<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001 per share $75,000,000 $20,850
</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
--------------------------
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 SEPTEMBER 2, 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>
Shares
AGENCY.COM LTD.
Common Stock
-------------
This is an initial public offering of shares of common stock of AGENCY.COM
Ltd. All of the shares of common stock are being sold by AGENCY.COM.
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 $ and $ per share. AGENCY.COM intends to apply to have
the common stock approved for quotation on the Nasdaq National Market under the
symbol "ACOM".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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 shares of common
stock, the underwriters have the option to purchase up to an additional
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>
[COLOR ARTWORK TO BE PROVIDED]
<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 a leading global 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 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 e-commerce
platforms; and
- planning and executing online marketing strategies that build audiences
and develop brand awareness of Internet resources.
We seek to empower our clients to gain competitive advantage by using the
Internet and other interactive technologies to create and enhance interactive
relationships with their customers, staff, business partners and suppliers.
Since our founding in 1995, we have focused exclusively on Internet technologies
and their implications for businesses. We serve a broad and diversified global
client base in a variety of industries, including Global 1000 companies and
emerging e-businesses. We have worked with more than 200 companies to help them
develop and implement their Internet businesses, including 3M, British Airways,
Compaq, DIRECTV, Gucci, Sprint and Texaco. Six of our top ten clients for the
first six months of 1999 have been clients since 1997 or before. Pro forma for
acquisitions, we had $70.9 million in revenues in 1998 and $41.8 million in
revenues in the first six months of 1999. We currently employ more than 800
people in 11 offices in four countries.
OUR MARKET OPPORTUNITY
Many companies outsource all or significant portions of their growing
Internet businesses, creating a large and expanding market for providers of
Internet professional services. According to International Data Corporation,
worldwide demand for Internet professional services is expected to grow from
$7.8 billion in 1998 to $78.5 billion in 2003.
A new breed of professional services firm devoted to Internet solutions 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 a global
basis and offer integrated strategy, creative and technology services.
OUR STRATEGY
AGENCY.COM's goal is to build upon our position as a leading global provider
of Internet professional services. To achieve this goal, we are pursuing the
following key strategies:
3
<PAGE>
- continue to build long-term relationships with our clients and other
leading global companies;
- further enchance our multi-disciplinary team approach;
- develop new high-value services to benefit our clients;
- complement our organic growth with targeted, strategic acquisitions;
- extend our geographic reach to serve our clients' global needs;
- attract and retain the highest quality professionals and facilitate
employee development through training, culture and support; and
- enhance awareness of AGENCY.COM as a leading global provider of Internet
professional services.
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................. shares
Shares to be outstanding after this
offering................................... 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
June 30, 1999. This information does not include:
- 4,606,088 shares subject to options outstanding as of June 30, 1999 at a
weighted average exercise price of $1.19 per share;
- 6,394,500 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 six
months ended June 30, 1998 give effect to the acquisitions of Ketchum
Interactive, The Primary Group, Interactive Solutions, Eagle River Interactive,
Digital Vision and Twinspark Interactive People as if each of these acquisitions
had occurred on January 1, 1998. The pro forma data for the six months ended
June 30, 1999 give effect to the acquisition of Twinspark Interactive People as
if it had occurred on January 1, 1999.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------------
1996 1997 1998 1998 1998 1999 1998
ACTUAL ACTUAL ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
--------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................. $ 6,095 $ 12,975 $ 26,452 $ 70,933 $ 12,585 $ 30,389 $ 33,989
Gross profit......................... 3,878 6,775 10,522 30,531 6,483 15,317 15,785
Income (loss) from operations........ 2,862 2,103 (2,476) (13,127) 477 697 (4,816)
Net income (loss).................... 1,502 1,165 (1,808) (10,630) 61 (411) (4,601)
EBITDA and minority interest(1)...... 2,923 2,433 (1,018) (3,576) 1,108 3,408 (360)
Basic net income (loss) per common
share.............................. $ 0.32 $ 0.07 $ (0.11) $ (0.41) $ 0.00 $ (0.02) $ (0.18)
Diluted net income (loss) per common
share.............................. $ 0.31 $ 0.07 $ (0.11) $ (0.41) $ 0.00 $ (0.02) $ (0.18)
Weighted average shares outstanding
used in basic net income (loss) per
common share calculation........... 4,750 16,200 16,854 25,824 16,285 21,135 25,255
Weighted average shares outstanding
used in diluted net income (loss)
per common share calculation....... 4,797 16,297 16,854 25,824 16,928 21,135 25,255
<CAPTION>
1999
PRO FORMA
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................. $ 41,802
Gross profit......................... 19,863
Income (loss) from operations........ (4,283)
Net income (loss).................... (4,746)
EBITDA and minority interest(1)...... 1,377
Basic net income (loss) per common
share.............................. $ (0.18)
Diluted net income (loss) per common
share.............................. $ (0.18)
Weighted average shares outstanding
used in basic net income (loss) per
common share calculation........... 26,149
Weighted average shares outstanding
used in diluted net income (loss)
per common share calculation....... 26,149
</TABLE>
- ------------------------
(1) EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization. We have provided EBITDA because it is a measure of
financial performance commonly used in the Internet professional services
industry. Other companies may calculate it 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. Minority interest adjusts for our proportionate
share of income or loss for Online Magic and Spiral Media during the
portions of 1997 and 1998 prior to these companies becoming wholly owned
subsidiaries.
The following table is a summary of our balance sheet as of June 30, 1999.
The pro forma data give effect to the acquisition of Twinspark Interactive
People as if it had occurred on June 30, 1999. The pro forma as adjusted data
reflect the sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting the underwriting discount
and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- -------------- ------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................................... $ 1,402 $ 1,402 $
Working capital.................................................... 4,932 4,490
Total assets....................................................... 99,385 106,494
Notes payable, excluding current portion........................... 47,276 48,028
Capital leases, excluding current installments..................... 1,216 1,216
Total stockholders' equity......................................... 18,520 22,818
</TABLE>
6
<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 LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We commenced operations in February 1995. Accordingly, you can only evaluate
our business based on our limited operating history. You should evaluate our
chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with starting a new
business, many of which may be beyond our control. As a result of our limited
operating history, our rapid growth and the emerging nature of the markets in
which we compete, we believe that quarter-to-quarter comparisons of our results
of operations for preceding quarters are not necessarily meaningful. You should
not rely upon them as indications of future performance. The uncertainty of our
future performance and the uncertainties of our operating in a new and expanding
market increase the risk that the value of your investment will decline.
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 50.8% of our revenues for the six months ended June 30, 1999 and
36% of our revenues for the year ended December 31, 1998. 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, 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. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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. 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
7
<PAGE>
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. 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 and our operating results may suffer. In addition, we cannot be sure
that a client will hire us again in the future.
IF WE FAIL TO ACCURATELY ESTIMATE COSTS OF FIXED-FEE PROJECTS, OUR OPERATING
RESULTS
MAY SUFFER
We derive a significant portion of our revenues from fixed-fee projects. We
assume greater financial risks on a fixed-fee project than on a
time-and-materials project. We have limited experience in estimating our costs
for fixed-fee projects. If we miscalculate the resources or time we need for
these projects, the costs of completing these projects may exceed the fixed-fee,
which could materially adversely affect our operating results. Further, the
average size of our contracts is currently increasing, resulting in a
corresponding increase in our exposure to the financial risks of fixed-fee
projects. We recognize revenues from fixed-fee projects based on our estimate of
the percentage of each project completed in a reporting period. To the extent
our estimates are inaccurate, the revenues and operating profits, if any, that
we report for periods during which we are working on a project may not
accurately reflect the final results of the project and we may be required to
record an expense for this period equal to the amount by which our revenues were
previously overstated.
OUR RECENT ACQUISITIONS MAKE EVALUATING OUR BUSINESS DIFFICULT
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. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a more complete description of our historical financial condition, results
of operations and liquidity.
8
<PAGE>
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 June 30, 1999, our staff
increased from approximately 60 to approximately 750 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. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
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, including:
- adverse effects on our reported operating results due to accounting
charges 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.
Client satisfaction or 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
nine 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. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
9
<PAGE>
IF WE ARE UNABLE TO INTEGRATE OUR ACQUISITIONS, OUR BUSINESS MAY BE DISRUPTED
Since 1997, we have acquired nine companies. Integrating these acquisitions
presents us with certain financial, managerial and operational challenges. We
cannot assure you that we will be able to meet these challenges effectively. To
the extent our management must devote more time and attention than planned to
integrating the technology, operations and personnel of these acquired
businesses, we may not be able to properly serve our current clients or to
attract new clients. In addition, our senior management faces the difficult and
potentially time consuming challenge of implementing uniform standards,
controls, procedures and policies throughout our United States and foreign
offices. Any difficulties in this process could disrupt our ongoing business,
distract our management and employees, increase our expenses and otherwise
adversely affect our business.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS, WHICH
LIMITS OUR BUSINESS OPPORTUNITIES
Under specific contracts, we have agreed to a non-compete clause that limits
our right to pursue relationships with competitors of the client for a specific
time period. These clauses 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. We may lose projects to our competitors, which
could adversely affect our business, results of operations and financial
condition.
Our current and potential competitors include:
- Internet professional services firms;
- traditional strategic consulting groups;
- interactive advertising agencies;
- professional services groups of computer equipment companies;
- traditional systems integrators; and
- internal resources 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 develop Internet solutions 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.
We expect that competition may increase as a result of industry
consolidation. In addition, many competitors have established cooperative
relationships among themselves or with third parties to increase their ability
to address the needs of prospective clients. New competitors or newly created
alliances among existing or potential competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
10
<PAGE>
reductions, reduced gross margins and loss of market share, any of which would
have 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. Please see "Business--
Competition".
IF WE ARE UNABLE TO IDENTIFY, HIRE, TRAIN AND RETAIN HIGHLY QUALIFIED INTERNET
PROFESSIONALS, 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, Kyle Shannon and other key personnel. 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.
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.
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. Recently, we commenced operations in France, the Netherlands
and the United Kingdom and made a minority investment in a company in Singapore.
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.
11
<PAGE>
OUR BUSINESS MAY SUFFER IF WE FAIL TO ADAPT APPROPRIATELY TO THE DIFFERENCES
ASSOCIATED WITH OPERATING 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 will suffer. To achieve our goals, we need to develop strategic
business and Internet solutions 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.
THE MARKET FOR OUR SERVICES AND OUR REVENUE GROWTH DEPEND ON THE ACCEPTANCE AND
GROWTH OF INTERNET SOLUTIONS
Our future growth is dependent on our ability to provide professional
services that are accepted by our existing and future clients. Since we expect
to derive most of our revenues from providing Internet professional services,
our future success is highly dependent on the increased use of the Internet as a
communications and commercial medium. If this market fails to develop 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 as a communications and
commercial medium 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.
OUR REVENUES WILL NOT GROW IF THE INTERNET DOES NOT GROW AND BECOME AN ACCEPTED
COMMERCIAL MARKETPLACE
The Internet may not prove to be a viable commercial marketplace because of:
- inadequate development of the necessary infrastructure;
- lack of development of complementary products (such as high speed modems
and high speed communication lines);
12
<PAGE>
- implementation of competing technology;
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; and
- governmental regulation or other reasons.
Should the Internet not become a viable commercial marketplace, our
business, results of operations and financial condition would be materially and
adversely affected. 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. Moreover, critical issues
concerning the use of Internet solutions (including security, reliability, cost,
ease of deployment and administration and quality of service) remain unresolved
and may affect the growth of the use of Internet technologies to solve business
problems. For example, certain states have recently permitted telephone
companies to charge increased rates for consumers connecting to the Internet.
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS AND SUBJECT US TO INCREASED EXPENSES
Year 2000 problems could require us, or our clients, to incur delays and
unanticipated expenses. 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 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 solution developed 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 Year 2000 compliant Internet solutions to our clients,
whether or not in violation of any warranty, could have a material adverse
effect on our business, results of operations and financial condition. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Readiness Disclosure".
13
<PAGE>
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 increase our
costs of doing business and prevent our clients from delivering products and
services over the Internet. They may also significantly slow the growth of the
Internet. This could delay growth in demand for our services, limit the growth
of our revenues and materially and adversely affect our business, results of
operations and financial condition.
New and existing laws may cover issues such as:
- sales and other taxes;
- user privacy;
- pricing controls;
- characteristics and quality of products and services;
- consumer protection;
- cross-border commerce;
- libel and defamation;
- copyright, trademark and patent infringement; and
- other claims based on the nature and content of Internet materials.
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, France, the Netherlands, Singapore and the United Kingdom, we are
subject to the laws and the court systems of multiple 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
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. However, we do
not have any patents or patent applications pending and existing trade secret,
trademark and copyright laws afford us only limited protection. 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 are also uncertain or do not protect 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
14
<PAGE>
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. 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.
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.
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. Please see "Use of Proceeds".
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
15
<PAGE>
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.
THE CONCENTRATION OF OUR OWNERSHIP MAY LIMIT YOUR ABILITY TO INFLUENCE CORPORATE
MATTERS
Our directors, executive officers and affiliates currently beneficially own
approximately 93.4% of our common stock, and after the offering will
beneficially own approximately % 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 and Communicade currently hold 49.9% of our
common stock. Omnicom's and Communicade's beneficial ownership of our common
stock will not decrease after the offering due to their ability to purchase
additional shares underlying their warrants.
In addition, Omnicom has significant ownership positions in some of our
direct competitors and John D. Wren, one of Omnicom's nominees to our Board of
Directors, is a director of Razorfish, one of our competitors. The ownership
positions and directorship may create conflicts of interest for Omnicom and its
director nominees as a result of their access to information and business
opportunities possibly useful to us and to these competitors.
IF OMNICOM PURCHASES ADDITIONAL SHARES, IT COULD EFFECTIVELY CONTROL OUR COMPANY
AND MAY EXERT INFLUENCE CONTRARY TO THE INTERESTS OF OTHER STOCKHOLDERS
If Omnicom and Communicade own 50% or more of our common stock in the
aggregate, they will be able to fully exercise their warrants to purchase 7.4
million shares of our common stock and will have the power to determine the
outcome of corporate actions and other matters submitted to our stockholders for
approval. For so long as Omnicom and Communicade own less than 50% of our common
stock in the aggregate, they may only exercise that portion of their warrants as
would result in them owning less than 50% of our common stock in the aggregate.
Omnicom and Communicade could exceed the 50% aggregate level by exercising a
portion of their warrants and purchasing a small number of shares in the open
market or otherwise. The market price of our common stock could decline as a
result of the issuance of additional shares on exercise or the sale of these
shares into the market.
OMNICOM HAS PROVIDED US WITH FINANCING ON FAVORABLE TERMS 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. After the closing of the offering, we will have $ million
outstanding under our credit facility provided by Omnicom after using $ million
from the proceeds of this offering to pay down indebtedness under this facility.
Omnicom is not obligated to extend
16
<PAGE>
this credit facility beyond September 30, 2001. We cannot assure you that upon
termination of this facility we will be able to obtain any desired financing on
terms as favorable as those of our current facility. As a result, our financial
condition might suffer.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
The market price of our common stock could decline as a result of sales by
our existing stockholders of 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. Please see "Shares Eligible for Future
Sale".
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
may consider favorable or beneficial. Please see "Description of Capital Stock".
If a change of control or change in management is delayed or prevented, 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 and substantial dilution of their
investment. Please see "Dilution".
THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN
We have included market data from industry publications in this prospectus.
The reliability of these data cannot be assured. Market data used in this
prospectus were obtained from industry publications which generally state that
the information contained in these publications has been obtained from sources
believed to be reliable, but that its accuracy and completeness is not
guaranteed. Although we believe market data used in this prospectus to be
reliable, we have not independently verified it.
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 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.
17
<PAGE>
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 $ million, assuming an initial public
offering price of $ 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 $ million.
We currently intend to use the net proceeds of this offering as follows:
- to repay amounts borrowed under our credit facility;
- to expand our operations;
- for general corporate purposes, including working capital; and
- to expand through strategic investments or acquisitions.
We have agreed under our credit facility to use 35% of the net proceeds from
this offering, up to a maximum of $25 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 September , 1999, this interest rate was %.
Except for the repayment of amounts borrowed under our credit facility, we
have not determined the amount of net proceeds to be used for each of the
specific purposes indicated. Accordingly, our management will have significant
flexibility in applying the net proceeds of the offering. Pending any use, the
net proceeds of this offering will be invested in short-term, interest-bearing
securities.
Although we engage in discussions with potential acquisition candidates from
time to time, we have no present understandings, commitments or agreements with
respect to any acquisition other than with respect to acquiring an interest in
Pictoris Interactive, a French interactive agency based in Paris. On July 13,
1999, we entered into a letter of intent with Pictoris and its shareholders with
respect to this investment. The letter of intent provides for the initial
purchase of 5% of Pictoris's equity from its existing shareholders with an
option to purchase the remaining 95%. The letter of intent also grants
Pictoris's existing shareholders the right, subject to conditions, to require us
to purchase all of their shares.
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.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the acquisition of Twinspark Interactive
People; 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 $ 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 JUNE 30, 1999
---------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, excluding current portion............................... $ 47,276 $ 48,028 $
----------- ----------- -------------
Capital lease obligations under capital leases, excluding current
portion............................................................... 1,216 1,216
----------- ----------- -------------
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;
25,341,486 shares issued and 25,094,736 shares outstanding (actual);
26,398,712 shares issued and 26,151,962 shares outstanding (pro
forma); [ ] shares issued and outstanding (pro forma as
adjusted)........................................................... 25 26
Additional paid-in capital.............................................. 19,100 23,397
Accumulated deficit..................................................... (601) (601)
Cumulative foreign currency translation................................. (4) (4)
----------- ----------- -------------
Total stockholders' equity.............................................. 18,520 22,818
----------- ----------- -------------
Total capitalization................................................ $ 67,012 $ 72,062 $
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the
number of shares outstanding as of June 30, 1999. It does not include:
- 4,606,088 shares subject to options outstanding as of June 30, 1999 at a
weighted average exercise price of $1.19 per share;
- 6,394,500 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.
19
<PAGE>
DILUTION
Giving effect to our acquisition of Twinspark Interactive People, our pro
forma net tangible book value as of June 30, 1999 was approximately $(32.4)
million, or $(1.24) per share of common stock. Pro forma net tangible book value
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
June 30, 1999 would have been $ , or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and an immediate dilution of $ 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.................... $
Pro forma net tangible book value per share at June 30, 1999..... $ (1.24)
Increase in pro forma net tangible book value per share
attributable to this offering..................................
----------
Pro forma net tangible book value per share after this offering....
----------
Dilution per share to new investors................................ $
----------
</TABLE>
------------------------
The following table summarizes, on a pro forma basis giving effect to our
acquisition of Twinspark Interactive People, as of June 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 $ 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..................... 26,151,962 % $ 14,968,014 % $ 0.57
New investors.............................
------------- ----- -------------- -----
Total................................... 100% $ 100%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
This discussion and table assume no exercise of any stock options
outstanding as of June 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
June 30, 1999, there were options outstanding to purchase a total of 4,606,088
shares of common stock with a weighted average exercise price of $1.19 per
share. To the extent that any of these options are exercised, there will be
further dilution to new investors. Please see "Capitalization".
20
<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 actual and pro forma consolidated balance sheet data as of June 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 six months ended June 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 acquisition of Twinspark Interactive People as if it had occurred on June
30, 1999. The pro forma consolidated statement of operations data for the year
ended December 31, 1998 and the six months ended June 30, 1998 give effect to
the acquisitions of Ketchum Interactive, The Primary Group, Interactive
Solutions, Eagle River Interactive, Digital Vision and Twinspark Interactive
People as if each of these acquisitions had occurred on January 1, 1998. The pro
forma consolidated statement of operations data for the six months ended June
30, 1999 give effect to the acquisition of Twinspark Interactive People as if it
had occurred on January 1, 1999. 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 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 six months ended June 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 and Twinspark Interactive People audited financial statements, and
the notes to those statements included elsewhere in this prospectus.
21
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 10,
1995
(INCEPTION) TO YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------------------------------- ---------------------------------
1995 1996 1998 1998 1999 1998
ACTUAL ACTUAL 1997 ACTUAL 1998 ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <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 $ 70,933 $ 12,585 $ 30,389 $ 33,989
Direct salaries and
costs................... 651 2,217 6,200 15,930 40,402 6,102 15,072 18,204
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Gross profit.............. 1,511 3,878 6,775 10,522 30,531 6,483 15,317 15,785
Operating Expenses:
General and
administrative........ 519 955 3,815 10,944 30,764 5,176 10,655 14,708
Sales and marketing..... 118 -- 528 596 3,343 199 1,254 1,437
Amortization of
goodwill.............. -- -- 25 317 8,006 99 727 3,731
Depreciation and
amortization.......... 6 61 304 1,141 1,545 532 1,984 725
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Total operating
expenses................ 643 1,016 4,672 12,998 43,658 6,006 14,620 20,601
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Income (loss) from
operations.............. 868 2,862 2,103 (2,476) (13,127) 477 697 (4,816)
Other income (expense),
net..................... (77) (1,360) (938) 668 2,497 (416) (1,108) 215
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Net income (loss)......... $ 791 $ 1,502 $ 1,165 $ (1,808) $ (10,630) $ 61 $ (411) $ (4,601)
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
EBITDA and minority
interest(1)............. $ 874 $ 2,923 $ 2,433 $ (1,018) $ (3,576) $ 1,108 $ 3,408 $ (360)
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Basic net income (loss)
per common share........ $ 439.47 $ 0.32 $ 0.07 $ (0.11) $ (0.41) $ 0.00 $ (0.02) $ (0.18)
Diluted net income (loss)
per common share........ $ 439.47 $ 0.31 $ 0.07 $ (0.11) $ (0.41) $ 0.00 $ (0.02) $ (0.18)
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Weighted average shares
outstanding used in
basic net income (loss)
per common share
calculation............. 2 4,750 16,200 16,854 25,824 16,285 21,135 25,255
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
Weighted average shares
outstanding used in
diluted net income
(loss) per common share
calculation............. 2 4,797 16,297 16,854 25,824 16,928 21,135 25,255
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
--------------- ---------- ----------- ----------- ----------- --------- --------- -----------
<CAPTION>
1999
PRO FORMA
-----------
<S> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.................. $ 41,802
Direct salaries and
costs................... 21,939
-----------
Gross profit.............. 19,863
Operating Expenses:
General and
administrative........ 16,371
Sales and marketing..... 2,115
Amortization of
goodwill.............. 3,493
Depreciation and
amortization.......... 2,166
-----------
Total operating
expenses................ 24,145
-----------
Income (loss) from
operations.............. (4,282)
Other income (expense),
net..................... (464)
-----------
Net income (loss)......... $ (4,746)
-----------
-----------
EBITDA and minority
interest(1)............. $ 1,377
-----------
-----------
Basic net income (loss)
per common share........ $ (0.18)
Diluted net income (loss)
per common share........ $ (0.18)
-----------
-----------
Weighted average shares
outstanding used in
basic net income (loss)
per common share
calculation............. 26,149
-----------
-----------
Weighted average shares
outstanding used in
diluted net income
(loss) per common share
calculation............. 26,149
-----------
-----------
</TABLE>
- ------------------------------
(1) EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization. We have provided EBITDA because it is a measure of
financial performance commonly used in the Internet professional services
industry. Other companies may calculate it 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. Minority interest adjusts for our proportionate
share of income or loss for Online Magic and Spiral Media during the
portions of 1997 and 1998 prior to these companies becoming wholly owned
subsidiaries.
22
<PAGE>
The following balance sheet data is presented:
- on an actual basis;
- on a pro forma basis to reflect the acquisition of Twinspark Interactive
People; and
- on a pro forma as adjusted basis as of June 30, 1999 to give effect to the
sale of shares in this offering after deducting the underwriting
discount and estimated offering expenses payable by us, assuming an
initial public offering price of $ per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
AS OF DECEMBER 31, ---------------------------------------
------------------------------------------ PRO FORMA
1995 1996 1997 1998 ACTUAL PRO FORMA AS ADJUSTED
--------- --------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................... $ 58 $ 513 $ 388 $ 769 $ 1,402 $ 1,402 $
Working capital................................ 734 1,633 4,289 1,319 4,932 4,490
Total assets................................... 1,083 4,100 11,338 25,483 99,385 106,494
Notes payable, excluding current portion....... -- -- 2,425 11,989 47,276 48,028
Capital leases, excluding current
installments................................. -- -- 116 848 1,216 1,216
Total stockholders' equity..................... 791 2,260 3,432 2,716 18,520 22,818
</TABLE>
23
<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 AND TWINSPARK INTERACTIVE PEOPLE FINANCIAL
STATEMENTS, AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
AGENCY.COM is a leading global Internet professional services firm. Our
revenues have grown from $2.2 million in 1995 to $26.5 million in 1998 on an
actual basis, and to $70.9 million in 1998 on a pro forma basis giving effect to
our acquisitions. We achieved this growth through significant long-term
relationships with multiple clients; six of our top 10 clients for the first six
months of 1999 have been clients since 1997 or before. At the same time, we have
not been overly dependent on any single client. In 1998, no client represented
more than approximately 7% of our overall revenues on a pro forma basis. We have
grown organically and through strategic acquisitions. We have acquired nine
companies while expanding our geographic reach to 11 locations in the United
States and Europe and have made one minority investment in Singapore. 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.
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. Retainer fees currently represent a small
percentage of our overall revenues, although revenues from clients with whom we
have retainer relationships represent a substantial portion of our overall
revenues. Consistent with our focus on long-term relationships, our goal is to
increase our number of retainer-based arrangements.
We bill and recognize revenues from time-and-materials projects on the basis
of costs incurred in the period. We use a standardized estimation and work plan
development process to determine the requirements and estimated price for each
project. 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 using the
percentage-of-completion method based on the ratio of costs incurred to the
total estimated project costs. Fees are billed to the client over the course of
the project. We estimate the price for fixed-price projects using 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 contracts are made during
24
<PAGE>
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 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 includes salaries, benefits
and incentive compensation of billable employees and 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 include
charges for the excess of purchase price over net tangible book value of
acquired companies. Personnel compensation and facilities costs represent a high
percentage of our operating expenses and are relatively fixed in advance of each
quarter.
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 strategic acquisitions.
To date, we have experienced success in organically 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 organically grow our existing offices and lines of business on an
ongoing basis.
ACQUISITION OF INTERNET PROFESSIONAL
SERVICES FIRMS
In addition to organic growth, a key component of our overall growth
strategy is the acquisition of, or investment in, complementary businesses,
technologies, services and products. We have acquired nine 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 and Twinspark Interactive
People. We have also purchased a minority interest in The Edge Consultants, a
technology and services company based in Singapore, and signed a letter of
intent to acquire an interest in Pictoris Interactive, a French interactive
agency based in Paris.
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
25
<PAGE>
market for experienced technical and creative professionals. From January 1,
1997, to June 30, 1999, our staff increased from approximately 60 to
approximately 750 employees. Our broadening geographic coverage allows us to
better meet the needs of our international clients and to attract new clients
who seek integrated services across diverse geographic areas. We have also been
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 is allocated to
intangible assets, primarily goodwill, and amortized on a straight-line basis
over the estimated period of benefit, which is currently 20 years. We evaluate
the period of benefit on a company-by-company basis. For the year ended December
31, 1998 and the six months ended June 30, 1999, amortization of goodwill
expense was $0.3 million and $0.7 million, respectively. We expect to incur
additional acquisition-related amortization expenses as a result of our
acquisition program.
We incurred losses in 1998 and the first six months of 1999. As of June 30,
1999 we had a retained deficit of approximately $0.6 million.
26
<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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------ ----------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT
PERCENTAGE DATA)
Revenues.......................................................................................... 100% 100% 100% 100% 100%
Direct salaries and costs......................................................................... 36 48 60 48 50
---- ---- ---- ---- ----
Gross profit...................................................................................... 64 52 40 52 50
Operating Expenses:
General and administrative...................................................................... 16 30 42 41 35
Sales and marketing............................................................................. -- 4 2 2 4
Amortization of goodwill........................................................................ -- -- 1 1 2
Depreciation and amortization................................................................... 1 2 4 4 7
---- ---- ---- ---- ----
Total operating expenses.......................................................................... 17 36 49 48 48
---- ---- ---- ---- ----
Income (loss) from operations..................................................................... 47 16 (9) 4 2
Interest income (expense), net.................................................................... -- -- (2) (1 ) (3)
Minority interest................................................................................. -- (2) (1) (2 ) --
---- ---- ---- ---- ----
Income (loss) before provision for (benefit from) income taxes.................................... 47 18 (12) 1 (1)
Provision (benefit) for income taxes.............................................................. 22 9 (5) 1 --
---- ---- ---- ---- ----
Net income (loss)................................................................................. 25% 9% (7)% 0% (1)%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
EBITDA and minority interest (1).................................................................. 48% 19% (4)% 9% 11%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- ------------------------
(1) EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization. We have provided EBITDA because it is a measure of
financial performance commonly used in the Internet professional services
industry. Other companies may calculate it 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. Minority interest adjusts for our proportionate
share of income or loss for Online Magic and Spiral Media during the
portions of 1997 and 1998 prior to these companies becoming wholly owned
subsidiaries.
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 $13.0 million in 1997 and grew to $26.5 million in
1998, an increase of 104%. Revenues were $6.1 million in 1996. The increase in
revenues reflected growing demand for Internet professional services, increases
in the number of our client relationships, the size of our relationships with
existing clients, billing rates, and number of billable professionals, 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
27
<PAGE>
$2.2 million in 1996. Direct salaries and costs represented 60% and 48% of
revenues in 1998 and 1997, respectively. 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 capacity 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.
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 and 30% in 1997. 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 global 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 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.
AMORTIZATION OF GOODWILL. Amortization of goodwill was approximately
$25,000 in 1997 and grew to $317,000 in 1998. There was no amortization of
goodwill in 1996. Amortization of goodwill represented 1% of revenues in 1998
and less than 1% of revenues in 1997. The increase in amortization of goodwill
was due to the goodwill resulting from the four acquisitions completed during
1998. We expect amortization of goodwill 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 and 2% of revenues in 1997. 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.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
REVENUES. Revenues were $12.6 million for the six months ended June 30,
1998 and grew to $30.4 million for the six months ended
28
<PAGE>
June 30, 1999, an increase of 141%. The increase in revenues reflected our
acquisitions over the period, growing demand for Internet professional services,
addition of new client relationships, expansion of existing client
relationships, increases in billing rates and the number of billable
professionals, and the introduction of new strategy, creative and technology
services to the marketplace.
DIRECT SALARIES AND COSTS. Direct salaries and costs were $6.1 million for
the six months ended June 30, 1998 and grew to $15.1 million for the six months
ended June 30, 1999, an increase of 148%. As a percentage of revenues, direct
salaries and costs increased from 48% for the six months ended June 30, 1998 to
50% for the six months ended June 30, 1999. This increase was primarily
attributable to increases in salary rates and investment in additional capacity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $5.2 million for the six months ended June 30, 1998 and grew to $10.7
million for the six months ended June 30, 1999, an increase of 106%. As a
percentage of revenues, general and administrative expenses decreased from 41%
for the six months ended June 30, 1998 to 35% for the six months ended June 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 $199,000
for the six months ended June 30, 1998 and grew to $1.3 million for the six
months ended June 30, 1999, an increase of 553%. As a percentage of revenues,
sales and marketing expenses increased from 2% for the six months ended June 30,
1998 to 4% for the six months ended June 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 GOODWILL. Amortization of goodwill was $100,000 for the six
months ended June 30, 1998 and grew to $727,000 for the six months ended June
30, 1999, an increase of 634%. As a percentage of revenues, amortization of
goodwill represented 1% of revenues in the first six months of 1998 and 2% of
revenues in the first six months of 1999. The increase was due to the
acquisition of Eagle River Interactive, Interactive Solutions (including
Quadris) 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
$532,000 for the six months ended June 30, 1998 and grew to $2.0 million for the
six months ended June 30, 1999, an increase of 276%. As a percentage of
revenues, depreciation and amortization represented 4% of revenues in the six
months ended June 30, 1998 and 7% of revenues in the six months ended June 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.
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
29
<PAGE>
below to assist investors in evaluating our financial performance.
The pro forma financial statements do not purport to represent what the
results of our 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 and Twinspark Interactive People financial
statements, and the notes to those statements appearing elsewhere in this
prospectus.
30
<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,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Revenues..................................................... $15,521 $18,467 $18,170 $18,775 $18,847 $ 22,955
Direct salaries and costs.................................... 8,710 9,494 10,675 11,523 10,308 11,631
--------- -------- --------- -------- --------- -----------
Gross profit................................................. 6,811 8,973 7,495 7,252 8,539 11,324
Operating expenses:
General and administrative................................. 6,907 7,801 7,102 8,954 7,372 8,999
Sales and marketing........................................ 613 823 887 1,020 999 1,116
Amortization of goodwill................................... 1,620 2,111 2,138 2,137 2,801 692
Depreciation and amortization.............................. 349 376 342 479 1,219 947
--------- -------- --------- -------- --------- -----------
Total operating expenses..................................... 9,489 11,111 10,469 12,590 12,391 11,754
--------- -------- --------- -------- --------- -----------
Loss from operations......................................... (2,678) (2,138) (2,974) (5,338) (3,852) (430)
Interest expense, net........................................ 625 666 839 727 850 875
Minority interest............................................ 211 70 -- -- -- --
--------- -------- --------- -------- --------- -----------
Loss before benefit from income taxes........................ (3,514) (2,874) (3,813) (6,065) (4,702) (1,306)
Provision for (benefit from) income taxes.................... (930) (857) (1,464) (2,385) (1,305) 44
--------- -------- --------- -------- --------- -----------
Net loss..................................................... $(2,584) $(2,017) $(2,349) $(3,680) $(3,397) $ (1,349)
--------- -------- --------- -------- --------- -----------
--------- -------- --------- -------- --------- -----------
EBITDA and minority interest (1)............................. $ (709) $ 349 $ (494) $(2,722) $ 168 $ 1,209
--------- -------- --------- -------- --------- -----------
--------- -------- --------- -------- --------- -----------
Revenues..................................................... 100% 100% 100% 100% 100% 100%
Direct salaries and costs.................................... 56 51 59 61 55 51
--------- -------- --------- -------- --------- -----------
Gross profit................................................. 44 49 41 39 45 49
Operating expenses:
General and administrative................................. 45 42 39 48 39 39
Sales and marketing........................................ 4 5 5 5 5 5
Amortization of goodwill................................... 10 12 11 11 15 3
Depreciation and amortization.............................. 2 2 2 3 6 4
--------- -------- --------- -------- --------- -----------
Total operating expenses..................................... 61 61 57 67 65 51
--------- -------- --------- -------- --------- -----------
Loss from operations......................................... (17) (12) (16) (28) (20) (2)
Interest expense, net........................................ 4 4 5 4 5 4
Minority interest............................................ 2 -- -- -- -- --
--------- -------- --------- -------- --------- -----------
Loss before benefit from income taxes........................ (23) (16) (21) (32) (25) (6)
Benefit from income taxes.................................... (6) (5) (8) (12) (7) --
--------- -------- --------- -------- --------- -----------
Net loss..................................................... (17)% (11)% (13)% (20)% (18)% (6)%
--------- -------- --------- -------- --------- -----------
--------- -------- --------- -------- --------- -----------
EBITDA and minority interest (1)............................. (5)% 2% (3)% (14)% 1% 5%
--------- -------- --------- -------- --------- -----------
--------- -------- --------- -------- --------- -----------
</TABLE>
- ------------------------------
(1) EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization. We have provided EBITDA because it is a measure of
financial performance commonly used in the Internet professional services
industry. Other companies may calculate it 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 a
measure of our operating performance or as an alternative to cash flow as a
measure of our liquidity. Minority interest adjusts for our proportionate
share of income or loss for Online Magic and Spiral Media during the
portions of 1997 and 1998 prior to these companies becoming wholly owned
subsidiaries.
31
<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 22% in the latest quarter. This
increase primarily reflects the benefits achieved following the completion of
our integration of a number of acquisitions. 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.
Revenues during the prior 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 and from the quarter ended March 31, 1998 through the
quarter ended December 31, 1998. This reflected our planned investment in
additional capacity in anticipation of future growth. 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 related to reconciling employee benefits among
AGENCY.COM and acquired companies. The decrease in these costs as a percentage
of revenues from the first two quarters of 1998 to the first two quarters of
1999 was due to cost savings and efficiencies achieved upon integration of
operations and management. Year-over-year second quarter direct salaries and
costs did not change materially as a percentage of revenues.
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, an increase in their salary rates and the
expansion of management infrastructure necessary to support the growth in
operations, including major acquisitions announced in June 1998. The significant
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 the allowance for doubtful accounts, one-time charges related to
reconciliation of employee benefits in connection with acquisitions and charges
associated with additional staffing.
SALES AND MARKETING EXPENSES. The overall increase in pro forma sales and
marketing expenses in absolute dollar terms through the second quarter of 1999
was primarily a result of the increase in the number of sales and marketing
personnel and an overall increase in our marketing and branding efforts.
AMORTIZATION OF GOODWILL. Pro forma amortization of goodwill expense
increased in absolute dollar terms through the quarter ended March 31, 1999 due
to goodwill recorded in connection with acquisitions that took place over the
period. As a percentage of
32
<PAGE>
revenues, amortization of goodwill remained relatively constant through the
quarter ended March 31, 1999 as acquired companies contributed revenues constant
with acquired goodwill.
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
generally increased over the period reflecting growth-related infrastructure
investment. On a year-over-year basis, second quarter depreciation and
amortization expenses increased as a percentage of revenue.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations and investments in property
and equipment through cash from operations, equity financings, 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 $1.4 million at June 30,
1999. Cash provided by (used in) operating activities of $952,000 in 1996,
$632,000 in 1997, $902,000 in 1998 and $(10.3) million in the six months ended
June 30, 1999 was augmented by net proceeds from financing activities of $18,000
in 1996, $2.4 million in 1997, $9.1 million in 1998 and $9.1 million in the six
months ended June 30, 1999. These proceeds were offset primarily by investing
activities of $(515,000) in 1996, $(3.2) million in 1997, $(9.6) million in 1998
and $1.9 million in the six months ended June 30, 1999.
On September , 1999, we entered into an $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. As of , 1999, we had $ million
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, 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 September , 1999, this rate
was %. 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.
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, there can be
no assurance 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
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.
33
<PAGE>
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
September 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 DNS services, 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.
- 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 the third quarter of 1999.
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
34
<PAGE>
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 September 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 solution 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 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
35
<PAGE>
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.
36
<PAGE>
BUSINESS
OVERVIEW
OUR COMPANY
AGENCY.COM is a leading global Internet professional services firm. We
provide strategy, creative and technology services that enable our clients to
gain competitive advantage by using the Internet and other interactive
technologies to create and enhance relationships with their customers, staff,
business partners and suppliers. These services include:
- Internet strategy;
- information architecture;
- user interface design;
- systems integration;
- systems architecture;
- e-commerce;
- application development;
- online branding and marketing; and
- broadband media.
We deliver our services through our multidisciplinary teams of strategy,
creative and technology specialists.
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, including 3M, British
Airways, Compaq, DIRECTV, Gucci, Sprint, Texaco and Unilever. Six of our top 10
clients for the first six months of 1999 have been clients since 1997 or before.
We believe that our focus on long-term relationships with clients allows us to
provide a broader and more effective range of services.
We have complemented our organic growth with targeted, strategic
acquisitions. Since 1997, we have acquired nine companies and integrated them
culturally and operationally. We deliver our services through 11 offices located
in the United States and Europe. We also have a minority investment in a
technology company in Asia.
We believe the Internet is most powerful 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 partner of choice for Global 1000 companies
seeking to do business on the Internet.
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. International Data Corporation
("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, 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.
The overall market is projected 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, geographically dispersed operations 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
37
<PAGE>
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 a partner. They want to interact with a company that
not only markets to them but is responsive to their needs. The interactive
relationship can uniquely meet the customer's demands for customized, real-time
information, products and services. By successfully satisfying these demands, 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 solutions.
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 SOLUTION
AGENCY.COM provides a broad range of integrated services that enable
businesses to develop and enhance long-term interactive relationships with their
customers. The AGENCY.COM solution includes the following key elements:
INTEGRATED FULL-SERVICE OFFERING
We provide integrated strategy, creative and technology services in a
seamless package. We deliver Internet solutions starting from the initial
assessment of a client's positioning and needs through post-implementation
analysis and development. We believe that our comprehensive integrated service
offering results in time and cost savings for our clients 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.
38
<PAGE>
CUSTOMER DRIVEN
In planning, designing and deploying Internet solutions, 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 solutions
best-suited for the client and these customers. This analysis includes usability
and immersibility studies as well as prototyping.
PARTNERSHIP WITH CLIENTS
We seek to develop long-term partnerships 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 critical to our success. We believe that we win many of our
engagements based on our creativity, past experience and ability to innovate. 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 a single-company culture. Substantially all of
our employees have an equity stake in the company through our stock option plan.
We reward employees who contribute positively to our culture and have developed
a number of programs to promote and instill our culture throughout the company.
AGENCY.COM STRATEGY
AGENCY.COM's goal is to build upon our position as a leading global provider
of Internet professional services. We intend to be the partner of choice for our
clients and other leading global companies. To achieve this goal, we are
pursuing the following strategies:
CONTINUE TO BUILD LONG-TERM RELATIONSHIPS WITH OUR CLIENTS AND OTHER LEADING
GLOBAL 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.
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
39
<PAGE>
deliver to our clients a broad range of sophisticated services on a global
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 NEW HIGH-VALUE SERVICES TO BENEFIT OUR CLIENTS
We seek to build leadership positions in high value-added 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 high margins and strong growth,
and help differentiate us from our competitors. We have developed, and will
continue to develop, new interactive solutions as our clients' needs evolve and
as new technologies emerge. 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 solutions. Our future solutions may incorporate technologies
such as wireless and broadband network devices and new experiences such as
intelligent agent-based customer service.
COMPLEMENT OUR ORGANIC GROWTH WITH TARGETED, STRATEGIC ACQUISITIONS
We believe that expanding our skill set, geographic locations and industry
reach through strategic 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. We are very
selective in determining which acquisitions to pursue and look for the following
characteristics in acquisition candidates:
- 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 nine companies over the last two years and made
one minority investment in Asia.
EXTEND OUR GEOGRAPHIC REACH TO SERVE OUR CLIENTS' GLOBAL NEEDS
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 global resources and knowledge base. We believe our ability to
provide Internet professional services globally provides us with a competitive
advantage. We currently have offices located in the United States and Europe,
and have an affiliate in Asia.
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
40
<PAGE>
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 A LEADING GLOBAL PROVIDER OF INTERNET
PROFESSIONAL SERVICES
AGENCY.COM has built one of the most recognized brands 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 as partners 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 solutions that add value to our clients' businesses. 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 to
the online environment. We work closely with our clients to understand and
analyze their businesses. We help our clients formulate and execute their
Internet solutions 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 solutions 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.
INTERNET COMMERCE AND COMMUNICATION SERVICES
We help our clients use the Internet as an effective means of communicating
and transacting with customers. We create an Internet environment 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
41
<PAGE>
- providing ongoing service tailored to the needs of and based on the
feedback from each customer.
Our offerings empower our clients' customers and, in the process, strengthen
our clients' interactive relationships with these customers.
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' 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 create solutions 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 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
solutions.
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 is
scalable and handles projects of all types, sizes and geographic boundaries. Our
process follows four distinct phases-- DISCOVERY, DESIGN, PRODUCTION AND
DEPLOYMENT--and incorporates a system of checks and balances to ensure that our
clients' expectations for the quality of our work are met at 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 solution. 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 solution.
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
42
<PAGE>
client at numerous stages to ensure agreement on the evolving Internet solution.
We build a prototype and conduct usability and immersibility 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 Internet solution
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 capture non-proprietary knowledge and disseminate it through our
corporate intranet to improve the quality and efficiency of our future work.
Following the completion of the Deployment phase, the AGENCY.COM client team
typically 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. Informal, internal
educational programs expose staff to new experiences. Examples include InspireU,
a collection of employee-led training courses, and URBAN DESIRES, a Web-zine
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 global
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.
43
<PAGE>
SCALING INNOVATION AND CREATIVITY
We believe that possessing a single, unified culture in all offices globally
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.
For the year ended December 31, 1998, our two largest clients each provided
approximately 7% of our revenues on a pro forma basis, and our top ten clients
provided approximately 36% of our revenues on a pro forma basis. For the six
months ended June 30, 1999, our top ten clients provided approximately 50% of
our revenues on a pro forma basis. For the six months ended June 30, 1999, each
of British Airways, Compaq and Sprint accounted for more than 10% of our
revenues on a pro forma basis. For the year ended December 31, 1998, British
Airways accounted for more than 10% of our revenues on an actual basis. The
following list is a representative cross-section of our clients:
<TABLE>
<S> <C> <C>
3M Countrywide SmithKline-Beecham
Armstrong World Industries DIRECTV Sprint
British Airways FT Group (Financial Times) Texaco
Colgate-Palmolive Gucci Unilever
Compaq Salomon Smith Barney
</TABLE>
44
<PAGE>
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 Create brand Leverage the
world's most transaction appropriate selling strengths of the
respected brands infrastructure that experiences that are Internet to enhance
online; translate it enables sales, more than mechanical relationships
for the new medium service and transactions between British
distribution Airways and its
customers
</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;
- creating strategies and processes for managing sales, distribution and
service for multiple channels;
- establishing companywide guidelines so autonomous business groups can
create Internet resources;
- enabling online customer service;
- developing an immersive, branded selling experience; and
- 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
45
<PAGE>
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 solutions around the world.
46
<PAGE>
DIRECTV: IMPROVING OPERATIONS WITH EASE
DIRECTV is the nation's leading provider 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 E-COMMERCE, PRE- WEB WEB-BASED SEAMLESS SALES
ARCHITECTURE
Develop Create an e- commerce Evolve the system Enable automated
infrastructure that dial up system for a for greater cross-selling and
unites multiple non- technical accessibility and up- selling
distributors and audience lower costs recommendations for
multiples sales the sales force
channels for complex
products
</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. 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;
- designing and developing a technical architecture that allowed for the
integration of its EASe application with several enterprise systems,
allowing
47
<PAGE>
DIRECTV to service both its retail dealers and new customers more
efficiently. By 1998, new customer accounts could be transmitted directly
to DIRECTV's billing system, expediting the set-up process for both
company and consumer; 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 partnership 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.
48
<PAGE>
[GRAPHIC DEPICTING SCREENSHOTS OF
SPRINT'S WEB SITE]
<TABLE>
<S> <C> <C> <C>
STRATEGIC INTERNET DESIGN AND ORGANIZATIONAL EXTEND AND ENHANCE
OPPORTUNITIES BRANDING SUPPORT
Identify Develop creative and Participate in a Add additional
opportunities to technical guidelines management group to transaction and
leverage the that enable Sprint steer and coordinate interaction
Internet for a divisions to development across opportunities for
diverse range of interact with their markets and Sprint customers
customers customers in a divisions
consistent way
</TABLE>
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
e-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
telecommunications service; and
- enhancing online sales of Sprint products and services through online
media and marketing strategy and implementation.
As a result of its partnership with AGENCY.COM, Sprint believes that it has
significantly improved its online presence and success in doing business on the
Internet. Sprint believes that it has achieved substantial increases in online
sales, reduced cost of sales, more effective branding and a significant increase
in customer satisfaction with Sprint's online services.
49
<PAGE>
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 solutions,
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 demand-generation initiatives, 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, global 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;
- Online Magic;
- Ketchum Interactive;
- Interactive Solutions;
- Quadris Consulting;
- Eagle River Interactive;
- Web Partners d/b/a The Primary Group;
- Digital Vision; and
- Twinspark Interactive People.
In addition to these acquisitions, we own 30% of The Edge Consultants and
have an option to acquire an additional 30% of its equity.
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
50
<PAGE>
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. We have designed our financial and information
technology infrastructure to be easily scalable. This allows us to quickly
integrate a new acquisition into our financial control and accounting
structure and into our existing information technology network. 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
- 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;
51
<PAGE>
- 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 for another mark in the United States and
internationally. Effective trademark protection may not be available in all the
countries in which we conduct business. Policing unauthorized use of our marks
is also 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 cannot be certain that our services and the finished products that we
deliver 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. 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 June 30, 1999, we had 748 full-time employees. None of our employees
are represented by a labor 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
France, the Netherlands and the United Kingdom. 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.
52
<PAGE>
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......................... 37 Chairman of the Board, Chief Executive Officer and President
Kyle Shannon..................... 34 Chief Creative Officer and Director
Kenneth Trush.................... 44 Executive Vice President, Chief Financial Officer, Treasurer and
Director
Janet Ambrosi Wertman............ 37 Executive Vice President, General Counsel and Secretary
Kevin Rowe....................... 40 President, North America
Eamonn Wilmott................... 38 President, Europe
Larry Krakauer................... 42 Chief Technology Officer
Gerald Bruce Redditt............. 48 Director
John D. Wren..................... 47 Director
Jeffrey Rayport.................. 39 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 Chief
Financial Officer since July 1997 and has served as a director since September
1996. 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.
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
53
<PAGE>
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. 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 as it
merged with AGENCY.COM. 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.
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.
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 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 or advisor on the boards of such companies as
Cyberstudios, Hear Music, Be Free and Andrews McMeel Universal.
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 with its own nominees.
Messrs. Redditt and Wren had originally been elected to our board of
directors under an agreement we entered into with Communicade. The provision of
the agreement providing Communicade with the right to select
54
<PAGE>
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 a director to be determined later.
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
a director to be determined later. 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.
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.
Mr. Rayport has agreed to be named as a director-nominee for this prospectus
and to serve as a director of AGENCY.COM upon the closing of this offering. Upon
agreeing to serve as a director, Mr. Rayport was issued options to purchase
50,000 shares of our common stock at an exercise price of $1.225 per share under
our 1999 Stock Option/Stock Issuance Plan. These options become exercisable at
the time Mr. Rayport is elected as a director of AGENCY.COM.
55
<PAGE>
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 92,572 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.
56
<PAGE>
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 REALIZABLE
VALUE
AT ASSUMED ANNUAL
PERCENT OF FAIR RATES
NUMBER OF TOTAL MARKET OF STOCK PRICE
SECURITIES OPTIONS VALUE PER APPRECIATION
UNDERLYING GRANTED TO EXERCISE SHARE ON FOR OPTION TERM
OPTIONS EMPLOYEES PRICE PER THE 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 $ 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 --
Kevin Rowe........................................... -- --
Eamonn Wilmott....................................... -- --
Larry Krakauer....................................... 185,144 --
</TABLE>
57
<PAGE>
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.
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 indefinitely until terminated on 90 days' notice by either
party. If any of these persons should
58
<PAGE>
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.
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 Stock Option/Stock Issuance Plan is the successor program to our
1996 Stock Option Plan and 1997 Stock Option Plan. The 1999 plan was 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
9,601,178 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.
PROGRAMS
The 1999 plan has three separate programs:
- the discretionary option grant program, under which our board 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.
59
<PAGE>
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 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
60
<PAGE>
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 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
61
<PAGE>
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. 1,399,410 shares of AGENCY.COM common stock have been 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.
62
<PAGE>
CERTAIN TRANSACTIONS
OMNICOM FINANCING ARRANGEMENTS
On September , 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 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.
Under a 1996 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.
OMNICOM'S ORIGINAL INVESTMENT IN AGENCY.COM
In September 1996, Communicade, Inc. (f/k/a JWL Associates Corp.), a wholly
owned subsidiary of Omnicom, purchased 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 paid
an aggregate of $11.7 million. 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
63
<PAGE>
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.
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 April 1999, Interactive Solutions merged with Quadris Consulting, a
company in which it held preferred stock. The Quadris preferred stock held by
Interactive Solutions was convertible into 60% of Quadris's outstanding common
stock. Quadris's stockholders, other than Interactive Solutions, received
Interactive Solutions shares in the merger. Immediately after this merger,
Interactive Solutions merged with AGENCY.COM.
Pursuant to the merger with AGENCY.COM, 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 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 December 1998, Communicade repurchased 60% of Interactive Solutions'
shares from its former President for a purchase price of $1.6975 per share.
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 these
repurchased shares aggregating 4.47% of Interactive Solutions' outstanding
shares. The purchase price was $1.6975 per share, for an aggregate purchase
price of $412,492. Communicade owned substantially all of Interactive Solutions'
remaining outstanding shares.
In April 1999, AGENCY.COM merged with Eagle River Interactive, a wholly
owned subsidiary of Omnicom. In connection with the merger, AGENCY.COM assumed
$17.4 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. The transaction was valued at
approximately $9.79 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
64
<PAGE>
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. These obligations to Mr. Rowe were
settled by delivering 4,084 shares of AGENCY. COM common stock to Mr. Rowe. In
connection with this settlement, Rowe released Communicade, Omnicom, Eagle River
and any or their affiliates from any further obligations.
ACQUISITIONS AND INVESTMENTS FINANCED
BY OMNICOM
As of the date of this prospectus, AGENCY.COM has approximately $41.1
million plus accrued interest outstanding under the acquisition line of credit.
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:
<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...................................................... 1,527
Eagle River Interactive (Omnicom debt assumed)............................ 17,407
Interactive Solutions (Omnicom debt assumed).............................. 12,691
Digital Vision............................................................ 1,100
Twinspark Interactive People.............................................. 700
----------
Total............................................................... $ 41,051
----------
----------
</TABLE>
AGREEMENT WITH UNDERWRITER
We provide 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 $95,000 for the six months ended June 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 and $115,000 in 1996, 1997 and 1998,
respectively, for our services.
65
<PAGE>
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.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock, as of June 30, 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 June 30,
1999, but excludes shares of common stock underlying options held by any other
person. Percentage of beneficial ownership is based on 25,094,736 shares of
common stock outstanding as of June 30, 1999, and shares of common stock
outstanding after completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
BENEFICIALLY OWNED
--------------------------
<S> <C> <C> <C>
PRIOR TO AFTER
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OFFERING OFFERING(1)
- ------------------------------------------------------------- -------------------------- ----------- -------------
Chan Suh..................................................... 4,755,902 19.0% %
Kyle Shannon (2)............................................. 4,579,900 18.3
Kenneth Trush (3)............................................ 599,856 2.4
Kevin Rowe (4)............................................... 114,774 *
Eamonn Wilmott............................................... 330,992 1.3
Larry Krakauer (5)........................................... 940,192 3.7
Gerald Bruce Redditt (6)..................................... 12,566,457 49.9
John D. Wren (7)............................................. 12,566,457 49.9
Jeffrey Rayport.............................................. -- *
Communicade, Inc. (8)........................................ 8,906,909 35.4
Omnicom Group Inc. (9)....................................... 12,566,457 49.9
All directors, director-nominee and executive officers as a
group
(10 persons)............................................... 23,995,466 93.4
</TABLE>
- ------------------------
* Indicates less than one percent of the common stock.
67
<PAGE>
(1) Assumes that the underwriters' over-allotment option to purchase up to an
additional [ ] shares from AGENCY.COM is not exercised.
(2) Includes 400,000 shares of common stock held by the Shannon Family Trust.
(3) Includes 278,730 shares of common stock issuable upon the exercise of stock
options which are exercisable within 60 days of June 30, 1999. 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.
(4) Includes 80,690 shares of restricted common stock subject to a Restricted
Stock Agreement, dated April 16, 1999 between AGENCY.COM and Mr. Rowe.
(5) Includes 185,986 shares of common stock issuable upon the exercise of stock
options which are exercisable within 60 days of June 30, 1999.
(6) Includes 8,868,730 shares of common stock held by Communicade Inc. and
3,659,548 shares of common stock held by Omnicom. Also includes 38,179
shares of common stock issuable upon the exercise of the currently
exercisable portion of warrants to purchase 4,328,752 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. 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.
(7) Includes 8,868,730 shares of common stock held by Communicade Inc. and
3,659,548 shares of common stock held by Omnicom. Also includes 38,179
shares of common stock issuable upon the exercise of warrants to purchase
4,328,752 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. 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 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.
(8) Includes 38,179 shares of common stock issuable upon the exercise of the
currently exercisable portions of warrants 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
68
<PAGE>
the outstanding shares. The address of Communicade, Inc. is 437 Madison
Avenue, New York, New York 10022.
(9) Includes 38,179 shares of common stock issuable upon the exercise of the
currently exercisable portion of warrants to purchase 4,328,752 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. The address of Omnicom Group, Inc. is 437 Madison
Avenue, New York, New York 10022.
69
<PAGE>
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 June 30, 1999, 25,094,736 shares of common stock were
outstanding. As of June 30, 1999, we had 71 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
and Omnicom held a warrant to purchase 4,328,752 shares of our common stock at
an exercise price of $0.005 per share. 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 after such exercise remains less than 50% of the
outstanding shares. Each warrant expires on March 31, 2019.
70
<PAGE>
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
71
<PAGE>
control of us by means of a proxy contest, tender offer, merger or otherwise.
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 supermajority vote requirements in connection with various
business combination transactions and the amendment of various provisions of our
amended and restated certificate of incorporation and amended and restated
bylaws, including those provisions relating to the classified board of
directors, action by written consent and special meetings by stockholders.
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
We intend to apply for quotation of our common stock on the Nasdaq National
Market under the trading symbol "ACOM".
72
<PAGE>
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
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 25,094,736 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 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.
Subject to the provisions of Rule 144, 144(k) and 701, restricted shares
totaling 20,301,997 will be available for sale in the public market, subject in
the case of shares held by affiliates to the volume restrictions contained in
those rules, 180 days after the date of this prospectus.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, 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 [ ] shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
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
73
<PAGE>
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 9,601,178 shares of common stock reserved for
issuance under our 1999 Plan and 852,912 shares reserved for issuance under our
other option plans. This registration statement is expected to be filed as soon
as practicable after the effective date of this offering.
At June 30, 1999, options to purchase 4,606,088 shares were issued and
outstanding under our plans and otherwise. All of these shares will be eligible
for sale in the public market from time to time, commencing 90 days after the
effective date of this offering, 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.
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.
Legal matters in connection with this offering will be passed upon for the
underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
74
<PAGE>
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
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).
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.
75
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AGENCY.COM AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999..... F-4
Consolidated Statements of Operations for the years ended December 31, 1996, 1997
and 1998 and for the six months ended June 30, 1998 and 1999....................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1996, 1997 and 1998 and for the six months ended June 30, 1999..................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997
and 1998 and for the six months ended June 30, 1998 and 1999....................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
EAGLE RIVER INTERACTIVE
Report of Independent Public Accountants............................................ F-30
Report of Independent Public Accountants............................................ F-31
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999..... F-32
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-33
Combined/Consolidated Statements of Divisional Deficit and Stockholders' Deficit for
the predecessor company for the years ended December 31, 1995 and 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 years ended December 31, 1998 and for the three months ended March
31, 1999........................................................................... F-34
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-35
Notes to Combined/Consolidated Financial Statements................................. F-36
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
Report of Independent Public Accountants............................................ F-50
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999..... F-51
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-52
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-53
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-54
Notes to Consolidated Financial Statements.......................................... F-55
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
QUADRIS CONSULTING
Report of Independent Public Accountants............................................ F-71
Balance Sheets as of December 31, 1997 and March 15, 1998........................... F-72
Statements of Operations for the years ended December 31, 1996 and 1997 and for the
period from January 1 to March 15, 1998............................................ F-73
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-74
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-75
Notes to Financial Statements....................................................... F-76
TWINSPARK INTERACTIVE PEOPLE B.V.
Report of Independent Public Accountants............................................ F-82
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999................... F-83
Statements of Operations for the years ended December 31, 1997 and 1998 and for the
six months ended June 30, 1998 and 1999............................................ F-84
Statements of Stockholders' Equity for the years ended December 31, 1997 and 1998
and for the six months ended June 30, 1999......................................... F-85
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-86
Notes to Financial Statements....................................................... F-87
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION.................... F-94
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1999.................. F-95
Notes to Pro Forma Condensed Consolidated Balance Sheet............................. F-96
Pro Forma Condensed Consolidated Statement of Operations for the six months ended
June 30, 1999...................................................................... F-98
Pro Forma Condensed Consolidated Statement of Operations for the six months ended
June 30, 1998...................................................................... F-99
Pro Forma Condensed Consolidated Statement of Operations for the year ended December
31, 1998........................................................................... F-100
Notes to Pro Forma Condensed Consolidated Statements of Operations.................. F-101
</TABLE>
F-2
<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 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 the three years ended December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
September 2, 1999
F-3
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 387,739 $ 769,358 $ 1,402,466
Accounts receivable, net of allowance for doubtful accounts of
$43,362, $825,576 and $4,060,415 (unaudited), respectively.......... 5,484,004 4,658,365 10,654,529
Unbilled charges...................................................... 700,060 2,345,752 17,315,902
Prepaid expenses and other current assets............................. 218,931 193,060 398,516
Income tax receivable................................................. -- -- 3,076,000
Due from related parties.............................................. 298,484 141,847 138,875
----------- ----------- ------------
Total current assets.......................................... 7,089,218 8,108,382 32,986,288
Property and Equipment, net of accumulated depreciation and amortization
of $486,092, $1,627,397 and $6,654,054 (unaudited), respectively...... 2,032,008 4,215,128 8,639,524
Intangibles, net of accumulated amortization of $25,292, $341,806 and
$1,068,967 (unaudited), respectively.................................. 1,549,310 8,450,940 50,220,549
Deferred Tax Assets..................................................... 558,660 2,758,610 4,606,518
Investment In Affiliate................................................. -- 1,572,203 1,582,132
Other Assets............................................................ 108,629 377,832 1,350,193
----------- ----------- ------------
Total assets.................................................. $11,337,825 $25,483,095 $ 99,385,204
----------- ----------- ------------
----------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses................................. $ 1,725,226 $ 4,879,775 $ 10,449,493
Line of credit........................................................ 86,273 -- --
Income taxes payable.................................................. 266,795 202,984 --
Deferred revenue...................................................... 596,882 688,953 5,709,919
Current portion of due to Omnicom Group Inc........................... -- -- 11,031,371
Current portion of capital lease obligations.......................... 124,968 564,536 863,548
Due to related parties................................................ -- 453,408 --
----------- ----------- ------------
Total current liabilities..................................... 2,800,144 6,789,656 28,054,331
----------- ----------- ------------
Long-Term Liabilities:
Due to Omnicom Group Inc.............................................. 2,424,969 11,989,373 46,210,850
Deferred tax liabilities.............................................. 2,418,790 2,925,864 3,140,653
Capital lease obligations............................................. 115,599 848,321 1,216,447
Due to related parties................................................ -- -- 1,065,322
Other long-term liabilities........................................... 146,806 213,786 1,177,511
----------- ----------- ------------
Total long-term liabilities................................... 5,106,164 15,977,344 52,810,783
----------- ----------- ------------
Total liabilities............................................. 7,906,308 22,767,000 80,865,114
----------- ----------- ------------
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 25,341,486 shares issued; and 16,200,000,
17,179,060 and 25,094,736 shares outstanding at December 31, 1997,
1998 and June 30, 1999 (unaudited), respectively.................... 16,200 17,178 25,094
Additional paid-in capital............................................ 1,797,691 2,898,270 19,099,786
Retained earnings (deficit)........................................... 1,617,626 (190,045) (601,175)
Cumulative foreign currency translation............................... -- (9,308) (3,615)
----------- ----------- ------------
Total stockholders' equity.................................... 3,431,517 2,716,095 18,520,090
----------- ----------- ------------
Total liabilities and stockholders' equity.................... $11,337,825 $25,483,095 $ 99,385,204
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues...................................... $6,094,784 $12,975,575 $26,452,191 $12,585,418 $30,389,175
Direct salaries and costs..................... 2,216,830 6,200,216 15,930,029 6,101,964 15,072,391
---------- ----------- ----------- ----------- -----------
Gross profit.............................. 3,877,954 6,775,359 10,522,162 6,483,454 15,316,784
General and administrative.................... 954,409 3,815,045 10,944,441 5,176,039 10,654,234
Sales and marketing........................... -- 527,432 595,886 198,628 1,254,112
Amortization of goodwill...................... -- 25,292 316,514 99,576 727,161
Depreciation and amortization................. 61,356 304,491 1,141,305 532,009 1,984,074
---------- ----------- ----------- ----------- -----------
Income (loss) from operations............. 2,862,189 2,103,099 (2,475,984) 477,202 697,203
Interest income (expense), net................ 28,201 9,924 (359,761) (94,214) (1,055,095)
---------- ----------- ----------- ----------- -----------
Income (loss) before minority interest and
income taxes............................ 2,890,390 2,113,023 (2,835,745) 382,988 (357,892)
Minority interest............................. -- 167,468 (281,559) (281,559) --
---------- ----------- ----------- ----------- -----------
Income (loss) before provision (benefit)
for income taxes........................ 2,890,390 2,280,491 (3,117,304) 101,429 (357,892)
Provision (benefit) for income taxes.......... 1,388,000 1,115,640 (1,309,633) 40,572 53,238
---------- ----------- ----------- ----------- -----------
Net income (loss)......................... $1,502,390 $ 1,164,851 $(1,807,671) $ 60,857 $ (411,130)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Per share information:
Net income (loss) per common share
Basic..................................... $ 0.32 $ 0.07 $ (0.11) $ 0.00 $ (0.02)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Diluted................................... $ 0.31 $ 0.07 $ (0.11) $ 0.00 $ (0.02)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Weighted average common shares used in
computing per share amounts:
Basic..................................... 4,750,313 16,200,000 16,854,499 16,285,269 21,135,108
---------- ----------- ----------- ----------- -----------
Diluted................................... 4,796,943 16,297,345 16,854,499 16,927,887 21,135,108
---------- ----------- ----------- ----------- -----------
Pro forma net income (loss) data (Unaudited)
(Note 7):
Net income (loss) before provision
(benefit) for income taxes.............. $2,890,390 $ 2,280,491 $(3,117,304) $ 101,429 $ (357,892)
Pro forma income tax provision
(benefit)............................... 1,405,577 1,115,640 (1,309,633) 40,572 53,238
---------- ----------- ----------- ----------- -----------
Pro forma net income (loss)............... $1,484,813 $ 1,164,851 $(1,807,671) $ 60,857 $ (411,130)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Pro forma per share information (Unaudited)
(Note 7):
Pro forma net income (loss) per common
share:
Basic..................................... $ 0.31 $ 0.07 $ (0.11) $ 0.00 $ (0.02)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Diluted................................... $ 0.31 $ 0.07 $ (0.11) $ 0.00 $ (0.02)
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Weighted average common shares used in
computing pro forma per share amounts:
Basic..................................... 4,750,313 16,200,000 16,854,499 16,285,269 21,135,108
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
Diluted................................... 4,796,943 16,297,345 16,854,499 16,927,887 21,135,108
---------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL RETAINED FOREIGN TOTAL
----------------------- PAID-IN EARNINGS/ CURRENCY STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) TRANSLATION EQUITY
---------- ----------- ----------- ----------- ----------- --------------
<S> <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....................... -- -- -- 1,164,851 -- 1,164,851
---------- ----------- ----------- ----------- ----------- --------------
Balance, December 31, 1997......... 16,200,000 16,200 1,797,691 1,617,626 -- 3,431,517
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......................... -- -- -- (1,807,671) -- (1,807,671)
---------- ----------- ----------- ----------- ----------- --------------
Balance, December 31, 1998......... 17,179,060 17,178 2,898,270 (190,045) (9,308) 2,716,095
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
Foreign currency translation
adjustment..................... -- -- -- -- 5,693 5,693
Exercise of stock options........ 3,592 4 1,451 -- -- 1,455
Net loss (unaudited)............. -- -- -- (411,130) -- (411,130)
---------- ----------- ----------- ----------- ----------- --------------
Balance, June 30, 1999
(unaudited)...................... 25,094,736 $ 25,094 $19,099,786 $ (601,175) $ (3,615) $ 18,520,090
---------- ----------- ----------- ----------- ----------- --------------
---------- ----------- ----------- ----------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $1,502,390 $ 1,164,851 $(1,807,671) $ 60,857 $ (411,130)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities-
Allowance for doubtful accounts............ 15,207 142,589 785,235 338,386 140,839
Depreciation and amortization.............. 61,356 329,783 1,457,819 631,585 2,711,235
Deferred income taxes...................... 1,198,000 594,130 (1,692,876) (334,483) (802,539)
Changes in operating assets and liabilities:
Accounts receivable........................ (1,600,317) (3,030,333) 43,425 1,431,718 (9,231,003)
Unbilled charges........................... -- (700,060) (1,645,692) (2,899,453) (14,970,150)
Prepaid expenses and other current
assets................................... (73,120) (139,455) 25,871 105,285 (205,456)
Due from related parties................... (383,693) 99,999 156,637 199,928 2,927
Other assets............................... (117,126) 8,704 (123,904) (307,576) (461,587)
Accounts payable and accrued expenses...... 280,325 1,244,575 3,154,549 1,621,818 5,569,718
Deferred revenue........................... -- 596,882 92,072 (260,298) 5,020,966
Due to related parties..................... -- -- 453,408 400,614 611,914
Income taxes payable....................... 69,046 173,517 (63,811) (81,125) (202,984)
Other long-term liabilities................ -- 146,806 66,980 33,490 963,725
---------- ----------- ----------- ----------- ------------
Net cash provided by (used in)
operating activities................ 952,068 631,988 902,042 940,746 (10,340,351)
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (514,658) (1,578,515) (1,880,846) (766,125) (3,250,334)
Trademark costs.............................. -- (112,222) (3,024) -- --
Acquisitions, net of cash acquired........... -- (1,462,380) (7,698,689) (5,400,319) 5,123,333
---------- ----------- ----------- ----------- ------------
Net cash used in investing
activities.......................... (514,658) (3,153,117) (9,582,559) (6,166,444) 1,872,999
---------- ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable due to Omnicom.... -- 2,424,969 9,564,404 5,625,361 6,909,750
Payments under capital lease obligations..... -- (122,066) (271,290) (61,396) (389,011)
Net proceeds (borrowings) under line of
credit..................................... -- 86,273 (86,273) (86,273) 3,083,347
Repayments of shareholder advances........... 60,213 -- -- -- --
Deferred registration costs.................. -- -- (145,296) -- (510,774)
Capital (distribution) contribution.......... (42,205) 6,433 9,899 -- --
Proceeds from exercise of stock options...... -- -- -- -- 1,455
---------- ----------- ----------- ----------- ------------
Net cash provided by financing
activities.......................... 18,008 2,395,609 9,071,444 5,477,692 9,094,767
---------- ----------- ----------- ----------- ------------
EFFECT OF EXCHANGE RATE ON CASH AND CASH
EQUIVALENTS.................................. -- -- (9,308) (681) 5,693
Net increase (decrease) in cash and cash
equivalents.................................. 455,418 (125,520) 381,619 251,313 633,108
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 $ 639,052 $ 1,402,466
---------- ----------- ----------- ----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid............................ $ 96,722 $ 472,637 $ 315,449 $ 157,724 $ 220,876
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
Interest paid................................ $ -- $ 2,000 $ 1,805 $ -- $ 31,223
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Equipment acquired under capital leases...... $ -- $ 362,633 $ 1,443,579 $ 57,297 $ 973,649
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Common stock issued for acquisitions......... $ -- $ -- $ 1,091,658 $ 1,091,658 $ 9,632,614
---------- ----------- ----------- ----------- ------------
---------- ----------- ----------- ----------- ------------
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-7
<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 a leading global 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 e-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 June 30, 1999, the Company had a 12%
investment in an affiliate (Note 2) which was carried at cost.
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 arrangements is recognized
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.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are probable. Amounts billed, which are not yet earned, are
classified as deferred revenue in the accompanying consolidated balance sheets.
F-8
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 twenty years on a straight-line
basis. 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 of. 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.
F-9
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 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 affiliate 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.
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 12% of total
revenues.
For the six months ended June 30, 1998 (unaudited), 3 clients accounted for
14%, 10% and 10%, of total revenues.
For the six months ended June 30, 1999 (unaudited), 3 clients accounted for
14%, 10% and 10%, 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 June 30, 1999, 2 clients accounted for 13% and 12% of total accounts
receivable and unbilled charges (unaudited).
F-10
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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 AVERAGE NET INCOME PER
NET INCOME SHARES COMMON SHARE
------------- ---------------- -----------------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock...................... $ 1,502,390 4,750,313 $ 0.31
Stock options................................................ -- 46,630 --
------------- ---------------- -----
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...................... $ 1,164,851 16,200,000 $ 0.07
Stock options................................................ -- 97,345 --
------------- ---------------- -----
Diluted EPS.................................................... $ 1,164,851 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..................... $ (1,807,671) 16,854,499 $ (0.11)
Stock options............................................... -- -- --
-------------- ---------------- ------
Diluted EPS................................................... $ (1,807,671) 16,854,499 $ (0.11)
-------------- ---------------- ------
-------------- ---------------- ------
</TABLE>
F-11
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
-----------------------------------------------
WEIGHTED NET (LOSS) PER
NET INCOME AVERAGE SHARES COMMON SHARE
------------ ---------------- ---------------
<S> <C> <C> <C>
Basic EPS:
Net income attributable to common stock....................... $ 60,857 16,285,269 $ 0.00
Stock options................................................. -- 642,618 --
------------ ---------------- ------
Diluted EPS..................................................... $ 60,857 16,927,887 $ 0.00
------------ ---------------- ------
------------ ---------------- ------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 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..................... $ (411,130) 21,135,108 $ (0.02)
Stock options............................................... -- -- --
-------------- ---------------- ------
Diluted EPS................................................... $ (411,130) 21,135,108 $ (0.02)
-------------- ---------------- ------
-------------- ---------------- ------
</TABLE>
Diluted EPS for the year ended December 31, 1998 and the six months ended
June 30, 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>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net income (loss).................... $ 1,502,390 $ 1,164,851 $ (1,807,671) $ 60,857 $ (411,130)
Foreign currency translation
adjustment......................... -- -- (9,308) (681) 5,693
------------- ------------- -------------- ------------ --------------
Comprehensive income (loss)........ $ 1,502,390 $ 1,164,851 $ (1,816,979) $ 60,176 $ (405,437)
------------- ------------- -------------- ------------ --------------
------------- ------------- -------------- ------------ --------------
</TABLE>
F-12
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPOSED PUBLIC OFFERING
In connection with its contemplated initial public offering of Common Stock,
the Company has incurred approximately $145,296 and $656,070, respectively, in
registration related costs for the year ended December 31, 1998 and the six
months ended June 30, 1999 (unaudited). These costs are being deferred until the
consummation of the offering, at which time they will be 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.
F-13
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED FINANCIAL STATEMENTS
The unaudited consolidated financial information included herein as of June
30, 1999 and for the six 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 statement, 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 twenty 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 twenty years. Furthermore, the purchase
agreements call
F-14
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
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 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 twenty 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 twenty 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-15
<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 1,402,382 options to purchase the Company's
common stock. Certain of these options were converted at exercise 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 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. In addition, 13,322 shares of the Company's common stock
were issued to certain participants of
F-16
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
the ERI 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.
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
$4.06 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 $4,997,624. 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.
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 six months ended June 30, 1998 give
effect to the acquisitions of Ketchum Interactive, The Primary Group,
Interactive Solutions, Eagle River Interactive, Digital Vision and Twinspark
Interactive People as if each of these acquisitions had occurred on January 1,
1998. The pro forma consolidated statement of operations data for the six months
ended June 30, 1999 give effect to the acquisition of Twinspark Interactive
People 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
F-17
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
have been had the acquisitions actually taken place on January 1, 1997, January
1, 1998, or January 1, 1999 and may not be indicative of future operating
results.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
<S> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1998 1998 1999
------------------------------- ----------- ----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Pro forma: Revenues............................. $ 70,933 $ 33,989 $ 41,802
Net loss............................. (10,630) (4,601) (4,746)
Basic net loss per share............. (0.41) (0.18) (0.18)
Diluted net loss per share........... (0.41) (0.18) (0.18)
</TABLE>
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. 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. 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 June 30, 1999, there were approximately
$1.0 million, $2.5 million and $19.8 million outstanding, respectively, on the
working capital line of credit at an interest rate of 6%. At December 31, 1997
and 1998 and June 30, 1999, there were approximately $1.4 million, $9.5 million
and $37.5 million outstanding, respectively, on the acquisition loans at an
average rate of 6%. The amounts owed as of June 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 $86,762 and $1,035,000, respectively,
for the six months ended June 30, 1998 and 1999 (unaudited).
In September 1999, the Company signed a term sheet for a new credit facility
with Omnicom (See Note 13).
F-18
<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,
------------------------ JUNE 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Urban Desires Inc..................................... $ 272,322 $ 130,093 $ 130,718
ISI................................................... -- 11,754 --
Due from shareholders................................. 26,162 -- --
Other................................................. -- -- 8,157
----------- ----------- -----------
Due from related parties.......................... $ 298,484 $ 141,847 $ 138,875
----------- ----------- -----------
----------- ----------- -----------
</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, JUNE 30,
-------------- -------------
<S> <C> <C>
1998 1999
-------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Quadris........................................................ $ 252,680 $ --
Eagle River.................................................... 33,987 --
Loan payable to shareholders................................... 166,741 1,065,322
-------------- -------------
Due to related parties..................................... $ 453,408 $ 1,065,322
-------------- -------------
-------------- -------------
</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,
---------------------------- JUNE 30,
1997 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Equipment under capital leases................ $ 362,633 $ 1,804,702 $ 2,438,233
Equipment..................................... 936,711 801,932 1,326,561
Computer equipment............................ 470,796 1,948,470 7,464,834
Furniture and fixtures........................ 553,939 806,454 2,350,897
</TABLE>
F-19
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1997 1998 1999
------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements........................ $ 194,021 $ 480,967 $ 1,713,053
------------- ------------- ---------------
Total property and equipment.............. 2,518,100 5,842,525 15,293,578
Less--Accumulated depreciation and
amortization................................ (486,092) (1,627,397) (6,654,054)
------------- ------------- ---------------
Property and equipment, net............... $ 2,032,008 $ 4,215,128 $ 8,639,524
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
Depreciation and amortization expense was $61,356, $304,491 and $1,141,305,
respectively, for the three years ended December 31, 1998 and $532,009 and
$1,984,074, respectively, for the six months ended June 30, 1998 and 1999
(unaudited).
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- ------------- JUNE 30,
1999
--------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill....................................... $ 1,462,380 $ 8,677,500 $ 51,174,270
Trademark...................................... 112,222 115,246 115,246
Less--Accumulated amortization............. (25,292) (341,806) (1,068,967)
------------- ------------- --------------
Intangible assets, net......................... $ 1,549,310 $ 8,450,940 $ 50,220,549
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Amortization expense was $0, $25,292 and $316,514, respectively, for the
three years ended December 31, 1998 and $99,576 and $727,161, respectively, for
the six months ended June 30, 1998 and 1999 (unaudited).
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Accounts payable............................... $ 1,130,815 $ 3,103,991 $ 5,265,604
Accrued expenses--other........................ 467,716 1,370,289 4,217,059
Accrued professional fees...................... 126,695 405,495 966,830
------------- ------------- --------------
$ 1,725,226 $ 4,879,775 $ 10,449,493
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
F-20
<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 June 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>
SIX
YEAR ENDED DECEMBER 31, MONTHS ENDED
-------------------------------------------- JUNE 30,
1996 1997 1998 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Income (loss) before income taxes and minority
interest:
Domestic......................................... $ 2,890,390 $ 2,441,330 $ (3,465,952) $ (614,225)
International.................................... -- (160,839) 348,648 256,333
------------- ------------- -------------- --------------
$ 2,890,390 $ 2,280,491 $ (3,117,304) $ (357,892)
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
Provision (benefit) for taxes on income (loss):
Current--
Federal........................................ $ 78,000 $ 206,222 $ 256,115 $ 21,710
State and local................................ 112,000 143,554 166,297 9,261
International.................................. -- -- 127,118 8,539
Deferred--
Federal........................................ 711,892 506,336 (1,214,512) 8,338
State and local................................ 486,108 259,528 (644,651) 2,804
International.................................. -- -- -- 2,586
------------- ------------- -------------- --------------
$ 1,388,000 $ 1,115,640 $ (1,309,633) $ 53,238
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</TABLE>
F-21
<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>
SIX
YEAR ENDED DECEMBER 31, MONTHS ENDED
-------------------------------------------- JUNE 30,
1996 1997 1998 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Statutory federal income tax rate.................. $ 1,011,636 $ 798,172 $ (1,213,083) $ (125,262)
State and local taxes on income, net of federal
income tax benefit............................... 376,364 236,321 (209,033) (18,610)
Goodwill amortization.............................. -- 62,284 8,695 168,625
Nondeductible expense.............................. -- -- 68,091 28,402
Other.............................................. -- 18,863 35,697 83
------------- ------------- -------------- --------------
Effective rate..................................... $ 1,388,000 $ 1,115,640 $ (1,309,633) $ 53,238
------------- ------------- -------------- --------------
------------- ------------- -------------- --------------
</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
-------------- ------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Current deferred income tax assets
(liabilities) net:
Accrual to cash adjustments.................. $ (489,087) $ (182,048) $ 432,725
Allowance for doubtful accounts.............. 14,939 386,701 405,894
Noncurrent deferred tax asset (liabilities),
net:
Accrual to cash adjustments.................. (1,467,262) (649,109) (108,098)
Net operating loss........................... 120,884 102,965 653,164
Other........................................ (39,604) 19,444 82,180
-------------- ------------- --------------
Total deferred income taxes, net......... $ (1,860,130) $ (322,047) $ 1,465,865
-------------- ------------- --------------
-------------- ------------- --------------
</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.
F-22
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The Company has concluded that it is probable that it will be able to
realize its deferred tax assets in future periods.
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. In connection with the stock
splits, each holder of the Company's common stock options amended their
respective option agreement to waive their right to have their options split
effected under this stock split. 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-23
<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 our
1996 Stock Option Plan and 1997 Stock Option Plan. The 1999 plan was adopted 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 the Company's initial public offering, and
no further option grants will be made under the predecessor plans. The
F-24
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
transferred options will continue to be governed by their existing terms. 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 6,394,500 remained available for issuance at the close of business on
June 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................................ $ 1,164,851 $ (1,807,671)
Net income (loss), pro forma.................................. 1,137,972 (2,062,147)
Basic income (loss) per share, as reported.................... 0.07 (0.11)
Basic income (loss) per share, pro forma...................... 0.07 (0.12)
Diluted income (loss) per share, as reported.................. 0.07 (0.11)
Diluted income (loss) per share, pro forma.................... 0.07 (0.12)
</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-25
<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.
F-26
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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................ 2,263,938 (160,839) 2,103,099
Net income (loss)............................ 1,233,208 (68,357) 1,164,851
Long--lived assets........................... 3,382,102 199,216 3,581,318
Current assets............................... 6,100,383 988,835 7,089,218
Other assets................................. 658,887 8,402 667,289
</TABLE>
As of and for the year ended December 31, 1998:
<TABLE>
<S> <C> <C> <C>
Revenues............................ $18,936,199 $ 7,515,992 $26,452,191
Income (loss) from operations....... (2,562,168) 86,184 (2,475,984)
Net income (loss)................... (1,694,622) (113,049) (1,807,671)
Long--lived assets.................. 13,768,465 469,806 14,238,271
Current assets...................... 6,460,598 1,647,784 8,108,382
Other assets........................ 3,129,090 7,352 3,136,442
</TABLE>
As of and for the six months ended June 30, 1999 (unaudited):
<TABLE>
<S> <C> <C> <C>
Revenues............................ $24,158,181 $ 6,230,996 $30,389,177
Income (loss) from operations....... 287,016 410,187 697,203
Net income (loss)................... (817,126) 405,996 (411,130)
Long--lived assets.................. 59,718,824 723,381 60,442,205
Current assets...................... 30,073,088 2,913,200 32,986,288
Other assets........................ 5,734,158 222,553 5,956,711
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As of December 31, 1998, 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 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 $335,640 and
$1,666,281,
F-27
<PAGE>
AGENCY.COM LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
respectively, for the six months ended June 30, 1998 and 1999 (unaudited).
Future minimum base rents under terms of noncancellable operating leases,
inlcuding leases entered into subsequent to December 31, 1998, 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>
EMPLOYMENT AGREEMENTS
Subsequent to December 31, 1998, the Company entered into employment
agreements with certain key members of management that expire on various dates
through March 2004. Future minimum compensation is as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999......................................................... $1,488,083
2000......................................................... 2,163,000
2001......................................................... 2,163,000
2002......................................................... 988,750
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-28
<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 zero for each of the six months ended June 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
$ 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 September 1999, the Company signed a term sheet for a new $85 million
credit facility with Omnicom Finance, a wholly owned subsidiary of Omnicom,
which will replace the Company's revolving credit lines and consolidates all of
the Company's previously outstanding indebtedness due to Omnicom. The credit
facility will provide 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-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eagle River Interactive:
We have audited the accompanying combined statements of operations, divisional
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-30
<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-31
<PAGE>
EAGLE RIVER INTERACTIVE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
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
Federal income tax receivable.......................................... 770,000 2,567,000 3,076,000
Deferred tax assets.................................................... 241,000 366,000 366,000
----------- ----------- -----------
Total current assets............................................... 7,562,000 8,343,000 8,479,000
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
Deferred Tax Assets...................................................... 298,000 1,237,000 1,540,000
Other Assets............................................................. 64,000 53,000 43,000
----------- ----------- -----------
Total assets....................................................... $23,197,000 $19,606,000 $18,680,000
----------- ----------- -----------
----------- ----------- -----------
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.................................................... (2,632,000) (8,023,000) (9,542,000)
Cumulative foreign currency translation................................ 11,000 (25,000) (57,000)
----------- ----------- -----------
Total shareholders' deficit........................................ (2,621,000) (8,048,000) (9,599,000)
----------- ----------- -----------
Total liabilities and shareholders' deficit........................ $23,197,000 $19,606,000 $18,680,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-32
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SUCCESSOR COMPANY
-----------------------------------------------------------------
PREDECESSOR COMPANY PERIOD
-------------------------------------- FROM INCEPTION
PERIOD FROM (SEPTEMBER 26, THREE MONTHS ENDED MARCH
JANUARY 1, 1997 1997) 31,
YEAR ENDED THROUGH THROUGH YEAR ENDED ------------------------
DECEMBER 31, 1996 SEPTEMBER 26, 1997 DECEMBER 31, 1997 DECEMBER 31, 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 8,787,000 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) (10,743,000) (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) (11,843,000) (3,941,000) (8,253,000) (1,758,000) (2,330,000)
Benefit for income
taxes................ -- -- (1,309,000) (2,862,000) (623,000) (811,000)
----------------- ------------------ ------------------ ----------------- ----------- -----------
Net loss........... ($5,332,000) ($11,843,000) ($2,632,000) ($5,391,000) ($1,135,000) ($1,519,000)
----------------- ------------------ ------------------ ----------------- ----------- -----------
----------------- ------------------ ------------------ ----------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements.
F-33
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF DIVISIONAL DEFICIT
AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996--
PREDECESSOR
COMPANY
---------------
<S> <C>
Divisional Deficit, December 31, 1995............................................................ ($ 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........................................................................ (11,843,000)
Advances from Parent........................................................................... 5,140,000
---------------
Divisional Deficit, September 26, 1997........................................................... ($ 224,000)
---------------
---------------
</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.................... -- -- (2,632,000) -- (2,632,000)
--- ----- ---------------- -------- ------------------
Balance, December 31, 1997.... 100 -- (2,632,000) 11,000 (2,621,000)
Foreign currency translation
adjustment.................. -- -- -- (36,000) (36,000)
Net loss.................... -- -- (5,391,000) -- (5,391,000)
--- ----- ---------------- -------- ------------------
Balance, December 31, 1998.... 100 -- (8,023,000) (25,000) (8,048,000)
Foreign currency translation
adjustment.................. -- -- -- (32,000) (32,000)
Net loss (unaudited)........ -- -- (1,519,000) -- (1,519,000)
--- ----- ---------------- -------- ------------------
Balance, March 31, 1999
(unaudited)................. 100 $ -- ($ 9,542,000) ($ 57,000) ($ 9,599,000)
--- ----- ---------------- -------- ------------------
--- ----- ---------------- -------- ------------------
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements.
F-34
<PAGE>
EAGLE RIVER INTERACTIVE INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
<CAPTION>
PERIOD FROM
PERIOD FROM INCEPTION
JANUARY 1, (SEPTEMBER 26,
1997 1997)
YEAR ENDED THROUGH THROUGH YEAR ENDED
DECEMBER 31, SEPTEMBER 26, DECEMBER 31, DECEMBER 31,
1996 1997 1997 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... ($5,332,000) ($ 11,843,000) ($ 2,632,000) ($ 5,391,000)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Impairment of long-lived assets............................ -- 2,138,000 -- --
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 1,045,000
Amortization of goodwill................................... -- -- 1,076,000 4,322,000
Depreciation and amortization.............................. 1,096,000 1,086,000 234,000 1,686,000
Change in assets and liabilities:
Increase (decrease) in deferred revenue.................. (60,000) 168,000 531,000 (583,000)
(Increase) decrease in accounts receivable............... (2,444,000) 278,000 (846,000) (1,970,000)
Increase in Federal income tax receivable................ -- -- (770,000) (1,797,000)
Increase in deferred tax assets.......................... -- -- (539,000) (1,064,000)
Increase (decrease) due to/from affiliates............... -- -- -- 77,000
(Increase) decrease in unbilled charges.................. (2,123,000) 219,000 330,000 1,205,000
(Increase) decrease in prepaid expenses and other current
assets................................................. (143,000) 239,000 (814,000) 985,000
Increase (decrease) in other current liabilities......... 58,000 (320,000) 77,000 233,000
Increase (decrease) in other long-term liabilities....... -- -- (18,000) (81,000)
Increase (decrease) in accounts payable and accrued
expenses............................................... (599,000) 2,428,000 700,000 2,334,000
------------- -------------- -------------- --------------
Net cash (used in) provided by operating activities.... (9,547,000) (4,283,000) (2,428,000) 1,544,000
------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (3,140,000) (677,000) (520,000) (1,251,000)
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)
------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations....................... (117,000) (154,000) (34,000) (305,000)
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
Repayment of long-term debt and line of credit................. -- -- -- (19,324,000)
------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities.... 13,277,000 4,986,000 3,562,000 (178,000)
------------- -------------- -------------- --------------
EFFECT OF EXCHANGE RATES ON CASH................................. -- -- 11,000 (36,000)
------------- -------------- -------------- --------------
Net increase (decrease) in cash........................ -- -- 625,000 79,000
------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... -- -- 7,000 632,000
------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ -- $ -- $ 632,000 $ 711,000
------------- -------------- -------------- --------------
------------- -------------- -------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:
Equipment acquired under capital leases........................ $ 452,000 -- -- --
<CAPTION>
<S> <C> <C>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... ($ 1,135,000) ($ 1,519,000)
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........................... --
Write-off of software...................................... --
Write-off of prepaid expenses and other current assets..... -- --
Allowance for doubtful accounts............................ --
Amortization of goodwill................................... 1,081,000 1,081,000
Depreciation and amortization.............................. 391,000 393,000
Change in assets and liabilities:
Increase (decrease) in deferred revenue.................. 820,000 (314,000)
(Increase) decrease in accounts receivable............... (1,283,000) 4,003,000
Increase in Federal income tax receivable................ (356,000) (508,000)
Increase in deferred tax assets.......................... (266,000) (303,000)
Increase (decrease) due to/from affiliates............... -- (38,000)
(Increase) decrease in unbilled charges.................. (772,000) (2,774,000)
(Increase) decrease in prepaid expenses and other current
assets................................................. 304,000 (238,000)
Increase (decrease) in other current liabilities......... 82,000 155,000
Increase (decrease) in other long-term liabilities....... (81,000) --
Increase (decrease) in accounts payable and accrued
expenses............................................... 1,313,000 (3,161,000)
------------- -------------
Net cash (used in) provided by operating activities.... 98,000 (3,223,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................... (265,000) (119,000)
Acquisition of subsidiary...................................... -- --
Acquisition of software........................................ -- --
------------- -------------
Net cash (used in) in investing activities............. (265,000) (119,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under capital lease obligations....................... (142,000) --
Payments under note payable.................................... -- --
Net change in due to/from corporate............................ -- --
Proceeds from issuance of long-term debt and line of credit.... 3,033,000 8,005,000
Repayment of long-term debt and line of credit................. (2,000,000) (4,660,000)
------------- -------------
Net cash provided by (used in) financing activities.... 891,000 3,345,000
------------- -------------
EFFECT OF EXCHANGE RATES ON CASH................................. (34,000) (31,000)
------------- -------------
Net increase (decrease) in cash........................ 690,000 (28,000)
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 632,000 711,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 1,322,000 $ 683,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:
Equipment acquired under capital leases........................ -- --
</TABLE>
The accompanying notes are an integral part of these combined/consolidated
statements
F-35
<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
solutions to assist a variety of companies, primarily in the United States, in
communicating effectively with their targeted audiences. The Predecessor created
these solutions 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., 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-36
<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 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 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-37
<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 tangibles to be disposed of.
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 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.
F-38
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/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 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.
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
F-39
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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
PERIOD FROM INCEPTION (SEPTEMBER 26,
YEAR ENDED JANUARY 1, 1997 THROUGH 1997) THROUGH DECEMBER 31, YEAR ENDED
DECEMBER 31, 1996 SEPTEMBER 26, 1997 1997 DECEMBER 31, 1998
-------------------- -------------------------- -------------------------- --------------------
<S> <C> <C> <C> <C>
Net loss................... $ (5,332,000) $ (11,843,000) $ (2,632,000) $ (5,391,000)
Foreign currency
translation adjustment... -- -- 11,000 (36,000)
-------------------- ------------- ------------ --------------------
Comprehensive loss..... $ (5,332,000) $ (11,843,000) $ (2,621,000) $ (5,427,000)
-------------------- ------------- ------------ --------------------
-------------------- ------------- ------------ --------------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
------------- --------------
<S> <C> <C>
(UNAUDITED)
Net loss........................................................................................... $ (1,135,000) $ (1,519,000)
Foreign currency translation adjustment............................................................ (9,000) (32,000)
------------- --------------
Comprehensive loss............................................................................. $ (1,144,000) $ (1,551,000)
------------- --------------
------------- --------------
</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 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.
F-40
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues............................................................ $ 6,971,000 $ 2,519,000 $ 9,490,000
------------- ------------- -------------
Net loss............................................................ $ (14,000) $ (150,000) $ (164,000)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-41
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Due from affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ---------------
<S> <C> <C>
(UNAUDITED)
AGENCY.COM................................................................. $ 34,000 $ --
Online Magic Limited....................................................... -- 366,000
Quadris Consulting, Inc.................................................... -- 234,000
Other affiliates........................................................... -- 70,000
-------- ---------------
$ 34,000 $ 670,000
-------- ---------------
-------- ---------------
</TABLE>
F-42
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Due to affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
------------------- ---------------
<S> <C> <C>
(UNAUDITED)
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
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
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.
General and administrative expense for the period from January 1, 1997
through September 26, 1997 includes approximately $2.1 million of charges as a
result of the permanent impairment of certain computer and other office
equipment, which primarily resulted from Parent's disposal of the Predecessor
(Note 13).
F-43
<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
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
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
-------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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-44
<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
--------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
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)
--------------------- -------------- -------------- --------------
$ (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
--------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
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
--------------------- -------------- -------------- --------------
Effective rate........................ $ (1,309,000) $ (2,862,000) $ (623,000) $ (811,000)
--------------------- -------------- -------------- --------------
--------------------- -------------- -------------- --------------
</TABLE>
F-45
<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
--------------------- ------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
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) -- --
---------- ------------- ---------------
Net deferred tax asset.................................... $ 539,000 $ 1,603,000 $ 1,906,000
---------- ------------- ---------------
---------- ------------- ---------------
</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-46
<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................................... (10,415,000) (328,000) (10,743,000)
Net income (loss)............................................... (11,850,000) 7,000 (11,843,000)
</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)............................................... (2,464,000) (168,000) (2,632,000)
Long-lived assets............................................... 15,189,000 84,000 15,273,000
Current assets.................................................. 7,333,000 229,000 7,562,000
Other assets.................................................... 343,000 19,000 362,000
</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)............................................... (5,339,000) (52,000) (5,391,000)
Long-lived assets............................................... 9,868,000 105,000 9,973,000
Current assets.................................................. 7,880,000 463,000 8,343,000
Other assets.................................................... 1,270,000 20,000 1,290,000
</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)............................................... (1,527,000) 8,000 (1,519,000)
Long-lived assets............................................... 8,501,000 117,000 8,618,000
Current assets.................................................. 8,142,000 337,000 8,479,000
Other assets.................................................... 1,566,000 17,000 1,583,000
</TABLE>
F-47
<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-48
<PAGE>
EAGLE RIVER INTERACTIVE INC.
NOTES TO COMBINED/CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 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 was
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 Group 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-49
<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 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 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-50
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
---------- ----------- ------------
<S> <C> <C> <C>
(UNAUDITED)
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-51
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
<CAPTION>
(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-52
<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-53
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- ----------- ----------- -----------
<CAPTION>
(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-54
<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 leading digital communications solutions
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
solutions 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
solutions 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-55
<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. 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 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 Group Inc. approximates fair value.
F-56
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
F-57
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
F-58
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
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>
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.
F-59
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
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, $528,346, $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 $300,000,
$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.
For the three months ended March 31, 1998 and 1999, the Company had not
provided any consulting services to AGENCY.COM or Eagle River.
F-60
<PAGE>
INTERACTIVE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1997 1998 1999
----------- ------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
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
----------------- ---------------
<S> <C> <C>
(UNAUDITED)
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-61
<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
----------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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,
------------------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------ ------------ -------------- ------------ --------------
<CAPTION>
(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-62
<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,
---------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------ ----------- ------------- ----------- -----------
<CAPTION>
(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
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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-63
<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 cash 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-64
<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,
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31,
1996 1997 1998 1999
------------------------ ------------------------ ------------------------ ---------
<CAPTION>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS
----------- ----------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period............................ -- $ -- -- $ -- 420,000 $ 1.60 494,500
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
----- ----------- --------- ----- --------- ----- ---------
----- ----------- --------- ----- --------- ----- ---------
<CAPTION>
<S> <C>
WEIGHTED-
AVERAGE
EXERCISE
PRICE
-------------
(UNAUDITED)
<S> <C>
Outstanding at beginning of
period............................ $ 1.60
Granted............................. --
Exercised........................... --
Cancelled........................... --
-----
Outstanding at end of period........ $ 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
----------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE EXERCISE
PRICE NUMBER LIFE PRICE NUMBER PRICE
- ---------------------------------------------------- --------- ----------- ----------- --------- -----------
$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-65
<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,
--------------------------
<S> <C> <C>
1997 1998
----------- -------------
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,
------------------------------------
<S> <C> <C>
1997 1998
----------------- -----------------
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-66
<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
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
----------- --------------- ----------- ---------------
<CAPTION>
(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
------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
EXERCISE AVERAGE AVERAGE AVERAGE
PRICE REMAINING EXERCISE EXERCISE
RANGE NUMBER LIFE PRICE NUMBER PRICE
- ---------------------------------------------------- ----------- ----------- ----------- ------------- -------------
$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-67
<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-68
<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-69
<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-70
<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 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 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-71
<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-72
<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-73
<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-74
<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-75
<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 solutions 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.
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 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 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-76
<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 tangibles to be disposed of.
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 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.
F-77
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
January1, 1998 to March 15, 1998, respectively.
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>
F-78
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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
F-79
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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.
F-80
<PAGE>
QUADRIS CONSULTING
(A DIVISION OF JYACC, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. BUSINESS CONCENTRATIONS AND CREDIT RISK (CONTINUED)
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-81
<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 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 the years then ended in conformity with United States
generally accepted accounting principles.
ARTHUR ANDERSEN
Rotterdam, The Netherlands
August 9, 1999
F-82
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------- -------------
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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 (Note 10)
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-83
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------------------
1997 1998 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
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-84
<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-85
<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
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
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-86
<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 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. 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.
Management has evaluated the amortization periods in the current period and has
determined that no impairment currently exists. These amortization periods
F-87
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
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.
F-88
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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,
------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ----------- ------------ ------------
<CAPTION>
(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
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.
F-89
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. RELATED PARTY TRANSACTIONS
Due from affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
3WIS Beheer B.V................................................................ $ -- $ 19,589 $ 17,850
Tridion B.V.................................................................... -- -- 261,180
--------- --------- -----------
Due from affiliates.......................................................... $ -- $ 19,589 $ 279,030
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-90
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Due to affiliates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
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
------------ ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
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).
5. INTANGIBLES
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
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.
F-91
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
(UNAUDITED)
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
rates. 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.
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.
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
F-92
<PAGE>
TWINSPARK INTERACTIVE PEOPLE B.V.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
11. 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.
12. 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
$4.06 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 $4,997,624. 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-93
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements as of June 30, 1999 and for the six months ended June 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 and
Twinspark Interactive People 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 Twinspark Interactive People as
if such transaction had occurred on June 30, 1999. The unaudited pro forma
consolidated statement of operations information for the six months ended June
30, 1999 and 1998 and for the year ended December 31, 1998, gives effect to the
acquisitions that AGENCY.COM completed in 1998 and 1999 and as if such
transactions had occurred on January 1, 1998, January 1, 1998 and January 1,
1999, respectively.
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, which equals $18.507 million
for Eagle River Interactive, $1.718 million for Interactive Solutions, $4.879
million for Twinspark Interactive People and an aggregate of $2.128 million for
the other acquisitions has been allocated to goodwill. Management considers such
estimates to be reasonable.
F-94
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
AGENCY.COM ADJUSTMENTS PRO FORMA
-------------- TWINSPARK ------------ -------------
INTERACTIVE
-----------
(A)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 1,402,466 $ -- $ -- $ 1,402,466
Accounts receivable, net............................ 10,654,529 1,040,445 -- 11,694,974
Unbilled charges.................................... 17,315,902 156,426 -- 17,472,328
Prepaid expenses and other current assets........... 398,516 141,399 -- 539,915
Income tax receivable............................... 3,076,000 -- -- 3,076,000
Due from related parties............................ 138,875 279,030 -- 417,905
-------------- ----------- ------------ -------------
Total current assets.............................. 32,986,288 1,617,300 -- 34,603,588
Property and Equipment, net........................... 8,639,524 511,086 -- 9,150,610
Intangibles, net (a).................................. 50,220,549 100,996 4,879,295 55,200,840
Deferred Tax Assets................................... 4,606,518 -- -- 4,606,518
Investments and Other Assets.......................... 2,932,325 -- -- 2,932,325
-------------- ----------- ------------ -------------
-------------- ----------- ------------ -------------
Total assets...................................... $ 99,385,204 $ 2,229,382 $4,879,295 $ 106,493,881
-------------- ----------- ------------ -------------
-------------- ----------- ------------ -------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses............... $ 10,449,493 $ 1,380,124 $ -- $ 11,829,617
Line of credit...................................... 11,031,371 537,392 -- 11,568,763
Income taxes payable................................ -- -- -- --
Deferred revenue.................................... 5,709,919 108,982 -- 5,818,901
Current portion of capital lease obligations........ 863,548 -- -- 863,548
Due to related parties.............................. -- 32,413 -- 32,413
-------------- ----------- ------------ -------------
Total current liabilities......................... 28,054,331 2,058,911 -- 30,113,242
Long-term Liabilities:
Due to Omnicom Group, Inc........................... 46,210,850 -- 700,000 46,910,850
Deferred tax liabilities............................ 3,140,653 -- -- 3,140,653
Capital lease obligations........................... 1,216,447 -- -- 1,216,447
Due to related parties.............................. 1,065,322 -- -- 1,065,322
Bank loans.......................................... -- 52,142 -- 52,142
Other liabilities................................... 1,177,511 -- -- 1,177,511
-------------- ----------- ------------ -------------
Total long-term liabilities....................... 52,810,783 52,142 700,000 53,562,925
-------------- ----------- ------------ -------------
Total liabilities................................. 80,865,114 2,111,053 700,000 83,676,167
-------------- ----------- ------------ -------------
Stockholders' Equity (b):
Common stock........................................ 25,094 755,705 (754,648) 26,151
Additional paid-in capital.......................... 19,099,786 -- 4,296,567 23,396,353
Retained earnings (deficit)......................... (601,175) (546,076) 546,076 (601,175)
Cumulative foreign translation adjustments.......... (3,615) (91,300) 91,300 (3,615)
-------------- ----------- ------------ -------------
Total stockholders' equity........................ 18,520,090 118,329 4,179,295 22,817,714
-------------- ----------- ------------ -------------
Total liabilities and stockholders' equity........ $ 99,385,204 $ 2,229,382 $4,879,295 $ 106,493,881
-------------- ----------- ------------ -------------
-------------- ----------- ------------ -------------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-95
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(a) 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 $4.06 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 $4,997,624. 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.
Set forth below is AGENCY.COM's allocation of the purchase price of the
Twinspark Interactive acquisition:
<TABLE>
<S> <C>
Aggregate purchase price....................................................... $4,997,624
----------
Less net book value of assets acquired....................................... 118,329
----------
Excess of cost over net book value of assets acquired.......................... $4,879,295
----------
----------
Allocation of excess of cost over net book value of assets acquired:
Goodwill..................................................................... $4,879,295
----------
----------
</TABLE>
The allocation of excess cost over net book value of assets acquired to the
intangible assets relating to Twinspark Interactive will be amortized over a
useful life of three years.
F-96
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
(b) Reflects the adjustments to shareholders' equity as follows:
<TABLE>
<CAPTION>
ACQUISITIONS
-------------
<S> <C>
Elimination of Twinspark Interactive Common Stock.................................................. $ (755,705)
Issuance of Common Stock in connection with the acquisition of Twinspark Interactive............... 1,057
-------------
Subtotal....................................................................................... (754,648)
-------------
Additional paid-in capital:
Elimination of Twinspark Interactive additional paid-in capital.................................. --
Additional paid-in capital from issuance of Common Stock......................................... 4,296,567
Subtotal....................................................................................... 4,296,567
-------------
Retained earnings:
Elimination of Twinspark Interactive historical retained earnings................................ 546,076
-------------
Cumulative foreign translation adjustment:
Elimination of Twinspark Interactive historical cumulative foreign translation adjustment........ 91,300
-------------
Total.......................................................................................... $ 4,179,295
-------------
-------------
</TABLE>
The following summarizes how the amounts relating to the issuance of shares
in connection with the Twinspark acquisition were determined:
<TABLE>
<S> <C> <C>
Total Common Stock issued.......................................... 1,057,226
Fair market value of Common Stock per share........................ $ 4.06
----------
Total value of Common Stock issued................................. $4,297,624
Total Common Stock issued.......................................... 1,057,226
Par value of Common Stock.......................................... $ 0.001
----------
Adjustment to Common Stock......................................... (1,057)
----------
Adjustment to additional paid-in capital........................... $4,296,567
----------
----------
</TABLE>
F-97
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
AGENCY.COM ADJUSTMENTS PRO FORMA
-------------- EAGLE RIVER INTERACTIVE TWINSPARK DIGITAL ------------ -------------
INTERACTIVE SOLUTIONS INTERACTIVE VISION
----------- ----------- ----------- -------------
(A) (B) (C) (D)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $ 30,389,175 $ 5,072,000 $ 3,598,106 $2,417,259 $ 325,800 $ -- $ 41,802,340
Direct salaries and costs.... 15,072,391 2,885,000 2,207,841 1,467,849 306,106 -- 21,939,187
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Gross profit................. 15,316,784 2,187,000 1,390,265 949,410 19,694 -- 19,863,153
General and administrative... 10,654,234 2,452,000 1,509,291 1,524,269 231,200 -- 16,370,994
Sales and marketing.......... 1,254,112 602,000 39,898 94,000 125,108 -- 2,115,118
Amortization of goodwill..... 727,161 1,081,000 1,279,996 -- -- 404,690(g) 3,492,847
Depreciation and
amortization............... 1,984,074 0 96,942 79,659 5,949 2,166,624
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Income (loss) from
operations............... 697,203 (1,948,000) (1,535,862) (748,518) (342,563) (404,690) (4,282,430)
Interest income (expense),
net........................ (1,055,095) (382,000) (210,000) (6,164) (17,680) (54,158)(j) (1,725,097)
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Income (loss) before income
taxes.................... (357,892) (2,330,000) (1,745,862) (754,682) (360,243) (458,848) (6,007,527)
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Provision (benefit) for
income taxes............... 53,238 (811,000) (453,502) (49,787) -- -- (1,261,051)
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Net income (loss).......... $ (411,130) $(1,519,000) $(1,292,360) $(704,895) $ (360,243) $ (458,848) $ (4,746,476)
-------------- ----------- ----------- ----------- ------------- ------------ -------------
-------------- ----------- ----------- ----------- ------------- ------------ -------------
Per share information:
Net loss per share--.......
Basic........................ $ (0.02) $ (0.18)
-------------- -------------
-------------- -------------
Diluted...................... $ (0.02) $ (0.18)
-------------- -------------
-------------- -------------
Weighted average common
shares outstanding--.......
Basic........................ 21,135,108 26,148,511
-------------- -------------
-------------- -------------
Diluted...................... 21,135,108 26,148,511
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-98
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
AGENCY.COM ADJUSTMENTS PRO FORMA
-------------- EAGLE RIVER INTERACTIVE TWINSPARK OTHER ------------ -----------
INTERACTIVE SOLUTIONS INTERACTIVE ACQUISITIONS
----------- ----------- ----------- ------------
(A) (B) (C) (D)(E)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $ 12,585,418 $11,184,330 $ 6,257,091 $ 746,270 $3,215,711 $ -- $33,988,820
Direct salaries and
costs.................... 6,101,964 5,698,390 3,918,898 582,120 1,902,942 -- 18,204,314
-------------- ----------- ----------- ----------- ------------ ------------ -----------
Gross profit............... 6,483,454 5,485,940 2,338,193 164,150 1,312,769 -- 15,784,506
General and
administrative........... 5,176,039 6,020,274 2,481,076 150,920 879,949 -- 14,708,258
Sales and marketing........ 198,628 869,009 226,158 -- 142,804 -- 1,436,599
Amortization of goodwill... 99,576 2,161,888 719,400 -- -- 749,914(h) 3,730,778
Depreciation and
amortization............. 532,009 -- 147,638 34,300 10,689 -- 724,636
-------------- ----------- ----------- ----------- ------------ ------------ -----------
Income (loss) from
operations............. 477,202 (3,565,231) (1,236,079) (21,070) 279,327 (749,914) (4,815,765)
Interest income (expense),
net...................... (94,214) (763,377) (217,169) (6,370) (13,009) (196,070)(k) (1,290,209)
Minority interests......... (281,559) -- -- -- -- -- (281,559)
-------------- ----------- ----------- ----------- ------------ ------------ -----------
Income (loss) before
income taxes........... 101,429 (4,328,608) (1,453,248) (27,440) 266,318 (945,984) (6,387,533)
Provision (benefit) for
income taxes............. 40,572 (1,311,101) (603,297) -- 87,000 -- (1,786,826)
-------------- ----------- ----------- ----------- ------------ ------------ -----------
Net income (loss)........ $ 60,857 $(3,017,507) $ (849,951) $ (27,440) $ 179,318 $ (945,984) $(4,600,707)
-------------- ----------- ----------- ----------- ------------ ------------ -----------
-------------- ----------- ----------- ----------- ------------ ------------ -----------
Per share information:
Net loss per share--
Basic...................... $ 0.00 $ (0.18)
-------------- -----------
-------------- -----------
Diluted.................... $ 0.00 $ (0.18)
-------------- -----------
-------------- -----------
Weighted average common
shares outstanding--.....
Basic...................... 16,285,269 25,254,579
-------------- -----------
-------------- -----------
Diluted.................... 16,927,887 25,254,579
-------------- -----------
-------------- -----------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-99
<PAGE>
AGENCY.COM LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
EAGLE RIVER INTERACTIVE
INTERACTIVE SOLUTIONS PRO FORMA
AGENCY.COM ----------- ----------- ADJUSTMENTS PRO FORMA
-------------- (A) (B) TWINSPARK OTHER ------------ ------------
INTERACTIVE ACQUISITIONS
----------- ------------
(C) (D)(F)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $ 26,452,191 $23,442,000 $15,370,470 $2,690,816 $3,974,145 $ (996,666)(p) $ 70,932,956
Direct salaries and
costs............... 15,930,029 11,782,000 9,659,366 1,771,878 2,255,687 (996,666)(p) 40,402,294
-------------- ----------- ----------- ----------- ------------ ------------ ------------
Gross profit.......... 10,522,162 11,660,000 5,711,104 918,938 1,718,458 -- 30,530,662
General and
administrative...... 10,944,441 12,022,000 6,220,344 469,545 1,107,540 -- 30,763,870
Sales and marketing... 595,886 1,958,000 482,952 -- 306,521 -- 3,343,359
Amortization of
goodwill............ 316,514 4,322,000 1,953,783 -- -- 1,413,822 8,006,119
Depreciation and
amortization........ 1,141,305 -- 295,274 91,189 16,958 -- 1,544,726
-------------- ----------- ----------- ----------- ------------ ------------ ------------
Income (loss) from
operations.......... (2,475,984) (6,642,000) (3,241,249) 358,204 287,439 (1,413,822) (13,127,412)
Interest income
(expense), net...... (359,761) (1,611,000) (599,003) (12,091) (17,422) (256,667)(l) (2,855,944)
Minority interests.... (281,559) -- -- -- -- -- (281,559)
-------------- ----------- ----------- ----------- ------------ ------------ ------------
Income (loss) before
income taxes........ (3,117,304) (8,253,000) (3,840,252) 346,113 270,017 (1,670,489) (16,264,915)
Provision (benefit)
for income taxes.... (1,309,633) (2,862,000) (1,603,476) 52,899 87,000 -- (5,635,210)
-------------- ----------- ----------- ----------- ------------ ------------ ------------
Net income (loss)..... $ (1,807,671) $(5,391,000) $(2,236,776) $ 293,214 $ 183,017 $(1,670,489) $(10,629,705)
-------------- ----------- ----------- ----------- ------------ ------------ ------------
-------------- ----------- ----------- ----------- ------------ ------------ ------------
Per share information:
Net loss per share--
Basic................. $ (0.11) $ (0.41)
-------------- ------------
-------------- ------------
Diluted............... $ (0.11) $ (0.41)
-------------- ------------
-------------- ------------
Weighted average
common shares
outstanding--
Basic 16,854,499 25,823,809
-------------- ------------
-------------- ------------
Diluted 16,854,499 25,823,809
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes and management's assumptions to the unaudited pro forma
condensed consolidated financial statements are integral parts of this
statement.
F-100
<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 of 3,659,548 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
F-101
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
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.
(c) 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 $4.06 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
$4,997,624. 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.
(d) OTHER ACQUISITIONS:
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 the 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, the 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, the AGENCY.COM has
recorded goodwill of approximately $643,000, which is being amortized over a
period of twenty 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.
F-102
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
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
twenty 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.
(e) Set forth below are the unaudited results of operations of the other
acquisitions for the period of January 1, 1998 through June 30, 1998:
<TABLE>
<CAPTION>
QUADRIS KETCHUM PRIMARY DIGITAL TOTAL OTHER
CONSULTING ADVERTISING GROUP VISION ACQUISITIONS
------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 1,727,391 $ 680,000 $ 130,035 $ 678,285 $ 3,215,711
Direct salaries and costs.................. 1,144,664 353,600 102,584 302,094 1,902,942
------------- ----------- ----------- ----------- -------------
Gross profit........................... 582,727 326,400 27,451 376,191 1,312,769
General and administrative................. 362,872 251,600 65,596 199,881 879,949
Sales and marketing........................ 1,577 27 -- 141,200 142,804
Amortization of goodwill................... -- -- -- -- --
Depreciation and amortization.............. -- 14 2,902 7,773 10,689
------------- ----------- ----------- ----------- -------------
Income (loss) from operations.......... 218,278 74,759 (41,047) 27,337 279,327
Interest income (expense), net............. (1,925) -- -- (11,084) (13,009)
Minority interests......................... -- -- -- -- --
------------- ----------- ----------- ----------- -------------
Income (loss) before income taxes...... 216,353 74,759 (41,047) 16,253 266,318
Provision (benefit) for income taxes..... 87,000 -- -- -- 87,000
------------- ----------- ----------- ----------- -------------
Net income (loss)...................... $ 129,353 $ 74,759 $ (41,047) $ 16,253 $ 179,318
------------- ----------- ----------- ----------- -------------
------------- ----------- ----------- ----------- -------------
</TABLE>
F-103
<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 December 31, 1998:
<TABLE>
<CAPTION>
QUADRIS KETCHUM PRIMARY DIGITAL TOTAL OTHER
CONSULTING ADVERTISING GROUP VISION ACQUISITIONS
------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 1,727,391 $ 680,000 $ 167,057 $ 1,399,697 $ 3,974,145
Direct salaries and costs................ 1,144,664 353,600 131,790 625,633 2,255,687
------------- ----------- ----------- ------------- -------------
Gross profit......................... 582,727 326,400 35,267 774,064 1,718,458
General and administrative............... 362,872 251,600 120,392 372,676 1,107,540
Sales and marketing...................... 1,577 27 -- 304,917 306,521
Amortization of goodwill................. -- -- -- -- --
Depreciation and amortization............ -- 14 3,869 13,075 16,958
------------- ----------- ----------- ------------- -------------
Income (loss) from operations........ 218,278 74,759 (88,994) 83,396 287,439
Interest income (expense), net........... (1,925) -- -- (15,497) (17,422)
Minority interests....................... -- -- -- -- --
------------- ----------- ----------- ------------- -------------
Income (loss) before income taxes.... 216,353 74,759 (88,994) 67,899 270,017
Provision (benefit) for income taxes..... 87,000 -- -- -- 87,000
------------- ----------- ----------- ------------- -------------
Net income (loss).................... $ 129,353 $ 74,759 $ (88,994) $ 67,899 $ 183,017
------------- ----------- ----------- ------------- -------------
------------- ----------- ----------- ------------- -------------
</TABLE>
(g) Amortization of intangibles for the six months ended June 30, 1999, for the
following acquisitions, based upon a useful life of twenty years:
<TABLE>
<S> <C>
Eagle River Interactive........................................ $ 231,332
Interactive Solutions.......................................... 21,481
Twinspark Interactive.......................................... 121,982
Digital Vision................................................. 29,895
----------
Total pro forma goodwill adjustments....................... $ 404,690
----------
----------
</TABLE>
(h) Amortization of intangibles for the six months ended June 30, 1998, for the
following acquisitions, based upon a useful life of twenty years:
<TABLE>
<S> <C>
Eagle River Interactive........................................ $ 462,664
Interactive Solutions.......................................... 42,962
Twinspark Interactive.......................................... 121,982
Digital Vision................................................. 35,874
Quadris Consulting............................................. 77,123
Ketchum Advertising............................................ 8,038
Primary Group.................................................. 1,271
----------
Total pro forma goodwill adjustments....................... $ 749,914
----------
----------
</TABLE>
F-104
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(i) Amortization of intangibles for year ended December 31, 1998, for the
following acquisitions, based upon a useful life of twenty years:
<TABLE>
<S> <C>
Eagle River Interactive........................................ $ 925,329
Interactive Solutions.......................................... 85,923
Twinspark Interactive.......................................... 243,965
Digital Vision................................................. 71,748
Quadris Consulting............................................. 77,123
Ketchum Advertising............................................ 8,887
Primary Group.................................................. 847
----------
Total pro forma goodwill adjustments....................... $1,413,822
----------
----------
</TABLE>
(j) Interest expense (income), net
Reflects additional interest expense for AGENCY.COM for borrowings made from
Omnicom to fund acquisitions for the six months ended June 30, 1999:
<TABLE>
<S> <C>
Twinspark Interactive............................................ $ 23,450
Digital Vision................................................... 30,708
---------
Total pro forma interest expense adjustments................. $ 54,158
---------
---------
</TABLE>
F-105
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(k) Interest expense (income), net
Reflects additional interest expense for AGENCY.COM for borrowings made from
Omnicom to fund acquisitions for the six months ended June 30, 1998:
<TABLE>
<S> <C>
Ketchum Advertising.............................................. $ 10,770
Primary Group.................................................... 1,782
Quadris Consulting............................................... 123,218
Twinspark Interactive............................................ 23,450
Digital Vision................................................... 36,850
---------
Total pro forma interest expense adjustments................. $ 196,070
---------
---------
</TABLE>
(l) Interest expense (income), net
Reflects additional interest expense for AGENCY.COM for borrowings made from
Omnicom to fund acquisitions for the year ended December 31, 1998:
<TABLE>
<S> <C>
Ketchum Advertising.............................................. $ 10,770
Primary Group.................................................... 2,379
Quadris Consulting............................................... 123,218
Twinspark Interactive............................................ 46,900
Digital Vision................................................... 73,700
---------
Total pro forma interest expense adjustments................. $ 256,967
---------
---------
</TABLE>
(m) Set forth below are the weighted average shares of Common Stock outstanding
during the periods for the basic and diluted computation for the six months
ended June 30, 1999:
<TABLE>
<S> <C>
Basic:
Historical AGENCY.COM basic.................................. 21,135,108
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
----------
Pro forma basic............................................ 26,148,511
----------
----------
Diluted:
Historical AGENCY.COM diluted................................ 21,135,108
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
----------
Pro forma diluted.......................................... 26,148,511
----------
----------
</TABLE>
F-106
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (CONTINUED)
(n) Set forth below are the weighted average shares of Common Stock outstanding
during the periods for the basic and diluted computation for the six months
ended June 30, 1998:
<TABLE>
<S> <C>
Basic:
Historical AGENCY.COM basic................................. 16,285,269
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
-----------
Pro forma basic........................................... 25,254,579
-----------
Diluted:
Historical AGENCY.COM diluted............................... 16,285,269
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
-----------
Pro forma diluted......................................... 25,254,579
-----------
-----------
</TABLE>
(o) 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
-----------
Pro forma basic........................................... 25,823,809
-----------
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
-----------
Pro forma diluted......................................... 25,823,809
-----------
-----------
</TABLE>
(p) Revenue/Direct salaries and costs
Reflects the elimination of revenues earned and costs incurred between
AGENCY.COM and Eagle River Interactive in the fourth quarter of 1998.
F-107
<PAGE>
UNDERWRITING
AGENCY.COM and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, 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..................................................
-----------------
-----------------
</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
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.
The following table shows the per share and total underwriting discounts and
commissions 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>
Paid by AGENCY.COM
-------------------------
<S> <C> <C>
Full
No Exercise Exercise
----------- ------------
Per Share..... $ $
Total......... $ $
</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 change the offering price and
the other selling terms.
AGENCY.COM and its directors, officers and substantially all of its
stockholders 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 shares
of the common stock offered hereby for sale, at the initial public offering
price, to
U-1
<PAGE>
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 hereby.
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. Among the 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.
Application will be made for quotation of the common stock on the Nasdaq
National Market under the symbol "ACOM".
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 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
$ .
AGENCY.COM has agreed to indemnify the several underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
AGENCY.COM provides Internet professional services to one of the
Underwriters. Please see "Certain Transactions--Agreement with underwriter".
U-2
<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 prospected 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.............................................................. 7
Forward Looking Statements................................................ 17
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 24
Business.................................................................. 37
Management................................................................ 53
Certain Transactions...................................................... 63
Principal Stockholders.................................................... 67
Description of Capital Stock.............................................. 70
Shares Eligible for Future
Sale.................................................................... 73
Validity of Common Stock.................................................. 74
Experts................................................................... 74
Changes in Accountants.................................................... 75
Where You Can Find More Information....................................... 75
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.
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............................................................. $ 20,850
NASD filing fee.................................................................. 8,000
Nasdaq National Market listing fee............................................... 95,000
Legal fees and expenses..........................................................
Accounting fees and expenses.....................................................
Printing and engraving...........................................................
Blue sky fees and expenses (including legal fees)................................ 15,000
Transfer Agent and Registrar fees and expenses................................... 15,000
Miscellaneous....................................................................
-----------
Total.......................................................................... $
-----------
-----------
</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 1998, Spiral Media merged with and into the Registrant (the "Spiral
Media Merger"). As a result of the Spiral Media Merger, 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 July 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.
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.............................. 99,500 $0.86
January 1, 1997 to December 31, 1997.............................. 836,930 $ 0.80-1.12
January 1, 1998 to December 31, 1998.............................. 1,918,934 $ 0.41-1.23
January 1, 1999 to present........................................ 3,873,346 $ 0.41-1.23
</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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.3 Warrant Agreement, as amended, dated April 28, 1999, by and between Omnicom Group Inc. and the
Registrant.
4.4 Warrant Agreement, as amended, dated April 28, 1999, by and between Communicade, Inc. and the
Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1999 Stock Option/Stock Issuance Plan.
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 _____, 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>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.18* Agreement, dated March 2, 1999, by and between Salomon Smith Barney and the Registrant.
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 Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of attorney (please see Signature Page).
27.1 Financial Data Schedule.
99.1 Consent of Director Nominee Jeffrey Rayport (included in Exhibit 10.16).
</TABLE>
- ------------------------
* To be supplied by amendment.
(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.
II-5
<PAGE>
(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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of New York,
State of New York, on this 2nd day of September, 1999.
<TABLE>
<S> <C> <C>
AGENCY.COM LTD.
By: /s/ Chan Suh
-----------------------------------------
Name: Chan Suh
Title: President and Chief Executive
Officer
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of AGENCY.COM Ltd. (the
"Company"), hereby severally constitute and appoint Chan Suh, President and
Chief Executive Officer, and Kenneth Trush, Executive Vice President and Chief
Financial Officer, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full powers
to them and each of them to sign for us, in our names and in the capacities
indicated below, the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on September 2, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
- -------------------------------------------- ----------------------------------------------
<C> <S>
/s/ Chan Suh President and Chief Executive Officer, and
- ------------------------------------------- Chairman of the Board of Directors
Chan Suh (principal executive officer)
/s/ Kyle Shannon
- ------------------------------------------- Chief Creative Officer and Director
Kyle Shannon
/s/ Kenneth Trush Executive Vice President, Chief Financial
- ------------------------------------------- Officer, Treasurer and Director
Kenneth Trush (principal financial and accounting officer)
/s/ Gerald Bruce Redditt
- ------------------------------------------- Director
Gerald Bruce Redditt
/s/ John D. Wren
- ------------------------------------------- Director
John D. Wren
</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
September 2, 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
September 2, 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 OF COSTS AND OTHER BALANCE AT
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
in 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
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
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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.
4.3 Warrant Agreement, as amended, dated April 28, 1999, by and between Omnicom Group Inc. and the
Registrant.
4.4 Warrant Agreement, as amended, dated April 28, 1999, by and between Communicade, Inc. and the
Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1999 Stock Option/Stock Issuance Plan.
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 _____, 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>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.17 Stock Repurchase Agreement, dated July 23, 1999, by and between Topics Interactive Factory B.V. and the
Registrant, as amended.
10.18* Agreement, dated March 2, 1999, by and between Salomon Smith Barney and the Registrant.
11.1 Statement re: Computation of 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 Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (please see Signature Page).
27.1 Financial Data Schedule.
99.1 Consent of Jeffrey Rayport (included in Exhibit 10.16)
</TABLE>
- ------------------------
* To be supplied by amendment.
<PAGE>
Exhibit 1.1
AGENCY.COM LTD.
Common Stock
(par value $0.001 per share)
--------------------
UNDERWRITING AGREEMENT
----------------------
_______________, 1999
Goldman, Sachs & Co.
Salomon Smith Barney
Hambrecht & Quist
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
AGENCY.COM Ltd., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
_____ shares (the "Firm Shares") and, at the election of the Underwriters, up to
_____ additional shares (the "Optional Shares") of Common Stock (par value
$0.001 per share) ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_____) and all
pre-effective amendments thereto (the "Initial Registration Statement) in
respect of the Shares have been filed with the Securities and Exchange
Commission (the "Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore delivered to you,
and, excluding exhibits thereto, to you for each of the other Underwriters, have
been declared effective by the Commission in such form; other than a
registration statement, if any, increasing the size of the offering (a "Rule
462(b) Registration Statement"), filed pursuant
<PAGE>
to Rule 462(b) under the Securities Act of 1933, as amended (the "Act"), which
became effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; and such final prospectus, in
the form first filed pursuant to Rule 424(b) under the Act, is hereinafter
called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did 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 the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, 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 not misleading; PROVIDED, HOWEVER, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as
-2-
<PAGE>
of which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock (other than pursuant to the
grant or exercise of options described in the Prospectus) or long-term debt of
the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries do not own any real property and
have good and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except where the
failure to be so qualified would not be reasonably likely to have a material
adverse effect now or in the future on the business, financial condition,
stockholder's equity or results of operations of the Company and its
subsidiaries, taken as a whole, or on the consummation of the transactions
contemplated hereby (a "Material Adverse Effect"); and each subsidiary of the
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and
all of the issued shares of capital stock of each subsidiary of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares and except as
otherwise set forth in the Prospectus) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
-3-
<PAGE>
(i) The issue and sale of the Shares by the Company and the compliance
by the Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, other than breaches or defaults that are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any material statute or any
material order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any of
their properties; and no consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration nder the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution
of the Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition of the
Company or any of its subsidiaries contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which it is
a party or by which it or any of its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting," insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(m) Other than as set forth in the Prospectus, the Company and its
subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, confidential information,
proprietary rights and processes ("Intellectual Property") necessary for the
operation of the business of the Company and its subsidiaries as described in
the Prospectus and have taken all steps reasonably necessary to secure
assignments of such Intellectual Property from its employees and contractors; to
the Company's knowledge, none of the technology employed by the Company or its
subsidiaries has been obtained or is being used by the Company or its
subsidiaries in violation of any contractual or fiduciary obligation binding on
the Company,
-4-
<PAGE>
its subsidiaries or any of their respective directors or executive officers or
any of their respective employees or consultants; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent the
unauthorized dissemination or publication of its confidential information.
To the Company's knowledge, neither the Company nor any of its subsidiaries
have interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties in a manner
which would have a Material Adverse Effect, and the Company and its subsidiaries
have not received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that the Company or any of its subsidiaries must license or refrain from
using any intellectual property rights of any third party) which, if the
subject of any unfavorable decision, ruling or finding would, individually or
in the aggregate, have a Material Adverse Effect;
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company," as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(o) Arthur Andersen LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(p) The Company is in the process of reviewing its operations and
those of its subsidiaries and any third parties with which the Company or any
of its subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review to date, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a Material Adverse Effect or result in any material loss or
interference with the Company's business or operations. The "Year 2000 Problem"
as used herein means any significant risk that computer hardware or software
used in the receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of mechanical or
electrical systems of any kind will not, in the case of dates or time periods
occurring after December 31, 1999, function at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $_____, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
-5-
<PAGE>
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction, the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to _____ Optional Shares, at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised only by written notice from you to the Company, given within a
period of 30 calendar days after the date of this Agreement, setting forth the
aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on _____, 1999 or such other
time and date as Goldman, Sachs & Co. and the Company may agree upon in writing,
and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date
specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs
& Co. of the Underwriters' election to purchase such Optional Shares, or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery," such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery," and each such time and date for delivery is herein called a "Time of
Delivery."
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Brobeck, Phleger & Harrison, LLP, 1633 Broadway, New York, New York 10019
(the "Closing Location"), and the Shares will be delivered at the Designated
Office,
-6-
<PAGE>
all at such Time of Delivery. A meeting will be held at the Closing Location at
2:00 p.m., New York City time, on the New York Business Day next preceding such
Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, PROVIDED that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to furnish
the Underwriters with copies of the Prospectus in New York City in such
quantities as you may reasonably request, and, if the delivery of a prospectus
is required at any time prior to the expiration of nine months after the time of
issue of the Prospectus in connection with the offering or sale of the Shares
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and
-7-
<PAGE>
furnish without charge to each Underwriter and to any dealer in securities as
many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent, except that the Company may issue such securities in
exchange for equity or assets of a company in connection with a merger,
acquisition or strategic investment, provided that prior to any such issuance
the recipients of such securities shall have agreed with Goldman, Sachs & Co.
in writing to be bound by this provision for the remainder of the 180-day
period;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and statements
of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
-8-
<PAGE>
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement,
and the Company shall at the time of filing either pay to the Commission the
filing fee for the Rule 462(b) Registration Statement or give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky survey (iv) all fees
and expenses in connection with listing the Shares on the NASDAQ; (v) the filing
fees incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(vi) the cost of preparing stock certificates; (vii) the cost and charges of any
transfer agent or registrar; and (viii) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
-9-
<PAGE>
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such written opinion or opinions (a draft of each such opinion is attached
as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters
covered in paragraphs (i), (ii), (vii) and (x) and the last unnumbered paragraph
of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Brobeck, Phleger & Harrison, LLP, counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is attached
as Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and, upon payment
therefor in accordance with the terms hereof, will be fully paid and
non-assessable; and the Shares conform in all material respects to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of [COMPANY TO PROVIDE LIST OF JURISDICTIONS] (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of fact
upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued shares
of capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and
-10-
<PAGE>
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect to matters of fact upon certificates of officers of the Company
or its subsidiaries, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such
opinions and certificates);
(v) Any material real property and buildings held under lease
by the Company or any of its subsidiaries, including the Company's New
York headquarters, are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries (in giving the
opinion in this clause, such counsel may state that no examination of
record titles for the purpose of such opinion has been made, and that
they are relying upon a general review of the titles of the Company and
its subsidiaries, upon opinions of local counsel and abstracts, reports
and policies of title companies rendered or issued at or subsequent to
the time of acquisition of such property by the Company or its
subsidiaries, upon opinions of counsel to the lessors of such property
and, in respect to matters of fact, upon certificates of officers of
the Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying upon
such opinions, abstracts, reports, policies and certificates);
(vi) To such counsel's knowledge and other than as set forth
in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or any of its subsidiaries is a party or
of which any property of the Company or any of its subsidiaries is the
subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect; and, to such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument which is filed as an
exhibit to, or referred to, in the Registration Statement (in giving
the opinion in this clause counsel may attach to such opinion a list of
the foregoing agreements and instruments), nor will such action result
in any violation of the provisions of the Certificate of Incorporation
or By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties;
-11-
<PAGE>
(ix) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(x) The statements set forth in the Prospectus under the
caption ADescription of Capital Stock," insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting," insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair; and
(xi) The Company is not an "investment company," as such term
is defined in the Investment Company Act.
Such opinion letter shall also state that although such
counsel does not assume any responsibility for the accuracy or fairness
of the statements in the Registration Statement, except for those
referred to in Subsection (x) of this Section 7(c), such counsel has
participated in the preparation of the Registration Statement and the
Prospectus, including review and discussion of the contents thereof
with representatives of the Underwriters and their counsel, officers
and representatives of the Company, and representatives of the
independent certified public accountants of the Company, and nothing
has come to such counsel's attention that has caused it to believe that
as of its Effective Date, the Registration Statement or any further
amendment thereto made prior to the Time of Delivery, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus or any further amendment
or supplement thereto made prior to the Time of Delivery, as of its
date or as of such Time of Delivery, contained an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading (it being understood that
such counsel express no opinion with respect to the financial
statements and the notes thereto and the related financial schedules
included in the Registration Statement or the Prospectus).
Such opinion letter shall also state that the Registration
Statement and the Prospectus and any further amendments and supplements
thereto made by the Company prior to such Time of Delivery (other than
the financial statements and the notes thereto and related financial
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder, and that such counsel
does not know of any amendment to the Registration Statement required
to be filed or of any contracts or other documents required to be filed
as an exhibit to the Registration Statement or required to be described
in the Registration Statement or the Prospectus which are not filed or
described as required.
-12-
<PAGE>
(d) Janet Ambrosi Wertman, General Counsel for the Company, shall have
furnished to you her written opinion, dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction;
(ii) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not, to her knowledge,
conflict with or result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(iii) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound; and
(iv) The only jurisdictions in which the Company owns or
leases real property or maintains an office in the United States are
[COMPANY TO PROVIDE LIST OF JURISDICTIONS]
(e) Each of [INSERT COUNSEL NAME], counsel to [DIGITAL VISION,
TWINSPARK INTERACTIVE PEOPLE B.V., ONLINE MAGIC LIMITED AND SPIRAL MEDIA],
respectively, shall have furnished to you their written opinion, dated such Time
of Delivery, in form and substance satisfactory to you, with respect to the
matters set forth in clauses (iv) and (vi) of the foregoing paragraph (c);
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Arthur Andersen LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree,
-13-
<PAGE>
otherwise than as set forth or contemplated in the Prospectus, and (ii) since
the respective dates as of which information is given in the Prospectus there
shall not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in Clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) If any of the Company's securities are rated by any "nationally
recognized statistical rating organization," as such term is defined by the
Commission for purposes of Rule 436(g)(2) under the Act, on or after the date
hereof (i) no downgrading shall have occurred in the rating accorded any such
securities, and (ii) no such organization shall have publicly announced that it
has under surveillance or review, with possible negative implications, its
rating of any of such securities;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
Clause (iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(k) The Company has obtained and delivered to the Underwriters executed
copies of agreements from each director and officer of the Company and
beneficial owners of 95% of the shares of Common Stock (including each
beneficial owner of in excess of one percent of the shares of Common Stock)
(beneficial ownership being defined and determined according to Rule 13d-3
under the Exchange Act, except that a one hundred eighty day period shall be
used rather than the sixty day period set forth therein) on the date of this
Agreement, substantially to the effect set forth in Subsection 5(e) hereof in
form and substance satisfactory to you;
(l) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(m) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of
-14-
<PAGE>
Delivery, as to the performance by the Company of all of its obligations
hereunder to be performed at or prior to such Time of Delivery, as to the
matters set forth in subsections (a) and (f) of this Section and as to such
other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein in light of the circumstances in which they were made, or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) an untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein in light of the circumstances in which they were made, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in
-15-
<PAGE>
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not relieve
it from any liability which it may have to any indemnified party otherwise than
under such subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party under such subsection for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro
-16-
<PAGE>
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter 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 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-
-17-
<PAGE>
eleventh of the aggregate number of all the Shares to be purchased at such Time
of Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Underwriters, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York
-18-
<PAGE>
10005, Attention: Registration Department; and if to the Company shall be
delivered or sent by mail to the address of the Company set forth in the
Registration Statement, Attention: Chief Financial Officer; provided, however,
that any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Underwriter
at its address set forth in its Underwriters' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
by you upon request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the term
"business day" shall mean any day when the Commission's office in Washington,
D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
-19-
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us eight counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement between each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
AGENCY.COM Ltd.
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Salomon Smith Barney
Hambrecht & Quist
By:
------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-20-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL SHARES
TOTAL NUMBER OF FIRM SHARES TO BE PURCHASED IF MAXIMUM
UNDERWRITER TO BE PURCHASED OPTION EXERCISED
- ------------------------------------------------------ --------------------------- --------------------------
<S> <C> <C>
Goldman, Sachs & Co...................................
Salomon Smith Barney..................................
Hambrecht & Quist.....................................
[NAMES OF OTHER UNDERWRITERS].........................
--------------- ---------------
Total...............................
=============== ===============
</TABLE>
<PAGE>
ANNEX I
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are attached
hereto;
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which are attached hereto and on the basis of
specified procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to believe
that this information does not conform in all material respects with the
disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of
Regulation S-K;
(v) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, a reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the Company and
its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial
-1-
<PAGE>
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them to
believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated financial
statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or stockholders' equity or
other items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to
in Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of
-2-
<PAGE>
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period of
the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vi) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (v)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
-3-
<PAGE>
Exhibit 3.1
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., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is AGENCY.COM Ltd. The original
Certificate of Incorporation of the corporation was filed with the Delaware
Secretary of the State on June 1, 1998.
B. This Amended and Restated Certificate of Incorporation restates,
integrates and amends the provisions of the Certificate of Incorporation of this
corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
NAME
The name of this 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 Service Company, 1013 Centre Road, in the City of
Wilmington, State of Delaware 19805, County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law. The Corporation is to have a perpetual existence.
<PAGE>
ARTICLE IV
CAPITAL STOCK
CLASS OF STOCK. The total number of shares of capital stock
which the corporation is authorized to issue is 210,000,000 shares, consisting
of (i) 200,000,000 shares of Common Stock, par value of $.001 per share (the
"Common Stock"), and (ii) 10,000,000 shares of Preferred Stock, par value of
$.001 per share (the "Preferred Stock").
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights
of the holders of any then outstanding Preferred Stock.
2. VOTING RIGHTS. Each holder of record of Common Stock shall
be entitled to one vote for each share of Common Stock standing in such
holder's name on the books of the Corporation.
3. DIVIDENDS. Subject to provisions of law and this Article
IV, the holders of Common Stock shall be entitled to receive dividends
out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in its sole discretion
and subject to any preferential dividend rights of any then outstanding
Preferred Stock.
4. LIQUIDATION. Subject to provisions of law and this Article
IV, upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after the payment or provisions for
payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of any then outstanding
Preferred Stock are entitled with respect to the distribution of assets
in liquidation, the holders of Common Stock shall be entitled to share
ratably in the remaining assets of the Corporation available for
distribution.
5. REDEMPTION. The Common Stock is not redeemable.
B. PREFERRED STOCK
Subject to the limitations set forth herein, the Board of
Directors is expressly authorized at any time, and from time to time, to provide
for the issuance of shares of Preferred Stock of one or more series, with such
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for the issue
thereof adopted by the Board of Directors, and as are now stated and expressed
in this Amended and Restated Certificate of Incorporation, or any amendment
thereto, including (but without limiting the generality of the foregoing) the
following:
2
<PAGE>
(i) the number of shares constituting such series and
the distinctive designation of such series;
(ii) the dividend rate of such series, the conditions
and dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any other class or
classes or of any other series of capital stock, and whether such dividends
shall be cumulative or noncumulative;
(iii) whether the shares of such series shall be
subject to redemption by the corporation, and, if made subject to such
redemption, the times, prices and other terms and conditions of such redemption;
(iv) the terms and amount of any sinking fund
provided for the purchase or redemption of the shares of such series;
(v) whether the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes of
capital stock of the corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustments, and other terms and conditions
of such conversion or exchange;
(vi) whether such series shall have voting rights, in
addition to the voting rights provided by law, and if so, the terms of such
voting rights;
(vii) the restrictions, if any, on the issue or
reissue of any additional Preferred Stock; and
(viii) the rights of the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares
of such series.
C. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the capital stock of the Corporation (the "Purchased Shares"). For
purposes of this Article IV, the term "transfer" shall include any sale,
assignment, pledge, encumbrance or other disposition of the Purchased Shares
intended to be made by Owner, but shall not include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares desires to accept a bona fide third-party offer for the
transfer of any or all of such shares (the Purchased Shares subject to such
offer to be hereinafter referred to as the "Target Shares"), Owner shall
promptly (i) deliver to the Corporation written notice (the "Disposition
Notice") of the terms of the offer, including the purchase price and the
identity of the third-party offeror, and (ii) provide satisfactory proof that
the disposition of the Target Shares to such third-party offeror would not be in
contravention of the Securities Act of 1933.
3
<PAGE>
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation shall,
for a period of twenty-five (25) days following receipt of the Disposition
Notice, have the right to repurchase any or all of the Target Shares subject to
the Disposition Notice upon the same terms as those specified therein or upon
such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
Should the purchase price specified in the Disposition Notice
be payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the LATER of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; PROVIDED, however, that any such sale or
disposition must not be effected in contravention of the provisions of the
Securities Act of 1933. The third-party offeror shall acquire the Target Shares
free and clear of the First Refusal Right, but the acquired shares shall remain
subject to the provisions of Securities Act of 1933. In the event Owner does not
effect such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event
the Corporation makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within five (5) business days after Owner's receipt of the
Exercise Notice, to effect the sale of the Target Shares pursuant to either of
the following alternatives:
(a) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Article IV, Paragraph C.4, as if
the Corporation did not exercise the First Refusal Right; or
4
<PAGE>
(b) sale to the Corporation of the portion of the Target
Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Article IV,
Paragraph D.3. The First Refusal Right shall continue to be applicable
to any subsequent disposition of the remaining Target Shares until such
right lapses.
Owner's failure to deliver timely notification to the Corporation shall
be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. RECAPITALIZATION/REORGANIZATION.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with
respect to the Purchased Shares shall be immediately subject to the
First Refusal Right, but only to the extent the Purchased Shares are at
the time covered by such right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new
capital stock or other property received in exchange for the Purchased
Shares in consummation of the Reorganization, but only to the extent
the Purchased Shares are at the time covered by such right.
(c) Recapitalization shall mean any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares
or other change affecting the Corporation's outstanding Common Stock as
a class without the Corporation's receipt of consideration.
(d) Reorganization shall mean any of the following
transactions:
(i) a merger or consolidation in which the
Corporation is not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is
the surviving entity but in which the Corporation's
outstanding voting securities are transferred in whole or in
part to a person or persons different from the persons holding
those securities immediately prior to the merger, or any
transaction effected primarily to change the state in which
the Corporation is incorporated or to create a holding company
structure.
7. LAPSE. The First Refusal Right shall lapse upon the EARLIEST to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an
5
<PAGE>
effective registration statement under the 1933 Act, covering the offer and sale
of the Common Stock in the aggregate amount of at least ten million dollars
($10,000,000).
ARTICLE V
NO WRITTEN BALLOTS; LOCATION OF BOOKS AND RECORDS
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware:
A. Elections of directors need not be written by ballot unless
the by-laws of the Corporation shall so provide.
B. The books of the Corporation may be kept at such place within
or without the State of Delaware as the by-laws of the
Corporation may provide or as may be designated from time to
time by the Board of Directors of the Corporation.
ARTICLE VI
LIMITATION OF DIRECTORS' LIABILITY
Except to the extent that the General Corporation Law prohibits the
elimination or limitation of liability of directors for breaches of fiduciary
duty, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, notwithstanding any provision of law imposing such
liability. If the General Corporation Law is amended after approval by the
stockholders of this Article VI to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law, as so amended. No amendment to
or repeal of this provision shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment.
ARTICLE VII
AMENDMENT
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 all
rights conferred on a stockholder herein are granted subject to this
reservation.
ARTICLE VIII
SECTION 203 NOT APPLICABLE
The Corporation hereby elects not to be governed by Section 203 of the
General Corporation Law of Delaware.
6
<PAGE>
ARTICLE IX
STOCKHOLDER MEETINGS
Meetings of stockholders may be held within or without the State of
Delaware, as the By-laws may provide.
ARTICLE X
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE XI
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law, as amended from time to time, indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the Corporation, or is or
was serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the Indemnitee to repay
such payment if it is ultimately determined that
7
<PAGE>
such person is not entitled to indemnification under this Article XI, which
undertaking may be accepted without reference to the financial ability of such
person to make such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article XI (i) shall not be
deemed exclusive of any other rights to which Indemnitees may be entitled under
any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article XI.
8
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Chairman, Chief Executive Officer and
President and the Secretary of the Corporation this day of August, 1999.
/s/ Chan Suh
-------------------------------------
Chan Suh, Chairman, Chief Executive
Officer and President
/s/ Janet Ambrosi Wertman
-------------------------------------
Janet Ambrosi Wertman, Secretary
9
<PAGE>
BY-LAWS
OF
AGENCY.COM LTD.
<PAGE>
BY-LAWS OF AGENCY.COM LTD.
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Stockholders ................................................. 1
1.1 Place of Meetings ........................................... 1
1.2 Annual Meeting .............................................. 1
1.3 Special Meetings ............................................ 1
1.4 Notice of Meetings .......................................... 1
1.5 Voting List ................................................. 1
1.6 Quorum ...................................................... 2
1.7 Adjournments ................................................ 2
1.8 Voting and Proxies .......................................... 2
1.9 Action at Meeting ........................................... 2
1.10 Action without Meeting ...................................... 3
ARTICLE 2 - Directors .................................................... 3
2.1 General Powers .............................................. 3
2.2 Number; Election and Qualification .......................... 3
2.3 Enlargement of the Board .................................... 3
2.4 Tenure ...................................................... 3
2.5 Vacancies ................................................... 3
2.6 Resignation ................................................. 4
2.7 Regular Meetings ............................................ 4
2.8 Special Meetings ............................................ 4
2.9 Notice of Special Meetings .................................. 4
2.10 Meetings by Telephone Conference Calls ...................... 4
2.11 Quorom ...................................................... 4
2.12 Action at Meeting ........................................... 5
2.13 Action by Consent ........................................... 5
2.14 Removal ..................................................... 5
2.15 Committees .................................................. 5
2.16 Compensation of Directors ................................... 5
ARTICLE 3 - Officers ..................................................... 6
3.1 Enumeration ................................................. 6
3.2 Election .................................................... 6
3.3 Qualification ............................................... 6
i
<PAGE>
3.4 Tenure ...................................................... 6
3.5 Resignation and Removal ..................................... 6
3.6 Vacancies ................................................... 6
3.7 Chairman of the Board and Vice-Chairman of the Board ........ 7
3.8 President ................................................... 7
3.9 Vice Presidents ............................................. 7
3.10 Secretary and Assistant Secretaries ......................... 7
3.11 Treasurer and Assistant Treasurers .......................... 8
3.12 Salaries .................................................... 8
ARTICLE 4 - Capital Stock ................................................ 8
4.1 Issuance of Stock ........................................... 8
4.2 Certificates of Stock ....................................... 8
4.3 Transfers ................................................... 9
4.4 Lost, Sto1en or Destroyed Certificates ...................... 9
4.5 Record Date ................................................. 9
ARTICLE 5 - Indemnification .............................................. 10
ARTICLE 6 - General Provisions ........................................... 11
6.1 Fiscal Year ................................................. 11
6.2 Corporate Seal .............................................. 11
6.3 Waiver of Notice ............................................ 11
6.4 Voting of Securities ........................................ 11
6.5 Evidence of Authority ....................................... 12
6.6 Certificate of Incorporation ................................ 12
6.7 Transactions with Interested Parties ........................ 12
6.8 Severability ................................................ 12
6.9 Pronouns .................................................... 13
ARTICLE 7 - Amendments
7.1 By the Board of Directors ................................... 13
7.2 By the Stockholders ......................................... 13
ii
<PAGE>
BY-LAWS
OF
AGENCY.COM LTD. (the "Company")
Article I - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 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
<PAGE>
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 10 days prior to the meeting, at a place within the city
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 of the meeting, and may be
inspected by any stockholder who is present.
1.6 Quorom. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be taken
at any annual or special meeting of stockholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so
2
<PAGE>
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote on such action were present
and voted. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased at
any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual meeting
and until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall
3
<PAGE>
be effective upon receipt unless it is specified to be effective 31 some other
time or upon the happening of some other event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours in
advance of the meeting, (ii) by sending a telegram or telex, or delivering
written notice by hand, to his last known business or home address at least 4
hours in advance of the meeting, or (iii) by mailing written notice to his last
known business or home address at least 72 hours in advance of the meeting. A
notice or waiver of notice of a meeting of the Board of Directors need not
specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such 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 participation by such means shall constitute
presence in person at such meeting.
2.11 Quorom. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorom. In the absence of a quorom at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorom shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any
4
<PAGE>
action, unless a different vote is specified by law, the Certificate of
Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation Law
of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. 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 or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they 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 and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the power 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. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment
shall preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
5
<PAGE>
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the
6
<PAGE>
Board, he shall perform such duties and possess such powers as are assigned to
him by the Board of Directors. If the Board of Directors appoints a
Vice-Chairman of the Board, he shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
7
<PAGE>
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Teasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the name
of the corporation by, the Chairman or Vice Chairman, if any, 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. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of shareholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
8
<PAGE>
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authority of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
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.
9
<PAGE>
ARTICLE 5 - Indemnification
The corporation may, to the fullest extent authorized under the laws of
the State of Delaware, as those laws may be amended and supplemented from time
to time, indemnify any director, officer, employee and/or agent made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being a director, officer
and/or employee of the corporation or a predecessor corporation or, at the
corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification provided for in
this Article 5 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, officer,
employee and/or agent, as the case may be, and (iii) inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Article 5 shall be offset to
the extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the corporation or any other
person.
Expenses incurred by a director of the corporation in defending a civil or
criminal action, suit or proceedings by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary at contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Article 5 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
10
<PAGE>
The Board of Directors in its discretion shall have power on behalf of the
corporation to indemnify any person, other than a director, made a party to any
action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors, officers
and employees who are determined by the corporation or otherwise to be or to
have been "fiduciaries" of any employee benefit plan of the corporation which
way exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Article 5, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall end on the last day
of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatever is required to be given
by law, by the Certificate of Incorporation or by these By-Laws, a waiver of
such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at, any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a
11
<PAGE>
committee or any officer or representative of the corporation shall as to all
persons who rely on the certificate in good faith be conclusive evidence of such
action.
6.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
6.7 Transactions with Interested Parties. 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 the 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 or their votes are counted for such purpose, if;
(1) The material facts as to his 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 votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his 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.
6.8 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 7 - Amendments
12
<PAGE>
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or repealed
or new by-laws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
(The remainder of this page is intentionally left blank.)
13
<PAGE>
Exhibit 4.3
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 2,164,376 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 April
28, 1999, and ending at 5:00 P.M., New York local time, on March 31, 2019, Two
Million One Hundred Sixty Four Thousand Three Hundred Seventy Six (2,164,376)
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 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 number of shares of Common Stock beneficially owned
in the aggregate by the Holder and Communicade Inc. after such exercise does not
exceed 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
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
Omnicom Group 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 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 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."
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:
OMNICOM GROUP INC.
By: /s/ Barry J. Wagner
--------------------------------
<PAGE>
Exhibit 4.4
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 10.1
AGENCY.COM, LTD.
1999 STOCK OPTION/STOCK ISSUANCE PLAN
(AS AMENDED AND RESTATED ON JUNE 17, 1999)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Option Plan is intended to promote the interests of
Agency.Com Ltd., a New York corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the 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,
(ii) the 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 the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive
options at periodic intervals to purchase shares of
Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and
<PAGE>
Stock Issuance Programs shall be administered by the Board unless otherwise
determined by the Board. Beginning with the Section 12 Registration Date, the
following provisions shall govern the administration of the Plan:
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs
with respect to Section 16 Insiders but may delegate
such authority in whole or in part to the Primary
Committee.
(ii) Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may,
at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may
retain the power to administer those programs with
respect to all such persons.
(iii) Administration of the Automatic Option Grant Program
shall be self-executing in accordance with the terms of
that program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate for
proper administration of the Plan, to make all factual
determinations, to construe and interpret the provisions
of the Plan and the awards thereunder and to resolve any
and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs,
which eligible persons are to receive such awards, the
time or times when such awards are to be made, the
number of shares to be covered by each such award, the
vesting schedule (if any) applicable to the award, the
status of a granted option as either an Incentive Option
or a Non-Statutory Option and the maximum term for which
the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with
the consent of the holder or accelerate the vesting of
such award; and
2
<PAGE>
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or
Subsidiary).
B. Only non-employee Board members shall be eligible to participate
in the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
9,601,178(1) shares. Such authorized share reserve consists of (i) the number of
shares which remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an increase of 8,478,266 shares authorized by the
- ----------
(1) Pursuant to the two-for-one stock split effected June 28, 1999
3
<PAGE>
Board subject to stockholder approval prior to the Section 12 Registration Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year during the term of the Plan, beginning with the 2000 calendar year, by an
amount equal to three percent (3%) of the shares of Common Stock outstanding on
the last trading day of the immediately preceding calendar year, but in no event
shall any such annual increase exceed 1,500,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,100,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1999 calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the Plan shall
NOT be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities by which the share reserve is
to increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year, (iv) the
number and/or class of securities for which grants are subsequently to be made
under the Automatic Option Grant Program to new and continuing non-employee
Board members, (iv) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan and (v) the
number and/or class of securities and price per share in effect under each
outstanding option incorporated into this Plan from the Predecessor Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
4
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section II of
Article Five and the documents evidencing the option, be payable in cash or
check made payable to the Corporation. Should the Common Stock be registered
under Section 12 of the 1934 Act at the time the option is exercised, then the
exercise price may also be paid as follows:
(i) shares of Common Stock held for the requisite
period necessary to avoid a charge to the
Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions to
(a) a Corporation-approved brokerage firm to
effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale
proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all
applicable Federal, state and local income and
employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
5
<PAGE>
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6
<PAGE>
C. CESSATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options outstanding at the time of the Optionee's cessation of
Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall
be determined by the Plan Administrator and set forth in
the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently
exercised by his or her Beneficiary.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more
than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of
Service. Upon the expiration of the applicable exercise
period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be
outstanding for any vested shares for which the option
has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for
vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct
while his or her options are outstanding, then all such
options shall terminate immediately and cease to be
outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any
time while the option remains outstanding:
(i) to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of
Service to such period of time as the Plan Administrator
shall deem appropriate, but in no
7
<PAGE>
event beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more
additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for Optionee and/or one
or more such family members. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any
8
<PAGE>
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one calendar year shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the same calendar
year, the foregoing limitation on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which such
options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but
not otherwise fully-vested shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in Control,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control had the
option been exercised immediately prior to such Change in Control. Appropriate
adjustments to reflect such Change in Control shall also be made to (i) the
exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same, (ii)
the maximum number and/or class of
9
<PAGE>
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances under the Plan per calendar year.
E. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in Control and shall terminate upon
the consummation of such Change in Control.
F. The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully-vested shares until the EARLIER of (i) the expiration of
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
G. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of such Hostile Take-Over. Each option so accelerated shall remain
exercisable for fully-vested shares until the expiration or sooner termination
of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant
10
<PAGE>
to selected Optionees stock appreciation rights which will allow the holders of
those rights to elect between the exercise of the underlying option for shares
of Common Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Option
Surrender Value of the number of shares for which the option is surrendered over
(b) the aggregate exercise price payable for such shares. The distribution may
be made in shares of Common Stock valued at Fair Market Value on the option
surrender date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
11
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening options.
Shares of Common Stock may also be issued under the Stock Issuance Program
pursuant to share right awards which entitle the recipients to receive those
shares upon the attainment of designated performance goals or Service
requirements. Each such award shall be evidenced by one or more documents which
comply with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject to
direct issuance shall be fixed by the Plan
Administrator.
2. Subject to the provisions of Section II of Article Five,
shares of Common Stock may be issued under the Stock
Issuance Program for any of the following items of
consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Plan Administrator may issue shares of Common Stock
which are fully and immediately vested upon issuance or
which are to vest in one or more installments over the
Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the
Plan Administrator may issue share right awards which
shall entitle the recipient to receive a specified
number of vested shares of Common Stock upon the
attainment of one or more performance goals or Service
requirements established by the Plan Administrator.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular
cash dividend) which the Participant may have the right
to receive with respect to his or her unvested shares of
Common Stock by reason of any stock dividend, stock
split, recapitalization, combination of shares,
12
<PAGE>
exchange of shares or other change affecting the
outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued
subject to (i) the same vesting requirements applicable
to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to the issued shares of Common Stock, whether or
not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the
right to vote such shares and to receive any regular
cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or
should the performance objectives not be attained with
respect to one or more such unvested shares of Common
Stock, then those shares shall be immediately
surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights
with respect to those shares. To the extent the
surrendered shares were previously issued to the
Participant for consideration paid in cash or cash
equivalent (including the Participant's purchase-money
indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal
balance of any outstanding purchase-money note of the
Participant attributable to the surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would
otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance
objectives applicable to those shares. Such waiver shall
result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the
waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the
applicable performance objectives.
6. Outstanding share right awards shall automatically
terminate, and no shares of Common Stock shall actually
be issued in satisfaction of those awards, if the
performance goals or Service requirements established
for such awards are not attained. The Plan
Administrator, however, shall have the authority to
issue shares of Common Stock in satisfaction of one or
more outstanding share right awards as to which the
designated performance goals or
13
<PAGE>
Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
14
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified below:
1. Each individual serving as a non-employee Board member
on the Underwriting Date shall automatically be granted
at that time a Non-Statutory Option to purchase Fifty
Thousand (50,000) shares of Common Stock, provided that
individual has not previously been in the employ of the
Corporation or any Parent or Subsidiary and provided
further that such individual has neither received
options to purchase, in the aggregate, more than Forty
Thousand (40,000) shares of Common Stock in the twelve
(12)-month period preceding the Underwriting Date nor is
a 30% Percent Stockholder.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the
Underwriting Date shall automatically be granted, on the
date of such initial election or appointment, a
Non-Statutory Option to Fifty Thousand (50,000) shares
of Common Stock, provided that individual has not
previously been in the employ of the Corporation or any
Parent or Subsidiary, and provided that such individual
has neither received options to purchase, in the
aggregate, more than Forty Thousand (40,000) shares of
Common Stock in the twelve (12)-month period preceding
the Underwriting Date nor is a 30% Percent Stockholder.
3. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to
continue to serve as a non-employee Board member,
whether or not that individual is standing for
re-election to the Board, shall automatically be granted
a Non-Statutory Option to purchase Fifteen Thousand
(15,000) shares of Common Stock, provided such
individual has served as a non-employee Board member for
at least six (6) months and provided such individual is
not a 30% Percent Stockholder or affiliate.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per
share of Common Stock on the option grant date.
15
<PAGE>
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary
Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares
must be made on the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial Fifty Thousand (50,000) share
option shall vest, and the Corporation's repurchase right shall lapse, in a
series of four (4) successive equal annual installments upon the Optionee's
completion of each year of Board service over the four (4)-year period measured
from the grant date. Each annual Fifteen Thousand (15,000) share option shall
vest, and the Corporation's repurchase right shall lapse, upon the Optionee's
completion of one (1) year of Board service measured from the grant date.
E. CESSATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options outstanding at the time of the Optionee's cessation
of Board service:
(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain
exercisable for a twelve (12)-month period following the
date of such cessation of Board service, but in no event
shall such option be exercisable after the expiration of
the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently
exercised by his or her Beneficiary.
(iii) Following the Optionee's cessation of Board service, the
option may not be exercised in the aggregate for more
than the number of shares in which the Optionee was
vested on the date of such cessation of Board service.
Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for
any vested shares for which the option has not been
exercised. However, the option shall, immediately upon
the Optionee's cessation of Board service, terminate and
cease to be outstanding for any and all shares in which
the Optionee is not
16
<PAGE>
otherwise at that time vested.
(iv) However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then
all shares at the time subject to the option shall
immediately vest so that such option may, during the
twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any
portion of those shares as fully-vested shares of Common
Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control the Hostile
Take-Over, be exercised for all or any portion of those shares as fully-vested
shares of Common Stock. Each such option accelerated in connection with a Change
in Control shall terminate upon the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control. Each
such option accelerated in connection with a Hostile Take-Over shall remain
exercisable until the expiration or sooner termination of the option term.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control or Hostile
Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding options. The Optionee shall in return be entitled to a
cash distribution from the Corporation in an amount equal to the excess of (i)
the Option Surrender Value of the shares of Common Stock at the time subject to
each surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in
Control shall be appropriately adjusted to apply to the number and class of
securities which would have been issuable to the Optionee in consummation of
such Change in Control had the option been exercised immediately prior to such
Change in Control. Appropriate adjustments shall also be made to the exercise
price payable per share under each outstanding option, PROVIDED the aggregate
exercise price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
17
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
II. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share
18
<PAGE>
vesting triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective immediately upon the Plan Effective
Date and was approved by the stockholders on February 22, 1999. On June 17,
the Corporation amended and restated the plan to limit the availability of
option grants under the Automatic Option Grant Program to those individuals
who are not a 30% stockholder.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further options or direct stock issuances shall be made under the
Predecessor Plan after the Section 12 Registration Date. All options outstanding
under the Predecessor Plan on the Section 12 Registration Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Changes in Control, may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan which do not
otherwise contain such provisions.
D. The Plan shall terminate upon the EARLIEST of (i) January 31,
2009, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available
19
<PAGE>
for issuance under the Plan, provided any excess shares actually issued under
those programs shall be held in escrow until there is obtained stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock available for issuance under the Plan. If such stockholder approval is not
obtained within twelve (12) months after the date the first such excess
issuances are made, then (i) any unexercised options granted on the basis of
such excess shares shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the Participants the
exercise or purchase price paid for any excess shares issued under the Plan and
held in escrow, together with interest (at the applicable Short Term Federal
Rate) for the period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
20
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic
option grant program in effect under the Plan.
B. BENEFICIARY shall mean, in the event the Plan
Administrator implements a beneficiary designation
procedure, the person designated by an Optionee or
Participant, pursuant to such procedure, to succeed to
such person's rights under any outstanding awards held
by him or her at the time of death. In the absence of
such designation or procedure, the Beneficiary shall be
the personal representative of the estate of the
Optionee or Participant or the person or persons to whom
the award is transferred by will or the laws of descent
and distribution.
C. BOARD shall mean the Corporation's Board of Directors.
D. CHANGE IN CONTROL shall mean a change in ownership or
control of the Corporation effected through any of the
following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, UNLESS securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Corporation's outstanding voting securities immediately
prior to such transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board recommends such stockholders accept.
E. CODE shall mean the Internal Revenue Code of 1986, as
21
<PAGE>
amended.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean Agency.com, Ltd., a Delaware
corporation, and its successors.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the
Plan.
I. EMPLOYEE shall mean an individual who is in the employ
of the Corporation (or any Parent or Subsidiary),
subject to the control and direction of the employer
entity as to both the work to be performed and the
manner and method of performance.
J. EXERCISE DATE shall mean the date on which the
Corporation shall have received written notice of the
option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per share
of Common Stock on the date in question, as such price is reported on the Nasdaq
National Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of any options made on the Underwriting Date, the
Fair Market Value shall be deemed to be equal to the price per share at which
the Common Stock is to be sold in the initial public offering pursuant to the
Underwriting Agreement.
(iv) For purposes of any options made prior to the Underwriting
Date, the Fair
22
<PAGE>
Market Value shall be determined by the Plan Administrator, after taking into
account such factors as it deems appropriate.
L. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities pursuant to a
tender or exchange offer made directly to the Corporation's stockholders which
the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the Board
members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.
M. INCENTIVE OPTION shall mean an option which satisfies
the requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of
the Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation or Parent or Subsidiary employing
the individual which materially reduces his or her duties and responsibilities
or the level of management to which he or she reports, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and target
bonus under any performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the individual's
consent.
O. MISCONDUCT shall mean the commission of any act of
fraud, embezzlement or dishonesty by the Optionee or
Participant, any unauthorized use or disclosure by such
person of confidential information or trade secrets of
the Corporation (or any Parent or
23
<PAGE>
Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which
adversely affects the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the
dismissal or discharge of any person in the Service of
the Corporation (or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934,
as amended.
Q. NON-STATUTORY OPTION shall mean an option not intended
to satisfy the requirements of Code Section 422.
R. OPTION SURRENDER VALUE shall mean the Fair Market Value
per share of Common Stock on the date the option is
surrendered to the Corporation or, in the event of a
Hostile Take-Over, effected through a tender offer, the
highest reported price per share of Common Stock paid by
the tender offeror in effecting such Hostile Take-Over,
if greater. However, if the surrendered option is an
Incentive Option, the Option Surrender Value shall not
exceed the Fair Market Value per share.
S. OPTIONEE shall mean any person to whom an option is
granted under the Discretionary Option Grant, Salary
Investment Option Grant or Automatic Option Grant
Program.
T. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending
with the Corporation, provided each corporation in the
unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares
of Common Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean
the inability of the Optionee or the Participant
24
<PAGE>
to engage in any substantial gainful activity by reason
of any medically determinable physical or mental
impairment expected to result in death or to be of
continuous duration of twelve (12) months or more.
However, solely for purposes of the Automatic Option
Grant Program, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee
Board member to perform his or her usual duties as a
Board member by reason of any medically determinable
physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12)
months or more.
W. PLAN shall mean the Corporation's 1999 Stock
Option/Stock Issuance Plan, as set forth in this
document.
X. PLAN ADMINISTRATOR shall mean the particular entity,
whether the Primary Committee, the Board or the
Secondary Committee, which is authorized to administer
the Discretionary Option Grant and Stock Issuance
Programs with respect to one or more classes of eligible
persons, to the extent such entity is carrying out its
administrative functions under those programs with
respect to the persons under its jurisdiction. However,
the Primary Committee shall have the plenary authority
to make all factual determinations and to construe and
interpret any and all ambiguities under the Plan to the
extent such authority is not otherwise expressly
delegated to any other Plan Administrator.
Y. PLAN EFFECTIVE DATE shall mean February 19, 1999, the
date on which the Plan was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's
pre-existing 1996 Stock Option Plan in effect
immediately prior to the Plan Effective Date hereunder.
A@. PRIMARY COMMITTEE shall mean the committee of two (2) or
more non-employee Board members appointed by the Board
to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders.
AB. SECONDARY COMMITTEE shall mean a committee of one
(1) or more Board members appointed by the Board
to administer the Discretionary Option Grant
25
<PAGE>
and Stock Issuance Programs with respect to
eligible persons other than Section 16 Insiders.
AC. SECTION 12 REGISTRATION DATE shall mean the date
on which the Common Stock is first registered
under Section 12(g) of the 1934 Act.
AD. SECTION 16 INSIDER shall mean an officer or
director of the Corporation subject to the
short-swing profit liabilities of Section 16 of
the 1934 Act.
AE. SERVICE shall mean the performance of services for
the Corporation (or any Parent or Subsidiary) by a
person in the capacity of an Employee, a
non-employee member of the board of directors or a
consultant or independent advisor, except to the
extent otherwise specifically provided in the
documents evidencing the option grant or stock
issuance.
AF. STOCK EXCHANGE shall mean either the American
Stock Exchange or the New York Stock Exchange.
AG. STOCK ISSUANCE PROGRAM shall mean the stock
issuance program in effect under the Plan.
AH. SUBSIDIARY shall mean any corporation (other than
the Corporation) in an unbroken chain of
corporations beginning with the Corporation,
provided each corporation (other than the last
corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting
26
<PAGE>
power of all classes of stock in one of the other
corporations in such chain.
AI. TAXES shall mean the Federal, state and local
income and employment tax liabilities incurred by
the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the
exercise of those options or the vesting of those
shares.
AJ. 10% STOCKHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing
more than ten percent (10%) of the total combined
voting power of all classes of stock of the
Corporation (or any Parent or Subsidiary).
AK. 30% STOCKHOLDER shall mean a non-employee Board
member who, directly or indirectly, owns stock (as
determined under Code Section 424(d)) possessing
at least thirty percent (30%) of the total
combined voting power of the outstanding
securities of the Corporation (or any Parent or
Subsidiary) or is affiliated with or is a
representative of such a thirty percent (30%) or
greater stockholder.
AL. UNDERWRITING AGREEMENT shall mean the agreement
between the Corporation and the underwriter or
underwriters managing the initial public offering
of the Common Stock.
AM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in
connection with an initial public offering of the
Common Stock.
27
<PAGE>
Exhibit 10.2
================================================================================
INTERACTIVE SOLUTIONS INCORPORATED
1996 STOCK OPTION PLAN
================================================================================
<PAGE>
INTERACTIVE SOLUTIONS INCORPORATED
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
1. PURPOSE...................................................................1
2. ADMINISTRATION OF THE PLAN................................................1
3. OPTION SHARES.............................................................1
4. AUTHORITY TO GRANT OPTIONS................................................2
5. WRITTEN AGREEMENT.........................................................2
6. ELIGIBILITY...............................................................2
7. OPTION PRICE..............................................................3
8. DURATION OF OPTIONS.......................................................3
9. RESTRICTION ON EXERCISE OF OPTIONS........................................4
10. EXERCISE OF OPTIONS.......................................................4
11. NONTRANSFERABILITY OF OPTiONS.............................................4
12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH THE COMPANY.....4
13. REQUIREMENTS OF LAW.......................................................5
14. NO RIGHTS AS STOCKHOLDER..................................................6
15. EMPLOYMENT OBLIGATION.....................................................6
16. FOREITURE AS A RESULT OF TERMINATION FOR CAUSE............................6
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE................................7
18. AMENDMENT OR TERMINATION OF PLAN..........................................8
19. EFFECTIVE DATE AND DURATION OF THE PLAN...................................9
[FORM FOR EXERCISE OF INCENTIVE STOCK OPTION].................................16
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
INTERACTIVE SOLUTIONS INCORPORATED
1996 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1996 Stock Option Plan (the "PLAN") is to encourage
directors, consultants and key employees of Interactive Solutions Incorporated
(the "COMPANY") and its Subsidiaries (as hereinafter defined) to continue their
association with the Company, by providing favorable opportunities for such
persons to participate in the ownership of the Company and in is future growth
through the granting of stock options (the "OPTIONS") which may either be
options designed to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE") (an
"ISO") or options not intended to qualify for any special tax treatment under
the Code (a "NQO"). The term "SUBSIDIARY" as used in the Plan means a
corporation of which the Company owns, directly or indirectly through an
unbroken chain of ownership, fifty percent (50%) or more of the total combined
voting power of all classes of stock. A person to whom an Option has been
granted pursuant to the Plan is hereinafter referred to as an "OPTIONEE".
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or by a committee appointed by the Board of Directors
(the "Committee"), which shall have the authority to adopt, amend and rescind
such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan. Unless the Board of Directors otherwise provides for
the method by which the appointed committee shall operate, the Committee shall
select one of its members as Chairman and shall hold meetings at such times and
places as it may determine. A majority of the Committee shall constitute a
quorum and acts of the Committee at which a quorum is present, or acts reduced
to or approved in writing by all the members of the Committee, shall be the
valid acts of the Committee. Hereinafter, all references in this Plan to the
"Committee" shall mean the Board of Directors if no Committee has been
appointed. All questions of interpretation and application of such rules and
regulations, of the Plan or of Options granted thereunder shall be subject to
the determination, which shall be final and binding, of a majority of the
Committee. The Plan shall be administered in such a manner as to permit those
Options granted hereunder and specially designated under Section 4 hereof to
qualify as "incentive stock options" as described in Section 422A of the Code.
3. OPTION SHARES
The stock subject to Options under the Plan shall be shares of the
Company's Common Stock, par value $0.01 per share (the "STOCK"). At no time
shall the number of shares of Stock with respect to which outstanding Options
have been granted plus the number of shares of Stock issued as a result of the
exercise of options under the Plan and which are still outstanding exceed in the
aggregate 20,000 shares (the "OPTION POOL"); provided that such aggregate number
of shares shall be subject to adjustment in accordance with the provisions of
Section 17. In the event that any outstanding Option shall expire for any reason
or shall terminate by reason of the death or severance of employment of the
Optionee, the surrender of any such Option, or any
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
other cause, the shares of Stock allocable to the unexercised portion of such
Option may again be subject to an option under the Plan. Should the Company
repurchase any shares of Stock which were acquired pursuant to the exercise of
options granted under the Plan, such shares may be returned to the Option Pool
pursuant to a vote of the Committee, subject, however, to the Option Pool size
limitation set forth above.
4. AUTHORITY TO GRANT OPTIONS
The Committee may grant from time to time, to such eligible individuals
as it shall from time to time determine, an Option or Options to buy a stated
number of shares of Stock under the terms and conditions of the Plan, each of
which Option or Options shall be designated at the time of grant as either an
ISO or a NQO. Subject only to any applicable limitations set forth elsewhere in
the Plan, the number of shares of Stock to be covered by any Option shall be as
determined by the Committee. The Committee shall have the right, with the
consent of the Optionee, to convert an ISO granted under the Plan into an NQO
and to impose such conditions on the exercise of the resulting NQO as the
Committee may in its discretion determine, provided that such conditions shall
not be inconsistent with the Plan.
5. WRITTEN AGREEMENT
Options granted hereunder shall be embodied in written option
agreements (which need not be identical) in such forms as the Committee may from
time to time approve (each an "OPTION AGREEMENT"). Option Agreements shall be
subject to the terms and conditions prescribed herein and shall be signed by the
Optionee and by the President or any Vice President of the Company for and in
the name and on behalf of the Company. An Option Agreement shall indicate
whether the subject Option has been designated an ISO or a NQO. The written
Option Agreement for any Option may contain such provisions not inconsistent
with this Plan as the Committee in its discretion may deem advisable.
6. ELIGIBILITY
The individuals who shall be eligible for grant of Options under the
Plan shall be key employees (including officers who may be members of the Board
of Directors), directors who are not employees and other individuals who render
services of special importance to the management, operation, or development of
the Company or a Subsidiary, and who have contributed or may be expected to
contribute materially to the success of the Company or a Subsidiary. No Option
designated as an ISO shall be granted to any individual who is not an employee
of the Company or a Subsidiary.
If required to insure compliance with Section 16 of the Securities
Exchange Act of 1934 (the "EXCHANGE ACT"), the selection of a director as a
participant and the number of shares for which an Option may be granted to such
director shall be determined either (i) by the Board of Directors, of which a
majority, as well as a majority of the directors acting in the matter, shall be
"disinterested persons" (as hereinafter defined) or (ii) by, or only in
accordance with, the recommendations of a committee of three or more persons
having full authority to act in the matter, of which all members shall be
"disinterested persons". For purposes of the Plan, a
2
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
director or member of such committee shall be deemed to be "disinterested" only
if such person qualifies as a "disinterested person" within the meaning of Rule
16b-3 under the Exchange Act, or any successor rule, as such term is interpreted
from time to time.
7. OPTION PRICE
The price at which shares may be purchased pursuant to an Option shall
be specified by the Committee at the time the Option is granted, but shall in no
event be less than the par value of such shares and, in the case of an incentive
stock option, except as set forth in the following sentence, shall not be less
than one hundred percent (100%) of the fair market value of the shares of Stock
on the date the ISO is granted. In the case of any employee who owns (or is
considered under Section 424(d) of the Code as owning) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Subsidiary, the price at which shares may be so
purchased pursuant to an incentive stock option shall be not less than one
hundred ten percent (110%) of the fair market value of the Stock on the date the
ISO is granted.
For purposes of the Plan, the "fair market value" of a share of Stock
on any date specified herein shall mean (a) the last reported sales price,
regular way, or, in the event that no sale takes place on such day, the average
of the reported lowest closing bid and asked prices, regular way, in either case
(i) as reported on the New York Stock Exchange Composite Tape, or (ii) if the
Stock is not listed or admitted to trading on the New York Stock Exchange, on
the principal national securities exchange on which such security is listed or
admitted to trading, or (iii) if not then listed or admitted to trading on any
national securities exchange, on the NASDAQ National Market System; or (b) if
the stock is not quoted on such National Market System, (i) the average of the
closing bid and asked prices on each such day in the over-the-counter market as
reported by NASDAQ, or (ii) it bid and asked prices for such security on each
such day shall not have been reported through NASDAQ, the average of the bid and
asked prices for such day as furnished by any New York Stock Exchange member
firm regularly making a market in such security selected for such purpose by the
Committee; or (c) if the Stock is not then listed or admitted to trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof determined in good faith by the Committee as of a date which is within
thirty (30) days of the date as of which the determination is to be made;
provided however that any method of determining fair market value employed by
the Committee with respect to an ISO shall be consistent with any applicable
laws or regulations pertaining to "incentive stock options".
8. DURATION OF OPTIONS
The duration of any Option shall be specified by the Committee in the
Option Agreement, but no ISO shall be exercisable after the expiration of ten
(10) years from the date such Option is granted. In the case of any employee who
owns (or is considered under Section 424(d) of the Code as owning) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Subsidiary, no ISO shall be exercisable
after the expiration of five (5) years from the date such Option is granted. The
Committee, in its sole and absolute discretion, may extend any Option
theretofore granted subject to the aforesaid limits and may provide that an
Option shall be exercisable during its entire duration or during any lesser
period of time.
3
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
9. RESTRICTION ON EXERCISE OF OPTIONS
Notwithstanding any other provision of the Plan, the aggregate fair
market value (determined as of the time the Option is granted) of the Stock with
respect to which ISOs may be exercisable for the first time by an Optionee
during any calendar year (under the Plan or any other incentive stock option
plan(s) of the Company or any Subsidiary) shall not exceed $100,000. Subject to
the foregoing, each Option may be exercised so long as it is valid and
outstanding from time to time, in part or as a whole, in such manner and subject
to such conditions as the Committee, in its sole and absolute discretion, may
provide in the Option Agreement.
10. EXERCISE OF OPTIONS
Each Option may be exercised from time to time in such amounts as is
provided in the Option Agreement by the delivery of written notice to the
company setting forth the number of shares with respect to which the Option is
to be exercised, accompanied by payment of the option price of such shares,
which payment shall be made, subject to the alternative provisions of this
Section. In cash or by such cash equivalents, payable to the order of the
Company in an amount in United States dollars equal to the option price of such
shares, as the Committee in its discretion shall consider acceptable. Such
notice shall be delivered in person to the Clerk of the Company or shall be sent
by registered mail, return receipt requested, to the Clerk of the Company, in
which case delivery shall be deemed made on the date such notice is deposited in
the mail.
Alternatively, payment of the option price may be made, in whole or in
part, in shares of Stock owned by the Optionee; provided, however, the Optionee
may not make payment in shares of Stock that he acquired upon the earlier
exercise of any ISO, unless he has held the shares until at least two (2) years
after the date the ISO was granted and at least one (1) year after the date the
ISO was exercised. If payment is made in whole or in part in shares of Stock,
then the Optionee shall deliver to the Company in payment of the option price of
the shares with respect of which such Option is exercised (i) certificates
registered in the name of such Optionee representing a number.
11. NONTRANSFERABILITY OF OPTIONS
No Option shall be transferable by the Optionee, either voluntarily or
by operation of law, except by will or pursuant to the laws of descent and
distribution. During the life of an Optionee, an Option shall be exercisable
only by such Optionee.
12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH THE
COMPANY
For purposes of this Section, employment by or involvement with (in the
case of an Optionee who is not an employee) a Subsidiary shall be considered
employment by or involvement with the Company. NQOs shall be exercisable
following an Optionee's termination of employment or involvement with the
Company to the extent provided below with respect to ISOs unless otherwise set
forth in the Option Agreement for such non-qualified options. Except
4
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
as may be otherwise expressly provided herein, Options designated incentive
stock options shall be exercisable after the Optionee's termination of
employment with the Company only within the period of three (3) months after the
date the Optionee ceases to be in the employ of the Company, and only to the
extent to which the Optionee was entitled to exercise the Option immediately
prior to the termination of his or her employment. If, before the date of
expiration of the Option, the Optionee shall be retired in good standing from
the employ of the Company for reasons of age under the then established rules of
the Company, the Option shall terminate on the earlier of such date of
expiration or three (3) months after the date of such retirement. In the event
of the death of the holder of an Option before the date of expiration of such
Option and while in the employ of the Company or during the three (3) month
period described in the preceding sentence, or in the event of the retirement of
the Optionee for reasons of disability (within the meaning of Section 22(e)(3)
of the Code), such Option shall terminate on the earlier of such date of
expiration or one (1) year following the date of such death or retirement. After
the death of the Optionee, his or her executors, administrators or any persons
to whom his or her Option may be transferred by will or by the laws of descent
and distribution shall have the right at any time prior to such termination to
exercise the Option to the extent to which the Optionee was entitled to exercise
the Option of the date of his or her death.
Authorized leave of absence or absence on military or government
service shall not constitute severance of the employment relationship between
the Company and the Optionee for purposes of the Plan, provided that either (i)
such absence is for a period of no more than ninety (90) days or (ii) the
Optionee's right to re-employment after such absence is guaranteed either by
statute or by contract.
13. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares of Stock
upon the exercise of any Option if the issuance of such shares shall constitute
or result in a violation by the Optionee or the Company of any provisions of any
law, statute or regulation of any governmental authority. Specifically, in
connection with the Securities Act of 1933, as amended (the "SECURITIES ACT"),
and any applicable state securities or "blue sky" law (a "BLUE SKY"), upon
exercise of any Option the Company shall not be required to issue such shares
unless the Committee has received evidence satisfactory to it to the effect that
the holder of such Option will not transfer such shares except pursuant to a
registration statement in effect under the Securities Act and Blue Sky Laws or
unless an opinion of counsel satisfactory to the Company has been received by
the Company to the effect that such registration and compliance is not required.
Any determination in this connection by the Committee shall be final, binding
and conclusive. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an Option or the issuance of shares of
Stock pursuant thereto to comply with any law or regulations of any governmental
authority, including, without limitation, the Securities Act or applicable Blue
Sky Laws.
Notwithstanding any other provision of the Plan to the contrary, the
Company may refuse to permit transfer of shares of Stock if in the opinion of
its legal counsel such transfer would violate federal or state securities laws
or subject to the Company to liability thereunder. Any sale, assignment,
transfer, pledge or other disposition of shares of Stock received upon exercise
of any Option (or any other shares or securities derived therefrom) which is not
in accordance
5
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
with the provisions of this Section shall be void and of no effect and shall not
be recognized by the Company.
The Company shall not be required to sell or issue any shares upon the
exercise of any Option if the Committee is advised by counsel that the issuance
of such shares would result in the termination of any then effective election of
the Company to be taxed as an S corporation pursuant to the Code.
LEGEND ON CERTIFICATES. The Committee may cause any certificate
representing shares of Stock acquired upon exercise of an Option (and any other
shares or securities derived therefrom) to bear legend to the effect that the
securities represented by such certificate have not been registered under the
Securities Act or any applicable state securities laws, and may not be sold,
assigned, transferred, pledged or otherwise disposed of except in accordance
with the Plan and applicable agreements binding the holder and the Company or
any of its stockholders.
14. NO RIGHTS AS STOCKHOLDER
No Optionee shall have rights as a stockholder with respect to shares
covered by his or her Option until the date of issuance of a stock certificate
for such shares. Except as otherwise provided in Section 17 no adjustment for
dividends or other rights shall be made if the record date therefor is prior to
the date of issuance of such certificate.
15. EMPLOYMENT OBLIGATION
Nothing in this Plan nor the granting of any Option under this Plan
shall (i) impose upon the Company or any Subsidiary any obligation to employ or
continue to employ any Optionee, or to engage or retain the services of any
person, (ii) diminish or affect the right of the Company or any Subsidiary to
terminate the employment or services of any person or (iii) affect the ability
of the Company to increase or decrease the compensation of any person. The
existence of any Option shall not be taken into account in determining any
damages relating to termination of employment for any reason.
16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE
Notwithstanding anything to the contrary in the Plan, if the Committee
determines, after full consideration of the facts presented on behalf of both
the Company and an Optionee, that
a. the Optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment by or involvement with the Company or a Subsidiary, which
damaged the Company or a Subsidiary, or has made unauthorized
disclosure of trade secrets or other proprietary information of the
Company or a Subsidiary or of a third party who has entrusted such
information to the Company or a Subsidiary, or
b. the Optionee's employment or involvement was otherwise terminated
for "cause", as defined in any employment agreement with the Optionee,
if applicable, or if there is no
6
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
such agreement, as determined by the Committee, which may determine
that "cause" includes among other matters the failure or inability of
the Optionee to carry out his or her assigned duties diligently and in
a manner satisfactory to the Company,
then the Optionee's right to exercise an Option shall terminate as of the date
of such act (in the case of (16.a)) or such termination (in the case of (16.b))
and the Optionee shall forfeit all unexercised Options. If an Optionee whose
behavior the Company asserts falls within the provisions of (16.a) or (16.b)
above has exercised or attempts to exercise an Option prior to a decision of the
Committee, the Company shall not be required to recognize such exercise until
the Committee has made its decision and, in the event of any exercise shall have
taken place, it shall be of no force and effect (and void ab initio) if the
Committee makes an adverse determination; provided, however, if the Committee
finds in favor of the Optionee then the Optionee will be deemed to have
exercised such Options retroactively as of the date he or she originally gave
written notice of his or her attempt to exercise or actual exercise, as the case
may be. The decision of the Committee as to the cause of an Optionee's discharge
and the damage done to the Company or a Subsidiary shall be final, binding and
conclusive. No decision of the Committee, however, shall affect in any manner
the finality of the discharge of such Optionee by the Company or a Subsidiary.
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
The existence of outstanding Options shall not affect in any way the
right or power of the Company of its stockholders to make or authorize any
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the company or any issue of bonds, debentures, preferred or preference stock,
whether or not convertible into the Stock or other securities, ranking prior to
the Stock or affecting the rights thereof, or warrants, rights or options to
acquire the same, or the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise.
The number of shares of Stock in the Option Pool (less the number of
shares theretofore delivered upon exercise of Options) and the number of shares
of Stock covered by any outstanding Option and the price per share payable upon
exercise thereof (provided that in no event shall the option price be less than
the par value of such shares) shall be proportionately adjusted for any increase
or decrease in the number of issued and outstanding shares of `Stock resulting
from the subdivision, split, combination or consolidation of shares of Stock or
any other capital adjustment, the payment of a stock dividend or any other
increase in such shares effected without receipt of consideration by the Company
or any other decrease therein effected without a distribution of cash or
property in connection therewith, provided, however, that no adjustment shall be
made that would constitute a modification as defined in Section 424(h)(3) of the
Code.
In the event the Company merges or consolidates with a wholly-owned
subsidiary for the purpose of reincorporating itself under the laws of another
jurisdiction, the Optionees will be entitled to acquire shares of the common
stock of the reincorporated Company upon the same terms and conditions as were
in effect immediately prior to such reincorporation (unless such reincorporation
involves a change in the number of shares, in which case proportional
7
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
adjustments shall be made as provided above) and the Plan, unless otherwise
rescinded by the Committee, will remain the Plan of the reincorporated Company.
Except as otherwise provided in the preceding paragraph, if the Company
is merged or consolidated with another corporation, whether or not the Company
is the surviving entity, or if the Company is liquidated or sells or otherwise
disposes of all or substantially all of its assets to another entity while
unexercised Options remain outstanding under the Plan, or in other circumstances
in which the Committee in its sole and absolute discretion deems it appropriate
for the provisions of this paragraph to apply, (a) subject to the provisions of
clause (c) below, after the effective date of such merger, consolidation,
liquidation, sale or other event (in each case, an "APPLICABLE EVENT", as the
case may be, each holder of an outstanding Option shall be entitled, upon
exercise of such Option, to receive in lieu of shares of Stock, such stock or
other securities or property as he or she would have received had he exercised
such Option immediately prior to the Applicable Event; (b) the Committee may, in
its sole and absolute discretion, waive, generally or in more specific cases,
any limitations imposed pursuant to Section 9 (even if the effect of such waiver
is to disqualify the Option as an ISO) or Section 10 so that some or all Options
from and after a date prior to the effective date of such Applicable Event
specified by the Committee, in its sole and absolute discretion, shall be
exercisable in full; and (c) all outstanding and unexercised Options may, in its
sole and absolute discretion, be cancelled by the Committee as of the effective
date of any such Applicable Event; provided, however, notice of any such
cancellation shall be given to each holder of an Option not less than thirty
(30) days proceeding the effective date of such Applicable Event; and provided
further, however, that the Committee may in its sole and absolute discretion,
waive, generally or in one or more specific instances, any limitations imposed
pursuant to Section 9 (even if the effect of such waiver is to disqualify the
Option as an ISO) or Section 10 with respect to any Option so that such Option
shall be exercisable in full or in part, as the Committee may, in is sole and
absolute discretion, determine, during such thirty (30) day period.
Except as expressly provided herein, this issue by the Company of
shares of Stock or other securities of any class or securities convertible into
or exchangeable or exercisable for shares of Stock or other securities of any
class for cash or property or for labor or services either upon direct sale or
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number, class or price of shares of Stock, then
subject to outstanding Options.
18. AMENDMENT OR TERMINATION OF PLAN
The Committee may, in its sole and absolute discretion, modify, revise
or terminate the Plan at any time and from time to time; provided, however, that
without the further approval of the holders of at least a majority of the
outstanding shares of Stock, the Committee may not (a) materially increase the
benefits accruing to Optionees under the Plan or make any "modifications" as
that term is defined under Section 424(h)(3) (or its successor) of the Code if
such increase in benefits or modifications would adversely affect (i) the
availability to the Plan of the protections of Section 16(b) of the Securities
Exchange Act, if applicable to the Company, or (ii) the qualification of the
Plan or any Options for "incentive stock option" treatment under Section 422 of
the Code; (b) change the aggregate number of shares of Stock which may be
8
<PAGE>
Interactive Solutions Incorporated
1996 Stock Option Plan
issued under Options pursuant to the provisions of the Plan; (c) reduce the
option price at which ISOs may be granted to an amount less than the fair market
value per share, or 110% of fair market value as the case may be, at the time
the Option is granted; or (d) change the class of persons eligible to receive
ISOs. Notwithstanding the preceding sentence, the Committee shall in all events
have the power and authority to make such changes in the Plan and in the
regulations and administrative provisions hereunder or in any outstanding Option
as, in the opinion of counsel for the Company, may be necessary or appropriate
from time to time to enable any Option granted pursuant to the Plan to qualify
as an ISO or such other stock option as may be defined under the Code, as
amended from time to time, so as to receive preferential federal income tax
treatment. The termination or any modification or amendment of the Plan shall
not, without the consent of an Optionee, affect his or her rights under an
Option previously granted to him or her. With the consent of the Optionee
affected, the Committee may amend outstanding option agreements in a manner not
inconsistent with the Plan.
19. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective and shall be deemed to have been
adopted on January 10, 1996 subject only to ratification by the holders of at
least a majority of the outstanding shares of Stock within twelve (12) months
after such date. Unless the Plan shall have terminated earlier, the Plan shall
terminate on the tenth (10th) anniversary of its effective date, and no Option
shall be granted pursuant to the Plan after the day preceding the tenth (10th)
anniversary of its effective date.
9
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 1 to Stock Option Plan
Form of Incentive Stock Option Certificate
Interactive Solutions Incorporated
INCENTIVE STOCK OPTION AGREEMENT
Option Certificate Number:___________________
SPECIFIC TERMS OF THE OPTION
Subject to the terms and conditions hereinafter set forth and the terms
and conditions of the Interactive Solutions Incorporated 1996 Stock Option Plan
(the "PLAN"), Interactive Solutions Incorporated, a Massachusetts corporation
(the "COMPANY") hereby grants the following option to purchase Common Stock, par
value $0.01 per share (the "STOCK") of the Company:
1. Name of Person to Whom the Option is granted (the "OPTIONEE"):_______________
2. Date of Grant of Option:________.
3. An Option for _____ shares of _____ Stock.
4. Option Exercise Price (per share): $_______.
5. Term of Option: Subject to Section 9 below, this Option expires at 5:00 p.m.
Eastern Time on __________.
6. Vesting Schedule: Provided that on the dates set forth below the Optionee has
been continuously employed by the Company or, if the Optionee is not employed by
the Company the Optionee is still actively involved in the Company (as
determined by the Board of Directors) the Option will become exercisable as
follows and as provided in Section 9 below:
<TABLE>
<CAPTION>
The Option will Become Vested
("Exercisable") as To This Number of Cumulative Vested
On This Date Shares ("Exercisable")
<S> <C> <C>
- ----------------- ------------------------------------ ---------------------
- ----------------- ------------------------------------ ---------------------
- ----------------- ------------------------------------ ---------------------
</TABLE>
7. Does Section 10 of the Plan apply to Stock covered by this Option? Yes __ No
__.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS INCORPORATED
By: ___________________________ X ___________________________
(Signature of Optionee)
Title: ________________________
Date: _______________________
Optionee's Address: ____________________________________________________________
- --------------------------------------------------------------------------------
<PAGE>
Interactive Solutions Incorporated
Form of Incentive Stock Option Certificate
OTHER TERMS OF THE OPTION
WHEREAS, the Board of Directors (the "BOARD") has authorized the grant
of stock options upon certain terms and conditions set forth herein; and
WHEREAS, the Board has authorized the grant of this stock option
pursuant and subject to the terms of the Plan, a copy of which is available from
the Company and is hereby incorporated herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the Company and the Optionee agree as
set forth above and as follows:
8. GRANT. Pursuant and subject to the Plan, the Company does hereby
grant to the Optionee a stock option (the "OPTION") to purchase from the Company
the number of shares of its Common Stock set forth in Section 3 upon the terms
and conditions set forth in the Plan and upon the additional terms and
conditions contained herein. This Option is intended to qualify for special
federal income tax treatment as an "incentive stock option" pursuant to Section
422A of the Internal Revenue Code of 1986, as amended (the "CODE").
9. OPTION PRICE. This Option may be exercised at the option price per
share of Stock set forth in Section 4 hereof, subject to adjustment as provided
herein and in the Plan.
10. TERM AND EXERCISABILITY OF OPTION. This Option shall expire on the
date determined pursuant to Section 5 hereof and shall be exercisable prior to
that date in accordance with and subject to the conditions set forth in the Plan
and those conditions, if any, set forth in Section 6 hereof. In addition, in the
event that before this Option has been exercised in full, the Optionee ceases to
be an employee of the Company for any reason other than death or a termination
for dishonesty or other "cause" as provided in Section 16 of the Plan, the
Optionee may exercise this Option to the extent that he or she might have
exercised it on the date of termination of his or her employment, during the
period ending on the earlier of (i) the date on which the Option expires in
accordance with Section 5 of this Agreement or (ii) 90 days after the date of
termination of the Optionee's employment by the Company. In the event of the
death of the Optionee before this Option has been exercised in full, the
personal representative of the Optionee may exercise this Option to the extent
that the Optionee might have exercised it on the date of his or her death,
during the period ending on the earlier of (i) the date on which the Options
expires in accordance with Section 5 of this Agreement or (ii) the first
anniversary of the date of the Optionee's death.
11. METHOD OF EXERCISE. To the extent that the right to purchase shares
of Stock has accrued hereunder, this Option may be exercised from time to time
by written notice to the company substantially in the form attached hereto as
Exhibit A, stating the number of shares with respect to which this Option is
being exercised, and accompanied by payment in full of the option price for the
number of shares to be delivered by means of payment acceptable to the Company
in accordance with Section 10 of the Plan. As soon as practicable after its
receipt of such notice, the Company shall, without transfer or issue tax to the
Optionee (or other person entitled to exercise this Option), deliver to the
Optionee (or other person entitled to exercise this
<PAGE>
Interactive Solutions Incorporated
Form of Incentive Stock Option Certificate
Option), at the principal executive offices of the Company or such other place
as shall be mutually acceptable, a certificate or certificates for such shares
out of theretofore authorized but unissued shares or reacquired shares of its
Stock as the Company may elect; provided, however, that the time of such
delivery may be postponed by the Company for such period as may be required for
it with reasonable diligence to comply with any applicable requirements of law.
Payment of the option price may be made in cash or cash equivalents, [or, in
accordance with the terms and conditions of Section 10 of the Plan, (a) in whole
or in part in shares of Common Stock of the Company, or (b) in part by
promissory note of the Optionee in the form attached hereto as Exhibit B;
provided, however, that the Board reserves the right upon receipt of any written
notice of exercise from the Optionee to require payment in cash with respect to
the shares contemplated in such notice].(1) If the Optionee (or other person
entitled to exercise this Option) fails to pay for and accept delivery of all of
the shares specified in such notice upon tender of delivery thereof, his or her
right to exercise this Option with respect to such shares not paid for may be
terminated by the Company.
12. NON-ASSIGNABILITY OF OPTION RIGHTS. This Option shall not be
assignable or transferable by the Optionee except by will or by the laws of
descent and distribution. During the life of the Optionee, this Option shall be
exercisable only by him or her.
13. COMPLIANCE WITH SECURITIES ACT. The Company shall not be obligated
to sell or issue any shares of Stock or other securities pursuant to the
exercise of this Option unless the shares of Stock or other securities with
respect to which this Option is being exercised are at that time effectively
registered or exempt from registration under the Securities Act of 1933, as
amended, and applicable state securities laws. In the event shares or other
securities shall be issued which shall not be so registered, the Optionee hereby
represents, warrants and agrees that he or she will receive such shares or other
securities for investment and not with a view to their resale or distribution,
and will execute an appropriate investment letter satisfactory to the Company
and its counsel.
14. LEGENDS. The Optionee hereby acknowledges that the stock
certificate or certificates evidencing shares of Stock or other securities
issued pursuant to any exercise of this Option will bear a legend setting forth
the restrictions on their transferability described in Section 12 hereof and, if
applicable to this Option, in Section 19 of the Plan.
15. RIGHTS AS STOCKHOLDER. The Optionee shall have no rights as a
stockholder with respect to any shares of Stock or other securities covered by
this Option until the date of issuance of a certificate to him or her for such
shares or other securities. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date such stock certificate is
issued.
16. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. The Optionee hereby
agrees that he or she will promptly give notice to the Company in the event that
he or she sells, transfers, exchanges or otherwise disposes of any shares of
Stock or other securities obtained pursuant to any exercise of this Option
before the day after the later of (a) the second anniversary of the date of
grant set forth at the conclusion of this Agreement and (b) the first
anniversary of
- ------------------------------
(1) Review.
2
<PAGE>
Interactive Solutions Incorporated
Form of Incentive Stock Option Certificate
the date on which the shares of Stock or other securities were transferred to
him or her pursuant to his or her exercise of this Option.
17. TERMINATION OR AMENDMENT OF PLAN. The Board may in its sole and
absolute discretion at any time terminate or from time to time modify and amend
the Plan, but no such termination or amendment will affect rights and
obligations under this Option.
18. EFFECT UPON EMPLOYMENT. Nothing in this Option or the Plan shall be
construed to impose any obligation upon the Company to employ the Optionee or to
retain the Optionee in its employ, or continues its involvement with, the
Optionee.
19. TIME FOR ACCEPTANCE. Unless the Optionee shall evidence his
acceptance of this Option by execution of this Agreement within seven (7) days
after its delivery to him or her, the Option and this Agreement shall be null
and void.
20. GENERAL PROVISIONS.
a. AMENDMENT: WAIVERS. This Agreement, including the Plan, contains the
full and complete understanding and agreement of the parties hereto as the
subject matter hereof and may not be modified or amended, nor may any provision
hereof be waived, except by a further written agreement duly signed by each of
the parties. The waiver by either of the parties hereto of any provision hereof
in any instance shall not operate as a waiver of any other provision hereof or
in any other instance.
b. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
c. CONSTRUCTION. This Agreement is to be construed in accordance with
the terms of the Plan. In case of any conflict between the Plan and this
Agreement, the Plan shall control. The titles of the sections of this Agreement
and of the Plan are included for convenience only and shall not be construed as
modifying or affecting their provisions. The masculine gender shall include both
sexes; the singular shall include the plural and the plural the singular unless
the context otherwise requires.
d. NOTICES. Any notice in connection with this Agreement shall be
deemed to have been properly delivered if it is in writing and is delivered in
hand or sent by registered mail to the
3
<PAGE>
Interactive Solutions Incorporated
Form of Incentive Stock Option Certificate
party addressed as follows, unless another address has been substituted by
notice so given:
- --------------------------------------------------------------------------------
To the Optionee: To his or address as listed on the books
of the Company.
- --------------------------------------------------------------------------------
To the Company:` Interactive Solutions Incorporated
855 Boylston Street
Boston, Massachusetts 02116
Copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: John A. Piccione
- --------------------------------------------------------------------------------
4
<PAGE>
Interactive Solutions Incorporated
Form of Incentive Stock Option Certificate
EXHIBIT A to Incentive Stock Option
[FORM FOR EXERCISE OF INCENTIVE STOCK OPTION]
Interactive Solutions Incorporated
855 Boylston Street
Boston, Massachusetts 02116
RE: EXERCISE OF INCENTIVE STOCK OPTION UNDER INTERACTIVE SOLUTIONS
INCORPORATED 1996 STOCK OPTION PLAN
Gentlemen:
Please take notice that the undersigned hereby elects to exercise the
stock option granted to on , 199 by and to the extent of purchasing shares of
Common Stock of Interactive Solutions Incorporated (the "COMPANY") for the
option price of $ per share, subject to the terms and conditions of the
Incentive Stock Option Agreement between and Interactive Solutions Incorporated
dated as of , 199 .
The undersigned encloses herewith payment, in cash or in such other
property as is permitted under the Plan, of the purchase price for said shares.
IF THE UNDERSIGNED IS MAKING PAYMENT OF ANY PART OF THE PURCHASE PRICE BY
DELIVERY OF SHARES OF COMMON STOCK OF INTERACTIVE SOLUTIONS INCORPORATED, HE OR
SHE HEREBY CONFIRMS THAT HE OR SHE HAS INVESTIGATED AND CONSIDERED THE POSSIBLE
INCOME TAX CONSEQUENCES TO HIM OR HER OF MAKING SUCH PAYMENTS IN THAT FORM.
The undersigned hereby specifically confirms to Interactive Solutions
Incorporated that he or she is acquiring said shares for investment and not with
a view to their sale or distribution, and that said shares shall be held subject
to all of the terms and conditions of said Incentive Stock Option Agreement.
Very truly yours,
- ---------------------------------- -------------------------------------
Date (Signed by ______ or other party duly
exercising option)
5
<PAGE>
Exhibit 10.3
QUADRIS CONSULTING, INC. 1998 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION TERMS AND CONDITIONS
1. OPTION PRICE The price to be paid for each share of Common Stock upon
exercise of the whole or any part of this Option shall be the amount set forth
as the Option Price on the face of this Certificate, which is not less than 100%
of the fair market value of a share of Common Stock, $0.001 par value, of the
Company on the Date of Grant.
2. EXERCISABILITY SCHEDULE. This Option may be exercised with respect
to the aggregate number of shares set forth in the Exercisability Schedule on
the face of this Certificate at any time after the dates specified in such
schedule, provided, however, that this Option may not be exercised as to any
shares after the expiration of ten (10) years from the Date of Grant.
3. METHOD OF EXERCISE. This Option may be exercised at any time and
from time to time, subject to the limitation of Section 2 above, up to the
aggregate number of shares specified herein, but in no event for the purchase of
other than full shares. Written notice of exercise shall be delivered to the
Company specifying the number of shares with respect to which the Option is
being exercised and a date not later than fifteen (15) days after the date of
the delivery of such notice as the date on which the Optionholder will take up
and pay for such shares. On the date specified in such notice, the Company will
deliver to the Optionholder a certificate for the number of shares with respect
to which the Option is being exercised against payment therefor in cash, by
certified check or in such other form, including shares of Common Stock of the
Company valued at their Fair Market Value on the date of delivery, as the Board
of Directors of the Company (the "Board") may at the time of exercise approve.
4. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. The Optionholder shall not be
deemed, for any purpose, to have any rights whatever in respect of shares to
which the Option shall not have been exercised and payment made as foresaid. The
Optionholder shall not be deemed to have any rights to continued employment by
the Company by virtue of the grant of this Option.
5. RECAPITALIZATIONS, MERGERS, ETC. In the event that any stock
dividend, split-up, combination or reclassification of shares, recapitalization
or other similar capital changes affects the Common Stock of the Company such
that adjustment is required in order to preserve the benefits or potential
benefits of this Option, the maximum aggregate number and kind of shares or
securities of the Company subject to this Option and the exercise price of this
Option shall be appropriately adjusted so that the proportionate number of
shares or other securities subject to this Option and the proportionate interest
of the Optionholder shall be maintained as before the occurrence of such event.
In the event of a consolidation or merger of the Company with another
corporation, or the sale or exchange of all or substantially all of the assets
of the Company, or a reorganization or liquidation of the Company, the
Optionholder shall be entitled to receive upon exercise and payment in
accordance with the terms of this Option the same shares, securities or property
as he would have been entitled to receive upon the occurrence of such event if
he had been, immediately prior to such event, the holder of the number of shares
of Common Stock purchasable under this Option, or if another corporation shall
be the survivor, such corporation shall substitute therefor substantially
equivalent shares, securities or property of such other corporation; provided,
however, that in lieu of the foregoing the Board may upon written notice to the
Optionholder accelerate or waive any deferred exercise period.
6. OPTION NOT TRANSFERABLE. This Option is not transferable by the
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by him.
7. EXERCISE OF OPTION AFTER TERMINATION OF EMPLOYMENT. If the
Optionholder's employment with (i) the Company, or (ii) a corporation (or parent
or subsidiary corporation of such corporation) issuing or assuming a stock
option in a transaction to which section 424(a) of the Code applies, is
terminated for (x) "cause", as defined in Section 11(f) of the Plan), or (y) for
conviction of a felony, all of his rights hereunder shall terminate as of the
date of such termination. If his employment is terminated (x) by the Company
without "cause' or (y) by him for any reason, he may exercise the rights which
he had hereunder at the time of such termination only within thirty days from
the date of termination. If his employment is terminated for reason of
disability, such rights may be exercised within twelve months from the date of
termination. Upon the death of the Optionholder, those entitled to do so by the
Optionholder's will or the laws of descent and distribution shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights which were available to the Optionholder at the time
of his death. If the Optionholder's employment is terminated due to his
retirement in good standing for reasons of age under the Company's established
rules, such rights may be exercised within three months after the date of such
retirement. This
<PAGE>
Option shall terminate, and no rights hereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this Section 7, no rights under this Option may be exercised after
the expiration of ten (10) years from the Date of Grant.
8. COMPLIANCE WITH SECURITIES LAWS. It shall be a condition to the
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange on which
the Company's Common Stock may then be listed, (b) that either (i) a
registration statement under the Securities Act of 1933, as amended, with
respect to said shares shall be in effect, or (ii) in the opinion of counsel for
the Company the proposed purchase shall be exempt from registration under said
Act and the Optionholder shall have made such undertakings and agreements with
the Company as the Company may reasonably require, and (c) that such other
steps, if any, as counsel for the Company shall deem necessary to comply with
any law, rule or regulation applicable to the issue of such shares by the
Company shall have been taken by the Company or the Optionholder, or both. The
certificates representing the shares purchased under this Option may contain
such legends as counsel for the Company shall deem necessary to comply with any
applicable law, rule or regulation.
9. PAYMENT OF TAXES. Any exercise of this Option is conditioned upon
the payment, if the Company so requests, by the Optionholder or his heirs by
will or by the laws of descent and distribution, of all state and federal taxes
imposed upon the exercise of this Option and the issue to the Optionholder of
the shares of Common Stock covered hereby. In the Optionholder's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including retention by the Company of shares being purchased by the
Optionholder, valued at their Fair Market Value on the date of delivery. The
Company may to the event permitted by law, at the request of the Optionholder,
deduct any such tax obligations from any payment of any kind otherwise due to
the Optionholder.
10. NOTICE OF SALE OF SHARES REQUIRED. The Optionholder agrees to
notify the Company in writing within thirty days of the disposition of one or
more shares of stock which were transferred to him pursuant to his exercise of
this Option if such disposition occurs within two years of the Date of Grant or
within one year after the transfer of such shares to him.
11. PLAN INCORPORATED BY REFERENCE. The Option is issued pursuant to
the terms of the Plan. This Certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference Copies of the
Plan may be obtained upon written request without charge from the Treasurer of
the Company. The Plan is subject to approval by the Stockholders of the Company
in accordance with the laws of the State of Delaware within twelve months from
the date it was adopted by the Board. In the event such approval is not
obtained, all options granted under the Plan, including this Option, shall be
void and without effect.
2
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and CHAN W. SUH (the
"EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on March 31, 2004 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other one years
advance written notice of expiration of the term (a "NOTICE OF TERMINATION")
(the Initial Term and the period, if any, thereafter, during which the
Executive's employment shall continue are collectively referred to as the
"TERM"). Any Notice of Termination given under this paragraph 2(a), shall
specify the date of expiration (which may not be earlier than the close of
business on March 31, 2004) and may be given at any time on or after March 31,
2003 . The Company shall have the right at any time during such one year notice
period, to relieve the Executive of his offices, duties and responsibilities and
to place him on a paid leave-of-absence status, provided that during such notice
period the Executive shall remain a full-time employee of the Company and shall
continue to receive his salary compensation and other benefits as provided in
this Agreement. The effective date of the termination of the Executive's
employment with the Company, regardless of the reason therefor, is referred to
in this Agreement as the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
President and Chief Executive Officer of the Company. The Executive shall report
directly to the Board of Directors of the Company (the "BOARD"), at such times
and in such detail as it shall reasonably require.
(b) The Executive shall perform such executive and managerial
duties and responsibilities customary to his offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to him from time to time by or under authority of the Board, consistent
with his positions as designated in paragraph 3(a) above. In furtherance of the
foregoing, the Executive shall have primary responsibility and authority
(subject to the terms of this Agreement and the authority of the Board) for the
general management, administration, day-to-day operations and long-term planning
of the Company and its subsidiaries, including without limitation (i) the
matters relating to the annual operating and financial plan; (ii) new business
efforts; and (iii) the hiring, evaluation and termination of senior management
personnel. The Executive shall have the authority to determine the reporting
responsibilities of all of the employees of the Company and its subsidiaries.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the Board and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the Board.
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out his duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted (x) to engage in charitable and civic activities, and manage
his personal passive investments, provided that such passive investments are not
in a company which transacts business with the Company or one of its
subsidiaries or engages in business competitive with that conducted by the
Company or one of its subsidiaries (or, if such company does transact business
with the Company or a subsidiary or does engage in a competitive business, it is
a publicly held corporation of which the Executive owns less than 1/4 of 1% of
its outstanding shares), and (y) to continue his ownership interest in and
involvement with Urban Desires, an on-line magazine, on a basis consistent with
past practices; and (z) render assistance to companies which have an affiliation
with the Company if in the reasonable opinion of the Executive such assistance
can be lent without conflict of his duties to the Company
2
<PAGE>
(including without limitation any duties of loyalty he may have by virtue of his
position as a director of the Company); provided, that the activities
(individually or collectively) specified in clauses (x) and (y) and (z) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement. The Executive further agrees that he will
not sell any portion of his interest in Urban Desires to any company which
either itself or through one or more subsidiaries provides marketing, branding,
advertising or other communications services.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in New York, New York, subject to
necessary travel requirements of his position and duties hereunder.
4. COMPENSATION
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices an annualized base
salary of $155,000. The Executive's base salary may be increased (but not
decreased) by or under the authority of the Board in accordance with the then
salary review policy of the Company and within the guidelines and budgetary
procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of his services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the Executive seeks
payment or reimbursement, and any other information or materials, as the Company
may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available to the
Company's executives or to its employees generally (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and
3
<PAGE>
programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis, except as otherwise provided under
standard Company policy), to be taken at such time(s) as shall not, in the
reasonable judgment of the Board, materially interfere with the Executive's
fulfillment of his duties hereunder, and shall be entitled to as many holidays,
sick days and personal days as are in accordance with the Company's policy then
in effect generally for its employees.
6. TERMINATION
(a) The Company, by direction of the Board, shall be entitled
to terminate the Term and to discharge the Executive for "CAUSE" effective upon
the giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote his attention exclusively to the
business and affairs of the Company and its subsidiaries in
accordance with the terms hereof (other than by reason of his
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
4
<PAGE>
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for cause and the
arbitrator appointed pursuant to paragraph 19 below determines that "cause" as
defined herein was not present, then such purported termination for cause shall
be deemed a termination by the Company "without cause" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company. "GOOD REASON" shall be limited to a
breach by the Company of a material term of this Agreement, which breach remains
uncured for a period of 30 days after written notice of such breach from the
Executive to the Company (such notice to specify the specific nature of the
claimed breach and the manner in which the Executive requires such breach to be
cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate
5
<PAGE>
offsets, as permitted by applicable law, for debts or money due to the Company
or an affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company.
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the Executive shall be
entitled to continue to receive from the Company, subject to any Offsets, the
following:
(i) as severance compensation, his then applicable
base salary when otherwise payable through (x) March 31, 2004
if the Date of Termination occurs on or prior to March 31,
2003 or (y) one year from the Date of Termination, if such
termination occurs after March 31, 2004;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
6
<PAGE>
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all, medical,
dental, disability and life insurance coverage (such benefits
collectively called the "CONTINUED Plans") in which he was
participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) until
the earlier of (x) the end of the period that he receives
severance compensation payments under clause (i) of this
paragraph 6(d) or (y) the date, or dates, he is entitled to
receive coverage and benefits under the same type of plan of a
subsequent employer; provided, however, if the Executive is
precluded from continuing his participation in any Continued
Plan, the after-tax economic equivalent of the benefits
provided under the Continued Plan in which he is unable to
participate, for the period specified above, it being
understood that the economic equivalent of a benefit foregone
shall be deemed the lowest cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and payment of such after-tax economic benefit shall be
made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company, and (y) the Executive shall be under
no obligation to mitigate his damages or to seek other employment and if the
Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this
7
<PAGE>
paragraph 6(d) is conditioned upon the Executive signing a general release of
the Company and its subsidiaries and affiliates, and its and their respective
successors and assigns, officers directors, employees, agents, attorneys and
representatives, of any claims (including claims of discrimination) relating to
the Executive's employment with the Company or the termination thereof; except
such release shall preserve the Executive's rights with respect to the payments
and benefits to be received pursuant to this paragraph 6(d) and the Executive's
rights of indemnification under the Company's organizational documents and any
separate director indemnification agreement with the Company to which he may be
a party. Such release shall be in the form then being used by the Company in
connection with severance arrangements; it being understood, however that such
release shall not increase the Executive's non-solicitation/non-servicing and
protection of confidential information obligations to the Company beyond that
set forth in paragraph 8 of this Agreement. If the Executive breaches any
provisions of such release or the provisions of paragraph 8 of this Agreement,
in addition to any other remedies at law or in equity available to it, the
Company may cease making any further severance payments and providing the other
benefits provided for in this paragraph 6(d), without affecting its rights under
this Agreement or the release.
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company he has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with the
Company placed and places him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services to
the clients of the Company necessarily requires the disclosure to
8
<PAGE>
the Executive of confidential information (as defined in paragraph 8(b) below)
of the Company. In the course of the Executive's employment with the Company,
the Executive has and will continue to develop a personal relationship with the
clients of the Company and a knowledge of those clients' affairs and
requirements, and that the relationship of the Company with its established
clientele has been and will continue to be placed in the Executive's hands in
confidence and trust. The Executive consequently agrees that it is reasonable
and necessary for the protection of the confidential information, goodwill and
business of the Company that the Executive make the covenants contained herein
and that the Company would not have entered into this Agreement unless the
covenants set forth in this paragraph 8 were contained in this Agreement.
Accordingly, the Executive agrees that during the period that he is employed by
the Company and thereafter through the later of (x) March 31, 2004 and (y) two
years after the Date of Termination, he shall not, as an individual, consultant,
partner, shareholder, employee or in any other capacity whatsoever, or in
association with any other person, business or enterprise, except on behalf of
the Company, directly or indirectly, and regardless of the reason for his
ceasing to be employed by the Company:
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through his
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company; or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the eighteen month period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation
9
<PAGE>
(or similar offering of services) at any time within six months after the Date
of Termination (but only if the initial discussions between the Company and such
prospective client relating to the rendering of services occurred prior to the
Date of Termination, and only if the Executive participated in or supervised
such discussions). For purposes of this clause, it is agreed that a "new
business presentation or similar offering of services" or a "discussion" does
not include general mailings, telephone solicitations, unsolicited credentials
presentations not responding to requests for proposals or incidental contacts.
In addition, if the client is part of a group of companies which conducts
business through more than one entity, division or operating unit, whether or
not separately incorporated (a "CLIENT GROUP"), the term "CLIENT" as used herein
shall include each entity, division and operating unit of the Client Group where
the same management group of the Client Group has the decision making authority
with respect to contracting for services of the type rendered by the Company,
BUT shall not include any part of the Client Group where the management group is
not the same management group that has the decision making authority with
respect to contracting for services of the type rendered by the Company.
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company defaults in the payment to the Executive of any severance
compensation when due under the provisions of paragraph 6(d)(i) above, which
default is not cured within 30 days after written notice thereof to the Company
by the Executive, the restrictions set forth in this paragraph 8(a) shall
terminate unless the Company pays the Executive all amounts then due to the
Executive as determined by the arbitration panel, in which case such
restrictions shall remain in full force and effect. During the pendency of any
dispute as to whether the Company is justified in ceasing to make such severance
payments as permitted under the provisions of paragraph 6(d) above, the
restrictions set forth in this paragraph 8(a) shall remain in full force and
effect.
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for his own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the
10
<PAGE>
public other than by breach of this provision or (ii) the Executive learns from
a third party who is not under an obligation of confidence to the Company or a
client of the Company. In the event that the Executive becomes legally required
to disclose any confidential information, he 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
8(b) to permit a particular disclosure. 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 8(b) to permit a particular disclosure, the
Executive will furnish only that portion of the confidential information which
he is legally required to disclose and, at the Company's expense, will cooperate
with the efforts of the Company to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the confidential
information. The Executive further agrees that all memoranda, disks, files,
notes, records or other documents, whether in electronic form or hard copy
(collectively, the "MATERIAL") compiled by him or made available to him during
his employment with the Company (whether or not the material contains
confidential information) shall be the property of the Company and shall be
delivered to the Company on the termination of the Executive's employment with
the Company or at any other time upon request. Except in connection with the
Executive's employment with the Company, the Executive agrees that he will not
make or retain copies or excerpts of the material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout the United
States and other areas of the world, and (iii) that the time, scope, geographic
area and other provisions of this paragraph 8 have been specifically negotiated
by sophisticated commercial parties. It is further understood and agreed that
the clients of the Company may be serviced from any location and accordingly it
is reasonable that the covenants set forth herein are not
11
<PAGE>
limited by narrow geographic area but generally by the location of such clients
and potential clients. The Executive specifically acknowledges that his being
restricted from soliciting and servicing clients and prospective clients as
contemplated by this Agreement will not prevent him from being employed or
earning a livelihood in the type of business conducted by the Company. If any of
the covenants contained in paragraphs 8(a) or (b), or any part thereof, is held
to be unenforceable by reason of its extending for too great a period of time or
over too great a geographic area or by reason of its being too extensive in any
other respect, the parties agree (x) such covenant shall be interpreted to
extend only over the maximum period of time for which it may be enforceable
and/or over the maximum geographic areas as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by the court or arbitration panel making such
determination and (y) in its reduced form, such covenant shall then be
enforceable, but such reduced form of agreement shall only apply with respect to
the operation of this paragraph 8 in the particular jurisdiction in which such
adjudication is made.
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, he will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and
12
<PAGE>
obligations hereunder may not be sold, transferred, assigned, pledged or
hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the invalid or unenforceable part had
been severed and deleted. The respective rights and obligations of the parties
hereunder shall survive the termination of the Executive's employment to the
extent necessary to the intended preservation of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Chan W. Suh
Agency.Com Ltd.
665 Broadway
13
<PAGE>
New York, NY 10012
Fax: (212) 358-8259
IF TO THE COMPANY:
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman
1111 Chautauqua Blvd.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of
conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
14
<PAGE>
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company, including without limitation, the employment agreement
dated September 12, 1996 by and between the Executive and the Company, are
nullified and superseded hereby .
19. ARBITRATION
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy for resolving any
such dispute, regardless of its nature; provided, however, that the Company may
enforce the Executive's obligations under paragraphs 8 and 9 hereof by an action
for injunctive relief and damages in a court of competent jurisdiction at any
time prior or subsequent to the commencement of an arbitration proceeding as
herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the New York, New York office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay the costs and
fees of its counsel or other representative and its own filing or administrative
fees. The non-prevailing party (as determined by the arbitrator) shall bear the
fees and costs of the arbitrator.
15
<PAGE>
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision to be fully admissible in
evidence, given great weight by any finder of fact, and treated as determinative
to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in New York, New York in such location as agreed to by the Company
and the Executive. If the parties cannot agree upon a location for the
arbitration, the arbitrator shall determine the location within New York, New
York.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HIS EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
16
<PAGE>
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise in the future, the Executive will not disparage the Company; and
the Company will not disparage the Executive.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME: Kenneth Trush
TITLE: CFO
/s/ Chan W. Suh
------------------------------------
CHAN W. SUH
18
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and KYLE SHANNON (the
"EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on March 31, 2004 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of expiration of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on March 31,
2004) and may be given at any time on or after December 31, 2003. The Company
shall have the right at any time during such 90 day notice period, to relieve
the Executive of his offices, duties and responsibilities and to place him on a
paid leave-of-absence status, provided that during such notice period the
Executive shall remain a full-time employee of the Company and shall continue to
receive his salary compensation and other benefits as provided in this
Agreement. The effective date of the termination of the Executive's employment
with the Company, regardless of the reason therefor, is referred to in this
Agreement as the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
Chief Creative Officer of the Company. The Executive shall report to the Chief
Executive Officer of the Company (the "CEO"), at such times and in such detail
as he shall reasonably require.
(b) The Executive shall perform such executive and managerial
duties and responsibilities customary to his offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to him from time to time by or under authority of the CEO, consistent
with his positions as designated in paragraph 3(a) above.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the CEO.
2
<PAGE>
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out his duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted (x) to engage in charitable and civic activities, and manage
his personal passive investments, provided that such passive investments are not
in a company which transacts business with the Company or one of its
subsidiaries or engages in business competitive with that conducted by the
Company or one of its subsidiaries (or, if such company does transact business
with the Company or a subsidiary or does engage in a competitive business, it is
a publicly held corporation of which the Executive owns less than 1/4 of 1% of
its outstanding shares); provided, that such activities (individually or
collectively), and (y) to continue his ownership interest in and involvement
with Urban Desires, an on-line magazine, on a basis consistent with past
practices; provided, that the activities (individually or collectively)
specified in clauses (x) and (y) do not materially interfere with the
performance of the Executive's duties and responsibilities under this Agreement.
The Executive further agrees that he will not sell any portion of his interest
in Urban Desires to any company which either itself or through one or more
subsidiaries provides marketing, branding, advertising or other communications
services.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in New York, New York, subject to
necessary travel requirements of his position and duties hereunder.
4. COMPENSATION
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices an annualized base
salary of $150,000. The Executive's base salary may be increased (but not
decreased) by or under the authority of the CEO in accordance with the then
salary review policy of the Company and within the guidelines and budgetary
procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all
3
<PAGE>
reasonable, ordinary and necessary documented business or entertainment expenses
incurred during the Term in the performance of his services hereunder in
accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the Executive seeks
payment or reimbursement, and any other information or materials, as the Company
may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis, except as otherwise provided under
standard Company policy), to be taken at such time(s) as shall not, in the
reasonable judgment of the Board, materially interfere with the Executive's
fulfillment of his duties hereunder, and shall be entitled to as many holidays,
sick days and personal days as are in accordance with the Company's policy then
in effect generally for its employees.
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "CAUSE" effective upon the
giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the
4
<PAGE>
Executive to devote his attention exclusively to the business
and affairs of the Company and its subsidiaries in accordance
with the terms hereof (other than by reason of his
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for cause and the
arbitrator appointed pursuant to paragraph 19 below determines that "cause" as
defined herein was not present, then such purported termination for cause shall
be deemed a termination by the Company "without cause" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in
5
<PAGE>
full satisfaction and in lieu of any and all other or further remedies the
Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company. "GOOD REASON" shall be limited to a
breach by the Company of a material term of this Agreement, which breach remains
uncured for a period of 30 days after written notice of such breach from the
Executive to the Company (such notice to specify the specific nature of the
claimed breach and the manner in which the Executive requires such breach to be
cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for debts or money due to the Company or an
affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company.
6
<PAGE>
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the Executive shall be
entitled to continue to receive from the Company, subject to any Offsets, the
following:
(i) as severance compensation, his then applicable
base salary when otherwise payable through (x) March 31, 2004
if the Date of Termination occurs on or prior to December 31,
2003 or (y) 90 days from the Date of Termination, if such
termination occurs after December 31, 2003;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all medical, dental,
disability and life insurance coverage (such benefits
collectively called the "CONTINUED PLANS") in which he was
participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) until
the earlier of (x) the end of the period that he receives
severance compensation payments under clause (i) of this
paragraph 6(d) or (y) the date, or dates, he is entitled to
receive coverage and benefits under the same type of plan of a
subsequent employer; provided, however, if the Executive is
precluded from continuing his participation in any Continued
Plan, the after-tax economic equivalent of the benefits
provided under the Continued Plan in which he is unable to
participate, for the period specified above, it being
understood that the economic equivalent of a benefit foregone
shall be deemed the lowest cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and payment of such after-tax economic benefit shall be
made quarterly in advance; and
7
<PAGE>
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i), shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company, and (y) the Executive shall be under
no obligation to mitigate his damages or to seek other employment and if the
Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this paragraph 6(d) is conditioned upon the
Executive signing a general release of the Company and its subsidiaries and
affiliates, and its and their respective successors and assigns, officers
directors, employees, agents, attorneys and representatives, of any claims
(including claims of discrimination) relating to the Executive's employment with
the Company or the termination thereof; except such release shall preserve the
Executive's rights with respect to the payments and benefits to be received
pursuant to this paragraph 6(d) and the Executive's rights of indemnification
under the Company's organizational documents and any separate director or
officer indemnification agreement with the Company to which he may be a party.
Such release shall be in the form then being used by the Company in connection
with severance arrangements; it being understood, however that such release
shall not increase the Executive's non-solicitation/non-servicing and protection
of confidential information obligations to the Company beyond that set forth in
paragraph 8 of this Agreement. If the Executive breaches any provisions of such
release or the provisions of paragraph 8 of this Agreement, in addition to any
other remedies at law or in equity available to it, the Company may cease making
any further severance payments and providing the other benefits provided for in
this paragraph 6(d), without affecting its rights under this Agreement or the
release.
8
<PAGE>
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company he has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with the
Company placed and places him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services to
the clients of the Company necessarily requires the disclosure to the Executive
of confidential information (as defined in paragraph 8(b) below) of the Company.
In the course of the Executive's employment with the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that he is employed by the Company and thereafter
through the later of (x) March 31, 2004 and (y) two years after the Date of
Termination, he shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for his ceasing to be employed by the
Company:
9
<PAGE>
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through his
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company; or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause, it
is agreed that a "new business presentation or similar offering of services" or
a "discussion" does not include general mailings, telephone solicitations,
unsolicited credentials presentations not responding to requests for proposals
or incidental contacts. In addition, if the client is part of a group of
companies which conducts business through more than one entity, division or
operating unit, whether or not separately incorporated (a "CLIENT GROUP"), the
term "CLIENT" as used herein shall include each entity, division and operating
unit of the Client Group where the same management group of the Client Group has
the decision making authority with respect to contracting for services of the
type rendered by the Company, BUT shall not include any part of the Client Group
where the management group is not the same management group that has the
decision making authority or significant influence with respect to contracting
for services of the type rendered by the Company.
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company
10
<PAGE>
defaults in the payment to the Executive of any severance compensation when due
under the provisions of paragraph 6(d)(i) above, which default is not cured
within 30 days after written notice thereof to the Company by the Executive, the
restrictions set forth in this paragraph 8(a) shall terminate unless the Company
pays the Executive all amounts then due to the Executive as determined by the
arbitration panel, in which case such restrictions shall remain in full force
and effect. During the pendency of any dispute as to whether the Company is
justified in ceasing to make such severance payments as permitted under the
provisions of paragraph 6(d) above, the restrictions set forth in this paragraph
8(a) shall remain in full force and effect.
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for his own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the public other than by
breach of this provision or (ii) the Executive learns from a third party who is
not under an obligation of confidence to the Company or a client of the Company.
In the event that the Executive becomes legally required to disclose any
confidential information, he 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 8(b) to permit a
particular disclosure. 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 8(b) to permit a particular disclosure, the Executive will
furnish only that portion of the confidential information which he is legally
required to disclose and, at the Company's expense, will cooperate with the
efforts of the Company to obtain a protective order or other reliable assurance
that confidential treatment will be accorded the confidential information. The
Executive further agrees that all memoranda, disks, files, notes, records or
other documents, whether in electronic form or hard copy (collectively, the
"MATERIAL") compiled by him or made available to him during his employment with
the Company (whether or not the material contains confidential information)
shall be the property of the Company and shall be delivered to the Company on
the termination of the Executive's employment with the Company or at any other
time upon
11
<PAGE>
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of the
material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout the United
States and other areas of the world, and (iii) that the time, scope, geographic
area and other provisions of this paragraph 8 have been specifically negotiated
by sophisticated commercial parties. It is further understood and agreed that
the clients of the Company may be serviced from any location and accordingly it
is reasonable that the covenants set forth herein are not limited by narrow
geographic area but generally by the location of such clients and potential
clients. The Executive specifically acknowledges that his being restricted from
soliciting and servicing clients and prospective clients as contemplated by this
Agreement will not prevent him from being employed or earning a livelihood in
the type of business conducted by the Company. If any of the covenants contained
in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographic area or by reason of its being too extensive in any other respect,
the parties agree (x) such covenant shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and/or over the maximum
geographic areas as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
the court or arbitration panel making such determination and (y) in its reduced
form, such covenant shall then be enforceable, but such reduced form of
agreement shall only apply with respect to the operation of this paragraph 8 in
the particular jurisdiction in which such adjudication is made.
12
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, he will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the
13
<PAGE>
invalid or unenforceable part had been severed and deleted. The respective
rights and obligations of the parties hereunder shall survive the termination of
the Executive's employment to the extent necessary to the intended preservation
of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Kyle Shannon
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Fax: (212) 228-0311
IF TO THE COMPANY:
14
<PAGE>
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman, Esq.
1111 Chautauqua Boulevard.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of
conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company, including without limitation, the employment agreement
dated September 12, 1996 by and between the Executive and the Company, are
nullified and superseded hereby .
19. ARBITRATION
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy
15
<PAGE>
for resolving any such dispute, regardless of its nature; provided, however,
that the Company may enforce the Executive's obligations under paragraphs 8 and
9 hereof by an action for injunctive relief and damages in a court of competent
jurisdiction at any time prior or subsequent to the commencement of an
arbitration proceeding as herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the New York, New York office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay the costs and
fees of its counsel or other representative and its own filing or administrative
fees. The non-prevailing party (as determined by the arbitrator) shall bear the
fees and costs of the arbitrator.
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision to be fully admissible in
evidence, given great weight by any finder of fact, and treated as determinative
to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in New York, New York in such location as agreed to by the Company
and the Executive. If
16
<PAGE>
the parties cannot agree upon a location for the arbitration, the arbitrator
shall determine the location within New York, New York.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HIS EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise
17
<PAGE>
in the future, the Executive will not disparage the Company; and the Company
will not disparage the Executive.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME: Kenneth Trush
TITLE: CFO
/s/ Kyle Shannon
------------------------------------
KYLE SHANNON
19
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and KEVIN ROWE (the
"EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on April 30, 2002 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of expiration of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on April 30,
2002) and may be given at any time on or after January 31, 2002. The Company
shall have the right at any time during such 90 day notice period, to relieve
the Executive of his offices, duties and responsibilities and to place him on a
paid leave-of-absence status, provided that during such notice period the
Executive shall remain a full-time employee of the Company and shall continue to
receive his salary compensation and other benefits as provided in this
Agreement. The effective date of the termination of the Executive's employment
with the Company, regardless of the reason therefor, is referred to in this
Agreement as the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
President, North America of the Company. The Executive shall report to the Chief
Executive Officer of the Company (the "CEO") (provided that the CEO shall have
the right to designate the COO as the person to whom the Executive shall report,
and in such event references in this document to the CEO shall be deemed to be
made to the COO), at such times and in such detail as he shall reasonably
require.
(b) The Executive shall perform such executive and managerial
duties and responsibilities customary to his offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to him from time to time by or under authority of the CEO, consistent
with his positions as designated in paragraph 3(a) above.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the CEO.
2
<PAGE>
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out his duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted to engage in charitable and civic activities, and manage his
personal passive investments, provided that such passive investments are not in
a company which transacts business with the Company or one of its subsidiaries
or engages in business competitive with that conducted by the Company or one of
its subsidiaries (or, if such company does transact business with the Company or
a subsidiary or does engage in a competitive business, it is a publicly held
corporation of which the Executive owns less than 1/4 of 1% of its outstanding
shares); provided, that such activities (individually or collectively) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in Chicago, Illinois, subject to
necessary travel requirements of his position and duties hereunder (with it
being understood and agreed that the Executive's being required to travel on a
basis consistent with past practices will not be deemed to be a breach of this
Agreement).
4. COMPENSATION
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices an annualized base
salary of $150,000. The Executive's base salary may be increased (but not
decreased) by or under the authority of the CEO in accordance with the then
salary review policy of the Company and within the guidelines and budgetary
procedures of the Company.
(b) In addition to the salary compensation set forth in (a)
above, the Executive shall be entitled to receive guaranteed bonus compensation
in the amount of $100,000 per calendar year. Such bonus compensation shall be
payable in a lump sum immediately following the calendar year in question.
(c) In addition to the bonus compensation set forth in (b)
above, the Executive shall be eligible to receive a discretionary
performance-based bonus of up to $250,000 per calendar year. The relevant
performance criteria shall be agreed between the Executive and the CEO at the
start of each calendar year; it is understood that significant growth shall form
an integral part of these criteria.
3
<PAGE>
(d) The Executive shall be eligible to participate in such
additional management incentive compensation plans and programs that the Company
may from time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of his services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the Executive seeks
payment or reimbursement, and any other information or materials, as the Company
may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis), to be taken at such time(s) as
shall not, in the reasonable judgment of the Board, materially interfere with
the Executive's fulfillment of his duties hereunder, and shall be entitled to as
many holidays, sick days and personal days as are in accordance with the
Company's policy then in effect generally for its employees.
(e) During the Term, the Company will provide the Executive
with an automobile allowance not to exceed $600 per month to cover the costs of
leasing, insuring, garaging and maintaining an automobile for use in the
business of the Company.
4
<PAGE>
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "CAUSE" effective upon the
giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote his attention exclusively to the
business and affairs of the Company and its subsidiaries in
accordance with the terms hereof (other than by reason of his
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a
5
<PAGE>
Notice of Termination given by the Executive under paragraph 2
above or a termination by the Executive for "Good Reason" (as
defined in paragraph 6(b) below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for cause and the
arbitrator appointed pursuant to paragraph 19 below determines that "cause" as
defined herein was not present, then such purported termination for cause shall
be deemed a termination by the Company "without cause" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company. "GOOD REASON" shall be limited to a
breach by the Company of a material term of this Agreement, which breach remains
uncured for a period of 30 days after written notice of such breach from the
Executive to the Company (such notice to specify the specific nature of the
claimed breach and the manner in which the Executive requires such breach to be
cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for debts or money due to the Company or an
affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
6
<PAGE>
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company.
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the Executive shall be
entitled to continue to receive from the Company, subject to any Offsets, the
following:
(i) as severance compensation, his then applicable
base salary when otherwise payable through (x) April 30, 2002
if the Date of Termination occurs on or prior to January 31,
2002 or (y) 90 days from the Date of Termination, if such
termination occurs after January 31, , 2002;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all medical, dental,
disability and life insurance coverage (such benefits
collectively called the "CONTINUED PLANS") in which he was
participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) until
the earlier of (x) the end of the period that he
7
<PAGE>
receives severance compensation payments under clause (i) of
this paragraph 6(d) or (y) the date, or dates, he is entitled
to receive coverage and benefits under the same type of plan
of a subsequent employer; provided, however, if the Executive
is precluded from continuing his participation in any
Continued Plan, the after-tax economic equivalent of the
benefits provided under the Continued Plan in which he is
unable to participate, for the period specified above, it
being understood that the economic equivalent of a benefit
foregone shall be deemed the lowest cost that would be
incurred by the Executive in obtaining such benefit himself on
an individual basis, and payment of such after-tax economic
benefit shall be made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of thoseoptions theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company, and (y) the Executive shall be under
no obligation to mitigate his damages or to seek other employment and if the
Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this paragraph 6(d) is conditioned upon the
Executive signing a general release of the Company and its subsidiaries and
affiliates, and its and their respective successors and assigns, officers
directors, employees, agents, attorneys and representatives, of any claims
(including claims of discrimination) relating to the Executive's employment with
the Company or the termination thereof; except such release shall preserve the
Executive's rights with respect to the payments and benefits to be received
pursuant to this paragraph 6(d) and the Executive's rights of indemnification
under the Company's organizational documents and any separate director or
officer indemnification agreement with the Company to which he may be a party.
Such release shall be in the form then being used by the Company in connection
with severance arrangements; it being understood, however that such release
shall not increase the Executive's non-solicitation/non-servicing and protection
of confidential information obligations to the Company beyond that set forth in
paragraph 8 of this Agreement. If the Executive breaches any provisions of such
release or the provisions of paragraph 8 of this Agreement, in addition to any
other remedies at law or in equity available to it, the Company may cease making
any further severance payments and providing the other benefits provided for in
this paragraph 6(d), without affecting its rights under this Agreement or the
release.
8
<PAGE>
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company he has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with the
Company placed and places him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services to
the clients of the Company necessarily requires the disclosure to the Executive
of confidential information (as defined in paragraph 8(b) below) of the Company.
In the course of the Executive's employment with the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that he is employed by the Company and thereafter
through the later of (x) April 30, 2002 and (y) two years after the Date of
Termination, he shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for his ceasing to be employed by the
Company:
9
<PAGE>
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through his
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company; or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause, it
is agreed that a "new business presentation or similar offering of services" or
a "discussion" does not include general mailings, telephone solicitations,
unsolicited credentials presentations not responding to requests for proposals
or incidental contacts. In addition, if the client is part of a group of
companies which conducts business through more than one entity, division or
operating unit, whether or not separately incorporated (a "CLIENT GROUP"), the
term "CLIENT" as used herein shall include each entity, division and operating
unit of the Client Group where the same management group of the Client Group has
the decision making authority with respect to contracting for services of the
type rendered by the Company, BUT shall not include any part of the Client Group
where the management group is not the same management group that has the
decision making authority or significant influence with respect to contracting
for services of the type rendered by the Company.
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company
10
<PAGE>
defaults in the payment to the Executive of any severance compensation when due
under the provisions of paragraph 6(d)(i) above, which default is not cured
within 30 days after written notice thereof to the Company by the Executive, the
restrictions set forth in this paragraph 8(a) shall terminate unless the Company
pays the Executive all amounts then due to the Executive as determined by the
arbitration panel, in which case such restrictions shall remain in full force
and effect. During the pendency of any dispute as to whether the Company is
justified in ceasing to make such severance payments as permitted under the
provisions of paragraph 6(d) above, the restrictions set forth in this paragraph
8(a) shall remain in full force and effect.
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for his own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the public other than by
breach of this provision or (ii) the Executive learns from a third party who is
not under an obligation of confidence to the Company or a client of the Company.
In the event that the Executive becomes legally required to disclose any
confidential information, he 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 8(b) to permit a
particular disclosure. 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 8(b) to permit a particular disclosure, the Executive will
furnish only that portion of the confidential information which he is legally
required to disclose and, at the Company's expense, will cooperate with the
efforts of the Company to obtain a protective order or other reliable assurance
that confidential treatment will be accorded the confidential information. The
Executive further agrees that all memoranda, disks, files, notes, records or
other documents, whether in electronic form or hard copy (collectively, the
"MATERIAL") compiled by him or made available to him during his employment with
the Company (whether or not the material contains confidential information)
shall be the property of the Company and shall be delivered to the Company on
the termination of the Executive's employment with the Company or at any other
time upon
11
<PAGE>
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of the
material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout the United
States and other areas of the world, and (iii) that the time, scope, geographic
area and other provisions of this paragraph 8 have been specifically negotiated
by sophisticated commercial parties. It is further understood and agreed that
the clients of the Company may be serviced from any location and accordingly it
is reasonable that the covenants set forth herein are not limited by narrow
geographic area but generally by the location of such clients and potential
clients. The Executive specifically acknowledges that his being restricted from
soliciting and servicing clients and prospective clients as contemplated by this
Agreement will not prevent him from being employed or earning a livelihood in
the type of business conducted by the Company. If any of the covenants contained
in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographic area or by reason of its being too extensive in any other respect,
the parties agree (x) such covenant shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and/or over the maximum
geographic areas as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
the court or arbitration panel making such determination and (y) in its reduced
form, such covenant shall then be enforceable, but such reduced form of
agreement shall only apply with respect to the operation of this paragraph 8 in
the particular jurisdiction in which such adjudication is made.
12
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, he will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the
13
<PAGE>
invalid or unenforceable part had been severed and deleted. The respective
rights and obligations of the parties hereunder shall survive the termination of
the Executive's employment to the extent necessary to the intended preservation
of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Kevin Rowe
Agency.Com Ltd.
400 West Erie, Suite 504
Chicago, IL 60610
Fax: (212) 867-5940
IF TO THE COMPANY:
14
<PAGE>
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman, Esq.
1111 Chautauqua Boulevard.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of
conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company, including without limitation, the employment agreement
by and between the Executive and Eagle River Interactive Inc., are nullified and
superseded hereby .
19. ARBITRATION
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy
15
<PAGE>
for resolving any such dispute, regardless of its nature; provided, however,
that the Company may enforce the Executive's obligations under paragraphs 8 and
9 hereof by an action for injunctive relief and damages in a court of competent
jurisdiction at any time prior or subsequent to the commencement of an
arbitration proceeding as herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the New York, New York office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay the costs and
fees of its counsel or other representative and its own filing or administrative
fees. The non-prevailing party (as determined by the arbitrator) shall bear the
fees and costs of the arbitrator.
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision to be fully admissible in
evidence, given great weight by any finder of fact, and treated as determinative
to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in New York, New York in such location as agreed to by the Company
and the Executive. If
16
<PAGE>
the parties cannot agree upon a location for the arbitration, the arbitrator
shall determine the location within New York, New York.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HIS EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise
17
<PAGE>
in the future, the Executive will not disparage the Company; and the Company
will not disparage the Executive.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME: Kenneth Trush
TITLE: CFO
/s/ Kevin Rowe
------------------------------------
KEVIN ROWE
19
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and KENNETH TRUSH (the
"EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on March 31, 2002 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of expiration of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on March 31,
2002) and may be given at any time on or after December 31, 2001. The Company
shall have the right at any time during such 90 day notice period, to relieve
the Executive of his offices, duties and responsibilities and to place him on a
paid leave-of-absence status, provided that during such notice period the
Executive shall remain a full-time employee of the Company and shall continue to
receive his salary compensation and other benefits as provided in this
Agreement. The effective date of the termination of the Executive's employment
with the Company, regardless of the reason therefor, is referred to in this
Agreement as the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
Chief Financial Officer of the Company or Chief Growth Officer of the Company,
as the parties may agree. The Executive shall report to the Chief Executive
Officer of the Company (the "CEO"), at such times and in such detail as he shall
reasonably require.
(b) The Executive shall perform such executive and managerial
duties and responsibilities customary to his offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to him from time to time by or under authority of the CEO, consistent
with his positions as designated in paragraph 3(a) above.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the CEO.
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out his duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted to engage in charitable and civic activities, and manage his
personal passive investments, provided that such passive investments are not in
a company which transacts business with the Company or one of its subsidiaries
or engages in business competitive with that conducted by the Company or one of
its subsidiaries (or, if such company does transact business with the Company or
a subsidiary or does engage in a competitive business, it is a publicly held
corporation of which the Executive owns less than 1/4 of 1% of its outstanding
shares); provided, that such activities (individually or collectively) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in New York, New York, subject to
necessary travel requirements of his position and duties hereunder.
4. COMPENSATION
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8
2
<PAGE>
below, during the Term the Company shall pay the Executive in accordance with
its normal payroll practices an annualized base salary of $150,000. The
Executive's base salary may be increased (but not decreased) by or under the
authority of the CEO in accordance with the then salary review policy of the
Company and within the guidelines and budgetary procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of his services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the Executive seeks
payment or reimbursement, and any other information or materials, as the Company
may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis, except as otherwise provided under
standard Company policy), to be taken at such time(s) as shall not, in the
reasonable judgment of the Board, materially interfere with the Executive's
fulfillment of his duties hereunder, and shall be entitled to as
3
<PAGE>
many holidays, sick days and personal days as are in accordance with the
Company's policy then in effect generally for its employees.
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "CAUSE" effective upon the
giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote his attention exclusively to the
business and affairs of the Company and its subsidiaries in
accordance with the terms hereof (other than by reason of his
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
4
<PAGE>
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for cause and the
arbitrator appointed pursuant to paragraph 19 below determines that "cause" as
defined herein was not present, then such purported termination for cause shall
be deemed a termination by the Company "without cause" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company. "GOOD REASON" shall be limited to a
breach by the Company of a material term of this Agreement, which breach remains
uncured for a period of 30 days after written notice of such breach from the
Executive to the Company (such notice to specify the specific nature of the
claimed breach and the manner in which the Executive requires such breach to be
cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for debts or money due to the Company or an
affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
5
<PAGE>
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company.
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the Executive shall be
entitled to continue to receive from the Company, subject to any Offsets, the
following:
(i) as severance compensation, his then applicable
base salary when otherwise payable through (x) March 31, 2002
if the Date of Termination occurs on or prior to December 31,
2001 or (y) 90 days from the Date of Termination, if such
termination occurs after December 31, 2001;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all medical, dental,
disability and life insurance coverage (such benefits
collectively called the "CONTINUED PLANS") in which he was
participating on the Date of Termination (as such Continued
Plans are from time to time in
6
<PAGE>
effect at the Company) until the earlier of (x) the end of the
period that he receives severance compensation payments under
clause (i) of this paragraph 6(d) or (y) the date, or dates,
he is entitled to receive coverage and benefits under the same
type of plan of a subsequent employer; provided, however, if
the Executive is precluded from continuing his participation
in any Continued Plan, the after-tax economic equivalent of
the benefits provided under the Continued Plan in which he is
unable to participate, for the period specified above, it
being understood that the economic equivalent of a benefit
foregone shall be deemed the lowest cost that would be
incurred by the Executive in obtaining such benefit himself on
an individual basis, and payment of such after-tax economic
benefit shall be made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company, and (y) the Executive shall be under
no obligation to mitigate his damages or to seek other employment and if the
Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this paragraph 6(d) is conditioned upon the
Executive signing a general release of the Company and its subsidiaries and
affiliates, and its and their respective successors and assigns, officers
directors, employees, agents, attorneys and representatives, of any claims
(including claims of discrimination) relating to the Executive's employment with
the Company or the termination thereof; except such release shall preserve the
Executive's rights with respect to the payments and benefits to be received
pursuant to this paragraph 6(d) and the Executive's rights of indemnification
under the Company's organizational documents and any separate director or
officer indemnification agreement with the Company to which he may be a party.
Such release shall be in the form then being used by the Company in connection
with severance arrangements; it being understood, however that such release
shall not increase the Executive's non-solicitation/non-servicing and protection
of confidential information obligations to the Company beyond that set forth in
paragraph 8 of this Agreement. If the Executive breaches any provisions of such
release or the provisions of paragraph 8 of this Agreement, in addition to any
other remedies at law or in equity available to it, the Company
7
<PAGE>
may cease making any further severance payments and providing the other benefits
provided for in this paragraph 6(d), without affecting its rights under this
Agreement or the release.
8
<PAGE>
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company he has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with the
Company placed and places him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services to
the clients of the Company necessarily requires the disclosure to the Executive
of confidential information (as defined in paragraph 8(b) below) of the Company.
In the course of the Executive's employment with the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that he is employed by the Company and thereafter
through the later of (x) March 31, 2002 and (y) two years after the Date of
Termination, he shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for his ceasing to be employed by the
Company:
9
<PAGE>
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through his
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company; or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause, it
is agreed that a "new business presentation or similar offering of services" or
a "discussion" does not include general mailings, telephone solicitations,
unsolicited credentials presentations not responding to requests for proposals
or incidental contacts. In addition, if the client is part of a group of
companies which conducts business through more than one entity, division or
operating unit, whether or not separately incorporated (a "CLIENT GROUP"), the
term "CLIENT" as used herein shall include each entity, division and operating
unit of the Client Group where the same management group of the Client Group has
the decision making authority with respect to contracting for services of the
type rendered by the Company, BUT shall not include any part of the Client Group
where the management group is not the same management group that has the
decision making authority or significant influence with respect to contracting
for services of the type rendered by the Company.
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company
10
<PAGE>
defaults in the payment to the Executive of any severance compensation when due
under the provisions of paragraph 6(d)(i) above, which default is not cured
within 30 days after written notice thereof to the Company by the Executive, the
restrictions set forth in this paragraph 8(a) shall terminate unless the Company
pays the Executive all amounts then due to the Executive as determined by the
arbitration panel, in which case such restrictions shall remain in full force
and effect. During the pendency of any dispute as to whether the Company is
justified in ceasing to make such severance payments as permitted under the
provisions of paragraph 6(d) above, the restrictions set forth in this paragraph
8(a) shall remain in full force and effect.
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for his own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the public other than by
breach of this provision or (ii) the Executive learns from a third party who is
not under an obligation of confidence to the Company or a client of the Company.
In the event that the Executive becomes legally required to disclose any
confidential information, he 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 8(b) to permit a
particular disclosure. 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 8(b) to permit a particular disclosure, the Executive will
furnish only that portion of the confidential information which he is legally
required to disclose and, at the Company's expense, will cooperate with the
efforts of the Company to obtain a protective order or other reliable assurance
that confidential treatment will be accorded the confidential information. The
Executive further agrees that all memoranda, disks, files, notes, records or
other documents, whether in electronic form or hard copy (collectively, the
"MATERIAL") compiled by him or made available to him during his employment with
the Company (whether or not the material contains confidential information)
shall be the property of the Company and shall be delivered to the Company on
the termination of the Executive's employment with the Company or at any other
time upon
11
<PAGE>
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of the
material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout the United
States and other areas of the world, and (iii) that the time, scope, geographic
area and other provisions of this paragraph 8 have been specifically negotiated
by sophisticated commercial parties. It is further understood and agreed that
the clients of the Company may be serviced from any location and accordingly it
is reasonable that the covenants set forth herein are not limited by narrow
geographic area but generally by the location of such clients and potential
clients. The Executive specifically acknowledges that his being restricted from
soliciting and servicing clients and prospective clients as contemplated by this
Agreement will not prevent him from being employed or earning a livelihood in
the type of business conducted by the Company. If any of the covenants contained
in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographic area or by reason of its being too extensive in any other respect,
the parties agree (x) such covenant shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and/or over the maximum
geographic areas as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
the court or arbitration panel making such determination and (y) in its reduced
form, such covenant shall then be enforceable, but such reduced form of
agreement shall only apply with respect to the operation of this paragraph 8 in
the particular jurisdiction in which such adjudication is made.
12
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, he will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the
13
<PAGE>
invalid or unenforceable part had been severed and deleted. The respective
rights and obligations of the parties hereunder shall survive the termination of
the Executive's employment to the extent necessary to the intended preservation
of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Kenneth Trush
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Fax: (212) 358-8256
IF TO THE COMPANY:
14
<PAGE>
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Executive Officer
Fax: (212) 358-8259
with a copy to:
Janet Ambrosi Wertman, Esq.
1111 Chautauqua Blvd.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of
conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company are nullified and superseded hereby .
19. ARBITRATION
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy for resolving any
such dispute, regardless of its nature; provided, however, that the Company
15
<PAGE>
may enforce the Executive's obligations under paragraphs 8 and 9 hereof by an
action for injunctive relief and damages in a court of competent jurisdiction at
any time prior or subsequent to the commencement of an arbitration proceeding as
herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the New York, New York office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay the costs and
fees of its counsel or other representative and its own filing or administrative
fees. The non-prevailing party (as determined by the arbitrator) shall bear the
fees and costs of the arbitrator.
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision to be fully admissible in
evidence, given great weight by any finder of fact, and treated as determinative
to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in New York, New York in such location as agreed to by the Company
and the Executive. If
16
<PAGE>
the parties cannot agree upon a location for the arbitration, the arbitrator
shall determine the location within New York, New York.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HIS EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise
17
<PAGE>
in the future, the Executive will not disparage the Company; and the Company
will not disparage the Executive.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Chan Suh
---------------------------------
NAME: Chan Suh
TITLE: CEO
/s/ Kenneth Trush
------------------------------------
KENNETH TRUSH
19
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and EAMONN WILMOTT (the
"EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to continue to employ the
Executive and the Executive wishes to accept such employment upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date of this Agreement and expiring on the close of
business on March 31, 2002 (the "INITIAL TERM"); provided, however, the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of termination of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on March 31,
2002) and may be given at any time on or after December 31, 2001. The Company
shall have the right at any time during such 90 day notice period, to require
the Executive to resign any directorships and to relieve the Executive of his
offices, duties and responsibilities and to place him on a paid leave-of-absence
status, provided that during such notice period the Executive shall remain a
full-time employee of the Company and shall continue to receive his salary
compensation and other benefits as provided in this Agreement. The effective
date of the termination of the Executive's employment with the Company,
regardless of the reason therefor, is referred to in this Agreement as the "DATE
OF
<PAGE>
TERMINATION".
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the positions of
President, Europe of the Company, and Managing Director of Online Magic Ltd., a
wholly-owned subsidiary of the Company. The Executive shall report to the Chief
Executive Officer of the Company (the "CEO"), at such times and in such detail
as the CEO shall reasonably require.
(b) The Executive shall perform such executive and managerial
duties and responsibilities customary to his offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to him from time to time by or under authority of the CEO, consistent
with his positions as designated in paragraph 3(a) above.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the CEO.
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out his duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted to engage in charitable and civic activities, and manage his
personal passive investments, provided that such passive investments are not in
a company which transacts business with the Company or one of its subsidiaries
or engages in business competitive with that conducted by the Company or one of
its subsidiaries (or, if such company does transact business with the Company or
a subsidiary or does engage in a competitive business, it is a publicly held
corporation of which the Executive owns less than 1/4 of 1% of its outstanding
shares); provided, that such activities (individually or collectively) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in London, England, subject to
necessary travel requirements of his position and duties hereunder.
4. COMPENSATION
2
<PAGE>
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices (currently payment
monthly in arrears by direct credit transfer to the Executive's bank account) an
annualized base salary of (pound)93,050. The Executive's base salary may be
increased (but not decreased) by or under the authority of the CEO in accordance
with the then salary review policy of the Company and within the guidelines and
budgetary procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of his services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the Executive seeks
payment or reimbursement, and any other information or materials, as the Company
may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
3
<PAGE>
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis, except as otherwise provided under
standard Company policy), to be taken at such time(s) as shall not, in the
reasonable judgment of the Board, materially interfere with the Executive's
fulfillment of his duties hereunder, and shall be entitled to as many sick days
and personal days as are in accordance with the Company's policy then in effect
generally for its employees. The Company shall pay statutory sick pay ("SSP") in
accordance with statutory regulations from time to time in force. Any payment by
the Company in respect of any day of absence due to sickness shall be set off
against its liability to pay SSP.
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "SERIOUS MISCONDUCT"
effective upon the giving of written notice. The term "serious misconduct" shall
be limited to the following grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote his attention exclusively to the
business and affairs of the Company and its subsidiaries in
accordance with the terms hereof (other than by reason of his
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) the Executive committing any criminal offense
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or
4
<PAGE>
business relationships of the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for serious misconduct
and a court determines that "serious misconduct" as defined herein was not
present, then such purported termination for serious misconduct shall be deemed
a termination by the Company "without serious misconduct" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company. "GOOD REASON" shall be limited to a
breach by the Company of a material term of this Agreement, which breach remains
uncured for a period of 30 days after written notice of such breach from the
Executive to the Company (such notice to specify the specific nature of the
claimed breach and the manner in which the Executive requires such breach to be
cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without serious misconduct" or a
termination for "Good Reason" by the Executive, the Executive shall be entitled
to the following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for debts or money due to the Company or an
affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
5
<PAGE>
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without serious misconduct" or a
termination by the Executive for "Good Reason", except as provided in this
paragraph 6(c), the Company shall have no further liability to the Executive or
the Executive's heirs, beneficiaries or estate for damages, compensation,
benefits, severance, indemnities or other amounts of whatever nature, directly
or indirectly, arising out of or otherwise related to this Agreement and the
Executive's employment or cessation of employment with the Company.
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without serious misconduct"
by giving written notice to the Executive indicating that the Company has
terminated the Agreement "without serious misconduct" under this paragraph 6(d)
and setting forth the Date of Termination. In the event of a termination by the
Company "without serious misconduct" or a termination by the Executive for "Good
Reason", the Executive shall be entitled to continue to receive from the
Company, subject to any Offsets, the following:
(i) as severance compensation, his then applicable
base salary which would otherwise have been payable through
(x) March 31, 2002 if the Date of Termination occurs on or
prior to December 31, 2001 or (y) 90 days from the Date of
Termination, if such termination occurs after December 31,
2001;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any
6
<PAGE>
incentive compensation plan in which he participated as an
employee of the Company, in the manner and in accordance with
the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all medical, dental,
disability and life insurance coverage (such benefits
collectively called the "CONTINUED PLANS") in which he was
participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) until
the earlier of (x) the end of the period that he receives
severance compensation payments under clause (i) of this
paragraph 6(d) or (y) the date, or dates, he is entitled to
receive coverage and benefits under the same type of plan of a
subsequent employer; provided, however, if the Executive is
precluded from continuing his participation in any Continued
Plan, the after-tax economic equivalent of the benefits
provided under the Continued Plan in which he is unable to
participate, for the period specified above, it being
understood that the economic equivalent of a benefit foregone
shall be deemed the lowest cost that would be incurred by the
Executive in obtaining such benefit himself on an individual
basis, and payment of such after-tax economic benefit shall be
made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without serious misconduct" or
by the Executive for "Good Reason", except as provided in this paragraph 6(d),
(x) the Company shall have no further liability to the Executive or the
Executive's heirs, beneficiaries or estate for damages, compensation, benefits,
severance, indemnities or other amounts of whatever nature, directly or
indirectly, arising out of or otherwise related to this Agreement and the
Executive's employment or cessation of employment with the Company, and (y) the
Executive shall be under no obligation to mitigate his damages or to seek other
employment and if the Executive obtains other employment, any compensation
earned by the Executive therefrom shall not reduce the Company's severance
obligations under clause (i) of this paragraph 6(d). The making of any severance
payments and providing the other benefits as provided in this paragraph 6(d) is
conditioned upon the Executive signing a general release of the Company and its
subsidiaries and affiliates, and its and their respective successors and
assigns, officers directors, employees, agents, attorneys and representatives,
of any claims (including claims of discrimination) relating to the Executive's
employment with the Company or the termination thereof; including any claims
under any United Kingdom statute, except such release shall preserve the
Executive's rights with respect to the payments
7
<PAGE>
and benefits to be received pursuant to this paragraph 6(d) and the Executive's
rights of indemnification under the Company's organizational documents and any
separate director or officer indemnification agreement with the Company to which
he may be a party. Such release shall be in the form then being used by the
Company in connection with severance arrangements; it being understood, however
that such release shall not increase the Executive's
non-solicitation/non-servicing and protection of confidential information
obligations to the Company beyond that set forth in paragraph 8 of this
Agreement. If the Executive breaches any provisions of such release or the
provisions of paragraph 8 of this Agreement, in addition to any other remedies
at law or in equity available to it, the Company may cease making any further
severance payments and providing the other benefits provided for in this
paragraph 6(d), without affecting its rights under this Agreement or the
release.
8
<PAGE>
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company he has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that his
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and his position with the
Company placed and places him in a position of confidence and trust with the
clients and employees of the Company; and (iv) that his rendering of services to
the clients of the Company necessarily requires the disclosure to the Executive
of confidential information (as defined in paragraph 8(b) below) of the Company.
In the course of the Executive's employment with the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that he is employed by the Company and thereafter
through the later of (x) March 31, 2002 and (y) two years after the Date of
Termination, he shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for his ceasing to be employed by the
Company:
9
<PAGE>
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through his
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company
(provided that this clause shall not apply to those employed
in a junior administrative or secretarial position); or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause, it
is agreed that a "new business presentation or similar offering of services" or
a "discussion" does not include general mailings, telephone solicitations,
unsolicited credentials presentations not responding to requests for proposals
or incidental contacts. In addition, if the client is part of a group of
companies which conducts business through more than one entity, division or
operating unit, whether or not separately incorporated (a "CLIENT GROUP"), the
term "CLIENT" as used herein shall include each entity, division and operating
unit of the Client Group where the same management group of the Client Group has
the decision making authority with respect to contracting for services of the
type rendered by the Company, BUT shall not include any part of the Client Group
where the management group is not the same management group that has the
decision making authority or significant influence with respect to contracting
for services of the type rendered by the Company.
10
<PAGE>
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company defaults in the payment to the Executive of any severance
compensation when due under the provisions of paragraph 6(d)(i) above, which
default is not cured within 30 days after written notice thereof to the Company
by the Executive, the restrictions set forth in this paragraph 8(a) shall
terminate unless the Company pays the Executive all amounts then due to the
Executive as determined by the relevant court, in which case such restrictions
shall remain in full force and effect. During the pendency of any dispute as to
whether the Company is justified in ceasing to make such severance payments as
permitted under the provisions of paragraph 6(d) above, the restrictions set
forth in this paragraph 8(a) shall remain in full force and effect (but only for
the time period set forth herein).
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for his own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the public other than by
breach of this provision or (ii) the Executive learns from a third party who is
not under an obligation of confidence to the Company or a client of the Company.
In the event that the Executive becomes legally required to disclose any
confidential information, he will provide the Company with prompt notice thereof
so that the Company may seek an injunction or other appropriate remedy and/or
waive compliance with the provisions of this paragraph 8(b) to permit a
particular disclosure. In the event that such injunction or other remedy is not
obtained, or that the Company waives compliance with the provisions of this
paragraph 8(b) to permit a particular disclosure, the Executive will furnish
only that portion of the confidential information which he is legally required
to disclose and, at the Company's expense, will cooperate with the efforts of
the Company to obtain an injunction or other reliable assurance that
confidential treatment will be accorded the confidential information. The
Executive further agrees that all memoranda, disks, files, notes, records or
other documents, whether in electronic form or hard copy (collectively, the
"MATERIAL") compiled by him or made available to him during his employment with
the Company (whether or not the material contains confidential information)
shall be the
11
<PAGE>
property of the Company and shall be delivered to the Company on the termination
of the Executive's employment with the Company or at any other time upon
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that he will not make or retain copies or excerpts of the
material.
(c) It is acknowledged and agreed that any breach or
threatened breach of paragraphs 8(a) or (b) above will cause irreparable injury
to the Company and that money damages will not provide an adequate remedy to the
Company. In addition, the Company may take all such other actions and remedies
available to it under law or in equity and shall be entitled to such damages as
it can show they have sustained by reason of such breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout Europe and
other areas of the world, and (iii) that the time, scope, geographic area and
other provisions of this paragraph 8 have been specifically negotiated by
sophisticated commercial parties. It is further understood and agreed that the
clients of the Company may be serviced from any location and accordingly it is
reasonable that the covenants set forth herein are not limited by narrow
geographic area but generally by the location of such clients and potential
clients. The Executive specifically acknowledges that his being restricted from
soliciting and servicing clients and prospective clients as contemplated by this
Agreement will not prevent him from being employed or earning a livelihood in
the type of business conducted by the Company. If any of the covenants contained
in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographic area or by reason of its being too extensive in any other respect,
the parties agree (x) such covenant shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and/or over the maximum
geographic areas as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
the court or arbitration panel making such determination and (y) in its reduced
form, such covenant shall then be enforceable, but such reduced form of
agreement shall only apply with respect to the operation of this paragraph 8 in
the particular jurisdiction in which such adjudication is made.
12
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, he will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the
13
<PAGE>
invalid or unenforceable part had been severed and deleted. The respective
rights and obligations of the parties hereunder shall survive the termination of
the Executive's employment to the extent necessary to the intended preservation
of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Eamonn Wilmott
Online Magic, an Agency.Com company
8 Crinan Street
Battlebridge Basin
London, England N1 9SQ
Fax: 011-44-171-573-5959
IF TO THE COMPANY:
14
<PAGE>
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman, Esq.
1111 Chautauqua Boulevard.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of England and the parties submit to the non-exclusive
jurisdiction of the U.K. courts.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company are nullified and superseded hereby .
19. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
20. MISCELLANEOUS
15
<PAGE>
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise in the future, the Executive will not disparage the Company; and
the Company will not disparage the Executive.
(c) The particulars of employment required to be given by the
Employment Rights Act 1996 are annexed to this Agreement as Schedule 1.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME: Kenneth Trush
TITLE: CFO
/s/ Eamonn Wilmott
------------------------------------
EAMONN WILMOTT
17
<PAGE>
SCHEDULE TO EMPLOYMENT AGREEMENT MADE BY AGENCY.COM LTD.,
A NEW YORK CORPORATION ("THE COMPANY") AND EAMONN WILMOTT ("THE EXECUTIVE")
This Schedule constitutes a statement of particulars of employment provided
pursuant to Section 1 of the Employment Rights Act 1996. Insofar as the contents
of this schedule and the employment agreement conflict, the terms of the
employment agreement will prevail.
1. Employer: Agency.Com Limited, 665 Broadway, New York, NY10012.
2. Employee: Eamonn Wilmott, 8 Crinan Street, Battlebridge Basin, London,
England, N1 9SQ.
3. Date of commencement of employment: October 2, 1997
4. Date of commencement of continuous employment: October 2, 1997
5. Salary: (pound)93,050 payable in monthly instalments by direct credit
transfer to the Executive's nominated bank account.
6. Hours of work: the Executive's hours of work shall be normal office
hours of the Company and such other hours as may be required for the
proper performance of the Executive's duties. The Executive confirms
and agrees that the Executive's working time is not measured for the
purposes of the Working Time Regulations 1998.
7. Holiday: the Executive shall be entitled to 20 working days holiday per
annum. On termination, the Executive shall be entitled to payment in
lieu of any days holiday accrued but untaken, calculated on the basis
of base salary only. The Executive shall, in addition, be entitled to
United Kingdom statutory bank or public holidays.
8. Sick pay: the Executive shall be entitled to statutory sick pay in
accordance with the legislation in force at the time of absence. Any
payment of remuneration to the Executive by the Company for a day of
absence due to sickness will be set off against the Company's
obligation to pay statutory sick pay for that day. The Executive may be
required to comply with such reporting procedures as the Company may
from time to time notify to the Executive.
9. Pension: there is no pension plan of which the Executive is presently
entitled to membership. There is no contracting out certificate in
force in respect of the employment of the Executive.
10. Notice period: either party may terminate the employment of the
Executive by giving the other 90 days' advance written notice, provided
that such notice may not expire before 30 March 2002.
18
<PAGE>
11. Job title: the Executive is employed as President, Europe.
12. Place of work: the Executive's principal place of work shall be the
offices of the Company in London. The Executive may be required to
travel to such place in the world as the Company may require. In the
event that the Executive is required to work outside the United Kingdom
for more than a month, the Executive will be notified separately of any
particular terms and conditions relating to that employment.
13. Collective agreements: there are no collective agreements which
directly affect the terms and conditions of employment of the
Executive.
14. Disciplinary and complaints procedures: the Company will observe good
practice in taking any disciplinary action against the Executive.
However, the Executive acknowledges that, given his seniority and
responsibilities, it may not be appropriate to issue warnings prior to
giving notice of termination. In the event that the Executive has any
grievance in relation to his employment, he should raise this with the
Chief Executive Officer of the Company. The decision of the Chief
Executive Officer shall be final.
19
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and LAWRENCE KRAKAUER
(the "EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on March 31, 2002 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of expiration of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on March 31,
2002) and may be given at any time on or after December 31, 2001. The Company
shall have the right at any time during such 90 day notice period, to relieve
the Executive of his offices, duties and responsibilities and to place him on a
paid leave-of-absence status, provided that during such notice period the
Executive shall remain a full-time employee of the Company and shall continue to
receive his salary compensation and other benefits as provided in this
Agreement. During any such paid leave-of-absence, the Executive shall have the
right to seek other employment without forfeiting any of his rights hereunder.
The effective date of the termination of the Executive's employment with the
Company, regardless of the reason therefor, is referred to in this Agreement as
the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
Chief Technology Officer of the Company. The Executive shall report to the Chief
Executive Officer of the Company (the "CEO"), at such times and in such detail
as he shall reasonably require.
(b) The Executive shall be responsible for technology
leadership for the Company and in connection therewith shall perform such
executive and managerial duties and responsibilities customary to his office and
as are reasonably necessary to the operations of the Company and its
subsidiaries and as may be assigned to him from time to time by or under
authority of the CEO, consistent with his positions as designated in paragraph
3(a) above. In addition, the Executive will participate as a member of the
Company's senior executive management.
(c) The Executive (i) will use his best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO and (ii)
will not incur obligations on behalf of the Company or any subsidiary other than
in the ordinary course of business or enter into any transaction on behalf of
the Company or any subsidiary not in the ordinary course of business without the
approval of the CEO.
2
<PAGE>
(d) The Executive's employment by the Company shall be
full-time and exclusive, and during the Term, the Executive agrees that he will
(i) devote all of his business time and attention, his best efforts, and all of
his skill and ability to promote the interests of the Company and its
subsidiaries in furtherance of his duties hereunder, (ii) carry out his duties
in a competent and professional manner, and (iii) work with other employees of
the Company and its subsidiaries in a competent and professional manner.
Notwithstanding the foregoing, the Executive shall be permitted to (x) engage in
charitable and civic activities, and (y) provide business advice and assistance
to friends and family (it being acknowledged by the Company that the Executive
has in the past and may in the future provide such assistance), and (z) manage
his personal passive investments, provided that such businesses operated by
friends or family or such passive investments are not in a company which
transacts business with the Company or one of its subsidiaries or engages in
business competitive with that conducted by the Company or one of its
subsidiaries (or, if such company does transact business with the Company or a
subsidiary or does engage in a competitive business, it is a publicly held
corporation of which the Executive owns less than 1/4 of 1% of its outstanding
shares); provided, that such activities (individually or collectively) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement.
(e) During the Term, the Executive's services hereunder shall be
performed at the offices of the Company in Boston, Massachusetts, subject to
reasonable and necessary travel requirements of his position and duties
hereunder.
4. COMPENSATION
(a) As compensation for his services hereunder and in
consideration of his non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices an annualized base
salary of $150,000. The Executive's base salary may be increased (but not
decreased) by or under the authority of the CEO in accordance with the then
salary review policy of the Company and within the guidelines and budgetary
procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of his services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to
3
<PAGE>
obtaining such payment or reimbursement, shall provide to the Company any and
all statements, bills or receipts evidencing the travel or out-of-pocket
expenses for which the Executive seeks payment or reimbursement, and any other
information or materials, as the Company may from time to time reasonably
require.
(b) During the Term, the Executive and, to the extent
eligible, his dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, family medical, disability and life insurance programs, accidental
death and dismemberment protection and business travel insurance), subject,
however, to the generally applicable eligibility and other provisions of the
various plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to participate in
all retirement plans and programs (including without limitation any profit
sharing/401(k) plan) and stock option and restricted stock plans made available
generally to the Company's senior executives or to its employees generally,
subject, however, to the generally applicable eligibility and other provisions
of the various plans and programs in effect from time to time. In addition,
during the Term, the Executive shall be entitled to receive fringe benefits and
perquisites in accordance with the plans, practices, programs and policies of
the Company from time to time in effect which are made available generally to
the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to paid vacation as
provided under standard Company policy, to be taken at such time(s) as shall
not, in the reasonable judgment of the CEO, materially interfere with the
Executive's fulfillment of his duties hereunder, and shall be entitled to as
many holidays, sick days and personal days as are in accordance with the
Company's policy as in effect generally for its employees on January 1, 1999.
(e) During the Term, the Company will reimburse the Executive
for his costs, if any, of, garaging an automobile at the offices of the Company.
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "CAUSE" effective upon the
giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform his duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of his
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote his attention exclusively to the
business and affairs of the
4
<PAGE>
Company and its subsidiaries in accordance with the terms
hereof (other than by reason of his disability), in each case
if such failure or refusal is not cured within 30 days after
written notice thereof to the Executive by the Company;
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary (other than
immaterial tangible property such as small office supplies);
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereofto the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN (1) pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or (2) a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company reasonably requires such breach to be cured (if
curable). In the event that the Executive is purportedly terminated for cause
and the arbitrator appointed pursuant to paragraph 19 below determines that
"cause" as defined herein was not present, then such purported termination for
cause shall be deemed a termination by the Company "without cause" pursuant to
paragraph 6(d) below and the Executive's rights and remedies will be governed by
paragraph
5
<PAGE>
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement permitting the Company to terminate the
Executive for "cause", the Executive shall be entitled to terminate this
Agreement and the Term hereunder for "Good Reason" at any time during the Term
by written notice to the Company.
"GOOD REASON" shall be limited to the following grounds:
(i) a breach by the Company of a material term of this
Agreement (including Section 3 and specifically 3(e), except as
provided in (ii) below), which breach remains uncured for a period of
30 days after written notice of such breach from the Executive to the
Company (such notice to specify the specific nature of the claimed
breach and the manner in which the Executive requires such breach to be
cured);
(ii) a reduction by the Company in the Executive's title; and
(iii) the conviction of the Company or a subsidiary of the
Company of a crime classified as a felony under any Federal, state or
local laws, or other crime which injures or could reasonably be
expected to injure the reputation, business relationships or
marketability of the Executive.
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for monies due to the Company or an affiliate
thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which he participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
6
<PAGE>
(iii) the right to exercise any vested option and the
continued vesting of any unvested options (if any) shall be
determined in accordance with the terms of the plan under
which such option was granted and the vesting schedule
applicable to such options.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
or other amounts of whatever nature pursuant to this Agreement .
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the Executive shall be
entitled to continue to receive from the Company, subject to any Offsets, the
following:
(i) as severance compensation, his then applicable
base salary when otherwise payable through (x) March 31, 2002
if the Date of Termination occurs on or prior to December 31,
2001 or (y) 90 days from the Date of Termination, if such
termination occurs after December 31, 2001;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which he
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which he
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all, medical
(including family medical), dental (including family dental),
disability and life insurance coverage and other welfare
benefits and programs (such benefits collectively called the
"CONTINUED PLANS") in which he was
7
<PAGE>
participating on the Date of Termination until the earlier of
(x) the end of the period that he receives severance
compensation payments under clause (i) of this paragraph 6(d)
or (y) the date, or dates, he is entitled to receive coverage
and benefits under the same type of plan of a subsequent
employer; provided, however, if the Executive is precluded
from continuing his participation in any Continued Plan or if
the Company effects any changes in its Continued Plans, or if
any Continued Plan does not provide to the Executive a level
of benefits at least commensurate with the level at which he
was participating on the Date of Termination, the economic
equivalent of the benefits provided under the Continued Plan
in which he is unable to participate, grossed up by the
related tax liability, for the period specified above, it
being understood that the economic equivalent of a benefit
foregone shall be deemed the lowest cost that would be
reasonably incurred by the Executive in obtaining such benefit
himself on an individual basis, for himself and his
dependents, as the case may be, and payment of such amount
shall be made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
or other amounts pursuant to this Agreement , and (y) the Executive shall be
under no obligation to mitigate his damages or to seek other employment and if
the Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this paragraph 6(d) is conditioned upon the
Executive signing a release of the Company and its subsidiaries and affiliates,
and its and their respective successors and assigns, officers directors,
employees, agents, attorneys and representatives, acknowledging the fulfillment
by the Company of all its obligations under this Agreement ; except such release
shall preserve the Executive's rights with respect to the payments and benefits
to be received pursuant to this paragraph 6(d) and the Executive's rights of
indemnification under the Company's organizational documents and any separate
director indemnification agreement with the Company to which he may be a party.
If the Executive breaches any provisions of the provisions of paragraph 8 of
this Agreement, in addition to any other remedies at law or in equity available
to it, the Company may cease making any further severance payments and providing
the other benefits provided for in this paragraph 6(d), without affecting its
rights under this Agreement or the release; provided that, upon request of the
Executive, the Company shall make such payments into an interest-bearing escrow
8
<PAGE>
account during the pendency of any dispute as to whether the Company is
justified in ceasing to make such payments.
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform his
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to him. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of Quadris he has participated in and as a key
executive of the Company he will continue to participate in the servicing of
current clients of the Company and/or the solicitation of prospective clients of
the Company, through which, among other things, the Executive has obtained and
will continue to obtain knowledge of the "know-how" and business practices of
the Company, in which matters the Company has a substantial proprietary
interest; (iii) that his employment hereunder requires the performance of
services which are special, unique, extraordinary and intellectual in character,
and his position with Quadris placed and his position with the Company will
place him in a position of confidence and trust with the clients and employees
of the Company; and (iv) that his rendering of services to the clients of the
Company necessarily requires the disclosure to the Executive of confidential
information (as defined in paragraph 8(b) below) of the Company. In the course
of the Executive's employment with Quadris and the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that he is employed by the Company and thereafter
through the later of (x) March 31, 2002 and (y) two years after the Date of
Termination, he shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
9
<PAGE>
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for his ceasing to be employed by the
Company:
(i) attempt in any manner to solicit or accept from
any client business of the type performed (or proposed to be
performed, within the limitations set forth below) by the
Company for such client or to persuade any client to cease to
do business or to reduce the amount of business which any such
client has customarily done or is reasonably expected to do
with the Company, whether or not the relationship between the
Company and such client was originally established in whole or
in part through his efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any such
employee of or such exclusive consultant to the Company to
leave the employ of the Company or to become employed as an
employee or retained as a consultant by anyone other than the
Company; or
(iii) render to or for any client any professional
services of the type rendered (or proposed to be rendered,
within the limitations set forth below) by the Company to or
for such client.
It is expressly acknowledged and agreed that the Executive may be employed by or
provide consulting services to or have an ownership interest in, any person,
business or enterprise which undertakes any of the foregoing activities provided
that the Executive does not directly participate in such activities and that no
person who directly reports to him participates in such activities. It is
further acknowledged and agreed that the limitation against rendering
professional services shall not limit the Executive's ability to sell or license
products.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the six month period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). Promptly following the
Determination Date, the Company shall provide to the Executive a list of all
clients (the entities, operating units
10
<PAGE>
and divisions) of the Company as used herein, which list shall form the basis of
the Executive's covenants pursuant to this Section 8. For purposes of this
clause, it is agreed that a "new business presentation or similar offering of
services" or a "discussion" does not include general mailings, telephone
solicitations, unsolicited credentials presentations not responding to requests
for proposals or incidental contacts but means a formal presentation. In
addition, if any client for whom the Company does NOT serve as "agency of
record" or in a similar capacity is part of a group of companies or conducts
business through more than one entity, division or operating unit, whether or
not separately incorporated (a "CLIENT GROUP"), the term "CLIENT" as used herein
shall include each entity, division and operating unit of the Client Group where
the same management group of the Client Group has the implementing role or
significant influence with respect to contracting for services of the type
rendered by the Company (but not necessarily the ultimate decision-making
authority), BUT shall not include any part of the Client Group where the
management group is not the same management group that has the implementing role
or significant influence with respect to contracting for services of the type
rendered by the Company, it being understood that the Company may have limited
contact with the ultimate decision maker, who may have authority over divisions
with which the Company has no previous relationship such that the Executive
should not be prevented from dealing with such other divisions by virtue of the
covenants contained herein .
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company defaults in the payment to the Executive of any severance
compensation when due under the provisions of paragraph 6(d)(i) above, which
default is not cured within 20 days after written notice thereof to the Company
by the Executive, the restrictions set forth in this paragraph 8(a) shall
terminate unless the Company pays the Executive all amounts then due to the
Executive as determined by the arbitration panel, in which case such
restrictions shall remain in full force and effect. During the pendency of any
dispute as to whether the Company is justified in ceasing to make such severance
payments as permitted under the provisions of paragraph 6(d) above, the
restrictions set forth in this paragraph 8(a) shall remain in full force and
effect.
(b) In the course of the Executive's employment with the
Company he will acquire and have access to confidential or proprietary
information of the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any
11
<PAGE>
confidential information, or utilize such confidential information for his own
benefit, or for the benefit of third parties. The Executive agrees that the
foregoing restrictions shall apply whether or not any such information is marked
"confidential". The term "confidential information" does not include information
which (i) is or becomes generally available to the public other than by breach
of this provision or (ii) the Executive learns from a third party who he in good
faith and reasonably believes is not under an obligation of confidence to the
Company or a client of the Company. In the event that the Executive becomes
legally required to disclose any confidential information by law or legal or
similar proceeding, he 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 8(b) to permit a
particular disclosure. In the event that such protective order or other remedy
is not obtained within the time frame of the required disclosure, or that the
Company waives compliance with the provisions of this paragraph 8(b) to permit a
particular disclosure, the Executive will furnish only that portion of the
confidential information which he is legally required to disclose and, at the
Company's expense, will cooperate with the efforts of the Company to obtain a
protective order or other reliable assurance that confidential treatment will be
accorded the confidential information. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents, whether in
electronic form or hard copy (collectively, the "MATERIAL") compiled by him or
made available to him during his employment with the Company (whether or not the
material contains confidential information) which relates to the Company or its
clients shall be the property of the Company and shall be delivered to the
Company on the termination of the Executive's employment with the Company or at
any other time upon request. Except in connection with the Executive's
employment with the Company, the Executive agrees that he will not make or
retain copies or excerpts of the material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently
12
<PAGE>
extends throughout the United States and other areas of the world, and that the
Executive will engage in such business pursuant to the terms of this Agreement
throughout the United States and other areas of the world, and (iii) that the
time, scope, geographic area and other provisions of this paragraph 8 have been
specifically negotiated by sophisticated commercial parties. It is further
understood and agreed that the clients of the Company may be serviced from any
location and accordingly it is reasonable that the covenants set forth herein
are not limited by narrow geographic area but generally by the location of such
clients and potential clients. The Executive specifically acknowledges that his
being restricted from soliciting and servicing clients and prospective clients
as contemplated by this Agreement will not prevent him from being employed or
earning a livelihood in the type of business conducted by the Company. If any of
the covenants contained in paragraphs 8(a) or (b), or any part thereof, is held
to be unenforceable by reason of its extending for too great a period of time or
over too great a geographic area or by reason of its being too extensive in any
other respect, the parties agree (x) such covenant shall be interpreted to
extend only over the maximum period of time for which it may be enforceable
and/or over the maximum geographic areas as to which it may be enforceable
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by the court or arbitration panel making such
determination and (y) in its reduced form, such covenant shall then be
enforceable, but such reduced form of agreement shall only apply with respect to
the operation of this paragraph 8 in the particular jurisdiction in which such
adjudication is made.
13
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by him during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable, except to the extent arising out of activities
described in item (y) of paragraph 3(d). The Executive agrees that all patents,
licenses, copyrights, tradenames, trademarks, service marks, planning, marketing
and/or creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of his employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company, except to the extent arising out
of activities described in item (y) of paragraph 3(d). The Executive agrees,
that at the Company's request and expense, he will take all steps necessary to
secure the rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The Company may not assign its rights or
obligations hereunder without the prior consent of the Executive. .
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be
14
<PAGE>
invalid or unenforceable for any reason, in whole or in part, the remaining
provisions of this Agreement shall nevertheless be binding upon the parties with
the same effect as though the invalid or unenforceable part had been severed and
deleted. The respective rights and obligations of the parties hereunder shall
survive the termination of the Executive's employment to the extent necessary to
the intended preservation of such rights and obligations.
14. INSURANCE
(a) The Executive agrees that the Company shall have the right
to obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
(b) In the event that the Company directly, or indirectly
through a direct or indirect parent corporation, consummates a public offering
of its capital stock, the Company shall obtain officers and directors liability
insurance which will provide coverage for the Executive in his capacity as an
officer of the Company.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Lawrence Krakauer
9 Webster Lane
Wayland, Massachusetts 01778
Fax: (508) 358-1673
with a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention: Abigail R. Hechtman, Esq.
15
<PAGE>
Fax: (617) 865-8201
IF TO THE COMPANY:
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
with a copy to:
Janet Ambrosi Wertman, Esq.
.1111 Chautauqua Blvd.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without
application of conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that he is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent him from
entering into this Agreement or which would be breached by the Executive upon
his performance of his duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company are nullified and superseded hereby .
19. ARBITRATION
16
<PAGE>
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy for resolving any
such dispute, regardless of its nature; provided, however, that the Company may
enforce the Executive's obligations under paragraphs 8 and 9 hereof by an action
for injunctive relief and damages in a court of competent jurisdiction at any
time prior or subsequent to the commencement of an arbitration proceeding as
herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the Boston, Massachusetts office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay its own filing or
administrative fees. The non-prevailing party (as determined by the arbitrator)
shall bear the fees and costs of the arbitrator and the reasonable fees and
costs of the prevailing party's counsel or other representative.
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision
17
<PAGE>
to be fully admissible in evidence, given great weight by any finder of fact,
and treated as determinative to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in Boston, Massachusetts in such location as agreed to by the Company
and the Executive. If the parties cannot agree upon a location for the
arbitration, the arbitrator shall determine the location within Boston,
Massachusetts.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HIS EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL
MISREPRESENTATION; NEGLIGENT OR INTENTIONAL INTERFERENCE WITH
CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
18
<PAGE>
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise in the future, the Executive will not disparage the Company; and
the Company will not disparage the Executive.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME:
TITLE:
/s/ Lawrence Krakauer
------------------------------------
LAWRENCE KRAKAUER
20
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
AGREEMENT made this 28th day of April, 1999, by and between
AGENCY.COM LTD., a New York corporation (the "COMPANY"), and JANET AMBROSI
WERTMAN (the "EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company wishes to employ the Executive and the
Executive wishes to accept such employment upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. EMPLOYMENT
The Company agrees to employ the Executive during the Term
specified in paragraph 2, and the Executive agrees to accept such employment,
upon the terms and conditions hereinafter set forth.
2. TERM
Subject to paragraphs 6 and 7 below and the other terms and
conditions of this Agreement, the Executive's employment by the Company shall be
for a term commencing on the date hereof and expiring on the close of business
on March 31, 2002 (the "INITIAL TERM"); provided, however, the term of the
Executive's employment by the Company shall continue for an indefinite period
thereafter unless and until either party shall give to the other 90 days advance
written notice of expiration of the term (a "NOTICE OF TERMINATION") (the
Initial Term and the period, if any, thereafter, during which the Executive's
employment shall continue are collectively referred to as the "TERM"). Any
Notice of Termination given under this paragraph 2(a), shall specify the date of
expiration (which may not be earlier than the close of business on March 31,
2002) and may be given at any time on or after December 31, 2001. The Company
shall have the right at any time during such 90 day notice period, to relieve
the Executive of her offices, duties and responsibilities and to place her on a
paid leave-of-absence status, provided that during such notice period the
Executive shall remain an employee of the Company and shall continue to receive
her salary compensation and other benefits as provided in this Agreement. The
effective date of the termination of the Executive's employment with the
Company, regardless of the reason therefor, is referred to in this Agreement as
the "DATE OF TERMINATION".
<PAGE>
3. DUTIES AND RESPONSIBILITIES
(a) During the Term, the Executive shall have the position of
Executive Vice President, General Counsel of the Company. The Executive shall
report to the Chief Executive Officer of the Company (the "CEO") and the Chief
Financial Officer of the Company (the "CFO"), at such times and in such detail
as they shall reasonably require. In addition, the Executive shall serve as
Secretary of the Company without additional compensation.
(b) The Executive shall be the chief legal officer of the
Company, and in connection therewith shall perform such executive and managerial
duties and responsibilities customary to her offices and as are reasonably
necessary to the operations of the Company and its subsidiaries and as may be
assigned to her from time to time by or under authority of the CEO or CFO,
consistent with her positions as designated in paragraph 3(a) above.
(c) The Executive (i) will use her best reasonable efforts to
ensure that the Company and its subsidiaries comply on a timely basis with all
budgetary and reporting requirements reasonably requested by the CEO or CFO and
(ii) will not incur obligations on behalf of the Company or any subsidiary other
than in the ordinary course of business or enter into any transaction on behalf
of the Company or any subsidiary not in the ordinary course of business without
the approval of the CEO or CFO.
2
<PAGE>
(d) The Executive's employment by the Company shall be
exclusive, and during the Term, the Executive agrees that she will (i) devote at
least four days of her business time and attention, her best efforts, and all of
her skill and ability to promote the interests of the Company and its
subsidiaries, (ii) carry out her duties in a competent and professional manner,
and (iii) work with other employees of the Company and its subsidiaries in a
competent and professional manner. Notwithstanding the foregoing, the Executive
shall be permitted to engage in charitable and civic activities, and manage her
personal passive investments, provided that such passive investments are not in
a company which transacts business with the Company or one of its subsidiaries
or engages in business competitive with that conducted by the Company or one of
its subsidiaries (or, if such company does transact business with the Company or
a subsidiary or does engage in a competitive business, it is a publicly held
corporation of which the Executive owns less than 1/4 of 1% of its outstanding
shares); provided, that such activities (individually or collectively) do not
materially interfere with the performance of the Executive's duties and
responsibilities under this Agreement.
(e) During the Term, the Executive's services hereunder shall
be performed at the offices of the Company in Los Angeles, California, subject
to necessary travel requirements of her position and duties hereunder.
4. COMPENSATION
(a) As compensation for her services hereunder and in
consideration of her non-solicitation/non-servicing and non-disclosure covenants
as set forth in paragraph 8 below, during the Term the Company shall pay the
Executive in accordance with its normal payroll practices an annualized base
salary of $120,000. The Executive's base salary may be increased (but not
decreased) by or under the authority of the CEO or CFO in accordance with the
then salary review policy of the Company and within the guidelines and budgetary
procedures of the Company.
(b) The Executive shall be eligible to participate in such
management incentive compensation plans and programs that the Company may from
time to time institute.
5. EXPENSES; FRINGE BENEFITS
(a) The Company agrees to pay or to reimburse the Executive
for all reasonable, ordinary and necessary documented business or entertainment
expenses incurred during the Term in the performance of her services hereunder
in accordance with the policy of the Company as from time to time in effect. The
Executive, as a condition precedent to obtaining such payment or reimbursement,
shall provide to the Company any and all statements, bills or receipts
evidencing the travel or out-of-pocket expenses for which the
3
<PAGE>
Executive seeks payment or reimbursement, and any other information or
materials, as the Company may from time to time reasonably require.
(b) During the Term, the Executive and, to the extent
eligible, her dependents, shall be entitled to participate in and receive all
benefits under any welfare benefit plans and programs made available generally
to the Company's senior executives or to its employees (including without
limitation, medical, disability and life insurance programs, accidental death
and dismemberment protection and business travel insurance), subject, however,
to the generally applicable eligibility and other provisions of the various
plans and programs in effect from time to time.
(c) During the Term, the Executive shall be eligible to
participate in all retirement plans and programs (including without limitation
any profit sharing/401(k) plan) and stock option and restricted stock plans made
available generally to the Company's senior executives or to its employees
generally, subject, however, to the generally applicable eligibility and other
provisions of the various plans and programs in effect from time to time. In
addition, during the Term, the Executive shall be entitled to receive fringe
benefits and perquisites in accordance with the plans, practices, programs and
policies of the Company from time to time in effect which are made available
generally to the Company's senior executives or to its employees generally.
(d) The Executive shall be entitled to four weeks paid
vacation annually (on a non-cumulative basis, except as otherwise provided under
standard Company policy), to be taken at such time(s) as shall not, in the
reasonable judgment of the Board, materially interfere with the Executive's
fulfillment of her duties hereunder, and shall be entitled to as many holidays,
sick days and personal days as are in accordance with the Company's policy then
in effect generally for its employees.
6. TERMINATION
(a) The Company, by direction of the CEO, shall be entitled to
terminate the Term and to discharge the Executive for "CAUSE" effective upon the
giving of written notice. The term "cause" shall be limited to the following
grounds:
(i) the Executive's repeated failure or refusal to
materially perform her duties and responsibilities as set
forth in paragraph 3 hereof other than by reason of her
disability (as defined in paragraph 7 below), or the failure
of the Executive to devote her attention exclusively to the
business and affairs of the Company and its subsidiaries in
accordance with the terms hereof (other than by reason of her
disability), in each case if such failure or refusal is not
cured within 30 days after written notice thereof to the
Executive by the Company;
4
<PAGE>
(ii) the willful misappropriation of the funds or
property of the Company or any subsidiary;
(iii) use of alcohol or illegal drugs, materially
interfering with the performance of the Executive's
obligations under this Agreement, continuing after written
warning;
(iv) conviction in a court of law of, or entering a
plea of guilty or no contest to, any felony or any crime
involving moral turpitude, dishonesty or theft;
(v) the material nonconformance with the Company's
standard business practices and policies, including without
limitation, policies against racial or sexual discrimination
or harassment, made known to the Executive, which
nonconformance is not cured (if curable) within 30 days after
written notice to the Executive by the Company;
(vi) the commission in bad faith by the Executive of
any act which injures or could reasonably be expected to
injure the reputation, business or business relationships of
the Company or any subsidiary;
(vii) any material breach (not covered by any of the
clauses (i) through (vi) above) of any term, provision or
condition of this Agreement, if such breach is not cured (if
curable) within 30 days after written notice thereof to the
Executive by the Company; and
(viii) a voluntary resignation by the Executive OTHER
THAN pursuant to a Notice of Termination given by the
Executive under paragraph 2 above or a termination by the
Executive for "Good Reason" (as defined in paragraph 6(b)
below).
Any notice required to be given by the Company pursuant to clause (i), (v) or
(vii) above shall specify the specific nature of the claimed breach and the
manner in which the Company requires such breach to be cured (if curable). In
the event that the Executive is purportedly terminated for cause and the
arbitrator appointed pursuant to paragraph 19 below determines that "cause" as
defined herein was not present, then such purported termination for cause shall
be deemed a termination by the Company "without cause" pursuant to paragraph
6(d) below and the Executive's rights and remedies will be governed by paragraph
6(d) below, in full satisfaction and in lieu of any and all other or further
remedies the Executive may have.
(b) Provided that the Executive is not then otherwise in
material breach of this Agreement, the Executive shall be entitled to terminate
this Agreement and the Term hereunder for "Good Reason" at any time during the
Term by written notice to the Company.
5
<PAGE>
"GOOD REASON" shall be limited to a breach by the Company of a material term of
this Agreement, which breach remains uncured for a period of 30 days after
written notice of such breach from the Executive to the Company (such notice to
specify the specific nature of the claimed breach and the manner in which the
Executive requires such breach to be cured).
(c) In the event of the termination of the employment of the
Executive with the Company for any reason (including without limitation, a
termination pursuant to a Notice of Termination under paragraph 2 above) OTHER
THAN by virtue of a termination by the Company "without cause" or a termination
for "Good Reason" by the Executive, the Executive shall be entitled to the
following payments and benefits, subject to any appropriate offsets, as
permitted by applicable law, for debts or money due to the Company or an
affiliate thereof (collectively, "OFFSETS"):
(i) unpaid salary compensation and any unused accrued
vacation only through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;
(ii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable plans and programs in which she participated
as an employee of the Company, and all amounts earned, accrued
or owing to the Executive through the Date of Termination
under any incentive compensation plan or program in which she
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs; and
(iii) the right to exercise any vested option and the
vesting of any unvested option shall be determined in
accordance with the terms of the plan under which such option
was granted.
In the event of the termination of the Employee's employment OTHER THAN by
virtue of a termination by the Company "without cause" or a termination by the
Executive for "Good Reason", except as provided in this paragraph 6(c), the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company.
(d) The Company shall have the right at any time during the
Term to terminate the employment of the Executive "without cause" by giving
written notice to the Executive indicating that the Company has terminated the
Agreement "without cause" under this paragraph 6(d) and setting forth the Date
of Termination. In the event of a termination by the Company "without cause" or
a termination by the Executive for "Good Reason", the
6
<PAGE>
Executive shall be entitled to continue to receive from the Company, subject to
any Offsets, the following:
(i) as severance compensation, her then applicable
base salary when otherwise payable through (x) March 31, 2002
if the Date of Termination occurs on or prior to December 31,
2001 or (y) 90 days from the Date of Termination, if such
termination occurs after December 31, 2001;
(ii) any unpaid reimbursable expenses outstanding,
and any unused accrued vacation, as of the Date of
Termination;
(iii) all benefits, if any, that had accrued to the
Executive through the Date of Termination under the plans and
programs described in paragraphs 5(b) and (c) above, or any
other applicable benefit plans and programs in which she
participated as an employee of the Company, and all amounts
earned, accrued or owing to the Executive through the Date of
Termination under any incentive compensation plan in which she
participated as an employee of the Company, in the manner and
in accordance with the terms of such plans and programs;
(iv) continued participation on the same basis
(including without limitation, cost contributions) as the
other senior executives of the Company in all medical, dental,
disability and life insurance coverage (such benefits
collectively called the "CONTINUED PLANS") in which she was
participating on the Date of Termination (as such Continued
Plans are from time to time in effect at the Company) until
the earlier of (x) the end of the period that she receives
severance compensation payments under clause (i) of this
paragraph 6(d) or (y) the date, or dates, she is entitled to
receive coverage and benefits under the same type of plan of a
subsequent employer; provided, however, if the Executive is
precluded from continuing her participation in any Continued
Plan, the after-tax economic equivalent of the benefits
provided under the Continued Plan in which she is unable to
participate, for the period specified above, it being
understood that the economic equivalent of a benefit foregone
shall be deemed the lowest cost that would be incurred by the
Executive in obtaining such benefit herself on an individual
basis, and payment of such after-tax economic benefit shall be
made quarterly in advance; and
(v) the right to exercise any vested option shall be
determined in accordance with the terms of the plan under
which such option was granted; provided, however, that the
vesting of those options theretofore granted to the Executive
and which would have vested during the period set forth in
Section 6(d)(i) shall be accelerated to precede the Date of
Termination.
7
<PAGE>
In connection with a termination by the Company "without cause" or by the
Executive for "Good Reason", except as provided in this paragraph 6(d), (x) the
Company shall have no further liability to the Executive or the Executive's
heirs, beneficiaries or estate for damages, compensation, benefits, severance,
indemnities or other amounts of whatever nature, directly or indirectly, arising
out of or otherwise related to this Agreement and the Executive's employment or
cessation of employment with the Company, and (y) the Executive shall be under
no obligation to mitigate her damages or to seek other employment and if the
Executive obtains other employment, any compensation earned by the Executive
therefrom shall not reduce the Company's severance obligations under clause (i)
of this paragraph 6(d). The making of any severance payments and providing the
other benefits as provided in this paragraph 6(d) is conditioned upon the
Executive signing a general release of the Company and its subsidiaries and
affiliates, and its and their respective successors and assigns, officers
directors, employees, agents, attorneys and representatives, of any claims
(including claims of discrimination) relating to the Executive's employment with
the Company or the termination thereof; except such release shall preserve the
Executive's rights with respect to the payments and benefits to be received
pursuant to this paragraph 6(d) and the Executive's rights of indemnification
under the Company's organizational documents and any separate director or
officer indemnification agreement with the Company to which she may be a party.
Such release shall be in the form then being used by the Company in connection
with severance arrangements; it being understood, however that such release
shall not increase the Executive's non-solicitation/non-servicing and protection
of confidential information obligations to the Company beyond that set forth in
paragraph 8 of this Agreement. If the Executive breaches any provisions of such
release or the provisions of paragraph 8 of this Agreement, in addition to any
other remedies at law or in equity available to it, the Company may cease making
any further severance payments and providing the other benefits provided for in
this paragraph 6(d), without affecting its rights under this Agreement or the
release.
8
<PAGE>
7. DISABILITY; DEATH
In the event the Executive shall be unable to perform her
duties hereunder by virtue of illness or physical or mental incapacity or
disability (from any cause or causes whatsoever) in substantially the manner and
to the extent required hereunder prior to the commencement of such disability
(all such causes being herein referred to as "DISABILITY") and the Executive
shall fail to perform such duties for periods aggregating 270 days, whether or
not continuous, in any continuous period of 360 days, the Company shall have the
right to terminate the Executive's employment hereunder as at the end of any
calendar month during the continuance of such disability upon at least 30 days'
prior written notice to her. In the event of the Executive's death, the Date of
Termination shall be the date of such death.
8. NON-SOLICITATION/NON-SERVICING AGREEMENT AND PROTECTION OF
CONFIDENTIAL INFORMATION
(a) The Executive acknowledges (i) the highly competitive
nature of the Company's business and the industry in which the Company competes;
(ii) that as a key executive of the Company she has participated in and will
continue to participate in the servicing of current clients of the Company
and/or the solicitation of prospective clients of the Company, through which,
among other things, the Executive has obtained and will continue to obtain
knowledge of the "know-how" and business practices of the Company, in which
matters the Company has a substantial proprietary interest; (iii) that her
employment hereunder requires the performance of services which are special,
unique, extraordinary and intellectual in character, and her position with the
Company placed and places her in a position of confidence and trust with the
clients and employees of the Company; and (iv) that her rendering of services to
the clients of the Company necessarily requires the disclosure to the Executive
of confidential information (as defined in paragraph 8(b) below) of the Company.
In the course of the Executive's employment with the Company, the Executive has
and will continue to develop a personal relationship with the clients of the
Company and a knowledge of those clients' affairs and requirements, and that the
relationship of the Company with its established clientele has been and will
continue to be placed in the Executive's hands in confidence and trust. The
Executive consequently agrees that it is reasonable and necessary for the
protection of the confidential information, goodwill and business of the Company
that the Executive make the covenants contained herein and that the Company
would not have entered into this Agreement unless the covenants set forth in
this paragraph 8 were contained in this Agreement. Accordingly, the Executive
agrees that during the period that she is employed by the Company and thereafter
through the later of (x) March 31, 2002 and (y) two years after the Date of
Termination, she shall not, as an individual, consultant, partner, shareholder,
employee or in any other capacity whatsoever, or in association with any other
person, business or enterprise, except on behalf of the Company, directly or
indirectly, and regardless of the reason for her ceasing to be employed by the
Company:
9
<PAGE>
(i) attempt in any manner to solicit or accept from
any client business of the type performed by the Company or to
persuade any client to cease to do business or to reduce the
amount of business which any such client has customarily done
or is reasonably expected to do with the Company, whether or
not the relationship between the Company and such client was
originally established in whole or in part through her
efforts; or
(ii) employ as an employee or retain as a consultant
any person who is then or at any time during the preceding
twelve months was an employee of or exclusive consultant to
the Company, or persuade or attempt to persuade any employee
of or exclusive consultant to the Company to leave the employ
of the Company or to become employed as an employee or
retained as a consultant by anyone other than the Company; or
(iii) render to or for any client any services of the
type rendered by the Company.
As used in this paragraph 8, the term "COMPANY" shall mean the Company and each
of its subsidiaries and the term "CLIENT" shall mean (1) anyone who is a client
of the Company on the Date of Termination or, if the Executive's employment
shall not have terminated, at the time of the alleged prohibited conduct (any
such applicable date being called the "DETERMINATION DATE"); (2) anyone who was
a client of the Company at any time during the one year period immediately
preceding the Determination Date; (3) any prospective client to whom the Company
had made a new business presentation (or similar offering of services) at any
time during the one year period immediately preceding the Determination Date;
and (4) any prospective client to whom the Company made a new business
presentation (or similar offering of services) at any time within six months
after the Date of Termination (but only if the initial discussions between the
Company and such prospective client relating to the rendering of services
occurred prior to the Date of Termination, and only if the Executive
participated in or supervised such discussions). For purposes of this clause, it
is agreed that a "new business presentation or similar offering of services" or
a "discussion" does not include general mailings, telephone solicitations,
unsolicited credentials presentations not responding to requests for proposals
or incidental contacts. In addition, if the client is part of a group of
companies which conducts business through more than one entity, division or
operating unit, whether or not separately incorporated (a "CLIENT GROUP"), the
term "CLIENT" as used herein shall include each entity, division and operating
unit of the Client Group where the same management group of the Client Group has
the decision making authority with respect to contracting for services of the
type rendered by the Company, BUT shall not include any part of the Client Group
where the management group is not the same management group that has the
decision making authority or significant influence with respect to contracting
for services of the type rendered by the Company.
Notwithstanding anything to the contrary contained in this paragraph 8(a), if
the Company
10
<PAGE>
defaults in the payment to the Executive of any severance compensation when due
under the provisions of paragraph 6(d)(i) above, which default is not cured
within 30 days after written notice thereof to the Company by the Executive, the
restrictions set forth in this paragraph 8(a) shall terminate unless the Company
pays the Executive all amounts then due to the Executive as determined by the
arbitration panel, in which case such restrictions shall remain in full force
and effect. During the pendency of any dispute as to whether the Company is
justified in ceasing to make such severance payments as permitted under the
provisions of paragraph 6(d) above, the restrictions set forth in this paragraph
8(a) shall remain in full force and effect.
(b) In the course of the Executive's employment with the
Company she will acquire and have access to confidential or proprietary
information about the Company and/or its clients, including but not limited to,
trade secrets, methods, models, passwords, access to computer files, financial
information and records, computer software programs, agreements and/or contracts
between the Company and its clients, client contacts, the marketing and/or
creative policies and ideas, advertising campaigns, media plans and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections of the Company, and information about or received from
clients and other companies with which the Company does business. The foregoing
shall be collectively referred to as "CONFIDENTIAL INFORMATION". The Executive
is aware that the confidential information is not readily available to the
public and accordingly, the Executive also agrees that he will not at any time
(whether during the Term or after termination of this Agreement), disclose to
anyone any confidential information, or utilize such confidential information
for her own benefit, or for the benefit of third parties. The Executive agrees
that the foregoing restrictions shall apply whether or not any such information
is marked "confidential". The term "confidential information" does not include
information which (i) becomes generally available to the public other than by
breach of this provision or (ii) the Executive learns from a third party who is
not under an obligation of confidence to the Company or a client of the Company.
In the event that the Executive becomes legally required to disclose any
confidential information, she 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 8(b) to
permit a particular disclosure. 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 8(b) to permit a particular disclosure, the
Executive will furnish only that portion of the confidential information which
she is legally required to disclose and, at the Company's expense, will
cooperate with the efforts of the Company to obtain a protective order or other
reliable assurance that confidential treatment will be accorded the confidential
information. The Executive further agrees that all memoranda, disks, files,
notes, records or other documents, whether in electronic form or hard copy
(collectively, the "MATERIAL") compiled by her or made available to her during
her employment with the Company (whether or not the material contains
confidential information) shall be the property of the Company and shall be
delivered to the Company on the termination of the Executive's employment with
the Company or at any other time upon
11
<PAGE>
request. Except in connection with the Executive's employment with the Company,
the Executive agrees that she will not make or retain copies or excerpts of the
material.
(c) If the Executive commits a breach or is about to commit a
breach, of any of the provisions of paragraphs 8(a) or (b) above, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by the arbitrator appointed under paragraph 19 or by any court having
equity jurisdiction without being required to post bond or other security and
without having to prove the inadequacy of the available remedies at law, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it under law or in equity and shall be
entitled to such damages as it can show they have sustained by reason of such
breach.
(d) The parties acknowledge that (i) the type and periods of
restriction imposed in the provisions of paragraphs 8(a) and (b) above are fair
and reasonable and are reasonably required in order to protect and maintain the
proprietary interests of the Company described above, other legitimate business
interests of the Company and the goodwill associated with the business of the
Company, (ii) that the business of the Company currently extends throughout the
United States and other areas of the world, and that the Executive will engage
in such business pursuant to the terms of this Agreement throughout the United
States and other areas of the world, and (iii) that the time, scope, geographic
area and other provisions of this paragraph 8 have been specifically negotiated
by sophisticated commercial parties. It is further understood and agreed that
the clients of the Company may be serviced from any location and accordingly it
is reasonable that the covenants set forth herein are not limited by narrow
geographic area but generally by the location of such clients and potential
clients. The Executive specifically acknowledges that her being restricted from
soliciting and servicing clients and prospective clients as contemplated by this
Agreement will not prevent her from being employed or earning a livelihood in
the type of business conducted by the Company. If any of the covenants contained
in paragraphs 8(a) or (b), or any part thereof, is held to be unenforceable by
reason of its extending for too great a period of time or over too great a
geographic area or by reason of its being too extensive in any other respect,
the parties agree (x) such covenant shall be interpreted to extend only over the
maximum period of time for which it may be enforceable and/or over the maximum
geographic areas as to which it may be enforceable and/or to the maximum extent
in all other respects as to which it may be enforceable, all as determined by
the court or arbitration panel making such determination and (y) in its reduced
form, such covenant shall then be enforceable, but such reduced form of
agreement shall only apply with respect to the operation of this paragraph 8 in
the particular jurisdiction in which such adjudication is made.
12
<PAGE>
9. INTELLECTUAL PROPERTY
During the Term, the Executive will disclose to the Company
all ideas, inventions and business plans developed by her during such period
which relate directly or indirectly to the business of the Company and its
subsidiaries, including without limitation, any design, logo, slogan,
advertising campaign or any process, operation, product or improvement which may
be patentable or copyrightable. The Executive agrees that all patents, licenses,
copyrights, tradenames, trademarks, service marks, planning, marketing and/or
creative policies, advertising campaigns, media campaigns, and budgets,
practices, concepts, strategies, and methods of operations, financial or
business projections, designs, logos, slogans and business plans developed or
created by the Executive in the course of her employment hereunder, either
individually or in collaboration with others, will be deemed works for hire and
the sole and absolute property of the Company. The Executive agrees, that at the
Company's request and expense, she will take all steps necessary to secure the
rights thereto to the Company by patent, copyright or otherwise.
10. ENFORCEABILITY
The failure of any party at any time to require performance by
another party of any provision hereunder shall in no way affect the right of
that party thereafter to enforce the same, nor shall it affect any other party's
right to enforce the same, or to enforce any of the other provisions in this
Agreement; nor shall the waiver by any party of the breach of any provision
hereof be taken or held to be a waiver of any subsequent breach of such
provision or as a waiver of the provision itself.
11. ASSIGNMENT
This Agreement is a personal contract and the Executive's
rights and obligations hereunder may not be sold, transferred, assigned, pledged
or hypothecated by the Executive. The rights and obligations of the Company
hereunder shall be binding upon and run in favor of the successors and assigns
of the Company.
12. MODIFICATION
This Agreement may not be orally canceled, changed, modified
or amended, and no cancellation, change, modification or amendment shall be
effective or binding, unless in writing and signed by the parties to this
Agreement.
13. SEVERABILITY; SURVIVAL
In the event any provision or portion of this Agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall nevertheless be binding upon
the parties with the same effect as though the
13
<PAGE>
invalid or unenforceable part had been severed and deleted. The respective
rights and obligations of the parties hereunder shall survive the termination of
the Executive's employment to the extent necessary to the intended preservation
of such rights and obligations.
14. LIFE INSURANCE
The Executive agrees that the Company shall have the right to
obtain life insurance on the Executive's life, at the sole expense of the
Company, as the case may be, and with the Company as the sole beneficiary
thereof. The Executive shall (a) cooperate fully in obtaining such life
insurance, (b) sign any necessary consents, applications and other related forms
or documents and (c) at the Company's expense, take any reasonably required
medical examinations.
15. NOTICE
Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party shall be in writing and shall be
deemed effective (a) upon personal delivery, if delivered by hand, or (b) three
days after the date of deposit in the mails, postage prepaid if mailed by
certified or registered mail, or (c) on the next business day, if sent by
facsimile transmission (if electronically confirmed) or prepaid overnight
courier service, and in each case, addressed as follows:
IF TO THE EXECUTIVE:
Janet Ambrosi Wertman.
1111 Chautauqua Boulevard.
Pacific Palisades, CA 90272
Fax: (310) 230-6936
IF TO THE COMPANY:
Agency.Com Ltd.
665 Broadway
New York, NY 10012
Attention: Chief Financial Officer
Fax: (212) 358-8256
Any party may change the address to which notices are to be sent by giving
notice of such change of address to the other party in the manner herein
provided for giving notice.
14
<PAGE>
16. APPLICABLE LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without application of
conflict of law provisions applicable therein.
17. NO CONFLICT
The Executive represents and warrants that she is not subject
to any agreement, instrument, order, judgment or decree of any kind, or any
other restrictive agreement of any character, which would prevent her from
entering into this Agreement or which would be breached by the Executive upon
her performance of her duties pursuant to this Agreement.
18. ENTIRE AGREEMENT
This Agreement represents the entire agreement between the
Company and the Executive with respect to the subject matter hereof, and all
prior agreements, plans and arrangements relating to the employment of the
Executive by the Company, including without limitation, the employment agreement
dated January [12], 1998 by and between the Executive and the Company, are
nullified and superseded hereby .
19. ARBITRATION
(a) If any dispute arises between the Executive and the
Company that the parties cannot resolve themselves, including any dispute over
the application, validity, construction, or interpretation of this Agreement,
arbitration in accordance with the then-applicable rules of the American
Arbitration Association shall provide the exclusive remedy for resolving any
such dispute, regardless of its nature; provided, however, that the Company may
enforce the Executive's obligations under paragraphs 8 and 9 hereof by an action
for injunctive relief and damages in a court of competent jurisdiction at any
time prior or subsequent to the commencement of an arbitration proceeding as
herein provided.
(b) This paragraph 19 shall apply to claims arising under
state and federal statutes, local ordinances, and the common law. The arbitrator
shall apply the same substantive law that a court with jurisdiction over the
parties and their dispute would apply under the terms of this Agreement. The
arbitrator's remedial authority shall equal the remedial power that a court with
jurisdiction over the parties and their dispute would have. The arbitrator
shall, upon an appropriate motion, dismiss any claim brought in arbitration if
he or she determines that the claim could not properly have been pursued through
court litigation. If the then-applicable rules of the American Arbitration
Association conflict with the procedures of this paragraph 19, the latter shall
apply.
15
<PAGE>
(c) If the parties cannot agree upon an arbitrator, the
parties shall select a single arbitrator from a list of seven arbitrators
provided by the New York, New York office of the American Arbitration
Association. All seven listed arbitrators shall be retired judges experienced in
employment law and/or persons actively involved in hearing private cases. If the
parties cannot agree on selecting an arbitrator from that list, then the parties
shall alternately strike names from the list, with the first party to strike
being determined by lot. After each party has used three strikes, the remaining
name on the list shall be the arbitrator.
(d) Each party may be represented by counsel or by another
representative of the party's choice, and each party shall pay the costs and
fees of its counsel or other representative and its own filing or administrative
fees. The non-prevailing party (as determined by the arbitrator) shall bear the
fees and costs of the arbitrator.
(e) The arbitrator shall render an award and opinion in the
form typical of those rendered in labor arbitrations, and that award shall be
final and binding and non-appealable. To the extent that any part of this
paragraph 19 is found to be legally unenforceable for any reason, that part
shall be modified or deleted in such a manner as to render this paragraph 19 (or
the remainder of this paragraph) legally enforceable and as to ensure that
except as provided in clause (b) of this paragraph 19, all conflicts between the
Company and the Executive shall be resolved by neutral, binding arbitration. The
remainder of this paragraph 19 shall not be affected by any such modification or
deletion but shall be construed as severable and independent. If a court finds
that the arbitration procedures of this paragraph 19 are not absolutely binding,
then the parties intend any arbitration decision to be fully admissible in
evidence, given great weight by any finder of fact, and treated as determinative
to the maximum extent permitted by law.
(f) Unless the parties agree otherwise, any arbitration shall
take place in New York, New York in such location as agreed to by the Company
and the Executive. If the parties cannot agree upon a location for the
arbitration, the arbitrator shall determine the location within New York, New
York.
(G) THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH 19
WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS
AGREEMENT, THE EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING
TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY,
CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF, OR HER EMPLOYMENT OR
THE TERMINATION THEREOF, TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
PROVISION CONSTITUTES A WAIVER OF THE EXECUTIVE'S RIGHT TO A JURY TRIAL AND
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
(I) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF
EMPLOYMENT, BREACH OF CONTRACT, BOTH EXPRESS AND IMPLIED;
BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING, BOTH
EXPRESS AND IMPLIED; NEGLIGENT OR
16
<PAGE>
INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS; NEGLIGENT OR
INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE;
AND DEFAMATION;
(II) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL.
STATE OR MUNICIPAL STATUTE, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED, THE
CIVIL RIGHTS ACT OF 1991, THE EQUAL PAY ACT, THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT, AS AMENDED, THE AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE AMERICANS WITH
DISABILITIES ACT OF 1990, THE FAMILY AND MEDICAL LEAVE ACT OF
1993, THE FAIR LABOR STANDARDS ACT AND THE NEW YORK HUMAN
RIGHTS LAW; AND
(III) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER
FEDERAL, STATE OR LOCAL LAWS OR REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
20. HEADINGS
The headings contained in this Agreement are for reference
purposes only, and shall not affect the meaning or interpretation of this
Agreement.
21. MISCELLANEOUS
(a) The Company may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Following the date hereof and regardless of any dispute
that may arise in the future, the Executive will not disparage the Company; and
the Company will not disparage the Executive.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AGENCY.COM LTD.
BY: /s/ Kenneth Trush
---------------------------------
NAME: Kenneth Trush
TITLE: CFO
/s/ Janet Ambrosi Wertman
------------------------------------
JANET AMBROSI WERTMAN
18
<PAGE>
Exhibit 10.11
AGENCY.COM LTD
RESTRICTED STOCK AGREEMENT
RESTRICTED STOCK AGREEMENT dated as of April l6th, 1999 (this
"Agreement") by and between Agency.Com Ltd. a New York corporation with its
place of business at 665 Broadway, New York, New York 10012 ("Agency"), and
Kevin Rowe, an employee of Agency (the `Employee").
1. Grant. Agency hereby grants to the Employee and the Employee hereby
accepts an award of restricted stock, effective as of the date hereof (the
"Grant Date") of 40,345 shares of the common stock, par value $.001 per share,
of Agency ("Restricted Shares") in consideration of services to be rendered by
Employee to Agency.
2. OWNERSHIP, RIGHTS AS A SHAREHOLDER AND CUSTODY. The Employee is the
owner of the Restricted Shares and has all the rights of a shareholder with
respect thereto, including the right to vote such Restricted Shares and to
receive all dividends or other distributions paid with respect to such
Restricted Shares other than dividends or distributions in shares of common
stock of Agency (the "Stock Dividends"), which Stock Dividends shall be subject
to the same restrictions as apply to the Restricted Shares with respect to which
such Stock Dividends were paid. Such ownership of Restricted Shares (and Stock
Dividends) shall be evidenced by book entries on the records of Agency. Promptly
following the vesting of Restricted Shares pursuant to this Agreement stock
certificate(s) evidencing such Restricted Shares (and Stock Dividends) shall be
issued and delivered to the Employee (or his permitted transferees) by Agency.
3. VESTING AND FORFEITURE.
(a) Provided that the Employee has remained in the continuous
employ of Agency or an Agency subsidiary through the respective Vesting
Date (as defined below), the Restricted Shares shall automatically
vest, and shall automatically become transferable and nonforfeitable,
as to 33 1/3% of such Restricted Shares on each of the first three
anniversaries of the Grant Date (each of such three dates being a
"Vesting Date").
(b) In the event of a Termination of Employment prior to a
Vesting Date by reason of the death or Total Disability of the
Employee, all of the Restricted Shares not yet vested shall vest, and
shall become transferable and nonforfeitable, on the date of such
Termination of Employment.
(c) In the event of a Termination of Employment prior to a
Vesting Date by reason of the Retirement or Involuntary Termination of
Employment of the Employee, that number of Restricted Shares not yet
vested shall vest, and shall become transferable and nonforfeitable, on
the date of such Termination of employment as is determined by
multiplying the total number of Restricted Shares which would vest on
each of the remaining Vesting Dates by a fraction, the numerator of
which shall be the number of full calendar months between the Grant
Date and the date of Termination of Employment and the denominator of
which shall be the full number of calendar months between the Grant
Date and respective Vesting Date (rounded down to the nearest full
Restricted Shares);
<PAGE>
PROVIDED, HOWEVER, that the Board shall have the right in its sole
discretion to increase the number of Restricted Shares which shall vest
on the date of such Termination of Employment.
(d) Any Restricted Shares not vested on the date of
Termination of Employment shall be forfeited.
4. NONTRANSFERABILITY. Prior to the date upon which any Restricted
Shares become vested pursuant to paragraph 3 hereof, the Restricted Shares may
not be pledged, encumbered or hypothecated to, or in favor of, or subject to any
lien, obligation or liability of the Employee to any party, or assigned or
transferred by the Employee otherwise than by will or the laws of descent and
distribution; PROVIDED, HOWEVER, that such Restricted Shares may be transferred
without consideration to immediate family members (i.e., children, grandchildren
or spouse), to trusts for the benefit of such immediate family members and to
partnerships in which such family members are the only partners, provided that
any such family member, trust and/or partnership shall be subject to all terms,
conditions and restrictions of the Plan and this Agreement.
5. DEFINITIONS. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
(a) "Termination of Employment" means the time when the
employee-employer relationship between the Employee and Agency or an
Agency subsidiary ceases to exist for any reason, including, but not
limited to, a termination by resignation, discharge, death, Total
Disability or Retirement.
(b) "Total Disability" means inability of the Employee by
reason of his physical condition or mental illness or accident, to
perform substantially all of the duties of the position at which the
Employee was employed by Agency or an Agency subsidiary when such
disability commenced. All determinations as to the date and extent of
disability of any Employee shall be made by the Board of Directors of
Agency (the "Board") upon the basis of such evidence as the Board deems
necessary or desirable.
(c) "Retirement" means a Termination of Employment by reason
of an Employee s retirement, other than by reason of Total Disability,
at a time when the Employee's years of service with Agency or an Agency
subsidiary plus his chronological age equals sixty-five or more.
(d) "Involuntary Termination of Employment" means a
Termination of Employment for a reason other than death, Retirement,
Total Disability, voluntary resignation, or Termination of Employment
for Cause.
(e) "Termination of Employment for Cause" means an Involuntary
Termination of Employment by reason of an Employee's (i) repeated
failure or refusal to perform the duties and responsibilities of his or
her position; (ii) dishonesty affecting Agency or Agency subsidiary;
(iii) drunkenness or use of illegal drugs, interfering with his
performance, continuing after warning, or (iv) material breach of
loyalty to Agency or
2
<PAGE>
an Agency subsidiary. All determinations as to whether or not a
termination is a Termination of Employment for Cause shall be made by
the Board upon the basis of such evidence as the Board deems necessary
or desirable.
6. INVESTMENT REPRESENTATIONS.
(a) The Restricted Shares issued to the Employee will be
acquired for investment for the Employee's own account, not as a
nominee or agent, and not with a view to the sale or distribution of
any part thereof, and the Employee has no present intention of selling,
granting any participation in, or otherwise distributing the same. The
Employee represents that the entire legal and beneficial interest of
the Restricted Shares will be held for the Employee's account only, and
neither in whole or in part for any other Person (as defined below). By
executing this Agreement, the Employee further represents that the
Employee has no present contract, undertaking, agreement or arrangement
with any Person to sell, transfer or grant participation to such Person
or to any third Person, with respect to any of the Agency Shares.
(b) The Employee understands and acknowledges that the
issuance of the Restricted Shares pursuant to this 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 Agency's reliance upon such
exemption is predicated upon the Employee s representations.
(c) The Employee further represents that he: (i) has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the Employee s
prospective investment in the Agency Shares; (ii) has received all the
information he has requested from Agency that he considers necessary or
appropriate for deciding whether to accept the Agency Shares; (iii) has
the ability to bear the economic risks of the Employee's prospective
investment; (iv) is able, without materially impairing his financial
condition, to hold the Restricted Shares for an indefinite period of
time and to suffer complete loss on his investment.
(d) Each certificate representing Restricted Shares issued
pursuant hereto to the Employee and any shares issued or issuable in
respect of any such Restricted 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
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT.
(e) The certificates evidencing the Restricted Shares shall
also bear any legend required pursuant to any state, local or foreign
law governing; such securities.
3
<PAGE>
(f) The Employee understands and acknowledges that the
Restricted Shares have not been registered under the 1933 Act and the
Restricted Shares must be held indefinitely unless subsequently
registered under the 1933 Act or an exemption from such registration is
available and Agency is not under any obligation to register the Agency
Shares.
(g) The Employee acknowledges that the Restricted Shares shall
not be transferable except upon the conditions specified in this
Agreement. The Employee will cause any proposed transferee of the
Restricted Shares held by the Employee to agree to take and hold such
Restricted Shares subject to the provisions and upon the conditions
specified in this Agreement.
(h) Prior to any proposed transfer of any Restricted Shares,
unless there is in effect a registration statement under the 1933 Act
covering the proposed transfer, the Employee shall give written notice
to Agency of his intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if Agency 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 satisfactory to Agency, addressed to Agency at its then
headquarters office, to the effect that the proposed transfer of
Restricted 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 Restricted Shares shall be entitled to
transfer such Restricted Shares in accordance with the terms of the
notice delivered by the holder to Agency. Each certificate evidencing
the Restricted 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 Agency such legend is not required in order to
establish compliance with any provisions of the 1933 Act, which opinion
will not be unreasonably withheld.
7. NO UNDERSTANDINGS AS TO EMPLOYMENT. Nothing in this Agreement shall
constitute or be evidence of any understanding, express or implied, on the part
of Agency or an Agency subsidiary to employ the Employee for any period.
8. AMENDMENT. This Agreement may be amended only by an instrument in
writing executed and delivered by the Employee and Agency.
9. GOVERNING LAW. The validity and construction of this Agreement shall
be governed by the laws of the State of New York.
4
<PAGE>
10. "PERSON" DEFINED. "Person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an unincorporated organization and a government or other department or
agency thereof.
IN WITNESS WHEREOF, Agency, by its duly authorized officer, and the
Employee have executed this Agreement in duplicate as of the date and year first
above written.
AGENCY.COM LTD.
By: /s/ KENNETH S. TRUSH
---------------------------
Kenneth S. Trush
/s/ KEVIN ROWE
-------------------------------
Kevin Rowe
5
<PAGE>
Exhibit 10.13
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated April 28, 1999
(the "EXECUTION DATE") by and between INTERACTIVE SOLUTIONS INCORPORATED, a
Massachusetts corporation ("ISI") and QUADRIS CONSULTING, INC., a Delaware
corporation ("QUADRIS").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of each of the parties
hereto have determined that it is advisable and in the best interests of their
respective corporations and their respective shareholders to consummate, and
have approved, the business combination transaction provided for herein in which
Quadris would merge with and into ISI (the "MERGER") upon the terms and subject
to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the parties hereby agree
as follows:
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 below), Quadris
shall be merged with and into ISI and the separate corporate existence of
Quadris shall thereupon cease. ISI (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
Commonwealth of Massachusetts, and (iii) the separate corporate existence of ISI
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The Merger shall have the effects specified
in Section 259 of the Delaware General Corporation Law (the "DGCL") and Ch. 156B
ss. 80 of the Massachusetts General Laws (the "MGL").
SECTION 1.2 EFFECTIVE TIME. ISI and Quadris will cause (i) an executed
original of an appropriate Articles of Merger (the "ARTICLES OF MERGER") to be
filed with the Secretary of State of the Commonwealth of Massachusetts pursuant
to Ch. 156B ss.70 of the MGL, and (ii) an executed original of an appropriate
Certificate of Merger to be filed with the Secretary of State of Delaware in
accordance with Sections 252 and 103 of the DGCL. The Merger shall become
effective on the date on which the Articles of Merger have been duly filed with
the Secretary of State of the Commonwealth of Massachusetts, and such time is
hereinafter referred to as the "EFFECTIVE TIME."
SECTION 1.3 ARTICLES OF ORGANIZATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The Articles of Organization of the Surviving Corporation shall be
at and as of the Effective
<PAGE>
Time the Articles of Organization of ISI immediately prior to the Effective
Date. The By-laws of the Surviving Corporation shall be at and as of the
Effective Time the By-laws of ISI immediately prior to the Effective Time.
ARTICLE II
CONVERSION AND CANCELLATION OF SHARES AND OPTIONS
SECTION 2.1 QUADRIS COMMON STOCK AND PREFERRED STOCK. Each share of the
common stock, $0.001 par value per share, of Quadris (the "QUADRIS SHARES")
issued and outstanding immediately prior to the Effective Time of the Merger
shall, by virtue of the Merger, automatically and without any action on the part
of the holder thereof, become and be converted into 0.3733765 shares of common
stock, $0.01 par value per share, of ISI (the "ISI Shares"). Each share of
Series A Convertible Preferred Stock, $0.001 per share, of Quadris issued and
outstanding immediately prior to the Effective Time of the Merger shall by
virtue of the Merger, automatically and without any action on the part of the
holder thereof, be canceled and shall not be entitled to receive any
consideration in the Merger.
SECTION 2.2 ISI SHARES. Each IS1 Share issued and outstanding
immediately prior to the Effective Time of the Merger shall, at the Effective
Time, continue to be issued and outstanding, be unchanged and remain as one
fully paid and non-assessable share of common stock, $0.001 par value per share,
of ISI.
SECTION 2.3 SURRENDER OF QUADRIS SHARES AND ISSUANCE OF ISI SHARES.
SCHEDULE 2.3 sets forth the following (i) list of each holder of record of
Quadris Shares at the Effective Time, (ii) the number of Quadris Shares owned by
each holder of record of Quadris Shares at the Effective Time, and (iii) the
number of ISI Shares to be received by each such holder of record of Quadris
Shares at the Effective time. At the Closing (as defined in Section 2.5 below),
each holder of record of Quadris Shares at the Effective Time shall surrender
the certificate(s) representing such shares to ISI. However, in that immediately
after the Merger has been effected, ISI will be merged with and into Agency.Com
Ltd. ("AGENCY") and the holders of ISI Shares will receive shares of common
stock of Agency, par value $0.001 ("AGENCY SHARES") at a conversion ratio of
0.6656917 ISI Shares for each Agency Share, no stock certificates will be issued
in the Merger. At the Effective Time the certificates representing the Quadris
Shares shall be canceled.
SECTION 2.4 QUADRIS STOCK OPTION PLAN.
2.4.1 ASSUMPTION OF QUADRIS OPTIONS BY ISI. At the Effective
Time, the Quadris 1998 Incentive Stock Option Plan (the "QUADRIS STOCK OPTION
PLAN"), and all options to purchase Quadris Shares then outstanding under the
Quadris Stock Option Plan, shall be assumed by ISI. SCHEDULE 2.4 hereto sets
forth (i) a complete list as of the date hereof of all holders of outstanding
options under the Quadris Stock Option Plan and (ii) the number of Quadris
Shares subject to each such option. Each such option so assumed by ISI under
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Quadris Stock Option Plan and the applicable stock
option agreement immediately prior to
<PAGE>
the Effective Time, except that (i) such option will be exercisable for that
number of whole ISI Shares equal to the product of the number of Quadris Shares
that were issuable upon exercise of such option immediately prior to the
Effective Time multiplied by 0.3733765, and (ii) the per share exercise price
for the ISI Shares issuable upon exercise of such assumed option will be equal
to the quotient determined by dividing the exercise price per Quadris Share at
which such option was exercisable immediately prior to the Effective Time by
0.3733765. Consistent with the terms of the Quadris Stock Option Plan and the
documents governing the outstanding options under such Plan, the Merger will not
terminate any of the outstanding options under the Quadris Stock Option Plan or
accelerate the exercisability or vesting of such options or the ISI Shares which
will be subject to those options upon ISI's assumption of the options in the
Merger. It is the intention of the parties that the options so assumed by ISI
qualify, to the maximum extent permissible, following the Effective Time as
incentive stock options as defined in Section 422 of the code to the extent such
options qualified as incentive stock options prior to the Effective Time. In
light of the subsequent merger of ISI with and into Agency, no further
documentation will be issued to any Quadris option holder evidencing the
foregoing assumption of Quadris options by ISI.
2.4.2 ASSUMPTION OF ISI OPTIONS BY AGENCY. At the effective
time of the merger of ISI with and into Agency (the "AGENCY MERGER TIME"), the
ISI 1996 Stock Option Plan (the "ISI STOCK OPTION PLAN"), and all options to
purchase ISI Shares then outstanding under the ISI Stock Option Plan (including
without limitation any options outstanding as a result of the assumption by ISI
of the Quadris Plan as set forth in Section 2.4.1 above), shall be assumed by
Agency. Each such option so to be assumed by Agency shall continue to have, and
be subject to, the same terms and conditions set forth in the ISI Stock Option
Plan and the applicable stock option agreement immediately prior to the
Effective Time, except that (i) such option will be exercisable for that number
of whole Agency Shares equal to the product of the number of ISI Shares that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by 0.6656917 and rounded up to the nearest whole number of
Agency Shares, and (ii) the per share exercise price for the Agency Shares
issuable upon exercise of such assumed option will be equal to the quotient
determined by dividing the exercise price per ISI Share at which such option was
exercisable immediately prior to the Effective Time by 0.6656917 rounded up to
the nearest whole cent. Consistent with the terms of the ISI Stock Option Plan
and the documents governing certain of the outstanding options under such Plan,
the merger of ISI into Agency will not terminate any of the outstanding options
under the ISI Stock Option Plan upon Agency's assumption of the options.
Consistent with the terms of the ISI Stock Option Plan and the documents
governing certain of the outstanding options under such Plan, such merger will
accelerate the exercisability or vesting of certain of such options. Within 20
business days after the Agency Merger Time, Agency will issue to each Quadris
option holder who, immediately prior to the Effective Time was a holder of an
outstanding option under the ISI Stock Option Plan, a document evidencing the
foregoing assumption of such option by Agency.
SECTION 2.5 CLOSING. The Closing under this Agreement (the "CLOSING")
shall take place simultaneously with the execution and delivery of this
document, or such other time and date agreed upon by the parties, at the offices
of Davis & Gilbert LLP, 1740 Broadway, New York, New York 10019. The date of the
Closing is herein referred to as the "CLOSING DATE". Notwithstanding the
foregoing, it is the intention of the parties that for the purposes of providing
<PAGE>
Agency with an interest in the profits and losses of ISI, the effective date of
this Agreement shall be the opening of business on April 1, 1999.
ARTICLE III
REPRESENTATIONS OF QUADRIS
Quadris represents and warrants to ISI as follows:
SECTION 3.1 EXECUTION AND VALIDITY OF AGREEMENT. Quadris has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Quadris and the
consummation by Quadris of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Quadris and the holders of
all of the issued and outstanding Quadris Shares. This Agreement has been duly
and validly executed and delivered by Quadris and, assuming due authorization,
execution and delivery by ISI, constitutes the legal, valid and binding
obligation of Quadris enforceable against it in accordance with its terms.
SECTION 3.2 NON-CONTRAVENTION; APPROVALS AND CONSENTS.
3.2.1 Non-Contravention. Except as set forth on SCHEDULE 3.2,
the execution, delivery and performance by Quadris of its 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, result in or give to any Person (as
defined in Section 7.4 below) any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any mortgage, lien, security interest, encumbrance,
claim, charge and restriction of any kind or character (collectively, "LIENS")
upon any of the assets or properties of Quadris under, any of the terms,
conditions or provisions of (a) the Certificate of Incorporation or By-laws of
Quadris, or (b) any statute, law, rule, regulation or ordinance (collectively,
"LAWS"), or any judgment, decree, order, writ, citation, 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 Quadris or
any of its assets or properties, or (c) any note, bond, mortgage, security
agreement, indenture, license, franchise, permit, concession, contract, lease or
other instrument, obligation or agreement of any kind (collectively,
"CONTRACTS") to which Quadris is a party or by which Quadris or any of its
assets or properties are bound.
3.2.2 APPROVALS AND CONSENTS. Except as set forth on SCHEDULE
3.2 and for the filings pursuant to the MGL and the DGCL, 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 Quadris is a party or by which Quadris or any of its
assets or properties are bound for the execution and delivery of this Agreement
by Quadris,
<PAGE>
the performance by Quadris of its obligations hereunder or the consummation of
the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS OF ISI
ISI represents and warrants to Quadris as follows:
SECTION 4.1 EXECUTION AND VALIDITY OF AGREEMENT. ISI has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by ISI and the
consummation by ISI of the transactions contemplated hereby have been duly and
validly authorized by all required corporate action on behalf of ISI and, to the
extent required by applicable law, its shareholders. This Agreement has been
duly and validly executed and delivered by ISI and, assuming due authorization,
execution and delivery by Quadris, constitutes the legal, valid and binding
obligations of ISI enforceable against it in accordance with its terms.
SECTION 4.2 NON-CONTRAVENTION; APPROVALS AND CONSENTS.
4.2.1 NON-CONTRAVENTION. The execution, delivery and
performance by ISI of its 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, 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 ISI under any of the terms, conditions or provisions of (a) the
Articles of Organization or By-laws of ISI, or (b) subject to the taking of the
actions described in Section 4.2.2, any Laws or Orders of any Governmental or
Regulatory Authority, applicable to ISI or any of its assets or properties, or
(c) any Contracts to which ISI is a party or by which ISI or any of its assets
of properties are bound.
4.2.2 APPROVALS AND CONSENTS. Except for filings pursuant to
the MGL and the DGCL, 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 ISI is a party
or by which ISI or any of its assets or properties are bound for the execution
and delivery of this Agreement by ISI of its obligations hereunder or the
consummation of the transactions contemplated hereby.
SECTION 4.3 ISI SHARES. The ISI Shares to be delivered to the
shareholders of Quadris pursuant to this Agreement have been duly authorized for
issuance by all requisite corporate action by ISI, and when delivered as
provided herein, will be validly issued and outstanding ISI Shares, fully paid
and non-assessable, and will not be subject to preemptive rights of any Person.
<PAGE>
ARTICLE V
ACTIONS AT CLOSING BY QUADRIS
SECTION 5.1 CERTIFIED RESOLUTIONS. Quadris shall have delivered to ISI
a copy of the resolutions of its Board of Directors and shareholders authorizing
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified by an officer of Quadris.
ARTICLE VI
ACTIONS AT CLOSING BY ISI
Simultaneously herewith:
SECTION 6.1 CERTIFIED RESOLUTIONS. ISI shall have delivered to Quadris
a copy of the resolutions of the Boards of Directors and shareholders of ISI
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, certified to by an officer of ISI.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1 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 and agreements of any other party contained
in this Agreement or in any Schedule furnished by another party delivered at the
Closing by any other party. The respective representations and warranties of
Quadris and ISI contained in this Agreement or in any Schedule, or in any
certificate delivered at the Closing, shall expire with, and be terminated and
extinguished by, the Merger, and thereafter, neither Quadris nor ISI, nor any
officer, director or shareholder thereof shall be under any liability with
respect to any such representation or warranty or condition or covenant. This
Section 7.1 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the Closing.
SECTION 7.2 EXPENSES. ISI and Quadris 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 counsels,
financial advisors and accountants.
SECTION 7.3 "PERSON" DEFINED. "PERSON" shall mean and include an
individual, a partnership, a joint venture, a corporation, a limited liability
company, a trust, an unincorporated organization and a government or other
department or agency thereof.
SECTION 7.4 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.
<PAGE>
SECTION 7.5 PUBLIC ANNOUNCEMENTS. ISI and Quadris will consult with
each other and Omnicom Group Inc. ("OMNICOM") before issuing any press releases
or otherwise making any public statements with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue any such press
release or make any public statement without the prior written consent of the
other party and Omnicom which shall not be unreasonably withheld, except as may
be required by Law or by obligations pursuant to any listing agreements with any
national securities exchange to which Omnicom or ISI is a party.
SECTION 7.6 PARTIES IN INTEREST. This Agreement and the rights and
obligations of the parties hereunder shall not be assignable to any Person
without the written consent of all parties.
SECTION 7.7 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 7.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
SECTION 7.9 ENTIRE AGREEMENT. This Agreement, including the Schedules,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement supersedes all prior
oral and written agreements and understandings between the parties with respect
to such subject matter.
SECTION 7.10 AMENDMENT. This Agreement and the Schedules heretofore
delivered may be amended, supplemented or modified by the parties hereto only by
an agreement in writing signed on behalf of each of the parties hereto following
due authorization at any time.
SECTION 7.11 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 7.7 and for purposes of
Section 7.6, Omnicom.
<PAGE>
IN WITNESS WHEREOF, ISI and Quadris have each caused its corporate name
to be hereunto subscribed by its officer thereunto duly authorized on the day
and year first above written.
INTERACTIVE SOLUTIONS INCORPORATED
By: /s/ JERRY NEUMANN
----------------------------------
Jerry Neumann
Vice President
QUADRIS CONSULTING, INC.
By: /s/ LAWRENCE A. KRAKAUER
------------------------------
Lawrence A. Krakauer
President
<PAGE>
- --------------------------------------------------------------------------------
Quadris Consulting Inc.
Schedule of Shareholders
Schedule 23
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
============================================================================================
SHARES OF QUADRIS RESULTING SHARES OF
CONSULTING, IN. INTERACTIVE SOLUTIONS, INC. COMMON
SHAREHOLDER NAME COMMON STOCK STOCK
============================================================================================
<S> <C> <C>
Lawrence A. Krakauer 1,485,000 554,464.10250
Andrew P. Kerr 500,000 186,688.25000
Jeffrey S. Richman 300,000 112,012.95000
Michael C. Benyo 125,000 46,672.06250
John L. Morgan 50,000 18,668.82500
Barry Goldberg 5,000 1,866.88250
David Janowski 5,000 1,866.88250
Jerry Newmark 5,000 1,866.88250
Priya Ramanathan 5,000 1,866.88250
James B. Ronan 5,000 1,866.88250
David J. Seitelman 5,000 1,866.88250
Lee Tuttle 5,000 1,866.88250
Ting Tang Wu 5,000 1,866.88250
Betsy January 3,542 1,322.49956
============================================================================================
TOTAL SHARES 2,503,542 934,763.74956
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
Quadris Consulting Inc.
Schedule of Optionholders
Schedule 24
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF OPTIONS RESULTING OPTIONS TO
TO PURCHASE SHARES OF PURCHASE SHARES OF
QUADRIS CONSULTING, INC. INTERACTIVE SOLUTIONS, INC.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
<S> <C> <C>
Lawrence A. Krakauer 374,138 139,694.33696
Jeff Richman 97,876 36,544.59831
Matt Kaplan 155,000 57,873.35750
Jack Morgan 116,694 43,570.79729
Mike Benyo 15,000 5,600.64750
Priya Ramanathan 46,000 17,175.31900
Dave Seitelman 40,000 14,935.06000
Jim Ronan 30,000 11,201.29500
Barry Goldberg 25,000 9,334.41250
Jerry Newmark 21,967 8,201.9658
David Janowski 22,527 8,411.05242
Lee Tuttle 19,626 7,327.88719
Phil Burnham 18,096 6,756.62114
Kristen Byrne 20,000 7,467.53000
Ronni Skerker 17,807 6,648.71534
Tony DiPesa 17,751 6,627.80625
Michele Bokun 17,742 6,624.44586
Keith Musselman 17,517 6,540.43615
Richard Harris 18,287 6,827.93606
Steve Chong 16,934 6,322.75765
Pete Brown 16,027 5,984.10517
Bob Donoghue 14,930 5,574.51115
Alisa Belbusti 14,634 5,463.99170
Ting Tang Wu 13,725 5,124.59246
Joe Eldridge 16,000 5,974.02400
Aman Datta 15,000 5,600.64750
Adam Michelson 12,904 4,818.05036
Dave Bartle 12,643 4,720.59909
Debbie Lam 12,242 4,570.87511
Erik Bailey 12,242 4,570.87511
Luke Wright 12,513 4,672.06014
Frank Hsu 12,225 4,564.52771
Rajeev Parlikar 12,092 4,514.86864
Cathy Brunsting 12,627 4,714.62507
Ashish Jain 10,679 3,987.28764
Lakshminar Peri 11,353 4,238.94340
16
<PAGE>
- --------------------------------------------------------------------------------
Quadris Consulting Inc.
Schedule of Optionholders
Schedule 24
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF OPTIONS RESULTING OPTIONS TO
TO PURCHASE SHARES OF PURCHASE SHARES OF
QUADRIS CONSULTING, INC. INTERACTIVE SOLUTIONS, INC.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
<S> <C> <C>
Alex Skovronek 12,281 4,585.43680
James Haas 11,207 4,184.43044
Darren Zimmerman 10,640 3,972.72596
Marcus Jackson 7,435 2,776.05428
Tim Eakins 6,801 2,539.33358
Hsin-Lan Wu 6,370 2,378.40831
Bimal Patel 5,740 2,143.18111
Dan Ward 6,359 2,374.30116
David Trinh 5,720 2,135.71358
Dilip Tagare 5,929 2,213.74927
Allen Goldschmidt 6,334 2,364.96675
Qian Ma 6,331 2,363.64662
Lawrence Chao 6,132 2,289.54470
Kate Meserve 4,208 1,571.16831
Jeff Pickering 3,879 1,448.32744
Hadi Abedi 3,528 1,317.27229
Craig Wilkie 3,875 1,446.83394
Farshid Varasteh 3,714 1,386.72032
Nikolai Tsankov 3,710 1,385.22682
Damnath De Tissera 3,385 1,263.87945
Ellen Murphy 3,000 1,120.12950
Prasad Bandaru 2,806 1,047.69446
Doug Locke 2,806 1,047.69446
Kirti Chandratreya 2,804 1,046.94771
Yuri Ostrovsky 2,804 1,046.94771
Barney Morisette 2,803 1,046.57433
Jessica Lau 2,803 1,046.57433
Jalpesh Patadia 2,801 1,045.82758
Min Zeng 2,801 1,045.82758
Chris Robertson 2,800 1,045.45420
Terry Sherman 2,800 1,045.45420
Shridharan Gopalan 2,800 1,045.45420
Partha Seshadri 2,800 1,045.45420
LiSing Ou 2,800 1,045.45420
Ethan Kelleher 2,800 1,045.45420
Barbara Pjura 2,565 957.71072
Reeti Punja 2,509 936.80164
17
<PAGE>
- --------------------------------------------------------------------------------
Quadris Consulting Inc.
Schedule of Optionholders
Schedule 24
- --------------------------------------------------------------------------------
<CAPTION>
NUMBER OF OPTIONS RESULTING OPTIONS TO
TO PURCHASE SHARES OF PURCHASE SHARES OF
QUADRIS CONSULTING, INC. INTERACTIVE SOLUTIONS, INC.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
<S> <C> <C>
Miranda Barrows 2,240 836.36336
Judy Robinson 1,770 660.87641
Merilee Schaefer 1,770 660.87641
==================================================================================
TOTAL OPTIONS 1496,458 558,742.25048
</TABLE>
18
<PAGE>
QUADRIS MERGER AGREEMENT
SCHEDULE 3.2
The transactions contemplated by the Merger Agreement will constitute a
default under each of the following agreements without the consent of the other
party.
1. Real Estate Leases
2. Equipment Leases
3. Customer Contracts
It is understood that no such consents will be sought or obtained prior
to the Closing.
19
<PAGE>
Exhibit 10.14
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated April 28, 1999
(the "EXECUTION DATE") by and between AGENCY.COM LTD., a New York corporation
("AGENCY") and INTERACTIVE SOLUTIONS INCORPORATED, a Massachusetts corporation
("ISI").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of each of the
parties hereto have determined that it is advisable and in the best interests of
their respective corporations and their respective shareholders to consummate,
and have approved, the business combination transaction provided for herein in
which ISI would merge with and into Agency (the "MERGER") upon the terms and
subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereby agree as follows:
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 below), ISI shall be
merged with and into Agency and the separate corporate existence of ISI shall
thereupon cease. Agency (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 New York, and (iii)
the separate corporate existence of Agency with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in Ch. 156B, ss.80 of the Massachusetts
General Laws (the "MGL") and Section 906 of the New York Business Corporation
Law (the "NYBCL").
SECTION 1.2. EFFECTIVE TIME. Agency and ISI will cause (i) an executed
original of an appropriate Certificate of Merger (the "CERTIFICATE OF MERGER" )
to be filed with the Secretary of State of the State of New York pursuant to
Sections 904-A, 907 and 104 of the NYBCL, and (ii) an executed original of an
appropriate Articles of Merger of ISI into Agency to be filed with the Secretary
of State of the Commonwealth of Massachusetts, pursuant to Ch. 156B, 79 of the
MGL. The Merger shall become effective on the date on which the Certificate of
Merger has been duly filed with the Secretary of State of New York, and such
time is hereinafter referred to as the "EFFECTIVE TIME."
SECTION 1.3. CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of the Surviving Corporation shall
be at and as of the Effective Time, the Certificate of Incorporation of Agency
immediately prior to the Effective
<PAGE>
Time. The By-laws of the Surviving Corporation shall be, at and as of the
Effective Time, the By-laws of Agency immediately prior to the Effective Time.
ARTICLE II
CONVERSION AND CANCELLATION OF SHARES AND OPTIONS
SECTION 2.1. ISI SHARES. Each share of the common stock, $0.01 par
value per share, of ISI (the "ISI Shares") issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger,
automatically and without any action on the part of the holder thereof, become
and be converted as follows: (a) into 0.6656917 shares of common stock, $0.001
par value per share, of Agency (the "AGENCY SHARES"), with respect to shares
held by a shareholder who prior to the conversion owned less than 50% of the
issued and outstanding ISI Shares; and (b) into 0.3049626 Agency Shares and
0.3607291 warrants to purchase Agency Shares, such warrants to be evidenced by a
warrant substantially in the form of EXHIBIT A hereto, with respect to shares
held by a shareholder who prior to the conversion owned more than 50% of the
issued and outstanding ISI Shares.
SECTION 2.2. AGENCY SHARES. Each share of common stock, $0.001 par
value per share, of Agency issued and outstanding immediately prior to the
Effective Time of the Merger shall, at the Effective Time, continue to be issued
and outstanding, be unchanged and remain as one fully paid and non-assessable
share of common stock, $0.001 par value per share, of Agency.
SECTION 2.3. SURRENDER OF ISI SHARES AND ISSUANCE OF AGENCY SHARES.
SCHEDULE 2.3 sets forth the following (i) a list of each holder of record of ISI
Shares at the Effective Time, (ii) the number of ISI Shares owned by each holder
of record of ISI Shares at the Effective Time, and (iii) the number of Agency
Shares to be received by each such holder of record of ISI Shares at the
Effective Time. At the Closing (as defined in Section 2.5 below), each holder of
record of ISI Shares at the Effective Time shall surrender the certificate(s)
representing such shares to Agency and in exchange therefor shall receive a
certificate registered in such holder's name representing that number of whole
shares of Agency Shares into which such holder's ISI Shares shall have been
converted pursuant to Section 2.1 above as set forth on SCHEDULE 2.3, provided,
however, any ISI shareholder who did not receive stock certificates evidencing
the ISI Shares issued in exchange for shares of common stock of Quadris
Consulting, Inc. ("QUADRIS") upon the merger of Quadris with and into ISI (the
"QUADRIS MERGER") shall not be required to deliver stock certificates.
Thereupon, the certificates representing the ISI Shares shall be canceled. No
fractional shares shall be issued and no cash in lieu of fractional shares shall
be paid to a holder of ISI Shares.
SECTION 2.4. ISI STOCK OPTION PLAN. At the Effective Time, (i) the ISI
1996 Stock Option Plan (the "ISI STOCK OPTION PLAN"), and all options to
purchase ISI Shares then outstanding under the ISI Stock Option Plan, and (ii)
the Quadris 1998 Incentive Stock Option Plan (the "Quadris Stock Option Plan")
and all options to purchase ISI Shares then outstanding under the Quadris Stock
Option Plan, shall be assumed by Agency. SCHEDULE 2.4 hereto sets forth (i) a
complete list as of the date hereof of all holders of outstanding options under
the ISI Stock Option Plan, (ii) a complete list as of the date hereof of all
holders of outstanding options under the Quadris Stock Option Plan assumed by
ISI and (iii) the number of ISI Shares subject to
2
<PAGE>
each such option. Each such option so assumed by Agency under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the ISI Stock Option Plan or the Quadris Stock Option Plan, as
applicable, and the applicable stock option agreement immediately prior to the
Effective Time, except that (i) such option will be exercisable for that number
of whole Agency Shares equal to the product of the number of ISI Shares that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by 0.6656917 and rounded up to the nearest whole number of
Agency Shares, and (ii) the per share exercise price for the Agency Shares
issuable upon exercise of such assumed option will be equal to the quotient
determined by dividing the exercise price per ISI Share at which such option was
exercisable immediately prior to the Effective Time by 0.6656917, rounded up to
the nearest whole cent. Consistent with the terms of the Quadris Stock Option
Plan and the documents governing the outstanding options under such Plan, the
Merger will not terminate any of the outstanding options under the Quadris Stock
Option Plan or accelerate the vesting of such options or the Agency Shares which
will be subject to those options upon Agency's assumption of the options.
Consistent with the terms of the ISI Stock Option Plan and the documents
governing the outstanding options under such Plan, the Merger will not terminate
any of the outstanding options under the ISI Stock Option Plan upon Agency's
assumption of the options. Consistent with the terms of the ISI Stock Option
Plan and the documents governing certain of the outstanding options under such
Plan, the Merger will accelerate the exercisability or vesting of certain of
such options. It is the intention of the parties that the options so assumed by
Agency qualify, to the maximum extent permissible, following the Effective Time
as incentive stock options as defined in Section 422 of the Code to the extent
such options qualified as incentive stock options prior to the Effective Time.
Within 20 business days after the Effective Time, Agency will issue to each
Person (as defined in Section 7.4 below) who, immediately prior to the Effective
Time was a holder of an outstanding option under the ISI Stock Option Plan or
the Quadris Stock Option Plan, a document evidencing the foregoing assumption of
such option by Agency.
SECTION 2.5. CLOSING. The Closing under this Agreement (the "CLOSING")
shall take place simultaneously with the execution and delivery of this
Agreement, or such other time and date agreed upon by the parties, at the
offices of Davis & Gilbert LLP, 1740 Broadway, New York, New York 10019. The
date of the Closing is herein referred to as the "CLOSING DATE". Notwithstanding
the foregoing, it is the intention of the parties that for the purposes of
providing Agency with an interest in the profits and losses of ISI, the
effective date of this Agreement shall be the opening of business on April 1,
1999.
ARTICLE III
REPRESENTATIONS OF ISI
ISI represents and warrants to Agency as follows:
SECTION 3.1. EXECUTION AND VALIDITY OF AGREEMENT. ISI has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by ISI and the
consummation by ISI of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of ISI and the holders of all of
3
<PAGE>
the issued and outstanding ISI Shares. This Agreement has been duly and validly
executed and delivered by ISI and, assuming due authorization, execution and
delivery by Agency, constitutes the legal, valid and binding obligation of ISI
enforceable against it in accordance with its terms.
SECTION 3.2. NON-CONTRAVENTION; APPROVALS AND CONSENTS.
3.2.1. NON-CONTRAVENTION. Except as set forth on SCHEDULE 3.2, the
execution, delivery and performance by ISI of its 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, 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 mortgage, lien,
security interest, encumbrance, claim, charge and restriction of any kind or
character (collectively, "LIENS") upon any of the assets or properties of ISI
under, any of the terms, conditions or provisions of (a) the Articles of
Organization or By-laws of ISI, or (b) any statute, law, rule, regulation or
ordinance (collectively, "LAWS"), or any judgment, decree, order, writ,
citation, 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 ISI or any of its assets or properties, or (c) any note, bond,
mortgage, security agreement, indenture, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
(collectively, "CONTRACTS") to which ISI is a party or by which ISI or any of
its assets or properties are bound.
3.2.2. APPROVALS AND CONSENTS. Except as set forth on SCHEDULE 3.2.2
and for the filings pursuant to the MGL and NYBCL, 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 ISI is a party or by which ISI or any of its assets or
properties are bound for the execution and delivery of this Agreement by ISI,
the performance by ISI of its obligations hereunder or the consummation of the
transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS OF AGENCY
Agency represents and warrants to ISI as follows:
SECTION 4.1. EXECUTION AND VALIDITY OF AGREEMENT. Agency has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Agency and the
consummation by Agency of the transactions contemplated hereby have been duly
and validly authorized by all required corporate action on behalf of Agency and,
to the extent required by applicable law, its shareholders. This Agreement has
been duly and validly executed and delivered by Agency and, assuming due
authorization, execution and delivery by ISI, constitutes the legal, valid and
binding obligations of Agency enforceable against it in accordance with its
terms.
4
<PAGE>
SECTION 4.2. NON-CONTRAVENTION; APPROVALS AND CONSENTS.
4.2.1. NON-CONTRAVENTION. The execution, delivery and performance by
Agency of its 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,
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
Agency under, any of the terms, conditions or provisions of (a) the Certificate
of Incorporation or By-laws of Agency, or (b) subject to the taking of the
actions described in Section 4.2.2, any Laws or Orders of any Governmental or
Regulatory Authority, applicable to Agency or any of its assets or properties,
or (c) any Contracts to which Agency is a party or by which Agency or any of its
assets or properties are bound.
4.2.2. APPROVALS AND CONSENTS. Except as set forth on SCHEDULE 3.2 and
for the filings pursuant to the NYBCL and MGL, 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 Agency is a party or by which Agency or any of its assets or properties
are bound for the execution and delivery of this Agreement by Agency, the
performance by Agency of its obligations hereunder or the consummation of the
transactions contemplated hereby.
SECTION 4.3. AGENCY SHARES. The Agency Shares to be delivered to the
shareholders of ISI pursuant to this Agreement have been duly authorized for
issuance by all requisite corporate action by Agency, and when delivered as
provided herein, will be validly issued and outstanding shares of voting common
stock of Agency, fully paid and non-assessable, and will not be subject to
preemptive rights of any Person.
SECTION 4.4. CAPITALIZATION. Agency has an authorized capitalization
consisting of 25,000,000 shares of common stock, $0.001 par value per share,
issued and subject to issuance as follows:
(i) Immediately prior to the transactions contemplated by this
Agreement, there were issued and outstanding 8,712,909 shares, and there were
allocated to the 1999 Agency.Com Stock Option/Stock Issuance Plan (the "1999
AGENCY PLAN"), an aggregate of 4,800,589 shares (of which options to purchase an
aggregate of 426,456 shares are outstanding under the 1999 Agency Plan as a
result of grants under predecessor plans of Agency, and options to purchase an
aggregate of 1,116,550 shares were granted since the adoption of the 1999 Agency
Plan, such that options to purchase an aggregate of 1,543,006 were outstanding
under the 1999 Agency Plan).
(ii) In connection with the Quadris Merger and ISI Merger, Agency will
issue a total of 2,085,923 shares and warrants to purchase 1,535,624 shares. In
addition, it will assume outstanding options under the Quadris Stock Option Plan
and the ISI Stock Option Plan, which will result in 701,191 Agency Shares being
issued upon the exercise of such assumed options.
5
<PAGE>
(iii) In connection with the merger of Eagle River Interactive with and
into Agency pursuant to a Merger Agreement of even date herewith (the "ERI
MERGER AGREEMENT"), Agency will issue a total of 1,870,119 shares and warrants
to purchase 2,164,376 shares.
(iv) As a result of all such transactions, there will be issued and
outstanding 12,668,951 shares, warrants to purchase an aggregate of 3,700,000
shares, and there will be 2,244,197 shares issuable upon the exercise of
outstanding options.
No other class of capital stock or series of any class of capital stock or
securities convertible into capital stock of Agency is authorized or
outstanding. Except for the Agency Shares and warrants to be issued and
delivered pursuant to this Agreement, the merger agreement relating to the
Quadris Merger, the ERI Merger Agreement, and except for the options outstanding
under the 1999 Agency Plan and the options assumed pursuant to this Agreement,
the merger agreement relating to the Quadris Merger and the ERI Merger
Agreement, 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 Agency to issue or sell any
shares of the capital stock of Agency, or to grant, extend or enter into any
Option with respect thereto, or (b) outstanding Options providing for settlement
in cash. Agency has sufficient shares reserved for issuance upon exercise of all
outstanding options under the ISI Stock Option Plan and the Quadris Stock Option
Plan.
ARTICLE V
ACTIONS AT CLOSING BY ISI
Simultaneously herewith:
SECTION 5.1. CERTIFIED RESOLUTIONS. ISI shall have delivered to Agency
a copy of the resolutions of its Board of Directors and shareholders authorizing
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified by an officer of ISI.
SECTION 5.2. INVESTMENT REPRESENTATION CERTIFICATE. Each of the
shareholders of ISI shall have executed and delivered an Investment
Representation Certificate substantially in the form of EXHIBIT B hereto.
SECTION 5.3. RIGHT TO INDEMNIFICATION. Communicade and Agency shall
have entered into an agreement relating to certain indemnification rights
substantially in the form of EXHIBIT C hereto.
SECTION 5.4. EMPLOYMENT AGREEMENTS. Lawrence A. Krakauer shall have
entered into an Employment Agreement with Agency substantially in the form of
EXHIBIT E hereto.
SECTION 5.5. NON-SOLICITATION/NON-SERVICING AGREEMENT. Each of the
persons listed on EXHIBIT D-1 hereto shall have executed and delivered a
Non-Solicitation/Non-Servicing Agreement with Agency substantially in the forms
of EXHIBITS D-2 through D-6 hereto.
6
<PAGE>
ARTICLE VI
ACTIONS AT CLOSING BY AGENCY
Simultaneously herewith:
SECTION 6.1. CERTIFIED RESOLUTIONS. Agency shall have delivered to ISI
a copy of the resolutions of the Boards of Directors and shareholders of Agency
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, certified to by the Secretary of Agency.
SECTION 6.2. EMPLOYMENT AGREEMENTS. Each of Chan W. Suh and Kyle S.
Shannon shall have entered into an Employment Agreement with Agency
substantially in such forms as agreed to by them and Agency.
SECTION 6.3. NON-SOLICITATION/NON-SERVICING AGREEMENT. Each of Chan W.
Sub and Kyle S. Shannon shall have executed and delivered a
Non-Solicitation/Non-Servicing Agreement with Agency substantially in the forms
of EXHIBITS F-1 and F-2 hereto.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. 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 any other
party contained in this Agreement or in any Schedule furnished by another party
or in any certificate delivered at the Closing by any other party. The
respective representations and warranties of ISI and Agency contained in this
Agreement or in any Schedule, or in any certificate delivered at the Closing,
shall expire with, and be terminated and extinguished by, the Merger, and
thereafter, neither ISI nor Agency, nor any officer, director or shareholder
thereof shall be under any liability with respect to any such representation or
warranty or condition or covenant. This Section 7.1 shall have no effect upon
any other obligation of the parties hereto, whether to be performed before or
after the Closing.
SECTION 7.2. EXPENSES. Agency and ISI 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 counsels,
financial advisors and accountants.
SECTION 7.3. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York without reference to its conflict of laws provisions.
SECTION 7.4. "PERSON" DEFINED. "PERSON" shall mean and include an
individual, a partnership, a joint venture, a corporation, a limited liability
company, a trust, an unincorporated organization and a government or other
department or agency thereof.
7
<PAGE>
SECTION 7.5. 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 7.6. PUBLIC ANNOUNCEMENTS. Agency and ISI will consult with
each other and Omnicom Group Inc. ("OMNICOM") before issuing any press releases
or otherwise making any public statements with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue any such press
release or make any public statement without the prior consent of the other
party and Omnicom which shall not be unreasonably withheld, except as may be
required by Law or by obligations pursuant to any listing agreements with any
national securities exchange to which Omnicom or Agency is a party.
SECTION 7.7. PARTIES IN INTEREST. This Agreement and the rights and
obligations of the parties hereunder shall not be assignable to any Person
without the written consent of all parties.
SECTION 7.8. 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 7.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
SECTION 7.10. ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits, and other documents referred to herein 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
oral and written agreements and understandings between the parties with respect
to such subject matter.
SECTION 7.11. AMENDMENT. This Agreement and the Schedules heretofore
delivered may be amended, supplemented or modified by the parties hereto only by
an agreement in writing signed on behalf of each of the parties hereto following
due authorization at any time.
SECTION 7.12. 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 7.7 and for purposes of
Section 7.6, Omnicom.
8
<PAGE>
IN WITNESS WHEREOF, Agency and ISI have each caused its corporate name
to be hereunto subscribed by its officer thereunto duly authorized on the day
and year first above written.
AGENCY.COM LTD.
By: /s/ Kenneth Trush
-------------------------------
Kenneth Trush
Chief Financial Officer
INTERACTIVE SOLUTIONS
INCORPORATED
By: /s/ Jerry Neumann
-------------------------------
Jerry Neumann
Vice President
9
<PAGE>
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF SHAREHOLDERS
SCHEDULE 2.3
<TABLE>
<CAPTION>
SHARES OF INTERACTIVE RESULTING SHARES OF
SOLUTIONS, INC. AGENCY.COM LTD.
SHAREHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Communicade Inc. 4,257,000.00000 1,298,226
- ------------------------------------------------------------------------------------------------
Tom Rohrer 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Christian Leland 500.00000 333
- ------------------------------------------------------------------------------------------------
Lawrence A. Krakauer 566,481.67250 377,103
- ------------------------------------------------------------------------------------------------
Andrew P. Kerr 186,688.25000 124,277
- ------------------------------------------------------------------------------------------------
Jeffrey S. Richman 112,012.95000 74,567
- ------------------------------------------------------------------------------------------------
Michael C. Benyo 46,672.06250 31,070
- ------------------------------------------------------------------------------------------------
John L. Morgan 18,668.82500 12,428
- ------------------------------------------------------------------------------------------------
Barry Goldberg 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
David Janowski 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
Jerry Newmark 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
Priya Ramanathan 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
James B. Ronan 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
David J. Seitelman 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
Lee Tuttle 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
Ting Tang Wu 1,866.88250 1,243
- ------------------------------------------------------------------------------------------------
Betsy January 1,322.49956 881
- ------------------------------------------------------------------------------------------------
Chan Suh 58,585.68000 39,001
- ------------------------------------------------------------------------------------------------
Kyle Shannon 37,554.92000 25,000
- ------------------------------------------------------------------------------------------------
Ken Trush 22,176.93000 14,763
- ------------------------------------------------------------------------------------------------
Kevin Rowe 22,532.95000 15,000
- ------------------------------------------------------------------------------------------------
Eamonn Wilmott 15,021.97000 10,001
- ------------------------------------------------------------------------------------------------
Janet Ambrosi-Wertman 12,017.57000 8,000
- ------------------------------------------------------------------------------------------------
David Krunnfusz 12,017.57000 8,000
- ------------------------------------------------------------------------------------------------
Arthur Williams 12,017.57000 8,000
- ------------------------------------------------------------------------------------------------
Andy Hobsbawm 12,017.57000 8,000
- ------------------------------------------------------------------------------------------------
Aaron Sugarman 6,008.78000 4,000
- ------------------------------------------------------------------------------------------------
Rosemary Haefner 7,510.98000 5,000
- ------------------------------------------------------------------------------------------------
Monica Fried 12,017.57000 8,000
- ------------------------------------------------------------------------------------------------
Peter Kestenbaum 1,502.19000 1,000
- ------------------------------------------------------------------------------------------------
TOTAL SHARES 5,440,263.56956 2,085,923
- ------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF OPTIONHOLDERS
SCHEDULE 2.4
- ------------------------------------------------------------------------------------------------
NUMBER OF OPTIONS RESULTING OPTIONS TO
PURCHASE SHARES OF PURCHASE SHARES OF
INTERACTIVE SOLUTIONS, INC. AGENCY.COM LTD.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael Iantosca 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Jack Barette 130,000.00000 86,540
- ------------------------------------------------------------------------------------------------
Robert Brooks 70,000.00000 46,599
- ------------------------------------------------------------------------------------------------
Susan Callahan 50,000.00000 33,285
- ------------------------------------------------------------------------------------------------
Jhanne E. Jasmine 2,500.00000 1,665
- ------------------------------------------------------------------------------------------------
Deborah A. Libuda 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Thor Johnson 75,000.00000 49,927
- ------------------------------------------------------------------------------------------------
Wendy Roberts 25,000.00000 16,643
- ------------------------------------------------------------------------------------------------
Edward Jung 25,000.00000 16,643
- ------------------------------------------------------------------------------------------------
Cinny Little 25,000.00000 16,643
- ------------------------------------------------------------------------------------------------
Esther Han 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Lauren Petzold 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Jean Monahan 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Arthur Dembro 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Hadley Carlson 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Tim Daly 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Ian Schaplowsky 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Michael Brown 5,000.00000 3,329
- ------------------------------------------------------------------------------------------------
Christopher Browne 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Gail Etta Burton Small 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Joann Calve 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Raphael W. Chun 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Elizabeth Cote 500.00000 333
- ------------------------------------------------------------------------------------------------
Clifford Dobbyn 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Michelle R. Dopp 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Michael Fritz 1,000.00000 666
- ------------------------------------------------------------------------------------------------
John Galinato 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Ralph Goodwin 1,500.00000 999
- ------------------------------------------------------------------------------------------------
David Grey 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Susanne Healey 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Victoria Hood 1,000.00000 666
- ------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF OPTIONHOLDERS
SCHEDULE 2.4
- ------------------------------------------------------------------------------------------------
NUMBER OF OPTIONS RESULTING OPTIONS TO
PURCHASE SHARES OF PURCHASE SHARES OF
INTERACTIVE SOLUTIONS, INC. AGENCY.COM LTD.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Sundar Jayabose 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Gloria Lara 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Hung C. Lee 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Toby Levine 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Robert E. Lytle 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Matthew R. MacDonald 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Diane McKenney 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Lianne Meissner 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Andrew Milk 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Catherine Mulrooney 500.00000 333
- ------------------------------------------------------------------------------------------------
Wanjiru Mwangi 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Mark Nyon 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Lyman Phillips 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Michael Solow 4,000.00000 2,663
- ------------------------------------------------------------------------------------------------
Monisha Prakash 1,000.00000 666
- ------------------------------------------------------------------------------------------------
John Purcell 1,500.00000 999
- ------------------------------------------------------------------------------------------------
David M. Raymond 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Melissa Ress 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Erica Saperstein 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Cara Schoenley 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Danielle Volnick 1,500.00000 999
- ------------------------------------------------------------------------------------------------
Valerie Vuyovich 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Jesse Weissman 1,000.00000 666
- ------------------------------------------------------------------------------------------------
Autumn Williams 2,000.00000 1,332
- ------------------------------------------------------------------------------------------------
Larry Krakauer 139,694.33696 92,994
- ------------------------------------------------------------------------------------------------
Jeff Richman 36,544.59831 24,328
- ------------------------------------------------------------------------------------------------
Matt Kaplan 57,873.35750 38,526
- ------------------------------------------------------------------------------------------------
Jack Morgan 43,570.79729 29,005
- ------------------------------------------------------------------------------------------------
Mike Benyo 5,600.64750 3,729
- ------------------------------------------------------------------------------------------------
Priya Ramanathan 17,175.31900 11,434
- ------------------------------------------------------------------------------------------------
Dave Seitelman 14,935.06000 9,943
- ------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF OPTIONHOLDERS
SCHEDULE 2.4
- ------------------------------------------------------------------------------------------------
NUMBER OF OPTIONS RESULTING OPTIONS TO
PURCHASE SHARES OF PURCHASE SHARES OF
INTERACTIVE SOLUTIONS, INC. AGENCY.COM LTD.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Jim Ronan 11,201.29500 7,457
- ------------------------------------------------------------------------------------------------
Barry Goldberg 9,334.41250 6,214
- ------------------------------------------------------------------------------------------------
Jerry Newmark 8,201.96158 5,460
- ------------------------------------------------------------------------------------------------
David Janowski 8,411.05242 5,600
- ------------------------------------------------------------------------------------------------
Lee Tuttle 7,327.88719 4,879
- ------------------------------------------------------------------------------------------------
Phil Burnham 6,756.62114 4,498
- ------------------------------------------------------------------------------------------------
Kristen Byrne 7,467.53000 4,972
- ------------------------------------------------------------------------------------------------
Ronni Skerker 6,648.71534 4,426
- ------------------------------------------------------------------------------------------------
Tony DiPesa 6,627.80625 4,413
- ------------------------------------------------------------------------------------------------
Michele Bokun 6,624.44586 4,410
- ------------------------------------------------------------------------------------------------
Keith Musselman 6,540.43615 4,354
- ------------------------------------------------------------------------------------------------
Richard Harris 6,827.93606 4,546
- ------------------------------------------------------------------------------------------------
Steve Chong 6,322.75765 4,210
- ------------------------------------------------------------------------------------------------
Pete Brown 5,984.10517 3,984
- ------------------------------------------------------------------------------------------------
Bob Donoghue 5,574.51115 3,711
- ------------------------------------------------------------------------------------------------
Alisa Belbusti 5,463.99170 3,638
- ------------------------------------------------------------------------------------------------
Ting Tang Wu 5,124.59246 3,412
- ------------------------------------------------------------------------------------------------
Joe Eldridge 5,974.02400 3,977
- ------------------------------------------------------------------------------------------------
Aman Datta 5,600.64750 3,729
- ------------------------------------------------------------------------------------------------
Adam Michelson 4,818.05036 3,208
- ------------------------------------------------------------------------------------------------
Dave Bartle 4,720.59909 3,143
- ------------------------------------------------------------------------------------------------
Debbie Lam 4,570.87511 3,043
- ------------------------------------------------------------------------------------------------
Erik Bailey 4,570.87511 3,043
- ------------------------------------------------------------------------------------------------
Luke Wright 4,672.06014 3,111
- ------------------------------------------------------------------------------------------------
Frank Hsu 4,564.52771 3,039
- ------------------------------------------------------------------------------------------------
Rajeev Parlikar 4,514.86864 3,006
- ------------------------------------------------------------------------------------------------
Cathy Brunsting 4,714.62507 3,139
- ------------------------------------------------------------------------------------------------
Ashish Jain 3,987.28764 2,655
- ------------------------------------------------------------------------------------------------
Lakshminar Peri 4,238.94340 2,822
- ------------------------------------------------------------------------------------------------
Alex Skovronek 4,585.43680 3,053
- ------------------------------------------------------------------------------------------------
James Haas 4,184.43044 2,786
- ------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF OPTIONHOLDERS
SCHEDULE 2.4
- ------------------------------------------------------------------------------------------------
NUMBER OF OPTIONS RESULTING OPTIONS TO
PURCHASE SHARES OF PURCHASE SHARES OF
INTERACTIVE SOLUTIONS, INC. AGENCY.COM LTD.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Darren Zimmerman 3,972.72596 2,645
- ------------------------------------------------------------------------------------------------
Marcus Jackson 2,776.05428 1,848
- ------------------------------------------------------------------------------------------------
Tim Eakins 2,539.33358 1,691
- ------------------------------------------------------------------------------------------------
Hsin-Lan Wu 2,378.40831 1,584
- ------------------------------------------------------------------------------------------------
Bimal Patel 2,143.18111 1,427
- ------------------------------------------------------------------------------------------------
Dan Ward 2,374.30116 1,581
- ------------------------------------------------------------------------------------------------
David Trinh 2,135.71358 1,422
- ------------------------------------------------------------------------------------------------
Dilip Tagare 2,213.74927 1,474
- ------------------------------------------------------------------------------------------------
Allen Goldschmidt 2,364.96675 1,575
- ------------------------------------------------------------------------------------------------
Qian Ma 2,363.84662 1,574
- ------------------------------------------------------------------------------------------------
Lawrence Chao 2,289.54470 1,525
- ------------------------------------------------------------------------------------------------
Kate Meserve 1,571.16831 1,046
- ------------------------------------------------------------------------------------------------
Jeff Pickering 1,448.32744 965
- ------------------------------------------------------------------------------------------------
Hadi Abedi 1,317.27229 877
- ------------------------------------------------------------------------------------------------
Craig Wilke 1,446.83394 964
- ------------------------------------------------------------------------------------------------
Farshid Varasteh 1,386.72032 924
- ------------------------------------------------------------------------------------------------
Nikolai Tsankov 1,385.22682 923
- ------------------------------------------------------------------------------------------------
Damnath De Tissera 1,263.87945 842
- ------------------------------------------------------------------------------------------------
Ellen Murphy 1,120.12950 746
- ------------------------------------------------------------------------------------------------
Prasad Bandaru 1,047.69446 698
- ------------------------------------------------------------------------------------------------
Doug Locke 1,047.69446 698
- ------------------------------------------------------------------------------------------------
Kirti Chandratreya 1,046.94771 697
- ------------------------------------------------------------------------------------------------
Yuri Ostrovsky 1,046.94771 697
- ------------------------------------------------------------------------------------------------
Barney Morisette 1,046.57433 697
- ------------------------------------------------------------------------------------------------
Jessica Lau 1,046.57433 697
- ------------------------------------------------------------------------------------------------
Jalpesh Patadia 1,045.82758 697
- ------------------------------------------------------------------------------------------------
Min Zeng 1,045.82758 697
- ------------------------------------------------------------------------------------------------
Chris Robertson 1,045.45420 696
- ------------------------------------------------------------------------------------------------
Terry Sherman 1,045.45420 696
- ------------------------------------------------------------------------------------------------
Shridharan Gopalan 1,045.45420 696
- ------------------------------------------------------------------------------------------------
Partha Seshadri 1,045.45420 696
- ------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
INTERACTIVE SOLUTIONS, INC.
SCHEDULE OF OPTIONHOLDERS
SCHEDULE 2.4
- ------------------------------------------------------------------------------------------------
NUMBER OF OPTIONS RESULTING OPTIONS TO
PURCHASE SHARES OF PURCHASE SHARES OF
INTERACTIVE SOLUTIONS, INC. AGENCY.COM LTD.
OPTIONHOLDER NAME COMMON STOCK COMMON STOCK
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LiSing Ou 1,045.45420 696
- ------------------------------------------------------------------------------------------------
Ethan Kelleher 1,045.45420 696
- ------------------------------------------------------------------------------------------------
Barbara Pjura 957.71072 638
- ------------------------------------------------------------------------------------------------
Reeti Punja 936.80164 624
- ------------------------------------------------------------------------------------------------
Miranda Barrows 836.36336 557
- ------------------------------------------------------------------------------------------------
Judy Robinson 660.87641 440
- ------------------------------------------------------------------------------------------------
Merilee Schaefer 660.87641 440
- ------------------------------------------------------------------------------------------------
TOTAL OPTIONS 1,053,242.25048 701,191
- ------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
SCHEDULE 3.2.2
NONE
16
<PAGE>
Exhibit 10.15
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") dated April 28, 1999
(the "EXECUTION DATE") by and between AGENCY.COM LTD., a New York corporation
("AGENCY") and EAGLE RIVER INTERACTIVE INC., a Delaware corporation ("ERI").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of each of the parties
hereto have determined that it is advisable and in the best interests of their
respective corporations and their respective shareholders to consummate, and
have approved, the business combination transaction provided for herein in which
ERI would merge with and into Agency (the "MERGER") upon the terms and subject
to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the parties hereby agree
as follows:
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 below), ERI shall be
merged with and into Agency and the separate corporate existence of ERI shall
thereupon cease. Agency (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 New York, and (iii)
the separate corporate existence of Agency with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in Section 259 of the Delaware General
Corporation Law (the "DGCL") and Section 906 of the New York Business
Corporation Law (the "NYBCL").
SECTION 1.2. EFFECTIVE TIME. Agency and ERI will cause (i) an executed
original of an appropriate Certificate of Merger (the "CERTIFICATE OF MERGER")
to be filed with the Secretary of State of the State of New York pursuant to
Sections 904-A, 907 and 104 of the NYBCL, and (ii) an executed original of an
appropriate Certificate of Merger of ERI into Agency to be filed with the
Secretary of State of the State of Delaware, pursuant to Sections 252 and 103 of
the DGCL. The Merger shall become effective on the date on which the Certificate
of Merger has been duly filed with the Secretary of State of New York, and such
time is hereinafter referred to as the "EFFECTIVE TIME."
SECTION 1.3. CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The Certificate of Incorporation of the Surviving Corporation shall
be at and as of the Effective Time, the Certificate of Incorporation of Agency
immediately prior to the Effective
<PAGE>
Time. The By-laws of the Surviving Corporation shall be, at and as of the
Effective Time, the By-laws of Agency immediately prior to the Effective Time.
ARTICLE II
CONVERSION AND CANCELLATION OF SHARES AND OPTIONS
SECTION 2.1. ERI SHARES. All of the shares of the common stock, no par
value per share, of ERI (the "ERI SHARES") issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger,
automatically and without any action on the part of the holder thereof,
become and be converted into 1,829,774 shares of common stock, $0.001 par
value per share, of Agency (the "AGENCY SHARES") and 2,164,376 warrants to
purchase Agency Shares, such warrants to be evidenced by a warrant
substantially in the form of EXHIBIT A hereto.
SECTION 2.2. AGENCY SHARES. Each share of common stock, $0.001 par
value per share, of Agency issued and outstanding immediately prior to the
Effective Time of the Merger shall, at the Effective Time, continue to be issued
and outstanding, be unchanged and remain as one fully paid and non-assessable
share of common stock, $0.001 par value per share, of Agency.
SECTION 2.3. SURRENDER OF ERI SHARES AND ISSUANCE OF AGENCY SHARES.
SCHEDULE 2.3 sets forth the following (i) a list of each holder of record of ERI
Shares at the Effective Time, (ii) the number of ERI Shares owned by each holder
of record of ER1 Shares at the Effective Time, and (iii) the number of Agency
Shares to be received by each such holder of record of ERI Shares at the
Effective Time. At the Closing (as defined in Section 2.4 below), each holder of
record of ERI Shares at the Effective Time shall surrender the certificate(s)
representing such shares to Agency and in exchange therefor shall receive a
certificate registered in such holder's name representing that number of whole
shares of Agency Shares into which such holder's ERI Shares shall have been
converted pursuant to Section 2.1 above as set forth on SCHEDULE 2.3. Thereupon,
the certificates representing the ERI Shares shall be canceled. No fractional
shares shall be issued and no cash in lieu of fractional shares shall be paid to
a holder of ERI Shares.
SECTION 2.4. CLOSING. The Closing under this Agreement (the "CLOSING")
shall take place simultaneously with the execution and delivery of this
Agreement, or such other time and date agreed upon by the parties, at the
offices of Davis & Gilbert LLP, 1740 Broadway, New York, New York 10019. The
date of the Closing is herein referred to as the "CLOSING DATE". Notwithstanding
the foregoing, it is the intention of the parties that for the purposes of
providing Agency with an interest in the profits and losses of ERI, the
effective date of this Agreement shall be the opening of business on April l,
1999.
ARTICLE III
REPRESENTATIONS OF ERI
ERI represents and warrants to Agency as follows:
2
<PAGE>
SECTION 3.1. EXECUTION AND VALIDITY OF AGREEMENT. ERI has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by ERI and the
consummation by ERI of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of ERI and the holders of all of
the issued and outstanding ERI Shares. This Agreement has been duly and validly
executed and delivered by ERI and, assuming due authorization, execution and
delivery by Agency, constitutes the legal, valid and binding obligation of ERI
enforceable against it in accordance with its terms.
SECTION 3.2. NON-CONTRAVENTION; APPROVALS AND CONSENTS.
3.2.1. NON-CONTRAVENTION. The execution, delivery and performance by
ERI of its 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,
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 mortgage, lien, security interest, encumbrance,
claim, charge and restriction of any kind or character (collectively, "LIENS")
upon any of the assets or properties of ERI under, any of the terms, conditions
or provisions of (a) the Certificate of Incorporation or By-laws of ERI, or (b)
any statute, law, rule, regulation or ordinance (collectively, "LAWS"), or any
judgment, decree, order, writ, citation, 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 ERI or any of its assets
or properties, or (c) any note, bond, mortgage, security agreement, indenture,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind (collectively, "CONTRACTS") to which ERI is
a party or by which ERI or any of its assets or properties are bound.
3.2.2. APPROVALS AND CONSENTS. Except for the filings pursuant to the
DGCL and NYBCL, 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 ERI is a party or
by which ERI or any of its assets or properties are bound for the execution and
delivery of this Agreement by ERI, the performance by ERI of its obligations
hereunder or the consummation of the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS OF AGENCY
Agency represents and warrants to ERI as follows:
SECTION 4.1. EXECUTION AND VALIDITY OF AGREEMENT. Agency has the full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of
3
<PAGE>
this Agreement by Agency and the consummation by Agency of the transactions
contemplated hereby have been duly and validly authorized by all required
corporate action on behalf of Agency and, to the extent required by applicable
law, its shareholders. This Agreement has been duly and validly executed and
delivered by Agency and, assuming due authorization, execution and delivery by
ERI, constitutes the legal, valid and binding obligations of Agency enforceable
against it in accordance with its terms.
SECTION 4.2. NON-CONTRAVENTION; APPROVALS AND CONSENTS.
4.2.1. NON-CONTRAVENTION. The execution, delivery and performance by
Agency of its 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,
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
Agency under, any of the terms, conditions or provisions of (a) the Certificate
of Incorporation or By-laws of Agency, or (b) subject to the taking of the
actions described in Section 4.2.2, any Laws or Orders of any Governmental or
Regulatory Authority, applicable to Agency or any of its assets or properties.
4.2.2. APPROVALS AND CONSENTS. Except for the filings pursuant to the
NYBCL and DGCL, 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 Agency is a party
or by which Agency or any of its assets or properties are bound for the
execution and delivery of this Agreement by Agency, the performance by Agency of
its obligations hereunder or the consummation of the transactions contemplated
hereby.
SECTION 4.3. AGENCY SHARES. The Agency Shares to be delivered to the
shareholders of ERI pursuant to this Agreement have been duly authorized for
issuance by all requisite corporate action by Agency, and when delivered as
provided herein, will be validly issued and outstanding shares of voting common
stock of Agency, fully paid and non-assessable, and will not be subject to
preemptive rights of any Person.
ARTICLE V
ACTIONS AT CLOSING BY ERI
Simultaneously herewith:
SECTION 5.1. CERTIFIED RESOLUTIONS. ERI shall have delivered to Agency
a copy of the resolutions of its Board of Directors and shareholders authorizing
the execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified by an officer of ERI.
SECTION 5.2. INVESTMENT REPRESENTATION CERTIFICATE. Each of the
shareholders of ERI shall have executed and delivered an Investment
Representation Certificate substantially in the form of EXHIBIT B hereto.
4
<PAGE>
SECTION 5.3. EMPLOYMENT AGREEMENTS. Kevin Rowe shall have entered into
an Employment Agreement with Agency substantially in the form of EXHIBIT C
hereto.
ARTICLE VI
ACTIONS AT CLOSING BY AGENCY
Simultaneously herewith:
SECTION 6.1. CERTIFIED RESOLUTIONS. Agency shall have delivered to ERI
a copy of the resolutions of the Boards of Directors and shareholders of Agency
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, certified to by the Secretary of Agency.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. 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 any other
party contained in this Agreement or in any Schedule furnished by another party
or in any certificate delivered at the Closing by any other party. The
respective representations and warranties of ERI and Agency contained in this
Agreement or in any Schedule, or in any certificate delivered at the Closing,
shall expire with, and be terminated and extinguished by, the Merger, and
thereafter, neither ERI nor Agency, nor any officer, director or shareholder
thereof shall be under any liability with respect to any such representation or
warranty or condition or covenant. This Section 7.1 shall have no effect upon
any other obligation of the parties hereto, whether to be performed before or
after the Closing.
SECTION 7.2. EXPENSES. Agency and ERI 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 counsels,
financial advisors and accountants.
SECTION 7.3. GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of New York without reference to its conflict of laws provisions.
SECTION 7.4. "PERSON" DEFINED. "PERSON" shall mean and include an
individual, a partnership, a joint venture, a corporation, a limited liability
company, a trust, an unincorporated organization and a government or other
department or agency thereof.
SECTION 7.5. 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.
5
<PAGE>
SECTION 7.6. PUBLIC ANNOUNCEMENTS. Agency and ERI will consult with
each other and Omnicom Group Inc. ("OMNICOM") before issuing any press releases
or otherwise making any public statements with respect to this Agreement or any
of the transactions contemplated hereby and shall not issue any such press
release or make any public statement without the prior consent of the other
party and Omnicom which shall not be unreasonably withheld, except as may be
required by Law or by obligations pursuant to any listing agreements with any
national securities exchange to which Omnicom or Agency is a party.
SECTION 7.7. PARTIES IN INTEREST. This Agreement and the rights and
obligations of the parties hereunder shall not be assignable to any Person
without the written consent of all parties.
SECTION 7.8. 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 7.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
SECTION 7.10. ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits, and other documents referred to herein 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
oral and written agreements and understandings between the parties with respect
to such subject matter.
SECTION 7.11. AMENDMENT. This Agreement and the Schedules heretofore
delivered may be amended, supplemented or modified by the parties hereto only by
an agreement in writing signed on behalf of each of the parties hereto following
due authorization at any time.
SECTION 7.12. THIRD PARTV 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 7.7 and Omnicom.
6
<PAGE>
IN WITNESS WHEREOF, Agency and ERI have each caused its corporate name
to be hereunto subscribed by its officer thereunto duly authorized on the day
and year first above written.
AGENCY.COM LTD.
By: /s/ Kenneth Trush
-------------------------------
Kenneth Trush
Chief Financial Officer
EAGLE RIVER INTERACTIVE INC.
By: /s/ Jerry Neumann
-------------------------------
Jerry Neumann
Vice President
7
<PAGE>
SCHEDULE 2.3
(ERI/AGENCY MERGER)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WARRANTS
NUMBER OF SHARES OF EXERCISABLE INTO
SHARES OF ERI AGENCY.COM LTD. TO AGENCY.COM LTD.
COMMON STOCK BE RECEIVED IN COMMON STOCK TO BE
SHAREHOLDER OWNED MERGER RECEIVED IN MERGER
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Omnicon Group Inc. 100 1,829,774 2,164,376
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Exhibit 10.16
[Letterhead of Agency.Com]
[Date]
Jeffrey Rayport
Harvard Business School
Baker Library West 183
Soldiers Field
Boston, Massachusetts 02163
Dear Jeff:
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
<PAGE>
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 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
25,000 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/ JEFFREY RAYPORT 4/27/99
- ---------------------------------
Jeffrey Rayport
2
<PAGE>
Exhibit 10.17
- ------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and between
AGENCY.COM LTD.
and
TOPICS INTERACTIVE FACTORY B.V.
- ------------------------------------------------------------------------------
Dated July 23, 1999
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated July 23, 1999 by and
between AGENCY.COM LTD., a New York corporation (the "Purchaser"); and TOPICS
INTERACTIVE FACTORY B.V., a corporation organized under the laws of The
Netherlands (the "Seller").
W I T N E S S E T H :
WHEREAS, the Seller is the owner of all of the outstanding shares of
TWINSPARK INTERACTIVE PEOPLE B.V., a corporation organized under the laws of The
Netherlands (the "Company");
WHEREAS, the Seller desires to sell, and the Purchaser desires to
purchase, all of the shares owned by the Seller, being ordinary shares of the
Company, nominal value of Dfl. 0.10 per share ("Company Shares"), pursuant to
the provisions of this Agreement; and
WHEREAS, the parties have complied with all obligations pursuant to the
Works Council Act (WET OP DE ONDERNEMINGSRADEN);
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 THE SHARES
SECTION 1.1 SALE OF THE SHARES. Subject to the terms and conditions
herein stated, the Seller hereby sells to the Purchaser on the Closing Date (as
defined in Section 2.3), and the Purchaser hereby purchases from the Seller on
the Closing Date, the Company Shares.
ARTICLE II
PURCHASE PRICE AND CLOSING
SECTION 2.1 PURCHASE PRICE. In consideration for the purchase by the
Purchaser of the Company Shares, the aggregate purchase price (the "Purchase
Price") to be delivered by the Purchaser to the Seller on the Closing Date shall
be (a) a certificate or certificate registered in the name of the Seller
representing 1,215,292 shares of Purchaser's common stock, par value $0.001 per
share (the "Purchaser Stock"), plus (b) US$700,000. Payment of the cash portion
shall be made by wire transfer to the third party account "Stichting
Derdengelden Notarissen Amsterdam" at bank account number 51.97.61.243 of ABN
AMRO Bank N.V. at Coolsingel 119 in Rotterdam, the Netherlands, using Swift code
"ABNANL 2 R", mentioning "Agency / Twinspark". Notwithstanding anything in this
Section 2.1 to the contrary, the Purchase Price shall be subject to the
adjustments contemplated by Sections 2.2.1 and 7.1.
-1-
<PAGE>
SECTION 2.2 CASH PAYMENT.
2.2.1 PAYMENT. It is understood and agreed that the payment of
US$700,000 to be made to the Seller at the Closing will be subject to adjustment
to the extent (and only to the extent) that the net shareholders equity of the
Company as at June 30, 1999 is less than US$700,000, such calculation to be made
without including as assets goodwill and other like intangibles or fixed assets
not in service ("Net Shareholders Equity"); to the extent that Net Shareholder
Equity is less than US$700,000 as of June 30, 1999, the Seller shall promptly
make a payment to the Company in the amount of such shortfall.
2.2.2. DISPUTE PROCEDURE. On or prior to September 30, 1999, the
Purchaser shall deliver to the Seller a report containing an unaudited balance
sheet of the Company as at June 30, 1999, prepared in accordance with GAAP (as
defined in Section 3.4), together with a statement setting forth the Net
Shareholders Equity as of June 30, 1999 (the "Determination"). It is understood
and agreed that in connection with the preparation of the June 30, 1999 balance
sheet and Net Shareholder Equity calculation contemplated by this Section 2.2.2,
all Dutch Guilder amounts shall be converted to U.S. Dollars using the Dutch
Guilder/U.S. Dollar exchange rate as of the close of business on June 30, 1999
as quoted in The Wall Street Journal (U.S. edition). If the Seller does not
agree that the Determination correctly states the Net Shareholders Equity, the
Seller shall promptly (but not later than 30 days after the delivery of the
Determination) give written notice to the Purchaser of any exceptions thereto
(in reasonable detail describing the nature of the disagreement asserted). If
the Seller and the Purchaser reconcile their differences, the Net Shareholders
Equity 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 Seller and the Purchaser are unable to reconcile their
differences in writing within 30 days after written notice of exceptions is
delivered to the Purchaser, the items in dispute shall be submitted to the
Amsterdam office of a mutually acceptable accounting firm selected from among
the six largest accounting firms in The Netherlands in terms of gross revenues
(the "Independent Auditors") for final determination, and the Net Shareholders
Equity calculation shall be deemed adjusted in accordance with the determination
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 Seller and the Purchaser may agree) to
resolve all items in dispute. If the Seller does not give notice of any
exception within 30 days after the delivery of the Determination or if the
Seller gives written notification of its acceptance of the Net Shareholders
Equity prior to the end of such 30 day period, the Net Shareholders Equity set
forth in the Determination shall thereupon become binding, final and conclusive
upon all the parties hereto and enforceable in a court of law.
SECTION 2.3 CLOSING. The Closing under this Agreement (the "Closing")
is taking place simultaneously with the execution and delivery of this
Agreement, at the offices of Loeff Claeys Verbeke, Amsterdam. Such date is
herein referred to as the "Closing Date." At the Closing, (i) the Seller shall
deliver the Company Shares to the Purchaser by execution of a notarial deed of
transfer of the Company Shares, and (ii) the Purchaser shall deliver to the
Seller that portion of the Purchase Price to be delivered at Closing.
ARTICLE III
REPRESENTATIONS OF THE SELLER
The Seller hereby represents and warrants to the Purchaser as follows:
-2-
<PAGE>
SECTION 3.1 EXECUTION AND VALIDITY OF AGREEMENTS; RESTRICTIVE
DOCUMENTS.
3.1.1 EXECUTION AND VALIDITY. The Seller 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 the part of the Seller. This Agreement has been duly and
validly executed and delivered by the Seller and, assuming due authorization,
execution and delivery by the Purchaser, constitutes a legal, valid and binding
obligation of the Seller, enforceable against it in accordance with its terms.
3.1.2 STOCK OWNERSHIP. The Seller is the lawful, record
and beneficial owner of all of the Company Shares and all of such Company Shares
have been duly and validly authorized and issued by the Company 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").
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 Company Shares owned by the Seller
and there are no agreements or understandings with respect to the sale or
transfer of such Company Shares.
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
Seller, threatened against the Seller or any of the Company 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 Seller in
connection with the transactions contemplated hereby.
3.1.5 NON-CONTRAVENTION. The execution, delivery and performance by the
Seller of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) result in the violation by the Seller 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 Netherlands, any foreign country or any domestic or
foreign state, county, city or other political subdivision (a "Governmental or
Regulatory Authority"), applicable to the Seller or any of the Company 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 Seller 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 Company 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 the Seller is a
party or by which the Seller or any of the Company Shares is bound.
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 Person (as defined in Section 9.3) 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 Seller
is a party or by which any of the Company Shares is bound for the execution and
delivery of this Agreement by the Seller, the performance by the Seller of its
obligations hereunder or the consummation of the transactions contemplated
hereby.
-3-
<PAGE>
SECTION 3.2 EXISTENCE AND GOOD STANDING. The Company is duly organized
and validly existing under the laws of The Netherlands, 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 conducting business only in The
Netherlands. The Company has not been dissolved (ONTBONDEN) and no resolution to
dissolve the Company has been adopted. The Company is not a party to a merger or
split-off pursuant to Section 2:309ff. of The Netherlands Civil Code. The
Company has not been declared bankrupt and to the knowledge of the Seller no
action or request is pending to declare the Company bankrupt. The Company has
not filed for nor has it been granted a temporary suspension of payment
(SURSEANCE VAN BETALING).
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 of publicly-traded debt and equity securities
held for investment.
3.3.2 CAPITAL STOCK. The Company has an authorized capital
(MAATSCHAPPELIJK KAPITAAL) of 7,500,000 Dutch guilders consisting of 75,000,000
Ordinary Shares with a nominal value of Dfl. 0.10 per share, of which 15,000,000
Company Shares have been issued and are outstanding (GEPLAATST) . All of the
Company Shares which are issued and outstanding have been validly issued . All
issued and outstanding Ordinary Shares are fully paid up (VOLGESTORT) and no
other class of capital stock of the Company is authorized or outstanding. 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. All repurchases or redemptions of
shares of 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 or the Seller in respect
thereof.
SECTION 3.4 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. SCHEDULE 3.4
sets forth (a) an audited balance sheet of the Company 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 Bunck en Brouwer, independent public
accountants, and (b) an unaudited balance sheet of the Company as at March 31,
1999 (the "Company Balance Sheet") and the related unaudited statements of
income, retained earnings and cash flow for the three months then ended. Except
as indicated on SCHEDULE 3.4.1 hereto, such financial statements, including (in
the case of the audited statements) the footnotes thereto, have been prepared in
accordance with generally accepted accounting principles consistently applied
and as applied in The Netherlands ("GAAP") throughout the periods indicated. The
Company Balance Sheet fairly presents in all material respects the financial
condition of the Company at the date thereof and fairly presents in all material
respects 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 statements of income, retained earnings and cash flow fairly
present in all material respects the results of operations of the Company,
retained earnings and the cash flow for the period indicated. Except as set
forth on SCHEDULE 3.23, since March 31, 1999 (the "Company Balance Sheet Date"),
there has been no material adverse change in the properties, financial
condition, business or results of operation of the Company.
SECTION 3.5 BOOKS AND RECORDS. All accounts, books, ledgers and
official and other records material to the business of the Company have been
properly and accurately kept and completed in all material respects, and there
are no material inaccuracies or discrepancies contained or reflected therein.
Except as set forth on SCHEDULE 3.5, the Company does not have any of its
records, systems, controls, data
-4-
<PAGE>
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 Seller or the Company.
SECTION 3.6 TANGIBLE PERSONAL PROPERTY; 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 Company Balance Sheet, and (b) all
the properties and assets purchased or otherwise contracted for by the Company
since the Company Balance Sheet Date (except for properties and assets reflected
in the Company Balance Sheet or acquired or otherwise contracted for since the
Company 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, 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 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.
3.7.1 OWNED REAL PROPERTY. The Company does not own a freehold interest
in any real property or any option or right of first refusal or first offer to
acquire 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 (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 and binding against the
Company and, to the knowledge of the Seller, 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 to the knowledge of the Seller, by any other party;
(f) to the knowledge of the Seller, there exists no occurrence, condition or act
(including the purchase of the Company 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; (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 holds the
leasehold estate in all the real property leases free and clear of all Liens,
and (i) 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 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 is a party or by
or to which the Company is bound: (a) all Plans (as such term is defined in
Section 3.19); (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
-5-
<PAGE>
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 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 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 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 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 $10,000 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 which involves $20,000 or more over the unexpired term thereof and is not
cancelable by the Company 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 to the knowledge of the Seller, by any other party, or
occurrence, condition, or act (including the purchase and/or transfer of the
Company 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 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.
3.9.1 NON-CONTRAVENTION. The execution, delivery and performance by the
Seller 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 association (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 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 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 Instruments to which the Company is a party or by which the Company or any
of its assets or properties is bound.
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 required under any of the terms,
conditions or provisions of any Law or Order of any Governmental or Regulatory
Authority applicable to the Company or any Instrument to which the Company is a
party or its assets or properties are bound for the execution and delivery of
this Agreement by the Seller, the performance by the Seller of its obligations
hereunder or the consummation of the transactions contemplated hereby.
-6-
<PAGE>
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 Seller, any investigation by) any governmental or other
instrumentality or agency, pending or, to the knowledge of the Seller,
threatened, against the Company with respect to this Agreement or the
transactions contemplated hereby, or against or affecting the Company or its
properties or rights; and no acts, facts, circumstances, events or conditions
occurred or exist which are a valid basis for any such action, proceeding or
investigation. 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 the Company. 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 pursuant to U.S.
Treasury Regulations 1.1502-6 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 has collected all sales, use, goods and services
or other commodity Taxes required to be collected, and has 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
Company 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 Company Balance Sheet Date, the Company has not incurred any
liabilities for Taxes other than in the ordinary course of business. The Seller
has delivered to the Purchaser correct and complete copies of all income tax
returns filed with respect to the Company for all taxable periods since its
inception. Except as set forth on SCHEDULE 3.11, none of the tax returns of the
Company has ever been audited by any Governmental or Regulatory Authority. The
Company has not 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. 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. The Company is not 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. The Company will not 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 under Section 481 of the
U.S. Tax Code (or any similar provision of Holland or other local or foreign
income tax law) in income for any period ending after the Closing Date.
SECTION 3.12 LIABILITIES. Except as set forth in the Company Balance
Sheet or reflected in the notes thereto, the Company does not have 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
-7-
<PAGE>
other agreements, arrangements and commitments of the type required to be
disclosed by the Seller 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 Company Balance Sheet Date and (d) liabilities to the extent
covered by insurance maintained by the Company. SCHEDULE 3.8 sets forth a list
of all current arrangements of the Company for borrowed money and all
outstanding balances as of the Closing Date hereof with respect thereto. Except
as set forth on SCHEDULE 3.12, the Company is not 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. All
such policies are in full force and effect and all premiums that have become due
have been paid. The Company has not received any notice of cancellation or
non-renewal of any such policy or binder. Except as set forth on SCHEDULE 3.13,
within the past two years the Company has not filed for any claims exceeding
$15,000 against any of its insurance policies, exclusive of automobile policies.
SECTION 3.14 INTELLECTUAL PROPERTIES.
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; (b) the Company has not granted to any Person, nor authorized any
Person to retain, any rights in any Intellectual Property of the Company. Except
as set forth on SCHEDULE 3.14 and except for "shrink wrap" and similar
commercial end-user licenses, the Company 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 Seller, the
operation of the business of the Company as it is currently conducted does not
infringe the Intellectual Property of any other Person and the Company has not
received written notice, nor to the knowledge of the Seller oral 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
and any other Person with respect to Intellectual Property of the Company in
respect of which there is any dispute known to the Seller 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
Seller, no Person is infringing or misappropriating any of the Intellectual
Property of the Company.
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 mean any Intellectual Property (h) that is owned by, or
exclusively licensed to, the Company; or (i) which is necessary to the operation
of the Company, including the design, manufacture, use
-8-
<PAGE>
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, 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.
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 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 (a "Material Adverse Effect"), including without
limitation, (a) all Laws and Orders promulgated by The Netherlands equivalent of
the U.S. 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 Seller
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 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 Seller 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 (a) the twenty
largest clients of the Company (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 of the Company (measured by fees) based on the Company'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
has advised the Company, the Seller, or any shareholder of the Seller in
writing, or has orally advised the Seller or any shareholder of the Seller or
any department heads of the Company, (a) that it is terminating or considering
the termination of the handling of its business by the Company, 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 and reflected on the Company
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 as being due to the Company and reflected on the
Company Balance Sheet are good and collectible in full (less the amount of any
provision, reserve or similar adjustment therefor reflected on the Company
Balance Sheet). Except as set forth on SCHEDULE 3.17, there has been no material
adverse change since the Company Balance Sheet Date in the amount or aging of
the work-in-process, accounts receivable 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) 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
-9-
<PAGE>
pending or to the knowledge of the Seller threatened against or involving the
Company; (d) there are no labor unions or work council representing or, to the
knowledge of the Seller, attempting to represent the employees of the Company;
(e) no claim or material grievance nor any arbitration proceeding arising out of
or under any collective bargaining agreement is pending and to the knowledge of
the Seller, 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 past three years. There is no legal action, suit, proceeding or claim
pending or, to the knowledge of the Seller, threatened between the Company 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.
SECTION 3.19 EMPLOYEE BENEFIT MATTERS. All liabilities under any plan
or agreement required to be listed on SCHEDULE 3.8 under clause (a) of Section
3.8 were, as of the Company Balance Sheet Date and will be, as of the Closing
Date, fully funded or fully insured and adequate accruals therefor were provided
in the Company Balance Sheet; and any back service liabilities in respect of any
period prior to the date hereof have been paid in accordance with the terms and
conditions of the applicable pension plans.
SECTION 3.20 INTERESTS IN CUSTOMERS, SUPPLIERS, ETC. Except as set
forth on SCHEDULE 3.20, neither (x) the Seller nor (y) to the knowledge of the
Seller (without making any special inquiry of the Related Group, as hereinafter
defined), any director or employee of the Company, or any director or
shareholder of the Seller (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 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, 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 Seller or such shareholders to the
Company as reflected in the books and records of the Company).
SECTION 3.21 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth on
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.
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, 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 who are receiving or entitled to
receive any healthcare or life insurance benefits or any payments from the
Company
-10-
<PAGE>
not covered by any pension plan to which the Company is a party, their
ages and current unfunded pension rate, if any; and (c) a description of the
severance benefits, if any, of the Company.
SECTION 3.23 NO CHANGES SINCE THE COMPANY BALANCE SHEET DATE.
Since the Company Balance Sheet Date except as specifically stated on SCHEDULE
3.23 the Company has not (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, (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 at an annual rate of $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 in any material respect 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 nor the Seller,
or, to the knowledge of the Seller, any officer, authorized agent, employee or
any other Person while acting on behalf of the Company, 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 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
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 YEAR 2000 COMPLIANCE.
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 (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
-11-
<PAGE>
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.
3.25.2. COMPUTER SYSTEMS. The Company has used its reasonable
commercial efforts so that, to its knowledge, the current computer hardware,
software and systems, and accompanying documentation, of the Company will be Y2K
Compliant, in a full production version, with accompanying documentation, no
later than September 30, 1999. The Company has used 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 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.
3.25.3 OTHER PRODUCTS AND SERVICES. The Company has used 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) it will have made appropriate inquiries to
confirm that its essential 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. Except as set forth on SCHEDULE 3.26, no broker,
finder, agent or similar intermediary has acted on behalf of the Seller or the
Company 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 Seller in connection therewith
based on any agreement, arrangement or understanding with any of them. The
Seller shall bear all brokerage commissions and finder's fees (or similar fees
or commissions) payable to the brokers, finders, agents or similar
intermediaries set forth on SCHEDULE 3.26.
SECTION 3.27 COPIES OF DOCUMENTS. The Seller has 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 Seller
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 New York, 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
-12-
<PAGE>
are now owned or operated or such business is now being conducted. The Purchaser
has not been dissolved and no resolution to dissolve the Purchaser has been
adopted. The Company is not a party to a merger or split-off. The Purchaser has
not been declared bankrupt and to the knowledge of the Purchaser no action or
request is pending to declare the Purchaser bankrupt. The Purchaser has not
filed for nor has it been granted a temporary suspension of payment (SURSEANCE
VAN BETALING).
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 Seller constitutes a legal, valid and binding obligation of it,
enforceable against the Purchaser in accordance with its terms.
SECTION 4.3 NON-CONTRAVENTION; APPROVALS AND CONSENTS.
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.
4.3.2 APPROVALS AND CONSENTS. 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 CAPITALIZATION. The Purchaser has an authorized
capitalization consisting of 50,000,000 shares of common stock, $0.001 par value
per share, of which as of the Closing Date 25,368,874 shares are issued and
outstanding, an aggregate of 9,601,178 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 1,376,446 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. Except for the shares of Purchaser Stock to be issued
and delivered pursuant to this Agreement and as specifically set forth herein,
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
-12-
<PAGE>
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 4.5 PURCHASER STOCK. The shares of Purchaser Stock, when issued
and delivered to the Seller 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 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 the
Seller at the Closing), and will not be subject to any preemptive right of
shareholders of Purchaser. The shares of Purchaser Stock issued to Seller,
together with 30,000 additional shares of Purchaser Stock, represent 3.5% of the
Applicable Purchaser Shares, as calculated and defined in SCHEDULE 4.5 hereto
(the "Seller's Closing Percentage").
SECTION 4.6 FINANCIAL STATEMENTS. SCHEDULE 4.6 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 March 31, 1999 and the
related unaudited statements of income, retained earnings and cash flow for the
three months then ended, and (c) unaudited balance sheet of the Purchaser,
Interactive Solutions Incorporated, Quadris Consulting Inc., and Eagle River
Interactive Inc. as at March 31, 1999 (collectively, the "Purchaser Balance
Sheet") which reflects the acquisitions by Purchaser on April 28, 1999 (in each
case effective as of April 1, 1999) of Interactive Solutions Incorporated and
Eagle River Interactive Inc. and the related unaudited statements of income,
profit and loss statements, retained earnings and cash flow for the three months
then ended. Except as indicated on SCHEDULE 4.6.1 hereto, such financial
statements, including (in the case of the audited statements) the footnotes
thereto, have been prepared in accordance with GAAP throughout the periods
indicated. The Purchaser Balance Sheet fairly presents in all material respects
the financial condition of the Purchaser at the date thereof and fairly presents
in all material respects all claims against and all debts and liabilities of the
Purchaser, fixed or contingent, as at the date thereof, required to be shown
thereon under GAAP, and the related pro forma statements of income, retained
earnings and cash flow fairly present in all material respects the pro forma
results of operation of the Purchaser. Except as set forth on SCHEDULE 4.6.2,
since March 31, 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 4.7 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 the Seller, any investigation
by) any governmental or other instrumentality or agency, pending or, to the
knowledge of the Purchaser, threatened, against the Purchaser with respect to
this Agreement or the transactions contemplated hereby; and no acts, facts,
circumstances, events or conditions occurred or exist which are a valid basis
for any such action, proceeding or investigation. The Purchaser is not a party
to any legal proceedings. The Purchaser is not subject to any Order entered in
any lawsuit or proceeding.
SECTION 4.8 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 4.9 DISCLOSURE. No representations or warranties by the
Purchaser in this Agreement, including the Exhibits and the Schedules delivered
by the Purchaser hereto, and no statement contained in either the financial
statements set forth as SCHEDULE 4.6 (including the footnotes thereto) or the
draft dated July 20, 1999 of the Purchaser's registration statement on Form S-1
(the "Draft Registration Statement"),
-14-
<PAGE>
contains any untrue statement of a material fact, or omits to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements contained herein or therein not misleading. There is no
fact known to the Purchaser which has or could have a material adverse effect on
the Purchaser, which has not been set forth in this Agreement (including the
Exhibits and the Purchaser's schedules hereto), the financial statements set
forth as SCHEDULE 4.6 (including the footnotes thereto) or the Draft
Registration Statement. Notwithstanding the foregoing, it is understood and
agreed that the failure of the Draft Registration Statement to include
information regarding the number of shares to be issued pursuant to the
Registration Statement or to include a number of shares which may change after
the date hereof, and to include information as to pricing of the shares of
Purchaser Stock offered thereby, shall in no event be deemed to be an untrue
statement of a material fact, or the omission of a material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements contained therein not misleading.
ARTICLE V
ACTIONS AT CLOSING BY THE SELLER
Simultaneously herewith:
SECTION 5.1 REQUIRED APPROVALS, NOTICES AND CONSENTS. The Seller has
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 is in form reasonably satisfactory to
counsel for the Purchaser.
SECTION 5.2 SHAREHOLDERS REGISTER. The Seller has delivered to the
Purchaser: a) the original shareholders register (AANDEELHOUDERSREGISTER) of the
Company.
SECTION 5.3 DIRECTOR. The Purchaser has received a copy of a resolution
of the shareholders of the Company to the effect that the Seller shall cease to
be the director of the Company as of the moment the Company Shares are
transferred to the Purchaser and that the new director of the Company shall be
the President, Europe of the Purchaser. In addition, the Purchaser has received
a copy of a notice from Seller confirming his resignation as of that moment and
waiving any and all claims he may have against the Company in relation to such
resignation.
SECTION 5.4 INVESTMENT REPRESENTATION CERTIFICATE. The Seller delivered
to Purchaser an Investment Representation Certificate, in the form and to the
effect of EXHIBIT B hereto.
SECTION 5.5 EMPLOYMENT AGREEMENTS. Each of Roland Slot, Gijs Dullaert
and Patrick van Gent entered into an Employment Agreement with the Company, in
the form and to the effect of EXHIBIT C hereto.
SECTION 5.6 NON-SOLICITATION AGREEMENTS. Each of Roland Slot, Gijs
Dullaert and Patrick van Gent entered into a Non-Solicitation Agreement with the
Company, in the form and to the effect of EXHIBIT D hereto.
-15-
<PAGE>
SECTION 5.7 REPAYMENT OF LOANS. All indebtedness of the Seller to the
Company (including for this purpose the ultimate shareholders of Seller),
together with unpaid 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 Seller has
delivered to Purchaser a certificate, dated the Closing Date, to such effect.
SECTION 5.8 PROCEEDINGS. All proceedings to be taken in connection with
the transactions contemplated by this Agreement and all documents incident
thereto are reasonably satisfactory in form and substance to the Purchaser and
its counsel, and the Purchaser has 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 has delivered to the
Seller 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 are reasonably satisfactory in form and substance to the Seller, the
Company and their counsel and the Company has 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 RE-EXAMINATION OF CONSIDERATION. Given that the number of
shares of Purchaser Stock issued in connection with the transactions
contemplated hereby was based upon the capitalization set forth in Section 4.4,
the Purchaser hereby agrees to increase the number of shares of Purchaser Stock
issued to the Seller in connection with this transaction so that (a) in the case
of clause (i) below, the Seller's percentage ownership interest (calculated as
if an additional 30,000 shares of Purchaser Stock had been issued to Seller) is
not less than 95% of the Seller's Closing Percentage and (b) in the case of
clause (ii) below, the Seller's percentage ownership interest (calculated as if
an additional 30,000 shares of Purchaser Stock had been issued to Seller) is not
less than 85% of the Seller's Closing Percentage in the event that prior to
October 31, 1999, the Purchaser either:
(i) issues additional shares of capital stock, and such issuances
(whether individually or in the aggregate) result in a dilution in the
Seller's ownership interest in the Purchaser of greater than 5%.
-16-
<PAGE>
However, any dilution under this clause (i) shall be calculated
without taking into account shares issued in connection with an
initial public offering of the Purchaser's common stock, shares
issued to the employees of the Company as contemplated hereby,
shares issued upon the exercise of existing options, or shares
issued in connection with another acquisition made by the Purchaser
in good faith and, in its business judgment, for fair value. In
addition, the dilution as calculated under this clause (i) shall
give effect to the return of any shares by any stockholder of the
Purchaser in connection with or to permit any such issuance by the
Purchaser.
(ii) issues additional shares of capital stock in connection with an
initial public offering of Purchaser's common stock (including any
shares issued pursuant to "greenshoe" provisions), and the aggregate
amount of shares issued in such public offering results in a dilution
in the Seller's ownership interest in the Purchaser of more than 15%.
However, any dilution under this clause (ii) shall be calculated
independent of dilution which may arise as a result of issuances other
than in connection with an initial public offering.
Promptly following the first event that Purchaser reasonably believes would
require the issuance of shares to the Seller pursuant to this Section 7.1, and
in any event within five business days after October 31, 1999, the Purchaser
shall deliver to the Seller a report describing in reasonable detail the nature
of the subject transaction or transactions and certifying the number of shares
issued in connection with such transaction or transactions and setting forth a
calculation of the number of shares, if any, to be issued to the Seller pursuant
to this Section 7.1 (each, an "Additional Purchaser Stock Determination"). If
the Seller does not agree that an Additional Purchaser Stock Determination
correctly states the number of shares of Purchaser Stock to be issued and
delivered to the Seller pursuant to this Section 7.1, the Seller shall promptly
(but not later than 30 days after the delivery of the Additional Purchaser Stock
Determination) give written notice to the Purchaser of any exceptions thereto
(in reasonable detail describing the nature of the disagreement asserted). If
the Seller and the Purchaser reconcile their differences, the Additional
Purchaser Stock Determination 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 Seller and the Purchaser are unable to
reconcile their differences in writing within 30 days after written notice of
exceptions is delivered to the Seller, the items in dispute shall be submitted
to the Independent Auditors for final determination, and the Additional
Purchaser Stock Determination shall be deemed adjusted in accordance with the
determination 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 Seller and the
Purchaser may agree) to resolve all items in dispute. If the Seller does not
give notice of any exception within 30 days after the delivery of an Additional
Purchaser Stock Determination or if the Seller gives written notification of its
acceptance of an Additional Purchaser Stock Determination prior to the end of
such 30-day period, the Additional Purchaser Stock Determination shall thereupon
become final, binding and conclusive upon all of the parties hereto and
enforceable in a court of law.
SECTION 7.2 ISSUANCE OF SHARES TO EMPLOYEES. At or promptly
following the Closing, the Purchaser shall issue an aggregate of 60,000 shares
of Purchaser Stock, to the key employees of the Company indicated on SCHEDULE
7.2 hereto, in the amounts set forth on such schedule. The wage tax due as a
result of such issue shall be withheld by the Company.
SECTION 7.3 DISCLAIMER; DISCLOSURE SCHEDULES.
7.3.1 DISCLAIMER. The Seller does not make, and has not made, any
representations or warranties relating to the Seller, the Company or the
businesses of the Company or otherwise in connection with the
-12-
<PAGE>
transactions contemplated hereby other than those expressly set forth herein
which are made by the Seller. Without limiting the generality of the foregoing,
the Seller has not made, and shall not be deemed to have made, any
representations or warranties in any presentation of the businesses of the
Company in connection with the transactions contemplated hereby, and no
statement made in any such presentation shall be deemed a representation or
warranty hereunder or otherwise. It is understood that any cost estimates,
projections or other predictions, any data, any financial information or any
memoranda or offering materials or presentations are not and shall not be deemed
to be or include representations or warranties of the Seller. No Person has been
authorized by the Seller or the Company to make any representation or warranty
relating to the Seller, the Company or the businesses of the Company or
otherwise in connection with the transactions contemplated hereby and, if made,
such representation or warranty must not be relied upon as having been
authorized by the Seller or the Company.
7.3.2 SCHEDULES. Certain information in the Schedules is included
solely for informational purposes any may not be required to be disclosed
pursuant to this Agreement. The disclosure of any information shall not be
deemed to constitute an acknowledgment that such information is required to be
disclosed in connection with the representations and warranties made by the
Seller in this Agreement or that it is material, nor shall such information be
deemed to establish a standard of materiality.
SECTION 7.4 INITIAL PUBLIC OFFERING.
7.4.1 FILINGS. The Purchaser acknowledges that it is its intention to
prepare and file with the United States Securities and Exchange Commission (the
"Commission") within 120 days after the Closing, and to cause to be declared and
to remain effective, a registration statement on Form S-1 and any amendments or
supplements to the registration statement or the prospectus to be used in
connection therewith as may be necessary to complete an initial public offering
of the capital stock of the Purchaser and to keep such registration statement
current and to comply with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the disposition of all shares
covered by such registration statement. Notwithstanding the foregoing, it is
understood that Purchaser may delay or cancel such an offering if Purchaser in
good faith believes that circumstances exist that make such a delay or
cancellation advisable.
7.4.2 COPIES OF DOCUMENTS. The Purchaser shall furnish to the Seller
such number of copies of the registration statement and each amendment or
supplement thereto (in each case including all exhibits) and such number of
copies of the prospectus included therein (including each summary, preliminary,
final, amended or supplemented prospectus), in conformity with the requirements
of the Securities Act, and such other documents incorporated by reference in the
registration statement, and such other documents as the Seller shall reasonably
request for purposes of their review or in order to facilitate the disposition
of the securities; provided, however, that the Purchaser shall not be required
to furnish copies of any exhibits or other documents incorporated by reference
into the registration statement prior to the filing thereof with the Commission.
SECTION 7.5 TRIDION REORGANIZATION. The Purchaser acknowledges and
agrees that the Seller has created a new wholly owned subsidiary named Tridion
B.V. i.o. ("Tridion") and has caused the Company to sell, transfer, convey,
deliver and assign to Tridion certain of the assets and liabilities formerly
held by the Company identified on EXHIBIT E hereto (the "Tridion Assets and
Liabilities"), and the Tridion Assets and Liabilities have become solely the
assets and liabilities of Tridion. In connection with the matters contemplated
by this Section 7.5 and EXHIBIT E, the Seller represents that there will be no
costs or consequences to the Company, and Purchaser hereby releases and waives
any and all claims or other rights to the Tridion Assets and Liabilities.
-18-
<PAGE>
SECTION 7.6 JOINT AND SEVERAL OBLIGATIONS. The Seller shall fully
indemnify the Purchaser and the Company and shall hold the Purchaser and the
Company harmless against (a) any and all liabilities, claims and costs incurred
by the Company in connection with any guarantees, sureties and/or statements of
(joint) liability issued by the Company on behalf of or in favor of third
parties (including any member of the Seller's group of companies) and any legal
(WETTELIJKE) or contractual liability for obligations (including tax obligations
of third parties (including any members of the Seller's group of companies), to
the extent that no sufficient provision has been included in the Balance Sheet;
and (b) rights of recourse (REGRESRECHT) of third parties (including any members
of Seller's group of companies) against the Company, to the extent that no
sufficient provision has been included in the Balance Sheet. For the avoidance
of doubt, the indemnification provided in this Section shall not be limited or
qualified in any respect by Section 8.5 of this Agreement.
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
Seller and the Purchaser contained in this Agreement shall survive the Closing.
SECTION 8.2 OBLIGATION OF THE SELLER TO INDEMNIFY. Subject to the
limitations contained in Section 8.5 hereof, the Seller hereby agrees 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 the
Seller to comply with or perform any agreement or covenant contained in this
Agreement or (iii) any Losses relating to the Tridion Assets and Liabilities.
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 8.3 OBLIGATION OF THE PURCHASER TO INDEMNIFY. Subject to the
limitations set forth in Section 8.5 hereof, the Purchaser hereby agrees to
indemnify the Seller and its officers, directors, employees, agents and its
affiliates (individually a "Seller Indemnified Party" and collectively, the
"Seller Indemnified Parties") against, and to protect, save and keep harmless
the Seller Indemnified Parties from and to assume liability (including
liabilities for Taxes) for any and all Losses that may be imposed on or
-19-
<PAGE>
incurred by the Seller 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.
8.4.1 NOTICE OF ASSERTED LIABILITY. The Indemnified Party (as defined
below) 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 (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 8.6 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. For purposes
of this Section 8.4, the term "Indemnified Party" shall mean the Seller
Indemnified Party or Parties or the Purchaser Indemnified Party or Parties, as
the case may be.
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 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. Notwithstanding anything in this Section 8.4
to the contrary, the Seller shall only reimburse the Purchaser Indemnified
Parties for the costs and expenses of one counsel for all Purchaser Indemnified
Parties, and the
-20-
<PAGE>
Purchaser shall only reimburse the Seller Indemnified Parties for the costs
and expenses of one counsel for all Seller Indemnified Parties, 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.
8.4.3 CONTROL BY THE PURCHASER. All decisions and determinations to be
made by the Purchaser and/or a Purchaser Indemnified Party under 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.
SECTION 8.5 LIMITATIONS ON INDEMNIFICATION.
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 $50,000 in the aggregate
(in which case the Seller shall be liable for all Losses in excess of $50,000);
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 nor to any
Losses relating to the Tridion Assets and Liabilities.
8.5.2 TERMINATION OF INDEMNIFICATION OBLIGATIONS OF THE SELLER. The
obligation of the Seller to indemnify under clause (i) of Section 8.2 hereof
shall terminate on June 30, 2001 except (i) as to matters as to which any
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, (ii) with
respect to any claim for Losses pertaining to a misrepresentation or a breach of
representation or warranty under Section 3.11 or 3.19, and (iii) with respect to
any claims relating to Tridion Assets and Liabilities. 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 clauses (ii) and (iii) shall terminate 60
days after the expiration of the relevantstatute 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.
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, 2001 except as to matters as to which any Seller
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.
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.
8.5.5 ACTUAL EXPENSES. Recovery of an Indemnified Party pursuant to
Section 8.2 or 8.3 shall be limited to actual out-of-pocket expenses and shall
in no event include any punitive, exemplary, special,
-21-
<PAGE>
indirect, incidental or consequential damages whatsover (which shall include,
without limitation, lost profits and sales).
8.5.6 REMEDIES. Indemnification in accordance with the provisions of
this Agreement shall be the sole and exclusive remedy of the Purchaser and the
Seller for any Losses suffered or incurred by the Indemnified Party including,
but not limited to, any and all breaches of or inaccuracies in any of the
parties' respective representations and warranties, covenants, agreements or
other obligations of the Purchaser and the Seller set forth in this Agreement or
in any other agreement or instrument contemplated thereby.
8.5.7 MAXIMUM AMOUNT. Notwithstanding anything in this Agreement to the
contrary, in no event shall the maximum aggregate liability of the Seller with
respect to Losses suffered or incurred by the Purchaser Indemnified Parties
hereunder (other than Losses relating to the Tridion Assets and Liabilities, as
to which there shall be no maximum potential liability) exceed the total of
$700,000 (or such lesser amount to the extent adjusted pursuant to Section
2.2.1) plus the shares issued to the Seller hereunder. For purposes of
indemnification hereunder, prior to the time the Purchaser shall have an
effective registration statement outstanding under the Securities Act of 1933,
as amended, the Seller shall be required to return shares of Purchaser Stock to
satisfy its indemnification obligations and each share of Purchase Stock shall
be valued at $6.81; thereafter, Seller shall have the option as to whether to
satisfy its indemnification obligations in cash or in shares of Purchaser Stock
and each share of Purchaser Stock shall be valued at its then-current market
value. In the event that the Seller shall have sold any shares of Purchaser
Stock at the time payments are due under this Article VIII, that portion of its
liability relating to the shares of Purchaser Stock shall be limited to the
total of the value of the Purchaser Stock remaining to it plus the gross sale
proceeds of the shares of Purchaser Stock sold.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 EXPENSES. Except for costs and expenses of the civil law
notary which shall be borne by the Purchaser, 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. Pursuant to Section 5-1401 of the General
Obligations Law of the State of New York, this Agreement shall be governed by
the laws of the State of New York .
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 partnership under Dutch law
(maatSCHAP, VENNOOTSCHAP ONDER FIRMA, COMMANDITAIRE VENNOOTSCHAP) 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.
-22-
<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 Seller 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 Seller. 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) the next business day if sent by
facsimile transmission (if receipt is electronically confirmed), or (c) two days
if sent 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
1111 Chautauqua Boulevard
Pacific Palisades, California 90272
Fax: (310) 230-6936
If to the Seller to the address set forth on EXHIBIT A.
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.
-23-
<PAGE>
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 Seller.
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 9.15 CIVIL LAW NOTARY. The Seller hereby acknowledges that it
is aware of the provisions of Articles 8, 9, 10 and 14.2 of the "Guidelines
concerning associations between civil law notaries (NOTARISSEN) and
barristers/solicitors (ADVOCATEN)" as established by the Board of the Royal
Professional Organisation of Civil Law Notaries (KONINKLIJKE NOTARIELE
BEROEPSORGANISATIE). The Seller hereby acknowledges and agrees that Loeff Claeys
Verbeke may advise and act on behalf of the Purchaser with respect to this
Agreement, and any agreements and/or any disputes related to or resulting from
this Agreement.
SECTION 9.16 ARBITRATION. Except as specifically provided in Sections
2.2 and 7.1,, any controversy or claim arising out of or relating to this
Agreement, or any breach hereof, shall be settled by arbitration in accordance
with the rules and regulations of the American Arbitration Association and
judgment upon such award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The arbitration panel shall consist of three
arbitrators, one nominated by Purchaser, one nominated by the Seller 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 Seller 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 American Arbitration Association in New York,
New York 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 London, England. 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.
<PAGE>
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
TOPICS INTERACTIVE FACTORY B.V.
BY: /s/ ROLAND SLOT
---------------------
NAME: ROLAND SLOT
TITLE: DIRECTOR
<PAGE>
EXHIBITS
Exhibit A: Company Shares; Address
Exhibit B: Investment Representation Certificate
Exhibit C: Form Employment Agreement
Exhibit D: Form Non-Competition Agreement
Exhibit E: Tridion Assets and Liabilities
<PAGE>
September 1, 1999
Topics Interactive Factory B.V.
Lijsterbeslaan 17
1214 LN Hilversum
The Netherlands
Re: AMENDMENT TO STOCK PURCHASE AGREEMENT
Dear Gentlemen:
Reference is made to the Stock Purchase Agreement dated July
23, 1999 (the "STOCK PURCHASE AGREEMENT") by and between AGENCY.COM Ltd., a New
York corporation (the "PURCHASER"), and Topics Interactive Factory B.V., a
corporation organized under the laws of The Netherlands (the "SELLER").
Capitalized terms used herein which are not defined in this letter agreement
shall have the meanings ascribed thereto in the Stock Purchase Agreement.
This letter (the "AMENDATORY AGREEMENT") will confirm certain
agreements between us as follows:
1. The parties agree that Article II of the Stock Purchase Agreement
shall be amended and shall read in its entirety as follows with the full force
and effect as if originally included in the Stock Purchase Agreement:
"ARTICLE II
PURCHASE PRICE AND CLOSING
SECTION 2.1 PURCHASE PRICE. In consideration for the purchase
by the Purchaser of the Company Shares, the aggregate purchase price
(the "PURCHASE PRICE"), shall be calculated and paid by the Purchaser
to the Seller as set forth below:
<PAGE>
2.1.1 CLOSING PAYMENT. At the Closing, the Purchaser shall
deliver to the Seller a certificate or certificates registered in the
name of the Seller representing 1,047,226 shares of Purchaser's common
stock, par value $0.001 per share (the "PURCHASER STOCK").
Notwithstanding anything in this Section 2.1 to the contrary, the
Purchase Price shall be subject to the adjustments contemplated by
Sections 2.2 and 7.1.
2.1.2 POST-CLOSING PURCHASER STOCK PAYMENT. If (a) 1999
Revenues (as defined in Section 2.1.5) exceed 10,018,000 (NLG) AND (b)
if PAT (as defined in Section 2.1.4) for the period of August 1, 1999
through December 31, 1999 is a positive number, within five business
days after the Determination (as defined in Section 2.2) for calendar
year 1999 and any adjustments thereto shall have become binding on the
parties as provided in Section 2.2, the Post-Closing Purchaser Stock
Payment equal to the number of shares of Purchaser Stock equal to the
lesser of (i) 168,066 or (ii) calculated as follows (such number shall
be rounded to the nearest whole share):
Post-Closing Purchaser Stock Payment = (1999 REVENUES ) x 168,066
-------------
( 12,821,000 )
; it being understood that if the requirements set forth in Section
2.1.2(a) AND (b) are not satisfied, the Post-Closing Purchaser Stock
Payment shall equal zero.
2.1.3 POST-CLOSING CASH PAYMENT. In the event that the
shareholders equity of the Company as at the close of business on June
30, 1999, as finally determined pursuant to Section 2.2 in accordance
with GAAP (as defined in Section 3.4), without including as assets
goodwill and other like intangibles or fixed assets not in service
("NET SHAREHOLDERS EQUITY"), is a positive number, within five business
days after the Net Shareholders Equity shall have become binding on the
parties pursuant to the procedures in Section 2.2, the Purchaser shall
pay the Seller the positive amount of Net Shareholders Equity up to
US$700,000. Payment of the cash portion shall be made by wire transfer
to the Seller's account: bank account number 44.22.90.837 ABN AMRO
Amsterdam, mentioning "Agency / Twinspark".
2.1.4 PAT. "PAT" shall mean the consolidated net income (loss)
of the Company, after payment of or provision for all federal, state
and local income taxes for such period, for the period August 1, 1999
through December 31, 1999 determined in accordance with GAAP; provided
that in making such determinations:
2
<PAGE>
(i) neither the proceeds from nor any dividends or refunds with respect
to, nor any increases in the cash surrender value of, any life
insurance policy under which the Company is the named beneficiary or
otherwise entitled to recovery, shall be included as income, and the
premium expense related to any such life insurance policy shall not be
included as an expense; and
(ii) intercompany management fees charged by the Purchaser or any
affiliate (as defined in Section 9.5) of the Purchaser to the Company
shall not be treated as an expense; and
(iii) taxes imposed upon or measured by any income shall be computed
(A) on an accrual basis; (B) on the basis that the Company is treated
as a separate corporate taxpayer from Purchaser, not included in any
consolidated or combined return filed by Purchaser, or any affiliate of
Purchaser; and (C) except as otherwise modified as set forth in this
Section 2.1.4 in accordance with all provisions of law, including
without limitation deductions, credits and rates, applicable to the
period in question and applied to the net income of the Company
determined hereunder, regardless of any taxes actually paid by the
Company, [and without any losses or tax credits carried forward from
any period prior to August 1, 1999].
Section 2.1.5 1999 REVENUES. "1999 REVENUES" shall mean the
commissions and fees, mark-ups and hourly charges earned by the Company
(excluding pass through expenses, except for licensing fees of 800,000
NLG as referenced in SCHEDULE 3.4) during calendar year 1999 for work
generated or performed by employees or contractors and charged to
clients determined in accordance with GAAP.
SECTION 2.2 ACCOUNTING PROCEDURES.
(a) The Purchaser shall cause the Arthur Andersen LLP (the
"ACCOUNTANTS"), as soon as practicable after the end of calendar year
1999, to prepare in accordance with GAAP, a report containing an (x)
audited balance sheets of the Company as of the close of business on
June 30, 1999 and December 31, 1999, and related audited statements of
income of the Company for the five months ended December 31, 1999 and
the twelve months ended December 31, 1999, together with a statement of
the Accountants stating that such financial statements were prepared in
accordance with this Agreement and setting forth (x) the 1999 Revenues,
the Net Shareholders Equity as of the close of business on June 30,
1999 and the PAT for the four months ended December 31, 1999 and (y)
all adjustments required to be made to such audited financial
statements in order to make the calculations required under this
Section 2.2 (the " DETERMINATION"). A copy of such Determination shall
be delivered to the Seller not later than 150 days after
3
<PAGE>
December 31, 1999. It is understood and agreed that in connection with
the determination of Net Shareholders Equity contemplated by this
Section 2.2, Dutch Guilder amounts shall be converted to U.S. Dollars
using the Dutch Guilder/U.S. Dollar exchange rate as of the close of
business on June 30, 1999 as quoted in The Wall Street Journal (U.S.
edition).
(b) If the Seller does not agree that the Determination
correctly states the Net Shareholders Equity, 1999 Revenues or PAT, the
Seller shall promptly (but not later than 30 days after the delivery of
the Determination) give written notice to the Purchaser of any
exceptions thereto (in reasonable detail describing the nature of the
disagreement asserted). If the Seller and the Purchaser reconcile their
differences, the Net Shareholders Equity, 1999 Revenues or PAT
calculation, as the case may be, 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 Seller and the
Purchaser are unable to reconcile their differences in writing within
30 days after written notice of exceptions is delivered to the
Purchaser, the items in dispute shall be submitted to the Amsterdam
office of a mutually acceptable accounting firm selected from among the
six largest accounting firms in The Netherlands in terms of gross
revenues (the "INDEPENDENT AUDITORS") for final determination, and the
Net Shareholders Equity, 1999 Revenues or PAT calculation, as the case
may be, shall be deemed adjusted in accordance with the determination
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
Seller and the Purchaser may agree) to resolve all items in dispute. If
the Seller does not give notice of any exception within 30 days after
the delivery of the Determination, or if the Seller gives written
notification of its acceptance of the Net Shareholders Equity, 1999
Revenues or PAT prior to the end of such 30 day period, the Net
Shareholders Equity, the 1999 Revenues and the PAT set forth in the
Determination shall thereupon become binding, final and conclusive upon
all the parties hereto and enforceable in a court of law.
SECTION 2.3 CLOSING. The Closing under this Agreement (the
"CLOSING") is taking place simultaneously with the execution and
delivery of this Agreement, at the offices of Loeff Claeys Verbeke,
Amsterdam. Such date is herein referred to as the "Closing Date." At
the Closing, the Seller shall deliver the Company Shares to the
Purchaser by execution of a notarial deed of transfer of the Company
Shares."
As a result of the amendment set forth in this paragraph 1, upon the completion
of this Amendatory Agreement, the Seller shall have returned to the Purchaser
US$700,000 (1,444,108.77 NLG) and the certificate or certificates representing
1,215,292 shares of Purchaser Stock, with duly executed stock powers, in
exchange for a new certificate registered in the name of the Seller representing
1,047,226 shares of Purchaser Stock.
4
<PAGE>
2. SCHEDULE 3.4 to this Amendatory Agreement hereby replaces and
supersedes the prior SCHEDULE 3.4.
3. SCHEDULE 4.5 to this Amendatory Agreement hereby replaces and
supersedes the prior SCHEDULE 4.5. The LAST SENTENCE of Section 4.5 of the Stock
Purchase Agreement shall be deleted in its entirety and replaced with the
following sentence:
"The shares of Purchaser Stock issued to Seller (assuming
168,066 shares of Purchaser Stock are issued as the Post-Closing Stock
Payment), together with 50% of the sum of (x) the 10,000 shares of
Purchaser Stock issued pursuant to Section 7.2.1 and (y) the 75,000
shares of Purchase Stock issuable pursuant to options to be granted
pursuant to Section 7.2.2, represent 3.5% of the Applicable Purchaser
Shares, as calculated and defined in SCHEDULE 4.5 hereto (the "SELLER'S
CLOSING PERCENTAGE").
4. Each of the two parentheticals in the first paragraph of Section 7.1
of the Stock Purchase Agreement shall be deleted in their entirety and replaced
with the following:
"(calculated as if an additional 42,500 shares of Purchaser Stock
had been issued to Seller)"
5. The sentence beginning "However, any dilution under this clause (i)"
in Section 7.1(i) shall be deleted in its entirety and replaced with the
following sentence:
"However, any dilution under this clause (i) shall be
calculated without taking into account shares issued or options granted to the
employees of the Company as contemplated hereby, shares issuable upon the
exercise of options granted to the employees of the Company as contemplated
hereby, shares issued upon the exercise of existing options, or shares issued in
connection with another acquisition made by the Purchaser in good faith and, in
its business judgment, for fair value."
6. SCHEDULE 7.2 to this Amendatory Agreement hereby replaces and
supersedes the prior SCHEDULE 7.2. In addition, Section 7.2 of the Stock
Purchase Agreement shall be amended to read in its entirety as follows:
5
<PAGE>
"SECTION 7.2 ISSUANCE OF SHARES AND GRANT OF OPTIONS TO
EMPLOYEES.
7.2.1 ISSUANCE OF SHARES TO EMPLOYEES. At or promptly
following the Closing but prior to the date that the Purchaser has
closed an initial public offering of the Purchaser's common stock, the
Purchaser shall issue an aggregate of 10,000 shares of Purchaser Stock
to the key employees of the Company indicated on SCHEDULE 7.2 hereto,
in the amounts set forth on such Schedule. Each such key employee shall
be responsible for any wage taxes due as a result of such issue and the
Company shall not withhold any such wage taxes. In the event that a key
employee does not accept the additional shares of Purchaser Stock, the
Purchaser shall issue such shares to the remaining key employees or to
the Company.
7.2.2 GRANT OF OPTIONS TO EMPLOYEES. Following the Closing,
the Purchaser shall grant an aggregate of 75,000 options to purchase
Purchaser Stock, pursuant to the terms of the AGENCY.COM 1999 Option
Plan, to the key employees of the Company indicated on SCHEDULE 7.2
hereto, in the amounts set forth on such Schedule. Each such key
employee shall be responsible for any wage taxes due as a result of
such grant and the Company shall not withhold any such wage taxes. In
the event that a key employee does not accept such options to purchase
Purchaser Stock, the Purchaser grant such options to the remaining key
employees or to the Company.
7. Section 8.5.7 of the Stock Purchase Agreement shall be amended as
follows:
Reference to "Section 2.2.1" in the first sentence shall be
changed to "Sections 2.1.3 and 2.2".
8. Notwithstanding anything herein to the contrary, (i) if a Loss
incurred by a Purchaser Indemnified Party or any adjustment to the Purchase
Price in favor of the Purchaser which is or was contemplated by the Stock
Purchase Agreement has been satisfied pursuant to the amendments set forth in
this Amendatory Agreement, all Purchaser Indemnified Parties shall be precluded
from (A) bringing a claim under Article VIII of the Stock Purchase Agreement or
(B) seeking any further adjustment to the Purchase Price and (ii) if a Loss
incurred by a Seller Indemnified Party has been satisfied pursuant to the
amendments set forth in this Amendatory Agreement, the Seller shall be precluded
from bringing a claim under Article VIII of the Stock Purchase Agreement.
9. Except as set forth above, the Stock Purchase Agreement shall remain
in full force and effect without further modification.
6
<PAGE>
Your signature below will acknowledge your agreement with the
foregoing.
Very truly yours,
AGENCY.COM LTD.
By:/s/ Johnathan Tann
------------------------------------
Johnathan Tann
Vice President
AGREED TO AND ACCEPTED:
TOPICS INTERACTIVE FACTORY B.V.
By:/s/ Roland Slot
-----------------------------
Roland Slot
Director
<PAGE>
Exhibit 11.1
AGENCY.COM LTD
SUPPLEMENTAL BASIC AND DILUTED NET LOSS
PER COMMON SHARE COMPUTATION
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1999
-------------------
(UNAUDITED)
<S> <C>
CALCULATION OF SUPPLEMENTAL SHARES OUTSTANDING:
Debt to be repaid by offering proceeds....................................... $
Proceeds per share...........................................................
-------------------
Additional shares assumed outstanding........................................
-------------------
Additional weighted average common shares outstanding........................
Weighted average common shares outstanding...................................
-------------------
Supplemental weighted average common shares outstanding......................
-------------------
-------------------
SUPPLEMENTAL BASIC AND DILUTED NET LOSS PER SHARE:
Net loss..................................................................... $
Pro forma impact of use of proceeds on interest expense......................
-------------------
Supplemental basic and diluted net loss......................................
Supplemental weighted average common shares outstanding......................
-------------------
Supplemental basic and diluted net loss per common share.....................
-------------------
-------------------
</TABLE>
<PAGE>
Exhibit 16.1
[Letterhead of Ernst & Young LLP]
June 10, 1999
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Gentlemen:
We have read the section titled "Change in Accountants" included in AGENCY.COM
Ltd.'s Registration Statement on Form S-1 and are in agreement with the
statements contained in such section. We have no basis to agree or disagree with
other statements of the registrant contained therein.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE>
Exhibit 21.1
Subsidiary
----------
AGENCY.COM Interactive Management, Inc., a Massachusetts Corporation
Twinspark Interactive People B.V., a Netherlands Company
AGENCY.COM Ltd. UK, a United Kindgom Company
AGENCY.COM Paris SA, a French Company
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated September 2, 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
September 2, 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
September 2, 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
September 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF AGENCY.COM LTD. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 769,358 1,402,466
<SECURITIES> 0 0
<RECEIVABLES> 5,483,941 14,714,944
<ALLOWANCES> 825,576 4,060,415
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,108,382 32,986,288
<PP&E> 5,842,525 15,293,578
<DEPRECIATION> 1,627,397 6,654,054
<TOTAL-ASSETS> 25,483,095 99,385,204
<CURRENT-LIABILITIES> 6,789,656 28,054,331
<BONDS> 0 0
0 0
0 0
<COMMON> 17,178 25,094
<OTHER-SE> 2,698,917 18,494,996
<TOTAL-LIABILITY-AND-EQUITY> 25,483,095 99,385,204
<SALES> 26,452,191 30,389,175
<TOTAL-REVENUES> 26,452,191 30,389,175
<CGS> 15,930,029 15,072,391
<TOTAL-COSTS> 15,930,029 15,072,391
<OTHER-EXPENSES> 12,998,146 14,619,581
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 359,761 (1,055,095)
<INCOME-PRETAX> (3,117,304) (357,892)
<INCOME-TAX> (1,309,633) 53,238
<INCOME-CONTINUING> (1,807,671) (411,130)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,807,671) (411,130)
<EPS-BASIC> (0.11) (0.02)
<EPS-DILUTED> (0.11) (0.02)
</TABLE>
