of any
such period until such claim for indemnification is finally resolved and
any obligations with respect thereto are fully satisfied.
8.6.3 Termination of Indemnification Obligations of Parent . The
obligations of Parent to indemnify under Section 8.3 hereof shall terminate on
April 30, 2001, except as to matters as to which a Stockholder has made a claim
for indemnification on or prior to such date, in which case the right to
indemnification with respect thereto shall survive such period until such claim
for indemnification is resolved and any obligations with respect thereto are
fully satisfied.
8.6.4 Treatment. Any indemnity payments by an Indemnifying Party to an
Indemnified Party under this Article VIII shall be treated by the parties as an
adjustment to the Purchase Price.
8.6.5 Exceptions. Each of the limitations set forth above in this Section
8.6 shall in no event (a) apply to any Losses incurred by a Parent Indemnified
Party which relate, directly or indirectly, to (i) any fraudulent acts committed
by the Company or the Stockholders (including without limitation, fraud in
connection with the transaction contemplated hereby and any fraudulent acts by
any officer, director, employee, agent or stockholder of the Company); (ii) any
indemnification obligation under Section 8.2.1(c); and (iii) the Company's and
the Stockholders' obligations set forth in Section 9.1 to pay certain expenses;
(iv) the claims and potential claims by Modem Media set forth on Schedule 3.10,
for which Losses the Stockholders shall be jointly and severally liable and
shall not be paid from the Escrow Fund; (v) the 2Q1998 tax penalty and any
payroll taxes or related amounts owed with respect to the Company's 1998 stock
incentive plan as described on Schedule 3.11, for which Losses the Stockholders
shall be jointly and severally liable and shall not be paid from the Escrow
Fund; or (b) apply to any Losses incurred by a Stockholder which relate,
directly or indirectly, to (i) any indemnification obligation under Section
8.3(c); and (ii) Parent's and MergerSub's obligations set forth in Section 9.1
to pay certain expenses.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Expenses. The parties anticipate that Holders of the
converted ITI Options will exercise such Options following the expiration of
the forbearance period set forth in his/her Optionholder Forbearance
Agreement, and prior to the expiration of the lock-up period set forth in
his/her Lock-up Agreement. Within 30 days following the close of such lock-up
period, Parent will reimburse the stockholders by payment to the
Representative for expenses incurred by them relating to the transactions
contemplated by this Agreement (including, without limitation, the fees and
expenses of their counsel and financial advisors) ("Transaction Expenses")
upon presentation by the Representative of invoices, up to but not exceeding
an aggregate amount equal to 50% of the aggregate Exercise Price amounts
theretofore received by Parent from the holders of said converted ITI
Options. In addition, within 30 days following termination of the Escrow Fund
pursuant to Section 3.05 of the Indemnity and Escrow Agreement, Parent will
reimburse the stockholders by payment to the Representative for previously
unreimbursed Transaction Expenses up to an amount, which together with the
amount previously reimbursed to stockholders in accordance with the Section
9.1, equals 50% of the aggregate Exercise Price received by Parent during the
30 days following the lock-up period and the 30 days following termination of
the Escrow Fund. Except for the foregoing or as otherwise provided in this
Agreement, each of the stockholders, on the one hand, and Parent and
MergerSub on the other, shall pay its, his/her own expenses relating to the
transactions contemplated by this Agreement, including, without limitation,
the fees and expenses of their respective counsel and financial advisors.
Section 9.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto (including, without limitation,
the validity or enforcement of this Agreement), shall be governed by the laws
of the State of New York without reference to its conflict of laws provisions.
Section 9.3 "Person" Defined. "Person" shall mean and include an
individual, a company, a joint venture, a corporation (including any
non-profit corporation), an estate, an association, a trust, a general
or limited partnership, a limited liability company, a limited liability
partnership, an unincorporated organization and a government or other
department or agency thereof.
Section 9.4 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to the
knowledge of a Stockholder, such term shall be limited to the actual
knowledge of such Stockholder and unless otherwise stated such knowledge that
would have been discovered by such Stockholder after reasonable inquiry.
Where any representation and warranty contained in this Agreement is
expressly specified by reference to the knowledge of the Company, Parent or
MergerSub, as the case may be, such term shall be limited to the actual
knowledge of the executive officers of
<PAGE>
such entity and unless otherwise stated, such knowledge that would have been
discovered by such executive officers after reasonable inquiry.
Section 9.5 "Affiliate" Defined. As used in this Agreement, an "affiliate"
or "Affiliate" of any Person, shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such Person.
Section 9.6 "Material Adverse Effect" Defined. For purposes of this
Agreement, "Material Adverse Effect" shall mean any material and adverse effect
on the financial condition, results of operations, assets, properties, prospects
or business of the Company.
Section 9.7 Captions. The Article and Section captions used herein are for
reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 9.8 Publicity. Subject to the provisions of the next sentence, no
party to this Agreement shall, and the Stockholders shall insure that no
representative of the Company shall, issue any press release or other public
document or make any public statement relating to this Agreement or the matters
contained herein without obtaining the prior approval of Parent and the
Stockholders. Notwithstanding the foregoing, the foregoing provision shall not
apply to the extent that Parent is required to make any announcement relating to
or arising out of this Agreement by virtue of the federal securities laws of the
United States or the rules and regulations promulgated thereunder, or rules of
any stock exchange, or any announcement by any party or the Company pursuant to
applicable law or regulations.
Section 9.9 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand or courier, (b) three days after the
date of deposit in the mails, postage prepaid, if mailed by certified or
registered mail, or (c) the next business day if sent by facsimile transmission
(if receipt is electronically confirmed) or by a prepaid overnight courier
service, and in each case at the respective addresses or numbers set forth below
or such other address or number as such party may have fixed by notice:
If to Parent or MergerSub, addressed to:
Agency.Com, Ltd.
665 Broadway
New York, New York 10012
Attention: Chief Financial Officer
Fax:(212) 358-8256
47
<PAGE>
with a copy to:
Janet Ambrosi-Wertman
Agency.Com Ltd.
1111 Chautauqua Boulevard
Pacific Palisades, California 90272
Fax:(310) 230-6936
If to the Stockholders or to the Company, addressed to the Representative:
Scott Heiferman
c/o i-traffic
375 West Broadway
New York, New York 10012
Fax:(212) 219-3434
with a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104-0050
Attention: Michael J. W. Rennock, Esq.
Fax:(212) 468-7900
Section 9.10 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by operation
of law. Any purported such transfer, assignment, pledge, or hypothecation (other
than by operation of law) shall be void and ineffective. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, successors and permitted assigns.
Section 9.11 Severability. In the event any provision of this Agreement is
found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 9.12 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
Section 9.13 Entire Agreement. This Agreement, including the other
documents referred to herein and the Exhibits and Schedules hereto which form a
part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein
48
<PAGE>
and therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
Section 9.14 Amendments. This Agreement may not be amended, supplemented
or modified orally, but only by an agreement in writing signed by each of the
parties hereto.
Section 9.15 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto and their respective
successors and assigns as permitted under Section 9.9.
Section 9.16 Use of Terms. Whenever the context so requires or permits,
all references to the masculine herein shall include the feminine and neuter,
all references to the neuter herein shall include the masculine and feminine,
all references to the plural shall include the singular and all references to
the singular shall include the plural.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal, on the day and year first above written.
AGENCY.COM LTD.
By: /s/ Jonathan P. Tann
-----------------------------------
Name: Jonathan P. Tann
Title:
ITI ACQUISITION INC.
By: /s/ Jonathan P. Tann
-----------------------------------
Name: Jonathan P. Tann
Title:
INTERACTIVE TRAFFIC, INC.
By: /s/ Scott Heiferman
-----------------------------------
Name: Scott Heiferman
Title: CEO
THE STOCKHOLDERS:
/s/ Edward Dintrone
--------------------------------------
Ed Dintrone
/s/ Scott Heiferman
--------------------------------------
Scott Heiferman
/s/ Ron Kovas
--------------------------------------
Ron Kovas
/s/ Peter Meluso
--------------------------------------
Peter Meluso
50
<PAGE>
ANNEX I
Ed Dintrone
247 East 50th Street, Apt. 2
New York, New York 10022
Scott Heiferman
301 Elizabeth Avenue, Apt. 9J
New York, New York 10012
Ron Kovas
269 Oak Grove
Atherton, California 94027
Peter Meluso
3229 B Glennon Place
Bronx, New York 10465
<PAGE>
INDEX OF DEFINED TERMS
A
Accountants ............................................................ 11
Adjusted Net Worth Amount .............................................. 10
Affiliate .............................................................. 46
Agency Shares .......................................................... 3
Agreement .............................................................. 1
B
Balance Sheet .......................................................... 16
Balance Sheet Date ..................................................... 17
C
cause .................................................................. 39
Certificate of Merger .................................................. 2
Closing ................................................................ 13
Closing Balance Sheet .................................................. 11
Closing Date ........................................................... 13
Company ................................................................ 1
Company Common Stock ................................................... 3
Contracts .............................................................. 15
Convened Options ....................................................... 9
D
Defense Counsel ........................................................ 42
Defense Notice ......................................................... 41
Determination .......................................................... 7
E
Earn-Out Period ........................................................ 36
Effective Time ......................................................... 2
Environmental Laws and Orders .......................................... 23
ERISA .................................................................. 24
ERISA Affiliate ........................................................ 25
Estimated Closing Balance Sheet ........................................ 10
G
GAAP ................................................................... 6
Governmental or Regulatory Authority ................................... 15
I
Indemnified Party ...................................................... 41
Indemnifying Party ..................................................... 41
Indemnity Escrow ....................................................... 3
Independent Auditors ................................................... 7, 11
Intellectual Property .................................................. 22
Intellectual Property of the Companies ................................. 22
ITI Option ............................................................. 9
ITI Option Plan ........................................................ 9
ii
<PAGE>
K
Knowledge .............................................................. 46
L
Laws ................................................................... 15
Liabilities ............................................................ 21
Licenses ............................................................... 15
Liens .................................................................. 17
Losses ................................................................. 40
M
Material Adverse Effect ................................................ 46
Measuring Period ....................................................... 5
Merger ................................................................. 1
MergerSub .............................................................. 1
MergerSub Common Stock ................................................. 4
N
Net Worth Amount ....................................................... 10
0
Orders ................................................................. 15
P
Parent ................................................................. 1
Parent Indemnified Parties ............................................. 40
Payment Acceleration Event ............................................. 3
PBGC ................................................................... 26
PBT .................................................................... 6
PBT Target ............................................................. 5
Person ................................................................. 45
Plan ................................................................... 25
Preferred Stock ........................................................ 3
Processes .............................................................. 30
R
Real Property Leases ................................................... 18
Reconciled Purchase Price .............................................. 10
Reconciliation Period .................................................. 11
Related Group .......................................................... 27
Representative ......................................................... 4,13
Revenue Target ......................................................... 5
Revenues ............................................................... 6
S
Securities Act ......................................................... 3
Special Determination .................................................. 11
Stockholder ............................................................ 1
Surviving Corporation .................................................. 2
Surviving Corporation Common Stock ..................................... 4
T
Tangible Net Worth ..................................................... 11
ii
<PAGE>
Taxes .................................................................. 20
Third Party Claim ...................................................... 41
Title IV Plan .......................................................... 26
Transaction Expenses ................................................... 45
Y
Year 2000 Compliant .................................................... 30
iii
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
- --------
Exhibit A Certificate of Incorporation of the Surviving Corporation
Exhibit B By-Laws of the Surviving Corporation
Exhibit C Form of Executive Employment Agreement with MergerSub
Exhibit D Form of Non-Solicitation/Non-Servicing Agreement
Exhibit E Opinion of Morrison & Foerster LLP, counsel to the Company and the
Stockholders
Exhibit F Investment Representation Certificate
Exhibit G Lockup Agreement with Parent signed by each of the Company
Stockholders and Optionholders
Exhibit H Certificate of Repayment of Stockholder Indebtedness
Exhibit I Optionholder Forbearance Agreement
Exhibits J-1 and J-2 Opinions of counsel to Parent and MergerSub.
Exhibit K Indemnity and Escrow Agreement
<PAGE>
Schedules
- ---------
Schedule 1.4.1 Directors of Surviving Corporation
Schedule 1.4.2 Officers of Surviving Corporation
Schedule 2.2.3 Revenue and Profit Targets
Schedule 2.2.7 Key Success Factors
Schedule 2.6 Wire Transfer Instructions
Schedule 3.2 List of Jurisdictions
Schedule 3.3.2 Options and Rights
Schedule 3.4 Financial Statements and No Material Changes.
Schedule 3.4.1 Exceptions to GAAP
Schedule 3.5 Books and Records
Schedule 3.6 Liens
Schedule 3.7.2 Real Property Leases
Schedule 3.8 Contracts
Schedule 3.9.2 Approvals and Consents
Schedule 3.10 Litigation
Schedule 3.11 Taxes
Schedule 3.13 Insurance
Schedule 3.14 Registrations
Schedule 3.16 Clients
Schedule 3.19.1 List of Plans
Schedule 3.19.2 Severance
Schedule 3.20 Interests in Customers, Suppliers
Schedule 3.21 Bank Accounts and Powers of Attorney
Schedule 3.22 Compensation of Employees
Schedule 3.23 Changes since Balance Sheet Date
Schedule 3.26 Brokers
Schedule 3.27 Year 2000 Compliance
Schedule 4.3.2 Approvals and Consents
Schedule 6.7 Agency.Com Options
<PAGE>
Exhibit 10.21
[LOGO] PICTORIS ACQUISITION AGREEMENT
Pictoris Interactive Acquisition Agreement (hereinafter referred to as "this
AGREEMENT") dated October 23, 1999
by and between
AGENCY.COM LTD. (hereinafter referred to as the "PURCHASER"), a corporation
organized under the laws of the State of Delaware, whose head office is located
665, Broadway NEW YORK, NEW YORK 10012, represented by Johnathan P. TANN,
Vice-President;
and
Frederic PIE, a French national, born on December 14, 1964 in L'Hay-les-Roses
(F-9424O) and residing at 116, rue de Rennes 75006 PARIS,
Carine BARBELIVIEN, a French national, born on March 13, 1967 in Caen (F-14000)
and residing at 5 rue du Faubourg Poissonaiere 75009 PARIS,
Francis MELEARD, a French national, born on February 2, 1968 in Nogent-sur-Marne
(F-94130) and residing at 5 rue du Faubourg Poissonniere 75009 PARIS,
(Frederic PIE, Carine BARBELIVIEN and Francis MELEARD are hereinafter
collectively referred to as the "NON CORPORATE SELLERS"),
and
IN-COM, a joint stock company established under French law, with shareholder's
equity totaling 128,756,200 French Francs, with its head office located at Tour
Maine Montparnasse, 33 avenue du Maine, 75755 PARIS CEDEX 15, registered with
the Paris R.C.S. (registration number B 335 040 838), and represented by
Christophe VIET TRIEM TONG, who is duly empowered to enter into this AGREEMENT,
GALILEO PARTNERS, (hereinafter referred to as "Galileo") acting on behalf of the
venture capital investment fund F. C. P. R. Galileo II, a joint stock company
established under French law, with shareholder's equity totaling 1,850,000
French Francs, with its head office located at 89, rue Taitbout 75009 PARIS,
registered with the Paris R.C.S. (registration number B 419 765 128), and
represented by Christophe VIET TRIEM TONG, who is duly empowered to enter into
this AGREEMENT,
(IN-COM and GALILEO are hereinafter collectively referred to as the "CORPORATE
SELLERS"; the CORPORATE SELLERS are acting severally -- sans solidarite entre
eux, ni solidarite avec les NON CORPORATE SELLERS -- unless hereinafter
otherwise stipulated).
<PAGE>
Witnesseth:
Whereas Pictoris Interactive is a joint stock company established under
French law, with shareholder's equity totaling 1,547,000 French Francs, with its
head office located at 60/62, rue d'Hauteville 75010 PARIS, registered with the
Paris R.C.S. (registration number B 404 135 709) (hereinafter referred to as the
"COMPANY").
Whereas, at the date of execution of this AGREEMENT, the NON CORPORATE
SELLERS are the owners of all of the outstanding Category "1" shares of the
COMPANY, and the CORPORATE SELLERS are the owners of all of the outstanding
Category "2" shares of the COMPANY;
Whereas, the NON CORPORATE SELLERS and the CORPORATE SELLERS (hereinafter
collectively referred to as the "SELLERS" and individually as a "SELLER") desire
to have the right to sell all of the shareholders equity of the COMPANY, and the
PURCHASER desires to purchase a small percentage of the shares of the COMPANY at
the date of execution of this AGREEMENT, and wishes to have the right to acquire
the entirety of the shares of the COMPANY;
Whereas, the SELLERS and the PURCHASER are convinced that the ultimate
control of the COMPANY by the PURCHASER is in the COMPANY'S best interest, as
the combined resources of the two corporations will create a high potential for
expansion for the COMPANY;
Whereas, S. R. C. LOCALISATION a subsidiary of the PURCHASER (hereafter
referred to as "Agency.Com : Paris"), and the COMPANY had already, prior to the
signing of this AGREEMENT, taken concrete steps to commence their cooperation;
Whereas, at the time of the CLOSING DATE, AGENCY.COM : PARIS is in the
process of being restructured;
Now, therefore, in consideration of the mutual covenants and agreements
set forth in this AGREEMENT, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
<PAGE>
PRELIMINARY ARTICLE
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set forth
below. Unless the context indicates otherwise, the use of the singular shall
include the plural, and vice versa; the use of the word any shall include and
encompass the word all and vice versa; the use of any gender includes all other
genders.
Section 0.1 AFFILIATES shall mean and include all PERSONS (as defined in Section
0.41) that directly or indirectly through one or more intermediaries, control,
or are controlled by, or are under common control with another PERSON.
Section 0.2 AFFILIATION SHARES shall mean 11,146 shares of the COMPANY STOCK (as
defined in Section 0.18).
Section 0.3 AFFILIATION SHARES CALL RIGHT (promesse unilaterale de vente des
AFFILIATION SHARES) shall mean an irrevocable promise on the part of the
PURCHASER to sell the AFFILIATION SHARES to the SELLERS, under the provisions of
Part III of this AGREEMENT.
Section 0.4 AFFILIATION SHARES PURCHASE PRICE shall mean the price paid in full
consideration for the purchase or the buy-back of the AFFILIATION SHARES.
Section 0.5 AFFILIATION SHARES PUT RIGHT (promesse unilaterale d'achat des
AFFILIATION SHARES) shall mean an irrevocable promise on the part of the SELLERS
to acquire the AFFILIATION SHARES from the PURCHASER, under the provisions of
Part Ill of this AGREEMENT.
Section 0.6 ASSERTED LIABILITIES shall mean all LIABILITIES (as defined in
Section 0.32), demands, claims and circumstances which (i) an INDEMNIFIED PARTY
(as defined in Section 0.27) reasonably believes give rise, or (ii), in good
faith, with the lapse of time would or might give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation that may result in any Loss (as defined in Section 0.35).
Section 0.7 BALANCE SHARES shall mean the COMPANY STOCK minus the AFFILIATION
SHARES and minus the 12,090 shares which correspond to the employee's purchase
rights under the stock option plan (B.S.P.C.E.) agreed upon by the shareholders
of the COMPANY.
<PAGE>
Section 0.8 BALANCE SHARES CALL RIGHT (promesse unilaterale de vent des BALANCE
SHARES) shall mean an irrevocable promise on the part of all of the SELLERS to
sell the BALANCE SHARES to the PURCHASER, under the provisions of Part II of
this AGREEMENT.
Section 0.9 BALANCE SHARES EXERCISE NOTICE shall mean the notice by the SELLERS,
ACTING TOGETHER, to the PURCHASER of the exercise of the BALANCE SHARES PUT
RIGHT or the notice by the PURCHASER to all of the SELLERS of the exercise of
the BALANCE SHARES CALL RIGHT.
Section 0.10 BALANCE SHARES PURCHASE PRICE shall mean the price to be paid by
the PURCHASER in full consideration for the purchase of the BALANCE SHARES, in
two installments, the FIRST INSTALLMENT and the FINAL INSTALLMENT (as defined in
Sections 0.24 and 0.23).
Section 0.11 BALANCE SHARES PUT RIGHT (promesse unilaterale d'achat des BALANCE
SHARES) shall mean an irrevocable promise on the part of the PURCHASER to
acquire the BALANCE SHARES from all of the SELLERS, under the provisions of Part
II of this AGREEMENT.
Section 0.12 BUY-BACK EXERCISE NOTICE shall mean the notice by the SELLERS,
ACTING TOGETHER, to the PURCHASER of the exercise of the AFFILIATION SHARES CALL
RIGHT or the notice by the PURCHASER to all the SELLERS of the exercise of the
AFFILIATION SHARES PUT RIGHT.
Section 0.13 CALL RIGHT (promesse unilaterale de vente) shall mean an
irrevocable promise to sell shares of the stock of the COMPANY, which may not be
withdrawn, reneged, retracted nor repudiated. Upon the execution of this
AGREEMENT, all parties shall consider each and every CALL RIGHT as a promise and
accept them as such.
Section 0.14 CLAIMS NOTICE shall mean the notice to an INDEMNIFYING PARTY (as
defined in Section 0.28), given by an INDEMNIFIED PARTY, of an ASSERTED
LIABILITY.
Section 0.15 CLOSING shall mean the closing of this AGREEMENT.
Section 0.16 CLOSING DATE shall mean the date on which the CLOSING takes place.
Section 0.17 CLOSING PRICE PER SHARE shall mean, for each day, the last reported
sales price regular way for the SHARES OF PURCHASER STOCK on the national
securities exchange on which the greatest number of said shares
<PAGE>
has been traded during 30 (thirty) consecutive business days or, if there is no
transaction on any such day, the average of the bid and asked prices regular way
on such day.
Section 0.18 COMPANY STOCK shall mean the aggregate of the 154,700 existing
shares of the COMPANY at the CLOSING DATE and the 56,126 shares soon to be
issued to the bearers of the bonds redeemable in shares issued by the COMPANY
(or said 1J30 bonds insofar as they will not have been timely redeemed in
shares) and the 12090 shares which correspond to the employee's purchase rights
under the stock option plans (B.S.P.C.E.) agreed upon by the shareholders of the
COMPANY.
Section 0.19 CONFIDENTIAL INFORMATION shall mean and include any confidential or
proprietary information about any party, its AFFILIATES or their clients,
including but not limited to, trade secrets, methods, models) passwords, access
to computer files, financial information and records, computer software
programs, agreements or contracts between any party and its clients or between
any party's AFFILIATES and their clients, the party's or the parts AFFILIATES'
client contacts, the party's or the party's AFFILIATES' planning, marketing or
creative policies, research and polling techniques, methods, formats and
results, and budgets, practices, concepts, strategies, and methods of
operations, financial or business projections, and information about or received
from clients and other companies with which any party or its AFFILIATES does
business, whether any indication of confidentiality is given or not. The term
"CONFIDENTIAL INFORMATION" docs not include information which becomes generally
available to the public other than by breach of this AGREEMENT.
Section 0.20 DETERMINATION shall mean a report containing an audited balance
sheet of the COMPANY, and a related audited statement of income of the COMPANY
for calendar year 1999, together with a statement from the reporting auditor
(the COMPANY'S auditors (commissaire aux comptes) or the FRENCH INDEPENDANT
AUDITOR, as the case may be) which confirms that said balance sheet and
statement of income has been prepared in accordance with FRENCH GAAP and in
accordance with this AGREEMENT and provides, for calendar year 1999, the
calculation of REVENUE and all other adjustments to be made to such audited
financial statements, in accordance with FRENCH GAAP and in accordance with this
AGREEMENT, in order to determine whether or not the COMPANY has met the REVENUE
TARGET 1999 and/or the PERFORMANCE TARGET 1999.
Section 0.21 EXERCISE shall mean the exercise of either a put right or a call
right originating in this AGREEMENT, as applicable.
Section 0.22 EXERCISE DATE shall mean the date of an Exercise.
<PAGE>
Section 0.23 FINAL INSTALLMENT shall mean the portion of the BALANCE SHARES
PURCHASE PRICE the SELLERS will be entitled to, in addition to the FIRST
INSTALLMENT, depending on whether or not the COMPANY has met the PERFORMANCE
TARGET 1999, if either the BALANCE SHARES CALL RIGHT or the BALANCE SHARES PUT
RIGHT is exercised.
Section 0.24 FIRST INSTALLMENT shall mean the portion of the BALANCE SHARES
PURCHASE PRICE the SELLERS will be entitled to, irrespective of whether or not
the COMPANY has met the PERFORMANCE TARGET 1999, if either the BALANCE SHARES
CALL RIGHT or the BALANCE SHARES PUT RIGHT is exercised.
Section 0.25 FRENCH GAAP shall mean and include all generally accepted
accounting principles consistently applied in France.
Section 0.26 FRENCH INDEPENDENT AUDITORS shall mean a certified public
accountant agreed upon by the parties or, failing such agreement, a certified
public accountant appointed by the President of the Paris Commercial Court
(President du tribunal de commerce etc Paris) upon request of the most
expeditious party.
Section 0.27 INDEMNIFIED PARTIES shall mean the party or parties entitled to
receive any amount in respect of LOSSES.
Section 0.28 INDEMNIFYING PARTY shall mean the party or parties required to pay
any amount in respect of LOSSES.
Section 0.29 INSTRUMENTS shall mean and include all notes, bonds, mortgages,
security agreements, indentures, licenses, franchises, permits, concessions,
contracts, leases and other instruments, obligations or agreements of any kind.
Section 0.30 KNOWLEDGE shall mean the knowledge that a party would have had, had
it made such due and diligent inquiry as to the matters that are the subject of
any representation or warranty contained in this AGREEMENT as was reasonable
under the circumstances, in light of said representations or warranties.
Whatever the case may be, any information provided to the COMPANY in writing is
deemed to be known by the NON CORPORATE SELLERS.
Section 0.31 LAWS shall mean and include any statute, law, rule, regulation or
ordinance.
<PAGE>
Section 0.32 LIABILITIES shall mean and include all outstanding claims,
liabilities -- including, but not limited to, liabilities for TAXES (as defined
in Section 0.49) -- or indebtedness of any nature whatsoever, whether accrued,
fixed, absolute or contingent, determined or undetermined, asserted or
unasserted, and whether due or to become due.
Section 0.33 LICENSES shall mean and include all licenses and permits and other
governmental certificates, authorizations and approvals.
Section 0.34 LIENS shall mean and include all mortgages, liens, security
interests, encumbrances, claims, charges and restrictions of any kind or
character.
Section 0.35 LOSSES shall mean payments of any or all LIABILITIES, obligations,
losses, damages, penalties, claims, actions, suits, judgments, settlements,
out-of-pocket costs, reasonable expenses and disbursements (including, but not
limited to, reasonable costs of investigation, and reasonable attorneys',
accountants' and expert witnesses' fees) of whatever kind and nature, to the
extent not covered by insurance, the benefits of which will inure to the
appropriate INDEMNIFIED PARTIES. As used in this AGREEMENT, "LOSSES" is not
limited to matters asserted by third parties against the PURCHASER or the
COMPANY but includes LOSSES incurred or sustained by the PURCHASER or the
COMPANY in the absence of third party claims.
Section 0.36 MATERIAL ADVERSE EFFECT shall mean a material adverse effect on the
financial condition, assets, property or business of the COMPANY.
Section 0.37 OPTIONS shall mean and include all outstanding options, warrants,
rights, calls, commitments or arrangements of any kind, conversion, swap, or
exchange rights, plans or other agreements of any character.
Section 0.38 ORDERS shall mean and include any judgment, decree, order, writ,
permit or license.
Section 0.39 PAYMENT DATE shall mean a date on which a payment is due under this
Agreement as a result of an Exercise.
Section 0.40 PERFORMANCE TARGET 1999 shall mean a Revenue of 25,000,000 (twenty
five million French Francs) for calendar year 1999.
Section 0.41 PERSONS shall mean and include all individuals, companies, joint
ventures, corporations, limited liability companies, limited liability
partnerships, trusts, unincorporated organizations, or REGULATORY AUTHORITIES.
<PAGE>
Section 0.42 PURCHASE PRICE shall mean the aggregate of the AFFILIATION SHARES
PURCHASE PRICE and the BALANCE SHARES PURCHASE PRICE.
Section 0.43 PUT RIGHT (promesse unilaterale d'achat) shall mean an irrevocable
promise to acquire shares of the stock of the COMPANY, which may not be
withdrawn, reneged, retracted nor repudiated. Upon the execution of this
AGREEMENT, all parties shall consider each and every PUT RIGHT as a promise and
accept them as such.
Section 0.44 REGULATORY AUTHORITIES shall mean and include all governmental, non
governmental, international, regulatory or other authorities, including but not
limited to courts, tribunals, arbitrators, agencies, departments, commissions,
official and other instrumentalities or bodies of the United States of America,
France, the European Union or foreign countries and all domestic and foreign
states, counties, cities and other political subdivisions.
Section 0.45 REVENUE TARGET 1999 shall mean a Revenue of FF 20,000,000 (twenty
million French Francs) for calendar year 1999.
Section 0.46 REVENUE shall mean the revenue of the COMPANY that must be declared
on line FL of form 2052 of the annual tax return package (liasse fiscale), along
with the revenue of AGENCY.COM: PARIS, calculated according to FRENCH GAAP with
the exception of revenue derived from AGENCY.COM : PARIS' localization work
during the first three quarters of 1999 (but including such revenue earned
during the last quarter of 1999).
Section 0.47 SHARES OP PURCHASER STOCK shall mean shares of the PURCHASERS
common stock, at a par value of US$ 0,001 per share.
Section 0.48 SELLERS, ACTING TOGETHER, shall mean the most diligent among
Frederic PIE (acting on his behalf and in the name of Carine BARBELIVIEN and
Francis MELEARD), Galileo and In-Com, each one acting on behalf and in the name
of all the other SELLERS, each one being duly and irrevocably empowered to
represent all the other SELLERS, all of them being bound severally
(conjointement, et non solidairement); that being the case, a revocation of the
powers of attorney so given, in breach of Section 0.48 hereunder shall only be
effective for the PURCHASER following notification to it thereof;
Section 0.49 TAXES shall mean and include all taxes, duties, charges or levies
of any nature imposed by any REGULATORY AUTHORITY including, but not limited to,
income, gains, capital gains, surtax, capital, franchise, capital stock,
value-added taxes, taxes required to be deducted from payments made by the payor
and accounted for to any tax authority, employees' income withholding, back-up
withholding, withholding on payments to third parties, social security, national
insurance, unemployment, worker's compensation, payroll, disability, real
property, personal property, sales, use, goods and services or
<PAGE>
other commodity taxes, business, occupancy, excise, customs and import duties,
transfer, stamp and other taxes (including, but not limited to, interest,
penalties or additions to tax in respect of the foregoing), and includes all
taxes payable by the COMPANY pursuant to any applicable provision of French,
European Union or any other LAWS or ORDERS.
Section 0.50 US GAAP shall mean all generally accepted accounting principles
consistently applied and as applied in the United States of America.
Section 0.51 US INDEPENDENT AUDITORS shall mean a US certified public accountant
agreed upon by the parties or, failing such agreement, the largest accounting
firm in the United States of America in terms of gross revenue, willing to
perform said services, excluding ARTHUR ANDERSEN LLP.
<PAGE>
PART I
AFFILIATION SHARES PURCHASE
<PAGE>
ARTICLE I
PURCHASE OF THE AFFILIATION SHARES
Section 1.1 Sale of the AFFILIATION SHARES. Subject to the terms and conditions
herein stated, each SELLER agrees to sell, assign, transfer and deliver to the
PURCHASER on the CLOSING DATE, and the PURCHASER agrees to purchase from the
SELLERS on the CLOSING DATE, 11,146 shares of the stock of the COMPANY, broken
down as follows:
7,306 Category "1" shares
Frederic PIE ..................................................... 3,942 shares
Carine BARBELIVIEN ............................................... 1,687 shares
Francis MELEARD .................................................. 1,677 shares
3,840 Category "2" shares
GALILEO .......................................................... 2,285 shares
IN-COM ........................................................... 1,555 shares
Section 1.2 Property Transfer. The payment of the AFFILIATION SHARES PURCHASE
PRICE shall give rise to the immediate and automatic transfer of ownership of
the AFFILATION SHARES to the PURCHASER.
Section 1.3 Transfer Recording. The presentation to the COMPANY of both a copy
of this AGREEMENT and the PURCHASER'S bank's confirmation of the transfer of the
AFFILIATION SHARES PURCHASE PRICE to the SELLERS shall be deemed tantamount to a
transfer instruction in order to record the change in ownership of the
AFFILIATION SHARES in the stock transfer ledger of the COMPANY.
<PAGE>
ARTICLE II
AFFILIATION SHARES PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price. The AFFILIATION SHARES PURCHASE PRICE shall be an
aggregate of US$ 500,000 (five hundred thousand U.S. Dollars).
Section 2.2 PURCHASE PRICE Allocation. The AFFILIATION SHARES PURCHASE PRICE
shall be allocated and paid among the SELLERS as set forth below:
Frederic PIE ..................................................... US$ 176,835
Carine BARBELIVIEN ............................................... US$ 75,677
Francis MELEARD .................................................. US$ 75,229
GALILEO .......................................................... US$ 102,503
IN-COM ........................................................... US$ 69,756
Section 2.3 Payment. The AFFILIATION SHARES PURCHASE PRICE shall be paid by an
irrevocable order, made on the CLOSING DATE, for a bank transfer. The PURCHASER
shall wire US$ 500,000 in the aggregate, to be converted to French Francs at the
conversion rate at the date of the transfer.
Section 2.4 Closing. The CLOSING is taking place simultaneously with the
execution and delivery of this AGREEMENT, in Paris, France.
Section 2.5 Registration. This AGREEMENT must be registered in accordance with
French law, which gives rise to transfer taxes set at a rate of 1% of the
acquisition price (or a maximum of 20,000 French Francs) for each transaction,
to be borne by the PURCHASER.
<PAGE>
PART II
BALANCE SHARES PURCHASE
<PAGE>
ARTICLE III
OPTIONAL PURCHASE OF THE BALANCE SHARES
Section 3.1 BALANCE SHARES CALL RIGHT. The PURCHASER shall have the
unconditional right, until October 15, 2000, to exercise a BALANCE SHARES CALL
RIGHT and thereby demand the delivery by the SELLERS of the BALANCE SHARES,
provided that such exercise shall encompass all of the BALANCE SHARES.
Section 3.2 BALANCE SHARES PUT RIGHT. The SELLERS, ACTING TOGETHER, shall have
the right, until October 15, 2000 to exercise a BALANCE SHARES PUT RIGHT and
thereby demand the payment by the PURCHASER of the BALANCE SHARES PURCHASE
PRICE, provided that the COMPANY has met the REVENUE TARGET 1999 and provided
that such exercise shall encompass all of the BALANCE SHARES.
Section 3.3 DETERMINATION. In order to determine whether or not the REVENUE
TARGET 1999 has been met, (a) the amount of AGENCY.COM : PARIS' revenues from
non-localization work during the first three quarters of 1999, used for the
calculation of the 1999 revenue, shall be either (i) FF 800,000 (eight hundred
thousand French Francs) if the actual revenue is lower than this amount, or (ii)
the actual revenue, if it is greater than or equal to FF 800,000 (eight hundred
thousand French Francs) and (b) the amount of AGENCY.COM : PARIS' revenues from
localization work as well as from non-localization work during the last quarter
of 1999 used for the calculation of the 1999 revenue shall be either (i) FF
3,360,000 (three million three hundred and sixty thousand French Francs) if the
actual revenue is lower than this amount, or (ii) the actual revenue, if it is
greater than or equal to FF 3,360,000 (three million three hundred and sixty
thousand French Francs). An internal DETERMINATION shall be notified to the
parties by the COMPANY'S Auditors no later than June 30, 2000. If (a) the
COMPANY'S Auditors refuse to establish the DETERMINATION, (b) the COMPANY'S
Auditors fail to provide the DETERMINATION before June 30, 2000, or (c) either
the SELLERS, ACTING TOGETHER, or the PURCHASER do not agree that this internal
DETERMINATION correctly states whether or not the REVENUE TARGET 1999 has been
met, the SELLERS, ACTING TOGETHER, or the PURCHASER, as the case may be, may,
within 45 (forty five) days of (a) said refusal, (b) June 30, 2000 or (c) the
notification of the internal DETERMINATION, as the case may be, request an
external DETERMINATION from the FRENCH INDEPENDANT AUDITORS, based on the
principles mentioned hereabove regarding the amounts of FF 800,000 (eight
hundred thousand French Francs) and FF 3,360,000 (three million three hundred
and sixty thousand French Francs). The FRENCH INDEPENDENT AUDITORS will
determine which of the parties has asserted REVENUE figures for the period being
examined by the FRENCH INDEPENDANT AUDITORS, which are closest to those in the
external DETERMINATION established by the latter. The non-prevailing party shall
be liable for all of the FRENCH INDEPENDANT AUDITORS' fees and expenses (in the
case in which the SELLERS are the non prevailing
<PAGE>
party, such fees and expenses shall be divided amongst them on a pro rata
basis). In the event that the reporting auditors are unable to establish the
amount of AGENCY.COM : PARIS' revenues from non-localization work during the
first three quarters of 1999 or the amount of AGENCY.COM : PARIS' revenues from
localization work as well as non-localization work during the last quarter of
1999, and if this were to prevent the reporting auditors from delivering their
DETERMINATION, the SELLERS may choose to use the amounts of FF 800,000 (eight
hundred thousand French Francs) and FF 3,360,000 (three million three hundred
and sixty thousand French Francs) stipulated hereabove.
Section 3.4 Property Transfer. The payment of the BALANCE SHARES PURCHASE PRICE
following a BALANCE SHARES EXERCISE NOTICE given in accordance with the
provisions of this AGREEMENT shall give rise to the immediate and automatic
transfer of ownership of the BALANCE SHARES to the PURCHASER.
Section 3.5 Transfer Recording. The presentation to the COMPANY of both a copy
of a BALANCE SHARES EXERCISE NOTICE and the PURCHASER'S bank's confirmation of
the transfer of the BALANCE SHARES PURCHASE PRICE to the SELLERS shall be deemed
tantamount to a transfer instruction in order to record the change in ownership
of the BALANCE SHARES in the stock transfer ledger of the COMPANY.
Section 3.6 Registration. The BALANCE SHARES EXERCISE NOTICE must be registered
in accordance with French law, which gives rise to transfer taxes to be borne by
the exercising party.
Section 3.7 FIRST INSTALLMENT. The FIRST INSTALLMENT shall be an aggregate of
US$ 11,650,000 (eleven million six hundred fifty thousand U.S. Dollars).
Section 3.8 FIRST INSTALLMENT Allocation. The FIRST INSTALLMENT shall be
allocated and paid among the SELLERS based on an agreement among them notified
to the PURCHASER on the payment date at the very latest and, failing such
notification, as a prorata of the shares registered to the SELLERS in the stock
transfer ledger of the COMPANY as it stands on any day within the last 5 (five)
business days prior to the payment date and at the time that the PURCHASER
consults said ledger. If the PURCHASER is unable to consult the ledger for
reasons beyond his control, it will have the option of paying the PURCHASE PRICE
to the CAISSE DES DEPOTS ET CONSIGNATIONS, in full performance of its
obligations.
Section 3.9 FINAL INSTALLMENT (Earn Out). The FINAL INSTALLMENT, shall be an
aggregate amount of US$ 1,350,000 (one million three hundred and fifty thousand
U.S. Dollars) if (i) the COMPANY meets the PERFORMANCE
<PAGE>
TARGET 1999, or (ii) the PURCHASER, after the EXERCISE of the BALANCE SHARES
CALL RIGHT or the EXERCISE of the BALANCE SHARES PUT RIGHT and before January 1,
2000, removes the President of the COMPANY from office without any wrongdoing on
the part of the latter to justify such removal. Otherwise, the FINAL INSTALLMENT
shall be nil.
Section 3.10 FINAL INSTALLMENT Allocation. Except for the case in which the
FINAL INSTALLMENT is nil, it shall be allocated and paid to the SELLERS based on
an agreement among them notified to the PURCHASER on the payment date at the
very latest and, failing such notification, as a prorata of the shares
registered to the SELLERS in the stock transfer ledger of the COMPANY as it
stands on any day within the last 5 (five) business days prior to the payment
date and at the time that the PURCHASER consults said ledger. If the PURCHASER
is unable to consult the ledger for reasons beyond his control, it will have the
option of paying the PURCHASE PRICE to the CAISSE DES DEPOTS ET CONSIGNATIONS,
in full performance of its obligations.
ARTICLE IV
BALANCE SHARES PURCHASE PRICE PAYMENT
Section 4.1 SELLERS Prerogative. If, on the date of the EXERCISE of the BALANCE
SHARES CALL RIGHT or the date of the EXERCISE of the BALANCE SHARES PUT RIGHT,
as applicable, the SHARES OF PURCHASER STOCK (a) have been publicly traded for
more than a month before said date, the CORPORATE SELLERS shall have the
possibility to give notice to the PURCHASER of their wish (to be expressed in US
Dollars and not as a percentage of shares) to have their allocated share of the
BALANCE SHARES PURCHASE PRICE paid partially or fully in cash or in SHARES OF
PURCHASER STOCK and their choice shall be binding upon the PURCHASER, or (b)
have not been publicly traded for more than a month before said date, the
CORPORATE SELLERS shall have the possibility to give notice to the PURCHASER of
their wish (to be expressed in US Dollars and not as a percentage of shares) to
have their allocated share of the BALANCE SHARES PURCHASE PRICE paid partially
or fully in cash or in SHARES OF PURCHASER STOCK and their choice shall be
binding upon the PURCHASER, the only limitation being the percentage of the
price that the PURCHASER is willing to pay in SHARES OF PURCHASER STOCK insofar
as the PURCHASER cannot be obliged to pay a higher amount than it is willing in
stock; in any event, the CORPORATE SELLERS may demand a full cash payment. If on
the date of the EXERCISE of the BALANCE SHARES CALL RIGHT or the date of the
EXERCISE of the BALANCE SHARES PUT RIGHT, as applicable, the SHARES OF PURCHASER
STOCK (a) have been publicly traded for more than a month before said date, the
NON CORPORATE SELLERS shall have the possibility to give notice to the PURCHASER
of their wish to receive payment for up to 75% (seventy five percent) of the
total amount of their allocated share of the BALANCE SHARES PURCHASE PRICE in
cash or in SHARES OF
<PAGE>
PURCHASER STOCK and their choice shall be binding upon the PURCHASER, or (b)
have not been publicly traded for more than a month before said date, the NON
CORPORATE SELLERS shall have the possibility to give notice to the PURCHASER of
their wish to receive payment for up to 75% (seventy five percent) of the total
amount of their allocated share of the BALANCE SHARES PURCHASE PRICE in cash or
in SHARES OF PURCHASER STOCK and their choice shall be binding upon the
PURCHASER, the only limitation being the percentage of the price that the
PURCHASER is willing to pay in SHARES OF PURCHASER STOCK, insofar as the
PURCHASER cannot be obliged to pay a higher amount than it is willing in stock;
in any event, the NON CORPORATES SELLERS may demand up to 75% (seventy five
percent) of the payment in cash.
Section 4.2 Investment Letter. Each SELLER shall execute an Investment Letter as
exhibited in Schedule 4.2 relating to the SHARES OF PURCHASER STOCK which may be
issuable to him, her or it, if necessary. An Investment letter is set forth in
Exhibit F to this AGREEMENT, along with an excerpt of the PURCHASER'S S1
describing rule 144 as well as short memorandum from Janet AMBROSI WERTMAN,
General Counsel of the Purchaser, on the same subject.
Section 4.3 Lock-Up Letter. The SELLERS agree that they will not sell any of the
SHARES OF PURCHASER STOCK that they have received, be it under the FIRST
INSTALLMENT or under the FINAL INSTALLMENT, for a period of six months following
the date of an IPO for the PURCHASER, and shall each submit a Lock-Up Letter to
the PURCHASER so stating.
Section 4.4 DETERMINATION. In order to determine whether or not the PERFORMANCE
TARGET 1999 has been met, (a) the amount of AGENCY.COM : PARIS'S revenues from
non-localization work during the first three quarters of 1999, used for the
calculation of the 1999 revenue, shall be either (i) FF 1,000,000 (one million
French Francs) if the actual revenue is lower than this amount, or (ii) the
actual revenue, if it is greater than or equal to FF 1,000,000 (one million
French Francs) and (b) the amount of AGENCY.COM : PARIS' revenues from
localization work as well as from non-localization work during the last quarter
of 1999 used for the calculation of the 1999 revenue shall be either (i) FF
4,200,000 (four million two hundred thousand French Francs) if the actual
revenue is lower than this amount, or (ii) the actual revenue, if it is greater
than or equal to FF 4,200,000 (four million two hundred thousand French Francs).
An internal DETERMINATION shall be notified to the parties by the COMPANY'S
Auditors no later than June 30, 2000. If (a) the COMPANY'S Auditors refuse to
establish the DETERMINATION, (b) the COMPANY'S Auditors fail to provide the
DETERMINATION before June 30, 2000, or (c) either the Sellers, Acting Together,
or the PURCHASER do not agree that this internal DETERMINATION correctly states
whether or not the PERFORMANCE TARGET 1999 has been met, the Sellers, Acting
Together, or the PURCHASER, as the case may be, may, within 45 (forty five) days
of (a) said refusal, (b) June 30, 2000 or (c) the notification of the internal
DETERMINATION, as the case may be, request an external DETERMINATION
<PAGE>
from the FRENCH INDEPENDANT AUDITORS, based on the principles mentioned
hereabove regarding the amounts of FF 1,000,000 (one million French Francs) and
FF 4,200,000 (four million two hundred thousand French Francs). The FRENCH
INDEPENDENT AUDITORS will determine which of the parties has asserted REVENUE
figures for the period being examined by the FRENCH INDEPENDANT AUDITORS, which
are closest to those in the external DETERMINATION established by the latter.
The non-prevailing party shall be liable for all of the FRENCH INDEPENDANT
AUDITORS' fees and expenses (in the case in which the SELLERS are the non
prevailing party, such fees and expenses shall be divided amongst them on a
prorata basis). In the event that the reporting auditors are unable to establish
the amount of AGENCY.COM : PARIS' revenues from non-localization work during the
first three quarters of 1999 or the amount of AGENCY.COM : PARIS' revenues from
localization work as well as non-localization work during the last quarter of
1999, and if this were to prevent the reporting auditors from delivering their
DETERMINATION, the SELLERS may choose to use the amounts of FF 1,000,000 (one
million French Francs) and FF 4,200,000 (four million two hundred thousand
French Francs) stipulated hereabove.
Section 4.5 First Valuation. If, on the date of the EXERCISE of the BALANCE
SHARES CALL RIGHT or the date of the EXERCISE of the BALANCE SHARES PUT RIGHT,
as applicable, the SHARES OF PURCHASER STOCK (i) have been publicly traded for
more than a month before said date, the SHARES OF PURCHASER STOCK shall be
valued at 90% (ninety percent) of the average of the CLOSING PRICES PER SHARE
for the 30 (thirty) consecutive trading days ending said date or (ii) have not
been publicly traded for more than a month before said date, in which case the
price of the SHARES OF PURCHASER STOCK shall be set by the PURCHASER, within one
month (of the EXERCISE DATE), if it were to decide that the payment of the FIRST
INSTALLMENT might not be made entirely in cash, the PURCHASER shall notify the
SELLERS of the allocation of such payment between cash and SHARES OF PURCHASER
STOCK (subject to the SELLERS prerogative contained in Section 4.1) and shall
provide the SELLERS with all of the information that a public corporation is
required to make available to the public, in accordance with US Stock Market
regulations; if the SELLERS are not satisfied with the price proposed by the
PURCHASER, and unless the PURCHASER has received a formal valuation from an
independant third party in the 3 (three) months preceding the EXERCISE DATE, in
which case the PURCHASER shall have the right to rely on said valuation, the
SELLERS may, within a period of 2 (two) weeks (from the notification of the
price of the SHARES OF PURCHASER STOCK set by the PURCHASER), request the US
INDEPENDANT AUDITORS to calculate, within a 30 (thirty) day deadline, the value
of the SHARES OF PURCHASER STOCK on the date of the EXERCISE of the BALANCE
SHARES CALL RIGHT or the date of the EXERCISE of the BALANCE SHARES PUT RIGHT,
as applicable.
Section 4.6 Final Valuation. If, on the date the DETERMINATION mentioned in
Section 4.4 has become final, the SHARES OF PURCHASER STOCK (i) have been
publicly traded for more than a month before said date, the SHARES OF PURCHASER
STOCK shall be valued at 90% (ninety percent) of the average of the CLOSING
PRICES PER SHARE for the 30 (thirty) consecutive
<PAGE>
trading days ending said date or (ii) have not been publicly traded for more
than a month before said date, in which case the price of the SHARES OF
PURCHASER STOCK shall be set by the PURCHASER, within one month (of the date the
DETERMINATION has become final), if it were to decide that the payment of the
FINAL INSTALLMENT might not be made entirely in cash, the PURCHASER shall notify
the SELLERS of the allocation of such payment between cash and SHARES OF
PURCHASER STOCK (subject to the SELLERS prerogative contained in Section 4.1)
and shall provide the SELLERS with all of the information that a public
corporation is required to make available to the public, in accordance with US
Stock Market regulations; if the SELLERS are not satisfied with the price
proposed by the PURCHASER, and unless the PURCHASER has received a formal
valuation from an independant third party in the 3 (three) months preceding the
date the DETERMINATION has become final, in which case the PURCHASER shall have
the right to rely on said valuation, the SELLERS may, within a period of 2 (two)
weeks (from the notification of the price of the SHARES OF PURCHASER STOCK set
by the PURCHASER), request the US INDEPENDANT AUDITORS to calculate, within a 30
(thirty) day deadline, the value of the SHARES OF PURCHASER STOCK on the date
the DETERMINATION has become final.
Section 4.7 Sellers Prerogative Exercise. The SELLERS Prerogative shall be
exercised within 5 (five) business days after the BALANCE SHARES EXERCISE NOTICE
or the DETERMINATION referred to in Section 4.4 has become final, as applicable.
Failing such notice, the payment shall be made entirely in cash to the CORPORATE
SELLERS and for 75% to the NON CORPORATE SELLERS.
Section 4.8 FIRST INSTALLMENT Payment Date. The FIRST INSTALLMENT shall be paid
by the PURCHASER to the SELLERS on a date agreed upon by the parties and,
failing such agreement (a) no later than 20 (twenty) business days after the
date of the BALANCE SHARES EXERCISE NOTICE, if the SHARES OF PURCHASER STOCK
have been publicly traded for more than a month before said date or (b)
otherwise, no later than 30 (thirty) business days after the date on which the
first valuation has become final. Nevertheless, the CORPORATE SELLERS shall have
the right, if the SHARES OF PURCHASER STOCK have not been publicly traded for
more than a month before said date, to receive the portion of cash they are
entitled to within 30 (thirty) business days after the BALANCE SHARES EXERCISE
NOTICE.
Section 4.9 FINAL INSTALLMENT Payment Date. The FINAL INSTALLMENT shall be paid
by the PURCHASER to the SELLERS on a date agreed upon by the parties and,
failing such agreement (a) no later than 20 (twenty) business days after the
date of the BALANCE SHARES EXERCISE NOTICE, if the SHARES OF PURCHASER STOCK
have been publicly traded for more than a month before said date or (b)
otherwise, no later than 30 (thirty) business days after the date on which the
final valuation has become final. Nevertheless, the CORPORATE SELLERS shall have
the right, if the
<PAGE>
SHARES OF PURCHASER STOCK have not been publicly traded for more than a month
before said date, to receive the portion of cash they are entitled to within 30
(thirty) business days after the BALANCE SHARES EXERCISE NOTICE.
Section 4.10 Restricted Shares program to employees. Upon the BALANCE SHARES
EXERCISE NOTICE, employees of Pictoris will receive restricted SHARES OF
PURCHASER STOCK (common stock), issued on a fully diluted basis of Pictoris
common stock, bonds and B. S. P. C. E. as a prorata of their participation in
the 5.43 percent that the COMPANY board has approved. The valuation of said
restricted SHARES OF PURCHASER STOCK shall be same as that used the Balance
Shares under Section 4.5 of this AGREEMENT. The vesting period for the vast
majority of employees will be 1/3 six months after issuance, 1/3 eighteen months
after issuance and the final 1/3 thirty months after issuance. The vesting
period for Christine LAURENS and Luc SAINT ELIE will be 1/3 six months after
issuance, 1/3 twelve months after issuance and the final 1/3 twenty four months
after issuance. In the event that an employee leaves prior to the vesting period
being completed, their shares will return to the pool to be redistributed to the
remaining employees.
<PAGE>
PART III
AFFILIATION SHARES BUY-BACK
<PAGE>
ARTICLE V
CONDITIONAL BUY-BACK OF THE AFFILIATION SHARES
Section 5.1 AFFILIATION SHARES CALL RIGHT. In the event that neither the
PURCHASER nor the SELLERS exercise their respective BALANCE SHARES CALL RIGHT or
BALANCE SHARES PUT RIGHT prior to the expiration of these rights, then the
Sellers, Acting Together, shall have the right, exercisable as of October 16,
2000 and no later than March 31, 2001, to exercise an AFFILIATION SHARES CALL
RIGHT, provided that such exercise shall encompass all of the AFFILIATION
SHARES.
Section 5.2 AFFILIATION SHARES PUT RIGHT. In the event that neither the
PURCHASER nor the SELLERS exercise their respective BALANCE SHARES CALL RIGHT or
BALANCE SHARES PUT RIGHT prior to the expiration of these rights, then the
PURCHASER shall have the right, exercisable as of October 16, 2000 and no later
than March 31, 2001, to exercise an AFFILIATION SHARES PUT RIGHT, provided that
such exercise shall encompass all of the AFFILIATION SHARES.
Section 5.3 Pro rata Buy-back. The PURCHASER shall deliver to each of the
SELLERS both his, hers or its pro rata share of the AFFILIATION SHARES and the
related transfer order and each of the SELLERS shall pay to the PURCHASER its
pro rata share of the AFFILIATION SHARES PURCHASE PRICE, as set forth in Article
I and II of this AGREEMENT, unless otherwise specified in writing by the
Sellers, Acting Together.
Section 5.4 Substitution. In the event that one or more of the SELLERS fails to
pay his, her or its pro rata share of the AFFILIATION SHARES PURCHASE PRICE, the
other SELLERS shall have the right to pay, on a pro rata basis, the remainder of
the AFFILIATION SHARES PURCHASE PRICE and receive accordingly the shares of the
defaulting Seller, in order to enable the other Sellers to exercise such right,
the PURCHASER gives notice of the fact that one or more of the SELLERS hasn't
paid his, her or its share of the AFFILIATION SHARES PURCHASE PRICE. Within 15
(fifteen) days of said notice, the other SELLERS may notify to the PURCHASER
their whish to buy and pay the remainder of the AFFILIATION SHARES. The
allocation between the Sellers whishing to buy the shares shall be determined by
a common agreement and failing such agreement, on a pro rata basis.
Section 5.5 Buy-back Exercise Notice. The AFFILIATION SHARES PUT RIGHT may be
exercised by the PURCHASER by giving an Exercise Notice to the SELLERS. The
AFFILIATION SHARES CALL RIGHT may be exercised by the SELLERS by giving an
Exercise Notice to the PURCHASER.
<PAGE>
Section 5.6 Property Transfer. The payment of the AFFILIATION SHARES PURCHASE
PRICE following a BUY-BACK EXERCISE NOTICE given in accordance with the
provisions of this AGREEMENT shall give rise to the immediate and automatic
retransfer of ownership of the AFFILATION SHARES to the SELLERS.
Section 5.7 Transfert recording. The presentation to the COMPANY of both a copy
of a BUY-BACK EXERCISE NOTICE and the SELLERS' banks' confirmation of the
transfer of the AFFILIATION SHARES PURCHASE PRICE to the PURCHASER shall be
deemed tantamount to a transfer instruction in order to record the change in
ownership of the AFFILIATION SHARES in the stock transfer ledger of the COMPANY.
Section 5.8 Registration. A BUY-BACK EXERCISE NOTICE must be registered in
accordance with French law, which gives rise to transfer taxes to be borne by
the exercising party.
Section 5.9 Buy-back price of the AFFILIATION SHARES. The aggregate purchase
price to be paid to the PURCHASER upon the exercise of the AFFILIATION SHARES
PUT RIGHT or the AFFILIATION SHARES CALL RIGHT shall be an amount equal to US$
500,000 (five hundred thousand US Dollars) paid by the SELLERS according to the
same breakdown set forth in Section 2.2, subject to the provisions of Section
5.4.
Section 5.10 Payment date. The payment date for the buy-back of the AFFILIATION
SHARES under the provisions of this Article shall be within 30 (thirty) business
days following the exercise of the AFFILIATION SHARES PUT RIGHT or the
AFFILIATION SHARES CALL RIGHT. At that date, the SELLERS shall pay the
AFFILIATION SHARES PURCHASE PRICE in full, and the obligation of the NON
CORPORATE SELLERS to make such payment shall be joint.
<PAGE>
PART IV
TRANSFORMATION OF THE COMPANY
<PAGE>
ARTICLE VI
AMENDMENT OF THE CHARTER DOCUMENTS
Section 6.1 Societe par actions simplifiee. The PURCHASER and the SELLERS
undertake to amend the charter documents of the COMPANY in order to transform,
within 35 (thirty five) business days from the date of this AGREEMENT, the
COMPANY into a societe par actions simplifiee, governed by the specific
provisions set out in Sections 6.2 to 6.6 below, as well as, but only insofar
they are compatible with said provisions, (i) by the provisions of law governing
joint stock corporations, (societe anonyme et societe par actions simplifiee)
including particularly Articles 89 to 177-1 of Law no. 66-537 of July 24, 1966
(ii) by the provisions of the by-laws that are presently in force and (iii) by
the provisions of the shareholder's covenants executed November 26, 1998. It is
understood and agreed between the parties that, (i) upon the execution of this
AGREEMENT; the provisions under Article I (preemptive right--droit de
preemption) of said shareholder's covenants shall now be limited to transfers of
shares of COMPANY STOCK in favor of third parties (ii) the provisions of said
shareholder's covenants not integrated in the by-laws of the COMPANY shall
remain in full force.
Section 6.2 President. The COMPANY's by-laws shall stipulate that the latter
shall be managed and represented by its President. The President shall be
nominated by the shareholders unanimously. The President may be either a
shareholder or an employee of the COMPANY or both. The President may be removed
from office, but only on valid grounds, by the unanimous decision of the
shareholders, or, in the event that the President is himself a shareholder, by
the unanimous decision of the other shareholders.
Section 6.3 Board of Directors. The COMPANY'S by-laws shall provide for the
creation of a Board of Directors (conseil de direction). The maximum number of
Directors shall be equal to the number of shareholders in the COMPANY (or one
less, if the President is a shareholder himself), each shareholder (except the
President if he is a shareholder himself) having the right to freely nominate
one member of the Board and to freely remove the same.
Section 6.4 Unanimous Decisions by Shareholders. The COMPANY'S by-laws shall
stipulate that, in addition to those decisions for which unanimous agreement is
required by law, the following decisions, depending on whether they fall under
the authority of the COMPANY's Shareholders' Meetings or its President, shall
require either (a) the unanimous agreement of the shareholders, all of whom must
be present or represented, or (b) the unanimous agreement of the Board of
Directors: (i) the sale, lease or other disposition of all or substantially all
of the COMPANY's assets or business; (ii) the creation of, or the modification
of any of the terms of, any of the following financial arrangements: any
security interest on any of the COMPANY's material assets or property other than
in the ordinary course of the COMPANY'S business and in the ordinary and usual
manner; any guarantee by the COMPANY of the
<PAGE>
obligations of any third party, whether a shareholder, a director or employee of
the COMPANY or otherwise; or any indebtedness for borrowed money except
indebtedness incurred in the ordinary course of the Company's business and in
the ordinary and usual manner and not in excess of FF 600,000 (six hundred
thousand French Francs); (iii) entering into any business other than, or into
any transaction outside, the normal business activities of the COMPANY and
related activities, provided that the normal business activities of the COMPANY
are understood to include, but not be limited to, communications, marketing and
related activities in any media whatsoever; (iv) the amendment of the COMPANY's
charter documents, except amendments required by the reimbursement of already
issued bonds; (v) any increase or decrease in the capitalization of the COMPANY,
including any creation of or increase in the COMPANY's bond indebtedness but
with the exception of the 1,330 bonds redeemable in shares mentioned in Section
0.20; (vi) any acquisition by the COMPANY of the stock, assets or business of
another corporation or entity or any investment by the COMPANY of corporate
funds in another corporation or entity, with the exception of investments of a
purely financial nature and made in order to ensure appropriate cash management
in the ordinary course of business and in the ordinary and usual manner,
consistent with past practice; (vii) the merger, consolidation or amalgamation
of the COMPANY with and into another corporation or entity, or of any other
corporation or entity with and into the COMPANY; (viii) the adoption of the
annual profit and capital expenditure plans (ix) any capital expenditure
relating to property, plant, equipment and intangibles, or commitment therefor,
involving an amount in excess of FF 300,000 (three hundred thousand French
Francs) for each related expenditure or commitment, or aggregating more than FF
1,500,000 (one million five hundred thousand French Francs) during any calendar
year, except when said expenditures or commitments do not exceed the levels set
forth in the annual profit and capital expenditure plan; (x) the liquidation or
dissolution of the COMPANY; (xi) the making of any loans by the COMPANY
exceeding FF 150,000 (one hundred and fifty thousand French Francs) to any
employee, other than travel and business expense advances to employees in the
ordinary course of business and in the ordinary and usual manner, up to a total
of FF 600,000 (six hundred thousand French Francs) in such loans outstanding at
any time; (xii) with the exception of the Employment Agreements executed on the
same date as, and in connection with, this AGREEMENT and hereby attached,
entering into any transaction with any shareholder who beneficially owns,
directly or indirectly, 10% or more of the COMPANY STOCK or any entity
controlled by any shareholder who beneficially owns, directly or indirectly, 10%
or more of the COMPANY STOCK, or any other officer or director of the COMPANY;
(xiii) any increase in the compensation payable to any shareholder who
beneficially owns, directly or indirectly, 10% or more of the COMPANY STOCK or
to any other executive officer or director of the COMPANY, as well as the
adoption or amendment of any profit sharing or other employee benefit plan other
than as included in an annual profit or capital expenditure plan previously;
(xiv) any termination of employment of a manager of the COMPANY.
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Section 6.5 Restrictions on Stock Transfers. THE COMPANY's by-laws shall provide
that, as long as transfer of the tide of the BALANCE SHARES under the provisions
of this AGREEMENT is enforceable, the shares of COMPANY'S stock shall be
non-transferable to third parties, except in cases in which a waiver is
unanimously given by the shareholders. Any transfers of such stock to the
PURCHASER other than those stipulated in this AGREEMENT are prohibited.
Section 6.6 Financial reports The COMPANY's by-laws shall stipulate the
COMPANY's obligation to complete US financial reporting packages on a quarterly
basis and to comply with the US reporting procedures and practices (the
PURCHASER agrees, in order to enable the COMPANY to comply with the US financial
reporting requirements, to provide the COMPANY with all of the accounting tools
and explanations that are necessary).
Section 6.7 Shareholders' convention. The provisions in Sections 6.3 to 6.6
hereabove shall be binding upon the parties as of the CLOSING DATE and shall
immediately take effect; thus, they shall govern all relationships between the
parties on any and all matters relating to the COMPANY, as applicable. The above
mentioned provisions shall be binding even during the period before the
transformation of the COMPANY has become legally effective. In the interim, the
provisions applicable to the conseil de direction under Section 6.3 shall be
applicable, mutatis mutandis, to the conseil de administration of the COMPANY
and the PURCHASER shall have a seat thereon as from the date of this AGREEMENT.
Section 6.8 Return to Status Quo Ante. The COMPANY by-laws shall provide that,
failing EXERCISE of a BALANCE SHARES CALL RIGHT or a BALANCE SHARES Put RIGHT as
of October 15, 2000, the President of the COMPANY shall be removable ad nutum
upon a decision of a simple majority of the shareholders and that the decisions
mentioned in section 6.4. hereabove shall be subject to the majority rules as
applicable before the execution of this AGREEMENT, notably as provided for under
the shareholder's covenants and the by-laws in force before the transformation
of the COMPANY. The Purchaser agrees that, on the date of transfer of all the
AFFILIATION SHARES to the Sellers, it shall resign from its position on the
Board of Directors.
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PART V
REPRESENTATIONS & WARRANTIES
<PAGE>
ARTICLE VII
REPRESENTATIONS OF THE SELLERS
The SELLERS, severally (conjointement, et non solidairement), and each one
individually acting on his, hers or its own behalf hereby represent, warrant and
agree to and with the PURCHASER as follows:
Section 7.1 Capital Stock. At the CLOSING DATE, to the Knowledge of the Sellers,
the COMPANY has shareholder's equity of 1,547,000 French Francs, consisting of
154,700 fully paid shares, owned by the SELLERS. To the Knowledge of the
Sellers, all shares of COMPANY STOCK which have been issued and are outstanding
have been validly issued and have not been issued in violation of any preemptive
rights of any stockholder. To the Knowledge of the Sellers, all issued and
outstanding category "I" shares and all issued and outstanding category "2"
shares are fully paid and no other class of capital stock of the COMPANY is
authorized or outstanding, excluding the shares to which the employee should be
entitled under the Stock option plan (B. S. P. C. E.). To the Knowledge of the
Sellers, with the exception of the bonds redeemable in shares mentioned in
Section 0.18 and whith the exception of the shares to which the employee should
be entitled under the Stock option plan (B. S. P. C. E.) there are no OPTIONS
providing for the purchase, issuance or sale of any shares of the capital stock
of the COMPANY to the benefit of third parties. To the KNOWLEDGE of the SELLERS,
all repurchases or redemptions of shares of the capital stock of the COMPANY
were properly completed in compliance with all applicable regulations and
corporate requirements; and no further monies or other obligations will be due
by the COMPANY in respect thereof with the exception of the bonds redeemable in
shares mentioned in Section 0.18 and whith the exception of the shares to which
the employee should be entitled under the Stock option plan (B. S. P. C. E.).
Section 7.2 Stock Ownership. The SELLERS are, at the CLOSING DATE, the true and
lawful owners of the COMPANY STOCK and, to the Knowledge of the Sellers, the
COMPANY STOCK has been duly and validly authorized and issued and fully paid.
Section 7.3 NO LIENS. The shares of the COMPANY's stock held by the SELLERS are
free of preemptive rights and options to the benefit of third parties, with no
personal liability attaching to the ownership thereof, and such ownership is
free and clear of any mortgages, liens, security interests, emcumbrances or
claims and free of any charges and restrictions of any kind or character to the
benefit of third parties.
Section 7.4 NO OPTIONS. This AGREEMENT notwithstanding, and with the exception
of 1,330 bonds redeemable in shares owned by the CORPORATE SELLERS, and with the
exception of the shares to which the employee should be entitled under the Stock
option plan (B. S. P. C. E.), there
<PAGE>
are no OPTIONS to the benefit of third parties to acquire any of the shares of
the COMPANY's stock held by the SELLERS and there are no agreements or
understandings with respect to the sale or transfer of any of the shares of the
COMPANY's stock held by the SELLERS to the benefit of third parties.
Section 7.5 Execution and Validity. Each of the NON CORPORATE SELLERS has the
full power and capacity and each of the CORPORATE SELLERS has the full corporate
power and authority to enter into this AGREEMENT and to perform its obligations
hereunder. The execution and delivery of this AGREEMENT and the performance of
the transactions contemplated hereby have been duly authorized by all required
corporate action on behalf of each of the CORPORATE SELLERS. This AGREEMENT has
been duly and validly executed and delivered by each SELLER and, assuming due
authorization, execution and delivery by the PURCHASER, constitutes a legal,
valid and binding obligation upon each of the SELLERS, enforceable against each
of them in accordance with its terms.
Section 7.6 Non-Contravention. The execution, delivery and performance by the
SELLERS of their respective obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a) violate, conflict with or result
in the breach of any provision of the by-laws or other corporate charter
documents of the CORPORATE SELLERS (b) result in the violation by any SELLER of
any LAW or ORDER of any French or European Union REGULATORY AUTHORITY applicable
to any SELLER, (c) to the KNOWLEDGE of the SELLERS, result in the violation by
any SELLER of any LAW or ORDER of any foreign REGULATORY AUTHORITY applicable to
any SELLER.
Section 7.7 Approvals and Consents. All consents, approvals or actions of,
filing with or notices to any REGULATORY AUTHORITY or any PERSON necessary or
required under any of the terms, conditions or provisions of any LAW or ORDER of
any REGULATORY AUTHORITY or any INSTRUMENT to which any SELLER is a party for
the execution and delivery of this AGREEMENT by the SELLERS, the performance by
the SELLERS of their obligations hereunder or the consummation of the
transactions contemplated hereby, if any, have been obtained or given by the
SELLERS, at no expense to the PURCHASER, and none has been withdrawn or
modified.
Section 7.8 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any REGULATORY AUTHORITY, and no legal, administrative or arbitration
proceeding pending or, to the KNOWLEDGE of the SELLERS, threatened against the
SELLERS, with respect to the execution, delivery and performance of this
AGREEMENT by the SELLERS or the transactions contemplated hereby or any other
agreement entered into by the SELLERS in connection with the transactions
contemplated hereby.
<PAGE>
Section 7.9 No Litigation. There are no actions, suits, proceedings at law or in
equity by any PERSON, or any arbitrations or any administrative or other
proceedings by or before (or to the KNOWLEDGE of the SELLERS, any investigations
by) any REGULATORY AUTHORITY, pending or, to the KNOWLEDGE of the SELLERS,
threatened, against any of the SELLERS with respect to this AGREEMENT or the
transactions contemplated hereby.
Section 7.10 No Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of the SELLERS or the COMPANY in connection with this AGREEMENT
or the transactions contemplated hereby, and no brokerage commissions, finder's
fees or similar fees, commissions or payments are due by the COMPANY or the
SELLERS in connection therewith based on any agreement, arrangement or
understanding with any of them.
ARTICLE VIII
REPRESENTATIONS OF THE PURCHASER
The PURCHASER, represents, warrants and agrees to and with the SELLERS as
follows:
Section 8.1 Existence and Good Standing. The PURCHASER is a corporation duly
organized, validly existing under and in good standing with the laws of the
State of Delaware, with full corporate power and authority to own its property
and to carry on its business, all as and in the places where such property are
now owned or operated or such business is now being conducted.
Section 8.2 Execution and Validity. The PURCHASER his the full corporate power
and authority to enter into this AGREEMENT and to perform its obligations
hereunder. The execution and delivery of this AGREEMENT and the performance of
the transactions contemplated hereby have been duly authorized by all required
corporate action on behalf of the PURCHASER. This AGREEMENT has been duly and
validly executed and delivered by the PURCHASER and, assuming due authorization,
execution and delivery by the SELLERS, constitutes a legal, valid and binding
obligation of the PURCHASER, enforceable against it in accordance with its
terms.
Section 8.3 Non-Contravention. The execution, delivery and performance by the
PURCHASER of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the certificate of incorporation or by-laws or other
corporate charter documents of the PURCHASER (b) result in the violation by the
PURCHASER of any LAW or ORDER of any United States REGULATORY AUTHORITY
applicable to the PURCHASER, (c) to the
<PAGE>
KNOWLEDGE of the PURCHASER, result in the violation by the PURCHASER of any LAW
or ORDER of any foreign REGULATORY AUTHORITY applicable to the PURCHASER.
Section 8.4 Approvals and Consents. All consents, approvals or actions of,
filing with or notices to any REGULATORY AUTHORITY or any PERSON, necessary or
required under any of the terms, conditions or provisions of any LAW or ORDER of
any REGULATORY AUTHORITY or any INSTRUMENT to which the PURCHASER is a party or
by which any of the assets or the property of the PURCHASER is bound, for the
execution and delivery of this AGREEMENT by the PURCHASER, the performance by
the PURCHASER of its obligations hereunder or the consummation of the
transactions contemplated hereby, if any, have been obtained or given by the
PURCHASER, at no expense to the SELLERS, and none has been withdrawn or
modified.
Section 8.5 No Restrictions. There is no suit, action, claim, investigation or
inquiry by any REGULATORY AUTHORITY, and no legal, administrative or arbitration
proceeding pending or, to the KNOWLEDGE of the PURCHASER, threatened against the
PURCHASER, with respect to the execution, delivery and performance of this
AGREEMENT or the transactions contemplated hereby or any other agreement entered
into by the PURCHASER in connection with the transactions contemplated hereby.
Section 8.6 No Litigation. At the CLOSING DATE, there are no actions, suits,
proceedings at law or in equity by any PERSON, or any arbitrations or any
administrative or other proceedings by or before (or to the KNOWLEDGE of the
PURCHASER, any investigations by) any REGULATORY AUTHORITY, pending or, to the
KNOWLEDGE of the PURCHASER, threatened, against the PURCHASER with respect to
this AGREEMENT or the transactions contemplated hereby.
Section 8.7 No Brokers. No broker, finder, agent or similar intermediary has
acted on behalf of the Purchaser or its Affiliates in connection with this
Agreement or the transactions contemplated hereby, and no brokerage commissions,
finders' fees or similar fees, commissions or payments are due by the Purchaser
or its Affliates in connection therewith based on any agreement, arrangement or
understanding with any of them.
ARTICLE IX
WARRANTY
Section 9.1 Reliability. Notwithstanding any right that the PURCHASER may have
to fully investigate the affairs of any SELLER, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation or
right of investigation, the PURCHASER shall have the right
<PAGE>
to rely fully upon the representations, warranties, covenants and agreements of
any SELLER contained in this AGREEMENT. Notwithstanding any right that any
SELLER may have to fully investigate the affairs of the PURCHASER, and
notwithstanding any knowledge of facts determined or determinable pursuant to
such investigation or right of investigation, each SELLER shall have the right
to rely fully upon the representations, warranties, covenants and agreements of
the PURCHASER contained in this AGREEMENT and the Schedules furnished by the
PURCHASER pursuant to this AGREEMENT, or in any certificate delivered at the
CLOSING by the PURCHASER.
Section 9.2 Sellers' Indemnification Obligations. Subject to the limitations
contained in Section 9.6 hereof, the Sellers hereby agree to indemnify severally
(conjointement) the Purchaser for) to protect, save and keep harmless the
Purchaser from, and to assume liability for any Losses that may be imposed on or
incurred by the Purchaser or the Company as a consequence of or in connection
with (i) any inaccuracy or breach of any representations or warranties contained
in ARTICLE VII herein or (ii) any breach of or failure by him, her or it to
comply with or perform any agreement, covenant and obligation contained in this
Agreement.
Section 9.3 PURCHASER'S Indemnification Obligations. Subject to the limitations
set forth in Section 9.6 hereof, the PURCHASER hereby agrees to indemnify the
SELLERS for, to protect, save and keep harmless the SELLERS from and to assume
liability for any LOSSES that may be imposed on or incurred by the SELLERS as a
consequence of or in connection with (i) any inaccuracy or breach of any
representations or warranties contained in ARTICLE VIII herein or (ii) any
breach of or failure by the PURCHASER to comply with or perform any agreement,
covenant and obligation contained or referred to in this AGREEMENT.
Section 9.4 Tax benefit. In the event of a Loss, the evaluation thereof shall be
net of any tax benefit actually realized by the INDEMNIFIED PARTY (it being
understood that any such benefit shall be paid in the first instance by the
INDEMNIFYING PARTY and reimbursed by the INDEMNIFIED PARTY upon the realization
of the benefit). Notwithstanding the general nature of the foregoing, it is
understood and agreed that (a) any VAT reassessment shall be paid by the
INDEMNIFYING PARTY only to the extent that the amount resulting from such
reassessment shall not be deductible or reimbursable the following month; (b)
any VAT reassessment shall be paid by the INDEMNIFYING PARTY and, if the amount
of such reassessment can be collected from a third parties or otherwise
reimbursed, shall be refunded by the INDEMNIFIED PARTY (c) any tax reassessment
which represent a mere rescheduling of the amount due (such as reversal of
provision or capitalization of overhead or administrative costs) shall not be
included in the Loss, provided that said tax reassessment gives rise to an
equivalent tax cut for the following fiscal year or years. Any amounts due by
the Indemnifying Party to the Indemnified Party shall be paid in the first
instance by the former to the latter under this AGREEMENT and should such
amounts be covered under an insurance policy or any other
<PAGE>
guarantee granted by a third party, the INDEMNIFIED PARTY shall, after having
actually received such amounts, reimburse the INDEMNIFYING PARTY. In all cases
in which the INDEMNIFYING PARTY makes a prior payment to the INDEMNIFIED PARTY
which is to be later reimbursed, the rights of the latter shall enure to the
former under the principle of subrogation (paiement subrogatoire). In addition,
any and all amounts due by the INDEMNIFYING PARTY to the INDEMNIFIED PARTY under
this AGREEMENT shall be set off against any and all amounts resulting out of any
decrease in the liabilities or any increase in the assets of the COMPANY as
shown in the accounts of the COMPANY at the time of the CLAIMS NOTICE.
Section 9.5 Indemnification Procedures.
9.5.1 Notice of Asserted Liability. The INDEMNIFIED PARTY shall
promptly and within 45 (forty five) days, give a CLAIMS NOTICE which shall
describe the ASSERTED LIABILITY in reasonable detail and indicate the amount
(estimated, if necessary, and to the extent feasible) of the LOSSES that have
been or may be suffered by said INDEMNIFIED PARTY.
9.5.2 Defense of Asserted Liability. The INDEMNIFYING PARTY may elect to
compromise, settle or defend, at its own expense and through its own counsel
(said counsel to be reasonably satisfactory to the INDEMNIFIED PARTY), any
ASSERTED LIABILITY. If the INDEMNIFYING PARTY elects to compromise, settle or
defend such ASSERTED LIABILITY it shall within 30 days (thirty days) from the
CLAIMS NOTICE (or sooner, if the nature of the ASSERTED LIABILITY so requires),
notify the INDEMNIFIED PARTY in writing of its intent to do so and the
INDEMNIFIED PARTY shall cooperate, at the request and expense of the
INDEMNIFYING PARTY (the disbursement shall be made in advance by the INDEMNIFIED
PARTY to be later reimbursed, a posteriori, by the INDEMNIFYING PARTY if calling
the warranty was justified and to the extent that such disbursment does not
exceed reasonable fees), in the settlement or compromise of, or defense against,
such ASSERTED LIABILITY. If the INDEMNIFYING PARTY elects not to compromise,
settle or defend the ASSERTED LIABILITY, or fails to notify the INDEMNIFIED
PARTY of its election as herein provided, the INDEMNIFIED PARTY may pay,
compromise, settle or defend said ASSERTED LIABILITY at the expense of the
INDEMNIFYING PARTY (the disbursment shall be made in advance by the INDEMNIFIED
PARTY to be later reimbursed, a posteriori, by the INDEMNIFYING PARTY if calling
the warranty was justified and to the extent that such disbursement does nor
exceed reasonable fees) and the INDEMNIFYING PARTY shall be bound by the results
obtained by the INDEMNIFIED PARTY with respect to said ASSERTED LIABILITY.
Notwithstanding the foregoing, the INDEMNIFYING PARTY may not settle or
compromise any ASSERTED LIABILITY without the prior written consent of the
INDEMNIFIED PARTY, if such settlement or compromise does not include an
unconditional release from all liability without future obligation or
prohibition on the part of the INDEMNIFIED PARTY. If an INDEMNIFIED PARTY
objects to a bona fide settlement offer which provides solely for a monetary
payment and includes an unconditional release from all liability without future
obligation or prohibition on the part of the INDEMNIFIED PARTY, which the
INDEMNIFYING PARTY
<PAGE>
wishes to accept, the INDEMNIFIED PARTY may continue to pursue the matter, free
of any participation by the INDEMNIFYING PARTY, at the expense of the
INDEMNIFIED PARTY. Were this to occur, the obligation of the INDEMNIFYING PARTY
would be limited to the amount of the settlement offer which the INDEMNIFIED
PARTY refused to accept plus the costs and expenses of the INDEMNIFIED PARTY
incurred prior to the date on which the INDEMNIFYING PARTY notified the
INDEMNIFIED PARTY of the settlement offer. Whatever the case may be, the
INDEMNIFIED PARTY shall have the right to employ its own counsel with respect to
an ASSERTED LIABILITY--the fees and expenses of said counsel shall be borne by
the INDEMNIFIED PARTY unless the employment of such counsel has been authorized
in writing by the INDEMNIFYING PARTY in connection with the defense of such
action--and the INDEMNIFYING PARTY shall not have the right to effect the
defense of such action on behalf of the INDEMNIFIED PARTY. If the INDEMNIFYING
PARTY chooses to defend any ASSERTED LIABILITY, the INDEMNIFIED PARTY shall make
available to the INDEMNIFYING PARTY any books, records or other documents within
its control that are necessary or appropriate for such defense. The parties
hereto agree to cooperate fully with one another in the defense, compromise or
settlement of any ASSERTED LIABILITY. The disbursment shall be made in advance
by the INDEMNIFIED PARTY to be later reimbursed, a posteriori, by the
INDEMNIFYING PARTY if calling the warranty was justified.
Section 9.6 Limitations on Indemnification.
9.6.1 Termination of the SELLERS' Indemnification Obligations. The
obligation of the SELLERS to indemnify under ARTICLE II hereof shall terminate
on October 15, 2002 except for matters regarding which the PURCHASER has made a
claim for indemnification or given a CLAIMS NOTICE on or prior to this date, in
which case the right to indemnification with respect thereto shall survive until
the related claim for indemnification has been finally resolved and all
obligations with respect thereto are fully satisfied.
9.6.2 Termination of the PURCHASER'S Indemnification Obligations.
The obligation of the PURCHASER to indemnify under Section 4.1 hereof shall
terminate on October 15, 2001 except for matters regarding which any SELLER has
made a claim for indemnification or given a CLAIMS NOTICE on or prior to this
date, in which case the right to indemnification with respect thereto shall
survive until the related claim for indemnification has been finally resolved
and all obligations with respect thereto are fully satisfied.
Section 9.7 Treatment. Indemnity payments by an INDEMNIFYING PARTY
to an INDEMNIFIED PARTY under this Article IX shall be treated by the parties as
an adjustment to the PURCHASE PRICE.
Section 9.8 Survival. The representations made by the SELLERS in
this AGREEMENT reflect the situation of the COMPANY at the time of the CLOSING
and shall continue to do so until the time of the
<PAGE>
BALANCE SHARES EXERCISE NOTICE, subject to the provisions hereafter. The
warranties, covenants and agreements of the SELLERS and the PURCHASER contained
in this AGREEMENT shall survive the BALANCE SHARES EXERCISE NOTICE subject to
the provisions of Sections 9.6.1 and 9.6.2. Nevertheless, no event occuring
after the CLOSING DATE in the ordinary course of business or with the approval
of the PURCHASER or contained within a representation which expressly reflects
the situation of the COMPANY at the CLOSING DATE, may be used as a ground for
the enforcement of the indemnification obligations of the parties. If, before
the EXERCISE of the BALANCE SHARES CALL RIGHT an event occurs which might cause
the warranty to become enforceable, the latter may send a NOTICE to the
PURCHASER on this matter. The PURCHASER shall not invoke the warranty for any
event of which he had received notice before the EXERCISE of the BALANCE SHARES
CALL RIGHT. If the event notified to the PURCHASER does not have a MATERIAL
ADVERSE EFFECT, the PURCHASER shall not invoke the warranty for said event, even
if the BALANCE SHARES PUT RIGHT has been exercised.
<PAGE>
PART VI
MISCELLANOUS
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses. The parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this AGREEMENT, including, but not
limited to, the fees and expenses of their respective legal counsel and
financial advisers.
Section 10.2 Publication. Subject to the provisions of the next sentence, no
party to this AGREEMENT will, and the SELLERS shall insure that no
representative of the COMPANY shall, issue any press release or other public
document or make any public statement or give any information to any third party
relating to this AGREEMENT or the matters contained herein without obtaining the
prior approval of the PURCHASER, the COMPANY and the SELLERS. Notwithstanding
the above-mentioned, the foregoing provision shall not apply to the extent that
the PURCHASER is required to make any announcement relating to or arising out of
this AGREEMENT by virtue of the federal securities laws of the United States of
America or the rules and regulations promulgated thereunder or other rules of
the National Association of Securities Dealers or other stock exchanges on which
the securities of the PURCHASER may then be traded, or any announcement by any
party or the COMPANY pursuant to applicable law or regulations.
Section 10.3 Confidentiality. The parties agree that they will not, at any time,
disclose to any PERSON whomsoever any CONFIDENTIAL INFORMATION, or utilize such
CONFIDENTIAL INFORMATION for their own benefit (except as absolutely necessary
in order to fully enjoy the rights bestowed upon them by this AGREEMENT), nor
for the benefit of third parties (except the PURCHASER'S AFFILIATES). In the
event that a parry becomes legally required to disclose any CONFIDENTIAL
INFORMATION, it shall provide the other parties with prompt notice thereof so
that they may seek a protective order or other appropriate remedy, or waive
compliance with the provisions of this Section to permit a particular
disclosure. In the event that such protective order or other remedy is not
obtained, or that compliance with the provisions of this Section is waived to
permit a particular disclosure, the disclosing party will furnish only that
portion of the CONFIDENTIAL INFORMATION which it is legally required to disclose
and, at the other party's expense, will cooperate with the efforts of that other
party to obtain a protective order or other reliable assurance that confidential
treatment will be accorded to the CONFIDENTIAL INFORMATION. Notwithstanding the
foregoing, the parties agree to take all necessary and appropriate measures to
ensure that third parties (except the PURCHASER'S AFFILIATES) are barred access
to the CONFIDENTIAL INFORMATION; in particular, they shall make certain that
said CONFIDENTIAL INFORMATION be accessible exclusively to their directors and
officers, employees, or legal counsel or financial advisors who are (i) directly
involved in the business relations between the parties and (ii) are bound to
secrecy in
<PAGE>
accordance with all of the legal or contractual provisions, to which they are
subject, and this even in the event that they cease to be in the employment of
their company.
Section 10.4 Notices. Unless otherwise provided herein, any notice, request,
instruction or other document to be given hereunder by any party to any other
party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand, (b) five days after the date of deposit
in the mail, postage prepaid, if mailed by certified or registered mail, or (c)
the next business day (i) if sent by facsimile transmission with electronic
confirmation of receipt -- provided that a reconfirmation is then sent in
writing by a prepaid overnight courier -- or (ii) by a prepaid overnight courier
service, and in each case at the respective addresses or numbers set forth below
or in the preamble or any other address or number as declared and notified by
the party:
If to the PURCHASER, at the following addresses:
AGENCY.COM LTD.
665 Broadway
New York, NEW YORK 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman
AGENCY.COM LTD.
1111 Chautauqua Boulevard
Pacific Palisades, CALIFORNIA 90272
Fax: (310) 230-6936
Section 10.5 Restrictions to Transfer. This AGREEMENT may not be transferred,
assigned, pledged or hypothecated by any of the SELLERS, other than by operation
of law. The PURCHASER shall have the right to assign its rights and/or
obligations pursuant to this AGREEMENT to a wholly owned subsidiary, provided
that the SELLER'S prerogative set forth in Section 4.1 of this AGREEMENT is
unaffected by said transfer, provided that the PURCHASER remains jointly bound
by the terms of this AGREEMENT and provided that such subsidiary shall be deemed
to be included within the defined term "PURCHASER" for the purpose of this
AGREEMENT. This AGREEMENT shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
Section 10.6 No Waiver. No waiver of any breach or default under this AGREEMENT
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or similar nature.
<PAGE>
Section 10.7 Cooperation. Each party to this AGREEMENT shall cooperate and take
such further action and shall execute and deliver such further documents as may
be reasonably requested by any other party in order to carry out the provisions
of this AGREEMENT.
Section 10.8 Severability. In the event that any provision of this AGREEMENT is
found to be void or unenforceable by an arbitrator or a court of competent
jurisdiction, the remaining provisions of this AGREEMENT shall nevertheless be
binding upon the parties with the same effect as if the void or unenforceable
part had been severed and deleted. Were any provision of this AGREEMENT to be
void or unenforceable, the parties agree to make all necessary and bona fide
efforts to replace it with a valid provision having an equivalent economic
result. However, in the event that the parties are unable to reach an agreement
on a replacement provision and provided that the void or unenforceable provision
is an essential one, the defendant in the initial action for rescission may
request that the AGREEMENT in its entirety be declared null and void.
Section 10.9 Indivisibility of the Entire agreement. The NON CORPORATE SELLERS
and the PURCHASER have concluded a separate Warranty Agreement; both this
AGREEMENT and the Warranty Agreement, including all documents and Schedules
referred to in either, contain the entire understanding of the NON CORPORATE
SELLERS and the PURCHASER with respect to the subject matter contained herein
and therein and this AGREEMENT, including all documents and Schedules referred
to in it, contain the entire understanding of the CORPORATE SELLERS and the
PURCHASER with respect to the subject matter contained herein. This AGREEMENT
and the Warranty Agreement supersede all prior agreements and understandings
between the parties with respect to such subject matter. This AGREEMENT and the
Warranty Agreement are indivisible; should one of them become void or
unenforceable, the other shall be deemed null and void. Notwithstanding, if the
request for rescision or premature termination of the Warranty Agreement is made
by the PURCHASER, then the PURCHASER shall not invoke the indivisible nature of
the AGREEMENTS. In all other cases, the rescission or premature termination of
the Warranty Agreement will automatically cause the termination of this
AGREEMENT, except between the PURCHASER and the CORPORATE SELLERS, whereby the
rescission or premature termination of the Warranty Agreement will not cause the
termination of this AGREEMENT.
Section 10.10 Amendments. This AGREEMENT may not be amended, supplemented or
modified orally, but only by an agreement in writing, signed by the PURCHASER
and the SELLERS.
Section 10.11 Captions. The Article, Section and Subsection captions used herein
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this AGREEMENT.
<PAGE>
Section 10.12 Governing Law. The interpretation and construction of this
AGREEMENT and all matters relating thereto, shall be governed by the laws of
France, without reference to its conflict of laws provisions.
Section 10.13 Arbitration. Any controversy or claim arising out of or relating
to this AGREEMENT, or any breach thereof, shall be settled by arbitration.
Notwithstanding, no party to this AGREEMENT shall be precluded from applying to
a proper court for injunctive relief by reason of the prior or subsequent
commencement of an arbitration proceeding as herein provided. The sole
arbitrator shall be nominated by mutual consent of the parties to the
arbitration. In the event that this arbitrator has not been nominated within a
month following notice, by any one party to the other party or parties against
whom the claim is being lodged, of its intention to commence arbitration
proceedings, the arbitrator shall be appointed by the Chief Justice of the
Higher Court of Paris (president du tribunal de grande instance de Paris) upon
request of the most expeditious party; the arbitrator so appointed shall be a
Professor of French Law, independent from the parties, both English and French
speaking, and have already served as an arbitrator on a prior occasion. The
determination of the arbitrator shall be final and binding upon the parties to
the arbitration without the right of appeal. The arbitration shall be held in
Paris, France, according to the rules of procedure applicable to actions brought
before the Commercial Courts (tribunaux de commerce). The applicable law for the
merits of the dispute shall be French law. The fees and expenses of the
arbitrator shall be advanced, if need be, by the parties, on a prorata basis on
3/4 for the claimant or claimants and 1/4 for the defendant or defendants, and
definitively paid and/or reimbursed by the non-prevailing party or parties. The
duration of the arbitration proceedings including the rendering of the award
shall not exceed 8 months (eight months). The award shall be final and binding
upon the parties to the arbitration without the right of appeal.
In witness whereof, the parties hereto have executed this AGREEMENT, in
seven counterparts, on the day and year first above written.
AGENCY.COM
By: Johnathan P. Tann /s/ Johnathan P. Tann
Frederic Pie Carine Barbelivien Francis Meleard
/s/ Frederic Pie /s/ Carine Barbelivien /s/ Francis Meleard
IN-COM
By: /s/ Christophe Viet
GALILEO
By: /s/ Christophe Viet
[LOGO] PICTORIS ACQUISITION AGREEMENT
<PAGE>
Exhibit F
(Pictoris Acquisition)
INVESTMENT REPRESENTATION CERTIFICATE
Pursuant to an Acquisition Agreement of even date herewith (the
"Acquisition Agreement") entered into by and among AGENCY.COM Ltd., a Delaware
corporation ("Purchaser") and the shareholders of Pictoris Interactive S.A.
("the Company"), Purchaser has purchased 5% of the outstanding shares of the
Company. In addition, Purchaser has acquired the right to purchase the remaining
shares of the Company, and the Sellers have acquired the right, exercisable
under certain circumstances, to require the Purchaser to purchase the remaining
shares of the Company. In the event that either of these two rights is
exercised, the Purchaser will issue shares of its common stock ("Purchaser
Shares") to the Sellers as set forth in the Acquisition Agreement. Unless
otherwise indicated, capitalized terms not defined herein have the meanings set
forth in the Acquisition Agreement.
The undersigned ("Seller") understands that the execution of this
Certificate is a condition precedent to Purchaser's obligation to enter into the
Acquisition Agreement.
Seller hereby represents and warrants as follows:
1. Investment Representations.
(a) The Purchaser Shares which may be issued to Seller pursuant to
the Acquisition Agreement will be acquired for investment for Seller's own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and Seller has no present intention of
selling, granting any participation in, or otherwise distributing such Purchaser
Shares. By executing this Investment Representation Certificate, Seller further
represents that it has no present contract, undertaking, agreement or
arrangement with anyone to sell, transfer or grant participations with respect
to any of the Purchaser Shares.
(b) Seller understands and acknowledges that the issuance of the
Purchaser Shares pursuant to the Acquisition Agreement is being effected on the
basis that the issuance of such securities is exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") and
that Purchaser's reliance upon such exemption is predicated upon Seller's
representations. (Notwithstanding the foregoing, it is understood and agreed
that Seller may also rely upon an alternative exemption from registration, such
as that provided pursuant to Regulation 5, without notice to the Seller).
(c) Seller further represents that he/she/it: (i) is not a U.S.
person (as such term is defined in Regulation S), and is not acquiring the
Purchaser Shares for the account or benefit of any U.S. person, (ii) has such
knowledge and experience in financial and business
<PAGE>
matters as to be capable of evaluating the merits and risks of its prospective
investment in the Purchaser Shares; (iii) has received all the information
he/she/it has requested from Purchaser that he/she/it considers necessary or
appropriate for deciding whether to accept the Purchaser Shares; (iv) has the
ability to bear the economic risks of his/her/its prospective investment; (v) is
able, without materially impairing its financial condition, to hold the
Purchaser Shares for an indefinite period of time and to suffer complete loss on
his/her/its investment.
(d) Each certificate representing Purchaser Shares issued pursuant
hereto to Seller and any shares issued or issuable in respect of any such
Purchaser Shares upon any stock split, stock dividend, recapitalization, or
similar event, shall be stamped or otherwise imprinted with legends in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, IN ACCORDANCE WITH REGULATION S OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.
(e) The certificates evidencing the Purchaser Shares shall also bear
any legend required pursuant to any state, local or foreign law governing such
securities.
(f) Seller understands and acknowledges that the Purchaser Shares
have not been registered under the 1933 Act and that the Purchaser Shares may
not be offered, sold, pledged or otherwise transferred except pursuant to an
effective registration statement, in accordance with Regulation S or pursuant to
an exemption from registration under the 1933 Act, and the Seller may not engage
in hedging transactions with regard to the Purchaser Shares unless in compliance
with the 1933 Act.
(g) Seller acknowledges that the Purchaser Shares shall not be
transferable except upon the conditions specified in this Certificate. Seller
will cause any proposed transferee of the Purchaser Shares held by him/her to
agree to take and hold such Purchaser Shares subject to the provisions and upon
the conditions specified in this Certificate.
(h) Prior to any proposed transfer of any Purchaser Shares, unless
there is in effect a registration statement under the 1933 Act covering the
proposed transfer, Seller shall give written notice to Purchaser of his/her
intention to effect such transfer. Each such notice shall describe the manner
and circumstances of the proposed transfer in sufficient detail, and shall, if
Purchaser so requests, be accompanied (except in transactions in compliance with
Rule 144 promulgated under the 1933 Act) by either (i) a written opinion of
legal counsel reasonably
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<PAGE>
satisfactory to Purchaser, addressed to Purchaser at its then headquarters
office, to the effect that the proposed transfer of Purchaser Shares may be
effected without registration under the 1933 Act; or (ii) a "No Action" letter
from the Securities and Exchange Commission (the "Commission") to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Purchaser Shares shall be entitled to
transfer such Purchaser Shares in accordance with the terms of the notice
delivered by the holder to Purchaser. Each certificate evidencing the Purchaser
Shares transferred as above provided shall bear the appropriate restrictive
legend set forth in clause (d) above, except that such certificate shall not
bear such restrictive legend if in the opinion of counsel for Purchaser such
legend is not required in order to establish compliance with any provisions of
the 1933 Act, which opinion will not be unreasonably withheld.
2. Parties in Interest.
This Certificate shall inure to the benefit of, and be binding upon,
the parties hereto and their respective successors and assigns.
3. Governing Law.
This Certificate shall be construed in accordance with the laws of
the State of New York, without application of conflict of laws provisions
applicable therein.
3
<PAGE>
IN WITNESS WHEREOF, Seller has executed this Certificate as of the
day and year first above written.
________________________________________
[Name]
Agreed to and Accepted:
AGENCY.COM LTD.
By: /s/ Jonathan P. Tann
--------------------------------
Name: Jonathan P. Tann
Title: VP Corporate Development
4
<PAGE>
Exhibit 10.22
- --------------------------------------------------------------------------------
STOCK EXCHANGE AGREEMENT
by and between
AGENCY.COM LTD.
and
VISIONIK HOLDING ApS
ASSOCIATED MANAGEMENT SERVICES A/S
(Shareholders of Visionik A/S)
and
J0RGEN LEMBKE
S0REN HOUGAARD-HANSEN
- --------------------------------------------------------------------------------
Dated November 3, 1999
<PAGE>
STOCK EXCHANGE AGREEMENT
STOCK EXCHANGE AGREEMENT (the "Agreement") dated November 3, 1999 by and
between AGENCY.COM LTD., a corporation organized under the laws of the State of
Delaware (the "Purchaser"); VISIONIK HOLDING ApS, a corporation organized under
the laws of Denmark ("VH") and its sole shareholder J0RGEN LEMBKE ("Lembke"),
ASSOCIATED MANAGEMENT SERVICES A/S, a corporation organized under the laws of
Denmark ("AMS") and S0REN HOUGAARD-HANSEN ("Hougaard") who is a shareholder of
AMS. VH, Lembke, AMS and Hougaard are hereinafter collectively referred to as
the "Stockholders" and each as a "Stockholder").
W I T N E S S E T H :
WHEREAS, the Stockholders are the owners of all of the outstanding shares
(the "Shares") of VISIONIK A/S, a corporation organized under the laws of
Denmark (the "Company");
WHEREAS, the Stockholders desires to sell, and the Purchaser desires to
purchase 100% of the Shares, pursuant to the provisions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
ARTICLE I
SALE OF STOCK
Section 1.1 Sale of the Shares. Subject to the terms and conditions
herein stated, each of VH and AMS agrees to sell, assign, transfer and
deliver to the Purchaser on the Closing Date (as defined in Section 2.2), and
the Purchaser agrees to purchase from such Stockholder on the Closing Date,
the number of Shares set forth opposite such Stockholder's name on Exhibit A
hereto. Share certificates have not been issued by Visionik A/S, and
therefore the transfer of all shares from the Stockholders to the Purchaser
shall be notified to Visionik A /S in the form set out on Exhibit A-1 hereto,
which shall be accepted by Visionik A/S at closing.
ARTICLE II
PURCHASE PRICE AND CLOSING
Section 2.1 Purchase Price. In full consideration for the purchase by
the Purchaser of the Shares,
1
<PAGE>
the purchase price (the "Purchase Price") shall be paid by the Purchaser to VH
and AMS as follows, in each case allocated between VH and AMS as set forth on
Exhibit A hereto:
Section 2.1.1 Closing Payment. At closing, certificates, registered in
the name of the respective Stockholders representing an aggregate of 572,000
shares of Purchaser's Common Stock, par value $0.001 per share (the
"Purchaser Stock") will be delivered by the Purchaser to VH and AMS.
Section 2.2 Closing. The Closing under this Agreement (the "Closing")
is taking place simultaneously with the execution and delivery of this
Agreement, at the offices of Plesner & Gronborg, 34 Esplanaden, 1263
Copenhagen K, DENMARK. Such date is herein referred to as the "Closing Date".
ARTICLE III
REPRESENTATIONS OF THE STOCKHOLDERS
The Stockholders, jointly and severally, hereby represent, warrant and
agree to and with the Purchaser as follows:
Section 3.1 Execution and Validity of Agreements; Restrictive
Documents.
Section 3.1.1 Execution and Validity. Each Stockholder has the full
power and capacity, or the full corporate power and authority, as the case
may be, to enter into this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the performance
of the transactions contemplated hereby have been duly authorized by all
required corporate action on the part of the corporate Stockholders. This
Agreement has been duly and validly executed and delivered by each
Stockholder and, assuming due authorization, execution and delivery by the
Purchaser, constitutes a legal, valid and binding obligation of each of the
Stockholders, enforceable against each of them in accordance with its terms.
Section 3.1.2 Stock Ownership. VH and AMS are the true and lawful owner
of all of the Shares and all of such Shares have been duly and validly
authorized and issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof, and such ownership is free and clear of all mortgages, liens,
security interests, encumbrances, claims, charges and restrictions of any
kind or character (collectively, "Liens").
2
<PAGE>
Section 3.1.3 No Options. Except as set forth on Schedule 3.1.3 hereto,
there are no outstanding subscriptions, options, rights, warrants, calls,
commitments or arrangements of any kind to acquire any Shares owned by the
Stockholders and there are no agreements or understandings with respect to
the sale or transfer of such Shares.
Section 3.1.4 No Restrictions. There is no suit, action, claim,
investigation or inquiry by any administrative agency or governmental body,
and no legal, administrative or arbitration proceeding pending or, to the
knowledge of the Stockholders, threatened against the Stockholders or any of
the Shares, with respect to the execution, delivery and performance of this
Agreement or the transactions contemplated hereby or any other agreement
entered into by the Stockholders in connection with the transactions
contemplated hereby.
Section 3.1.5 Non-Contravention. The execution, delivery and
performance by the Stockholders of their respective obligations hereunder and
the consummation of the transactions contemplated hereby, will not (a) result
in the violation by any Stockholder of any statute, law, rule, regulation or
ordinance (collectively, "Laws"), or any judgment, decree, order, writ,
permit or license (collectively, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality
of the United States or Denmark, any foreign country or any domestic or
foreign state, county, city or other political subdivision (a "Governmental
or Regulatory Authority"), applicable to the Stockholders or any of the
Shares, or (b) if the consents and notices set forth in Schedule 3.1.6 are
obtained or given, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
or (except as set forth in Schedule 3.1.6) require the Stockholders to obtain
any consent, approval or action of, make any filing with or give any notice
to, or result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any lien upon any of the Shares, under any of the
terms, conditions or provisions of any note, bond, mortgage, security
agreement, indenture, license, franchise, permit, concession, contract, lease
or other instrument, obligation or agreement of any kind (collectively,
"Instruments") to which any Stockholder is a party or by which any
Stockholder or any of the Shares is bound.
Section 3.1.6 Approvals and Consents. Except as disclosed on Schedule
3.1.6, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other public or private third party
is necessary or required under any of the terms, conditions or provisions of
any Law or Order of any Governmental or Regulatory Authority or any
Instrument to which any Stockholder is a party or by which any of the Shares
is bound for the execution and delivery of this Agreement by the
Stockholders, the performance by the Stockholders of their obligations
hereunder or the consummation of the transactions contemplated hereby.
3
<PAGE>
Section 3.2 Existence and Good Standing. The Company is duly organized,
validly existing and in good standing under the laws of Denmark, with the
full corporate power and authority to own its property and to carry on its
business all as and in the places where such properties are now owned or
operated or such business is now being conducted. The Company is duly
qualified, licensed or admitted to do business and is in good standing in
those jurisdictions set forth on Schedule 3.2, which are the only
jurisdictions in which the ownership, use or leasing of its assets and
properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for those
jurisdictions in which a failure by the Company to be qualified, licensed or
admitted and in good standing can in the aggregate be corrected without
material cost or expense by the Company.
Section 3.3 Subsidiaries and Investments; Capital Stock.
Section 3.3.1 Subsidiaries and Investments. The term "Subsidiary" as
used in this Agreement in the case of the Company, shall mean any Person in
which the Company, directly or indirectly through subsidiaries or otherwise,
beneficially owns or controls fifty percent or more of either the equity
interests in, or the voting control of, such Person. Schedule 3.3 contains a
true and complete list of all of the Company's Subsidiaries. Except as set forth
in Schedule 3.3, neither the Company nor any Subsidiary owns any capital stock
or other equity or ownership or proprietary interest in any Person (other than
investments of publicly traded debt and equity securities held for investment).
Schedule 3.3 also sets forth the name, jurisdiction of organization and number
of outstanding shares of each of the Subsidiaries, and a list of all of the
shareholders of each Subsidiary (indicating the number of shares owned by each
such shareholder). The Company owns of record and beneficially and has valid
title to that percentage of the issued and outstanding shares of capital stock
of each Subsidiary as set forth on Schedule 3.3, free and clear of any Liens.
Each Subsidiary is a corporation and is duly incorporated or formed and
organized, validly existing and in good corporate and tax standing under the
laws of its jurisdiction of organization, with the full corporate power and
authority to own its properties and to carry on its business all as and in the
places where such properties are now owned or operated or such business is now
being conducted. Schedule 3.3 sets forth the jurisdictions in which each
Subsidiary is duly qualified, licensed or admitted to do business, which are the
only jurisdictions in which the ownership, use or leasing of its assets or
properties, or the conduct or nature of its business, makes such qualification,
licensing or admission necessary. Each Subsidiary is in good standing in each
state, or other jurisdiction, in which it is qualified to do business as a
foreign corporation or foreign branch as set forth on Schedule 3.3. Except as
set forth on Schedule 3.3, neither the Company nor any Subsidiary has a branch,
agency, place of business or permanent establishment outside of Denmark. All of
the outstanding shares of capital stock of or equity interest in each Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable, and have not been issued in violation of any preemptive rights
of shareholders or other equity interest holders. Except as set forth on
Schedule 3.3.1, there are no (a) outstanding Options obligating the Company or
any
4
<PAGE>
Subsidiary to purchase, issue or sell any shares of the capital stock of any
Subsidiary or other entity in which the Company or one of its Subsidiaries owns
an equity interest or outstanding agreement or commitment to grant, extend or
enter into any Option with respect thereto or (b) voting trusts, proxies or
other commitments, understandings, restrictions or arrangements in favor of any
Person other than the Company or a Subsidiary with respect to the voting of or
the right to participate in dividends or other earnings on any capital stock of,
or any other equity interest in, any Subsidiary.
Section 3.3.2 Capital Stock. The Company has an authorized capital of
500,000 Danish kroner consisting of 500 shares in the amount of 1,000 Danish
kroner or multiples hereof, of which all shares (the "Shares") have been issued
and are outstanding and owned by the Stockholders. All of the Shares which are
issued and outstanding have been validly issued and have not been issued in
violation of any preemptive rights of stockholders. All issued and outstanding
Ordinary Shares are fully paid up and no other class of capital stock of the
Company is authorized or outstanding. Except as set forth on Schedule 3.3.1,
there are no outstanding options, warrants, rights, calls, commitments,
conversion rights, rights of exchange, plans or other agreements of any
character (collectively "Options") providing for the purchase, issuance or sale
of any shares of the capital stock of the Company or the Subsidiaries. All
repurchases or redemptions of shares of capital stock of the Company or the
Subsidiaries were properly completed in compliance with all applicable
regulations and corporate requirements; and no further monies or other
obligations will be due by the Company, the Subsidiaries or the Stockholders in
respect thereof.
Section 3.4 Financial Statement and No Material Changes. Schedule 3.4
sets forth (a) audited balance sheets of the Company and its Subsidiaries as
at December 31, 1997 and December 31, 1998 and the related consolidated and
consolidating audited statements of income, retained earnings and cash flow
for the calendar year then ended according to GAAP, as reported on by Moore
Stephens Danmark, certified public accountants, and (b) a reviewed balance
sheet of the Company and its Subsidiaries as at September 30, 1999 (the
"Balance Sheet") and the related unaudited consolidated and consolidating
statements of income, retained earnings and cash flow for the 9 months then
ended, according to GAAP, and (c) audited balance sheets of the Company and
its subsidiaries as at June 30, 1999 and the related consolidated and
consolidating audited statements of income, retained earnings and cash flow
for the fiscal year then ended, as reported on by Moore Stephens Danmark,
certified public accountants, in accordance with generally accepted
accounting principles consistently applied and as applied in Denmark ("Danish
GAAP") throughout the periods indicated. The Balance Sheet fairly presents
the financial condition of the Company and its Subsidiaries at the date
thereof and fairly presents all claims against and all debts and liabilities
of the Company and its Subsidiaries, fixed or contingent, as at the date
thereof, required to be shown thereon under GAAP, and the related statements
of income, retained earnings and cash flow accurately present the results of
operations of the Company and its Subsidiaries, retained earnings and the
cash flow for the period indicated. Except as set forth on Schedule 3.23,
since September 30, 1999 (the "Balance Sheet Date"), there has been no
material adverse change in the properties,
5
<PAGE>
financial condition, business or results of operation of the Company and its
Subsidiaries taken as a whole.
Section 3.5 Books and Records. All accounts, books, ledgers and
official and other records material to the business of the Company and its
Subsidiaries have been properly and accurately kept and completed in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. Except as set forth on Schedule 3.5,
neither the Company nor any of its Subsidiaries has any of its records,
systems, controls, data or information recorded, stored, maintained, operated
or otherwise wholly or partly dependent on or held by any means (including
any electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are not
under the exclusive ownership and possession of the Company or such
Subsidiary. The Stockholders have delivered to the Purchaser complete and
correct copies of the Articles of Incorporation and By-Laws of the Company
and each Subsidiary, with all amendments thereto, currently in effect, and
its minute book and stock transfer records.
Section 3.6 Tangible Personal Property; Encumbrances. Except as set
forth on Schedule 3.6, the Company and each of its Subsidiaries has good and
valid title to, or enforceable leasehold interests in or valid rights under
contract to use all the properties and assets owned or used by it (real and
personal, tangible and intangible), including, without limitation (a) all the
properties and assets reflected in the Balance Sheet, and (b) all the
properties and assets purchased or otherwise contracted for by the Company
and such Subsidiary since the Balance Sheet Date (except for properties and
assets reflected in the Balance Sheet or acquired or otherwise contracted for
since the Balance Sheet Date that have been sold or otherwise disposed of in
the ordinary course of business), except for those properties and assets
which, individually and in the aggregate, are not material to the business of
the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens set forth on Schedule 3.6. The property, plant and equipment
owned or otherwise contracted for by the Company and each of its Subsidiaries
are in a state of good maintenance and repair (ordinary wear and tear
excepted) and are adequate and suitable in all material respects for the
purposes for which they are presently being used.
Section 3.7 Real Property.
Section 3.7.1 Owned Real Property. Neither the Company nor any of its
Subsidiaries owns any real property or any option or right of first refusal
or first offer to acquire real property, and neither the Company nor any of
its Subsidiaries is obligated by contract or otherwise to purchase any real
property.
Section 3.7.2 Leased Real Property. Schedule 3.7.2 contains an
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accurate and complete list of all real property leases to which the Company or
any of its Subsidiaries is a party (as lessee, lessor, sublessee or sublessor),
including, without limitation, leases which the Company has subleased or
assigned to a third party and as to which the Company remains liable. Each real
property lease set forth on Schedule 3.7.2 (or required to be set forth on
Schedule 3.7.2) (a) is valid, binding and in full force and effect; (b) all
rents and additional rents and other sums, expenses and charges due on each such
lease have been paid; (c) the lessee has been in peaceable possession since the
commencement of its original possession under such lease; (d) no waiver,
indulgence or postponement of the lessee's obligations thereunder has been
granted by or is required from the lessor; (e) there exists no default or event
of default by the Company or any of its Subsidiaries or, to the knowledge of the
Stockholders, by any other party; (f) there exists no occurrence, condition or
act (including the purchase of the Shares hereunder) which, with the giving of
notice, the lapse of time or the happening of any further event or condition,
would become a default or event of default by the Company or any of its
Subsidiaries; and (g) there are no outstanding claims of breach or
indemnification or notice of default or termination. Except as set forth on
Schedule 3.7.2, (h) the Company or its Subsidiary, as the case may be, holds the
leasehold estate in all the real property leases free and clear of all Liens,
(i) the Company or such Subsidiary is in physical possession and actual and
exclusive occupation of the whole of each of its leased properties. Except as
clearly set forth on Schedule 3.7.2, the Company or its Subsidiary(ies) utilizes
all real property leases in full compliance with law, including building
permits, fire protection legislation, planning law and workers environment
legislation. Neither the Company nor any of its Subsidiaries owes any brokerage
commission with respect to any such real property leases.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
complete list of the following agreements to which the Company or any of its
Subsidiaries is a party or by or to which the Company is bound: (a) all
employee benefit plans; (b) any personal property lease with a fixed annual
rental of $20,000 or more; (c) any contract relating to capital expenditures
which involve payments of $30,000 or more in any single transaction or series
of related transactions; (d) any contract relating to the making of a loan or
advance to, or investment in, any other Person in an amount exceeding
$10,000; (e) any contract evidencing or relating in any way to indebtedness
for money borrowed or to be borrowed, whether directly or indirectly, by way
of loan, purchase money obligation, guarantee (other than the endorsement of
negotiable instruments for collection in the ordinary course of business),
conditional sale, purchase or otherwise, which in any case involves $10,000
or more; (f) any management service, employment, consulting or any other
similar type of contract which is not cancelable by the Company or such
Subsidiary without penalty or other financial obligation within 30 days, (g)
any contract limiting its freedom to engage in any line of business or to
compete with any other Person, including agreements limiting the ability of
the Company, its Subsidiaries or any of its affiliates to take on competitive
accounts during or after the term thereof; (h) any collective bargaining or
union agreement, (i) any contract with any of its officers or directors
(including indemnification agreements), provided that provisions contained in
the Company's or such Subsidiary's charter documents or by-laws do not need
to be set forth on Schedule 3.8, (j) any secrecy or confidentiality agreement
(other than standard confidentiality agreements in
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computer software license agreements or agreements with clients entered into in
the ordinary course of business), (k) any contract or license with respect to
Intellectual Property (as defined in Section 3.14 below), other than "shrink
wrap" and similar end-user licenses; (l) any agreement with a client which
generates annual revenues of $20,000 or more; and (m) any joint venture
agreement involving a sharing of profits not covered by (a) through (l) above;
and (n) any contract (not covered by another subsection of this Section 3.8)
which is material to the business of the Company or its Subsidiaries or which
involves $20,000 or more over the unexpired term thereof and is not cancelable
by the Company or such Subsidiary without penalty or other financial obligation
within 30 days. Notwithstanding the foregoing, (x) commitments to media and
production expenses which are fully reimbursable from clients, and (y) estimates
or purchase orders given in the ordinary course of business relating to the
execution of projects, do not have to be set forth on Schedule 3.8. Each
contract set forth on Schedule 3.8 (or required to be set forth on Schedule 3.8)
is in full force and effect, and there exists no default or event of default by
the Company or its Subsidiary, as the case may be, or to the knowledge of the
Stockholders, by any other party, or occurrence, condition, or act (including
the purchase and/or transfer of the Shares hereunder) which, with the giving of
notice, the lapse of time or the happening of any other event or condition,
would become a default or event of default thereunder by the Company or its
Subsidiary, as the case may be, or would be a cause for premature termination,
and there are no outstanding claims of breach or indemnification or notice of
default or termination of any such contracts.
Section 3.9 Non-Contravention; Approvals and Consents.
Section 3.9.1 Non-Contravention. The execution, delivery and
performance by the Stockholders of its obligations hereunder and the
consummation of the transactions contemplated hereby, will not (a) violate,
conflict with or result in the breach of any provision of the Articles of
Incorporation or By-Laws (or other comparable corporate charter documents) of
the Company or any Subsidiary, or (b) result in the violation by the Company
or any Subsidiary of any Laws, or Orders, of any Governmental or Regulatory
Authority, applicable to the Company or such Subsidiary or any of its assets
or properties, or (c) if the consents and notices set forth in Schedule 3.9.2
are obtained or given, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
or (except as set forth in Schedule 3.9.2) require the Company or any
Subsidiary to obtain any consent, approval or action of, make any filing with
or give any notice to, or result in or give to any Person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any lien upon any
of the assets or properties of the Company or any of its Subsidiaries, under
any of the terms, conditions or provisions of any Instruments to which the
Company is a party or by which the Company or any of Subsidiaries or any of
its/their assets or properties is bound.
Section 3.9.2 Approvals and Consents. Except as disclosed on
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Schedule 3.9.2, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other Person is required under any of
the terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Instrument to which the Company or any of its
Subsidiaries is a party or its assets or properties are bound for the execution
and delivery of this Agreement by the Stockholders, the performance by the
Stockholders of their obligations hereunder or the consummation of the
transactions contemplated hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there is
no action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before (or to the
knowledge of the Stockholders, any investigation by) any governmental or
other instrumentality or agency, pending or, to the knowledge of the
Stockholders, threatened, against the Company or any of its Subsidiaries with
respect to this Agreement or the transactions contemplated hereby, or against
or affecting the Company or any of its Subsidiaries or its/their properties
or rights; and no acts, facts, circumstances, events or conditions occurred
or exist which are a basis for any such action, proceeding or investigation.
Neither the Company nor any of its Subsidiaries is subject to any Order
entered in any lawsuit or proceeding.
Section 3.11 Taxes. The Company and its Subsidiaries have timely filed,
or caused to be filed, taking into account any valid extensions of due dates,
completely and accurately, all federal, state, local and foreign tax or
information returns (including estimated tax returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the
Company and/or such Subsidiaries. The term "Taxes" means taxes, duties,
charges or levies of any nature imposed by any Governmental or Regulatory
Authority, including without limitation income, gains, capital gains, surtax,
capital, franchise, capital stock, value-added taxes, taxes required to be
deducted from payments made by the payor and accounted for to any tax
authority, employees' income withholding, back-up withholding, withholding on
payments to foreign Persons, social security, national insurance,
unemployment, worker's compensation, payroll, disability, real property,
personal property, sales, use, goods and services or other commodity taxes,
business, occupancy, excise, customs and import duties, transfer, stamp and
other taxes (including interest, penalties or additions to tax in respect of
the foregoing), and includes all taxes payable by the Company and/or its
Subsidiaries pursuant to joint taxation arrangements or any similar
provisions of state, local or foreign law. All Taxes shown on said returns to
be due and all additional assessments received prior to the date hereof have
been paid or are being contested in good faith, in which case, such contested
assessments are set forth on Schedule 3.11. The Company and its Subsidiaries
have collected all sales, use, goods and services or other commodity Taxes
required to be collected, and have withheld all amounts required to be
withheld on account of Taxes for amounts paid to employees, directors,
officers and residents and non-residents; and in each case has remitted or
will remit the same to the appropriate taxing authority within the prescribed
time periods. The amount set up as an accrual for Taxes on the Balance Sheet
is sufficient for the payment of all unpaid Taxes of the Company and its
Subsidiaries, whether or not disputed, for all periods ended on and prior to
the date thereof.
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Since the Balance Sheet Date, neither the Company nor any of its Subsidiaries
has incurred any liabilities for Taxes other than in the ordinary course of
business. The Stockholders have delivered to the Purchaser correct and complete
copies of all income tax returns filed with respect to the Company and its
Subsidiaries for all taxable periods since its inception. None of the tax
returns of the Company has ever been audited by any Governmental or Regulatory
Authority. Neither the Company nor its Subsidiaries has received notice of any
audit or examination currently in progress, or of any proposed audit or
examination. No deficiency in the payment of Taxes by the Company for any period
has been asserted in writing by any taxing authority and remains unsettled at
the date of this Agreement. Neither the Company nor any of its Subsidiaries is a
party to any tax allocation or tax sharing agreement nor does it have any
contractual obligation to indemnify any other person with respect to Taxes.
Neither the Company nor its Subsidiaries will be required as a result of a
change in accounting method for any period ending on or before the Closing Date
to include any adjustment in income for any period ending after the Closing
Date.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet or
reflected in the notes thereto, neither the Company nor any of its
Subsidiaries has any outstanding claims, liabilities or indebtedness of any
nature whatsoever (collectively in this Section 3.12, "Liabilities"), whether
accrued, absolute or contingent, determined or undetermined, asserted or
unasserted, and whether due or to become due, other than (a) Liabilities
specifically disclosed in any Schedule hereto; (b) Liabilities under
contracts, purchase orders and other agreements, arrangements and commitments
of the type required to be disclosed by the Stockholders on any Schedule but
because of the dollar amount or other qualifications are not required to be
listed on such Schedule; (c) Liabilities incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date and
(d) liabilities to the extent covered by insurance maintained by the Company
and/or its Subsidiaries. Schedule 3.8 sets forth a list of all current
arrangements of the Company and its Subsidiaries for borrowed money and all
outstanding balances as of the date hereof with respect thereto. Except as
set forth on Schedule 3.12, neither the Company nor any of its Subsidiaries
is in default in respect of the terms or conditions of any borrowings.
Section 3.13 Insurance. Schedule 3.13 is a schedule of all insurance
policies (including life insurance) or binders maintained by the Company
and/or its Subsidiaries. All such policies are in full force and effect and
all premiums that have become due have been currently paid. Neither the
Company nor any of its Subsidiaries has received any notice of cancellation
or non-renewal of any such policy or binder. Except as set forth on Schedule
3.13, within the last two years neither the Company nor any of its
Subsidiaries has filed for any claims exceeding USD $15,000 against any of
its insurance policies, exclusive of automobile policies.
Section 3.14 Intellectual Properties.
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3.14.1. Representations. The registrations of Intellectual Property listed
on Schedule 3.14 are valid and subsisting, all necessary registration or renewal
fees in connection with such registrations have been made and all necessary
documents and certificates in connection with such registrations have been filed
with the relevant patent, copyright and trademark authorities for the purposes
of maintaining such registrations. Except as set forth on Schedule 3.14, (a) no
Person has any rights to use any Intellectual Property of the Company or any of
its Subsidiaries; (b) the Company has not granted to any Person, nor authorized
any Person to retain, any rights in any Intellectual Property of the Company or
any of its Subsidiaries. Except as set forth on Schedule 3.14 and except for
"shrink wrap" and similar commercial end-user licenses, the Company and each of
its Subsidiaries owns and has exclusive title to each item of Intellectual
Property of the Company to use or operate under, all other Intellectual Property
of the Company. To the knowledge of the Stockholders, the operation of the
business of the Company as it is currently conducted does not infringe the
Intellectual Property of any other Person and neither the Company nor any of its
Subsidiaries has received notice from any Person that the operation of its
business infringes the Intellectual Property of any Person. There are no
contracts or agreements between the Company or any of its Subsidiaries and any
other Person with respect to Intellectual Property of the Company or any of its
Subsidiaries in respect of which there is any dispute known to the Stockholders
regarding the scope of such agreement, or performance under such contract,
including with respect to any payments to be made or received by the Company or
any of its Subsidiaries. To the knowledge of the Stockholders, no Person is
infringing or misappropriating any of the Intellectual Property of the Company
or any of its Subsidiaries. Except as disclosed on Schedule 3.14, all employees,
agents, consultants or contractors who have contributed to or participated in
the creation or development of any copyrightable, patentable or trade secret
material on behalf of the Company, any Subsidiary, or any predecessor in
interest thereto, either: (i) is a party to a "work-for-hire" agreement under
which the Company or such Subsidiary (or predecessor in interest), as
applicable, is deemed to be the original owner/author of all property rights
therein; or (ii) has executed a valid assignment or agreement to assign in favor
of the Company or Subsidiary (or predecessor in interest), as applicable, all
right, title and interest in such material.
Section 3.14.2 Definitions. For purposes of this Agreement, the term
"Intellectual Property" shall mean any or all of the following and all rights
associated therewith: (a) all patents and applications therefor and all
reissues, divisions, renewals, extensions, continuations and
continuations-in-part thereof; (b) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets proprietary
information, know-how, technology, technical data and customer lists, rights
of privacy and publicity, and all documentation relating to any of the
foregoing; (c) all copyrights, copyright registrations and applications
therefor and other rights corresponding thereto; (d) all mask works, mask
work registrations and applications therefor; (e) all industrial designs and
any registrations and applications therefor; (f) all trade names, logos,
common law trademarks and service marks; trademark and service mark
registrations and applications therefor and all goodwill associated
therewith; and (g) all computer software including all source code, object
code, firmware, development tools, files, records and data, all media on
which any of the foregoing is recorded and all documentation related to any
of the foregoing. "Intellectual Property of the Company" shall
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mean any Intellectual Property (h) that is owned by, or exclusively licensed to,
the Company or any of its Subsidiaries; or (i) which is necessary to the
operation of the Company or any of its Subsidiaries, including the design,
manufacture, use and sale of the products or delivery of the services of the
Company as it is currently operated or is reasonably anticipated to be operated
in the future and all Intellectual Property currently owned by the Company or
any of its Subsidiaries, but shall specifically not include any rights in or to
materials created for clients as "work-for-hire" or which are subject to an
exclusive assignment or license in favor of clients of the Company or any of its
Subsidiaries.
Section 3.14.2 With respect to the trademark "Visionik", this
trademark belongs to the Company, and upon closing the Stockholders will
cease to use this trademark. Within 10 days after closing date, the name of
VH will be changed with the authorities.
Section 3.15 Compliance with Laws; Licenses and Permits.
Section 3.15.1 Compliance. The Company and each of its Subsidiaries is,
and its business has been conducted, in compliance with all applicable Laws
and Orders, except in each case where the failure to so comply would not
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, assets, properties or business of the
Company and its Subsidiaries taken as a whole (a "Material Adverse Effect"),
including without limitation, (a) all Laws and Orders promulgated by any
Governmental or Regulatory Authority; (b) all environmental Laws and Orders;
and (c) all Laws and Orders relating to labor, civil rights, and occupational
safety and health laws, worker's compensation, employment and wages, hours
and vacations, or pay equity. Neither the Company nor any of its Subsidiaries
has been charged with, or, to the knowledge of the Stockholders threatened
with or under any investigation with respect to, any charge concerning any
violation of any Laws or Orders.
Section 3.15.2 Licenses. The Company and each of its Subsidiaries has
all licenses and permits and other governmental certificates, authorizations
and approvals (collectively, "Licenses") required by a Governmental or
Regulatory Authority for the operation of its business and the use of its
properties as presently operated or used, except where the failure to have
such Licenses would not reasonably be expected to have a Material Adverse
Effect. All of the Licenses are in full force and effect and no action or
claim is pending, nor to the knowledge of the Stockholders is threatened, to
revoke or terminate any of such Licenses or declare any such License invalid
in any material respect.
Section 3.16 Client Relations. Schedule 3.16 sets forth for the Company
and each of its Subsidiaries (a) the twenty largest clients (measured by fees
generated) as at December 31, 1998 and the fees from each such client and
from all clients (in the aggregate) for the year ended December 31, 1998 and
(b) the clients projected to be the twenty largest clients (measured by fees)
based on the
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Company's and each of its Subsidiary's current 1999 profit plan for the year
ending December 31, 1999, together with the estimated fees for each such client
and all clients (in the aggregate) for such fiscal year. Except as set forth in
Schedule 3.16, no client of the Company or any of its Subsidiaries has advised
the Company, such Subsidiary or any Stockholder (a) that it is prematurely
terminating or considering the premature termination of the handling of its
business by the Company or such Subsidiary, as a whole or in respect of any
particular product, project or service or (b) that it will not use the Company's
services in the future.
Section 3.17 Accounts Receivable; Work-in-Process; Accounts Payable.
The amount of all work-in-process, accounts receivable, unbilled invoices
recorded on the books of account of the Company or any of its Subsidiaries
and reflected on the Balance Sheet (including without limitation unbilled
invoices for services and out-of-pocket expenses) and other debts due or
recorded in the records and books of account of the Company or such
Subsidiary as being due to the Company or such Subsidiary and reflected on
the Balance Sheet will be good and collectible in full (less the amount of
any provision, reserve or similar adjustment therefor reflected on the
Balance Sheet). Except as set forth on Schedule 3.17, there has been no
material adverse change since the Balance Sheet Date in the amount or aging
of the work-in-process, accounts receivable or other debts due to the Company
or any of its Subsidiaries or the reserves with respect thereto, or accounts
payable of the Company or any of its Subsidiaries.
Section 3.18 Employment Relations. (a) Neither the Company nor any of
its subsidiaries is engaged in any unfair labor practice; (b) no unfair labor
practice complaint against the Company is pending before any Governmental or
Regulatory Authority; (c) there is no organized labor strike, dispute,
slowdown or stoppage actually pending or to the knowledge of the Stockholders
threatened against or involving the Company or any of its Subsidiaries; (d)
there are no labor unions representing or, to the knowledge of the
Stockholders, attempting to represent the employees of the Company or any of
its Subsidiaries; (e) no claim or grievance nor any arbitration proceeding
arising out of or under any collective bargaining agreement is pending and to
the knowledge of the Stockholders, no such claim or grievance has been
threatened; (f) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries; (g) neither the Company
nor any of its Subsidiaries has experienced any work stoppage or similar
organized labor dispute during the last three years; and (h) all employees of
the Company and each of the Subsidiaries is party to an employment contract
or employment certificate complying with Danish law. There is no legal
action, suit, proceeding or claim pending or, to the knowledge of the
Stockholders, threatened between the Company or any of its Subsidiaries and
any of its employees, former employees, agents, former agents, job applicants
or any association or group of any of their employees, except as set forth on
Schedule 3.10.
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Section 3.19
[Intentionally left blank]
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set
forth on Schedule 3.20, neither (x) the Stockholders nor (y) to the knowledge
of the Stockholders (without making any special inquiry of the Related Group,
as hereinafter defined), any officer, director, or employee of the Company or
any of its Subsidiaries (collectively, the "Related Group"),:
(i) owns, directly or indirectly, any interest in (excepting less than
1% stock holdings for investment purposes in securities of publicly
held and traded companies), or received payments from, or is an
officer, director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent, customer or client of the Company;
(ii) owns, directly or indirectly (other than through the ownership of
stock or other securities of the Company), in whole or in part, any
tangible or intangible property (including, but not limited to
Intellectual Property) that the Company or any of its Subsidiaries uses
in the conduct of business; or
(iii) has any cause of action or other claim whatsoever against, or
owes any amount to, the Company or any of its Subsidiaries, except for
claims in the ordinary course of business such as for accrued vacation
pay, accrued benefits under employee benefit plans, and similar matters
and agreements existing on the date hereof (including but not limited
to loans and accrued interest thereon made by the Stockholders or such
Stockholders to the Company or any of its Subsidiaries as reflected in
the books and records of the Company).
Section 3.21 Bank Accounts and Powers of Attorney. Set forth in
Schedule 3.21 is an accurate and complete list showing (a) the name of each
bank in which the Company or any of its Subsidiaries has an account, credit
line or safe deposit box and the names of all Persons authorized to draw
thereon or to have access thereto, and (b) the names of all Persons, if any,
holding powers of attorney from the Company or any of its Subsidiaries and a
summary statement of the terms thereof.
Section 3.22 Compensation of Employees. Schedule 3.22 is an accurate
and complete list showing (a) the names and positions of all salaried
employees of and exclusive consultants to the Company or any of its
Subsidiaries, together with a statement of the current annual salary or fees,
and the bonus and incentive compensation paid or payable with respect to
calendar years 1998 and 1999, and any material fringe benefits of such
employees or exclusive consultants; (b) the names of all retired employees,
if any, of the Company and each of its Subsidiaries who are receiving or
entitled to receive any healthcare or life insurance benefits or any payments
from the Company or any Subsidiary not covered by any pension plan to which
the
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Company or such Subsidiary is a party, their ages and current unfunded pension
rate, if any; and (c) a description of the normal severance benefits of the
Company and each of its Subsidiaries. With respect to exclusive consultants, the
list is limited to physical persons, who have undertaken work for the Company
for more than 15 hours per week.
Section 3.23 No Changes Since the Balance Sheet Date. Since the Balance
Sheet Date except as specifically stated on Schedule 3.23 neither the Company
nor any of its Subsidiaries has (i) incurred any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise), except in
the ordinary course of business, (ii) permitted any of its assets to be
subjected to any lien, (iii) sold, transferred or otherwise disposed of any
assets except in the ordinary course of business, (iv) made any capital
expenditure or commitment therefor which individually or in the aggregate
exceeded $20,000, (v) declared or paid any dividends or made any
distributions on any shares of its capital stock, or redeemed, purchased or
otherwise acquired any shares of its capital stock or any option, warrant or
other right to purchase or acquire any such shares, (vi) made any bonus or
profit sharing distribution, (vii) increased or prepaid its indebtedness for
borrowed money, except current borrowings under credit lines listed on
Schedule 3.8 from banks in the ordinary course of business or made any loan
to any Person, (viii) written down the value of any work-in-process, or
written off as uncollectible any notes or accounts receivable, except
write-downs and writeoffs in the ordinary course of business, none of which
individually or in the aggregate, is material to the Company and its
Subsidiaries, taken as a whole, (ix) except as set forth on Schedule 3.22,
granted any increase in the rate of wages, salaries, bonuses or other
remuneration of any employee who, whether as a result of such increase or
prior thereto, receives aggregate compensation from the Company or any of its
Subsidiaries at an annual rate of USD $40,000 or more, or except in the
ordinary course of business to any other employees, (x) canceled or waived
any claims or rights of material value, (xi) made any change in any method of
accounting procedures, (xii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner and in the ordinary
course of its business, (xiii) amended in any material respect or terminated
any agreement which is material to its business, (xiv) renewed, extended or
modified any lease of real property or except in the ordinary course of
business any lease of personal property, (xv) adopted, amended or terminated
any Plan or (xvi) agreed, whether or not in writing, to do any of the
foregoing.
Section 3.24 Corporate Controls. Neither the Company, any of its
Subsidiaries, or the Stockholders, or, to the knowledge of the Stockholders,
any officer, authorized agent, employee or any other Person while acting on
behalf of the Company or any of its Subsidiaries, has, within the period
covered by any applicable statute of limitations, directly or indirectly:
used any corporate fund for unlawful contributions, gifts, or other unlawful
expenses relating to political activity; made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; established or
maintained any unlawful or unrecorded fund of corporate monies or other
assets; made any false or fictitious entry on its books or records; made any
bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment, or other
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payment of a similar or comparable nature, to any Person, private or public,
regardless of form, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained, and neither the Company nor any of its Subsidiaries has participated
in any illegal boycott or other similar illegal practices affecting any of its
actual or potential customers.
Section 3.25 Year 2000 Compliance.
Section 3.25.1. Definition. The term "Y2K Compliant" shall mean: (a)
the functions, calculations and other computer processes of all computer
hardware, software and systems, including but not limited to internal and
outsourced management information systems and embedded computer features
within other systems of the Company or any of its Subsidiaries (collectively,
"Processes"), perform properly in a consistent manner regardless of the date
in time on which the Processes are actually performed and regardless of the
date of input to the software, whether before, on or after January 1, 2000
and whether or not the dates are affected by leap years; (b) the computer
hardware, software and systems accept, calculate, compare, sort, extract,
sequence and otherwise process data inputs and date values, and return and
display date values, in a consistent manner regardless of the dates used,
whether before, on or after January 1, 2000; (c) the computer hardware,
software and systems will function properly without interruptions or
extraordinary manual intervention caused by the date in time on which the
Processes are actually performed or by the date of input to the software,
whether before, on or after January 1, 2000; (d) the computer hardware,
software and systems accept and respond to two-digit year data input in the
Processes in a manner that resolves any ambiguities as to the century in a
defined, predetermined and appropriate manner; and (e) the computer hardware,
software and systems store and display data in the Processes in ways that are
unambiguous as to the determination of the century.
Section 3.25.2. Computer Systems. The Company and each of its
Subsidiaries has used its reasonable commercial efforts so that, to its
knowledge, the current computer hardware, software and systems, and
accompanying documentation, of the Company and each of its Subsidiaries will
be Y2K Compliant, in a full production version, with accompanying
documentation, no later than December 15, 1999. The Company and each of its
Subsidiaries has and will continue to use its reasonable commercial efforts
so that, to its knowledge, the receipt of Y2K Compliant computer hardware,
software, and systems will be provided to the Company and each of its
Subsidiaries in a timely manner under current supplier contracts or standard
maintenance and support plans without additional fee or charge of any kind
(including any installation, freight, or other costs or fees) to the Company
and each of its Subsidiaries.
Section 3.25.3 Other Products and Services. The Company and each of its
Subsidiaries has and will continue to use its reasonable commercial efforts
so that, to its knowledge, (a) its products will be delivered and its
services will be scheduled and performed in a timely manner without material
interruptions caused by the date in time on which the product is ordered or
is actually delivered or the services are scheduled or actually performed
under normal procedures in the ordinary course, whether before, on or after
January 1, 2000, and (b) its essential
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suppliers of products and services, including the suppliers of its
infrastructure systems, have Y2K compliance programs in place to avoid
interruptions in the supplier-customer trading relationship which could have a
Material Adverse Effect whether before, on or after January 1, 2000.
Section 3.26 Brokers. No broker, finder, agent or similar intermediary
has acted on behalf of the Stockholders or the Company or any of the
Subsidiaries in connection with this Agreement or the transactions
contemplated hereby, and no brokerage commissions, finder's fees or similar
fees or commissions are payable by the Company, any of its Subsidiaries, or
the Stockholders in connection therewith based on any agreement, arrangement
or understanding with any of them.
Section 3.27 Copies of Documents. The Stockholders have caused to be
made available for inspection and copying by the Purchaser and its advisers,
true, complete and correct copies of all documents referred to in this
Article III or in any Schedule. Summaries of all material oral contracts
contained in Schedule 3.8 are complete and accurate in all material respects.
ARTICLE IV
REPRESENTATIONS OF THE PURCHASER
The Purchaser, represents, warrants and agrees to and with the
Stockholders as follows:
Section 4.1 Existence and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its
property and to carry on its business all as and in the places where such
properties are now owned or operated or such business is now being conducted.
Section 4.2 Execution and Validity of Agreement. The Purchaser has the
full corporate power and authority to make, execute, deliver and perform this
Agreement and the transactions contemplated hereby. The execution and
delivery of this Agreement by the Purchaser and the consummation of the
transactions contemplated hereby have been duly authorized by all required
corporate action on behalf of the Purchaser and this Agreement has been duly
and validly executed and delivered by the Purchaser and assuming due
authorization, execution and delivery by the Stockholders constitutes a
legal, valid and binding obligation of the Purchaser, enforceable against it
in accordance with its terms.
Section 4.3 Non-Contravention; Approvals and Consents.
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Section 4.3.1 Non-Contravention. The execution, delivery and
performance by the Purchaser of its obligations hereunder and the
consummation of the transactions contemplated hereby, will not (a) violate,
conflict with or result in the breach of any provision of the certificate of
incorporation or by-laws (or other comparable corporate charter documents) of
the Purchaser, or (b) result in the violation by the Purchaser of any Laws or
Orders of any Governmental or Regulatory Authority, applicable to the
Purchaser or any of its assets or properties, except as would not reasonably
be expected to have a Material Adverse Effect, or (c) conflict with, result
in a violation or breach of, constitute (with or without notice or lapse of
time or both) a default under, or require the Purchaser to obtain any
consent, approval or action of, make any filing with or give any notice to,
or result in or give to any Person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of
the Purchaser, under any of the terms, conditions or provisions of any
Instruments to which the Purchaser is a party or by which the Purchaser or
any of its assets or properties are bound.
Section 4.3.2 Approvals and Consents. Except as set forth on Schedule
4.3.2, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority or other public or private third party
is necessary or required under any of the terms, conditions or provisions of
any Law or Order of any Governmental or Regulatory Authority or any
Instrument to which the Purchaser is a party or by which the Purchaser or any
of its assets or properties is bound for the execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of its
obligations hereunder or the consummation of the transactions contemplated
hereby.
Section 4.4 Financial Statements. Schedule 4.4 sets forth (a) an audited
balance sheet of the Purchaser as at December 31, 1998 and the related audited
statements of income, retained earnings and cash flow for the year then ended,
as reported on by Arthur Andersen LLP, independent public accountants, and (b)
an unaudited balance sheet of the Purchaser as at September 30, 1999 and the
related unaudited statements of income, retained earnings and cash flow for the
three months then ended, and (c) an unaudited pro forma balance sheet of the
Purchaser as at September 30, 1999 (the "Purchaser Balance Sheet") to give
effect to the acquisitions by Purchaser of Interactive Solutions Incorporated,
Eagle River Interactive Inc. and Twinspark Interactive People B.V. as if each of
these acquisitions had occurred on January 1, 1999 and the related unaudited pro
forma statements of income, retained earnings and cash flow for the 9 months
then ended. Except as indicated on Schedule 4.4.1 hereto, such financial
statements, including (in the case of the audited statements) the footnotes
thereto, have been prepared in accordance with U.S. GAAP throughout the periods
indicated. The Purchaser Balance Sheet fairly presents in all material respects
the pro forma financial condition of the Purchaser at the date thereof and
fairly presents in all material respects all pro forma claims against and all
pro forma debts and liabilities of the Purchaser, fixed or contingent, as at the
date thereof, required to be shown thereon under U.S. GAAP, and the related pro
forma statements of income, retained earnings and cash flow fairly present in
all
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material respects the pro forma results of operation of the Purchaser. Except as
set forth on Schedule 4.4.2, since September 30, 1999 (the "Purchaser Balance
Sheet Date") there has been no material adverse change in the properties,
financial condition, business or results of operations of the Purchaser.
Section 4.5 Brokers. No broker, finder, agent or similar intermediary
has acted on behalf of the Purchaser or its affiliates in connection with
this Agreement or the transactions contemplated hereby, and no brokerage
commissions, finders' fees or similar fees or commissions are payable by the
Purchaser or its affiliates in connection therewith based on any agreement,
arrangement or understanding with any of them.
Section 4.6 Capitalization. As of October 30, 1999 the Purchaser has an
authorized capitalization consisting of [ ] shares of common stock, $0.001 par
value per share, of which as of the Closing Date [ ] shares are issued and
outstanding, an aggregate of [ ] shares are allocated to the 1999 Agency.Com
Stock Option/Stock Issuance Plan., and an aggregate of 7,400,000 shares are
subject to issuance upon the exercise of certain warrants; in addition, there
are [ ] shares subject to the issuance of options under the Interactive
Solutions and Quadris Option Plans which were assumed by the Purchaser in April
1999. No other class of capital stock or series of any class of capital stock or
securities convertible into capital stock of Purchaser is authorized or
outstanding. There are no (a) outstanding subscriptions, options, warrants,
rights (including "phantom" stock rights), calls preemptive rights, or other
contracts, commitments, understandings or arrangements, including any right of
conversion or exchange under any outstanding security, instrument, plan or
agreement (collectively, "Options"), obligating Purchaser to issue or sell any
shares of the capital stock of Purchaser, or to grant, extend or enter into any
Option with respect thereto, or (b) outstanding Options providing for settlement
in cash.
Section 4.7 Purchaser's Common Stock. The shares of Purchaser's Common
Stock, when issued and delivered to the Stockholders pursuant to the provisions
of this Agreement, will be validly issued and outstanding, fully-paid and
non-assessable, free and clear of all liens other than restrictions on resale
arising by the lock-up agreement, exhibit E, or by virtue of Federal and state
securities laws of the United States (and to the extent applicable the
provisions of the Investment Representation Certificate to be delivered by VH
and AMS at the Closing), and will not be subject to any preemptive right of
shareholders of Purchaser. The shares of Purchaser's Common Stock issued to the
Stockholders together with 68,000 additional shares of Purchaser's Common Stock
to be included in the Option Program described in Schedule 3.1.3, represent
[1.8%] of the Applicable Purchaser Shares, as calculated and defined in Schedule
4.7 hereto (the "Stockholders Closing Percentage").
ARTICLE V
ACTIONS AT CLOSING BY THE STOCKHOLDERS
Simultaneously herewith:
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Section 5.1 Required Approvals, Notices and Consents. The Stockholders
have obtained or given, at no expense to the Purchaser and there have not
been withdrawn or modified, any notices, consents, approvals or other actions
listed on Schedules 3.1.6 or 3.9.2 hereof (including without limitation,
obtaining all consents, approvals and/or waivers required under the contracts
listed on Schedule 3.8 in order to permit the consummation of the
transactions contemplated by this Agreement without causing or resulting in a
default, event of default, acceleration event or termination event under any
of such documents and without entitling any party to any of such documents to
exercise any other right or remedy adverse to the interests of the Purchaser
or the Company thereunder). Each such consent or approval was in form
reasonably satisfactory to counsel for the Purchaser. The same applies to the
approval required pursuant to section 7.3 herein.
Section 5.2 Good Standing Certificates. The Stockholders delivered to
the Purchaser: (a) a copy of the Company's and the Subsidiaries' Articles of
Incorporation, including all amendments, certified by attorney Hans Madsen;
(b) a certificate from the Erhvervs- og Selskabsstyrelsen to the effect that
the Company and the subsidiaries are in good standing.
Section 5.3 Surrender of Certificates, Stock Records and Protocols. The
Stockholders delivered to the Purchaser such other documents and instruments,
if any, as may be necessary to permit the Purchaser to acquire the Shares
free and clear of any and all Liens or voting or other restrictions of any
kind whatsoever adverse to the Purchaser. The Stockholders further delivered
the stockholder book (Aktiebog), the General Assembly Protocol
(generalforsamlingsprotokollen), the Board Meeting Protocol
(bestyrelsesprotokollen) and the Auditors Protocol (revisionsprotokollen) of
the Company and each Subsidiary. The closing is also conditional upon the
Stockholders and Visionik A/S's signing of Exhibit A-1.
Section 5.4 Employment Agreements. Lembke has entered into an
Employment Agreement with the Company, in the form and to the effect of
Exhibit B-1 hereto.
Section 5.5 [Intentionally left blank]
Section 5.6 Non-Solicitation Agreements. Each of Lembke and Hougaard
have entered into a Non-Solicitation Agreement with the Company, in the form
and to the effect of Exhibit C-1 and Exhibit C-2 hereto.
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Section 5.7 Certified Resolutions. The Stockholders delivered to the
Purchaser a copy of the resolutions of the General Assembly of AMS
authorizing the execution, delivery and performance of the Agreement.
Section 5.8 Investment Representation Certificate. Each of the
Stockholders executed and delivered to the Purchaser and Investment
Representation Certificate as to the Shares in the form and to the effect of
Exhibit D hereto.
Section 5.9 Lockup Agreement. Each of the Stockholders shall have
entered into a Lockup Agreement with Purchaser in the form of Exhibit E
hereto.
Section 5.10 Repayment of Loans. All indebtedness of the Stockholders to
the Company, together with interest thereon from the date of inception, was
repaid in full, other than routine travel expense advances in the ordinary
course of business and consistent in amount with past practice, and the
Stockholders delivered to Purchaser a certificate, dated the Closing Date, to
such effect.
Section 5.11 Proceedings. All proceedings to be taken in connection
with the transactions contemplated by this Agreement and all documents
incident thereto were reasonably satisfactory in form and substance to the
Purchaser and its counsel, and the Purchaser received copies of all such
documents and other evidences as it or its counsel may reasonably request in
order to establish the consummation of such transactions and the taking of
all proceedings in connection therewith.
ARTICLE VI
ACTIONS AT CLOSING BY THE PURCHASER
Simultaneously herewith:
Section 6.1 Certified Resolutions. The Purchaser delivered to the
Stockholders a copy of the resolutions of the Board of Directors of the
Purchaser authorizing the execution, delivery and performance of this
Agreement and the transactions and other agreements contemplated hereby,
certified to by an officer of the Purchaser.
Section 6.2 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents incident
thereto were reasonably satisfactory in form and substance to the
Stockholders, the
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Company and their counsel and the Company received copies of all such documents
and other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transaction and the taking of all proceedings
in connection therewith.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 Holding Period of Purchased Shares. Purchaser agrees that it
will not, prior to the third anniversary of the Closing Date, sell, assign,
transfer or otherwise dispose of the purchased Shares (a "Prohibited Transfer"),
except that a Prohibited Transfer shall not be deemed to occur upon the sale or
public offering of the capital stock of Purchaser or upon any (i) merger or
consolidation of Purchaser with or into another Company; (ii) sale, transfer or
disposition of the purchased Shares to an Affiliate; or (iii) sale or transfer
or other disposition of all or any portion of the capital stock, business or
assets of the Subsidiaries or either of them provided, however, that prior to
carrying out any of the transactions listed under (i), (ii) and (iii) above
prior to the third anniversary of the Closing, the Purchaser will in cooperation
with VH use best endeavors to obtain the approval of the Danish tax authorities,
if necessary for VH to maintain the qualifications of this Stock Exchange
Agreement as a tax-free exchange of shares, and, in this connection, the
Purchaser will favorably consider any proposals from VH to restructure or amend
any transaction then being contemplated, and further provided, that until the
first anniversary of the Closing, the Purchaser undertakes to indemnify VH for
USD 750,000 of the taxes incurred, if any, as a result of such transaction,
unless the transaction is beyond the control of the Purchaser.
Section 7.2 Nomenclature/Branding.
Immediately after close, the company will be renamed "AGENCY.COM : Copenhagen,"
or such other name as shall be accepted by the Danish Commerce and Companies
register if said name is unavailable. The Company maintains all rights to the
name "Visionik".
Section 7.3 IT Plus Reorganization. The Purchaser acknowledges and
agrees that the Stockholders have acquired the shares of IT+ A/S previously
held by the Company for a price of DKK 660,000. This will result in a taxable
gain of the Company in the amount of approximately DKK 100,000. The
shareholders will at closing present documentation to the effect that the
other shareholder in IT+ A/S accept this transfer.
Section 7.4 Employee Stock Option Program. Certificates representing
options to acquire an aggregate of 68,000 shares of Purchaser's Common Stock
will issued by Purchaser pursuant to the Option Program described in Schedule
3.1.3 within two weeks after closing.
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ARTICLE VIII
SURVIVAL; INDEMNITY
Section 8.1 Survival. Notwithstanding any right of any party hereto
fully to investigate the affairs of any other party, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation
or right of investigation, each party hereto shall have the right to rely
fully upon the representations, warranties, covenants and agreements of the
other parties contained in this Agreement and the Schedules, if any,
furnished by any other party pursuant to this Agreement, or in any
certificate delivered at the Closing by any other party. Subject to the
limitations set forth in Section 8.5, the respective representations,
warranties, covenants and agreements of the Stockholders and the Purchaser
contained in this Agreement shall survive the Closing.
Section 8.2 Obligation of the Stockholders to Indemnify.
Section 8.2.1 General Indemnity. Subject to the limitations contained
in Section 8.5 the Stockholders hereby agree, jointly and severally, to
indemnify the Purchaser and its officers, directors, employees, agents and
its affiliates (individually a "Purchaser Indemnified Party" and
collectively, the "Purchaser Indemnified Parties") against, and to protect,
save and keep harmless the Purchaser Indemnified Parties from, and to assume
liability for, payments of all liabilities (including liabilities for Taxes),
obligations, losses, damages, penalties, claims, actions, suits, judgments,
settlements, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorneys', accountants'
and expert witnesses' fees) of whatever kind and nature, net of any tax
benefit actually realized by the Indemnified Party (it being understood that
any such benefit shall be paid in the first instance by Indemnifying Parties
and refunded by the Indemnified Party upon the realization of the benefit) to
the extent not covered by insurance the benefits of which will inure to the
applicable Indemnified Parties (as defined below) (collectively, "Losses"),
that may be imposed on or incurred by any Purchaser Indemnified Party or the
Company (collectively, the "Group") as a consequence of or in connection with
(i) any inaccuracy or breach of any representation or warranty contained in
Article III hereof or (ii) any breach of or failure by any Stockholder to
comply with or perform any agreement or covenant contained in this Agreement.
The term "Losses" as used herein is not limited to matters asserted by third
parties against the Group but includes Losses incurred or sustained by the
Group in the absence of third party claims.
Section 8.2.2 Special Indemnity. Prior to the Closing, the Company will
enter into an obligation to pay an amount not to exceed DKK 3,500,000 to
Lembke and Hougaard in accordance with Exhibits C-1 and C-2. The amount will
be paid to Lembke and Hougaard two weeks after the closing in consideration
of their covenants given pursuant
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to their Non-Solicitation/Non-Servicing Agreements being entered into
simultaneously herewith, as well as in consideration of the untimely termination
of Lembke's employment contract. However, subject to withholding taxes, the
amount will be taxed as personal income under Danish tax law. It is the parties'
intent that the Company's obligations with respect to any third party loan
obtained to enable the Company to pay the amount, shall be limited solely to the
repayment thereof to the third-party lender, and that any additional Losses that
may be imposed or incurred by Purchaser or the Company with respect thereto,
including, without limitation, the disallowance by any tax authority of said
consideration to Lembke and Hougaard as a deductible business expense of the
Company, shall be fully indemnified by the Stockholders and shall not be subject
to the limitations contained in Section 8.5 below.
Section 8.3 Obligation of the Purchaser to Indemnify. Subject to the
limitations set forth in Section 8.5 hereof, the Purchaser hereby agrees to
indemnify the Stockholders and their respective officers, directors,
employees and agents (individually a "Stockholder Indemnified Party" and
collectively the "Stockholder Indemnified Parties"; the Purchaser Indemnified
Parties and the Stockholders Indemnified Parties are sometimes collectively
referred to as the "Indemnified Parties") against, and to protect, save and
keep harmless the Stockholder Indemnified Parties from and to assume
liability for any and all Losses that may be imposed on or incurred by the
Stockholder Indemnified Parties as a consequence of or in connection with (i)
any inaccuracy or breach of any representation or warranty contained in
Article IV hereof or (ii) any breach of or failure by the Purchaser to comply
with or perform any agreement or covenant by the Purchaser contained in this
Agreement.
Section 8.4 Indemnification Procedures.
Section 8.4.1 Notice of Asserted Liability. The Indemnified Party shall
promptly give notice (the "Claims Notice") to the party or parties required
to pay any amount in respect of Losses under Section 8.2 or 8.3
(collectively, the "Indemnifying Party"), of any demand, claim or
circumstances which in good faith it believes gives rise, or with the lapse
of time would or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation that may
result in any Losses (an "Asserted Liability") without regard to the
limitations on indemnification set forth in Section 8.5 below. The Claims
Notice shall describe the Asserted Liability in reasonable detail, shall
indicate the amount (estimated, if necessary, and to the extent feasible) of
the Losses that have been or may be suffered by an Indemnified Party.
Section 8.4.2 Defense of Asserted Liability. The Indemnifying Party may
elect to compromise, settle or defend, at its own expense and by its own
counsel (such counsel to be reasonably satisfactory to the Indemnified
Party), any Asserted Liability. If the Indemnifying Party elects to
compromise, settle or defend such Asserted Liability, it shall within 30 days
(or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnified Party in writing of its intent to do so and the Indemnified Party
shall cooperate, at the request and expense of the
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Indemnifying Party, in the settlement or compromise of, or defense against, such
Asserted Liability. If the Indemnifying Party elects not to compromise, settle
or defend the Asserted Liability, or fails to notify the Indemnified Party of
its election as herein provided, the Indemnified Party may pay, compromise,
settle or defend such Asserted Liability at the expense of the Indemnifying
Party and the Indemnifying Party shall be bound by the results obtained by the
Indemnified Party with respect to such third party claim. Notwithstanding the
foregoing, the Indemnifying Party may not settle or compromise any claim without
the prior written consent of the Indemnified Party, if such settlement or
compromise does not include an unconditional release from all liability without
future obligation or prohibition on the part of the Indemnified Party. If an
Indemnified Party objects to a bona fide offer of settlement which provides
solely for a monetary payment and includes an unconditional release from all
liability without future obligation or prohibition on the part of the
Indemnified Party, which the Indemnifying Party wishes to accept, the
Indemnified Party may continue to pursue such matter, free of any participation
by the Indemnifying Party, at the expense of the Indemnified Party. In such
event, the obligation of the Indemnifying Party shall be limited to the amount
of the offer of settlement which the Indemnified Party refused to accept plus
the costs and expenses of the Indemnified Party incurred prior to the date the
Indemnifying Party notified the Indemnified Party of the offer of settlement.
The Indemnified Party shall have the right to employ its own counsel in any case
with respect to an Asserted Liability, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (a) the employment of
such counsel shall have been authorized in writing by the Indemnifying Party in
connection with the defense of such action, (b) such Indemnifying Party shall
not have, as provided above, promptly employed counsel reasonably satisfactory
to such Indemnified Party to take charge of the defense of such action, or (c)
such Indemnified Party shall have reasonably concluded that there may be one or
more legal defenses available to it which are different from or additional to
those available to such Indemnifying Party, in any of which events such
reasonable fees and expenses shall be borne by the Indemnifying Party and the
Indemnifying Party shall not have the right to direct the defense of such action
on behalf of the Indemnified Party in respect of such different or additional
defenses. If the Indemnifying Party chooses to defend any claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
The parties hereto agree to cooperate fully with one another in the defense,
compromise or settlement of any Asserted Liability.
Section 8.4.3 Control by the Purchaser. All decisions and
determinations to be made by the Purchaser and/or a Purchaser Indemnified
Party under this Article VIII shall be made by the Purchaser in the name of
and on behalf of the Purchaser or such other Purchaser Indemnified Party and
all such decisions and determinations shall be binding upon the parties
hereto and such Purchaser Indemnified Party.
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Section 8.5 Limitations on Indemnification.
Section 8.5.1 Indemnity Cushion. No claim, action or other Asserted
Liability with respect to Losses arising out of any of the matters referred
to in clause (i) of Section 8.2 may be asserted until such time as claims,
actions or other Asserted Liabilities with respect to Losses arising out of
any of the matters referred to in clause (i) of Section 8.2 shall exceed
$40,000 in the aggregate (in which case the Stockholders shall be liable for
all Losses in excess of $40,000); provided, however, that this Section 8.5.1
shall not apply to Losses relating to a breach of a representation or
warranty contained in Section 3.26, or pursuant to Section 8.2.2.
Section 8.5.2 Termination of Indemnification Obligations of the
Stockholders.
(a) The obligation of the Stockholders to indemnify under Section
8.2.1 hereof shall terminate on June 30, 2002 except (i) as to matters as to
which the Purchaser Indemnified Party has made a claim for indemnification or
given a Claims Notice under Section 8.4 hereof on or prior to such date and,
(ii) with respect to any claim for Losses pertaining to a misrepresentation or a
breach of representation or warranty under Section 3.11 or any other Section of
Article III of this Agreement relating to Taxes or pursuant to Section 8.2.2
hereof. The obligation to indemnify referred to in:
(A) the preceding clause (i) shall survive the expiration of such
period until such claims are finally resolved and any obligations with
respect thereto are fully satisfied; and
(B) the preceding clause (ii) shall terminate 60 days after the
expiration of the relevant statute of limitations, except as to matters as
to which any Indemnified Party has made a claim for indemnification or
given a Claims Notice under Section 8.4 on or prior to such date, in which
case the right to indemnification with respect thereto shall survive the
expiration of any such period until such claim is finally resolved and any
obligations with respect thereto are fully satisfied.
Section 8.5.3 Termination of Indemnification Obligations of the
Purchaser. The obligation of the Purchaser to indemnify under clause (i) of
Section 8.3 hereof shall terminate on June 30, 2002 except as to matters as
to which any Stockholders Indemnified Party has made a claim for
indemnification or given a Claims Notice under Section 8.4 hereof on or prior
to such date, in which case the right to indemnification with respect thereto
shall survive until the related claim for indemnification has been finally
resolved and any obligations with respect thereto are fully satisfied.
Section 8.5.4 Treatment. Any indemnity payments by an Indemnifying
Party to an Indemnified Party under this Article VIII shall be treated by the
parties as an adjustment to the Purchase Price.
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8.5.5 Cap on indemnification. The liability of each of the Stockholders
with respect to losses arising out of any of the matters in this Agreement shall
not exceed (a) 100% of the Purchaser's shares of Common Stock issued to such
Stockholder pursuant to Section 2.1.1, or (b) USD 4,500,000 with respect to VH
and Lembke and USD 1,500,000 with respect to AMS and Hougaard, whichever the
lower. The Stockholders are jointly and severally liable up till the
aforementioned pro rata liability. As of June 30, 2001, the liability shall be
reduced to 50% of the shares or amounts mentioned. The Stockholders shall have
the option as to whether to satisfy its indemnification obligations in cash, in
shares of Purchaser's Common Stock, or in a combination thereof, and each share
of Purchaser's Common Stock shall be valued at its then-current value.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Expenses. The parties hereto shall pay all of their own
expenses relating to the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses of their respective
counsel and financial advisers.
Section 9.2 Governing Law. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of
Denmark without reference to its conflict of laws provisions.
Section 9.3 "Person" Defined. "Person" shall mean and include an
individual, a company, a joint venture, a corporation, a limited liability
company, a limited liability partnership, a trust, an unincorporated
organization and a government or other department or agency thereof.
Section 9.4 "Knowledge" Defined. Where any representation and warranty
contained in this Agreement is expressly qualified by reference to the
knowledge of a party, such party confirms that it has made such due and
diligent inquiry as to the matters that are the subject of such
representations and warranties as shall be reasonable under the circumstances.
Section 9.5 "Affiliate" Defined. As used in this Agreement, an
"affiliate" of any Person, shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with such Person.
27
<PAGE>
Section 9.6 Captions. The Article and Section captions used herein are
for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 9.7 Publicity. Subject to the provisions of the next sentence,
no party to this Agreement shall, and the Stockholders shall insure that no
representative of the Company shall, issue any press release or other public
document or make any public statement relating to this Agreement or the
matters contained herein without obtaining the prior approval of the
Purchaser, the Company and the Stockholders. Notwithstanding the foregoing,
the foregoing provision shall not apply to the extent that Purchaser is
required to make any announcement relating to or arising out of this
Agreement by virtue of the federal securities laws of the United States or
the rules and regulations promulgated thereunder or other rules of the
National Association of Securities Dealers or other stock exchange on which
the securities of the Purchaser may then be traded, or any announcement by
any party or the Company pursuant to applicable law or regulations.
Section 9.8 Notices. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to
any other party shall be in writing and shall be deemed to have been given
(a) upon personal delivery, if delivered by hand, (b) three days after the
date of deposit in the mails, postage prepaid, if mailed by certified or
registered mail, or (c) the next business day if sent by facsimile
transmission (if receipt is electronically confirmed) or by a prepaid
overnight courier service, and in each case at the respective addresses or
numbers set forth below or such other address or number as such party may
have fixed by notice:
If to the Purchaser, addressed to:
Agency.Com Ltd.
665 Broadway
New York, New York 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman
Agency.Com Ltd.
1111 Chautauqua Boulevard
Pacific Palisades, California 90272
Fax: (310) 230-6936
If to the Stockholders to the address set forth on Exhibit A;
28
<PAGE>
Section 9.9 Parties in Interest. This Agreement may not be transferred,
assigned, pledged or hypothecated by any party hereto, other than by
operation of law. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
Section 9.10 Severability. In the event any provision of this Agreement
is found to be void and unenforceable by a court of competent jurisdiction,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the void or unenforceable part had
been severed and deleted.
Section 9.11 Counterparts. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one
instrument.
Section 9.12 Entire Agreement. This Agreement, including the other
documents referred to herein and the Exhibits and Schedules hereto which form
a part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 9.13 Amendments. This Agreement may not be amended,
supplemented or modified orally, but only by an agreement in writing signed
by the Purchaser and the Stockholders.
Section 9.14 Third Party Beneficiaries. Each party hereto intends that
this Agreement shall not benefit or create any right or cause of action in or
on behalf of any person other than the parties hereto and their respective
successors and assigns as permitted under Section 9.9.
Section 9.16 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall be settled by
arbitration in accordance with Danish law, including the Danish Arbitration
Act (Voldgiftsloven). The arbitration panel shall consist of three
arbitrators, one nominated by Purchaser, one nominated by the Stockholders
and the third to be selected by the other two. In the event the three
arbitrators shall not have been nominated within 30 days following a notice
by either Purchaser or the Stockholders to the other(s) of its intention to
arbitrate, an arbitrator for the party who has not nominated an arbitrator
(if applicable) and the third arbitrator shall be chosen by the Det Danske
Voldgiftsinstitut (the Danish Arbitration Institute) pursuant to its rules
and regulations. The determination of the arbitrators shall be not
inconsistent with the terms of this Agreement and shall be final and binding
upon the parties to the arbitration without the right of appeal. The
arbitration shall be held in Copenhagen, Denmark in the
29
<PAGE>
English language. The costs and expenses of the arbitrators shall be paid by the
non-prevailing party or parties to the arbitration proceeding. No party to this
Agreement shall be precluded from applying to a proper court for injunctive
relief by reason of the prior or subsequent commencement of an arbitration
proceeding as herein provided.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on
the day and year first above written.
AGENCY.COM LTD.
By: /s/ Johnathan Tann
------------------------------------
Name: Johnathan Tann
Title: Vice President
THE CORPORATE STOCKHOLDERS
VISIONIK HOLDING ApS
By: /s/ Jorgen Lembke
------------------------------------
ASSOCIATED MANAGEMENT SERVICES A/S
In pursuance of General Assembly
resolution:
By: /s/ Soren Hougaard-Hansen
------------------------------------
/s/ Jorgen Lembke
----------------------------------------
Jorgen Lembke
/s/ Soren Hougaard-Hansen
----------------------------------------
Soren Hougaard-Hansen
30
<PAGE>
Exhibits
Exhibit A: Shares; Addresses; Allocation of Purchase Price
Exhibit A-1: Notification signed by Visionik A/S concerning share exchange
Exhibit B1-1: Employment Agreement
Exhibit C-1: Non-Solicitation Agreement with Lembke
Exhibit C-2: Non-Solicitation Agreement with Hougaard
Exhibit D-1: Investment Representation Certificate with Lembke
Exhibit D-2: Investment Representation Certificate with Hougaard
Exhibit E-1: Lockup Agreement with Lembke
Exhibit E-2: Lockup Agreement with Hougaard
Schedules
- --------------------------------------------------------------------------------
Schedule 3.1.3 Description of Employee Option Scheme
- --------------------------------------------------------------------------------
Schedule 3.1.6 List of Consents and Approvals
- --------------------------------------------------------------------------------
Schedule 3.2 List of Jurisdictions of business
- --------------------------------------------------------------------------------
Schedule 3.3. List of the Visionik A/S's Subsidiaries
- --------------------------------------------------------------------------------
Schedule 3.3.1 Description of outstanding Options etc.
- --------------------------------------------------------------------------------
Schedule 3.4. Copies of Balance Sheets
- --------------------------------------------------------------------------------
Schedule 3.5 List of Information not in the possession of Visionik A/S
- --------------------------------------------------------------------------------
Schedule 3.6 List of Liens on Tangible Personal Property
- --------------------------------------------------------------------------------
Schedule 3.7.2 List of Real Property Leases
- --------------------------------------------------------------------------------
Schedule 3.8 List of Contracts, including current money arrangements etc.
- --------------------------------------------------------------------------------
Schedule 3.9.2 List of Consents and approvals
- --------------------------------------------------------------------------------
Schedule 3.10 List of litigation, claims and administrative proceedings
- --------------------------------------------------------------------------------
Schedule 3.11 List of contested tax assessments
- --------------------------------------------------------------------------------
Schedule 3.12 List of defaults in respect of borrowed money
- --------------------------------------------------------------------------------
Schedule 3.13 List of insurance policies
- --------------------------------------------------------------------------------
Schedule 3.14 Lists of registrations of Intellectual Property and Licenses
- --------------------------------------------------------------------------------
Schedule 3.16 List of the largest clients
- --------------------------------------------------------------------------------
Schedule 3.17 List of Material adverse changes after September 30, 1999
- --------------------------------------------------------------------------------
Schedule 3.20 Lists of interest in Customers, suppliers etc.
- --------------------------------------------------------------------------------
Schedule 3.21 List of Bank Accounts and Powers of Attorney etc.
- --------------------------------------------------------------------------------
Schedule 3.22 List of Compensation of Employees and exclusive consultants
- --------------------------------------------------------------------------------
Schedule 3.23 List of Material adverse changes after September 30, 1999
- --------------------------------------------------------------------------------
Schedule 4.3.2 List of Consents and Approvals
- --------------------------------------------------------------------------------
Schedule 4.4 Financial Statements of Purchaser
- --------------------------------------------------------------------------------
Schedule 4.4.1 US GAAP
- --------------------------------------------------------------------------------
Schedule 4.4.2 List of Material adverse changes with respect to Purchaser
- --------------------------------------------------------------------------------
Schedule 4.7 Stockholders Closing Percentage
- --------------------------------------------------------------------------------
31
<PAGE>
EXHIBIT A
Shares; addresses; allocation of purchase price
Visionik Holding ApS (registration no. ApS 240920 -- SE no. 20483288),
Hollaendervej 17, 3. th., DK-1855 Frederiksberg C, disposes of 375 shares in the
Company of a nominal value of DKK 375,000, and receives 429,000 shares of
Purchaser Common Stock.
Associated Management Services A/S (registration no. A/S 156640 -- SE no.
73684919), Lovvaenget 3, DK-2960 Rungsted Kyst, disposes of 125 shares in the
Company at a nominal value of DKK 125,000, and receives 143,000 shares of
Purchaser Common Stock.
<PAGE>
EXHIBIT A-1
Notification signed by Visionik A/S concerning share exchange
In accordance with Article 25(b) of the Companies Act (Aktieselskabsloven) it is
hereby notified that the ownership to all shares issued by Visionik A/S (DKK
375,000 held by Visionik Holding ApS and DKK 125,000 held by Associated
Management Services A/S) have been transferred irrevocably to Agency.Com Ltd.,
665 Broadway, New York, New York 10012, USA, as of this date.
Copenhagen, November 3, 1999
Visionik Holding ApS:
by:
- ----------------------------------
Jorgen Lembke
Associated Management Services A/S:
by:
- ----------------------------------
Soren Hougaard-Hansen
Agency.Com Ltd.:
by:
- ----------------------------------
Johnathan Tann
***
<PAGE>
Visionik A/S hereby acknowledges that we have been informed of the above
transfer on November 3, 1999.
Visionik A/S:
by:
- ----------------------------------
Jorgen Lembke
- ----------------------------------
Soren Hougaard-Hansen
The authenticity and authority as well as the date of the signatures above on
behalf of Visionik Holding ApS, Associated Management Services A/S and Visionik
A/S are hereby certified.
by:
- ----------------------------------
Hans Madsen
Attorney of law,
Copenhagen
2
<PAGE>
Exhibit 10.24
AGENCY.COM LTD.
665 Broadway
New York, NY 10012
November 12, 1999
Thomas DeLong
Harvard Business School
139 Morgan Hall
Boston, Massachusetts 02163
Dear Tom:
This letter agreement (the "Agreement") will confirm the terms upon which you
will provide consulting services to AGENCY.COM LTD. (the "Company").
1. You agree to make yourself available to render services to the Company on an
as-needed basis, subject to your prior commitments. It is anticipated that these
services will involve discussions and advice based on your extensive expertise.
You will not be required to travel without your consent.
2. The Company will reimburse you for all travel and other out-of-pocket
expenses which you may properly incur in connection with the services you render
hereunder, upon the submission of any and all statements, bills or receipts
evidencing the expenses for which you seek payment or reimbursement, and any
other information or materials, as the Company may from time to time reasonably
require.
3. You agree that you will serve as a Director of the Company if and when so
elected by the shareholders of the Company, subject only to the requirement that
the Company shall have obtained officers and directors liability insurance which
will provide coverage for you in your capacity as a Director of the Company. You
specifically agree to being named as a Director-Nominee in a registration
statement (the "Registration Statement") which may be filed by the Company under
the Securities Act of 1933, as amended, covering the offer and sale of common
stock for the account of the Company to the public.
4. You acknowledge that as a result of your services hereunder, you will be
privy to confidential information and trade secrets of the Company and its
clients, which you agree that you will not at any time (whether during the Term
or after termination of this Agreement), disclose to anyone or utilize for your
own benefit or for the benefit of third parties. The term "confidential
information or trade secret" does not include information which (i) becomes
generally available to the public other than by breach of this provision or (ii)
you learn from a third party who is not under an obligation of confidence to the
Company. In the event that you become legally required to disclose any
confidential information or trade secret, you will provide the Company with
prompt notice thereof so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this paragraph
4. In the event that such protective order or other remedy is not obtained, or
that the Company waives compliance with the provisions of this paragraph 4, you
will furnish only that portion of the
<PAGE>
confidential information or trade secret which is legally required and will
exercise your best efforts to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the confidential
information or trade secret.
5. As compensation for your services, promptly following your execution and
delivery of this Agreement, the Company shall issue to you options to purchase
50,000 shares of the Company's common stock. This issuance shall be made
pursuant to the Company's 1999 Stock Option/Stock Issuance Plan (the "Plan") and
shall be subject to the terms and conditions of the Plan as if granted under
Article IV of the Plan, specifically the repurchase rights of the Company
thereunder; provided, however, that the options shall be first exercisable only
at such time as you actually become a Director of the Company. The exercise
price per share of Company common stock shall be the fair market value of such
share on the date of issuance.
If you are in agreement with the foregoing, please sign in the space provided
below, whereupon this shall become a binding agreement between us.
Very truly yours,
AGENCY.COM LTD.
By: /s/ Chan Suh
----------------------------
ACCEPTED AND AGREED:
/s/ Thomas DeLong
- -------------------------------
Thomas DeLong
2
<PAGE>
Exhibit 10.25
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
AGENCY.COM LTD.
November 24, 1999 2,928,752 Shares
of Common Stock
Warrant for Common Stock
This certifies that Omnicom Group Inc., whose address is 437
Madison Avenue, New York, NY 10022 (the "HOLDER") is entitled to subscribe for
and purchase, subject to Section 1.4 below during the period commencing on
November 24,1999, and ending at 5:00 P.M., New York local time, on March 31,
2019, Two Million Nine Hundred Twenty Eight Thousand Seven Hundred Fifty Two
(2,928,752) shares of fully paid and nonassessable Common Stock, $.001 par value
per share ("COMMON STOCK"), of AGENCY.COM Ltd., a Delaware corporation (the
"COMPANY"). The purchase price of each such share shall be the amount set forth
in Section 1.3 herein (the "WARRANT PRICE"). This Warrant shall not be
assignable, and shall only be exercisable, by the Holder.
1. EXERCISE; PAYMENT
1.1 PAYMENT. The purchase rights under this Warrant may be exercised by
Holder, in whole or in part, by the surrender of this Warrant at the principal
office of the Company located at 665 Broadway, New York, NY 10012, and by the
payment to the Company, by certified, cashier's or other check acceptable to the
Company, of an amount equal to the aggregate Warrant Price of the shares being
purchased.
1.2 STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.3 WARRANT PRICE. The purchase price for the shares of Common Stock to
be issued upon exercise of this Warrant shall be $0.01 per share, subject to
adjustment as provided in Section 3 herein (the "WARRANT Price").
1.4 RESTRICTIONS ON EXERCISE. Notwithstanding anything to the contrary
set forth in this Warrant, exercise of this Warrant shall be restricted as
follows:
1.4.1 If the Holder and Communicade Inc. beneficially own in
the aggregate less than 50% of the outstanding shares of Common Stock
of the Company at the time of exercise, the Holder shall be entitled to
exercise this Warrant only to the extent that the
<PAGE>
number of shares of Common Stock beneficially owned in the aggregate by
the Holder and Communicade Inc. after such exercise is less than 50% of
such outstanding shares.
1.4.2 If the Holder and Communicade Inc. beneficially own in
the aggregate 50% or more of the outstanding shares of Common Stock of the
Company at the time of exercise, this Warrant shall be exercisable in full.
2. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may
be issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
3. ADJUSTMENT
The kind of securities purchasable upon the exercise of this
Warrant, the number of shares under this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the happening of certain events, as
follows:
3.1 RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder of
Common Stock issuable upon exercise of this Warrant had this Warrant been
considered exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section 3 and the provisions of this Section 3 and
the provisions of this Section 3.1 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.2 SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common Stock, the Warrant Price shall be proportionately
reduced and the number of shares under this Warrant shall be proportionately
increased; or (ii) shall combine shares of its Common Stock, the
2
<PAGE>
Warrant Price shall be proportionately increased and the number of shares under
this Warrant shall be proportionately reduced.
3.3 STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 3.1 and 3.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 3.
3.4 TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
3.4.1 the date of issuance of the security causing the
adjustment;
3.4.2 the effective date of a division or combination of
shares;
3.4.3 the record date of any action of holders of the
Company's capital stock of any class taken for the purpose of dividing or
combining shares or entitling shareholders to receive a distribution or
dividends payable in the Company's capital stock.
3.5 NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company,
at its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 13 hereof.
4. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in
connection with any exercise hereof, but in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share at the then
effective Warrant Price.
5. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any
rights of a shareholder of the Company. Holder shall have all rights of a
shareholder with respect to securities purchased upon exercise hereof at the
time the exercise price for such securities is delivered pursuant to Section l
hereof and this Warrant is surrendered.
6. NO TRANSFER; EXCHANGE
6.1 TRANSFER. This Warrant shall not be transferable by the Holder.
3
<PAGE>
6.2 SECURITIES LAWS. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement under the Act and qualification under
the Securities Act of 1933, as amended, covering the disposition of Common Stock
issued or issuable upon exercise hereof, Holder will not sell or transfer any or
all of such Common Stock, without first providing the Company with an opinion of
counsel reasonably acceptable to the Company and its counsel to the effect that
such sale or transfer will be exempt from the registration requirements of the
Act and the qualification requirements of the Securities Act of 1933, as
amended, and Holder consents to the Company making a notation on its records in
order to implement such restriction on transferability.
6.3 EXCHANGE. This Warrant is exchangeable at the principal office of
the Company for Warrants to purchase the same aggregate number of shares of
Common Stock purchasable hereunder, each new Warrant to represent the right to
purchase such number of shares as Holder shall designate at the time of such
exchange.
7. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of
the ownership of, and the loss, theft, destruction or mutilation of, this
Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a new
Warrant.
8. GOVERNING LAWS
The internal laws of the State of New York (irrespective of
its choice of law principles) shall govern the validity of this Warrant, the
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
9. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant,
each and all of the covenants, terms, provisions, and agreements contained
herein shall be binding upon, and inure to the benefit of the permitted
successors, executors, heirs, representatives, administrators and assigns of the
parties hereto.
10. SEVERABILITY
If any provision of this Warrant, or the application hereof,
shall for any reason and to any extent, be invalid or unenforceable, the
remainder of this Warrant and application of such provisions to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provisions of this Warrant with valid or enforceable provisions
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provisions.
4
<PAGE>
11. AMENDMENT
This Warrant may be amended upon the written consent of the
Company and the Holder.
12. NO WAIVER
The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
13. NOTICES
Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such communication
shall be in writing and shall be effective only if it is delivered by personal
service or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in paragraph 1 hereof
Attn: Secretary
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
14. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a
reference to every Section the number of which begins with the number of the
Section to which reference is specifically made. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Warrant which shall be considered as a whole.
15. NO ENDORSEMENT
Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness of
investment in the Company or purchase of the Common Stock hereunder and that no
federal or state securities administrator has recommended or endorsed the
offering of securities by the Company hereunder.
16. PRONOUNS
All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
5
<PAGE>
17. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby, and to carry into effect the intents and purposes of this
Warrant.
AGENCY.COM LTD.
/s/ Chan W. Suh
----------------------------------------
By: Chan W. Suh
Chairman and Chief Executive Officer
6
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _______________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
______ shares of Common Stock of AGENCY.COM Ltd., a Delaware corporation, and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to
_____________, whose address is __________________________.
Dated:
--------------------------------------------
(Signature must conform to name of holder as
specified on the face of the Warrant)
--------------------------------------------
(Address)
Tax Identification Number: _________________
<PAGE>
Exhibit 10.26
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
QUALIFIED UNDER THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION (THE
"LAW"), AND THIS WARRANT HAS BEEN, AND THE COMMON STOCK TO BE ISSUED UPON
EXERCISE HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER
DISPOSITION MAY BE MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER THE LAW RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY (AS THAT TERM IS DEFINED BELOW) AND ITS COUNSEL,
THAT SAID REGISTRATION AND QUALIFICATION ARE NOT REQUIRED UNDER THE ACT AND LAW,
RESPECTIVELY.
AGENCY.COM LTD.
April 28, 1999 1,535,624 Shares
of Common Stock
Warrant for Common Stock
This certifies that Communicade, Inc. whose address is 437 Madison
Avenue, New York, NY 10022 (the "HOLDER") is entitled to subscribe for and
purchase, subject to Section 1.4 below, during the period commencing on April
28, 1999, and ending at 5:00 P.M., New York local time, on March 31, 2019, One
Million Five Hundred Thirty Five Thousand Six Hundred Twenty Four (1,535,624)
shares of fully paid and nonassessable Common Stock, $.001 par value per share
("COMMON STOCK"), of Agency.Com Ltd., a New York corporation (the "COMPANY").
The purchase price of each such share shall be the amount set forth in Section
1.3 herein (the "WARRANT PRICE"). This Warrant shall not be assignable, and
shall only be exercisable, by the Holder.
1. EXERCISE; PAYMENT
1.1. PAYMENT. The purchase rights under this Warrant may be exercised by
Holder, in whole or in part, by the surrender of this Warrant at the principal
office of the Company located at 665 Broadway, New York, NY 10012, and by the
payment to the Company, by certified, cashier's or other check acceptable to the
Company, of an amount equal to the aggregate Warrant Price of the shares being
purchased.
1.2. STOCK CERTIFICATES. In the event of any exercise of the rights to
acquire Common Stock granted under this Warrant, certificates for the shares of
Common Stock so purchased shall be delivered to Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to Holder within such time.
1.3. WARRANT PRICE. The purchase price for the shares of Common Stock to be
issued upon exercise of this Warrant shall be $0.01 per share, subject to
adjustment as provided in Section 3 herein (the "WARRANT PRICE").
1.4. RESTRICTIONS ON EXERCISE. Notwithstanding anything to the contrary set
forth in this Warrant, exercise of this Warrant shall be restricted as follows:
<PAGE>
1.4.1. If the Holder and Omnicom Group Inc. beneficially own in the
aggregate less than 50% of the outstanding shares of Common Stock of the Company
at the time of exercise, the Holder shall be entitled to exercise this Warrant
only to the extent that the number of shares of Common Stock beneficially owned
in the aggregate by the Holder and Omnicom Group Inc. after such exercise does
not exceed 50% of such outstanding shares.
1.4.2. If the Holder and Omnicom Group Inc. beneficially own in the
aggregate 50% or more of the outstanding shares of Common Stock of the Company
at the time of exercise, this Warrant shall be exercisable in full.
2. STOCK FULLY PAID; RESERVATION OF SHARES
The Company covenants and agrees that all securities which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof (excluding taxes based on the
income of Holder). The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for issuance a sufficient
number of shares of its Common Stock or other securities as would be required
upon the full exercise of the rights represented by this Warrant.
3. ADJUSTMENT
The kind of securities purchasable upon the exercise of this Warrant,
the number of shares under this Warrant and the Warrant Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
3.1. RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another corporation
of all, or substantially all, of the property of the Company, then, and in each
such event, the Company or such successor or purchasing corporation, as the case
may be, shall execute a new Warrant which will provide that Holder shall have
the right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder of
Common Stock issuable upon exercise of this Warrant had this Warrant been
considered exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Section 3 and the provisions of this Section 3 and
the provisions of this Section 3.1 shall similarly apply to successive
reclassifications, changes, consolidations, mergers. sales and transfers.
3.2. SUBDIVISIONS OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexercised, in whole or in part, (i)
shall divide its Common
2
<PAGE>
Stock, the Warrant Price shall be proportionately reduced and the number of
shares under this Warrant shall be proportionately increased; or (ii) shall
combine shares of its Common Stock, the Warrant Price shall be proportionately
increased and the number of shares under this Warrant shall be proportionately
reduced.
3.3. STOCK DIVIDENDS. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to shareholders of, its capital stock (except any distribution
described in Sections 3.1 and 3.2 hereof), then and in each case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such additional stock of the
Company which such holder would hold on the date of such exercise had it been
the holder of record of the security receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 3.
3.4. TIME OF ADJUSTMENTS. All adjustments, unless otherwise specified
herein, shall be effective as of the earlier of:
3.4.1. the date of issuance of the security causing the adjustment;
3.4.2. the effective date of a division or combination of shares;
3.4.3. the record date of any action of holders of the Company's
capital stock of any class taken for the purpose of dividing or combining shares
or entitling shareholders to receive a distribution or dividends payable in the
Company's capital stock.
3.5. NOTICE OF ADJUSTMENTS. In each case of an adjustment the Company, at
its expense, shall cause the Chief Financial Officer (or other such similar
officer) of the Company to compute such adjustments and prepare a certificate
setting forth such adjustments and showing in detail the facts upon which such
adjustment is based. The Company shall promptly mail a copy of each such
certificate to Holder pursuant to Section 13 hereof.
4. FRACTIONAL SHARES
No fractional share of Common Stock will be issued in connection with
any exercise hereof, but in lieu of a fractional share upon complete exercise
hereof, Holder may purchase a whole share at the then effective Warrant Price.
5. SHAREHOLDER RIGHTS
Holder shall not, solely by virtue hereof, be entitled to any rights
of a shareholder of the Company. Holder shall have all rights of a shareholder
with respect to securities purchased upon exercise hereof at the time the
exercise price for such securities is delivered pursuant to Section 1 hereof and
this Warrant is surrendered.
3
<PAGE>
6. NO TRANSFER; EXCHANGE
6.1. TRANSFER. This Warrant shall not be transferable by the Holder.
6.2. SECURITIES LAWS. The Holder, by acceptance hereof, agrees that, absent
an effective registration statement under the Act and qualification under the
Securities Act of 1933, as amended, covering the disposition of Common Stock
issued or issuable upon exercise hereof, Holder will not sell or transfer any or
all of such Common Stock, without first providing the Company with an opinion of
counsel reasonably acceptable to the Company and its counsel to the effect that
such sale or transfer will be exempt from the registration requirements of the
Act and the qualification requirements of the Securities Act of 1933, as
amended, and Holder consents to the Company making a notation on its records in
order to implement such restriction on transferability.
6.3. EXCHANGE. This Warrant is exchangeable at the principal office of the
Company for Warrants to purchase the same aggregate number of shares of Common
Stock purchasable hereunder, each new Warrant to represent the right to purchase
such number of shares as Holder shall designate at the time of such exchange.
7. LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to it of the
ownership of, and the loss, theft, destruction or mutilation of, this Warrant
and (in the case of loss, theft or destruction) of indemnity satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation hereof, the
Company will execute and deliver in lieu hereof a new Warrant.
8. GOVERNING LAWS
The internal laws of the State of New York (irrespective of its choice
of law principles) shall govern the validity of this Warrant, the construction
of its terms, and the interpretation and enforcement of the rights and duties of
the parties hereto.
9. BINDING UPON SUCCESSORS AND ASSIGNS
Subject to, and unless otherwise provided in, this Warrant, each and
all of the covenants, terms, provisions, and agreements contained herein shall
be binding upon, and inure to the benefit of the permitted successors,
executors, heirs, representatives, administrators and assigns of the parties
hereto.
10. SEVERABILITY
If any provision of this Warrant, or the application hereof, shall for
any reason and to any extent, be invalid or unenforceable, the remainder of this
Warrant and application of such provisions to other persons or circumstances
shall be interpreted so as best to reasonably effect the intent of the parties
hereto. The parties further agree to replace such void or unenforceable
provisions of this Warrant with valid or enforceable provisions which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provisions.
4
<PAGE>
11. AMENDMENT
This Warrant may be amended upon the written consent of the Company
and the Holder.
12. NO WAIVER
The failure of any party to enforce any of the provisions hereof shall
not be construed to be a waiver of the right of such party thereafter to enforce
such provisions.
13. NOTICES
Whenever any party hereto desires or is required to give any notice,
demand, or request with respect to this Warrant, each such communication shall
be in writing and shall be effective only if it is delivered by personal service
or mailed, United States certified mail, postage prepaid, return receipt
requested, addressed as follows:
Company: Address set forth in Section 1 hereof
Attn: Chief Executive Officer
Holder: Address as set forth in paragraph 1 hereof
Attn: Secretary
Such communications shall be effective when they are received by the addresses
thereof; but if sent by certified mail in the manner set forth above, they shall
be effective five (5) days after being deposited in the United States mail. Any
party may change its address for such communications by giving notice thereof to
the other party in conformity with this Section.
14. CONSTRUCTION OF AGREEMENT
A reference in this Warrant to any Section shall include a reference
to every Section the number of which begins with the number of the Section to
which reference is specifically made. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Warrant which shall be considered as a whole.
15. NO ENDORSEMENT
Holder understands that no federal or state securities administrator
has made any finding or determination relating to the fairness of investment in
the Company or purchase of the Common Stock hereunder and that no federal or
state securities administrator has recommended or endorsed the offering of
securities by the Company hereunder.
16. PRONOUNS
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person, persons, entity or entities may require.
5
<PAGE>
17. FURTHER ASSISTANCE
Each party agrees to cooperate fully with the other parties and to
execute such further instruments, documents and agreements and to give such
further written assurances, as may be reasonably requested by any other party to
better evidence and reflect the transactions described herein and contemplated
hereby, and to carry into effect the intents and purposes of this Warrant.
AGENCY.COM, LTD.
/s/ Chan W. Suh
---------------------------------------------
By: Chan W. Suh
Chairman and Chief Executive Officer
6
<PAGE>
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO
--------------------------
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _____ shares of
Common Stock of Agency.Com Ltd., a New York corporation, and herewith makes
payment of $__________ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to _________, whose address is
____________________.
Dated:
---------------------------------------------------
(Signature must conform to the name of holder as
specified on the face of the Warrant)
---------------------------------------------------
(Address)
Tax Identification Number:
----------------------
<PAGE>
AGENCY.COM LTD.
665 Broadway
New York, New York 10012
August 12, 1999
Communicade Inc.
437 Madison Avenue
New York, New York 10022
Gentlemen:
Reference is made to the Warrant dated April 28, 1999 (the "Warrant") which
allows you to purchase shares of AGENCY.COM LTD. Capitalized terms used
herein without a definition shall have the meaning assigned to such terms in
the Warrant.
Section 1.4.1 of the Warrant is hereby amended to read as follows:
"1.4.1 If the Holder and Omnicom Group Inc. beneficially own in the
aggregate less than 50% of the outstanding shares of Common Stock of the
Company at the time of exercise, the Holder shall be entitled to
exercise this Warrant only to the extent that the number of shares of
Common Stock beneficially owned in the aggregate by the Holder and
Omnicom Group Inc. after such exercise is less than 50% of such
outstanding shares."
Please sign in the space provided below whereupon this will become a binding
agreement between us.
AGENCY.COM LTD.
By: /s/ Kenneth Trush
--------------------------------
ACCEPTED AND AGREED:
COMMUNICADE INC.
By: /s/ Jerry Neumann
-------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated November 9, 1999 for AGENCY.COM Ltd. and subsidiaries, July 19,
1999 for Eagle River Interactive Inc., July 16, 1999 for Interactive Solutions,
Inc., July 16, 1999 for Quadris Consulting included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
New York, New York
November 24, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report July 19, 1999 for Eagle River Interactive included in or made a
part of this registration statement.
ARTHUR ANDERSEN LLP
Denver, Colorado
November 24, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report August 9, 1999 for Twinspark Interactive People B.V. included in
or made a part of this registration statement.
ARTHUR ANDERSEN
Rotterdam, The Netherlands
November 24, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the AGENCY.COM Ltd. Registration Statement on
Form S-1 Amendment No. 2 of our report dated September 23, 1999, except for
Note 12, as to which the date is October 21, 1999, relating to the financial
statements and financial statement schedules of Interactive Traffic, Inc.,
which appear in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, NY
November 24, 1999
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated November 2, 1999 for Visionik A/S and Subsidiaries included in
or made a part of this registration statement.
Moore Stephens, Denmark
/s/ Arne Nabe Poulsen
Arne Nabe Poulsen
State Authorized Public Accountant
Copenhagen, Denmark
November 24, 1999
