<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1999
Registration Statement No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
DIGITAS INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 8742 04-2712533
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation or
Organization)
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
---------------
David W. Kenny
Chief Executive Officer
The Prudential Tower, 800 Boylston Street
Boston, MA 02199
(617) 867-1000
(617) 867-7308 (fax)
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Stuart M. Cable, P.C. Marschall I. Smith, Esq. Keith F. Higgins, Esq.
Jeffrey C. Hadden, P.C. General Counsel Ropes & Gray
oodwin,GProcter & Hoar LLP Digitas Inc. One International Place
Exchange Place The Prudential Tower Boston, Massachusetts
Boson,tMassachusetts 02109- 2881 02110-2624
800 Boylston Street
(617) 570-1000 Boston, Massachusetts 02199 (617) 951-7000
(617) 523-1231 (fax) (617) 867-1000 (617) 951-7050 (fax)
(617) 369-8240 (fax)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Proposed Maximum
Class of Securities Aggregate Amount of
to be Registered Offering Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share.... $200,000,000 $52,800
</TABLE>
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(1)Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
---------------
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 SEC, acting pursuant to Section
8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we and the selling stockholders are not +
+soliciting offers to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued , 2000
Shares
DIGITAS INC.
COMMON STOCK
-----------
Digitas Inc. is offering shares of common stock and the selling
shareholders are offering shares of common stock. This is our initial
public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $ and
$ per share.
-----------
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "DTAS."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Digitas Shareholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per
Share.... $ $ $ $
Total..... $ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Digitas Inc. and the selling shareholders have granted the underwriters the
right to purchase up to an additional and shares, respectively, to
cover over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the
shares to purchasers on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
BEAR, STEARNS & CO. INC.
, 2000
<PAGE>
[List of selected client Web sites and awards Digitas has received]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 7
Use of Proceeds..................... 15
Dividend Policy..................... 15
Certain Information................. 15
Capitalization...................... 16
Dilution............................ 17
Unaudited Pro Forma Combined
Financial Data..................... 18
Selected Historical Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations......................... 20
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business............................ 28
Management.......................... 41
Certain Relationships and Related
Transactions....................... 50
Principal and Selling
Shareholders....................... 52
Description of Capital Stock........ 54
Shares Eligible for Future Sale..... 58
Underwriters........................ 61
Validity of Common Stock............ 63
Experts............................. 63
Where You can Find More
Information........................ 63
Index to Financial Statements....... F-1
</TABLE>
----------------
We began business in 1980. In November 1998, we formed Bronner Slosberg
Humphrey Co., a Massachusetts business trust, to serve as the ultimate parent
of Bronnercom, LLC, the Delaware limited liability company through which our
business is operated. Immediately prior to the closing of this offering, all
outstanding equity interests in Bronner Slosberg Humphrey Co. will be
exchanged on a -for- basis for equivalent equity interests of Digitas
Inc., a newly-formed Delaware holding company. This offering will be for
shares of common stock of Digitas Inc. Our principal executive offices are
located at The Prudential Tower, 800 Boylston Street, Boston, Massachusetts
02199. Our telephone number at that location is (617) 867-1000. We have
applied to register our trademark Digitas Inc. This prospectus also contains
the trademarks and trade names of other entities which are the property of
their respective owners.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We and the selling shareholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or of any sale of common stock.
Until , 2000, all dealers that buy, sell or trade Digitas'
common stock, whether or not participating in this offering, may be required
to deliver a prospectus. This delivery requirement is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all of the information that is important to
you. You should read the entire prospectus, including the financial statements
and related notes, before making an investment decision.
DIGITAS INC.
Digitas is a leading Internet professional services firm that provides
integrated strategy, technology and marketing solutions to Fortune 100 and
other industry leading companies that have embraced the Internet as a principal
means of business transformation. We help our clients leverage their existing
asset base and the Internet to develop stronger and more profitable customer
relationships and gain a competitive advantage in the new digital economy.
We develop large-scale, long-term, strategic relationships with a select
group of clients. Our clients include industry leaders such as American
Express, AT&T, Charles Schwab & Co. Inc. General Motors, Johnson & Johnson,
L.L. Bean and Neiman Marcus. We employ over 1,200 professionals and are
headquartered in Boston, Massachusetts with offices in New York City, San
Francisco, Salt Lake City and London.
OUR MARKET OPPORTUNITY
The Internet is fundamentally changing the way consumers and businesses
interact. While many companies have built on-line storefronts, most still view
them as simply another independently operated channel for enabling transactions
and interacting with customers. This business model, however, prevents the new
on-line business from capitalizing on the power of the enterprise's existing
assets. To fully capture the potential of the Internet and maximize customer
value, companies must transform their businesses to a "bricks and clicks"
business model, in which their existing assets are integrated with a digital
strategy. This transformation is particularly challenging for large businesses
that have made significant investments in existing sales forces, marketing
strategies, brand names, supply chain management systems, distribution channels
and data management systems. However, it is also these companies that stand to
gain the most from a fully integrated business model.
To transform their businesses, companies are increasingly seeking assistance
from outside Internet professional services firms. However, at a time when
companies need a service provider to do more than build a Web site or enable
on-line transactions, we believe that few Internet professional services
providers have the depth of resources and range of services necessary to
address the large-scale engagements and demands of large companies such as
Fortune 100 companies on an on-going basis.
We believe there is a need for an innovative Internet professional services
provider, which has the scale, breadth of experience and expertise to help
companies understand and capitalize on the potential of the Internet as a part
of their overall business strategy and to leverage the power of their existing
assets to drive growth, maximize customer value and build a sustainable
competitive advantage.
3
<PAGE>
OUR SOLUTION
In redefining a client's business model, we draw on our comprehensive
Internet professional services capabilities and marketing experience to provide
a fully integrated, end-to-end solution with the following key elements:
Define digital business strategy. We work with members of our clients'
senior management to define new business strategies which are broad-based and
grounded in a thorough understanding of our clients' overall business and
competitive environment.
Create enterprise-wide customer value propositions. We employ a customer-
centric approach to develop new customer value propositions that enhance
customer loyalty and generate new business opportunities by taking advantage of
our clients' existing assets such as distribution channels, customer service
networks and customer information systems.
Build new technology and marketing infrastructure. We build new technology
and marketing infrastructure for our clients, including Web sites that enhance
our clients' brands and electronic customer relationship management systems, or
eCRM systems, that are designed to manage customer relationships.
Implement solutions on enterprise-wide basis. We provide training,
organizational alignment and support to help our clients implement solutions
across their enterprises. We also coordinate the efforts of various client
businesses to create customer-oriented applications with a consistent corporate
message.
Develop integrated marketing plan. We design integrated marketing plans that
typically involve identifying customer segments, developing marketing
strategies and optimizing on-line media planning and channel allocation,
including mix, messaging and frequency.
Execute across marketing and service channels. We leverage our on-line media
buying, design and creative services and event sponsorships to market
seamlessly across multiple channels to help our clients build relationships
with their customers.
Performance measurement. Through every step of our solution, we measure the
value being delivered to our clients. We continually work with our clients to
determine the relevant metrics and our performance against those metrics. We
collect data frequently and use it to continually refine our solution and
maximize our clients' return on investment.
OTHER INFORMATION
Stock Split
In December 1999, we effected a 30-for-1 stock split of our common stock in
the form of a stock dividend. All information we present in this prospectus for
any date or period gives effect to the stock split.
The Holding Company Formation
Bronner Slosberg Humphrey Co. is a Massachusetts business trust which serves
as the ultimate parent of Bronnercom, LLC, the Delaware limited liability
company through which our business is operated. Immediately prior to the
closing of this offering, all outstanding equity interests in Bronner Slosberg
Humphrey Co. will be exchanged on a -for- basis for equivalent equity
interests of Digitas Inc., a newly-formed Delaware holding company. This
offering will be for shares of common stock of Digitas Inc. All information
that we present in this prospectus for any date or period gives effect to the
formation of the new holding company and the exchange of equity interests.
4
<PAGE>
THE OFFERING
Common stock offered by:
<TABLE>
<C> <S>
Digitas.......................................... shares
Selling shareholders............................. shares
----
Total........................................ shares
====
Common stock to be outstanding after this offering.. shares(1)
Use of proceeds..................................... To repay outstanding debt
and for general corporate
purposes, including
working capital,
expansion of our
operations and possible
acquisitions and
investments. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.............. DTAS
</TABLE>
- --------
(1) The number of shares of our common stock that will be outstanding after
this offering is based on 25,351,739.7 shares of common stock outstanding
as of December 31, 1999. It excludes:
. any shares of common stock to be issued pursuant to the over-allotment
option granted to the underwriters;
. 13,927,736.1 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average
exercise price of $4.7375 per share;
. 390,000 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise price
of $5.0367;
. 5,024,100 shares of common stock available for future grant under our
stock option plans as of December 31, 1999; and
. 1,100,000 shares of common stock reserved for purchase after this
offering under our employee stock purchase plan.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(in thousands, except per share data)
Effective January 1, 1999, the two companies through which we operated our
business were acquired by a private equity investor and several existing
shareholders. We refer to that transaction as the "recapitalization." These two
companies, which we refer to collectively as the "predecessor," were under
common control prior to the recapitalization, and their combined financial
information is presented for all periods before the recapitalization. Our
financial information for periods after the recapitalization reflects the
application of purchase accounting in connection with the recapitalization and
thus is not comparable to the financial information of the predecessor. Before
the recapitalization, the two predecessor companies were S corporations and
thus were not subject to federal income taxation. In addition, because the two
companies had different numbers of common shares outstanding that bear no
relationship to our current number of common shares outstanding, net income
(loss) per share has not been presented for periods before the
recapitalization.
The pro forma statement of operations data for 1998 and the nine months
ended September 30, 1999 give effect to the recapitalization as if it had
occurred on January 1, 1998.
<TABLE>
<CAPTION>
Pro Forma
Predecessor (Combined) Predecessor (Combined) Company
------------------------------------------ -------------------------- -------------
Year Ended December 31,
---------------------------
Nine Months Nine Months Nine Months
Ended Year Ended Ended Ended
September 30, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1998 1999
------- -------- -------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations data:
Revenue................. $83,157 $101,238 $122,309 $89,700 $122,309 $ 89,700 $133,907
Operating expenses:
Professional services
costs................. 43,272 57,610 65,696 49,606 65,696 49,606 73,238
Selling, general and
administrative
expense............... 40,982 40,552 48,485 31,489 48,485 31,489 45,890
Stock-based
compensation.......... 628 6,325 25,820 2,293 5,690 2,293 350
Amortization of
intangible assets..... -- -- -- -- 34,919 26,200 26,200
------- -------- -------- ------- -------- -------- --------
Total operating
expenses.............. 84,882 104,487 140,001 83,388 154,790 109,588 145,678
Income (loss) from
operations............. (1,725) (3,249) (17,692) 6,312 (32,481) (19,888) (11,771)
Other income (expense),
net.................... (1,281) (2,431) (2,698) (2,084) (6,548) (4,393) (5,332)
Benefit from (provision
for) income taxes...... (160) 114 1,439 (48) (4,047) (2,518) (1,773)
------- -------- -------- ------- -------- -------- --------
Net income (loss)....... $(3,166) $ (5,566) $(18,951) $ 4,180 $(43,076) $(26,799) $(18,876)
======= ======== ======== ======= ======== ======== ========
Net loss per share:
Basic and diluted...... $ (0.76)
========
Weighted average shares
outstanding:
Basic and diluted...... 24,966
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
--------------------
Actual As Adjusted
-------- -----------
Balance sheet data:
<S> <C> <C>
Cash and cash equivalents.................................. $ 1,364 $
Total assets............................................... 264,250
Total long-term debt, less current portion................. 64,917
Shareholders' equity....................................... 134,105
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before purchasing our common stock. If any of the
following risks occur, our business, results of operations and financial
condition could be harmed. In that case, the trading price of our common stock
could decline, and you could lose all or part of your investment.
Risks Related to Our Business
The loss of even one significant client could have a material adverse
effect on our business, financial condition and results of operations
We derive a significant portion of our revenues from large-scale
engagements for a limited number of clients. Most of these relationships are
terminable by the client without penalty on 30 days prior written notice. The
loss of any major client could dramatically reduce our revenues. In the first
nine months of 1999, our three largest clients collectively accounted for
approximately 62% of our revenues, and our largest client accounted for
approximately 24% of our revenues. The loss of any of these clients could have
a material adverse effect on our business, financial condition and results of
operations.
Our failure to meet our clients' expectations could result in negative
publicity and losses and could subject us to liability for the services we
provide
The average dollar amount of our client engagements has grown significantly
while the time frame for delivering our services has generally decreased. As
clients have dedicated more money and resources to our engagements with them,
their expectations have also increased. As our client engagements become
larger and more complex and are required to be completed in a shorter time
frame, we face increased management challenges and greater risk of mistakes.
Many of the services we provide are critical to the operations of our clients'
businesses. Any failure on our part to deliver these services in accordance
with our clients' expectations could result in:
. delayed or lost client revenues;
. adverse client reactions;
. negative publicity;
. additional expenditures to correct the problem; and
. claims against us.
While our agreements with clients often limit our liability to 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 claims against us could have a material
adverse effect on our business, results of operations and financial condition.
If we are not successful in creating a worldwide network of offices, we may
jeopardize our relationships with existing clients and limit our ability to
attract new clients
Increasingly, our clients are insisting that their Internet professional
services providers be able to handle assignments on a worldwide basis. Failure
to have a worldwide network of offices may jeopardize our existing client
relationships and limit our ability to attract new clients. Our London office
may be able to serve Europe, the Middle East and Africa, but we will need to
establish regional offices for Asia and Latin America in the near future. We
also need to deepen and broaden our expertise in dealing with worldwide
assignments by hiring more senior executives with multi-national marketing and
Internet expertise.
7
<PAGE>
We need qualified professionals to grow our business, and they are in short
supply
Our future success depends in large part on our ability to retain, hire,
train and motivate qualified people. Skilled professionals are in short
supply, and competition for them is intense. As a result, we may be unable to
retain our qualified professionals to meet our existing business needs. In
addition, we may be unable to hire a sufficient number of qualified
professionals to meet our business plans. We may also have difficulty
attracting and hiring our desired number of qualified professionals after the
offering since some may perceive that the stock option component of their
compensation package is no longer as valuable. Moreover, even if we are able
to expand our employee base, the resources required to train and retain our
employees may adversely affect our operating margins. If we are unable to hire
and retain qualified professionals, we may be unable to complete work for our
existing clients or accept work from new clients.
We depend on our key personnel, and the loss of their services may
adversely affect our business
We believe that our success will depend on the continued employment of our
senior management team and other key personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or
more members of our senior management team or other key personnel were unable
or unwilling to continue in their present positions, our business could be
seriously harmed. In addition, if any of our key personnel join a competitor
or forms a competing company, some of our clients might choose to use the
services of that competitor or those of a new company instead of our own.
Furthermore, other companies seeking to develop in-house business capabilities
may hire away some of our key personnel.
Fluctuations in our quarterly revenues and operating results may lead to
reduced prices for our stock
Our quarterly revenues and operating results are volatile. We believe that
period-to-period comparisons of our operating results are not necessarily
meaningful. These comparisons cannot be relied upon as indicators of future
performance. However, if our operating results in any future period fall below
the expectations of securities analysts and investors, the market price of our
securities would likely decline.
Factors that may cause our quarterly results to fluctuate in the future
include the following:
. variability in market demand for Internet professional services;
. timing and amount of client bonus payments;
. length of the sales cycle associated with our service offerings;
. unanticipated variations in the size, budget, number or progress toward
completion of our engagements;
. unanticipated termination of a major engagement, a client's decision not
to proceed with an engagement we anticipated or the completion or delay
during a quarter of several major client engagements;
. efficiency with which we utilize our employees, including our ability to
transition employees from completed engagements to new engagements;
. our ability to manage our operating costs, a large portion of which are
fixed in advance of any particular quarter;
. changes in pricing policies by us or our competitors;
. timing and cost of new office expansions;
. our ability to manage future growth; and
. costs of attracting and training skilled personnel.
Some of these factors are within our control while others are outside of our
control.
8
<PAGE>
Failure to manage our growth may impact our operating results
We expect to continue to rapidly grow our business. The expansion of our
business and customer base has placed, and will continue to place, increased
demands on our management, operating systems, internal controls and financial
and physical resources. If not managed effectively, these increased demands
may adversely affect the services we provide to our existing clients. In
addition, our personnel, systems, procedures and controls may be inadequate to
support our future operations. Consequently, in order to manage our growth
effectively, we may be required to increase expenditures to expand, train and
manage our employee base, improve our management, financial and information
systems and controls, or make other capital expenditures. Any failure in our
efforts to manage our growth in an efficient manner could adversely affect our
business.
Our planned international operations may be expensive and may not succeed
We expect to expand our international operations. We have limited
experience in marketing, selling and supporting our services outside of North
America and the United Kingdom. Development of such skills may be more
difficult or take longer than we anticipate, especially due to language
barriers, cultural differences, currency exchange risks and the fact that the
Internet infrastructure in foreign countries may be less advanced than in the
United States. In addition, we will have to attract and retain experienced
management and employees, and we may be unable to do so. Moreover,
international operations are subject to a variety of additional risks that
could seriously harm our financial condition and operating results. These
risks include the following:
. the impact of recessions in economies outside the United States;
. political and economic instability;
. potentially adverse tax consequences;
. reduced protection for intellectual property rights in some countries;
. longer payment cycles and problems in collecting accounts receivable;
. the burden and expense of complying with foreign laws and regulations;
. currency issues, including fluctuations in currency exchange rates and
the conversion to the euro by all countries of the European Union by
year end 2003;
. tariffs, trade barriers and other import and export restrictions
including restrictions on the import and export of certain sensitive
technologies; and
. seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe.
We must maintain our reputation and expand our name recognition to remain
competitive
We believe that establishing and maintaining name recognition and a good
reputation is critical to attracting and expanding our targeted client base as
well as attracting and retaining qualified employees. We also believe that the
importance of reputation and name recognition will increase due to the growing
number of Internet professional services providers. We are changing our name
in connection with this offering. If our reputation is damaged or if we are
unable to establish name recognition with respect to our new name, we may
become less competitive or lose our market share. In addition, our name could
be associated with any business difficulties of our clients. As a result, the
difficulties or failure of one of our clients could damage our reputation and
name and make it difficult for us to compete for new business.
9
<PAGE>
Our business will be negatively affected if we do not keep up with the
Internet's rapid technological changes, evolving industry standards and
changing client requirements
The Internet professional services industry is characterized by rapidly
changing technology, evolving industry standards and changing client needs.
Accordingly, our future success will depend, in part, on our ability to meet
these challenges. Among the most important challenges facing us is the need
to:
. effectively use leading technologies;
. continue to develop our strategic and technical expertise;
. influence and respond to emerging industry standards and other
technological changes;
. enhance our current service offerings; and
. develop new services that meet changing customer needs.
We cannot assure you that we will succeed in effectively meeting these
challenges in a timely and cost-effective manner. Our failure to do so could
harm our business results.
Our success depends on increased adoption of the Internet as a means of
conducting business
Our future success depends heavily on the acceptance and use of the
Internet as a means for conducting business. If commerce on the Internet does
not continue to grow, or grows more slowly than expected, our growth would
decline and our business would be seriously harmed. Customers and businesses
may reject the Internet as a viable commercial medium for a number of reasons,
including:
. inadequate network infrastructure;
. delays in the development of Internet enabling technologies and
performance improvements;
. delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
. delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
. changes in, or insufficient availability of, telecommunications services
to support the Internet; and
. failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
The Internet professional services industry is highly competitive and has
low barriers to entry; if we cannot effectively compete, our revenue may
decline
The Internet professional services industry is relatively new and intensely
competitive. We expect competition to intensify even further as the Internet
professional services market evolves. Some of our competitors have more
clients, greater brand or name recognition and greater financial, technical,
marketing and public relations resources than we do. As a result, our
competitors may be in a stronger position to respond quickly to new or
emerging technologies and changes in client requirements. They may also
develop and promote their products and services more effectively than we do.
There are relatively low barriers to entry into the Internet professional
services industry. In addition, we have no patented technology and limited
other proprietary rights that would preclude or inhibit competitors from
providing services similar to ours. As a result, new and unknown market
entrants pose a threat to our business.
Current or future competitors may also develop or offer services that are
comparable or superior to ours at a lower price, which could affect our
ability to retain existing clients and attract new clients. In addition,
current and potential competitors have established or may establish corporate
relationships among themselves or other
10
<PAGE>
third parties to increase their ability to address customer needs.
Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. There can
be no assurance that we will be able to continue to compete successfully with
our existing competitors or that we will be able to compete successfully with
new competitors.
Actual and perceived conflicts of interest may restrict us in obtaining new
clients
Actual and perceived conflicts of interest are inherent in our industry. We
sometimes decline to accept potential clients because of actual or perceived
conflicts of interest with our existing clients. In addition, potential
clients may choose not to retain us for reasons of actual or perceived
conflicts of interest. Many of our clients compete in industries where only a
limited number of companies gain meaningful market share. As a result, if we
decide not to perform services for a particular client's competitors, or if
potential clients choose not to retain us because of actual or perceived
conflicts and our client fails to capture a significant portion of its market,
we are unlikely to receive future revenue in that particular industry.
Potential future acquisitions could be difficult to integrate, disrupt our
business, adversely affect our operating results and dilute shareholder value
We may acquire other businesses in the future, which may complicate our
management tasks. We may need to integrate widely dispersed operations with
distinct corporate cultures. Our failure to do so could result in our
inability to retain the management, key personnel, employees and clients of
the acquired business. Such integration efforts also may distract our
management from servicing existing clients. Our failure to manage future
acquisitions successfully could seriously harm our operating results. Also,
acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our shareholders could be diluted if we finance
the acquisitions by incurring debt or issuing equity securities.
We may need to raise additional capital, which may not be available to us,
and which may, if raised, dilute your ownership interest in us
We expect that our net proceeds from this offering will be sufficient to
meet our working capital and capital expenditure needs for at least the next
12 months. After that, we may need to raise additional funds, and we cannot be
certain that we will be able to obtain additional financing on favorable terms
or at all. If we need additional capital and cannot raise it on acceptable
terms, we may not be able to:
. open new offices;
. create additional market-specific business units;
. enhance our infrastructure;
. hire, train and retain employees;
. keep up with technological advances;
. respond to competitive pressures or unanticipated requirements; or
. pursue acquisition opportunities.
Our failure to do any of these things could restrict our growth, hinder our
ability to compete and seriously harm our financial condition. Additionally,
if we are able to raise additional funds through equity financings, your
ownership interest in us will be diluted.
11
<PAGE>
The Year 2000 problem may adversely affect our business
The Year 2000 problem is the potential for system and processing failures
of date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. We may
encounter the Year 2000 problem in three contexts:
. Our clients. The failure of our clients to ensure that their operations
are Year 2000 compliant could have a material adverse effect on them,
which, in turn, could limit their ability to retain third party service
providers such as Digitas. In addition, clients or potential clients may
delay purchasing software and related products and services, including
those of Digitas, due to concerns related to Year 2000 problems.
. Our suppliers. Our business could be adversely affected if we cannot
obtain products, services or systems that are Year 2000 compliant when
we need them or if the products, services or systems that we have
obtained are not Year 2000 compliant.
. Our services. The solutions which 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 provided 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, in the past, we entered into a number of
contracts with express or implied warranties with respect to Year 2000
readiness which may make us vulnerable to Year 2000-related lawsuits,
whether or not the services we have performed are Year 2000 compliant.
We cannot be certain what the outcomes of these types of lawsuits may
be.
Risks Related to the Securities Markets and This Offering
Our stock price may be volatile and may result in substantial losses for
investors purchasing shares in the offering
The market price of our common stock is likely to be highly volatile. The
stock market in general, and the market for Internet-related stocks in
particular, has been highly volatile. This volatility often has been unrelated
to the operating performance of particular companies. We cannot assure you
that our common stock will trade at the same levels of other Internet-related
stocks or that Internet-related stocks in general will sustain their current
market prices. We also cannot assure you that an active public market for our
securities will develop or continue after this offering.
In addition, the trading price of our common stock could be subject to wide
fluctuations in response to:
. our perceived prospects;
. variations in our operating results and our achievement of key business
targets;
. changes in securities analysts' recommendations or earnings estimates;
. differences between our reported results and those expected by investors
and securities analysts;
. announcements of new contracts or service offerings by us or our
competitors;
. market reaction to any acquisitions, joint ventures or strategic
investments announced by us or our competitors; and
. general economic or stock market conditions unrelated to our operating
performance.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management attention and resources.
12
<PAGE>
Concentration of ownership may limit your ability to influence corporate
matters
Immediately following this offering, our executive officers, directors and
significant shareholders collectively will own approximately % of the
outstanding shares of our common stock. If these shareholders choose to act or
vote together, they will have the power to control the election of our
directors, and the approval of any other action requiring the approval of our
shareholders, including any amendments to our certificate of incorporation and
mergers or sales of all or substantially all of our assets. In addition,
without the consent of these shareholders, we could be prevented from entering
into transactions that could be beneficial to us or our other shareholders.
Also, third parties could be discouraged from making a tender offer or bid to
acquire Digitas at a price per share that is above the then-current market
price.
We will have broad discretion over the use of our net proceeds from this
offering, and you may not agree with how we use them
Our management will have significant flexibility in applying our net
proceeds from this offering and may use the net proceeds in ways with which
shareholders disagree. Management's failure to effectively apply these net
proceeds could have an adverse effect on our ability to implement our business
strategy.
Purchasers in this offering will incur immediate and substantial dilution
The initial public offering price of our common stock is substantially
higher than the book value per share of the outstanding common stock. As a
result, if we were liquidated for book value immediately following this
offering, each shareholder purchasing in this offering would receive less than
the price they paid for their common stock. In addition, because our success
is so heavily dependent on our ability to attract and retain talented
personnel, we expect to offer a significant number of stock options to
employees in the future. Such issuances will cause further dilution to
investors.
Future sales of our common stock may depress our stock price
Sales of a substantial number of shares of our common stock in the public
market after the closing of this offering, or the perception that such sales
could occur, could adversely affect the market price of our common stock and
could make it more difficult for us to raise funds through future offerings of
common stock. For a description of the shares of common stock that are
available for future sale, see "Shares Eligible for Future Sale."
Risks Related to Legal Uncertainty
We may be subject to lawsuits as a result of our attempts to hire qualified
people
Some companies have adopted a strategy of suing or threatening to sue
former employees and their new employers. As we hire new employees from our
current or potential competitors we may become a party to one or more lawsuits
involving the former employment of one of our employees. Any future litigation
against us or our employees, regardless of the outcome, may result in
substantial costs and expenses to us and may divert management's attention
away from the operation of our business.
We may not be able to protect our intellectual property and proprietary
rights
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual
property. In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If
third parties infringe or misappropriate our trade secrets, copyrights,
trademarks or other proprietary information, our business could be seriously
harmed. In addition, although we believe that our proprietary rights do not
infringe on the intellectual property rights of others, other parties may
assert infringement claims against us or claim that we have violated their
intellectual property rights. Such claims, even if not true, could result in
significant legal and other costs and may be a distraction to management. If
any party asserts a claim against us relating to proprietary technology or
13
<PAGE>
information, we may need to obtain licenses to the disputed intellectual
property. We cannot assure you, however, that we will be able to obtain any
licenses at all. In addition, protection of intellectual property in many
foreign countries is weaker and less reliable than in the United States so, as
our business expands into foreign countries, risks associated with protecting
our intellectual property will increase.
Changes in government regulation of the Internet could adversely affect our
business
To date, government regulations have not materially restricted the use of
the Internet by our clients in their markets. However, the legal and regulatory
environment that pertains to the Internet may change. New laws and regulations,
or new interpretations of existing laws and regulations, could impact us
directly or indirectly by preventing our clients from delivering products or
services over the Internet or slowing the growth of the Internet. New state,
federal and foreign laws and regulations may be adopted regarding any of the
following issues:
. user privacy;
. the pricing and taxation of goods and services offered over the
Internet;
. the content of Web sites;
. consumer protection; and
. the characteristics and quality of products and services offered over
the Internet.
Any new legislation could inhibit the increased use of the Internet as a
commercial medium which in turn would decrease the demand for our services and
have a material adverse effect on our future operating performance.
We may become subject to claims regarding foreign laws and regulations,
which could subject us to increased expenses
Because we plan to expand our international operations and because many of
our current clients have international operations, we may be subject to the
laws of foreign jurisdictions for violations of their laws. These laws may
change, or new, more restrictive laws may be enacted in the future.
International litigation is often expensive, time-consuming and distracting to
management and could have a material adverse effect on our business.
Provisions of Delaware law and of our charter and by-laws may make a
takeover more difficult
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which is opposed
by our management and board of directors. Public shareholders who might desire
to participate in such a transaction may not have an opportunity to do so. In
our certificate of incorporation we also have a staggered board of directors
which makes it difficult for shareholders to change the composition of the
board of directors in any one year. These anti-takeover provisions could
substantially impede the ability of public shareholders to benefit from a
change in control or change our management and board of directors. See
"Description of Capital Stock."
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties
This prospectus contains forward-looking statements. In some cases you can
identify these statements by forward-looking words such as "anticipate,"
"believe," "could," "estimate," "expect," "intend," "may," "should," "will,"
and "would" or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain
projections of our future results of operations or of our financial position or
state other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control and
our actual results may differ materially from the expectations we describe in
our forward-looking statements. Before you invest in our common stock, you
should be aware that the occurrence of the events described in these risk
factors and elsewhere in this prospectus could have an adverse effect on our
business, results of operations and financial position.
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of shares of common
stock in this offering will be approximately $ , assuming an initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and our estimated offering expenses. We estimate
that our net proceeds will be used as follows:
. approximately $69 million will be used to repay outstanding debt under
the term loan portion of our credit facility; and
. the remaining proceeds will be used for general corporate purposes,
including working capital, technology infrastructure improvements,
capital expenditures for facilities and expansion activities and
potential acquisitions, investments in complimentary businesses or
strategic investments.
As of December 31, 1999, there was approximately $69 million outstanding
under the term loan portion of our credit facility, which bore interest on
that date of 8.475%. The term loan portion of the credit facility is repayable
in quarterly installments which commenced on September 30, 1999 with final
maturity on December 31, 2004. We received the proceeds of the term loan
portion of the credit facility in January 1999 and used them in connection
with the recapitalization primarily to repay indebtedness, satisfy contractual
obligations to former shareholders, make transaction payments to existing
equity holders, repurchase stock options and stock appreciation rights and pay
expenses.
Until allocated for specific use, we will invest our net proceeds in
government securities and other short-term, investment-grade securities.
Digitas will not receive any of the proceeds from the sale of common stock in
this offering by the selling shareholders.
DIVIDEND POLICY
We currently intend to retain any future earnings to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future. Any decision to pay cash dividends after the offering will be at the
discretion of our board of directors after taking into account such factors as
our financial condition, operating results, current and anticipated cash
needs, plans for expansion and restrictions in our financing agreements.
CERTAIN INFORMATION
This prospectus includes data concerning the Internet professional services
industry that we obtained from industry publications. These publications
generally indicate that they have obtained information from sources that they
believe are reliable, but that they do not guarantee the accuracy and
completeness of the information. Although we believe that these industry
publications are reliable, we have not independently verified their data. We
also have not sought the consent of any of these publications to refer to
their data in this prospectus.
All information in this prospectus relating to the number of shares of our
common stock or options is based upon information as of December 31, 1999, as
adjusted to reflect:
. a 30-for-1 stock split of our common stock effected in the form of a
stock dividend in December 1999;
. our formation of a new Delaware holding company in connection with this
offering; and
. the exchange of all outstanding equity interests in Bronner Slosberg
Humphrey Co. for equivalent equity interests of Digitas Inc. on a -
for- basis.
Unless otherwise specifically stated, all information in this prospectus
assumes the issuance and sale of common stock in the offering at an assumed
initial public offering price of $ per share.
15
<PAGE>
CAPITALIZATION
The following table sets forth our cash, short-term debt and capitalization
as of September 30, 1999:
. on an actual basis; and
. on an as adjusted basis to reflect our sale of shares of common
stock in this offering at an assumed initial public offering price of $
per share, after deduction of estimated underwriting discounts and
commissions and our estimated offering expenses and the use of the net
proceeds as described in "Use of Proceeds."
<TABLE>
<CAPTION>
As of
September 30, 1999
-----------------------
Actual As Adjusted
--------- ------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 1,364 $
========= ===
Short-term debt ......................................... $ 15,525 $
========= ===
Long-term debt, less current portion..................... $ 64,917
Shareholders' equity (deficit):
Common stock, no par value per share; 25,351,739.7
shares authorized, issued and outstanding, actual;
and shares issued and outstanding, as
adjusted.............................................. 10
Additional paid-in capital............................. 155,432
Accumulated (deficit).................................. (21,337)
--------- ---
Total shareholders' equity........................... 134,105
Total capitalization................................. $ 199,022 $
========= ===
</TABLE>
The table above excludes 12,620,486.1 shares of common stock issuable upon
exercise of stock options outstanding at September 30, 1999 at a weighted
average exercise price of $1.3616 per share and 450,000 shares of common stock
issuable upon exercise of warrants outstanding at September 30, 1999 at a
weighted average exercise price of $5.0367 per share.
16
<PAGE>
DILUTION
As of September 30, 1999, we had a net tangible book value of $
million or $ per share of common stock. Net tangible book value per share
is determined by dividing our tangible net book value (total tangible assets
less total liabilities) by the total number of shares of common stock
outstanding. After giving effect to the sale of the shares of common
stock offered by us in this offering at an assumed initial public offering
price of $ per share, and after deducting estimated underwriting discounts
and commissions and offering expenses payable by us, our adjusted net tangible
book value would have been approximately $ million, or $ per share of
common stock. This represents an immediate increase in net tangible book value
of $ per share to existing shareholders and an immediate dilution of $
per share to new investors purchasing shares of common stock in the offering.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Net tangible book value per share before the offering as of
September 30, 1999.............................................. $
Increase in net tangible book value per share attributable to new
investors.......................................................
---
Net tangible book value per share after the offering...............
---
Dilution per share to new investors................................ $
===
</TABLE>
The following table summarizes, as of September 30, 1999, the number of
shares of common stock purchased from us, the total consideration paid and the
average price per share paid by our existing shareholders and to be paid by
new investors in this offering at an assumed initial public offering price of
$ per share, and before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)... % $ % $
New investors(1)...........
--- ----- -------- ----------- ----
Total.................... 100.0% $ 100.0%
=== ===== ======== ===========
</TABLE>
- --------
(1) Sales by selling shareholders in this offering will reduce the number of
shares held by existing shareholders to or approximately %
and will increase the number of shares held by new investors to
or approximately % of the total number of shares of common stock
outstanding after this offering.
The discussion and table above exclude:
. shares to be issued by us and the selling shareholders pursuant to
the underwriters' over-allotment option;
. 12,620,486.1 shares of common stock issuable upon exercise of stock
options outstanding at September 30, 1999 at a weighted average price of
$3.45 per share;
. 450,000 shares of common stock issuable upon exercise of warrants
outstanding at September 30, 1999 at a weighted average price of $5.0367
per share; and
. 6,706,350 shares available for future grant under our stock option plans
at September 30, 1999.
To the extent these options and warrants are exercised and the underlying
shares are issued, there will be further dilution to new investors.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statement of operations data
reflect the combined results of operations of the predecessor for the year
ended December 31, 1998 and the nine months ended September 30, 1998, as if
the recapitalization and related purchase accounting described in Note 3 to
the financial statements had occurred on January 1, 1998.
The unaudited pro forma combined statement of operations data are based on
the historical financial statements for the predecessor and the assumptions
and adjustments described in the accompanying notes. The unaudited pro forma
combined statement of operations data do not purport to represent what our
results of operations actually would have been if the recapitalization had
occurred on the date indicated or what the results may be for any future
periods. The unaudited pro forma combined statement of operations data are
based upon assumptions that we believe are reasonable and should be read in
conjunction with our financial statements and accompanying notes thereto
included elsewhere in this prospectus.
Unaudited Pro Forma Combined Statement of Operations
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
Year Ended December 31, 1998 1998
-------------------------------------- --------------------------------------
Predecessor Pro Forma Predecessor Pro Forma
(Combined) Adjustments Combined (Combined) Adjustments Combined
----------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue................. $122,309 -- $122,309 $89,700 -- $ 89,700
Operating expenses:
Professional services
costs................. 65,696 -- 65,696 49,606 -- 49,606
Selling, general and
administrative
expense............... 48,485 -- 48,485 31,489 -- 31,489
Stock-based
compensation.......... 25,820 $(20,130)(/1/) 5,690 2,293 -- 2,293
Amortization of
intangible assets..... -- 34,919 (/2/) 34,919 -- $ 26,200 (/2/) 26,200
-------- -------- -------- ------- -------- --------
Total operating
expenses............. 140,001 14,789 154,790 83,388 26,200 109,588
Income (loss) from
operations............. (17,692) (32,481) 6,312 (19,888)
Other income (expense).. (2,698) (3,850)(/3/) (6,548) (2,084) (2,309)(/3/) (4,393)
Benefit from (provision
for) income taxes...... 1,439 (5,486)(/4/) (4,047) (48) (2,470)(/4/) (2,518)
-------- -------- -------- ------- -------- --------
Net income (loss)....... $(18,951) $(24,125) $(43,076) $ 4,180 $(30,979) $(26,799)
======== ======== ======== ======= ======== ========
</TABLE>
- --------
(1) Reflects exclusion of stock appreciation rights compensation expense of
$20,130,000 as appreciation would 18have been recorded in the period
prior to the recapitalization taking place.
(2) Reflects amortization of goodwill and other intangible assets as if the
recapitalization took place at the beginning of the period.
(3) Reflects additional interest expense, at an assumed interest rate of
8.43%, from the debt incurred in connection with the recapitalization as
if it occurred at the beginning of the period. Other expense increases as
a result of the amortization of debt issue costs.
(4) Represents tax adjustments to reflect the pro forma income tax provision
at an effective tax rate of 10.37%.
18
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following financial data for each of the years 1994 through 1998 have
been derived from our annual financial statements, which have been audited by
PricewaterhouseCoopers LLP. The data for the nine months ended September 30,
1998 and 1999 have been derived from our unaudited financial statements, which
in the opinion of management include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the unaudited interim periods. Because the recapitalization has been
accounted for as a purchase, the financial statements for the periods after
January 1, 1999 are not comparable to prior periods. The data for the nine
months ended September 30, 1999 are not necessarily indicative of results for
the year ending December 31, 1999 or any future period. Before the
recapitalization, the two predecessor companies were S corporations and thus
were not subject to federal income taxation. In addition, because the two
companies had different numbers of common shares outstanding that bear no
relationship to our current number of common shares outstanding, net income
(loss) per share has not been presented for periods before the
recapitalization.
<TABLE>
<CAPTION>
Predecessor (Combined) Company
------------------------------------------------------------ -------------
Nine Months Nine Months
Year Ended December 31, Ended Ended
--------------------------------------------- September 30, September 30,
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------------- -------------
(in thousands, except per share data) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of operations
data:
Revenue................. $50,000 $66,244 $83,157 $101,238 $122,309 $ 89,700 $133,907
Operating expenses:
Professional services
costs................. 23,371 32,922 43,272 57,610 65,696 49,606 73,238
Selling, general and
administrative
expense............... 26,733 35,607 40,982 40,552 48,485 31,489 45,890
Stock-based
compensation (1)...... 628 6,325 25,820 2,293 350
Amortization of
intangible assets..... -- -- -- -- -- -- 26,200
------- ------- ------- -------- -------- -------- --------
Total operating
expenses............ 50,104 68,529 84,882 104,487 140,001 83,388 145,678
Income (loss) from
operations............. (104) (2,285) (1,725) (3,249) (17,692) 6,312 (11,771)
Other income (expense),
net.................... 106 151 (1,281) (2,431) (2,698) (2,084) (5,332)
Benefit from (provision
for) income taxes...... (14) (345) (160) 114 1,439 (48) (1,773)
------- ------- ------- -------- -------- -------- --------
Net income (loss)....... $ (12) $(2,479) $(3,166) $ (5,566) $(18,951) $ 4,180 $(18,876)
======= ======= ======= ======== ======== ======== ========
Net loss per share
Basic and diluted..... $ (0.76)
========
Weighted average common
shares outstanding
Basic and diluted..... 24,966
<CAPTION>
As of
As of December 31, September 30,
--------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
------- ------- ------- -------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and cash $10,809
equivalents............ $11,685 $ 301 $ 1,868 $ 37 $ 1,364
Total assets............ 29,935 36,971 33,649 49,705 62,270 264,250
Total long-term debt,
less current portion... -- -- 2,990 3,701 1,432 64,917
Shareholders' equity
(deficit).............. (2,131) 383 4,625 (9,831) (27,760) 134,105
</TABLE>
- --------
(1) Stock-based compensation of the predecessor includes annual profit
distributions and appreciation of stock appreciation rights ("SARs") held
by predecessor employees. Stock-based compensation related to
appreciation of SARs resulting from the recapitalization of $20,130,000
was recognized in the fourth quarter of 1998. Stock-based compensation of
the company relates to stock options granted to employees at exercise
prices below the estimated fair value of the related common stock. See
Note 8 to the financial statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements and related notes appearing elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those indicated
in forward-looking statements. See "Risk Factors."
Overview
Digitas is a leading Internet professional services firm that provides
integrated strategy, technology and marketing solutions to Fortune 100 and
other industry leading companies that have embraced the Internet as a
principal means of business transformation. We help our clients leverage their
existing asset base and the Internet to develop stronger and more profitable
customer relationships.
Prior to 1999, our company operated as two separate entities which were
under common control: Bronner Slosberg Humphrey Inc., which was originally
founded in 1980, and Strategic Interactive Group, Inc., which was founded in
1995. In November 1998, each of these entities merged into newly-formed
Delaware limited liability companies which were owned by separate newly-formed
Massachusetts business trusts.
In January 1999, the two business trusts were acquired by a private equity
investor and several of our existing shareholders in a recapitalization. The
purpose of the recapitalization was to combine the trusts, realign the
ownership of the combined entities with those senior employees who would most
actively lead our future growth, establish an equity-based incentive program
to motivate our current and future employees and enhance our ability to make
strategic investments in our people and services.
Business Operations
Our revenue is generated from providing professional services to our
clients. We expect that our revenue will continue to be driven primarily by
the number and scope of our client engagements. We focus on large-scale, long-
term, strategic relationships with a select group of clients. In the first
nine months of 1999, our three largest clients accounted for approximately 62%
of our revenue and our largest client accounted for approximately 24% of our
revenue.
Historically, we have offered our services to clients primarily on a time
and materials basis. For these engagements, we recognize revenue as services
are provided based on actual costs incurred. As our client relationships have
grown, we have increasingly entered into broad contracts under which we
deliver our services based on mutually agreed upon scopes of work. These
contracts generally include estimates on total fees that clients will be
charged for the year. For these contracts, we recognize revenue on a
percentage of completion method based on the ratio of costs incurred to total
estimated costs. Additionally, some of our contracts include a bonus provision
whereby we get additional compensation based on our performance as evaluated
by our clients against agreed upon measures. We recognize bonus revenue in the
period we are informed that the bonus has been awarded. Most of our contracts
allow us to invoice our clients on a pro-rata basis for our services.
We incur significant reimbursable costs, such as on-line media buying and
production costs, which are not reflected in revenue. These costs are
reflected in our accounts receivable, unbilled accounts receivable and
billings in excess of costs. We generally obtain our clients' approval prior
to incurring these costs.
Professional services costs consist of professional salaries, payroll taxes
and benefits for our professional staff plus other non-reimbursable costs
directly attributable to servicing our clients. In addition to the
compensation of employees engaged in the delivery of professional services,
professional salaries include compensation for selling and management by our
senior account managers and most of our executives. We expect that per capita
professional services costs will increase over time due primarily to wage
increases, particularly among technology professionals.
20
<PAGE>
Selling, general and administrative expense consists primarily of
administrative and executive compensation, recruiting, professional fees, rent
and office expenses. In 2000, we expect to make significant expenditures for
recruiting and training as we expand our operations. We have incurred
significant costs to expand our operations internationally through our office
in London. We believe that a key source of our growth will be servicing
existing clients on a worldwide basis, as well as attracting new clients in
international markets.
Stock-based compensation before the recapitalization consisted of annual
profit distributions and appreciation of stock appreciation rights. Stock-
based compensation after the recapitalization consisted primarily of non-cash
compensation arising from stock options granted to employees at exercise
prices below the estimated fair value of the related common stock.
In connection with the recapitalization we recorded $190.6 million of
goodwill and other intangible assets. This amount, which represents the excess
of purchase price over net assets acquired, is being amortized over two to
seven years.
We were taxed as an S corporation until January 1999 when we terminated our
S corporation election and became subject to federal taxation. No provision or
liability for federal taxes is reflected for periods prior to 1999. For the
periods prior to 1999, we have recorded provisions, tax assets and liabilities
for Massachusetts and various states where we do business that have a limited
state corporate income and excise tax.
Results of Operations
The following table sets forth selected items included in our statement of
operations as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
Predecessor (Combined) Company
-------------------------------------- -------------
Year Ended Nine Months Nine Months
December 31, Ended Ended
--------------------- September 30, September 30,
1996 1997 1998 1998 1999
----- ----- ----- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue................................................................ 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Professional services costs.......................................... 52.0 56.9 53.7 55.3 54.7
Selling, general and administrative expense.......................... 49.3 40.1 39.7 35.1 34.3
Stock-based compensation............................................. 0.8 6.2 21.1 2.6 0.3
Amortization of intangible assets.................................... -- -- -- -- 19.5
----- ----- ----- ----- -----
Total operating expenses........................................... 102.1 103.2 114.5 93.0 108.8
----- ----- ----- ----- -----
Income (loss) from operations.......................................... (2.1)% (3.2)% (14.5)% 7.0% (8.8)%
- --------------------------------------------------
===== ===== ===== ===== =====
</TABLE>
Nine months ended September 30, 1999 compared to nine months ended
September 30, 1998
Revenue. Revenue for the nine months ended September 30, 1999 increased by
$44.2 million, or 49.3%, to $133.9 million from $89.7 million for the nine
months ended September 30, 1998. The increase was due primarily to growth in
revenue from new and existing clients and the increased demand for Internet-
related services.
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<PAGE>
Professional services costs. Professional services costs for the nine
months ended September 30, 1999 increased by $23.6 million, or 47.6%, to $73.2
million from $49.6 million for the nine months ended September 30, 1998.
Professional services costs represented 54.7% of revenue for the nine months
ended September 30, 1999, as compared to 55.3% of revenue for the nine months
ended September 30, 1998. The increase in absolute dollars was due primarily
to an increase in the number of professionals we hired. Professional services
costs decreased as a percentage of revenue for the nine months ended September
30, 1999 due primarily to an increase in employee utilization rates, partially
offset by an increase in average compensation per professional.
Selling, general and administrative expense. Selling, general and
administrative expense for the nine months ended September 30, 1999 increased
by $14.4 million, or 45.7%, to $45.9 million from $31.5 million for the nine
months ended September 30, 1998. As a percentage of revenue, selling, general
and administrative expense decreased from 35.1% in the 1998 period to 34.3% in
the 1999 period. The increase in absolute dollars for the nine months ended
September 30, 1999 was due primarily to increases in outside fees for
recruiting professionals, the hiring of senior client service executives, rent
and travel costs related to office expansion in New York and the opening of a
new office in London, and our overall growth in administrative headcount. The
decrease as a percentage of revenue was due to the economies of scale
associated with higher revenue levels.
Stock-based compensation. Stock-based compensation for the nine months
ended September 30, 1999 consisted primarily of non-cash compensation arising
from stock options granted to employees at exercise prices below the estimated
fair value of the related common stock. Stock-based compensation for the nine
months ended September 30, 1998 consisted primarily of profit distributions
and appreciation of stock appreciation rights.
Amortization of intangible assets. The increase in amortization of
intangible assets resulted from our recapitalization which was effected in
January 1999.
Interest expense, net. Interest expense, net, for the nine months ended
September 30, 1999 increased by $3.2 million to $5.3 million from $2.1 million
for the nine months ended September 30, 1998. The increase in interest
expense, net, for the nine months ended September 30, 1999 was primarily due
to the interest expense on our long-term borrowings related to the
recapitalization. Additionally, we increased borrowings against our line of
credit to fund increased working capital needs.
Provision for income taxes. The income tax provision for the nine months
ended September 30, 1999 was $1.8 million. For the nine months ended September
30, 1998, we were an S corporation. Therefore, we were only taxable at the
state level, and we did not provide for any federal income taxes in this
period.
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenue. Revenue for 1998 increased by $21.1 million, or 20.8%, to $122.3
million from $101.2 million for 1997. The increase in revenue was due
primarily to growth in revenue from new and existing clients and increased
demand for Internet-related services. In 1997, we sought to expand our client
base and were successful in developing relationships with new, large-scale
clients. The revenue growth in 1998 as compared to 1997 was primarily
attributable to building those relationships.
Professional services costs. Professional services costs for 1998 increased
by $8.1 million, or 14.0%, to $65.7 million from $57.6 million for 1997.
Professional services costs represented 53.7% of revenues for 1998 as compared
to 56.9% of revenues in 1997. The increase in absolute dollars for 1998 was
due primarily to an increase in the number of professionals we hired. The
decrease as a percentage of revenue for 1998 was due primarily to an increase
in employee utilization rates.
Selling, general and administrative expense. Selling, general and
administrative expense for 1998 increased by $7.9 million, or 19.6%, to $48.5
million from $40.6 million for 1997. As a percentage of revenue, selling,
general and administrative expense was not materially different from 1997 to
1998. The increase in
22
<PAGE>
absolute dollars was due primarily to a one time payment to senior management
in connection with the recapitalization. This increase was also due to general
growth of the business, including opening a new office in New York, increased
recruiting costs and expanded adminstrative headcount.
Stock-based compensation. Stock-based compensation in 1998 consisted
primarily of profit distributions and appreciation of stock appreciation
rights from 1997 to 1998. Stock-based compensation in 1997 included profit
distributions on stock appreciation rights and the repurchase of equity held
by selected employee shareholders.
Interest expense, net. Interest expense, net, for 1998 increased by $0.3
million to $2.7 million from $2.4 million in 1997. The increase in interest
expense, net, was primarily due to increased borrowings to fund increased
working capital needs during 1998, offset by a reduction in interest rates.
Provision for income taxes. The income tax benefit for 1998 was $1.4
million compared to a tax benefit of $114,000 in 1997. We were an S
corporation in both 1998 and 1997. Therefore, we were only taxable at the
state level, and we did not provide for federal income taxes in either of
these years.
Year ended December 31, 1997 compared to year ended December 31, 1996
Revenue. Revenue for 1997 increased by $18.0 million, or 21.7%, to $101.2
million from $83.2 million for 1996. The increase was due primarily to the
addition of new clients and increased demand for Internet-related services.
Professional services costs. Professional services costs for 1997 increased
by $14.3 million, or 33.1%, to $57.6 million from $43.3 million for 1996.
Professional services costs represented 56.9% of revenue for 1997 as compared
to 52.0% of revenue in 1996. The increase in absolute dollars was due
primarily to an increase in the number of professionals we hired. These costs
increased as a percentage of revenue due to decreased employee utilization
rates resulting from the hiring of a number of new professionals in 1997 ahead
of business demand.
Selling, general and administrative expense. Selling, general and
administrative expense for 1997 decreased by $400,000, less than 1.0%, to
$40.6 million from $41.0 million for 1996. As a percentage of revenue,
selling, general and administrative expense decreased from 49.3% in 1996 to
40.1% in 1997 primarily due to reduced founders' compensation, offset by
increased recruiting costs, investments in our infrastructure and
administrative staff, expansion of our operations in Boston, and the opening
of an office in San Francisco.
Stock-based compensation. Stock-based compensation in 1997 included profit
distributions on stock appreciation rights and the repurchase of equity held
by selected employee shareholders. Stock-based compensation in 1996 related
principally to the repurchase of equity held by an employee shareholder.
Interest expense, net. Interest expense, net, for 1997 was $2.4 million, as
compared to interest expense, net, of $1.3 million in 1996. The increase in
interest expense, net, was primarily due to increased borrowings against our
line of credit and a long-term note to fund growth in working capital.
Provision for income taxes. The income tax benefit for 1997 was $114,000
compared to a tax provision of $160,000 in 1996. We were an S corporation in
both 1997 and 1996. Therefore, we were only taxable at the state level, and we
did not provide for any federal income taxes in either of these years.
23
<PAGE>
Quarterly Results of Operations
The following table sets forth a summary of our unaudited quarterly
operating results for each of the three quarters ended September 30, 1999 both
in absolute dollars and as a percentage of our revenue in each quarter. This
information has been derived from our unaudited interim financial statements
which, in our opinion, have been prepared on substantially the same basis as
the audited financial statements contained elsewhere in this prospectus and
include all normal recurring adjustments necessary for a fair presentation of
the financial information for the periods presented. The results for any
quarter are not necessarily indicative of future quarterly results of
operations, and we believe that period-to-period comparisons should not be
relied upon as an indication of future performance that may be expected for
any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31, 1999 June 30, 1999 September 30, 1999
-------------- ------------- ------------------
(in thousands, except percentage data)
<S> <C> <C> <C>
Statement of operations data:
Revenue........................ $38,813 $44,047 $51,047
Operating expenses:
Professional services costs.. 20,041 24,350 28,847
Selling, general and
administrative expense...... 13,961 15,593 16,336
Stock-based compensation .... -- 35 315
Amortization of intangible
assets...................... 8,733 8,733 8,734
------- ------- -------
Total operating expenses....... 42,735 48,711 54,232
------- ------- -------
Loss from operations........... (3,922) (4,664) (3,185)
Other income (expense):
Interest income.............. -- -- 12
Interest expense............. (1,647) (1,874) (1,823)
------- ------- -------
(1,647) (1,874) (1,811)
------- ------- -------
Loss before provision for
income taxes.................. (5,569) (6,538) (4,996)
Provision for income taxes..... (591) (591) (591)
------- ------- -------
Net loss....................... $(6,160) $(7,129) $(5,587)
======= ======= =======
As a percentage of revenue:
Revenue........................ 100.0 % 100.0 % 100.0 %
Operating expenses:
Professional services costs.. 51.6 55.3 56.5
Selling, general and
administrative expense...... 36.0 35.4 32.0
Stock-based compensation .... -- -- 0.6
Amortization of intangible
assets...................... 22.5 19.8 17.1
------- ------- -------
Total operating expenses....... 110.1 110.5 106.2
------- ------- -------
Loss from operations........... (10.1) (10.5) (6.2)
Other income (expense):
Interest income.............. -- -- --
Interest expense............. (4.2) (4.3) (3.6)
------- ------- -------
(4.2) (4.3) (3.6)
------- ------- -------
Loss before provision for
income taxes.................. (14.3) (14.8) (9.8)
Provision for income taxes..... (1.6) (1.4) (1.1)
------- ------- -------
Net loss....................... (15.9)% (16.2)% (10.9)%
======= ======= =======
</TABLE>
Revenue. Our growth in revenue on a quarterly basis was primarily due to
increased demand for our Internet professional services. We recognize bonus
revenue in the period we are informed that the bonus has been awarded.
Accordingly, we expect that our quarterly revenue in the first and second
quarters each year, including 1999, will be positively impacted compared to
the third and fourth quarters.
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<PAGE>
Professional services costs. Professional services costs for the quarters
ended March 31, June 30 and September 30, 1999 increased in absolute dollars
as we continued to hire professionals to keep up with client demand. As a
percentage of revenue, professional services costs have fluctuated primarily
based on employee utilization, investments in the opening of our London office
and the timing of recognition of bonus revenue. We expect professional
services costs as a percentage of revenue to increase in the near term as we
hire new professionals and additional senior client service executives to
enhance our service capabilities and expand our operations.
Selling, general and administrative expense. Selling, general and
administrative expense has increased in absolute dollars in the quarters ended
March 31, June 30 and September 30, 1998 primarily due to increased recruiting
costs, growth in administrative headcount, and rent and other expense related
to regional office expansions. As a percentage of revenue, selling, general
and administrative expense has decreased as a percentage of revenue through
the quarters primarily due to the economies of scale associated with higher
revenue levels.
Liquidity and Capital Resources
From inception through January 6, 1999, we funded our operations primarily
through cash provided by operations, notes from shareholders and bank
borrowings. In connection with the recapitalization, we established credit
facilities totalling $93.4 million to repay our existing bank borrowings,
repay our notes to our shareholders, make transaction payments and repurchase
shares in connection with the recapitalization and provide working capital to
fund our ongoing operations. Long-term debt also includes an amount related to
the build out of our Boston office for costs incurred in excess of the lease
allowance.
Our operating activities used cash of $9.6 million in 1996. They provided
cash of $1.5 million in 1997 and $8.2 million in 1998. For the first nine
months of 1999, operating activities used cash of $8.9 million. We experienced
an increased use of cash in 1999 primarily due to an expansion of our
business.
Additionally, distributions paid to shareholders used cash of $315,000 in
1998 and $2.5 million for the nine months ended September 30, 1999.
We incurred capital expenditures of $6.9 million in 1996, $7.9 million in
1997, $6.3 million in 1998 and $5.6 million in the first nine months of 1999.
These expenditures were incurred primarily for computer equipment,
telecommunications equipment, furniture and fixtures, and leasehold
improvements to support our growth. We expect that our capital expenditures
will increase to the extent that we increase headcount and expand our
operations. We also expect expenditures for technology to increase as we
expand our Internet capabilities. Finally, we recently executed a new lease to
consolidate our operations in New York. The lease commences on approximately
July 1, 2000. We expect to incur significant leasehold expenditures in 2000
related to the relocation of our New York and London offices.
We believe that the proceeds of this offering and funds that are available
under our line of credit will be sufficient to finance our working capital and
capital expenditure requirements for the next twelve months.
Market Risk
We utilize an interest rate swap agreement to fix the interest rate on
certain variable rate term loans in order to minimize the effect of changes in
interest rates on earnings.
Our market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. We believe our credit risk is
minimized because the agreement we have is with a major financial institution.
We monitor the credit worthiness of this financial institution and anticipate
full performance.
25
<PAGE>
Year 2000 Compliance
Year 2000 Issue. The year 2000 issue is a result of computer programs or
systems which store or process date-related information using only the last
two digits to refer to a year. These programs or systems may not be able to
distinguish properly between a year in the 1900's and a year in the 2000's.
Failure of these programs or systems to distinguish between the two centuries
could cause the programs or systems to create erroneous results or even to
fail.
Our State of Readiness. We have established a year 2000 readiness team to
carry out a program for the assessment of our vulnerability to the year 2000
issue and remediation of identified problems. The team consists of senior
information technology and business professionals and meets on a regular
basis. An outside consultant is also working with the readiness team on a
temporary basis to assist them in carrying out their tasks.
The readiness team has developed a program with the following key phases to
assess our state of year 2000 readiness:
. develop a complete inventory of our hardware and software, and assess
whether that hardware and software is year 2000 ready;
. test our internal hardware and software which we believe have a
significant impact on our daily operations to assess whether it is year
2000 ready;
. upgrade, remediate or replace any of our hardware or software that is
not year 2000 ready; and
. develop a business continuity plan to address possible year 2000
consequences which we cannot control directly or which we have not been
able to test or remediate.
We have completed all of the tasks which our program requires, including:
. we have completed the inventory of hardware and software at all of our
locations and have determined that all of the inventoried hardware and
software which we believe have a significant impact on our daily
operations are year 2000 ready or can be made ready with minimal changes
or replacements, based on our vendors' web site certifications
statements and commercially available year 2000 testing products;
. we have developed a list of all vendors which we deem to have a
significant business relationship with us. Of the approximately 21
vendors we have identified, we have obtained web site certifications or
obtained assurances with respect to the year 2000 readiness of products
or services that we purchase from those vendors;
. we have completed testing and implementation of any changes necessary to
our internal hardware and software which we believe have a significant
impact on our daily operations to confirm their year 2000 readiness;
. we have completed an internal review to determine the commitments we
have made to our customers with respect to the year 2000 readiness of
solutions which we have provided to those customers; and
. we have formulated a business continuity plan that encompasses our
strategy for preparation, notification and recovery in the event of a
failure due to the year 2000 issue. The plan includes procedures to
minimize downtime and expedite resumption of business operations and
other solutions for responding to internal failures in our internal
information technology department as well as widespread external
failures related to the year 2000 issue.
Costs. To date, we have incurred approximately $3.3 million in connection
with our year 2000 readiness program. This amount includes internal labor
costs, outside consulting costs and additional hardware and software
purchases. We do not expect to incur any material additional expenses in
connection with our year 2000 readiness program, although there can be no
assurance that we will not be required to do so.
Risks. If we fail to solve a year 2000 problem with respect to any of our
systems, we could experience a significant interruption of our normal business
operations. We believe that the most reasonably likely worst case scenarios
related to the year 2000 issue for our business are as follows:
26
<PAGE>
. if a solution which we provided to a client causes damage or injury to
that client because the solution was not year 2000 compliant, under the
terms of some agreements we could be liable to the client for breach of
warranty; and
. if there is a significant and protracted interruption of
telecommunication services to our main office, we would be unable to
conduct business because of our reliance on telecommunication systems to
support daily operations, such as internal communications through e-
mail.
27
<PAGE>
BUSINESS
Overview
Digitas is a leading Internet professional services firm that provides
integrated strategy, technology and marketing solutions to Fortune 100 and
other industry leading companies that have embraced the Internet as a
principal means of business transformation. We help our clients leverage their
existing asset base and the Internet to develop stronger and more profitable
customer relationships. By assisting our clients in developing a "bricks and
clicks" business strategy, we help them establish a competitive advantage in
the new digital economy. We draw on our comprehensive Internet professional
services capabilities and marketing experience to provide end-to-end solutions
that integrate digital strategy, technology and infrastructure, multi-channel
marketing execution and measurement.
We develop large-scale, long-term, strategic relationships with a select
group of clients. Our clients include industry leaders such as American
Express, AT&T, Charles Schwab & Co. Inc., General Motors, Johnson & Johnson,
L.L. Bean, and Neiman Marcus. We employ over 1,200 professionals and are
headquartered in Boston, Massachusetts with offices in New York City, San
Francisco, Salt Lake City and London.
Industry Background
The Internet is fundamentally changing the way consumers and businesses
interact, introducing a new means of communicating, obtaining information,
purchasing goods and services, providing customer support, and soliciting
feedback. International Data Corporation, or IDC, estimates that the number of
Internet users will grow from 142 million at the end of 1998 to 500 million at
the end of 2003 and that revenues generated from Internet commerce in 2003
will exceed $2.3 trillion. The emergence of the Internet is also redefining
the core economics of businesses and forcing companies to re-evaluate and
transform the way they have traditionally conducted business and interacted
with their customers, suppliers and distribution partners.
While businesses were early to embrace the Internet as a new commercial
medium, their ability to take advantage of its full potential continues to
evolve. Initially, businesses employed internal information technology
departments or hired outside Web site design firms to develop corporate Web
sites that were viewed as additional means of advertising or promoting their
businesses. As the number of Internet users has increased and corporate Web
sites have drawn more visitors, businesses have begun to view the Internet as
another distribution channel, or an on-line storefront, through which to
conduct customer transactions. The ability to conduct transactions over the
Internet, however, requires the integration of client/server systems with Web
site design and infrastructure. Most internal information technology
departments do not have the resources to perform this integration work and as
a result many companies are seeking the assistance of outside Internet
professional services providers. IDC defines Internet services as the
consulting, design, systems integration, support, management and outsourcing
services associated with the development, deployment and management of Web
sites. IDC expects the worldwide market for Internet services to grow at a
five-year compounded annual rate of 59%, from $7.8 billion in 1998 to $78.5
billion in 2003.
We believe most businesses must transact with customers over the Internet
to retain and enhance their competitive positions. Widespread adoption of the
on-line transaction model, however, is only the beginning of the Internet's
transformation of traditional business models. While many companies have built
on-line storefronts, most still view them as simply another independently
operated channel for enabling transactions and interacting with customers.
This business model prevents the new on-line business from capitalizing on the
power of the enterprise's existing assets. To capture the full potential of
the Internet and maximize customer value, companies must view the Internet as
a principal means of fundamentally redefining the way they develop customer
relationships, manage brand names and build a sustainable competitive
advantage. The transformation to a "bricks and clicks" business model, in
which a company's existing assets are integrated with a digital strategy, is
particularly challenging for large businesses that have made significant
investments in existing sales
28
<PAGE>
forces, marketing strategies, brand names, supply chain management systems,
distribution channels, and data management systems. However, it is also these
companies that stand to gain the most from a fully integrated "bricks and
clicks" business model that transforms customer relationships.
At a time when companies need a service provider to do more than build a Web
site or enable on-line transactions, we believe few Internet professional
services providers have the depth of resources and range of services necessary
to address the large scale engagements and demands of Fortune 100 companies on
an ongoing basis. For instance, marketing firms typically provide off-line or
on-line services, but not both. Web design firms typically specialize only in
the front-end design of on-line storefronts. Similarly, traditional information
technology service providers typically focus only on the enhancement of legacy
systems and the implementation of traditional business applications. Strategic
consulting firms typically provide high level recommendations but are not held
accountable for implementation or results. Finally, Internet professional
service providers typically build e-commerce business systems in which on-line
business is conducted independently of the rest of the company and without the
benefit of the company's traditional assets.
We believe that in the new digital economy there is a need for an innovative
Internet professional services provider that has the scale, breadth of
experience and expertise to help companies understand and develop the potential
of the Internet as a part of their overall business strategy and to leverage
the power of their existing assets to drive growth, maximize customer value and
build a sustainable competitive advantage.
The Digitas Solution
We help our clients transform their businesses and customer relationships by
developing and implementing strategies to build on-line business solutions
linked to their traditional assets. We serve as a primary strategic partner to
our clients and utilize our strategic insight, marketing expertise, creativity
and execution skills to help them evaluate their business strategy, the value
they offer to their customers, their brand and the initiatives required to
succeed in the marketplace. We work with our clients to create a seamless
customer experience across all points of contact so that our clients can
develop higher value, long-term customer relationships. In addition, we seek to
quantify the value our solutions create and thereby enable our clients to
measure their return on investment. As a result of our broad-based perspective
and partnership approach, we have been able to couple development of
overarching interactive strategies with fast-paced execution that change the
way our clients acquire new customers, increase brand loyalty and build a
competitive economic model.
In redefining a client's business model, we provide a fully-integrated, end-
to-end solution, the key elements of which are illustrated in the following
chart:
"Bricks and Clicks" Business Integration
[CHART APPEARS HERE]
29
<PAGE>
Define digital business strategy. We help our clients understand the impact
of the Internet on their core business models and define new business
strategies for the digital economy. Rather than focusing on a narrow
technology or marketing strategy, or the implementation of a single project,
we employ a broad-based approach grounded in a thorough understanding of our
clients' overall business strategy and competitive environment. We work with
members of our clients' senior management who are committed to transforming
their business strategies and organizations.
Create enterprise-wide customer value propositions. Based on these new
strategies, we help our clients develop new customer value propositions that
involve more than creating attractive on-line storefronts. We seek to enhance
customer loyalty and generate new business opportunities by taking advantage
of existing assets such as distribution channels, customer service networks
and customer information systems. We believe that our customer-centric
approach allows us to deliver solutions that create economic value for our
clients.
Build new technology and marketing infrastructure. Our solutions often
require us to build new technology and marketing infrastructures for our
clients. As part of our solution, we develop creative Web sites that enhance
our clients' brands and build and integrate electronic customer relationship
management, or eCRM, systems databases that are designed to manage customer
relationships. In developing new infrastructures, we also create links to
legacy information systems and other existing infrastructure.
Implement solutions across client enterprise. Solutions are most effective
when they are implemented consistently throughout a client's organization. We
help our clients implement solutions across their enterprises by providing
appropriate training, organizational alignment and support. We coordinate the
efforts of various client businesses to create customer oriented applications
with a consistent corporate message. We also create and execute customized
pilot programs designed to test our solutions prior to implementation across
the enterprise.
Develop integrated marketing plan. We design integrated marketing plans
that typically involve identifying customer segments, developing marketing
strategies and optimizing on-line media planning and channel allocation,
including mix, messaging and frequency.
Execute across marketing and service channels. We leverage our on-line
media buying, design and creative services and event sponsorships to market
seamlessly across multiple channels to help our clients build relationships
with their customers.
Performance measurement. Through every step of our solution, we measure the
value being delivered to our clients. We continually work with our clients to
determine the relevant metrics and our performance against those metrics. We
collect data frequently and use it to continually refine our solution and
maximize our clients' return on investment.
Strategy
We intend to be the leading provider of digital strategy, technology and
infrastructure and integrated marketing solutions to industry-leading
companies. Our strategies for achieving this objective are as follows:
Expand relationships with our existing clients. Our current client list
includes industry leaders with whom we have developed multi-year, large-scale
relationships. In 1999, approximately 89% of our revenue came from clients
with whom we have previously worked. We believe there are significant
opportunities for additional growth with our existing clients as they
transform their businesses and we add additional capabilities.
Select additional industry leading clients to build new long-term client
relationships. We will seek relationships with additional industry leading
companies which we believe will be successful in the digital economy. These
companies could include additional Fortune 100 companies or emerging
companies, including "dot-coms," which are poised to be leaders in their
respective industries. In developing new client relationships,
30
<PAGE>
we will continue to be highly selective and will seek industry leading clients
who are committed to a long-term and close working relationship with us. We
believe that our focus on industry leading companies provides us with the best
opportunities to leverage the depth of our expertise, attract outstanding
professionals, enhance our reputation and have an impact on the industries in
which our clients' operate.
Maintain focus on large-scale, long-term relationships. We will maintain
our focus on large-scale, long-term client relationships. This strategy allows
us to build in-depth, client-specific knowledge, create more fully integrated
solutions and develop closer partnerships with our clients. We are also
extremely focused on quality, and working on a small number of long-term,
large-scale engagements allows us to devote the time and resources necessary
to develop innovative solutions which fully satisfy the needs of our clients.
Maintain and grow a creative corporate culture. We have created a corporate
culture that attracts intelligent, motivated individuals and fosters
creativity and innovation. To retain this culture and uphold our high
standards of quality as we grow our business, we must continue to attract and
retain qualified individuals with superior creative, technological and
management skills. By hiring talented individuals and providing them with
relevant training and support, we believe we have created a scalable hiring
strategy without compromising our high standards.
Expand and enhance our capabilities. We believe there is a significant
opportunity to further extend our client relationships by providing new on-
line and off-line services and capabilities to our new and existing clients.
We intend to expand our capabilities in a number of areas including supply
chain management, Internet workflow management, measurement tools, analytical
capabilities and channel optimization. Towards this end, we have a dedicated
team of technical specialists who evaluate new technologies and unique
applications for these technologies.
Broaden our global reach. We seek to further broaden our global presence by
opening new offices in strategic locations. We currently expect to open two
new offices in 2000 to support our international efforts. We believe that we
need to have a local presence in key markets to meet the needs of our
multinational clients both globally and locally. In addition, we believe our
local presence will also enable us to build new relationships with industry
leading companies in foreign markets.
Services
We provide our clients with end-to-end solutions that combine a broad range
of services in digital strategy, technology, marketing and measurement. The
following table is a brief summary of our capabilities in our four service
categories.
<TABLE>
<CAPTION>
Technology and Integrated Performance
Digital Strategy Infrastructure Marketing Measurement
---------------- -------------- ---------- -----------
<S> <C> <C> <C>
. Business . Web Site . Marketing Plan Development . Web Site Usability
Transformation Development Research
. e-commerce Strategy . eCRM . Media Planning and . Web Site Performance
Buying and Diagnostics
. Enterprise Customer . User Interface Design . On-line and Off-line . Consolidated Cross-
Management Creative Channel Reporting
. Operating Model . Customer Database . Events, Partnerships . Data Analytics
Definition Development and Promotions
. Application . Channel Optimization
Development
. Solutions Integration
</TABLE>
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Digital Strategy
We work closely with our clients' senior management to gain an in-depth
understanding of their enterprise-wide business objectives and competitive
environment. This knowledge is used as the basis for establishing business
strategies that capitalize on the power of the Internet to build customer
value propositions and improve our clients' competitive positions in the
digital economy. Our digital strategy capabilities include the following:
Business transformation. We analyze our clients' existing assets and value
chain to identify opportunities for a digital strategy. We then utilize our
expertise in technology, infrastructure, customer experience, and integrated
marketing to identify the economic rationale and create a detailed plan of
action to effect fundamental business transformation.
e-commerce strategy. We define and develop the most effective strategy for
marketing, transacting and distributing products and services over the
Internet. This may include enabling direct customer transactions or supporting
the off-line channel sales cycle.
Enterprise customer management. We define and develop a consistent and
branded relevant customer experience across all points of contact to create
value for both our clients and their customers. We also identify opportunities
for collecting and leveraging customer data to create and enhance customer
value propositions and returns on investments for the clients' businesses.
Operating model definition. We define new organizational structures,
business processes and management systems that are required to successfully
execute the digital strategy, and we integrate these into the existing
business. We also examine existing operational practices to identify
opportunities to improve services and reduce costs.
Technology and Infrastructure
We identify and implement innovative technology solutions within the broad
strategic context of our clients' businesses. We design the required
technology and infrastructure and select and manage external vendors to
support seamless dialogue and data management across marketing channels. We
also provide training and process management, organizational alignment and
channel implementation support. Our specific technology and infrastructure
capabilities include the following:
Web site development. We build on-line value propositions for our clients
by designing and developing large-scale, complex e-commerce enabled Web sites
that utilize state of the art technologies and leverage existing assets.
Electronic customer relationship management (eCRM). We develop and
implement customized applications to assist clients in building a seamless,
interactive and value-based dialogue with their customers across all
distribution channels and geographies. We also implement customized software
applications to manage marketing campaigns. We try to remain abreast of the
latest tools and technologies available to help manage customer relationships
and ensure that our clients are industry leaders in using these technologies.
User interface design. We design and develop functional, user-friendly Web
sites, navigation systems and graphical user interfaces to create a positive
customer experience and effectively meet our clients' specific business
objectives.
Customer database development. We design and develop customer databases to
collect and analyze customer profile information, including demographic
information, on-line and off-line transactional history and Web use patterns.
The databases are designed to allow increased access to information across all
marketing channels and thereby optimize customer interaction.
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Application development. We create customized applications, such as
proprietary content databases, specialized search functions and registration
engines, to improve customer interactions with our clients' businesses.
Solutions integration. We frequently select and manage third party vendors
to assist our clients in integrating existing enterprise/legacy systems with
new Web and eCRM applications.
Integrated Marketing
Our extensive marketing, media and creative capabilities and experience
allow us to deliver measurable increases in customer value and loyalty through
innovative marketing solutions powered by customer insight, marketing
analytics and operational expertise. Our marketing capabilities include the
following:
Marketing plan development. We develop integrated, measurable, marketing
campaigns across all direct customer channels, including Web, teleservices,
advertising and direct response channels.
Media planning and buying. We design media campaigns across all channels
and allocate client expenditures to optimize customer response. We are a large
purchaser of on-line media, which enables us to negotiate discounts which we
pass on to our clients.
On-line and off-line creative. We leverage our creative expertise in
marketing executions across numerous channels, clients and technologies. We
provide creative services to assist our clients in branding and marketing
their products and services through both on-line channels, such as e-mail,
Internet, and intranet, and off-line channels, such as teleservices, direct
response, print and television, catalogues and direct mail.
Events, partnerships and promotions. We plan events and negotiate
partnerships and promotions that reinforce brand attributes, generate customer
interest and improve business results.
Performance Measurement
Performance measurement quantifies the results of our solutions to
determine their effectiveness and to illustrate to clients their return on
investment. We leverage our direct marketing heritage, extensive array of
proprietary methodologies and working relationships with other measurement
tool providers to provide meaningful measurement of the impact our solutions
have on our clients' businesses. Our specific measurement capabilities
include:
Web site usability research. Through rapid prototyping and live customer
feedback, we identify opportunities to optimize Web site usability prior to
the launch of our clients' Web sites.
Web site performance and diagnostics. We measure the overall effectiveness
of a Web site with its targeted users and identify areas for potential
upgrades.
Consolidated cross-channel reporting. We design reporting strategy and
infrastructure and implement integrated management reporting systems across
our clients' businesses.
Data analytics. We analyze customer behavior and transactional data to
improve effective targeting, messaging, and personalization.
Channel optimization. We measure performance across multiple marketing and
distribution channels to ensure ongoing optimization of marketing resources.
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Clients, Marketing and Sales
We primarily market our services to Fortune 100 and other industry leading
companies. We seek clients that are committed at senior levels to building
long-term partnerships with us to leverage their existing traditional asset
bases to take advantage of the Internet's significant new opportunities for
customer interaction. We are also seeking to work with Internet-based companies
to enhance their customer relationships. In particular, we seek to work with
companies operating in industries in which the economics of customer loyalty
are most compelling, thereby providing us with the opportunity to greatly
impact market share and the return on their customer base investments. These
industries include financial and consulting services, software, technology and
telecommunications, travel and leisure, industrial and consumer brands and
retail.
Our current clients include, among others, the following companies:
<TABLE>
<S> <C>
Aetna Harcourt
American Electric Power Johnson & Johnson
American Express L.L. Bean
Aquent Lifetime Rewards.com
AT&T Morgan Stanley Dean Witter
Charles Schwab & Co. Inc. Neiman Marcus
General Motors
</TABLE>
Our results of operations and our business depend on our relationship with a
limited number of large clients. Of our total revenues during the first nine
months of 1999, American Express accounted for approximately 24%, General
Motors accounted for approximately 22% and AT&T accounted for approximately
16%.
We do not have a separate sales and marketing force. Rather, our
relationship managers are primarily responsible for our marketing and sales
efforts. Members of our senior management team also market our services through
their speaking engagements at industry conferences. Additionally, we rely on
our strong reputation, quality client base and proven results to retain our
existing clients and develop new client relationships. In fact, many of our
existing clients have recommended our services to potential clients.
Client Case Studies
American Express
American Express is a world leader in charge and credit cards, travel-
related services, financial planning, investment products, insurance and
international banking. It has built one of the world's preeminent service
brands.
Digitas began its relationship with American Express in 1981 by working on
direct marketing programs. In May 1998, we expanded our relationship with
American Express by working on various aspects of its Web site. Examples of
specific initiatives include:
. User interface and ease of navigation. We helped American Express
implement a customer-centric navigation approach that segmented
personal, small business, and corporate customers to address the needs
of each group separately. This new approach created a single user
experience across all American Express business units.
. "MyAmex". We worked with American Express to create and deploy "MyAmex"
as a customer's personalized gateway to the company, allowing quick
access to those elements of site content and functionality most relevant
to individual customers.
. Web site templates. We partnered with American Express to develop style
guide standards that would be used for all site design across
americanexpress.com on a global basis. More specifically, we designed
templates and components that we built into American Express' new
content management utility.
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. Blue from American Express. We helped design and implement a marketing
campaign for the company's new Blue credit card offering utilizing both
direct mail and on-line marketing channels. This included assisting in
the development of a lifecycle management strategy, designing and
implementing an on-line simulcast of a concert in Central Park to launch
Blue, and creating the blue.com site.
. Measurement engine. We worked with American Express to develop a
measurement plan and select a reporting utility to measure performance
across americanexpress.com, including the initial reporting templates.
We continue to work with American Express as its agency of record for
direct and on-line marketing initiatives.
General Motors
General Motors Corporation is the world's largest full-line vehicle
manufacturer. General Motors invests significant amounts each year on
"Customer Influence" through advertising, field sales and dealer support,
sales incentives, relationship marketing, event sponsorship and promotional
activities. General Motors has recognized, however, that the Internet is
transforming the vehicle manufacturing, distribution, and sales landscape and
that these traditional methods of customer influence must be integrated into
the digital world to remain effective.
Over the past three years, Digitas has developed a broad and deep strategic
and operational partnership with numerous business units of General Motors to
help capture the power of the digital economy and leverage the value of their
traditional marketing investments and assets. The following descriptions
illustrate two isolated segments of our broad strategic relationship with
General Motors.
Enterprise customer management
At the beginning of the second quarter of 1998, we began working with
General Motors' Corporate Advertising and Marketing Group to do the following:
. Develop vision and digital strategy. We created an executive strategy
for customer relationship management, which became the founding charter
of General Motors' Global Enterprise Customer Management Group
established in January 1999.
. Plan and execute marketing planning programs. Over the past year, we
have designed and implemented cross-divisional, channel integrated
marketing programs at both the regional and national levels.
. Design customer management system database. We designed General Motors'
centralized household vehicle customer database, which enabled General
Motors to identify significant customer and prospect opportunities, use
a single platform for common measurement and collect and store
information about customer behavior.
. Build multi-channel lead management system. We designed and managed the
construction of an automated lead management system which provides
General Motors' national and regional enterprise customer management and
divisional marketing initiatives with tracking, treatment, and
measurement capabilities.
. Design and implement new marketing segmentation and measurement
processes. To help General Motors take full advantage of the new
strategies and systems introduced, we implemented new processes for
modeling and segmenting the customer and prospect base and for managing
marketing investments to assist General Motors in planning, executing,
measuring and continually improving its multi-channel initiatives.
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Pontiac GMC vehicle division
We have completed approximately 125 initiatives for Pontiac GMC, many of
which are of similar scope and style to the two Pontiac initiatives described
below.
. Aztek pre-launch Web site and reporting. The Aztek Web site was an on-
line experiment designed to test a new and more efficient way of
introducing new vehicles to the market and to pioneer the use of
customer feedback in the design of vehicles. Pontiac previewed the
concept car at the 1999 Detroit Auto Show. To leverage the resulting
media attention, Digitas built a Web site and collected on-line audience
comments and feedback. As a result, Pontiac gained real-time knowledge
of customer impressions and preferences. This information drove further
evaluation of the vehicle design and will, ultimately, influence the
consumer launch of the car.
. Sunfire eCare program. Pontiac targets young, first-time car buyers with
its Sunfire model. To provide proactive and reactive customer care for
this valuable demographic group, we implemented an innovative Web site
which incorporates a real-time chat/call center to answer first time
purchasers' questions. Call center agents can provide a caller with
information and images in real time on a caller's computer, making
communications more informative and valuable and potentially resulting
in more sales.
General Motors reports that our work to date has had a significant economic
impact on them. They believe that the replacement of multiple, redundant
legacy database systems with a centralized enterprise management system is
leading to substantial savings and improved access to and quality of
information. In particular, General Motors has seen improved customer loyalty,
higher customer conversion rates, lower costs to acquire new or re-gain former
customers, greater incremental sales per dollar invested, and an increasing
number of cross-sales. Through our interactive relationship, Digitas has
helped Pontiac become one of the leading General Motors divisions in terms of
Internet use. Although our relationship with General Motors is already very
large, we believe it is in its early stages and has both opportunities for
continued growth within our current relationships as well as opportunities for
additional relationships with other divisions.
Neiman Marcus Group
As a leader in the luxury fashion and apparel industry, Neiman Marcus has
built an enviable customer franchise by offering world renowned designer
brands and providing a best-in-class personalized shopping experience. In
early 1999, Neiman Marcus decided to take advantage of the opportunities
offered by the Internet to reach new customers and to enhance its
relationships with existing customers.
In April 1999, Neiman Marcus Group retained Digitas as its overall
strategic and tactical partner to help define their digital strategy. The
solution we offered included the following:
. Develop digital strategy. We worked with Neiman Marcus to define a
digital strategy which leveraged the Neiman Marcus brand to establish
Neiman Marcus as the premier lifestyle platform for affluent consumers
on the Web. Our strategy was to establish for Neiman Marcus a complete
e-commerce organization which included neimanmarcus.com, a Web site that
is fully integrated with the existing Neiman Marcus store and catalogue
businesses.
. Develop creative and innovative Web site. We focused our creative
efforts on developing a Web site that both offers users a high-end
shopping experience and enhances the Neiman Marcus brand name. The Web
site offers customers an easy to use interface, quick transaction times
and information concerning specific product availability. To set the
standard in on-line service while taking advantage of existing store
inventory and fashion expertise, we worked with Neiman Marcus to develop
the Neiman Marcus Virtual Studio. The Studio uses new interactive and
visual telepresence technology for virtual merchandising and live
assistance to connect customers with store associates. Users can either
phone, e-mail, or chat on-line in real-time with sales associates.
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. Design and build e-commerce infrastructure. We worked with Neiman Marcus
to design and build an e-commerce organization and technology
infrastructure that included merchandising, content management, eCare
and site management processes. In addition, we integrated the Web site
with catalogue and store databases to promote seamless customer service.
. Coordinated cross-channel Web marketing campaign. We worked with Neiman
Marcus to design a comprehensive cross-channel Web marketing campaign
which utilized on-line and off-line techniques to drive customers to the
Neiman Marcus Web site and which was coordinated with existing customer
mailings, special in store and top customer events, and banner ads and
sponsorships.
Through the implementation of our solution, we believe that Neiman Marcus
will be able to penetrate geographic locations not served by its stores and
improve its operating efficiency, marketing results and the quality of service
provided to its customers. The integration of the store, catalogue and Web
databases should permit Neiman Marcus to target past customers more
effectively, enhance existing customer relationships and achieve significant
cost savings. We are continuing to work with the senior management of Neiman
Marcus to further refine and build upon its digital strategy, migrate more of
its systems to the Web, improve the existing Web site and more effectively
target and service its customer base.
Competition
Competition in the Internet professional services industry is intense. We
compete with companies which offer strategic consulting, Web design,
information technology and e-commerce services as well as the in-house
development efforts of many companies. Our current competitors include the
following:
. web consulting firms and on-line agencies, such as Agency.com, Diamond
Technology Partners, iXL Enterprises, Proxicom, Razorfish, Scient,
USWeb/CKS and US Interactive;
. general management consulting firms, such as Bain & Company, Booz Allen
& Hamilton, Boston Consulting Group and McKinsey & Company;
. advertising and direct marketing agencies, such as Ogilvy One and
Wunderman Cato Johnson;
. systems integrators that primarily engage in fixed-time/fixed-fee
contracts, such as Cambridge Technology Partners, Sapient and Viant;
. large systems integrators, such as Andersen Consulting and the
consulting arms of the "Big Five" accounting firms;
. the professional services groups of computer equipment companies, such
as IBM Global Services;
. outsourcing firms, such as Computer Sciences Corporation, Electronic
Data Systems and Perot Systems; and
. internal information technology departments of current and potential
clients.
Because relatively low barriers to entry characterize our industry, we also
expect other companies to enter our market.
We believe that the principal competitive factors in our industry are:
. quality of services;
. technical and strategic expertise;
. ability to provide end-to-end solutions;
. speed of development and implementation of Internet solutions;
. value of the services provided compared to the price of such services;
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. reputation and experience of professionals delivering the service;
. project management capabilities;
. brand recognition and size of the firm; and
. effectiveness of sales and marketing efforts.
We believe that we presently compete favorably with respect to most of these
factors. In particular, we believe that we offer an integrated set of skills
and expertise that many existing service providers are not well suited to
provide. However, the market for Internet professional services is evolving
and we cannot be certain that we will compete successfully in the future. We
expect that competition will continue to intensify and increase in the future,
particularly if large information technology consulting firms focus more
resources on Internet solution opportunities.
People and Culture
We believe we have an entrepreneurial culture in which creativity, teamwork
and individual development are strongly encouraged. Our employees are our
single greatest asset and the key to reaching our company-wide goal to be the
undisputed industry leader in Internet professional services. In furtherance
of this mission all of our employees collaborate to apply their creativity in
the conception, design, and implementation of innovative client solutions. Our
formal training program, to which we allocate substantial financial resources
and personnel, emphasizes improvement of individual skills as well as
optimization of team performance. We also conduct shared learning sessions in
which business and technological developments are discussed amongst the
various teams. Through the training and shared learning programs we continue
to bolster the talent and expertise of our employees which in turn improves
our Internet professional services capabilities. The end result is a dynamic
and rewarding work environment for intelligent, motivated individuals.
Our training program is part of a larger core competency model instituted
in 1998 that is intended to incorporate the personal interests and career
goals of each employee with their individual development and team performance
training. Employees meet with a staffing officer to discuss their interests
and goals and thereby allow us to assign them to client teams which they will
find to be the most satisfying. We believe that our ongoing solicitation and
consideration of individual interests and goals enables us to improve the
attractiveness of the work environment to our employees and strengthens each
working group thereby further improving our competitive position in the
industry.
To retain this culture and uphold the high standard of quality work that we
have set, we must continue to attract qualified individuals with superior
strategic, creative, technological and management skills in numbers sufficient
to meet the growing demands for our services. To this end, we have a dedicated
recruiting team of 27 individuals that utilizes various methods to attract the
most talented and promising professionals, including job boards, advertising
in newspapers and trade magazines, college and business school recruiting,
competitive targeting and an internal referral bonus program. In addition, we
retain recruiting professionals to supplement the recruiting efforts of our
in-house recruiting team. We recognize that the demand for Internet
professional services, however, is growing faster than the number of trained
professionals who are capable of providing those services and, therefore,
retention and training of existing employees is very important. By hiring
intelligent individuals and then providing them with relevant training and
support, we believe that we have created a truly scalable hiring strategy
without compromising our high standards.
We provide our employees with a competitive base salary, performance driven
incentive programs, stock options in Digitas and comprehensive benefits
packages. Employees are rewarded for individual as well as team performance
and the success of their clients in the marketplace. For many of our
employees, however, a significant attraction is being part of a winning team
that applies industry leading expertise and technology to transform businesses
to be the best in their industry.
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As of December 1, 1999, we had approximately 1,200 full-time employees,
approximately 1,160 of whom were located in the United States and 40 of whom
were located in Europe. Our employees include approximately 175 digital
strategy consultants, 275 technology professionals, 250 design and creative
professionals, 300 integrated marketing managers, and 200 executive and
support personnel.
Our employees are not represented by any union and, except for senior
management and certain other employees, are retained on an at-will basis.
However, the regulations of some European countries in which we operate may
make it difficult for us to terminate employees in those countries. In
addition, those regulations govern the amount of vacation time that must be
given to employees, which is significantly more vacation than in the United
States.
Intellectual Property Rights
We seek to protect our intellectual property through a combination of
license agreements and trademark, service mark, copyright and trade secret
laws. We enter into confidentiality agreements with our employees and clients
and use our best efforts to limit access to and distribution of proprietary
information licensed from third parties.
We pursue the protection of our trademarks in the United States and
internationally. We have obtained U.S. registration or have applied for
registration of certain of our other trademarks and servicemarks, including
the marks Digitas, Bronnercom, BSH and SIG.
Our efforts to protect our intellectual property rights could be inadequate
to deter misappropriation of proprietary information. For example, we may not
detect unauthorized use of our intellectual property. In addition, the legal
status of intellectual property on the Internet is currently subject to
various uncertainties. See "Risk Factors--We may not be able to protect our
intellectual property and proprietary rights." and "Risk Factors--Changes in
government regulation of the Internet could adversely affect our business."
U.S. and Foreign Government Regulation
Congress has recently passed legislation that regulates certain aspects of
the Internet, including on-line content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities and
jurisdiction. In addition, federal, state, local and foreign governmental
organizations also are considering, and may consider in the future, other
legislative and regulatory proposals that would regulate the Internet. Areas
of potential regulation include libel, pricing, quality of products and
services and intellectual property ownership.
The European Union also has recently enacted several directives relating to
the Internet. In order to safeguard against the spread of certain illegal and
socially harmful materials on the Internet, the European Union has adopted the
"Action Plan on Promoting the Safe Use of the Internet." Other European
Commission directives address the regulation of privacy, e-commerce, security,
commercial piracy, consumer protection and taxation of transactions completed
over the Internet.
It is not known how courts will interpret both existing and new laws.
Therefore, we are uncertain as to how new laws or the application of existing
laws will affect our business. In addition, our business may be indirectly
affected by our clients who may be subject to such legislation. Increased
regulation of the Internet may decrease the growth in the use of the Internet,
which could decrease the demand for our services, increase our cost of doing
business or otherwise have a material adverse effect on our business, results
of operations and financial condition. See "Risk Factors--Changes in
government regulation of the Internet could adversely affect our business.
Facilities
Our headquarters and principal administrative and finance operations are
located in a leased facility in Boston, Massachusetts consisting of
approximately 200,000 square feet of office space. The lease for this office
space expires in November 2005. We also occupy office space in locations in
New York City under three separate leases.
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One of the leases covers approximately 12,000 square feet of office space and
expires in September 2002. The second and third New York leases cover an
aggregate of approximately 38,000 square feet in the same building and expire
in September 2004 and September 2002. Due to our growth, in November 1999 we
executed a fourth lease for 132,000 square feet in a new New York City
location. That lease expires in March 2011. We anticipate relocating all of
our New York staff to the new larger location in September or October 2000. We
will continue to be obligated on our existing leases and will need to sublet
these leases to minimize cost and financial obligations. At this time, we
cannot be certain that we will be able to execute subleases that coincide with
our move or that the terms of the subleases will completely offset our costs.
We also lease office space in San Francisco, London and Salt Lake City.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their respective ages and
positions as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Director, Chairman and Chief Executive
David W. Kenny.............. 38 Officer
Kathleen L. Biro............ 47 Director, Vice Chairman and President
Marschall I. Smith.......... 53 General Counsel and Secretary
Michael Ward................ 36 Chief Operating Officer and Acting Chief
Financial Officer and Treasurer
Michael E. Bronner.......... 40 Director, Chairman Emeritus and Founder
John L. Bunce, Jr........... 41 Director
Orit Gadiesh (1)(2)......... 48 Director
Philip U. Hammarskjold (2).. 34 Director
Patrick J. Healy (1)........ 33 Director
Arthur Kern (1)(2).......... 53 Director
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
David W. Kenny was named Chief Executive Officer of Digitas in September
1997 and Chairman in December 1999. He joined Digitas as a director and Vice
Chairman in January 1997. From 1991 to 1997, Mr. Kenny was a partner at Bain &
Company, a strategy consulting firm, and was named to its Policy Committee in
1995. Mr. Kenny also serves as a director of Harvard Business School
Publishing, The Corporate Executive Board and Teach for America. He holds a
B.S. degree from the General Motors Institute and an M.B.A. from Harvard
Business School.
Kathleen L. Biro joined Digitas in 1991 and has served as President and a
director since December 1999 and as Vice Chairman since April 1999. Ms. Biro,
together with Robert Cosinuke and Ruben Pinchanski, founded Strategic
Interactive Group and served as its Chief Executive Officer from its founding
in April 1995 to December 1999. Prior to joining Digitas in 1991, Ms. Biro
served as Senior Vice President of Global Product Management for Bankers Trust
Global Operations and Information Systems business. Ms. Biro also sits on the
boards of directors of net.Genesis and Be Free. She holds a B.S. and an M.S.
in Educational Administration from New York University and an M.B.A. in
Marketing and Finance from the Columbia University Graduate School of
Business.
Marschall I. Smith joined Digitas in October 1999 as General Counsel and
Secretary. From February 1994 to October 1999, Mr. Smith was associated with
Hamilton Holmes Associates, a financial and legal services consulting firm,
and served as Senior Vice President and General Counsel of IMC Global, Inc., a
mining and chemical manufacturer in Northbrook, Illinois. Mr. Smith holds an
A.B. from Princeton University, a J.D. from the University of Virginia Law
School and an M.B.A. from the University of Chicago Graduate School of
Business.
Michael Ward has served as Chief Operating Officer of Digitas since March
1998 and as acting Chief Financial Officer and Treasurer since December 1999.
Mr. Ward joined Digitas in August 1997 as a Senior Vice President. Prior to
that, he was associated with Bain & Company, a strategy consulting firm, since
December 1994. Mr. Ward holds B.S. and B.A. degrees from the University of
Pennsylvania and an M.B.A. from the Amos Tuck School at Dartmouth College.
Michael E. Bronner founded Digitas in 1980 and served as Chief Executive
Officer until September 1997 and Chairman until December 1999. Mr. Bronner is
currently a director and Chairman Emeritus of Digitas. Mr. Bronner is
currently the Chairman and founder of Lifetime Rewards.com. Mr. Bronner is
also Chairman of
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the Boston Walk Committee for the March of Dimes and serves as a director of
the Boys and Girls Clubs, the Boston Public Library Foundation and the New
England Aquarium.
John L. Bunce, Jr. has served as a director of Digitas since January 1999.
Mr. Bunce joined the predecessor to Hellman & Friedman LLC in 1988, became
partner of that entity in January 1996 and has served as a Managing Director
of Hellman & Friedman LLC since January 1998. He also serves on the boards of
directors of National Information Consortium and Western Wireless Corporation.
Mr. Bunce holds a B.A. from Stanford and an M.B.A. from Harvard Business
School.
Orit Gadiesh has served as a director of Digitas since February 1999. Ms.
Gadiesh has served as the Chairman of the Board of Bain & Company, a strategy
consulting firm, since December 1994. Ms. Gadiesh is a board of directors and
council member at the Harvard Business School, the Wharton School, the Kellogg
School and the Harvard Business School Press Publications Review Board. She is
also a member of the Greater Boston Chamber of Commerce and the Massachusetts
Business Roundtable. She holds a B.A. from Hebrew University, Jerusalem, and
an M.B.A. from Harvard Business School.
Philip U. Hammarskjold has served as a director of Digitas since December
1999. Mr. Hammarskjold joined the predecessor to Hellman & Friedman LLC in
1992, became partner of that entity in January 1996 and has been a Managing
Director of Hellman & Friedman LLC since January 1998. He has served on the
board of directors of The Covenant Group, Inc. since 1995 and served on the
board of directors of Young & Rubicam Inc. from December 1996 to December
1999. Mr. Hammarskjold holds a B.S.E. from Princeton University and an M.B.A.
from Harvard Business School.
Patrick J. Healy has served as a director of Digitas since January 1999.
Mr. Healy has been employed by Hellman & Friedman LLC since 1994 and has
served as a Managing Director since January 1999. He serves on the board of
directors of National Information Consortium, Inc. Mr. Healy holds an A.B.
from Harvard College and an M.B.A. from Harvard Business School.
Arthur Kern has served as a director of Digitas since January 1999. Prior
to investing in media and marketing services companies, he was co-founder and
Chief Executive Officer of American Media, a group owner of commercial radio
stations sold to AMFM (Chancellor Broadcasting) in 1994. Mr. Kern serves on
the boards of directors of Yahoo!, Inc. and Northwest Broadcasting, a
privately held company that owns and operates Fox Television affiliates in the
Northwest. Mr. Kern holds a B.A. from Yale University.
Board Composition
The number of our directors is currently fixed at eight. Following the
closing of this offering, our board of directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. Our
board of directors will consist of three Class I directors, whose term of
office will continue until the 2001 annual meeting of shareholders, two Class
II directors, whose term of office will continue until the 2002 annual meeting
of shareholders, and three Class III directors, whose term of office will
continue until the 2003 annual meeting of shareholders. The Class I directors
will be John L. Bunce, Jr., David W. Kenny and Arthur Kern; the Class II
directors will be Orit Gadiesh and Patrick J. Healy; and the Class III
directors will be Kathleen L. Biro, Michael E. Bronner and Philip U.
Hammarskjold. At each annual meeting of shareholders, a class of directors
will be elected for a three-year term to succeed the directors of the same
class whose terms are then expiring.
There are no family relationships among any of our directors or executive
officers.
Board Committees
Audit Committee. The members of the audit committee, a majority of whom are
independent directors, are responsible for recommending to the board of
directors the engagement of our outside auditors and reviewing our accounting
controls and the results and scope of audits and other services provided by
our auditors. The audit committee consists of Messrs. Hammarskjold, Chairman,
and Kern and Ms. Gadiesh.
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<PAGE>
Compensation Committee. The members of the compensation committee, a
majority of whom are independent directors, are responsible for reviewing and
recommending to the board of directors the amount and type of consideration to
be paid to senior management, administering our stock plans and establishing
and reviewing general policies relating to compensation and benefits of
employees. The compensation committee consists of Messrs. Healy and Kern,
Chairman, and Ms. Gadiesh.
Director Compensation
Directors who are employees receive no additional compensation for their
services as directors. Non-employee directors do not currently receive a fee
for their service as directors, although the board of directors may in the
future decide to pay non-employee directors a fee for their services. We
reimburse our directors for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors. Non-employee directors are also
eligible to participate in our stock option plans. Since their election to the
board of directors, we have granted to each of Messrs. Bronner and Kern and
Ms. Gadiesh non-qualified options to purchases 78,000 shares of our common
stock. The options granted to Mr. Kern and Ms. Gadiesh were granted on June 1,
1999, have an exercise price of $5.0367 per share and become exercisable in
full on June 1, 2002, regardless of whether the director is serving as a
director of Digitas at that time. The options granted to Mr. Bronner were
granted on December 2, 1999, have an exercise price of $17.50 per share and
become exercisable in full on December 2, 2002, regardless of whether Mr.
Bronner is serving as a director of Digitas at that time.
Executive Compensation
The following table sets forth the total compensation paid or accrued in
the year ended December 31, 1999 to our Chief Executive Officer, each of our
other executive officers whose aggregate compensation exceeded $100,000 and
one former executive officer who received total compensation in excess of
$100,000 but was not serving as an executive officer on December 31, 1999. We
refer to each of these people in this prospectus as our "named executive
officers." No other executive officer earned an aggregate of salary and bonus
in excess of $100,000 for the year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ------------
Number of
Shares of
Underlying
Options All Other
Name and Principal Position Salary Bonus Granted(1) Compensation
- --------------------------- -------------------- ------------ ------------
<S> <C> <C> <C> <C>
David W. Kenny................ $ 500,000 $ (2) 1,650,000 $1,983,074(3)
Chairman and Chief
Executive Officer
Kathleen L. Biro.............. 420,833 (2) 540,000 976,236(4)
Vice Chairman and President
Michael Ward.................. 370,833 (2) 450,000 202,717(5)
Chief Operating Officer and
Acting Chief Financial
Officer
Meryl Beckingham (6).......... 305,000 425,000(7) 165,000 593,785(8)
Former Chief Financial
Officer and Executive
Vice President
</TABLE>
- --------
(1) Does not include rollover options granted to the named executive officer
in connection with the recapitalization in exchange for the cancellation
of stock appreciation rights or stock options, as applicable,
43
<PAGE>
held by the named executive prior to the recapitalization. Messrs. Kenny
and Ward received 3,000,000 and 300,000 rollover options, respectively, in
connection with the recapitalization, and Mses. Biro and Beckingham
received 649,542.6 and 135,000 rollover options, respectively, in
connection with the recapitalization.
(2) Annual bonuses for the year ended December 31, 1999 have not yet been
determined for any named executive officer other than Ms. Beckingham.
(3) Includes (i) transaction payment in the amount of $1,977,974 paid to Mr.
Kenny in connection with the recapitalization; (ii) parking expenses in
the amount of $4,200 paid by Digitas on behalf of Mr. Kenny; and (iii)
$900 representing the dollar value of insurance premiums paid by Digitas
with respect to a term life insurance policy purchased for Mr. Kenny's
benefit.
(4) Includes (i) transaction payment in the amount of $309,064 paid to Ms.
Biro in connection with the recapitalization; (ii) deferred compensation
payment in the amount of $658,000 paid to Ms. Biro in accordance with the
terms of her employment agreement; (iii) parking expenses in the amount
of $4,200 paid by Digitas on behalf of Ms. Biro; (iv) $810 representing
the dollar value of insurance premiums paid by Digitas with respect to a
term life insurance policy purchased for Ms. Biro's benefit; and
(v) $4,162 representing the dollar value of insurance premiums paid for
by Digitas with respect to an individual, supplemental long-term
disability policy purchased in 1994 for Ms. Biro.
(5) Includes (i) transaction payment in the amount of $197,797 paid to Mr.
Ward in connection with the recapitalization; (ii) parking expenses in
the amount of $4,200 paid by Digitas on behalf of Mr. Ward; and (iii)
$720 representing the dollar value of insurance premiums paid by Digitas
with respect to a term life insurance policy purchased for Mr. Ward's
benefit.
(6) Ms. Beckingham resigned from her position as Chief Financial Officer and
Executive Vice President effective December 15, 1999.
(7) Includes annual bonus in the amount of $175,000 and special bonuses in
the aggregate amount of $250,000 paid to Ms. Beckingham in consideration
for her services in effecting the recapitalization.
(8) Includes (i) $500,000 payment paid to Ms. Beckingham in connection with
her resignation from Digitas; (ii) transaction payment in the amount of
$89,009 paid to Ms. Beckingham in connection with the recapitalization;
(iii) parking expenses in the amount of $4,200 paid by Digitas on behalf
of Ms. Beckingham; and (iv) $576 representing the dollar value of
insurance premiums paid by Digitas with respect to term life insurance
policy purchased for Ms. Beckingham's benefit. Ms. Beckingham will be
entitled to receive up to an additional $420,000 between January 2000 and
January 2001 in connection with her resignation from Digitas. We have
also agreed to pay the cost of Ms. Beckingham's health insurance, life
insurance and long term disability insurance plans until January 31, 2000
and to provide her with other payments and benefits in connection with
her resignation.
44
<PAGE>
The following table sets forth information regarding stock options granted
during 1999 to our named executive officers. All of the options, other than
options to purchase 450,000 shares which were granted to Ms. Biro under the
1999 option plan and options to purchase 150,000 shares which were granted to
Mr. Ward under the 1999 option plan, were granted under the 1998 option plan.
All of the options are non-qualified stock options, have a ten-year term and
generally terminate 30 days after the named executive's employment with us
terminates for any reason. During 1999, we granted options to purchase an
aggregate of 7,409,250 shares of common stock to employees, excluding rollover
options to purchase an aggregate of 8,233,322.4 shares.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
for Option Term (2)
----------------------
Number of
Shares of
Common
Stock Percent of Total Exercise
Underlying Options Granted Price
Options to Employees in Per Expiration
Name Granted(1) Fiscal Year(%)(1) Share($) Date 5%($) 10%($)
- ---- ---------- ---------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David W. Kenny.......... 1,650,000(3) 22.27% $5.0367 1/6/09 $5,226,463 $13,244,884
Kathleen L. Biro........ 90,000(4) 1.21 5.0367 8/1/09 285,080 722,448
450,000(5) 6.07 17.5000 12/2/09 4,952,545 12,550,722
Michael Ward............ 300,000(4) 4.05 5.0367 1/6/09 950,266 2,408,161
150,000(5) 2.02 17.5000 12/2/09 1,650,848 4,183,574
Meryl Beckingham........ 105,000(4) 1.42 5.0367 1/6/09 332,593 842,856
60,000(4) .81 5.0367 5/1/09 190,053 481,632
</TABLE>
- --------
(1) Does not include rollover options granted to the named executive officer
in connection with the recapitalization in exchange for the cancellation
of stock appreciation rights or stock options, as applicable, held by the
named executive officer prior to the recapitalization. Messrs. Kenny and
Ward received 3,000,000 and 300,000 rollover options, respectively, in
connection with the recapitalization, and Mses. Biro and Beckingham
received 649,542.6, and 135,000, respectively, in connection with the
recapitalization.
(2) Potential realizable value is based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the
date of grant until expiration of the ten-year term. These numbers are
calculated based on Securities and Exchange Commission requirements and
do not reflect our projection or estimate of future stock price growth.
Potential realizable values are computed by multiplying the number of
shares of common stock subject to a given option by the fair market value
on the date of grant, as determined by our board of directors, assuming
that the aggregate stock value derived from that calculation compounds at
the annual 5% or 10% rate shown in the table for the entire ten-year term
of the option and subtracting from that result the aggregate option
exercise price.
(3) Options to purchase 300,000 shares were immediately exercisable as of the
grant date. The remainder of the options vest in equal installments on
the third, fourth and fifth anniversary of the grant date.
(4) Options vest in equal installments on the third, fourth and fifth
anniversary of the grant date.
(5) Options vest 25% on the first anniversary of the grant date and
additional 6.25% on each consecutive three-month period thereafter.
45
<PAGE>
The following table sets forth information concerning the number and value
of unexercised options to purchase common stock held as of December 31, 1999
by the named executive officers. There was no public trading market for our
common stock as of December 31, 1999. Accordingly, the values of the
unexercised in-the-money options have been calculated on the basis of the fair
value at December 31, 1999 of $17.50, less the applicable exercise price,
multiplied by the number of shares acquired on exercise. None of the named
executive officers exercised any stock options in 1999.
Aggregated Option Exercises and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year-End at Fiscal Year-End
-------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
David W. Kenny........ 3,150,000.00 1,350,000.00 $41,052,000.00 $16,821,000.00
Kathleen L. Biro...... 649,542.60 540,000.00 9,223,504.92 1,121,400.00
Michael Ward.......... 300,000.00 450,000.00 4,650,000.00 3,738,000.00
Meryl Beckingham...... 0.00 0.00 0.00 0.00
</TABLE>
1998 Option Plan
In contemplation of the recapitalization, our board of directors adopted
our 1998 option plan. The plan allows us to:
. grant incentive stock options; and
. grant non-qualified stock options.
More specifically, the plan authorized the grant of (i) 8,233,322.4
rollover options in exchange for the cancellation of stock appreciation rights
and stock options held by the SAR and option holders prior to the
recapitalization and (ii) an additional 5,872,350 options that are not
rollover options. In December 1999, the board of directors amended the plan to
decrease the number of non-rollover options that could be granted under the
plan to 5,076,000 shares.
To date, all options granted under the plan have been non-qualified stock
options. As of December 31, 1999, options to purchase 12,455,486.1 shares of
common stock were outstanding under the plan and 165,000 shares were available
for future grant under the plan. The board does not intend to grant any
additional options under the plan after the offering.
Grants under the plan may be made to employees and non-employee directors,
consultants and independent contractors who contribute to the management,
growth and profitability of the business of Digitas or its affiliates.
A committee of the board of directors or, if no such committee is formed,
the board of directors, administers the plan which includes determining the
participants in the plan and the number of shares of common stock to be
covered by each option, amending the terms of any option, subject to certain
limitations, and interpreting the terms of the plan.
Each rollover option is immediately exercisable as of the date of grant and
has an exercise price equal to the base value of the stock appreciation rights
or the exercise price of the stock options, as applicable, from which the
options were converted. All other options granted under the plan are generally
subject to a five-year vesting schedule pursuant to which the options vest in
equal annual installments on the third, fourth and fifth anniversaries of the
grant date. In addition, all options other than rollover options must have a
per share exercise price equal to or greater than the fair market value of a
share of Digitas' common stock as of the grant date, as determined by the
board of directors or a committee of such board. All options granted under the
plan terminate on the tenth anniversary of the grant date. Vested options may
be exercised for specified periods after the termination of the optionee's
employment or other service relationship with us or our affiliates.
46
<PAGE>
Under the plan, the exercise price of vested options may be delivered to us
by certified or bank check, wire transfer or such other instrument as the
board of directors or a committee of such board may accept. In addition, under
the terms of the plan, the committee may in its discretion approve payment by
delivery of unrestricted shares of common stock or by delivery of an exercise
notice, along with a copy of irrevocable instructions to a broker selling the
underlying shares of the optionee.
In the event greater than 50% of the equity interest in Digitas is
acquired, measured by vote or value, solely for cash consideration by a non-
affiliate, all options under the plan will become fully vested and exercisable
immediately prior to the closing of the transaction.
1999 Option Plan
In December 1999, our board of directors adopted our 1999 option plan which
allows for the grant of up to 2,937,250 shares of common stock. The plan
allows us to:
. grant incentive stock options; and
. grant non-qualified stock options.
To date, all options granted under the plan have been non-qualified stock
options. As of December 31, 1999, options to purchase 1,937,250 shares of
common stock were outstanding under the plan and 1,000,000 shares were
available for future grant under the plan.
Grants under the plan may be made to employees and non-employee directors,
consultants and independent contractors who contribute to the management,
growth and profitability of the business of Digitas or its affiliates.
A committee of the board of directors or, if no such committee is formed,
the board of directors, administers the plan which includes determining the
participants in the plan and the number of shares of common stock to be
covered by each option, amending the terms of any option, subject to certain
limitations, and interpreting the terms of the plan. The administrator of the
plan may authorize our chief executive officer to grant options under the plan
at fair market value to individuals who are not subject to the reporting and
other provisions of Section 16 of the Exchange Act or "covered employees"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986. In
December 1999, our compensation committee granted this authority to Mr. Kenny.
The exercise price of all other options granted under the plan is
determined by the board of directors or a committee of the board. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986 may not be granted at an exercise price less than the fair market
value of the common stock on the date of grant, or less than 110% of the fair
market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power.
Non-qualified stock options granted under the plan may be granted at prices
which are less than the fair market value of the underlying shares on the date
granted. Under the plan, incentive stock options and non-qualified stock
options are generally subject to a four-year vesting schedule pursuant to
which the options vest 25% on the first anniversary of the grant date and an
additional 6.25% on each consecutive three-month period thereafter. The
options generally terminate on the tenth anniversary of the grant date. In
addition, vested options may be exercised for specified periods after the
termination of the optionee's employment or other service relationship with us
or our affiliates.
Under the plan, the exercise price for vested options may be delivered to
us by certified or bank check, wire transfer or such other instrument as the
board of directors or a committee of such board may accept. In addition, under
the terms of the plan, the committee may in its discretion approve payment by
delivery of unrestricted shares of common stock or by delivery of an exercise
notice, along with a copy of irrevocable instructions to a broker selling the
underlying shares of the optionee.
In the event greater than 50% of the equity interest in Digitas is
acquired, measured by vote or value, solely for cash consideration by a non-
affiliate, all options under the plan will become fully vested and exercisable
immediately prior to the closing of the transaction.
47
<PAGE>
2000 Stock Option and Incentive Plan
Our board of directors and shareholders have adopted the 2000 stock option
and incentive plan, which allows for the issuance of up to 3,859,100 shares of
common stock. The plan permits us to:
. grant incentive stock options;
. grant non-qualified stock options;
. grant stock appreciation rights;
. issue or sell common stock with vesting or other restrictions, or
without restrictions;
. grant rights to receive common stock in the future with or without
vesting;
. grant common stock upon the attainment of specified performance goals;
and
. grant dividend rights in respect of common stock.
These grants may be made to officers, employees, directors, consultants,
advisors and other key persons of Digitas or our affiliates.
Our compensation committee has the right, in its discretion, to select the
individuals eligible to receive awards, determine the terms and conditions of
the awards granted, accelerate the vesting schedule of any award and generally
administer and interpret the plan. The compensation committee may authorize
our chief executive officer to grant options under the plan at fair market
value to individuals who are not subject to the reporting and other provisions
of Section 16 of the Exchange Act or "covered employees" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986.
The exercise price of options granted under the plan is determined by the
compensation committee with respect to individuals subject to Section 16
reporting requirements and the Chief Executive Officer with respect to all
other options granted. Under present law, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986 may not be granted at an exercise price less
than the fair market value of the common stock on the date of grant, or less
than 110% of the fair market value in the case of incentive stock options
granted to optionees holding more than 10% of the voting power.
The exercise price may also be delivered to us (i) by the optionee in the
form of a promissory note if the loan of such funds to the optionee has been
authorized by the compensation committee and the optionee pays so much of the
exercise price as represents the par value of the common stock acquired in a
form other than a promissory note and (ii) by a broker under irrevocable
instructions to the broker selling the underlying shares from the optionee.
Non-qualified stock options may be granted at prices which are less than
the fair market value of the underlying shares on the date granted. Options
are typically subject to a four-year vesting schedule pursuant to which the
options vest 25% on the first anniversary of the grant date and an additional
6.25% on each consecutive three-month period thereafter. The options generally
terminate ten years from the date of grant and may be exercised for specified
periods after the termination of the optionee's employment or other service
relationship with us. Upon the exercise of options, the option exercise price
must be paid in full either in cash or by certified or bank check or other
instrument acceptable to the compensation committee or, in the sole discretion
of the committee, by delivery of shares of common stock that have been owned
by the optionee free of restrictions for at least six months.
The plan and all awards issued under the plan terminate upon any merger,
reorganization or consolidation, sale of all or substantially all of our
assets or all of our outstanding capital stock or liquidation or other similar
transaction, unless Digitas and the other parties to such transactions have
agreed otherwise. All participants under the plan will be permitted to
exercise, for a period of 30 days before any such termination, all awards held
by them which are then exercisable or become exercisable upon the closing of
the transaction.
48
<PAGE>
2000 Employee Stock Purchase Plan
We have adopted an employee stock purchase plan under which employees will
be eligible to purchase shares of our common stock at a discount through
periodic payroll deductions. The 2000 employee stock purchase plan is intended
to meet the requirements of Section 423 of the Internal Revenue Code.
Purchases will occur at the end of twelve-month offering periods at a purchase
price equal to 85% of the market value of our common stock at either the
beginning of the offering period or the end of the offering period, whichever
is lower. The first offering period under the plan will begin on March 1, 2000
and will end on February 28, 2001. Participants may elect to have from 1% to
10% of their pay withheld for purchase of common stock at the end of the
offering period, up to a maximum of $25,000 within any offering period. We
have reserved 1,100,000 shares of common stock for issuance under this plan.
Employment Agreements
We have employment agreements with each of Messrs. Kenny and Ward and Ms.
Biro. Each employment agreement entitles the named executive to an annual base
salary and an annual bonus. Under their respective agreements, Messrs. Kenny
and Ward and Ms. Biro are entitled to annual base salaries of $500,000,
$350,000 and $400,000, respectively. Each executive's base salary is subject
to annual review for possible raises. Since entering into their employment
agreements, the compensation committee has increased Mr. Ward's annual base
salary to $400,000 and Ms. Biro's annual base salary to $450,000. Ms. Biro's
employment agreement also entitles her to an aggregate of $872,333 in deferred
compensation. Of this amount, $658,000 was paid in 1999 and the remaining
$214,333 will be paid by May 30, 2000, if Ms. Biro is still employed by us at
that time.
Each employment agreement has a two year term which automatically extends
for additional one year terms unless we or the named executive elect not to
renew the agreement. Each employment agreement can be terminated during its
term by us or by the employee. If the employee terminates the employment
agreement with good reason or if we terminate the employment agreement without
cause, the employee is entitled to receive certain severance benefits,
including one year of salary and group health benefits (or, in the case of Mr.
Kenny, two years of salary and group health benefits). If, however, the
employment agreement is terminated because of the employee's death or for any
reason other than by the employee for good reason or by us without cause, then
the employee receives only:
. his or her base salary for 90 days following termination of employment;
. any unpaid annual bonus for a fiscal year that has already ended;
. benefits under long-term disability insurance coverage (in the case of
termination because of disability); and
. vested benefits, if any.
Each employment agreement is further subject to certain non-competition, non-
solicitation and confidentiality provisions and certain customary provisions
with respect to benefits, reimbursement of expenses and non-exclusivity of
rights.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1999, each of Messrs. Healy, Kern, Kenny
and Ms. Gadiesh served as members of the compensation committee of our board
of directors. Mr. Kenny has served as our chief executive officer since
September 1997. None of these individuals serve as a member of the board of
directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or
compensation committee.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Recapitalization
In connection with the recapitalization, Positano Partners Ltd., a Bermuda
exempt company owned by Hellman & Friedman Capital Partners III, L.P., H&F
Orchard Partners III, L.P. and H&F International Partners III, L.P., purchased
shares of Bronner Slosberg Humphrey Co. and Strategic Interactive Group Co.
from the existing stockholders of those entities and we repurchased shares of
Bronner Slosberg Humphrey Co. from Mr. Bronner and the Michael E. Bronner 1998
Annuity Trust. The aggregate purchase price for these shares was approximately
$127,450,000, of which approximately $122,975,000 was paid to Mr. Bronner and
the Michael E. Bronner 1998 Annuity Trust, dated July 16, 1998, of which Mr.
Bronner and his wife are collectively the trustee, approximately $830,850 was
paid to Ms. Biro and approximately $3,644,150 was paid to other shareholders
of Bronner Slosberg Humphrey Co. and Strategic Interactive Group Co. who are
not executive officers or directors of Digitas. Messrs. Bunce, Hammarskjold
and Healy, each members of our board of directors, are each Managing Directors
of Hellman & Friedman LLC, an affiliate of Hellman & Friedman Capital Partners
III, L.P., H&F Orchard Partners III, L.P. and H&F International Partners III,
L.P.
We also granted to Positano a warrant to purchase an aggregate of 450,000
shares of our common stock in connection with the recapitalization. The
warrant is fully exercisable for $5.0367 per share. Pursuant to the terms of
the recapitalization agreement, the shares subject to the warrant are subject
to upward or downward adjustment.
Also as part of the recapitalization, Positano, Messrs. Bronner and Kenny
and the Bronner Slosberg Humphrey Co. trustee entered into a governance
agreement. Under the governance agreement, Positano is granted an approval
right over a number of specified fundamental corporate transactions as well as
the right to nominate and have elected two members of our board of directors.
The governance agreement also entitles Mr. Bronner and our chief executive
officer to be members of our board of directors. The governance agreement will
terminate upon consummation of this offering. Following the offering, Hellman
& Friedman Capital Partners III, L.P., H&F Orchard Partners III, L.P. and H&F
International Partners III, L.P., collectively, will have the right to elect
at least one director so long as they own at least 5% of our outstanding
common stock.
We also entered into a shareholders agreement in connection with the
recapitalization. The shareholders agreement among other things entitles
Positano and Mr. Bronner to purchase at a discount shares of our common stock
held by former employees who are parties to the agreement to the extent we do
not elect to repurchase those shares. To date, neither Positano nor Mr.
Bronner has exercised these repurchase rights. The shareholders agreement also
entitles the shareholders and option holders who are parties to the agreement,
including Mr. Bronner, Positano and each of the executive officers other than
Mr. Smith, to participate in certain sales of common stock by either Positano
or Mr. Bronner. Sales of common stock in connection with this offering are
excluded. Prior to this offering neither Positano nor Mr. Bronner have sold
any shares of our common stock in a transaction that would entitle the other
parties to the shareholders agreement to participate. Upon consummation of
this offering, the shareholders agreement will terminate.
Positano, Mr. Bronner and members of our senior management, including each
of our executive officers other than Mr. Smith, entered into an escrow
agreement in connection with the recapitalization. In the event we breached
our representations or warranties under the recapitalization agreement, the
escrow agreement entitles Positano to receive up to an aggregate of
approximately $18 million in cash, shares and options received by certain
members of our senior management in connection with the recapitalization. The
escrow agreement also entitles Messrs. Bronner and Kenny to direct the voting
of all shares of common stock held in escrow. The escrow agreement will
terminate immediately prior to the consummation of this offering.
50
<PAGE>
Under the registration rights agreement we entered into in connection with
the recapitalization, Positano and Mr. Bronner have demand registration rights
with respect to the common stock they hold. Positano, Mr. Bronner and the
other shareholders and option holders who are parties to the registration
rights agreement, including each of our executive officers other than Mr.
Smith, also have piggyback registration rights under the registration rights
agreement. See "Shares Eligible for Future Sale."
Mr. Bronner entered into a noncompetition, nonsolicitation and
confidentiality agreement with us in connection with the recapitalization. In
accordance with the terms of the agreement, Mr. Bronner is entitled to a
salary of $500,000 per year while he is serving as chairman of the limited
liability company through which our business is operated. On December 2, 1999,
Mr. Bronner resigned as chairman of that company and was named Chairman
Emeritus of Digitas.
Other Transactions
In January 1999, we issued to Positano two fully exercisable options, each
to purchase 45,000 shares of common stock at an exercise price per share equal
to $2.355, and an aggregate exercise price of $211,950, in exchange for an
aggregate payment of $241,350.
In December 1999, we purchased options to purchase 150,000 shares of our
common stock held by Mr. Kenny for a per share purchase price of $17.50 and an
aggregate purchase price of $2,625,000, less $303,250, the aggregate exercise
price of such options. Also in December 1999, we purchased options to purchase
90,000 shares of our common stock held by Positano for a per share purchase
price of $17.50 and an aggregate purchase price of $1,575,000, less $211,950,
the aggregate exercise price of such options. We also purchased in December
1999 warrants to purchase 60,000 shares of our common stock held by Positano
for a per share purchase price of $17.50 and an aggregate purchase price of
$1,050,000, less $302,200, the aggregate exercise price of such warrants. We
paid for such purchases by delivering a promissory note which will be repaid
with the proceeds from this offering.
Also in 1999, we sold an aggregate of 249,271.80 shares of our common stock
to two directors and one trust of which a director is the trustee. The shares
were sold for $5.0367 per share or an aggregate of $1,255,498.97, which price
the board of directors deemed to be the fair market value per share at the
time of sale. The following table sets forth the number of shares sold to each
director and/or trust and the date upon which the shares were sold:
<TABLE>
<CAPTION>
Name Date of Sale Shares of Common Stock
---- --------------- ----------------------
<S> <C> <C>
The Arthur Kern Revocable Trust...... August 2, 1999 49,635.90
Alan Beck............................ August 2, 1999 49,635.90
Orit Gadiesh......................... August 26, 1999 150,000.00
</TABLE>
Mr. Bronner is the chairman and founder of Lifetime Rewards.com, one of our
clients. During the last year, we provided approximately $85,000 in services
to Lifetime Rewards.com and expect that amount to increase next year. We
believe that the terms of our relationship with Lifetime Rewards.com are no
less favorable to us than they would have been had they been obtained from
unaffiliated third parties.
We have adopted a policy providing that all material transactions between
us and our officers, directors and other affiliates must (i) be approved by a
majority of the members of our board of directors and by a majority of the
disinterested members of our board of directors and (ii) be on terms no less
favorable to us than could be obtained from unaffiliated parties.
51
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of Digitas common stock as adjusted to reflect the sale of the
common stock offered hereby, by:
. all persons known by us to own beneficially 5% or more of the common
stock;
. each of our directors;
. the chief executive officer and the other named executive officers;
. each of the selling shareholders; and
. all directors and executive officers as a group.
Unless otherwise indicated, each of the shareholders has sole voting and
investment power with respect to the shares of common stock beneficially owned
by the shareholder.
The number of shares beneficially owned by each shareholder is determined
under rules issued by the Securities and Exchange Commission and includes
voting or investment power with respect to securities. Under these rules,
beneficial ownership includes any shares as to which the individual or entity
has sole or shared voting power or investment power and includes any shares as
to which the individual or entity has the right to acquire beneficial
ownership within 60 days after December 20, 1999 through the exercise of any
warrant, stock option or other right. The inclusion in this prospectus of such
shares, however, does not constitute an admission that the named shareholder
is a direct or indirect beneficial owner of such shares. The applicable
percentage of "beneficial ownership" after the offering is based upon
25,351,739.70 shares of common stock outstanding as of December 20, 1999. The
address for Hellman & Friedman Capital Partners III, L.P., H&F Orchard
Partners III, L.P. and H&F International Partners III, L.P. is c/o Hellman &
Friedman LLC, One Maritime Plaza, San Francisco, California 94111. The address
for Squam Lake Investors, III L.P. and Sunapee Securities, Inc. is Two Copley
Place, Boston, Massachusetts 02116. The address for each of our directors and
named executive officers is c/o Digitas Inc., The Prudential Tower, 800
Boylston Street, Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)(2)
-----------------------------------------------------
Prior to Offering After the Offering
-------------------- -------------------
Shares to be
Sold in
Name of Beneficial Owner Number Percent Offering Number Percent
- ------------------------ ------------ ------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
5% Shareholders
Hellman & Friedman
Capital Partners III,
L.P. (2)............... 18,449,578.5 71.77%
H&F Orchard Partners
III, L.P. (3).......... 1,358,400.0 5.35
H&F International
Partners III, L.P.
(4).................... 406,307.1 1.60
Other Selling
Shareholders
Squam Lake Investors,
III L.P................ 158,850.0 * *
Sunapee Securities,
Inc.................... 39,690.0 * *
Directors and Named
Executive Officers
Michael E. Bronner (5).. 3,554,760.3 14.02 -- 3,554,760.3
David W. Kenny (6)...... 3,150,000.0 11.05 -- 3,150,000.0
Kathleen L. Biro (7).... 907,373.4 3.49 -- 907,373.4
Michael Ward (8)........ 300,000.0 1.17 -- 300,000.0
Orit Gadiesh............ 150,000.0 * -- 150,000.0 *
Arthur Kern (9)......... 148,907.7 * -- 148,907.7 *
Meryl Beckingham........ 0 * -- 0 *
John L. Bunce, Jr.
(10)................... 0 * -- 0 *
Philip U. Hammarskjold
(10)................... 0 * -- 0 *
Patrick J. Healy (10)... 0 * -- 0 *
All executive officers
and directors, as a
group
(10 persons)........... 8,211,041.4 27.88 -- 8,211,041.4
</TABLE>
52
<PAGE>
- --------
* Represents less than 1% of the outstanding shares of common stock
(1) Assumes the underwriters do not elect to exercise the over-allotment
option to purchase an additional shares of common stock.
(2) Includes 18,093,625.5 shares and warrants immediately exercisable at an
exercise price of $5.0367 per share for 355,953 shares.
(3) Includes 1,332,192 shares and warrants immediately exercisable at an
exercise price of $5.0367 per share for 26,208 shares.
(4) Includes 398,468.1 shares and warrants immediately exercisable at an
exercise price of $5.0367 per share for 7,839 shares.
(5) Includes 2,128,658.7 shares held by Michael Bronner and 1,426,101.6
shares owned by the Michael E. Bronner 1998 Annuity Trust pursuant to
which Michael Bronner has sole dispositive power over the shares until
July 16, 2000. Michael Bronner and Lisa Bronner are collectively the
trustee of the Michael E. Bronner 1998 Annuity Trust and have sole voting
power with respect to the shares.
(6) Includes options held by David W. Kenny which are immediately exercisable
at an exercise price of $2.0217 per option for 2,850,000 shares and
options immediately exercisable at an exercise price of $5.0367 per
option for 300,000 shares.
(7) Includes 257,830.8 shares held by Kathleen L. Biro and options
immediately exercisable at an exercise price of $3.2997 per option for
649,542.6 shares.
(8) Includes options held by Michael Ward which are immediately exercisable
at an exercise price of $2.3550 per option for 75,000 shares and options
immediately exercisable at an exercise price of $1.8837 per option for
225,000 shares.
(9) Includes 148,907.7 shares held by the Arthur Kern Revocable Trust of
which Arthur Kern has sole dispositive and voting power.
(10) Messrs. Bunce, Hammarskjold and Healy are affiliated with Hellman &
Friedman Capital Partners III, L.P., H&F Orchard Partners III, L.P. and
H&F International Partners III, L.P. H&F Investors III is the sole
general partner for each of Hellman & Friedman Capital Partners III,
L.P., H&F Orchard Partners III, L.P. and H&F International Partners III,
L.P. The managing general partner of H&F Investors III is Hellman &
Friedman Associates III, L.P., which in turn has H&F Management III, LLC
and H&F Investors III, Inc. as its general partners. The sole owner of
H&F Investors III, Inc. is The Hellman Family Revocable Trust. Messrs.
Bunce, Hammarskjold and Healy are members of H&F Management III, LLC.
The investment decisions of H&F Management III, LLC and H&F Investors
III, Inc. are made by a seven person executive committee of which Mr.
Bunce is a member. While Hellman & Friedman Capital Partners III, L.P.,
H&F Orchard Partners III, L.P. and H&F International Partners III, L.P.,
H&F Investors III, Inc., Hellman & Friedman Associates III, L.P., H&F
Management III, LLC, The Hellman Family Revocable Trust and Messrs.
Bunce, Hammarskjold and Healy could each be deemed to beneficially own
the shares held by Hellman & Friedman Capital Partners III, L.P., H&F
Orchard Partners III, L.P. and H&F International Partners III, L.P.,
each of them disclaims beneficial ownership except to the extent of its
or his indirect pecuniary interest.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized and Outstanding Capital Stock
As of December 31, 1999, there were 25,351,739.7 shares of common stock
issued and outstanding and outstanding stock options to purchase 13,927,736.1
shares of common stock, 7,559,486.1 of which were then exercisable and
outstanding warrants to purchase 390,000 shares, all of which were then
exercisable and outstanding. At December 31, 1999, there were fourteen holders
of record of our common stock. Following the offering, our authorized capital
stock will consist of 100,000,000 shares of common stock, par value $.01 per
share, of which will be issued and outstanding, and 5,000,000
shares of undesignated preferred stock, par value $.01 per share, issuable in
one or more series designated by our board of directors, of which no shares
will be issued and outstanding.
Common Stock
Voting Rights
The holders of our common stock have one vote per share. Holders of our
common stock are not entitled to vote cumulatively for the election of
directors. Generally, all matters to be voted on by stockholders must be
approved by a majority, or, in the case of election of directors, by a
plurality, of the votes cast at a meeting at which a quorum is present, voting
together as a single class, subject to any voting rights granted to holders of
any then outstanding preferred stock.
Dividends
Holders of common stock will share ratably in any dividends declared by our
board of directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid
to holders of shares of common stock.
Other Rights
On liquidation, dissolution or winding up of Digitas, all holders of common
stock are entitled to share ratably in any assets available for distribution
to holders of shares of common stock. No shares of common stock are subject to
redemption or have preemptive rights to purchase additional shares of common
stock.
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock
may be issued from time to time in one or more series. Our board of directors
is authorized to fix the voting rights, if any, designations, powers,
preferences, qualifications, limitations and restrictions thereof, applicable
to the shares of each series. Our board of directors may, without stockholder
approval, issue preferred stock with voting and other rights that could
adversely affect the voting power and other rights of the holders of the
common stock and could have anti-takeover effects, including preferred stock
or rights to acquire preferred stock in connection with implementing a
shareholder rights plan. We have no present plans to issue any shares of
preferred stock. The ability of our board of directors to issue preferred
stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control of Digitas or the removal of
existing management.
Indemnification Matters
We have entered into indemnification agreements with each of our directors.
The form of indemnity agreement provides that we will indemnify our directors
or executive officers for expenses incurred because of their status as a
director or executive officer, to the fullest extent permitted by Delaware
law, our certificate of incorporation and our bylaws.
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches
54
<PAGE>
involving negligence or gross negligence in business combinations, unless the
director has breached his or her duty of loyalty, failed to act in good faith,
engaged in intentional misconduct or a knowing violation of law, paid a
dividend or approved a stock repurchase in violation of the Delaware General
Corporation Law or obtained an improper personal benefit. This provision does
not alter a director's liability under the federal securities laws and does
not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty. Our by-laws provide that directors
and officers shall be, and in the discretion of our board of directors, non-
officer employees may be, indemnified by Digitas to the fullest extent
authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of Digitas. The by-laws also provide for the
advancement of expenses to directors and, in the discretion of our board of
directors, officers and non-officer employees. In addition, our by-laws
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. We also have directors' and officers' insurance against certain
liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Digitas
as described above, we have been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. At present,
there is no pending material litigation or proceeding involving any director,
officer, employee or agent of Digitas in which indemnification will be
required or permitted.
Provisions of our Certificate of Incorporation and By-laws that may have Anti-
takeover Effect
A number of provisions of our certificate of incorporation and by-laws
which will be effective upon completion of this offering concern matters of
corporate governance and the rights of stockholders. These provisions, as well
as the ability of our board of directors to issue shares of preferred stock
and to set the voting rights, preferences and other terms, may be deemed to
have an anti-takeover effect and may discourage takeover attempts not first
approved by our board of directors, including takeovers which stockholders may
deem to be in their best interests. These provisions, together with our
classified board of directors, also could delay or frustrate the removal of
incumbent directors even if the removal of incumbent directors would be
beneficial to our stockholders. Our board of directors believes that these
provisions are appropriate to protect the interests of Digitas and of our
stockholders. Our board of directors has no present plans to adopt any further
measures or devices which may be deemed to have an "anti-takeover effect."
Classified Board of Directors
Our board of directors is divided into three classes serving staggered
three-year terms, with one class being elected each year. Our classified
board, together with certain other provisions of our certificate of
incorporation authorizing the board of directors to fill vacant directorships
or increase the size of the board, may prevent a stockholder from removing, or
delay the removal of incumbent directors and simultaneously gaining control of
the board of directors by filling vacancies created by such removal with its
own nominees.
No Stockholder Action by Written Consent
Our certificate of incorporation provides that any action required or
permitted to be taken by our stockholders at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders.
Special Meetings of Stockholders
Our certificate of incorporation and by-laws provide that a special meeting
of stockholders may be called only by our board of directors unless otherwise
required by law. Our by-laws provide that only those matters included in the
notice of the special meeting may be considered or acted upon at that special
meeting unless otherwise provided by law.
55
<PAGE>
Advance Notice of Director Nominations and Stockholder Proposals
Our by-laws include advance notice and informational requirements and time
limitations on any director nomination or any new proposal which a stockholder
wishes to make at an annual meeting of stockholders. For the first annual
meeting following the completion of this offering, a stockholder's notice of a
director nomination or proposal will be timely if delivered to the secretary
of Digitas at our principal executive offices not later than the close of
business on the later of the 75th day prior to the scheduled date of such
annual meeting or the 10th day following the day on which public announcement
of the date of such annual meeting is made by Digitas.
Director Vacancies and Removal
Our certificate of incorporation provides that vacancies in our board of
directors may be filled only by the affirmative vote of a majority of the
remaining directors. Our certificate of incorporation provides that directors
may be removed from office only with cause and only by the affirmative vote of
holders of at least seventy-five percent of the shares then entitled to vote
at an election of directors.
Amendment of the Certificate of Incorporation
Any amendment to our certificate of incorporation must first be approved by
a majority of our board of directors and, if required by law, thereafter
approved by a majority of the outstanding shares entitled to vote with respect
to such amendment, except that any amendment to the provisions relating to
stockholder action, directors, limitation of liability and the amendment of
our certificate of incorporation must be approved by not less than 75% of the
outstanding shares entitled to vote with respect to such amendment.
Amendment of By-laws
Our certificate of incorporation and by-laws provide that our by-laws may
be amended or repealed by our board of directors or by the stockholders. Such
action by the board of directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of at least seventy-five percent of the shares present in
person or represented by proxy at an annual meeting of stockholders or a
special meeting called for such purpose unless our board of directors
recommends that the stockholders approve such amendment or repeal at such
meeting, in which case such amendment or repeal shall only require the
affirmative vote of a majority of the shares present in person or represented
by proxy at the meeting.
Statutory Business Combination Provision
Following the offering, we will be subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from consummating a "business combination," except under certain
circumstances, with an "interested stockholder" for a period of three years
after the date such person became an "interested stockholder" unless:
. before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
. upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
. following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66% of the outstanding voting
stock of the corporation not owned by the interested stockholder. The
term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior
three years, owned, 15% or more of a corporation's outstanding voting
stock.
56
<PAGE>
The term "business combination" includes mergers, consolidations, asset
sales involving 10% or more of a corporation's assets and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved
by holders of a least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contain any such exclusion.
Trading on the Nasdaq National Market System
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "DTAS."
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be EquiServe
Trust Company.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock,
and no prediction can be made as to the effect, if any, that sales of common
stock or the availability of common stock for sale will have on the market
price of our common stock prevailing from time to time. Nonetheless,
substantial sales of common stock in the public market following this
offering, or the perception that such sales could occur, could lower the
market price of our common stock or make it difficult for us to raise
additional equity capital in the future.
Following this offering, there will be shares of our common stock
outstanding on a fully diluted basis. Of these shares, the shares
which are being sold in this offering generally will be freely transferable
without restriction or further registration under the Securities Act, except
that any shares held by our "affiliates" as is defined in Rule 144 under the
Securities Act may be sold only in compliance with the limitations described
below.
Sales of Restricted Securities
The remaining shares of common stock which will be outstanding
after the offering will be "restricted securities" as defined in Rule 144, and
may be sold in the future without registration under the Securities Act
subject to compliance with the provisions of Rule 144 or any other applicable
exemption under the Securities Act.
In general, under Rule 144 a shareholder who has beneficially owned his or
her restricted securities for at least one year including the holding period
of any prior owner, except an affiliate from whom those shares were purchased
is entitled to sell, within any three-month period commencing 90 days after
the date of this prospectus, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of our common stock
(approximately shares immediately after this offering) or the
average weekly trading volume in our common stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, a
shareholder that is not one of our affiliates at any time during the three
months 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, except an affiliate from whom those shares were purchased is entitled
to sell the shares immediately under Rule 144(k) without compliance with the
above described requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of our common
stock acquired pursuant to the exercise of certain options granted under our
stock plans) are also restricted securities and, beginning 90 days after the
date of this prospectus, may be sold by shareholders other than our affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period
requirement.
Stock Options
We intend to file registration statements on Form S-8 with respect to the
aggregate of 21,205,672.4 shares of common stock issuable under our stock
option and incentive plans and our employee stock purchase plan promptly
following the consummation of this offering. Shares issued upon the exercise
of stock options after the effective date of the Form S-8 registration
statement will be eligible for resale in the public market without
restriction, except that affiliates must comply with Rule 144.
58
<PAGE>
Lock-up Agreements
All officers and directors and certain shareholders holding an aggregate of
approximately shares of Digitas' common stock have agreed, subject to
limited exceptions, not to offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly (or enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of), 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, without the prior written consent of
Morgan Stanley & Co. Incorporated. However, if the reported last sale price of
the common stock on the Nasdaq National Market is at least twice the initial
public offering price per share for 20 of the 30 trading days ending on the
last trading day preceding the 90th day after the date of this prospectus, 25%
of the shares of common stock of Digitas subject to the 180-day restriction
described above will be released from these restrictions. The release of these
shares will occur on the later to occur of:
. the 90th day after the date of this prospectus if Digitas makes its
first post-offering public release of its quarterly or annual earnings
results during the period beginning on the eleventh trading day after
the date of this prospectus and ending on the day prior to the 90th day
after the date of this prospectus, or
. on the second trading day following the first public release of Digitas'
quarterly or annual results occurring on or after the 90th day after the
date of this prospectus, if Digitas does not make its first post-
offering public release as set forth in the preceding clause.
These early release provisions do not apply to executive officers and
directors. Morgan Stanley & Co. Incorporated may in its sole discretion choose
to release any or all of these shares from such restrictions prior to the
expiration of such 90 or 180-day period.
Registration Rights
In connection with the January 1999 recapitalization, we entered into a
registration rights agreement with Positano, Mr. Bronner and each of our other
shareholders and option holders as of the date of the recapitalization. Each
individual who has been granted options under the 1998 option plan since the
recapitalization has also become a party to the registration rights agreement.
Under the registration rights agreement, we have granted:
. Positano the right to require us, subject to the terms and conditions
set forth in the registration rights agreement, to register shares of
common stock held by it for sale in accordance with their intended
method of disposition of those shares; and
. Mr. Bronner the right to require us, subject to the terms and conditions
set forth in the registration rights agreement, to register the number
of shares of common stock held by him and the Michael E. Bronner 1998
Annuity Trust for sale in accordance with their intended method of
disposition of those shares.
Positano may request up to three demand registrations and Mr. Bronner may
request one demand registration, each as described above. Mr. Bronner may only
demand the registration of his securities if we have already consummated an
initial public offering and the aggregate market value of the shares of common
stock proposed to be registered by him is greater than or equal to $15
million. In addition, Positano may request that we defer any demand
registration requested by Mr. Bronner for up to 180 days after the date of
such request. Positano has the right to select the underwriters in connection
with any demand registration in which it is participating other than a Mr.
Bronner demand registration in which Mr. Bronner is offering a greater number
of shares of common stock.
Subject to limitations set forth in the registration rights agreement, the
other parties to the registration rights agreement have the right to
participate in any demand registration requested by Positano or Mr. Bronner.
In addition, we have granted Positano, Mr. Bronner and the other parties to
the registration rights agreement, the right, subject to exceptions set forth
in the registration rights agreement, to participate in registrations of
common stock initiated by us on our own behalf or on behalf of any other
stockholder.
59
<PAGE>
The registration rights agreement provides that if requested by the
managing underwriter(s) of any underwritten offering of shares of common
stock, Positano, Mr. Bronner and the other parties to the registration rights
agreement will agree, not to effect any public sale or distribution of any
shares of common stock for a period of up to 180 days following and seven days
prior to the effective date of demand or piggyback registration. See
"Underwriters."
Under the registration rights agreement, we are required to pay expenses
incurred by us and the fees and expenses of one counsel to the selling
shareholders in connection with any demand and piggyback registrations. We
also have agreed to indemnify the holders of registration rights under the
registration rights agreement against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments they may
be required to make. The registration rights agreement will terminate on the
earlier of the date upon which the parties to the registration rights
agreement no longer hold any shares of common stock that must be registered in
order to be sold or the date upon which the parties agree that the agreement
should be terminated. After the consummation of this offering, the
registration rights agreement will terminate as to any party other than
Positano and Mr. Bronner at the time such party owns fewer than one percent of
our outstanding common stock.
Effect of Sale of Shares
Prior to this offering, there has been no public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares for sale will
have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of our common stock in
the public market could adversely affect the market price of the common stock
and could impair our future ability to raise capital through an offering of
our equity securities.
60
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, Deutsche Bank Securities Inc., Salomon Smith Barney Inc., Banc
of America Securities LLC and Bear, Stearns & Co. Inc. are acting as
representatives, have severally agreed to purchase, and we and the selling
shareholders have agreed to sell to them, the respective number of shares of
common stock set forth opposite the names of the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated................................
Deutsche Bank Securities Inc.....................................
Salomon Smith Barney Inc.........................................
Banc of America Securities LLC...................................
Bear, Stearns & Co. Inc..........................................
----
Total..........................................................
====
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the shares of common
stock offered in this offering are subject to the approval of various legal
matters by their counsel and to other delineated conditions. The underwriters
are obligated to take and pay for all of the shares of common stock offered in
this offering, other than those covered by the over-allotment option described
below, if any shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to dealers at a price that represents a
concession not in excess of $ a share under the initial public
offering price. Any underwriters may allow, and the dealers may reallow, a
concession not in excess of $ a share to other underwriters or to
other dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives of the underwriters.
Digitas and the selling shareholders have granted to the underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase
up to an aggregate of and additional shares of common stock,
respectively, at the initial public offering price set forth on the cover page
of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
common stock offered in this offering. To the extent such option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as the number set forth next to such underwriter's name in the preceding
table bears to the total number of shares of common stock set forth next to
the names of all underwriters in the preceding table. If the underwriter's
over-allotment option is exercised in full, the total price to public would be
$ , the total underwriters' discounts and commissions would be
$ , and the total proceeds to us would be $ .
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 10% of the shares of common stock offered in this
offering for our directors, officers, employees and related persons. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
Digitas, our directors, officers and our shareholders have each agreed,
without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the underwriters, during the period ending 180 days after the date
of this prospectus, not to, directly or indirectly:
61
<PAGE>
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock
(whether such shares or any such securities are then owned by such
person or are thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise. This lock-up
restriction is subject, in limited circumstances for shares held by
shareholders other than officers and directors of Digitas, to earlier release.
See "Shares Eligible for Future Sale."
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "DTAS."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
the previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We, the selling shareholders and the underwriters have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
Deutsche Bank Securities Inc., one of the representatives of the
underwriters, is affiliated with Bankers Trust Company, one of Digitas'
lenders. More than 10% of the net proceeds Digitas receives from this offering
may be used to repay indebtedness owing to Bankers Trust. As a result, the
offering must be conducted in compliance with the conflict-of-interest
requirements of NASD Regulation, Inc., the regulatory agency that governs the
compensation paid to underwriters in securities offerings. Under these rules,
the initial public offering price of the common stock can be no higher than
that recommended by a qualified independent underwriter, as that term is
defined in the NASD's rules. Morgan Stanley & Co. Incorporated has agreed to
serve as a qualified independent underwriter and has conducted due diligence
and will recommend the maximum price for the shares of common stock to be
offered.
Pricing of the Offering
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares
of common stock was determined by negotiations between Digitas and the
representatives of the underwriters. Among the factors considered in
determining the initial public offering price were:
. our record of operations, our current financial position and future
prospects;
. the experience of our management;
. revenue, earnings and certain of our other financial and operating
information in recent periods; and
. the price-earnings ratios, price-revenue ratios, market prices of
securities and certain financial and operating information of companies
engaged in activities similar to ours.
62
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the shares of common stock we are offering will be passed
upon for us by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Legal
matters in connection with this offering will be passed upon for the
underwriters by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The combined financial statements as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common
stock we propose to sell in this offering. This prospectus, which constitutes
part of the registration statement, does not contain all of the information
set forth in the registration statement. For further information about us and
the common stock we propose to sell in this offering, we refer you to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete. If a contract or document
has been filed as an exhibit to the registration statement, we refer you to
the copy of the contract or document that we have filed. You may inspect the
registration statement, including exhibits, without charge at the principal
office of the Securities and Exchange Commission in Washington, D.C. You may
inspect and copy the same at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. You can also obtain copies of this material at prescribed rates by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains a website at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
63
<PAGE>
DIGITAS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheet of the Predecessor (combined) at December 31, 1997 and 1998,
and of the Company at September 30, 1999 (unaudited)..................... F-3
Statement of Operations of the Predecessor (combined) for the years ended
December 31, 1996, 1997 and 1998 and for the nine months ended September
30, 1998 (unaudited), and of the Company for the nine months ended
September 30, 1999 (unaudited) .......................................... F-4
Statement of Shareholders' Equity (deficit) of the Predecessor (combined)
for the years ended December 31, 1996, 1997 and 1998, and of the Company
for the nine months ended September 30, 1999 (unaudited)................. F-5
Statement of Cash Flows of the Predecessor (combined) for the years ended
December 31, 1996, 1997 and 1998, and for the nine months ended September
30, 1998 (unaudited), and of the Company for the nine months ended
September 30, 1999 (unaudited) .......................................... F-6
Notes to Financial Statements ............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bronner Slosberg Humphrey Co. and
Strategic Interactive Group, Co.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the combined financial
position of Bronner Slosberg Humphrey Co. and Strategic Interactive Group, Co.
at December 31, 1998 and 1997, and the combined results of their operations
and their combined cash flows for each of the three years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 15, 1999
F-2
<PAGE>
DIGITAS INC.
BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
Predecessor
(combined) Company
------------------ -------------
December 31,
------------------ September 30,
1997 1998 1999
-------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 1,868 $ 37 $ 1,364
Accounts receivable, net of allowance for
doubtful accounts of $707, $741 and $767
at December 31, 1997, 1998 and September
30, 1999, respectively................... 16,212 23,782 33,902
Accounts receivable, unbilled............. 13,893 15,150 32,407
Other current assets...................... 1,638 1,505 2,183
Deferred tax assets....................... 297 1,952 --
-------- -------- --------
Total current assets..................... 33,908 42,426 69,856
Fixed assets, net........................... 15,764 17,975 19,404
Intangible assets, net...................... -- -- 164,407
Deferred tax assets, long-term.............. -- -- 8,265
Other assets................................ 33 1,869 2,318
-------- -------- --------
Total assets............................. $ 49,705 $ 62,270 $264,250
======== ======== ========
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Other current liabilities................. $ -- $ -- $ 1,350
Accounts payable.......................... 13,310 9,849 7,923
Line of credit............................ 4,655 7,000 8,000
Current portion of long-term debt......... 1,809 172 7,525
Billings in excess of cost and estimated
earnings on uncompleted contracts........ 7,076 10,517 18,882
Accrued expenses.......................... 3,358 7,039 7,005
Accrued compensation...................... 9,245 40,145 12,995
Capital lease obligations................. 475 1,369 414
Notes payable, shareholders............... 14,567 12,003 --
-------- -------- --------
Total current liabilities................ 54,495 88,094 64,094
Long-term debt, less current portion........ 3,701 1,432 64,917
Capital lease obligation, long-term
portion.................................... 1,228 317 615
Deferred tax liability...................... 112 139 175
Other long-term liabilities................. -- 48 344
-------- -------- --------
59,536 90,030 130,145
Commitments (Note 15)
Shareholders' equity (deficit):
BSH common shares, no par value per share,
24,465,011, shares authorized, issued,
and outstanding at December 31, 1997 and
1998, respectively and 25,351,740 shares
authorized, issued and outstanding at
September 30, 1999....................... 1 1 10
SIG common shares, no par value per share,
193,960, shares authorized, issued, and
outstanding at December 31, 1997 and
1998, respectively....................... 1 1 --
Additional paid-in capital................ 3,435 3,435 155,432
Notes receivable from shareholders........ (1,065) -- --
Interest receivable on shareholders'
notes.................................... (366) (94) --
Accumulated deficit....................... (8,655) (27,921) (21,337)
Less: treasury stock, at cost, 8,105,893
shares at December 31, 1997 and 1998,
respectively............................. (3,182) (3,182) --
-------- -------- --------
Total shareholders' equity (deficit)..... (9,831) (27,760) 134,105
-------- -------- --------
Total liabilities and shareholders'
equity.................................. $ 49,705 $ 62,270 $264,250
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DIGITAS INC.
STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Predecessor (combined) Company
---------------------------------------------- -----------------
Nine months ended Nine months ended
September 30, September 30,
Year ended December 31, 1998 1999
--------------------------- ----------------- -----------------
1996 1997 1998
------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $83,157 $101,238 $122,309 $89,700 $133,907
------- -------- -------- ------- --------
Operating expenses:
Professional services
costs................ 43,272 57,610 65,696 49,606 73,238
Selling, general and
administrative
expense.............. 40,982 40,552 48,485 31,489 45,890
Stock-based
compensation......... 628 6,325 25,820 2,293 350
Amortization of
intangible assets.... -- -- -- -- 26,200
------- -------- -------- ------- --------
Total operating
expenses............. 84,882 104,487 140,001 83,388 145,678
------- -------- -------- ------- --------
Income (loss) from
operations............. (1,725) (3,249) (17,692) 6,312 (11,771)
------- -------- -------- ------- --------
Other income (expense):
Interest income....... 123 182 21 534 12
Interest expense...... (1,404) (2,613) (2,719) (2,618) (5,344)
------- -------- -------- ------- --------
(1,281) (2,431) (2,698) (2,084) (5,332)
------- -------- -------- ------- --------
Income (loss) before
provision for income
taxes.................. (3,006) (5,680) (20,390) 4,228 (17,103)
Benefit from (provision
for) income taxes...... (160) 114 1,439 (48) (1,773)
------- -------- -------- ------- --------
Net income (loss)....... $(3,166) $ (5,566) $(18,951) $ 4,180 $(18,876)
======= ======== ======== ======= ========
Net loss per share (Note
2)
Basic and diluted..... $ (0.76)
========
Weighted average common
shares
outstanding (Note 2)
Basic and diluted..... 24,966
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DIGITAS INC.
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(dollars in thousands)
<TABLE>
<CAPTION>
Notes Total
Common stock Additional receivable Interest on Retained Treasury stock shareholders'
------------------ paid-in from shareholders' earnings ------------------ equity
Shares Amount capital shareholders notes (deficit) Shares Amount (deficit)
---------- ------ ---------- ------------ ------------- --------- --------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Predecessor
(combined)
Balance at December
31, 1995.......... 25,474,333 $ 2 $ 2,131 $(2,130) $(188) $ 77 5,183,265 $ (275) $ (383)
Shares issued
pursuant to stock
options........... 826,090 1,304 1,304
Treasury stock
redemption........ (1,809,996) 1,065 1,809,996 (3,252) (2,187)
Stock issued
pursuant to stock
agreement......... 1,277,156 2,063 2,063
Notes receivable
issuance.......... (2,239) (2,239)
Interest income on
shareholders'
notes............. (193) (193)
Interest forgiven
on shareholders'
notes............. 176 176
Net loss........... (3,166) (3,166)
---------- ---- -------- ------- ----- -------- --------- ------- ---------
Balance at December
31, 1996.......... 25,767,583 2 5,498 (3,304) (205) (3,089) 6,993,261 (3,527) (4,625)
Issuance of common
stock............. 4,020
Reversal of prior
year treasury
stock redemption,
net............... 669,678 (669,678) 1,247 1,247
Treasury stock
redemption........ (505,154) 176 505,154 (902) (726)
Cancellation of
note receivable in
connection with
exchange
agreement......... (1,277,156) (2,063) 2,063 1,277,156 --
Interest income on
shareholders'
notes............. (161) (161)
Net loss........... (5,566) (5,566)
---------- ---- -------- ------- ----- -------- --------- ------- ---------
Balance at December
31, 1997.......... 24,658,971 2 3,435 (1,065) (366) (8,655) 8,105,893 (3,182) (9,831)
Offset of note
receivable from
shareholder
against note
payable from
another
shareholder....... 1,065 272 1,337
Distribution to
shareholders...... (315) (315)
Net loss........... (18,951) (18,951)
---------- ---- -------- ------- ----- -------- --------- ------- ---------
Balance at December
31, 1998.......... 24,658,971 $ 2 $ 3,435 $ -- $ (94) $(27,921) 8,105,893 $(3,182) $ (27,760)
========== ==== ======== ======= ===== ======== ========= ======= =========
Company
Balance at January
1, 1999........... -- -- -- -- -- -- -- -- --
Issuance of common
stock in
connection with
Recapitalization
(unaudited)....... 25,043,244 -- $153,686 $ 153,686
Exercise of stock
options
(unaudited)....... 59,224 $ 2 149 151
Distribution to
shareholders
(unaudited)....... $ (2,461) (2,461)
Stock-based
compensation
(unaudited)....... 350 350
Issuance of common
stock
(unaudited)....... 249,272 8 1,247 1,255
Net loss
(unaudited)....... (18,876) (18,876)
---------- ---- -------- ------- ----- -------- --------- ------- ---------
Balance at
September 30, 1999
(unaudited)....... 25,351,740 $ 10 $155,432 $ -- $ -- $(21,337) -- $ -- $ 134,105
========== ==== ======== ======= ===== ======== ========= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
DIGITAS INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Predecessor (combined) Company
--------------------------------------------- -----------------
Year ended December 31, Nine months ended Nine months ended
-------------------------- September 30, September 30,
1996 1997 1998 1998 1999
------- ------- -------- ----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $(3,166) $(5,566) $(18,951) $ 4,180 $(18,876)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 2,299 3,360 4,645 3,272 31,186
Loss on disposal of
fixed assets......... -- 137 67 60 85
Stock-based
compensation......... 628 -- 22,762 -- 350
Provision for doubtful
accounts............. 163 310 216 162 682
Deferred income
taxes................ (31) (124) (1,628) (3) 175
Changes in operating
assets and
liabilities:
Accounts receivable.. (138) (4,051) (7,786) 3,994 (10,802)
Accounts receivable,
unbilled............ (3,302) (4,992) (1,257) (9,279) (17,257)
Other current
assets.............. (104) (1,105) 133 439 (679)
Other assets......... -- (12) (1,836) (2) (2,569)
Accounts payable..... (1,668) 7,451 (3,461) (10,087) (1,926)
Billings in excess of
costs and estimated
earnings on
uncompleted
contracts........... (1,782) 1,582 3,441 1,829 8,365
Accrued expenses..... (4,633) 831 3,681 1,604 744
Accrued
compensation........ 2,163 3,715 8,138 767 262
Other liabilities.... -- -- 48 -- 1,350
------- ------- -------- ------- --------
Net cash provided by
(used in) operating
activities......... (9,571) 1,536 8,212 (3,064) (8,910)
------- ------- -------- ------- --------
Cash flows from
investing activities:
Cash paid for
acquisition, net of
cash acquired ....... -- -- -- -- (60,640)
Purchase of fixed
assets............... (6,930) (7,944) (6,329) (4,892) (5,608)
------- ------- -------- ------- --------
Net cash used in
investing
activities......... (6,930) (7,944) (6,329) (4,892) (66,248)
------- ------- -------- ------- --------
Cash flows from
financing activities:
Principal payments
under capital lease
obligations.......... (170) (299) (611) (674) (1,263)
Proceeds from sale
leaseback
transaction.......... -- 1,807 -- -- --
Net proceeds from line
of credit, bank...... 600 4,055 2,345 3,345 8,000
Proceeds from note
payable, bank........ -- 5,000 5,000 5,000 73,399
Proceeds from (payment
of) note payable,
tenant allowances.... 374 105 (155) (102) (113)
Proceeds from notes
payable,
shareholders......... 10,102 3,251 3,000 3,000 --
Payment of notes
payable, bank........ -- (1,250) (8,750) (242) (2,446)
Payment of notes
payable,
shareholders......... (6,367) (4,532) (4,228) (3,627) --
Interest receivable on
shareholders' notes.. 78 (162) -- -- --
Distributions to
shareholders......... -- -- (315) -- (2,461)
Proceeds from issuance
of common stock...... 500 -- -- -- 1,406
------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities......... 5,117 7,975 (3,714) 6,700 76,522
------- ------- -------- ------- --------
Net increase (decrease)
in cash and cash
equivalents........... (11,384) 1,567 (1,831) (1,256) 1,364
Cash and cash
equivalents, beginning
of period............. 11,685 301 1,868 1,868 --
------- ------- -------- ------- --------
Cash and cash
equivalents, end of
period................ $ 301 $ 1,868 $ 37 $ 612 $ 1,364
======= ======= ======== ======= ========
Supplemental disclosure
of cash flow
information:
Cash paid for taxes... $ 23 $ 21 $ 230 $ 13 $ 2,611
Cash paid for
interest............. 565 1,692 2,034 1,338 4,876
Supplemental
disclosures of noncash
investing and
financing activities:
Equipment acquired
under capital lease.. $ -- -- $ 594 $ 340 $ 606
Assignment of notes
receivable........... -- -- 1,065 1,065 --
Interest accrued on
notes receivable
assignment........... -- $ 2,241 272 272 --
Cancellation of note
payable to
shareholder.......... -- 2,187 -- -- --
Issuance of notes
payable to
shareholders......... -- 1,666 -- -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Description of Business
Basis of Presentation
Bronner Slosberg Humphrey Inc. was incorporated in Massachusetts in 1980 as
a sub-chapter S corporation. Strategic Interactive Group, Inc. was
incorporated in Massachusetts in 1995 as a sub-chapter S corporation. Through
December 31, 1998, certain shareholders of Bronner Slosberg Humphrey Inc.
owned a majority of the outstanding shares of Strategic Interactive Group,
Inc. Accordingly, financial statements of the two entities are combined for
1998 and prior years.
On November 5, 1998, Bronner Slosberg Humphrey Inc. and Strategic
Interactive Group, Inc. completed transactions in which the two companies were
reorganized into Massachusetts business trusts (each a "Trust") each with a
wholly-owned limited liability company ("LLC"). After formation of the Trusts
and LLCs, the two companies were merged with and into Bronner Slosberg
Humphrey, LLC and Strategic Interactive Group, LLC, respectively, with each
shareholder of the original S corporations receiving as consideration an
equivalent number of beneficial common shares in the Bronner Slosberg Humphrey
Co., a Massachusetts business trust ("BSH") and Strategic Interactive Group,
Co. Massachusetts business trust ("SIG") as such shareholders held in the S
corporations prior to the mergers. The reorganization of the companies into
Trusts and subsidiary LLCs has been accounted for at historical cost as a
combination of entities under common control. BSH and SIG on a combined basis
are referred to herein as the "Predecessor".
Effective January 1, 1999, the Predecessor completed a transaction with a
private equity investor and the existing shareholders (the
"Recapitalization"). Under the terms of the Recapitalization, $102 million was
used to purchase stock from existing shareholders of BSH and SIG. Borrowings
of approximately $73 million were used to purchase stock from the BSH and SIG
shareholders, prepay outstanding debt, accrued interest, notes held by
shareholders, certain stock options and shareholder appreciation rights and to
pay transaction related bonuses. On the date following the close of the
Recapitalization, SIG effectively merged into Bronner Slosberg Humphrey Co.
Bronner Slosberg Humphrey Co. serves as the ultimate parent of Bronnercom,
LLC, the Delaware limited liability company through which the business is
operated. Substantially all of the stock options and stock appreciation rights
of the Predecessor were replaced with stock options in Bronner Slosberg
Humphrey Co. with equivalent in-the-money value which existed at the date of
Recapitalization. The Recapitalization was accounted for as a purchase as
described in Note 3. On December 22, 1999, Digitas Inc., a Delaware
corporation was formed to ultimately hold the ownership interests of Bronner
Slosberg Humphrey Co. and Bronnercom, LLC after completing a reorganization to
become the sole shareholder of the Trust. The "Company" refers to Bronnercom,
LLC prior to this reorganization and Digitas Inc., thereafter. A United
Kingdom subsidiary was formed in late 1998 and is included in the financial
statements of the Predecessor and the Company subsequent to that date.
The financial statements of the Company and the Predecessor are not
comparable in certain respects due to the application of purchase accounting
as of the date of the recapitalization. The Predecessor's combined financial
statements represent the historical basis of financial position, results of
operations and cash flows for the periods presented. The financial information
of the Predecessor presented herein does not necessarily reflect what the
financial position and results of operations of the Company would have been
had it been recapitalized for all the periods and may not be indicative of
future operations or financial position.
The Predecessor and the Company have experienced substantial net losses for
the three years ended December 31, 1998 and the nine months ended September
30, 1999 and had an accumulated deficit of approximately $13 million. Such
losses and accumulated deficit resulted from the Company's distributions of
earnings to shareholders as well as expansion of Digitas' infrastructure. For
the foreseeable future, the Company expects to continue to experience
significant growth in its operating expenses. As a result, the Company's
F-7
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
business plan indicates that additional financing would be required to support
its planned expenditures. In the event that an initial public offering is not
completed on a timely basis, the Company would seek to extend its existing
loan facilities by $10 million.
Operations
The Company is an Internet professional services firm that provides
integrated digital strategy, technology and infrastructure and integrated
marketing solutions to Fortune 100 and other companies primarily in the United
States.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt instruments
purchased with an original maturity of three months or less. Cash equivalents
are stated at cost plus accrued interest which approximates market.
Fixed Assets
Fixed assets are recorded at cost. Expenditures for renewals and
improvements are capitalized, and repairs and maintenance are charged to
operations as incurred. Equipment held under capital leases is stated at the
present value of minimum lease payments at the inception of the lease and
amortized using the straight-line method over the lease term. Leasehold
improvements are recorded net of construction allowances provided by the
landlord. Depreciation is recorded on the straight-line basis over the
estimated useful life of the related assets, which are as follows:
<TABLE>
<S> <C>
Furniture and fixtures................ 7 years
Computer equipment and software....... 3-5 years
Capital leases........................ Lesser of lease term or useful life
Leasehold improvements................ Lesser of lease term or useful life
Intangible Assets
Intangible assets consist of assembled workforce, customer base and excess
cost over fair value of net assets acquired ("goodwill") and are stated at
cost less accumulated amortization. Intangible assets are amortized over their
estimated future lives, which are as follows:
Assembled workforce................... 2 years
Favorable lease....................... 6 years
Goodwill.............................. 7 years
</TABLE>
Capitalized Financing Fees
Capitalized financing fees are amortized over the term of the underlying
debt utilizing the interest method, and the amortization is included in
interest expense.
Internal Use Software
AICPA Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" was adopted, effective
January 1, 1999. The company capitalizes external costs related to software
and implementation services in connection with its internal use software
systems.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
F-8
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue pursuant to fixed-price 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). Revenue pursuant to time
and materials contracts are recognized as services are provided. Certain
contracts contain provisions for performance incentives. Such contingent
revenue is recognized in the period in which the contingency is resolved.
Unbilled accounts receivable on contracts is comprised of costs plus earnings.
Included in accounts receivable are reimbursable costs charged to and
collected from clients. These costs are not included in revenue.
Provisions for estimated losses on uncompleted contracts are made on a
contract-by-contract basis and are recognized in the period in which losses
are determined.
Professional Services Costs
Professional services costs consist primarily of compensation and benefits
of the Company's employees engaged in the delivery of professional services
plus other nonreimbursable service costs.
Historical and Pro Forma (Unaudited) Net Income Per Share
Basic and diluted earnings per share are computed in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per
Share". SFAS 128 requires both basic earnings per share, which is based on the
weighted average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares outstanding.
The dilutive effect of options is determined under the treasury stock method
using the average market price for the period. Common equivalent shares are
included in the per share calculations where the effect of their inclusion
would be dilutive.
Historical net income (loss) per share is not presented in the financial
statements for the years ended December 31, 1996, 1997 and 1998 and the nine
months ended September 30, 1998 because it is not considered meaningful since
the two entities comprising the Predecessor were S corporations during that
time period.
Income Taxes
The Predecessor was taxed under the provisions of Subchapter S of the
Internal Revenue Code, whereby the corporate income is taxed to the individual
shareholders based on their proportionate share of the Company's taxable
income. Massachusetts taxes profits on S corporations with receipts exceeding
$6,000,000.
On November 5, 1998, the Predecessor reorganized resulting in its
conversion into a Massachusetts business trust, a reorganization which affects
the Massachusetts tax treatment of the Predecessor and the Company and its
shareholders that are residents of Massachusetts. The Predecessor and the
Company recorded a provision for Massachusetts taxes that reflects its change
in status during 1998.
Effective January 1, 1999, the Predecessor terminated its S corporation
election and is subject to corporate-level federal and certain additional
state income taxes.
The Company accounts for income taxes using the asset and liability method
in accordance with SFAS No. 109, "Accounting for Income Taxes". Under SFAS No.
109, deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
income tax bases for operating profit and tax liability carryforward. Deferred
tax assets and liabilities are measured using enacted tax rates 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 in which the tax change
occurs.
F-9
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based Compensation
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations are applied in accounting for
its employee stock option plans. The disclosure option of Financial Accounting
Standards Board Statement No. 123, "Accounting for Stock-Based Compensation",
(SFAS No. 123) which includes information with respect to stock-based
compensation determined under the "fair value" method has been utilized in the
accompanying financial statements.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the U.S.
dollar. Monetary assets and liabilities of the subsidiary are translated into
U.S. dollars at the exchange rate in effect at period-end and nonmonetary
assets and liabilities are remeasured at historic exchange rates. Income and
expenses are remeasured at the average exchange rate for the period.
Translation gains and losses are reflected in SG&A in the statement of
operations.
Management's Use of Estimates
The preparation of the 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
period. Actual results could differ from those estimates.
Comprehensive Income
Effective January 1, 1998, the Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130) was adopted. This
statement requires that all components of comprehensive income be reported in
the financial statements in the period in which they are recognized. For each
year reported, comprehensive income (loss) under SFAS 130 was equivalent to
the Company's net income (loss) reported in the accompanying statement of
operations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction. The
Company will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the
Effective Date of the FASB Statement No. 133", in fiscal year 2001. The
Company has not yet determined the impact that the adoption of SFAS No. 133
will have on its financial position or results of operations.
Unaudited Information
The interim financial information as of and for the nine months ended
September 30, 1998 and 1999 is unaudited. However, in the opinion of
management, such information has been prepared on the same basis as the
audited financial statements and includes all adjustments, consisting solely
of normal and recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for the periods presented.
The interim results, however, are not necessarily indicative of results for
any future period.
F-10
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Recapitalization
The recapitalization described in Note 1 has been accounted for under the
purchase method. Accordingly, the purchase price has been allocated to tangible
and intangible assets acquired and liabilities assumed based on their
respective fair values on the acquisition date.
The consideration paid was as follows:
<TABLE>
<S> <C>
Common stock................................................... $126,134
Redemption of Predecessor common shares and options and payment
for other shareholder rights.................................. 32,741
Fair value of stock options exchanged and warrants issued...... 27,551
Direct costs of acquisition.................................... 5,104
--------
$191,530
========
</TABLE>
The purchase price was allocated to the assets acquired and liabilities
assumed as follows:
<TABLE>
<S> <C>
Goodwill........................................................ $163,473
Workforce-in-place.............................................. 22,900
Favorable lease................................................. 4,234
Deferred taxes.................................................. 8,265
Net assets acquired............................................. (7,342)
--------
$191,530
========
</TABLE>
The following unaudited pro forma results of operations reflects the
combined results of operations of the Predecessor for the year ended
December 31, 1998 and the nine-month period ended September 30, 1998, as if
the purchase had occurred on the first day of the period presented. The
unaudited pro forma information is not necessarily indicative of the
combined results that would have occurred had the purchase taken place on
the first day of the period presented, nor is it necessarily indicative of
results that may occur in the future.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
1998 1998
------------ -----------------
<S> <C> <C>
Revenue.................................... $122,309 $ 89,700
Net loss................................... (43,076) (26,799)
</TABLE>
F-11
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Predecessor
(combined) Company
----------------- -------------
December 31,
----------------- September 30,
1997 1998 1999
-------- ------- -------------
<S> <C> <C> <C>
Furniture and fixtures........................................................................ $ 6,449 $ 7,401 $ 3,835
Computer equipment and software............................................................... 12,170 16,499 13,162
Leasehold improvements........................................................................ 3,677 4,285 4,315
Capital leases................................................................................ 2,642 3,236 2,792
-------- ------- -------
24,937 31,421 24,104
-------- ------- -------
Less accumulated depreciation................................................................. (9,173) (13,446) (4,700)
-------- ------- -------
$ 15,764 $17,975 $19,404
- --------------------------------------------------
======== ======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1996, 1997, 1998 and
for the nine-month periods ended September 30, 1998 and 1999 was approximately
$2,299,000, $3,360,000, $4,645,000, $3,272,000 and $4,700,000, respectively.
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
Company
-------------
September 30,
1999
-------------
<S> <C>
Assembled workforce......................................... $ 22,900
Favorable lease............................................. 4,234
Goodwill.................................................... 163,473
--------
190,607
Less accumulated amortization............................... (26,200)
--------
$164,407
========
</TABLE>
There were no intangible assets as of December 31, 1997 and 1998.
F-12
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
Predecessor
(combined) Company
---------------- -------------
December 31,
---------------- September 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Line of credit................................................................................ $ 4,655 $ 7,000 $ 8,000
Notes payable, term loan...................................................................... 3,750 -- 70,952
Notes payable, tenant allowance............................................................... 1,760 1,604 1,490
Notes payable, shareholders................................................................... 14,567 12,003 --
------- ------- -------
24,732 20,607 80,442
Less: current portion......................................................................... (21,031) (19,175) (15,525)
------- ------- -------
Total long-term debt........................................................................ $ 3,701 $ 1,432 $64,917
- --------------------------------------------------
======= ======= =======
</TABLE>
Credit Agreements
On March 13, 1997, the Predecessor entered into a Credit Agreement (the
"Credit Agreement") consisting of a $10,000,000 line of credit, a three-year
$5,000,000 term loan and a $5,537,500 standby letter of credit facility. At
December 31, 1997, approximately $3,750,000 was outstanding under the term
loan, $4,655,000 was outstanding under the line of credit and $5,537,000 was
outstanding under the standby letters of credit. The Predecessor was not in
compliance with certain of the Credit Agreement's covenants as of December 31,
1997 and obtained appropriate waivers from the bank.
During 1998, the Predecessor entered into various amendments to the Credit
Agreement which increased the line of credit to $15,000,000 and extended the
expiration date from May 31, 1998 to November 30, 1998. A new term loan of
$5,000,000 ("Bridge Loan") was entered into on March 13, 1998 and expired on
September 30, 1998. Principal and interest on the term and bridge loans were
payable at LIBOR plus .25% to .75% or the prime rate plus 0% to .25% based on
quarterly leverage ratios.
On November 25, 1998, the Predecessor entered into a Credit Agreement (the
"New Agreement") which replaced the existing Credit Agreement and all other
previous lending agreements. The New Agreement included a revolving line of
credit and a $10,000,000 standby letter of credit facility. Under the line of
credit terms, the maximum line was equal to $35,000,000 less outstanding
standby letters of credit and expired on October 31, 2001. At December 31,
1998, $7,000,000 was outstanding under the line of credit and approximately
$6,194,000 was outstanding under standby letters of credit. The interest rate
on the line of credit was either the bank's prime rate or the LIBOR rate, at
the Predecessor's discretion, plus the applicable margin of 0% to .25% on
prime loans and .5% to 1.5% on LIBOR loans based on certain ratios as set by
the bank. The rate at December 31, 1998 was 7.75%. The standby letter of
credit facility expired on October 31, 2001, subject to renewal, which was at
the discretion of the bank, and had an annual commitment fee that ranged from
.20% to .25%. The New Agreement was collateralized by the combined assets of
Predecessor company and contained certain restrictive covenants. The covenants
limited shareholder distributions and payments on subordinated debt to certain
maintainable ratios for cash and also included minimum leverage and debt
service ratios. As part of the New Agreement, the Bridge Loan and the Credit
Agreement were paid in full.
Effective January 1, 1999, in connection with the recapitalization
described in Note 3, the Company replaced the long-term borrowing arrangement
described above with the following new credit facilities:
$73,399,000 term loan due December 31, 2004
F-13
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$20,000,000 revolving loan due December 31, 2004
Included as part of the $20,000,000 revolving credit facility is a swing
line loan of $3,500,000 and a standby letter of credit facility of
$10,000,000.
Amounts borrowed under either the term loan or the revolving loan bear
interest, at the Company's option, at either the Base Rate (higher of (i) the
prime rate or (ii) the rate which is .5% in excess of the Federal Reserve
weighted average rate on overnight federal funds) plus a margin of .5% to 2%,
or the EuroDollar Rate as determined by the lenders plus a margin of 1.5% to
3%. Amounts borrowed under the swing line bear interest at the Base Rate plus
a margin of .5% to 2%. At September 30, 1999, the applicable borrowing rates
were as follows: term loan 8.0%, revolving loan 7.9% and swing loan 9.4%.
Additionally, the Company is required to pay a commitment fee of .5% of the
average daily unused amount of the revolving loan and the letters of credit;
the unused portion of the revolving loan and the letters of credit at
September 30, 1999 was $7,405,948.
The term loan is repayable as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 2,447
2000.............................................................. 7,341
2001.............................................................. 10,276
2002.............................................................. 13,213
2003.............................................................. 16,143
2004.............................................................. 21,532
-------
$70,952
=======
</TABLE>
Effective November 5, 1999, the Company increased its revolving loan to
$25,000,000 and, consequently, its letter of credit facility to $15,000,000 in
order to cover the required letter of credit for the new leased facility in
New York. See Note 15.
The credit facilities contain certain change of control provisions and
impose certain restrictive covenants upon the Company related to the
incurrence of indebtedness, contingent obligations, transactions with
affiliates, business combinations, investments, purchases and asset sales,
payments of dividends, and attainment of financial covenants including
interest coverage, earnings and leverage ratios.
Notes Payable, Tenant Allowances
Since 1995, the Predecessor has received tenant allowances, which are
required to be reimbursed to the landlord through 2005. Interest expense
recognized in relation to these notes amounted to $179,000, $169,000, $114,000
and $109,000 for the years ended December 31, 1997 and 1998 and the nine
months ended September 30, 1998 and September 30, 1999, respectively.
Notes Payable, Shareholders
Notes payable, shareholders, include demand notes of approximately
$10,656,000 and $12,879,000 at December 31, 1998 and 1997, respectively. These
notes accrued interest monthly at a range of 8% to 8.25% per annum. Notes
payable, shareholders, also include notes payable to certain shareholders, for
the repurchase of stock that are payable in quarterly installments. All notes
payable, shareholders were paid in connection with the recapitalization
described in Note 3.
For the years ended December 31, 1997 and 1998, interest expense on notes
payable, shareholders was approximately $1,216,000 and $1,114,000,
respectively. Accrued interest related to these notes was approximately
$1,786,000 and $2,471,000 at December 31, 1997 and 1998, respectively.
F-14
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Shareholder's Equity
Common Stock
Under the Declaration of Trust of each of Bronner Slosberg Humphrey Co. and
Strategic Interactive Group Co., an unlimited amount of common shares were
authorized for no par value. All holders of common shares are entitled to one
vote per share and all dividends on common shares shall be distributed pro
rata, when and if declared by the board of directors.
Stock Split
On April 1, 1997 the Board of Directors approved a 6,911.02-for-1 stock
split of BSH common stock and amended the articles of incorporation to
increase the number of authorized shares from 12,500 to 1,000,000 shares of
common stock.
On December 2, 1999 the Board of Directors approved a 30-for-1 stock split
of the Company's common stock. Share amounts have been restated to reflect the
split.
Shareholder Transactions
In 1996, BSH entered into a Stock Redemption Agreement, (the "1996
Agreement"). Under the terms of the 1996 Agreement, a shareholder sold back to
BSH 1,809,996 shares of common stock that were purchased in 1991. In
consideration for the stock redemption, BSH forgave a note receivable of
$1,065,000 and issued a note payable to the shareholder in the amount of
$2,187,000. In 1997, BSH restated the 1996 Agreement and canceled the related
note payable. Under the restated agreement, BSH reissued 669,678 shares of
common stock and a related note payable for $940,000 which accrues interest at
8.25% payable in quarterly installments.
During 1996, under various stock purchase and stock option agreements,
three officers of BSH purchased shares of common stock. As part of this
transaction, BSH issued notes receivable from shareholders of $2,239,000 due
on March 31, 2009, which accrued interest at the prime rate. During 1997,
notes receivable in the amount of $2,063,000 with two former shareholders were
canceled in connection with an exchange agreement whereby the shareholders
gave up their shares of stock in exchange for SAR units under the SAR Plan
(see Note 8).
In 1997, BSH entered into a stock redemption agreement with a shareholder.
Under this agreement, BSH repurchased 485,154 shares of BSH common stock and
20,000 shares of SIG common stock for the cancellation of the remaining note
receivable balance of $176,000 issued in 1996 and the issuance of a note
payable for $726,000 due by December 31, 1998, which accrued interest at
8.25%.
On January 1, 1998 in connection with a sale of BSH shares between two
shareholders, a $1,065,000 note receivable from one of the shareholders to BSH
issued in 1996, was assumed by another shareholder. All previously owed
amounts from BSH to the selling shareholder for previous loans made by the
selling shareholder to BSH and an obligation to pay a 1995 year-end
compensation payment were discharged due to BSH's issuance of a note payable
to the selling shareholder in the amount of $1,764,000.
On December 29, 1998, BSH declared and paid a cash dividend of $.0128619
per share on its outstanding common shares for a total distribution to
shareholders of $315,000.
F-15
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Stock-based Compensation
Stock Appreciation Rights
The Predecessor established the 1997 Stock Appreciation Right Plan (the
"SAR Plan") which became effective on April 1, 1997. Under the SAR Plan,
certain key employees are granted stock appreciation right units ("SARs")
which vest in accordance with a vesting schedule indicated on each SAR
agreement. Participants are eligible for an annual distribution for each SAR
unit vested at the end of each year based on the Predecessor's operating
income after charges and reserves have been deducted as determined by the
Board. Additionally, the Predecessor is obligated to pay each participant the
appreciation on the SARs upon the occurrence of a triggering event, as defined
in the SAR Plan. Account appreciation, as defined by the SAR Plan, is the
difference between the fair market value of each SAR less the base value. BSH
reserved 9,000,000 SAR Units for issuance under the SAR Plan.
BSH issued 1,020,000 and 5,985,000 SAR units in 1997 and 1998,
respectively. SIG issued 5,100 SAR units in 1997 and none in 1998.
Compensation expense of $3,428,765 was recorded for the year ended December
31, 1997 related to the SAR annual distribution. Effective January 1, 1999,
there was a triggering event, however, most participants elected to receive
the Company's stock options in lieu of cash payment. In 1998, the Predecessor
did not award a SAR annual distribution due to the triggering event, but
issued bonuses in lieu of the SAR annual distribution in the amounts of
$2,293,500 and $3,058,000 for the period ended September 30, 1998 and the year
ended December 31, 1998, respectively. The Company recorded compensation
expense of $20,130,000 for SAR appreciation for the year ended December 31,
1998.
Stock Option Plans
BSH established an informal Employee Stock Option Plan (the "Stock Option
Plan") in 1989. Under the Stock Option Plan, grants could be made to selected
officers and employees at fair market value on date of grant. Options became
exercisable as to 25% of the grants, on an initial date as defined in the
employee stock option agreements, and up to an additional 25% each year
thereafter.
The following table summarizes stock option activity under the Stock Option
Plan:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period ............. 829,322 $0.18 1,036,651 $0.17 1,729,136 $0.16
Options granted......... -- -- --
Options exercised ...... -- -- (485,154) 0.14
Options cancelled....... (414,661) (207,331) 0.14 (207,331) 0.14
-------- ----- --------- ----- --------- -----
Outstanding at end of
period ................ 414,661 $0.18 829,320 $0.18 1,036,651 $0.17
</TABLE>
SIG established an Employee Stock Option Plan (the "1995 Plan") in 1995.
Under the 1995 Plan, grants could be made to selected officers. The 1995 Plan
authorizes the granting of stock options for up to an aggregate of 120,000
shares of common stock and expires 10 years from the date of the grant.
Options became exercisable as to 33% of the grant on April 1, 1996 and an
additional 33% each year thereafter.
F-16
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option activity under the 1995 Plan:
<TABLE>
<CAPTION>
December 31,
1998 December 31, 1997 December 31, 1996
---------------- ------------------ ------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period ............. 52,194 $3.30 60,060 $0.0033 99,000 $0.0033
Options granted ........ -- 52,194 3.30 --
Options exercised ...... -- (4,020) 0.0033 (29,940) 0.0033
Options cancelled ...... -- (56,040) 0.0033 (9,000) 0.0033
------ ----- ------- ------- ------- -------
Outstanding at end of
period ................ 52,194 $3.30 52,194 $ 3.30 60,060 $0.0033
Weighted-average grant
date fair value of
options granted during
the year at fair market
value................... -- $ 70.88 --
</TABLE>
In 1997, SIG terminated the 1995 Plan. In exchange for all unexercised
outstanding options, all option holders entered into an exchange agreement,
whereby they received exchange compensation, deferred compensation and 52,194
stock options. The 52,194 stock options were exercisable upon SIG's engagement
of underwriters in connection with a proposed public offering provided the
offering were to occur before May 15, 2000 or upon consummation of a change in
control provided the change in control would be effective before May 15, 2000.
In 1998, it became probable that a change in control would be effective with
the January 1, 1999 Recapitalization therefore the Predecessor recorded
compensation expense of $2,632,000 based on the difference between the fair
market value and the exercise price of the outstanding options.
In contemplation of the recapitalization in 1999, the board of directors
adopted the 1998 option plan (the "1998 Plan"). The 1998 Plan authorized the
grant of (i) 8,563,322.40 rollover options in exchange for the cancellation of
stock appreciation rights and stock options held by the SAR and option holders
prior to the recapitalization and (ii) an additional 5,872,350 options that
are not rollover options. In September 1999, the board of directors amended
the plan to decrease the number of non-rollover options that could be granted
under the plan to 5,076,000 shares.
All options granted under the 1998 Plan were non-qualified stock options.
Grants under the plan may be made to employees and non-employee directors,
consultants and independent contractors.
A committee of the board of directors administers the plan which includes
determining the participants in the plan and the number of shares of common
stock to be covered by each option, amending the terms of any option, subject
to certain limitations, and interpreting the terms of the plan.
Each rollover option is immediately exercisable as of the date of grant and
has an exercise price equal to the base value of the stock appreciation rights
or the exercise price of the stock options, as applicable, from which the
options were converted. All other options granted under the plan are generally
subject to a five-year vesting schedule pursuant to which the options vest in
equal annual installments on the third, fourth and fifth
F-17
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
anniversaries of the grant date. In addition, all options other than rollover
options must have a per share exercise price equal to or greater than the fair
market value of a share of the Company's common stock as of the grant date, as
determined by the board of directors or a committee of such board. All options
granted under the plan terminate on the tenth anniversary of the grant date.
Vested options may be exercised for specified periods after the termination of
the optionee's employment or other service relationship with us or our
affiliates.
In September 1999, the board of directors adopted the 1999 option plan (the
"1999 Plan") which allows for the grant of up to 6,796,350 shares of common
stock.
Grants under the plan may be made to employees and non-employee directors,
consultants and independent contractors who contribute to the management,
growth and profitability of the business of the Company's or its affiliates.
A committee of the board of directors administers the plan which includes
determining the participants in the plan and the number of shares of common
stock to be covered by each option, amending the terms of any option, subject
to certain limitations, and interpreting the terms of the plan.
Non-qualified stock options granted under the plan may be granted at prices
which are less than the fair market value of the underlying shares on the date
granted. Under the plan, incentive stock options and non-qualified stock
options are generally subject to a four-year vesting schedule pursuant to
which the options vest 25% on the first anniversary of the grant date and an
additional 6.25% on each consecutive three-month period thereafter. The
options generally terminate on the tenth anniversary of the grant date. In
addition, vested options may be exercised for specified periods after the
termination of the optionee's employment or other service relationship with us
or our affiliates.
The following summarizes stock option activity under the 1998 and 1999
Plans:
<TABLE>
<CAPTION>
Options Weighted
available average
for grant exercise
shares price
---------- --------
<S> <C> <C>
Options exchanged in connection with recapitalization
..................................................... 14,316,174 $3.31
Options exercised..................................... (473,881) 0.48
Options cancelled..................................... (1,221,806) 4.90
---------- -----
Outstanding at September 30, 1999..................... 12,620,487 $3.45
Weighted average grant date fair value of options
granted during the year at fair market value ........ $5.04
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- ----------------------
Weighted
average Number
Number remaining Weighted exercisable Weighted
Range of outstanding at contractual average at average
exercise September 30, life (in exercise September 30, exercise
price 1999 years) price 1999 price
- -------- -------------- ----------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
$1.88--$2.55 5,939,225 9.27 $2.10 5,939,225 $2.10
$3.30--$5.04 6,681,262 9.41 $4.64 1,605,262 $3.40
---------- ---- ----- ---------
$1.88--$5.04 12,620,487 9.34 $3.45 7,544,487 $2.40
========== ===== =========
</TABLE>
F-18
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Had compensation cost for the Predecessor stock-based compensation plans
been determined based on the fair value at the grant dates as calculated in
accordance with SFAS No. 123, the Company's net loss for the nine month period
shown below would have been as follows:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
Net loss:
As reported................................................ $(18,876,000)
Pro forma.................................................. (21,661,000)
Net loss per share:
As reported............................................... $ (0.76)
Pro forma................................................. $ (0.87)
</TABLE>
There were no compensation costs for the years ended December 31, 1998,
1997 and 1996 and the nine months ended September 30, 1998 because there were
no grants under the Stock Option Plan and no compensatory grants under the
1995 Plan.
The Company calculated the minimum fair value of each option grant on the
date of grant using the minimum value option-pricing model with the following
weighted average assumptions used: no expected dividend yield, risk free
interest rate of 4.94% and expected life of 4.8 years.
9. Income Taxes
The components of loss before income taxes and the benefit from (provision
for) income taxes are as follows:
<TABLE>
<CAPTION>
Predecessor
(combined) Company
-------------------------- -------------
December 31,
-------------------------- September 30,
1996 1997 1998 1999
------- ------- -------- -------------
<S> <C> <C> <C> <C>
Loss before income taxes
Domestic......................................................................... $(3,006) $(5,680) $(20,390) $(14,656)
International.................................................................... -- -- -- (2,447)
Provision for (benefit from) income taxes
Current
Federal........................................................................ -- -- -- 935
State and local................................................................ 9 10 190 662
Deferred
Federal........................................................................ -- -- -- (6,441)
State and local................................................................ (115) (232) (1,499) (1,415)
Increase (decrease) in valuation allowance......................................... 87 108 (130) 8,032
------- ------- -------- --------
Benefit from (provision for) income taxes.......................................... $ (19) $ (114) $ (1,439) $ (1,773)
======= ======= ======== ========
</TABLE>
F-19
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The reconciliation of the difference between the United States statutory
rate to the effective rate is as follows:
<TABLE>
<CAPTION>
Predecessor
(combined)
---------------- Company
December 31, -------------
---------------- September 30,
1997 1998 1999
------ ------ -------------
<S> <C> <C>
United States statutory rate........................ 0% 0% 35%
State taxes, net of federal benefit................. -- (6) 1
Goodwill and other permanent differences............ -- -- (2)
Increase in valuation allowance..................... 2 (1) (24)
------ ------ ------
Effective tax rate.................................. (2)% (7)% 10%
====== ====== ======
</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, September 30,
------------ -------------
1997 1998 1999
---- ------ -------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses................................... $265 $2,036 $15,894
Net operating loss carryforward.................... 260 -- --
Allowance for doubtful accounts.................... 32 46 403
---- ------ -------
Total tax deferred assets.......................... 557 2,082 16,297
Valuation allowance................................ (260) (130) (8,032)
---- ------ -------
Net deferred tax assets............................. 297 1,952 8,265
Deferred tax liability:
Basis difference of property and equipment.......... 112 139 175
---- ------ -------
Total deferred tax liabilities.................... $112 $ 139 $ 175
==== ====== =======
</TABLE>
The Company has incurred losses for the three years ended December 31, 1998
and for the period ended September 30, 1999. Management believes that, based
on the history of such losses and other factors, the weight of available
evidence indicates that it is more likely than not that the Company will not
be able to realize its deferred tax assets and thus a full valuation reserve
has been recorded at September 30, 1999 for these costs.
10. Employee Profit Sharing Plan
In 1996, an Employee Profit Sharing Plan (the "Profit Sharing Plan") was
established which pays certain employees a percentage of their earnings
dependent on financial results as determined by the Board of Directors. The
cost of the Profit Sharing Plan was approximately $1,744,000, $1,828,000,
$2,132,000, $1,599,275 and $1,968,493 for the years ended December 31, 1996,
1997, 1998 and the nine months ended September 30, 1998 and 1999. The Profit
Sharing Plan will be terminated effective December 31, 1999, with final
payments made before March 15, 2000. To replace this benefit program, the
Company adopted a stock option and incentive plan. See also Note 11.
11. Employee Savings Plan
For the years ended December 31, 1996, 1997 and 1998, and the nine months
ended September 30, 1999, the Predecessor and the Company had a
noncontributory Employee Savings Plan (the "Plan"), which was administered in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
The Plan was a
F-20
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
voluntary program in which employees who met certain requirements elected to
reduce their annual salary by up to 18% and have this amount contributed to
the Plan on their behalf. Effective December 1999, the board of directors and
shareholders adopted the 2000 stock option and incentive plan (the "2000
Plan"). This new plan provides for a Company match of employee contributions,
up to 4%, subject to certain IRS restrictions. In addition, under the 2000
Plan, employees will be eligible to purchase common shares at a discount
through periodic payroll deductions. These grants may be made to officers,
employees, directors, consultants, advisors and other key persons of Digitas
or our affiliates.
12. Other Related Party Transactions
A law firm, with a partner who was a member of the Predecessor's Board of
Directors during all of 1997 and a portion of 1998, provided legal services to
the Predecessor. Fees paid or accrued to the firm approximated $663,000 and
$216,000 for the years ended December 31, 1997 and 1998 and $216,000, and
$7,000 for the nine months ended September 30, 1998 and 1999, respectively.
See also Note 8.
13. Financial Instruments and Risk Management
Interest Rate Risk Management
The Company utilizes interest rate swap agreements to fix interest rates on
certain variable rate term loans and to mitigate the effect of changes in
interest rates on earnings. The Company entered into separate agreements (the
"Agreements") on February 22 and 24, 1999, each for a notional amount of $20
million. Under the Agreements, the Company locked in fixed rates of 5.36% and
5.30%, respectively, on the notional amounts and the Company compensates the
financial institution or is compensated by the financial institution for the
differential between the fixed rates and the current LIBOR rate. The interest
rate differential payable or accruable on the agreements is recognized on an
accrual basis as an adjustment to interest expense.At September 30, 1999 the
fair values of the interest rate swaps, which represent the amounts the
Company would receive or pay to terminate the respective agreements, are net
receivables of $151,000 and $185,000, respectively, based on dealer quotes.
The variable rates at September 30, 1999 were 5.38% and 5.48%.
The market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. Credit risk is minimized as the
agreement is with a major financial institution. The Company monitors the
credit worthiness of this financial institution and full performance is
anticipated.
14. Segment Information
Historically, the Predecessor has operated under two reportable segments
based on the method of internal and external reporting, which segregates
between services provided. The two segments are Integrated Marketing
Infrastructure and Digital Strategy and Technology. The Integrated Marketing
and Infrastructure segment provides multi-channel marketing solutions and
services. The Digital Strategy and Technology segment provides services in
digital strategy, technology, marketing and measurement.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" note (Note 2).
F-21
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
On January 6, 1999, the existence of the two segments ceased as separate
operational entities and combined as one segment, as an Internet professional
services firm.
<TABLE>
<CAPTION>
Integrated Marketing Digital Strategy and
and Infrastructure Technology Consolidated
-------------------- -------------------- ------------
<S> <C> <C> <C>
December 31, 1996
Revenue from external
customers............. 69,948 13,209 83,157
Depreciation expense... 2,113 182 2,299
Operating loss......... (1,618) (107) (1,725)
December 31, 1997
Revenue from external
customers............. 78,047 23,191 101,238
Depreciation expense... 2,647 696 3,360
Operating loss......... (1,156) (2,093) (3,249)
September 30, 1998
Revenue from external
customers............. 70,635 19,065 89,700
Depreciation expense... 2,537 735 3,272
Operating loss......... 6,453 (141) 6,312
December 31, 1998
Revenue from external
customers............. 94,316 27,993 122,309
Depreciation expense... 3,561 1,084 4,645
Operating income
(loss)................ (15,821) (1,871) (17,692)
</TABLE>
The Company attempts to limit its concentration of credit risk by securing
well-known clients. While the Company often enters into written agreements
with its clients, such contracts are typically terminable between 30 and 90
days notice. Management believes a loss of significant clients could have a
material adverse effect on the Company's business, financial condition and
results of operations. During the nine months ended September 30, 1999 three
customers accounted for 62% of revenues. During 1996, two customers accounted
for approximately 72% of revenues. During 1997, one customer accounted for
approximately 43% of revenues. During the fiscal year ended December 31, 1998,
three customers accounted for approximately 64% of revenues.
15. Commitments
Capitalized Leases
During 1997, the Predecessor entered into an agreement for the sale and
leaseback of certain furniture and fixtures. The Predecessor had a purchase
option at the end of four years equal to remaining amounts due under the lease
plus $1.00. The lease is classified as a capital lease. The book value of the
assets was approximately $1,613,000. The gain realized on the transaction
totaling approximately $194,000 has been deferred and is being amortized over
the life of the assets. Assets under the capital lease were capitalized at
approximately $1,807,000 with an interest rate of 11.1% and are amortized over
the remaining life of the assets which is 5.5 years on average. The
Predecessor paid all amounts outstanding on this lease agreement on January 6,
1999. Additionally, the Company has certain noncancelable leases to finance
telephone and copier equipment.
The total capitalized cost of the assets subject to capital leases was
approximately $2,642,000, $3,236,000 and $1,428,000 with accumulated
amortization of approximately $849,000, $1,344,000 and $1,029,000 as of
December 31, 1997, 1998 and September 30, 1999, respectively.
F-22
<PAGE>
DIGITAS INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Other Lease Obligations
Office facilities and certain office equipment are leased by the Company
under cancelable and noncancelable operating lease agreements expiring at
various dates through 2011.
Digitas leases office space under noncancelable operating leases. Rental
expense, including amounts described above, consisting of minimum lease
payments under noncancelable operating leases amounted to approximately
$4,257,000, $6,013,000, $6,819,000, $4,998,660 and $6,189,000 for the years
ended December 31, 1996, 1997, 1998 and the nine months ended September 30,
1998 and 1999. Digitas subleases a portion of its space to another tenant.
Digitas' minimum payments were partially offset by tenant income of $249,000,
$144,000, $228,000, $131,987 and $215,000 for the years ended December 31,
1996, 1997, 1998 and the nine months ended September 30, 1998 and 1999. The
future minimum rental payments, under capital and operating leases, as of
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
------- ---------
<S> <C> <C>
1999.................................................... $ 174 $ 2,183
2000.................................................... 398 11,279
2001.................................................... 308 14,493
2002.................................................... 190 14,667
2003 and beyond......................................... 38 81,179
----- --------
Total minimum rental payments required.................. 1,108 $123,801
========
Less amount representing interest....................... (79)
-----
Present value of net minimum lease payments............. 1,029
Less current maturities................................. (414)
-----
Long-term obligations, capital lease.................... $ 615
=====
</TABLE>
F-23
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 12. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by us in
connection with the offering and distribution, including fees and expenses
attributable to shares to be sold on behalf of the selling shareholders
(excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
Nature of Expense Amount
- ----------------- -------
<S> <C>
SEC Registration Fee................................................... $52,800
NASD Filing Fee........................................................ 20,500
Nasdaq National Market Listing Fee..................................... 1,000
Accounting Fees and Expenses........................................... *
Legal Fees and Expenses................................................ *
Printing Expenses...................................................... *
Blue Sky Qualification Fees and Expenses............................... 15,000
-------
Transfer Agent's Fee................................................... *
Miscellaneous.......................................................... *
-------
TOTAL................................................................
</TABLE>
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq
National Market fees, are in each case estimated.
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our certificate of incorporation provides that no director of
Digitas be personally liable to Digitas or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (1)
for any breach of the director's duty of loyalty to Digitas or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of
unlawful dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, our certificate of incorporation provides that if the Delaware
General Corporation Law is amended to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the corporation shall be eliminated or limited to the fullest extent permitted
by the Delaware General Corporation Law, as so amended.
Article V of our by-laws provides for indemnification by Digitas of its
officers and certain non-officer employees under certain circumstances against
expenses, including attorneys fees, judgments, fines and amounts paid in
settlement, reasonably incurred in connection with the defense or settlement
of any threatened, pending or completed legal proceeding in which any such
person is involved by reason of the fact that such person is or was an officer
or employee of the registrant if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Digitas, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was
unlawful.
Item 15. Recent Sales of Unregistered Securities
Since its formation on November 5, 1998, our predecessor entity, Bronner
Slosberg Humphrey Co., a Massachusetts business trust (the "Trust"), has
issued the following securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act"). The share numbers and per
share values do not give
II-1
<PAGE>
effect to the 30-for-1 stock split effected by the Trust in the form of a
stock dividend on December 2, 1999 nor to the conversion of shares on a -
for- basis in connection with the formation of a Delaware holding company to
be effected in connection with this offering.
(i) In connection with the formation of the Trust, on November 5, 1998 the
Trust issued 1,000 shares of beneficial interest in the Trust (the "Shares")
to Michael E. Bronner under Section 4(2) of the Securities Act ("Section
4(2)") for sales by an issuer not involving a public offering.
(ii) On November 6, 1998, in connection with the merger of Bronner Slosberg
Humphrey, Inc. (the "Predecessor Corporation") with and into Bronner Slosberg
Humphrey, LLC ("BSH LLC"), the Trust:
(a) issued 815,500.36 Shares in the Trust in exchange for the
cancellation of the same number of shares, with the same par
value, in the Predecessor Corporation, all pursuant to Section
4(2) for sales by an issuer not involving a public offering;
(b) assumed options to purchase 13,822.04 shares of the Predecessor
Corporation granted pursuant to employee stock option agreements
held by employees of the Predecessor Corporation as if such
options were granted by the Trust, without any changes being made
to any holder's rights under these employee stock option
agreements and in reliance on Section 3(b) of the Securities Act
("Section 3(b)") and Rule 701 promulgated thereunder ("Rule 701")
relative to sales pursuant to certain compensatory plans (to date,
no option holder has exercised these options); and
(c) assumed 225,500 units of stock appreciation rights ("SARS")
granted under the Predecessor Corporation's 1997 stock
appreciation rights plan as if such SARS were granted by the
Trust, without any changes being made to any holder's rights
thereunder, and pursuant to Section 4(2) or Regulation D
promulgated thereunder ("Regulation D") for sales by an issuer not
involving a public offering.
(iii) On January 6, 1999, in connection with the recapitalization of the
Trust, the Trust:
(a) issued options to purchase 219,000 Shares in the Trust under the
1998 Option Plan (the "1998 Plan") in exchange for the
cancellation of 219,000 SARS and in reliance on Section 3(a)(9) of
the Securities Act ("Section 3(a)(9)") for exchanges by the issuer
with certain security holders (to date, no option holder has
exercised these options);
(b) issued options to purchase 13,822.04 Shares in the Trust under the
1998 Plan in exchange for the cancellation of 13,822.04 options
granted pursuant to employee stock option agreements assumed in
connection with the merger of the Predecessor Corporation with and
into BSH LLC and in reliance on Section 3(a)(9) for exchanges by
the issuer with certain security holders (these options were
repurchased by the Trust on July 6, 1999); and
(c) issued a warrant for 15,000 shares of stock pursuant to the terms
of the warrant agreement, dated as of January 6, 1999, and in
reliance on Section 4(2) for sales by an issuer not involving a
public offering.
(iv) On January 7, 1999, in connection with the transfer of Strategic
Interactive Group Co.'s ("SIG CO") membership interest in SIG Holding LLC
("SIG Holding") to the Trust, the Trust:
(a) issued 187,690.58 Shares of the Trust in exchange for the transfer
by SIG Co. of its membership interest in SIG Holding and in
reliance on Section 4(2) for sales by an issuer not involving a
public offering; and
II-2
<PAGE>
(b) issued options to purchase 55,444.08 Shares of the Trust pursuant
to the Trust's 1998 Plan in exchange for the transfer by SIG Co.
of its membership interest in SIG Holding and pursuant to Rule 701
relative to sales pursuant to certain compensatory plans (1974.14
Shares of the Trust have been issued to a holder upon the exercise
of his options).
(v) From January 7, 1999 to December 15, 1999, the Trust has issued the
following:
(a) in August 1999, the Trust sold 1,654.53 of its Shares to Arthur
Kern as trustee of the Arthur Kern Revocable Trust for an
aggregate purchase price of $249,834.03 and pursuant to Section
4(2) or Regulation D promulgated thereunder for sales by an issuer
not involving a public offering;
(b) in August 1999, the Trust sold 1,654.53 of its Shares to Alan Beck
for an aggregate purchase price of $249,834.03 and pursuant to
Section 4(2) or Regulation D promulgated thereunder for sales by
an issuer not involving a public offering;
(c) in August 1999, the Trust sold 5,000 of its Shares to Orit
Gadiesch for an aggregate purchase price of $755,000.00 and
pursuant to Section 4(2) or Regulation D promulgated thereunder
for sales by an issuer not involving a public offering;
(d) pursuant to the Trust's 1998 Plan, the Trust has issued options to
purchase 464,644.08 Shares of the Trust, of which 15,867.73 were
issued in reliance on Rule 701 relative to sales pursuant to
certain compensatory plans and 448,776.35 were issued in reliance
on Section 4(2) or Regulation D promulgated thereunder for sales
by an issuer not involving a public offering (to date, no option
holder has exercised these options); and
(e) pursuant to the Trust's 1999 Option Plan the Trust has issued a
total of 51,600 options to purchase Shares of the Trust, of which
41,975 were issued in reliance on Rule 701 relative to sales
pursuant to certain compensatory plans and 22,600 were issued in
reliance on Section 4(2) or Regulation D promulgated thereunder
for sales by an issuer not involving a public offering (to date,
no option holder has exercised these options).
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
+1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of November 6, 1998, by and among
Bronner Slosberg Humphrey, LLC; Bronner Slosberg Humphrey Inc.; and
Bronner Slosberg Humphrey Co.
2.2 Agreement and Plan of Merger, dated as of November 6, 1998, by and among
Strategic Interactive Group, LLC; Strategic Interactive Group, Inc.; and
Strategic Interactive Group Co.
2.3 Agreement and Plan of Merger, dated as of January 7, 1999, by and among
Bronner Slosberg Humphrey, LLC; Strategic Interactive Group, LLC; and
Bronner Slosberg Humphrey Co.
2.4 Agreement and Plan of Merger, dated as of January 7, 1999, by and among
BSH Holding LLC; SIG Holding LLC; and Bronner Slosberg Humphrey Co.
2.5 The Recapitalization Agreement, dated as of November 28, 1998, by and
among Hellman & Friedman Capital Partners III, L.P.; H & F Orchard
Partners III, L.P.; H & F International Partners III, L.P.; Positano
Partners Ltd.; Bronner Slosberg Humphrey Co.; Strategic Interactive Group
Co.; the Shareholders of BSH and SIG; the Option Holders of BSH and SIG;
the Share Appreciation Rights Holders of BSH and SIG; and the Other
Rights Holders of BSH (including the Amendment Agreement, dated as of
January 6, 1999).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
+3.1 Certificate of Incorporation of Digitas Inc.
+3.2 By-laws of Digitas Inc.
+4.1 Specimen certificate for shares of common stock, $.01 par value, of
Digitas Inc.
+5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered.
10.1 The Bronner Slosberg Humphrey Co., 1998 Option Plan.
10.2 The Bronner Slosberg Humphrey Co., 1999 Option Plan.
+10.3 Form of 2000 Stock Option and Incentive Plan.
+10.4 Form of 2000 Employee Stock Purchase Plan.
+10.5 Lease Agreement, dated as of May 31, 1995, by and between The
Prudential Insurance Company of America and Bronner Slosberg Humphrey
Inc. (including amendment numbers 1-6, each dated as of May 31, 1995).
+10.6 Seventh Amendment to Lease, dated as of March 29, 1999, by and between
BP Prucenter Acquisition, LLC and Bronner Slosberg Humphrey, LLC.
+10.7 Eight Amendment to Lease, dated as of July 30, 1999, by and between BP
Prucenter Acquisition, LLC and Bronner Slosberg Humphrey, LLC.
+10.8 Sublease, dated as of December 22, 1997, by and between EMI
Entertainment World, Inc., and Bronner Slosberg Humphrey Inc.
+10.9 Sublease, dated as of March 22, 1999, by and between EMI Music, Inc.
and Bronner Slosberg Humphrey, LLC.
+10.10 Agreement of Sublease, dated as of June 15, 1999, by and between Warner
Music Group Inc. and Bronner Slosberg Humphrey, LLC.
+10.11 Agreement of Sublease, dated as of November 15, 1999, by and between
Bill Communications, Inc. and Bronnercom, LLC.
+10.12 Sub-Sublease Agreement, dated as of June 5, 1998, by and between
Strategic Interactive Group, Inc. and Allegiance Telecom, Inc.
+10.13 Sublease Agreement, dated as of August 21, 1997, by and among Tesseract
Corporation; Strategic Interactive Group, Inc.; and Bronner Slosberg
Humphrey Inc. (including the First Amendment, dated as of June 15,
1999).
+10.14 Lease Agreement, dated as of August 23, 1999, by and between M&S
Balanced Property Fund, L.P. and Bronnercom, LLC.
+10.15 Lease Agreement, dated as of May 20, 1999, by and between Forward
Publishing Limited and Bronner Slosberg Humphrey (UK) Inc.
+10.16 Credit Agreement, dated as of January 6, 1999, by and among Bronner
Slosberg Humphrey, LLC and Strategic Interactive Group, LLC (as
borrower); the Lenders listed therein (as lenders); Bankers Trust
Company (as administrative agent); Fleet National Bank (as
documentation agent); and BankBoston, N.A. (as syndication agent).
+10.17 The First Amendment to Credit Agreement, dated as of November 5, 1999,
by and among Bronnercom, LLC (as borrower); the lenders listed on the
signature page thereof (as lenders); Bankers Trust Company (as
administrative agent); and Fleet Boston Corporation (as documentation
and syndication agent).
10.18 Warrant Agreement, dated as of January 6, 1999, by and between Bronner
Slosberg Humphrey Co. and Positano Partners Ltd.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.19 Escrow Agreement, dated as of January 6, 1999, by and among Michael E.
Bronner; David W. Kenny; Bronner Slosberg Humphrey Co.; Strategic
Interactive Group Co.; Positano Partners Ltd.; and Boston Safe Deposit
and Trust Co.
10.20 Shareholders Agreement, dated as of January 6, 1999, by and among
Positano Partners Ltd.; the Holders (as defined therein); Michael E.
Bronner; The Michael E. Bronner 1998 Annuity Trust; Bronner Slosberg
Humphrey Co.; Bronner Slosberg Humphrey, LLC; and BSH Holding.
10.21 Governance Agreement, dated as of January 6, 1999, by and among
Positano Partners Ltd.; Vesuvio, Inc.; Michael E. Bronner; and David W.
Kenny.
10.22 Registration Rights Agreement, dated as of January 6, 1999, by and
among Bronner Slosberg Humphrey Co.; Positano Partners Ltd.; Michael E.
Bronner; and the Persons listed on Schedule 1 thereto.
10.23 Employment Agreement, dated as of January 6, 1999, by and between
Kathleen Biro and Bronner Slosberg Humphrey, LLC.
10.24 Employment Agreement, dated as of January 6, 1999, by and between David
W. Kenny and Bronner Slosberg Humphrey, LLC.
10.25 Employment Agreement, dated as of January 6, 1999, by and between
Michael Ward and Bronner Slosberg Humphrey, LLC.
21.1 Subsidiaries of Digitas Inc.
+23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ To be filed by amendment to the registration statement.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
to those statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
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
its 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-5
<PAGE>
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 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on December 23, 1999.
DIGITAS INC.
By: /s/ David W. Kenny
-----------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of David W. Kenny and Michael Ward such
person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement (or to any
other registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that any said attorney-in-fact and agent, or any
substitute or substitutes of any of them, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
Signature Title
Date
/s/ David W. Kenny Chief Executive Officer and December 23, 1999
- ----------------------------- Chairman of the Board of
David W. Kenny Directors
(principal executive
officer)
/s/ Michael Ward Acting Chief Financial December 23, 1999
- ----------------------------- Officer
Michael Ward (principal financial officer
and principal accounting
officer)
/s/ Michael Bronner Director December 23, 1999
- -----------------------------
Michael E. Bronner
</TABLE>
II-7
<PAGE>
<TABLE>
<S> <C>
/s/ John L. Bunce, Jr. Director December 23, 1999
- -----------------------------
John L. Bunce, Jr.
Director December , 1999
- -----------------------------
Orit Gadiesh
/s/ Patrick J. Healy Director December 23, 1999
- -----------------------------
Patrick J. Healy
/s/ Arthur Kern Director December 23, 1999
- -----------------------------
Arthur Kern
/s/ Kathleen L. Biro Director December 23, 1999
- -----------------------------
Kathleen L. Biro
/s/ Philip U. Hammarskjold Director December 23, 1999
- -----------------------------
Philip U. Hammarskjold
.
</TABLE>
II-8
<PAGE>
SCHEDULE II
DIGITAS INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Charge To
Description Beginning Expense Deductions Other Ending
----------- --------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1998
Allowance for Doubtful Accounts... $741 $216 $(190) $-- $767
FISCAL YEAR 1997
Allowance for Doubtful Accounts... 707 310 (276) -- 741
FISCAL YEAR 1996
Allowance for Doubtful Accounts... 551 163 -- (7) 707
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------- ----------- --------
<C> <S> <C>
+1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of November 6, 1998,
by and among Bronner Slosberg Humphrey, LLC; Bronner
Slosberg Humphrey Inc.; and Bronner Slosberg Humphrey Co.
2.2 Agreement and Plan of Merger, dated as of November 6, 1998,
by and among Strategic Interactive Group, LLC; Strategic
Interactive Group, Inc.; and Strategic Interactive Group
Co.
2.3 Agreement and Plan of Merger, dated as of January 7, 1999,
by and among Bronner Slosberg Humphrey, LLC; Strategic
Interactive Group, LLC; and Bronner Slosberg Humphrey Co.
2.4 Agreement and Plan of Merger, dated as of January 7, 1999,
by and among BSH Holding LLC; SIG Holding LLC; and Bronner
Slosberg Humphrey Co.
2.5 The Recapitalization Agreement, dated as of November 28,
1998, by and among Hellman & Friedman Capital Partners III,
L.P.; H & F Orchard Partners III, L.P.; H & F International
Partners III, L.P.; Positano Partners Ltd.; Bronner
Slosberg Humphrey Co.; Strategic Interactive Group Co.; the
Shareholders of BSH and SIG; the Option Holders of BSH and
SIG; the Share Appreciation Rights Holders of BSH and SIG;
and the Other Rights Holders of BSH (including the
Amendment Agreement, dated as of January 6, 1999).
+3.1 Certificate of Incorporation of Digitas Inc.
+3.2 By-laws of Digitas Inc.
+4.1 Specimen certificate for shares of common stock, $.01 par
value, of Digitas Inc.
+5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality
of the securities being offered.
10.1 The Bronner Slosberg Humphrey Co., 1998 Option Plan.
10.2 The Bronner Slosberg Humphrey Co., 1999 Option Plan.
+10.3 Form of 2000 Stock Option and Incentive Plan.
+10.4 Form of 2000 Employee Stock Purchase Plan.
+10.5 Lease Agreement, dated as of May 31, 1995, by and between
The Prudential Insurance Company of America and Bronner
Slosberg Humphrey Inc. (including amendment numbers 1-6,
each dated as of May 31, 1995).
+10.6 Seventh Amendment to Lease, dated as of March 29, 1999, by
and between BP Prucenter Acquisition, LLC and Bronner
Slosberg Humphrey, LLC.
+10.7 Eight Amendment to Lease, dated as of July 30, 1999, by and
between BP Prucenter Acquisition, LLC and Bronner Slosberg
Humphrey, LLC.
+10.8 Sublease, dated as of December 22, 1997, by and between EMI
Entertainment World, Inc., and Bronner Slosberg Humphrey
Inc.
+10.9 Sublease, dated as of March 22, 1999, by and between EMI
Music, Inc. and Bronner Slosberg Humphrey, LLC.
+10.10 Agreement of Sublease, dated as of June 15, 1999, by and
between Warner Music Group Inc. and Bronner Slosberg
Humphrey, LLC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
------- ----------- --------
<C> <S> <C>
+10.11 Agreement of Sublease, dated as of November 15, 1999, by
and between Bill Communications, Inc. and Bronnercom, LLC.
+10.12 Sub-Sublease Agreement, dated as of June 5, 1998, by and
between Strategic Interactive Group, Inc. and Allegiance
Telecom, Inc.
+10.13 Sublease Agreement, dated as of August 21, 1997, by and
between Tesseract Corporation; Strategic Interactive Group,
Inc.; and Bronner Slosberg Humphrey Inc. (including the
First Amendment, dated as of June 15, 1999).
+10.14 Lease Agreement, dated as of August 23, 1999, by and
between M&S Balanced Property Fund, L.P. and Bronnercom,
LLC.
+10.15 Lease Agreement, dated as of May 20, 1999, by and between
Forward Publishing Limited and Bronner Slosberg Humphrey
(UK) Inc.
+10.16 Credit Agreement, dated as of January 6, 1999, by and among
Bronner Slosberg Humphrey, LLC and Strategic Interactive
Group, LLC (as borrower); the Lenders listed therein (as
lenders); Bankers Trust Company (as administrative agent);
Fleet National Bank (as documentation agent); and
BankBoston, N.A. (as syndication agent).
+10.17 The First Amendment to Credit Agreement, dated as of
November 5, 1999, by and among Bronnercom, LLC (as
borrower); the lenders listed on the signature page thereof
(as lenders); Bankers Trust Company (as administrative
agent); and Fleet Boston Corporation (as documentation and
syndication agent).
10.18 Warrant Agreement, dated as of January 6, 1999, by and
between Bronner Slosberg Humphrey Co. and Positano Partners
Ltd.
10.19 Escrow Agreement, dated as of January 6, 1999, by and among
Michael E. Bronner; David W. Kenny; Bronner Slosberg
Humphrey Co.; Strategic Interactive Group Co.; Positano
Partners Ltd.; and Boston Safe Deposit and Trust Co.
10.20 Shareholders Agreement, dated as of January 6, 1999, by and
among Positano Partners Ltd.; the Holders (as defined
therein); Michael E. Bronner; The Michael E. Bronner 1998
Annuity Trust; Bronner Slosberg Humphrey Co.; Bronner
Slosberg Humphrey, LLC; and BSH Holding.
10.21 Governance Agreement, dated as of January 6, 1999, by and
among Positano Partners Ltd.; Vesuvio, Inc.; Michael E.
Bronner; and David W. Kenny.
10.22 Registration Rights Agreement, dated as of January 6, 1999,
by and among Bronner Slosberg Humphrey Co.; Positano
Partners Ltd.; Michael E. Bronner; and the Persons listed
on Schedule 1 thereto.
10.23 Employment Agreement, dated as of January 6, 1999, by and
between Kathleen Biro and Bronner Slosberg Humphrey, LLC.
10.24 Employment Agreement, dated as of January 6, 1999, by and
between David W. Kenny and Bronner Slosberg Humphrey, LLC.
10.25 Employment Agreement, dated as of January 6, 1999, by and
between Michael Ward and Bronner Slosberg Humphrey, LLC.
21.1 Subsidiaries of Digitas Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
+23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ To be filed by amendment to the registration statement.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of November 6, 1998, by and
among Bronner Slosberg Humphrey, LLC, a Delaware limited liability company (the
"LLC"), Bronner Slosberg Humphrey Inc., a Massachusetts corporation (the
"Corporation"), and Bronner Slosberg Humphrey Co., a business trust formed under
the laws of The Commonwealth of Massachusetts ("Parent").
W I T N E S S E T H:
WHEREAS, the Corporation is a corporation duly incorporated and validly
existing under the laws of The Commonwealth of Massachusetts;
WHEREAS, the LLC is a limited liability company duly formed and validly
existing under the laws of the State of Delaware;
WHEREAS, Parent is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and is the sole member and
beneficial owner of all the interests in the LLC;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware Limited Liability Company Act (the "Act"),
Chapter 156B of the General Laws of The Commonwealth of Massachusetts (the
"BCA"), and the Limited Liability Company Agreement of the LLC dated November 5,
1998, the LLC and the Corporation desire to enter into a business combination
transaction pursuant to which the Corporation will merge with and into the LLC
with the LLC surviving, which merger is intended to constitute a tax free
incorporation under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended;
WHEREAS, the sole Member of the LLC has adopted and approved this Agreement
and the Merger (as hereinafter defined) in accordance with the LLC Agreement and
Section 209 of the Act; and
WHEREAS, the Board of Directors and stockholders of the Corporation have
approved this Agreement and the Merger pursuant to Section 78 of the BCA.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, each
of the LLC and the Corporation agrees as follows:
1. The Merger. In accordance with the relevant provisions of the Act and
----------
the BCA, at the Effective Time (as hereinafter defined), the Corporation shall
be merged with and into the LLC (the "Merger"). As a result of and following
the Merger, the separate existence of the Corporation shall cease to exist and
the LLC shall continue as the surviving entity of the
<PAGE>
Merger (the "Surviving Company"), and all identity, rights, assets and
liabilities of the Corporation shall be vested in the Surviving Company in
accordance with Section 209(g) of the Act.
2. The Effective Time. The Merger shall become effective (the "Effective
------------------
Time") immediately upon the later of (i) the date on which a Certificate of
Merger, together with any other documents required to be filed to consummate the
Merger, is filed with and accepted by the Secretary of State of the State of
Delaware, and the Articles of Merger, together with any other documents required
to be filed to consummate the Merger, is filed with the Secretary of State of
The Commonwealth of Massachusetts or (ii) any future effective date or time of
the Merger stated in the Certificate of Merger filed with and accepted by the
Secretary of State of the State of Delaware and the Articles of Merger filed
with the Secretary of State of The Commonwealth of Massachusetts.
3. Certificate of Formation. The Certificate of Formation of the LLC, as
------------------------
in effect on the Effective Date, shall be the Certificate of Formation of the
Surviving Company until thereafter changed or amended as provided therein or by
applicable law.
4. Limited Liability Company Operating Agreement. The Limited Liability
---------------------------------------------
Company Operating Agreement of the LLC as in effect on the Effective Date and
attached hereto as Exhibit A (the "Surviving Company Operating Agreement") shall
---------
be the Limited Liability Company Operating Agreement of the Surviving Company
until thereafter changed or amended as provided therein or by applicable law.
5. Purposes. The purposes of the Surviving Company shall be as set forth
--------
in the Surviving Company Operating Agreement as in effect on the date hereof
until such time as such purposes may be changed or amended as provided in the
Surviving Company Operating Agreement and by applicable law.
6. Officers of Surviving Company. The officers of the Corporation on the
-----------------------------
Effective Date shall become the officers of the Surviving Company in accordance
with the Surviving Company Operating Agreement and the delegation of authority
thereunder by the Member, until successors therefor are duly appointed and
qualified, or such delegation is revoked, as the case may be.
7. Cancellation of Common Stock; LLC Interests; Beneficial Shares.
--------------------------------------------------------------
(a) As of the Effective Date, all of the issued and outstanding common
stock, no par value per share ("Stock"), of the Corporation shall be canceled,
and the membership units in the Surviving Company outstanding immediately prior
to the Merger shall remain issued and outstanding until the earlier of their
redemption, cancellation or change by operation of law.
2
<PAGE>
(b) In exchange for the cancellation of their shares of Stock, each of
the stockholders of the Corporation shall receive the number of beneficial
shares in the Parent as set forth in Schedule I attached hereto.
----------
(c) At the Effective Time, Parent shall repurchase all of the
beneficial shares of Parent issued and outstanding prior to the Mergers for an
aggregate purchase price of $1,000, such that only the beneficial shares set
forth on Schedule I attached hereto shall be issued and outstanding at such
----------
time.
(d) In addition, at the Effective Time, the Trust shall assume all of
the Corporation's obligations with respect to the stock option and other equity
plans of the Corporation in effect as at such time (the "Plans"), and from and
after the Effective Time agrees to assume the outstanding awards under the Plans
as if such awards were granted by the Trust or pursuant to Trust plans,
including, without limitation, (i) all outstanding options to purchase Stock,
whether issued pursuant to a Plan or otherwise, (ii) all outstanding stock
appreciation rights granted under the Corporation's 1997 Stock Appreciation
Rights Plan, and (iii) all claw back rights granted to Myron Slosberg and
Stephen Humphrey in their respective Stock Redemption Agreement entered into
with the Company. The Trust, on behalf of the Surviving Company, also agrees to
assume all of the Corporation's obligations with respect to the equity of the
Corporation which are contained in all employment agreements with the
Corporation. The parties agree that all references to "Company" or
"Corporation" under the Plans and such employment agreements shall mean and
include the Trust and any subsidiary of the Trust, including, without
limitation, the Surviving Company.
8. Additional Actions. If, at any time on and after the Effective Time,
------------------
the Surviving Company or its successors and assigns shall consider or be advised
that any further assignments or assurances in law or any organizational or other
acts are necessary or desirable (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Company title to and possession of any property or
right of the Corporation acquired or to be acquired by reason of, or as a result
of, the Merger, or (b) otherwise to carry out the purposes of this Agreement,
the Corporation and its Directors shall be deemed to have granted to the
Surviving Company an irrevocable power of attorney to execute and deliver all
such proper deeds, assignments and assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of such
property or rights in the Surviving Company and otherwise to carry out the
purposes of this Agreement.
3
<PAGE>
9. Termination. Notwithstanding the prior approval of this Agreement by
-----------
the Members of the LLC and the Board of Directors and stockholders of the
Corporation, this Agreement may be terminated by the Members of the LLC and
Directors of the Corporation for any reason and at any time prior to the
Effective Time.
10. Amendment. Notwithstanding the prior approval of this Agreement by
---------
the Members of the LLC and the Board of Directors and stockholders of the
Corporation, any term or provision of this Agreement may be amended by the
Members of the LLC and the Directors of the Corporation for any reason and at
any time prior to the Effective Time; provided, however, that any amendment
-------- -------
which directly, materially and adversely affects any right specifically granted
hereunder to a particular party in a manner different than other parties shall
not be effective unless such party has consented to such amendment.
[Remainder of this page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first set forth above.
BRONNER SLOSBERG HUMPHREY INC., a
Massachusetts corporation
By: /s/ David W. Kenny
-------------------
Name: David W. Kenny
Title: President
By: /s/ Michael Bronner
--------------------
Name: Michael Bronner
Title: Treasurer
BRONNER SLOSBERG HUMPHREY, LLC, a
Delaware limited liability company
By: Bronner Slosberg Humphrey Co., its Sole
Member
By: /s/ Michael E. Bronner
-----------------------
Name: Michael E. Bronner
Title: Trustee
BRONNER SLOSBERG HUMPHREY, CO., a
Massachusetts business trust
By: /s/ Michael E. Bronner
-----------------------
Name: Michael E. Bronner
Title: Trustee
<PAGE>
BSH
SCHEDULE I
----------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Shares of Stock Beneficial Shares
--------------- -----------------
Stockholder
-----------
---------------------------------------------------------------
Certificate No. No. of Shares Certificate No. No. of Shares
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael E. Bronner 1 100 2 100
- ---------------------------------------------------------------------------------------------------------
18 7,200 3 7,200
- ---------------------------------------------------------------------------------------------------------
19 7,200 4 7,200
- ---------------------------------------------------------------------------------------------------------
20 7,200 5 7,200
- ---------------------------------------------------------------------------------------------------------
21 7,200 6 7,200
- ---------------------------------------------------------------------------------------------------------
22 7,200 7 7,200
- ---------------------------------------------------------------------------------------------------------
23 7,200 8 7,200
- ---------------------------------------------------------------------------------------------------------
24 7,200 9 7,200
- ---------------------------------------------------------------------------------------------------------
25 7,200 10 7,200
- ---------------------------------------------------------------------------------------------------------
26 7,200 11 7,200
- ---------------------------------------------------------------------------------------------------------
27 7,200 12 7,200
- ---------------------------------------------------------------------------------------------------------
28 7,200 13 7,200
- ---------------------------------------------------------------------------------------------------------
29 7,187.75 14 7,187.75
- ---------------------------------------------------------------------------------------------------------
31 385,190 15 385,190
- ---------------------------------------------------------------------------------------------------------
Michael E. Bronner and Lisa
Bronner as Trustees under the
Michael E. Bronner Annuity Trust
dated July 16, 1998 30 385,812 16 385,812
- ---------------------------------------------------------------------------------------------------------
Myron Slosberg 4 2.27 17 2.27
- ---------------------------------------------------------------------------------------------------------
12 5.50 18 5.50
- ---------------------------------------------------------------------------------------------------------
5 38,005.11 19 38,005.11
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BRONNER SLOSBERG HUMPHREY INC.
CERTIFICATE OF CLERK
I, Meryl Beckingham, the Clerk of Bronner Slosberg Humphrey Inc., hereby
certify that the Agreement and Plan of Merger to which this Certificate is
attached was duly adopted by the Board of Directors and stockholders of Bronner
Slosberg Humphrey Inc. pursuant to Section 78 of Chapter 156B of the
Massachusetts General Laws.
WITNESS my hand this 6/th/ day of November ___, 1998.
/s/ Meryl Beckingham
---------------------
Clerk
<PAGE>
Exhibit A
---------
Bronner Slosberg Humphrey, LLC
Limited Liability Company Agreement
-----------------------------------
This Agreement is made as of November __, 1998 by and between Bronner
Slosberg Humphrey, LLC, a Delaware limited liability company (the "LLC"), and
Bronner Slosberg Humphrey Co., a Massachusetts business trust with a business
office at The Prudential Tower, 800 Boylston Street, Boston, MA 02199, as the
sole member (the "Member") of the LLC.
WHEREAS, the LLC was formed as a limited liability company under the
Delaware Limited Liability Company Act (as amended from time to time, the "Act")
on November __, 1998; and
WHEREAS, the Member wishes to set out fully its rights, obligations and
duties regarding the LLC and its assets and liabilities.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:
1. Purpose; Powers. The principal business activity and purposes of the
---------------
LLC shall initially be to provide direct marketing and consulting services, and
to engage in any business related thereto or useful in connection therewith, as
well as any and all other activities permitted under the Act. The LLC shall
possess and may exercise all the powers and privileges granted by the Act, any
other law or this Agreement, together with any powers incidental thereto, and
may take any other action not prohibited under the Act or other applicable law,
so far as such powers and actions are necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the LLC.
2. Principal Place of Business. The principal office and place of
---------------------------
business of the LLC shall be located at The Prudential Tower, 800 Boylston
Street, Boston, Massachusetts 02199. The Member may change the principal office
or place of business of the LLC at any time and may cause the LLC to establish
other offices or places of business in various jurisdictions and appoint agents
for service of process in such jurisdictions. The initial registered agent of
the LLC shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The registered office of the LLC in the State of Delaware, as
required by Section 18-104 of the Act, shall be The Corporation Trust Company at
such address.
3. Fiscal Year. The fiscal year end of the LLC shall be December 31.
-----------
4. Capital Contributions. The contribution made by the Member to the
---------------------
capital of the LLC as of the date hereof and the percentage interest of the
Member in the profits and losses of the LLC are as follows:
<PAGE>
Initial
Capital Percentage
Member Contribution Interest
------ ------------ --------
Bronner Slosberg Humphrey Co. $10.00 100%
Future contributions to capital, if any, shall be made in such amounts and at
such times as the Member may determine.
5. Capital Account; Distributions. A capital account shall be
------------------------------
established for the Member and shall be maintained in accordance with applicable
regulations under Section 704(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). A capital account shall be maintained for the sole
purpose of allocating income, gain, loss and deduction to the Member and shall
have no effect on the amount of any distributions to the Member in liquidation
or otherwise.
6. Certificates.
------------
(a) General. At the option of the Member, interests in the LLC may be
-------
represented by one or more certificates, in such form as may from time to time
be prescribed by the Manager. Such certificate shall be signed by the Member or
an officer of the Member on the Member's behalf, which signature may be a
facsimile thereof. In case the Member or officer of the Member who has signed
or whose facsimile signature has been placed on such certificate shall have
ceased to be the Member or an officer of the Member, as the case may be, before
such certificate is issued, it may be issued by the LLC with the same effect as
if such person were the Member or an officer of the Member at the time of its
issue. The certificate shall contain a legend with respect to any restrictions
on transfer.
(b) Application of Article 8 of the Uniform Commercial Code. The LLC
-------------------------------------------------------
hereby irrevocably elects that all interests in the LLC shall be securities
governed by Article 8 of the Uniform Commercial Code in effect in the State of
Delaware. Each certificate, if any, evidencing an interest in the LLC shall
bear the following legend:
"This Certificate evidences a membership interest in Bronner Slosberg
Humphrey, LLC and shall be a security for purposes of Article 8 of the
Uniform Commercial Code in effect in the State of Delaware."
No change to this provision shall be effective until all outstanding
certificates have been surrendered for cancellation and any new certificates
thereafter issued shall not bear the foregoing legend.
2
<PAGE>
7. Management.
----------
(a) General. The management of the LLC's business and affairs shall
-------
be vested in the Member. The Member shall have full power and authority (a) to
take any action and execute any documents on behalf of the LLC, and (b) to
appoint such officers, representatives, or agents for the LLC (each of whom
shall serve in such capacity until the Member removes such person or appoints a
successor for such person), and to grant to any such officer, representative or
agent the power and authority to take such action and execute such documents on
behalf of the LLC as may be determined by the Member. In addition, the Member
may enter into one or more management agreements with one or more third party
managers, and assign such managers the rights, duties and obligations as
provided in such management agreement. Any delegation of powers and duties
pursuant to this Section 7 may be revoked at any time by the Member. Any
officer of the LLC may be removed with or without cause at any time by the
Member.
(b) Officers of the LLC. Unless the Member decides otherwise, the
-------------------
officers of the Member from time to time shall have the authority to act on
behalf of the Member in managing and conducting the business of the LLC as
provided for in this Section 7. Unless the Member decides otherwise, if an
official title is one commonly used for officers of a business corporation
formed under the Delaware General Corporation Law, the assignment or incumbency
of such title to a person who serves as such officer of the Member shall
constitute assignment of the same title, and delegation of the authorities and
duties normally associated with that office, to such person as such officer of
the LLC.
8. Limitation of Liability. Except as otherwise provided in the Act, the
-----------------------
Member shall not be obligated personally for any debt, obligation or liability
of the LLC, whether arising in contract, tort or otherwise, solely by reason of
being a member of the LLC. The Member shall have no responsibility to restore
any negative balance in its capital account. The Member shall not be personally
liable to the LLC for acting in good faith reliance upon the provisions of this
Agreement, or for breach of any fiduciary or other duty that does not involve
(i) a breach of the duty of loyalty to the LLC, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) a transaction from which the Member derived an improper personal
benefit.
9. Other Business. The Member may engage or have an interest in other
--------------
business ventures which are similar to or competitive with the business of the
LLC, and the pursuit of such ventures, even if competitive, shall not be deemed
wrongful or improper or give the LLC any rights with respect thereto. The
Member shall not be obligated to present an investment opportunity to the LLC
even if it is similar or consistent with the business of the LLC, and it shall
have a right to take for its own account or recommend to others any such
investment opportunity.
10. Indemnification. To the fullest extent permitted by law, the LLC
---------------
shall indemnify the Member and any and all officers and agents of the LLC and
the officers,
3
<PAGE>
directors, trustees, partners, members and shareholders of any such person which
is a corporation, trust, partnership, limited liability company or other entity,
against any and all liability incurred and/or for any act performed by them in
good faith within the scope of the authority conferred on them by this
Agreement, and/or for any act in good faith omitted to be performed by them
(including, without limitation, reasonable legal and other professional fees and
expenses), except for their gross negligence or willful misconduct.
11. Term. The LLC shall have a perpetual existence and shall not
----
terminate upon the resignation, bankruptcy or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of the
Member in the LLC; provided, however, the LLC shall terminate upon the first to
-------- -------
occur of the following:
(a) the written consent of the Member; or
(b) the entry of a decree of judicial dissolution under Section 18-802
of the Act.
Upon any such dissolution, the Member shall proceed to liquidate the LLC and
wind up its affairs and make final distributions as provided in the Act. The
cost of dissolution and liquidation shall be borne as an expense of the LLC. On
completion of the liquidation, the LLC shall be terminated and the Member (or
such other person or persons as the Act may require or permit) shall file a
Certificate of Cancellation with the Secretary of State of the State of Delaware
under the Act and take such other actions as may be necessary to terminate the
existence of the LLC and cancel any other filings as appropriate.
12. Amendment. This Agreement may only be amended pursuant to an
---------
instrument in writing signed by the Member.
13. Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the laws of the State of Delaware, exclusive of its conflict-
of-laws principles.
14. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
matter.
[Remainder of this page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
MEMBER:
------
Bronner Slosberg Humphrey Co.,
a Massachusetts business trust
By:__________________________________
Name: Michael E. Bronner
Title: Trustee
LLC:
---
Bronner Slosberg Humphrey, LLC,
a Delaware limited liability company
By: Bronner Slosberg Humphrey Co.,
a Massachusetts business trust, as
sole Member
By:_____________________________________
Name: Michael E. Bronner
Title: Trustee
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of November 6, 1998, by and
among Strategic Interactive Group, LLC, a Delaware limited liability company
(the "LLC"), Strategic Interactive Group, Inc., a Massachusetts corporation (the
"Corporation"), and Strategic Interactive Group Co., a business trust formed
under the laws of The Commonwealth of Massachusetts ("Parent").
W I T N E S S E T H:
WHEREAS, the Corporation is a corporation duly incorporated and validly
existing under the laws of The Commonwealth of Massachusetts;
WHEREAS, the LLC is a limited liability company duly formed and validly
existing under the laws of the State of Delaware;
WHEREAS, Parent is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and is the sole member and
beneficial owner of all the interests in the LLC;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware Limited Liability Company Act (the "Act"),
Chapter 156B of the General Laws of The Commonwealth of Massachusetts (the
"BCA"), and the Limited Liability Company Agreement of the LLC dated November 5,
1998, the LLC and the Corporation desire to enter into a business combination
transaction pursuant to which the Corporation will merge with and into the LLC
with the LLC surviving, which merger is intended to constitute a tax free
incorporation under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended;
WHEREAS, the sole Member of the LLC has adopted and approved this Agreement
and the Merger (as hereinafter defined) in accordance with the LLC Agreement and
Section 209 of the Act; and
WHEREAS, the Board of Directors and stockholders of the Corporation have
approved this Agreement and the Merger pursuant to Section 78 of the BCA.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, each
of the LLC and the Corporation agrees as follows:
1. The Merger. In accordance with the relevant provisions of the Act and
----------
the BCA, at the Effective Time (as hereinafter defined), the Corporation shall
be merged with and into the LLC (the "Merger"). As a result of and following
the Merger, the separate existence of the Corporation shall cease to exist and
the LLC shall continue as the surviving entity of the
<PAGE>
Merger (the "Surviving Company"), and all identity, rights, assets and
liabilities of the Corporation shall be vested in the Surviving Company in
accordance with Section 209(g) of the Act.
2. The Effective Time. The Merger shall become effective (the "Effective
------------------
Time") immediately upon the later of (i) the date on which a Certificate of
Merger, together with any other documents required to be filed to consummate the
Merger, is filed with and accepted by the Secretary of State of the State of
Delaware, and the Articles of Merger, together with any other documents required
to be filed to consummate the Merger, is filed with the Secretary of State of
The Commonwealth of Massachusetts or (ii) any future effective date or time of
the Merger stated in the Certificate of Merger filed with and accepted by the
Secretary of State of the State of Delaware and the Articles of Merger filed
with the Secretary of State of The Commonwealth of Massachusetts.
3. Certificate of Formation. The Certificate of Formation of the LLC, as
------------------------
in effect on the Effective Date, shall be the Certificate of Formation of the
Surviving Company until thereafter changed or amended as provided therein or by
applicable law.
4. Limited Liability Company Operating Agreement. The Limited Liability
---------------------------------------------
Company Operating Agreement of the LLC as in effect on the Effective Date and
attached hereto as Exhibit A (the "Surviving Company Operating Agreement") shall
---------
be the Limited Liability Company Operating Agreement of the Surviving Company
until thereafter changed or amended as provided therein or by applicable law.
5. Purposes. The purposes of the Surviving Company shall be as set forth
--------
in the Surviving Company Operating Agreement as in effect on the date hereof
until such time as such purposes may be changed or amended as provided in the
Surviving Company Operating Agreement and by applicable law.
6. Officers of Surviving Company. The officers of the Corporation on the
-----------------------------
Effective Date shall become the officers of the Surviving Company in accordance
with the Surviving Company Operating Agreement and the delegation of authority
thereunder by the Member, until successors therefor are duly appointed and
qualified, or such delegation is revoked, as the case may be.
7. Cancellation of Common Stock; LLC Interests; Beneficial Shares.
--------------------------------------------------------------
(a) As of the Effective Date, all of the issued and outstanding common
stock, no par value per share ("Stock"), of the Corporation shall be canceled,
and the membership units in the Surviving Company outstanding immediately prior
to the Merger shall remain issued and outstanding until the earlier of their
redemption, cancellation or change by operation of law.
2
<PAGE>
(b) In exchange for the cancellation of their shares of Stock, each of
the stockholders of the Corporation shall receive the number of beneficial
shares in the Parent as set forth in Schedule I attached hereto.
----------
(c) At the Effective Time, Parent shall repurchase all of the
beneficial shares of Parent issued and outstanding prior to the Mergers for an
aggregate purchase price of $1,000, such that only the beneficial shares set
forth on Schedule I attached hereto shall be issued and outstanding at such
----------
time.
(d) In addition, at the Effective Time, Parent shall assume all of the
Corporation's obligations with respect to the stock option and other equity
plans of the Corporation in effect as at such time (the "Plans"), and from and
after the Effective Time agrees to assume the outstanding awards under the Plans
as if such awards were granted by the Parent or pursuant to Parent's plans,
including, without limitation, (i) all outstanding options to purchase Stock,
whether issued pursuant to the Corporation's 1995 Incentive Equity Plan or
otherwise, and (ii) all outstanding stock appreciation rights granted under the
Corporation's 1997 Stock Appreciation Rights Plan. Parent, on behalf of the
Surviving Company, shall also assume all of the Corporation's obligations with
respect to the equity ownership of the Corporation under all employment
agreements of the Corporation, and shall succeed to all of the Corporation's
rights with respect to equity ownership therein contained. The parties agree
that all references to "Company" or "Corporation" under the Plans shall mean and
include Parent and any subsidiary of Parent, including, without limitation, the
Surviving Company.
8. Additional Actions. If, at any time on and after the Effective Time,
------------------
the Surviving Company or its successors and assigns shall consider or be advised
that any further assignments or assurances in law or any organizational or other
acts are necessary or desirable (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Company title to and possession of any property or
right of the Corporation acquired or to be acquired by reason of, or as a result
of, the Merger, or (b) otherwise to carry out the purposes of this Agreement,
the Corporation and its Directors shall be deemed to have granted to the
Surviving Company an irrevocable power of attorney to execute and deliver all
such proper deeds, assignments and assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to and possession of such
property or rights in the Surviving Company and otherwise to carry out the
purposes of this Agreement.
3
<PAGE>
9. Termination. Notwithstanding the prior approval of this Agreement by
-----------
the Members of the LLC and the Board of Directors and stockholders of the
Corporation, this Agreement may be terminated by the Members of the LLC and
Directors of the Corporation for any reason and at any time prior to the
Effective Time.
10. Amendment. Notwithstanding the prior approval of this Agreement by
---------
the Members of the LLC and the Board of Directors and stockholders of the
Corporation, any term or provision of this Agreement may be amended by the
Members of the LLC and the Directors of the Corporation for any reason and at
any time prior to the Effective Time; provided, however, that any amendment
-------- -------
which directly, materially and adversely affects any right specifically granted
hereunder to a particular party in a manner different than other parties shall
not be effective unless such party has consented to such amendment.
[Remainder of this page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first set forth above.
STRATEGIC INTERACTIVE GROUP, INC., a
Massachusetts corporation
By: /s/ Kathleen L. Biro
--------------------------------------
Name: Kathleen L. Biro
Title: President/CEO
By: /s/ David W. Kenny
--------------------------------------
Name: David W. Kenny
Title: Treasurer
STRATEGIC INTERACTIVE GROUP, LLC, a
Delaware limited liability company
By: Strategic Interactive Group Co., its sole
Member
By: /s/ Michael E. Bronner
--------------------------------------
Name: Michael E. Bronner
Title: Trustee
STRATEGIC INTERACTIVE GROUP, CO.,
a Massachusetts business trust
By: /s/ Michael E. Bronner
--------------------------------------
Name: Michael E. Bronner
Title: Trustee
<PAGE>
SIG
SCHEDULE I
----------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Shares of Stock Beneficial Shares
--------------- -----------------
STOCKHOLDER
-----------
----------------------------------------------------------------
Certificate No. No. of Shares Certificate No. No. of Shares
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael E. Bronner 4 533.33 2 533.33
- ----------------------------------------------------------------------------------------------------
16 2,376 9 2,376
- ----------------------------------------------------------------------------------------------------
Michael E. Bronner 1998 Annuity
Trust dated July 16, 1998 17 2,424 10 2,424
- ----------------------------------------------------------------------------------------------------
Kathleen Biro 10 428 3 428
- ----------------------------------------------------------------------------------------------------
15 57.44 8 57.44
- ----------------------------------------------------------------------------------------------------
Ruben Pinchanski 11 285 4 285
- ----------------------------------------------------------------------------------------------------
14 38.28 7 38.28
- ----------------------------------------------------------------------------------------------------
Robert Cosinuke 12 285 5 285
- ----------------------------------------------------------------------------------------------------
13 38.28 6 38.28
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATEGIC INTERACTIVE GROUP, INC.
CERTIFICATE OF CLERK
I, Meryl Beckingham, the Clerk of Strategic Interactive Group, Inc., hereby
certify that the Agreement and Plan of Merger to which this Certificate is
attached was duly adopted by the Board of Directors and stockholders of
Strategic Interactive Group, Inc. pursuant to Section 78 of Chapter 156B of the
Massachusetts General Laws.
WITNESS my hand this 6/th/ day of November ___, 1998.
/s/ Meryl Beckingham
----------------------
Clerk
<PAGE>
Exhibit A
---------
STRATEGIC INTERACTIVE GROUP, LLC
Limited Liability Company Agreement
-----------------------------------
This Agreement is made as of November __, 1998 by and between Strategic
Interactive Group, LLC, a Delaware limited liability company (the "LLC"), and
Strategic Interactive Group Co., a Massachusetts business trust with a business
office at The Prudential Tower, 800 Boylston Street, Boston, MA 02199, as the
sole member (the "Member") of the LLC.
WHEREAS, the LLC was formed as a limited liability company under the
Delaware Limited Liability Company Act (as amended from time to time, the "Act")
on November __, 1998; and
WHEREAS, the Member wishes to set out fully its rights, obligations and
duties regarding the LLC and its assets and liabilities.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:
1. Purpose; Powers. The principal business activity and purposes of
---------------
the LLC shall initially be to provide interactive marketing and consulting
services, and to engage in any business related thereto or useful in connection
therewith, as well as any and all other activities permitted under the Act. The
LLC shall possess and may exercise all the powers and privileges granted by the
Act, any other law or this Agreement, together with any powers incidental
thereto, and may take any other action not prohibited under the Act or other
applicable law, so far as such powers and actions are necessary or convenient to
the conduct, promotion or attainment of the business, purposes or activities of
the LLC.
2. Principal Place of Business. The principal office and place of
---------------------------
business of the LLC shall be located at The Prudential Tower, 800 Boylston
Street, Boston, Massachusetts 02199. The Member may change the principal office
or place of business of the LLC at any time and may cause the LLC to establish
other offices or places of business in various jurisdictions and appoint agents
for service of process in such jurisdictions. The initial registered agent of
the LLC shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The registered office of the LLC in the State of Delaware, as
required by Section 18-104 of the Act, shall be The Corporation Trust Company at
such address.
3. Fiscal Year. The fiscal year end of the LLC shall be December 31.
-----------
4. Capital Contributions. The contribution made by the Member to the
---------------------
capital of the LLC as of the date hereof and the percentage interest of the
Member in the profits and losses of the LLC are as follows:
<PAGE>
Initial
Capital Percentage
Member Contribution Interest
------ ------------ --------
Strategic Interactive Group Co. $10.00 100%
Future contributions to capital, if any, shall be made in such amounts and at
such times as the Member may determine.
5. Capital Account; Distributions. A capital account shall be
------------------------------
established for the Member and shall be maintained in accordance with applicable
regulations under Section 704(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). A capital account shall be maintained for the sole
purpose of allocating income, gain, loss and deduction to the Member and shall
have no effect on the amount of any distributions to the Member in liquidation
or otherwise.
6. Certificates.
------------
(a) General. At the option of the Member, interests in the LLC may be
-------
represented by one or more certificates, in such form as may from time to time
be prescribed by the Manager. Such certificate shall be signed by the Member or
an officer of the Member on the Member's behalf, which signature may be a
facsimile thereof. In case the Member or officer of the Member who has signed
or whose facsimile signature has been placed on such certificate shall have
ceased to be the Member or an officer of the Member, as the case may be, before
such certificate is issued, it may be issued by the LLC with the same effect as
if such person were the Member or an officer of the Member at the time of its
issue. The certificate shall contain a legend with respect to any restrictions
on transfer.
(b) Application of Article 8 of the Uniform Commercial Code. The LLC
-------------------------------------------------------
hereby irrevocably elects that all interests in the LLC shall be securities
governed by Article 8 of the Uniform Commercial Code in effect in the State of
Delaware. Each certificate, if any, evidencing an interest in the LLC shall
bear the following legend:
"This Certificate evidences a membership interest in Strategic Interactive
Group, LLC and shall be a security for purposes of Article 8 of the Uniform
Commercial Code in effect in the State of Delaware."
No change to this provision shall be effective until all outstanding
certificates have been surrendered for cancellation and any new certificates
thereafter issued shall not bear the foregoing legend.
2
<PAGE>
7. Management.
----------
(a) General. The management of the LLC's business and affairs shall
-------
be vested in the Member. The Member shall have full power and authority (a) to
take any action and execute any documents on behalf of the LLC, and (b) to
appoint such officers, representatives, or agents for the LLC (each of whom
shall serve in such capacity until the Member removes such person or appoints a
successor for such person), and to grant to any such officer, representative or
agent the power and authority to take such action and execute such documents on
behalf of the LLC as may be determined by the Member. In addition, the Member
may enter into one or more management agreements with one or more third party
managers, and assign such managers the rights, duties and obligations as
provided in such management agreement. Any delegation of powers and duties
pursuant to this Section 7 may be revoked at any time by the Member. Any
officer of the LLC may be removed with or without cause at any time by the
Member.
(b) Officers of the LLC. Unless the Member decides otherwise, the
-------------------
officers of the Member from time to time shall have the authority to act on
behalf of the Member in managing and conducting the business of the LLC as
provided for in this Section 7. Unless the Member decides otherwise, if an
official title is one commonly used for officers of a business corporation
formed under the Delaware General Corporation Law, the assignment or incumbency
of such title to a person who serves as such officer of the Member shall
constitute assignment of the same title, and delegation of the authorities and
duties normally associated with that office, to such person as such officer of
the LLC.
8. Limitation of Liability. Except as otherwise provided in the Act, the
-----------------------
Member shall not be obligated personally for any debt, obligation or liability
of the LLC, whether arising in contract, tort or otherwise, solely by reason of
being a member of the LLC. The Member shall have no responsibility to restore
any negative balance in its capital account. The Member shall not be personally
liable to the LLC for acting in good faith reliance upon the provisions of this
Agreement, or for breach of any fiduciary or other duty that does not involve
(i) a breach of the duty of loyalty to the LLC, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) a transaction from which the Member derived an improper personal
benefit.
9. Other Business. The Member may engage or have an interest in other
--------------
business ventures which are similar to or competitive with the business of the
LLC, and the pursuit of such ventures, even if competitive, shall not be deemed
wrongful or improper or give the LLC any rights with respect thereto. The
Member shall not be obligated to present an investment opportunity to the LLC
even if it is similar or consistent with the business of the LLC, and it shall
have a right to take for its own account or recommend to others any such
investment opportunity.
10. Indemnification. To the fullest extent permitted by law, the LLC
---------------
shall indemnify the Member and any and all officers and agents of the Member and
the officers,
3
<PAGE>
directors, trustees, partners, members and shareholders of any such person which
is a corporation, trust, partnership, limited liability company or other entity,
against any and all liability incurred and/or for any act performed by them in
good faith within the scope of the authority conferred on them by this
Agreement, and/or for any act in good faith omitted to be performed by them
(including, without limitation, reasonable legal and other professional fees and
expenses), except for their gross negligence or willful misconduct.
11. Term. The LLC shall have a perpetual existence and shall not
----
terminate upon the resignation, bankruptcy or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of the
Member in the LLC; provided, however, the LLC shall terminate upon the first to
-------- -------
occur of the following:
(a) the written consent of the Member; or
(b) the entry of a decree of judicial dissolution under Section 18-802
of the Act.
Upon any such dissolution, the Member shall proceed to liquidate the LLC and
wind up its affairs and make final distributions as provided in the Act. The
cost of dissolution and liquidation shall be borne as an expense of the LLC. On
completion of the liquidation, the LLC shall be terminated and the Member (or
such other person or persons as the Act may require or permit) shall file a
Certificate of Cancellation with the Secretary of State of the State of Delaware
under the Act and take such other actions as may be necessary to terminate the
existence of the LLC and cancel any other filings as appropriate.
12. Amendment. This Agreement may only be amended pursuant to an
---------
instrument in writing signed by the Member.
13. Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the laws of the State of Delaware, exclusive of its conflict-
of-laws principles.
14. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
matter.
[Remainder of this page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
MEMBER:
------
Strategic Interactive Group Co.,
a Massachusetts business trust
By:________________________________
Name: Michael E. Bronner
Title: Trustee
LLC:
---
Strategic Interactive Group, LLC,
a Delaware limited liability company
By: Strategic Interactive Group Co.,
a Massachusetts business trust, as
sole Member
By:_______________________________
Name: Michael E. Bronner
Title: Trustee
<PAGE>
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of January 7, 1999, by and
among Bronner Slosberg Humphrey, LLC, a Delaware limited liability company ("BSH
LLC"), Strategic Interactive Group, LLC, a Delaware limited liability company
("SIG LLC") and Bronner Slosberg Humphrey Co., a Massachusetts business trust
("Parent").
W I T N E S S E T H:
WHEREAS, BSH LLC is a limited liability company duly formed and validly
existing under the laws of the State of Delaware, and BSH Holding LLC, a
Delaware limited liability company, is the sole member and 100% beneficial owner
of BSH LLC;
WHEREAS, SIG LLC is a limited liability company duly formed and validly
existing under the laws of the State of Delaware, and SIG Holding LLC, a
Delaware limited liability company, is the sole member and 100% beneficial owner
of SIG LLC;
WHEREAS, Parent is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and is (i) the sole member
and 100% beneficial owner of BSH Holding, and (ii) the sole member and 100%
beneficial owner of SIG Holding;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware Limited Liability Company Act (the "Act"), the
Limited Liability Company Agreement of BSH LLC dated November 5, 1998 (the "BSH
LLC Agreement") and the Limited Liability Company Agreement of SIG LLC dated
November 5, 1998 (the "SIG LLC Agreement"), BSH LLC and SIG LLC desire to enter
into a business combination transaction pursuant to which SIG LLC will merge
with and into BSH LLC, with BSH LLC surviving, which merger is intended to
constitute a merger of one disregarded entity with another for tax purposes
under the Internal Revenue Code of 1986, as amended; and
WHEREAS, each of BSH Holding LLC, as the sole member of BSH LLC, and SIG
Holding LLC, as sole member of SIG LLC, has adopted and approved this Agreement
and the Merger (as hereinafter defined) in accordance with Section 209 of the
Act and, as the case may be, the BSH LLC Agreement and the SIG LLC Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
1. The Merger. In accordance with the relevant provisions of the Act, at
----------
the Effective Time (as hereinafter defined), SIG LLC shall be merged with and
into BSH LLC (the "Merger"). As a result of and following the Merger, the
separate existence of the SIG LLC shall cease to exist and BSH LLC shall
continue as the surviving entity of the Merger (the
<PAGE>
"Surviving Company"), and all identity, rights, powers, privileges and assets,
and all obligations, liabilities and debts of SIG LLC shall be vested in the
Surviving Company in accordance with Section 209(g) of the Act.
2. The Effective Time. The Merger shall become effective (the "Effective
------------------
Time") immediately upon the later of (i) the date on which a Certificate of
Merger, together with any other documents required to be filed to consummate the
Merger, is filed with and accepted by the Secretary of State of the State of
Delaware, or (ii) any future effective date or time of the Merger stated in the
Certificate of Merger filed with and accepted by the Secretary of State of the
State of Delaware.
3. Certificate of Formation. The Certificate of Formation of BSH LLC, as
------------------------
in effect on the Effective Date, shall be the Certificate of Formation of the
Surviving Company until thereafter changed or amended as provided therein or by
applicable law.
4. Limited Liability Company Operating Agreement. The Limited Liability
---------------------------------------------
Company Operating Agreement of BSH LLC as in effect on the Effective Date and
attached hereto as Exhibit A (the "Surviving Company Operating Agreement") shall
---------
be the Limited Liability Company Operating Agreement of the Surviving Company
until thereafter changed or amended as provided therein or by applicable law.
5. Purposes. The purposes of the Surviving Company shall be as set forth
--------
in the Surviving Company Operating Agreement as in effect on the date hereof
until such time as such purposes may be changed or amended as provided in the
Surviving Company Operating Agreement and by applicable law.
6. Officers of Surviving Company. The officers of BSH LLC on the
-----------------------------
Effective Date shall be the officers of the Surviving Company in accordance with
the Surviving Company Operating Agreement and the delegation of authority
thereunder by the sole member of BSH LLC, until successors therefor are duly
appointed and qualified, or such delegation is revoked, as the case may be.
7. LLC Membership Interests.
------------------------
As of the Effective Date, all of membership interest of SIG LLC, and
any certificate evidencing the same, shall be canceled, and the membership
interests in the Surviving Company outstanding immediately prior to the Merger
shall remain issued and outstanding from and after the Effective Date.
8. Additional Actions. If, at any time on and after the Effective Time,
------------------
the Surviving Company or its successors and assigns shall consider or be advised
that any further assignments or assurances in law or any organizational or other
acts are necessary or desirable (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Company title to and
2
<PAGE>
possession of any property or right of SIG LLC acquired or to be acquired by
reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, SIG LLC and its sole member and its officers shall
be deemed to have granted to the Surviving Company an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in the Surviving
Company and otherwise to carry out the purposes of this Agreement.
9. Termination. Notwithstanding the prior approval of this Agreement by
-----------
the sole member of BSH LLC and the sole member of SIG LLC (all collectively, the
"Members") this Agreement may be terminated by any of the Members for any reason
and at any time prior to the Effective Time.
10. Amendment. Notwithstanding the prior approval of this Agreement by
---------
the Members, any term or provision of this Agreement may be amended by the
Members for any reason and at any time prior to the Effective Time; provided,
--------
however, that any amendment which directly, materially and adversely affects any
- -------
right specifically granted hereunder to a particular party in a manner different
than other parties shall not be effective unless such party has consented to
such amendment.
[Remainder of this page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first set forth above.
BRONNER SLOSBERG HUMPHREY, LLC
By: /s/ David W. Kenny
--------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
STRATEGIC INTERACTIVE GROUP, LLC
By: /s/ David W. Kenny
--------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
BRONNER SLOSBERG HUMPHREY CO.
By: /s/ David W. Kenny
--------------------------------
Name: David W. Kenny
Title: Chief Financial Officer
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the parties
hereto acknowledges and agrees that this Agreement
is not executed on behalf of the trustees or
officers of the Trust as individuals or, in the
event the trustee is a corporation or other
entity, on behalf of the individual owners of such
corporation or entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
<PAGE>
Exhibit A
Bronner Slosberg Humphrey, LLC
Limited Liability Company Agreement
-----------------------------------
This Agreement is made as of November __, 1998 by and between Bronner
Slosberg Humphrey, LLC, a Delaware limited liability company (the "LLC"), and
Bronner Slosberg Humphrey Co., a Massachusetts business trust with a business
office at The Prudential Tower, 800 Boylston Street, Boston, MA 02199, as the
sole member (the "Member") of the LLC.
WHEREAS, the LLC was formed as a limited liability company under the
Delaware Limited Liability Company Act (as amended from time to time, the "Act")
on November __, 1998; and
WHEREAS, the Member wishes to set out fully its rights, obligations and
duties regarding the LLC and its assets and liabilities.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:
1. Purpose; Powers. The principal business activity and purposes of the
---------------
LLC shall initially be to provide direct marketing and consulting services, and
to engage in any business related thereto or useful in connection therewith, as
well as any and all other activities permitted under the Act. The LLC shall
possess and may exercise all the powers and privileges granted by the Act, any
other law or this Agreement, together with any powers incidental thereto, and
may take any other action not prohibited under the Act or other applicable law,
so far as such powers and actions are necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the LLC.
2. Principal Place of Business. The principal office and place of
---------------------------
business of the LLC shall be located at The Prudential Tower, 800 Boylston
Street, Boston, Massachusetts 02199. The Member may change the principal office
or place of business of the LLC at any time and may cause the LLC to establish
other offices or places of business in various jurisdictions and appoint agents
for service of process in such jurisdictions. The initial registered agent of
the LLC shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The registered office of the LLC in the State of Delaware, as
required by Section 18-104 of the Act, shall be The Corporation Trust Company at
such address.
3. Fiscal Year. The fiscal year end of the LLC shall be December 31.
-----------
4. Capital Contributions. The contribution made by the Member to the
---------------------
capital of the LLC as of the date hereof and the percentage interest of the
Member in the profits and losses of the LLC are as follows:
<PAGE>
Initial
Capital Percentage
Member Contribution Interest
------ ------------ --------
Bronner Slosberg Humphrey Co. $10.00 100%
Future contributions to capital, if any, shall be made in such amounts and at
such times as the Member may determine.
5. Capital Account; Distributions. A capital account shall be
------------------------------
established for the Member and shall be maintained in accordance with applicable
regulations under Section 704(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). A capital account shall be maintained for the sole
purpose of allocating income, gain, loss and deduction to the Member and shall
have no effect on the amount of any distributions to the Member in liquidation
or otherwise.
6. Certificates.
------------
(a) General. At the option of the Member, interests in the LLC may be
-------
represented by one or more certificates, in such form as may from time to time
be prescribed by the Manager. Such certificate shall be signed by the Member or
an officer of the Member on the Member's behalf, which signature may be a
facsimile thereof. In case the Member or officer of the Member who has signed
or whose facsimile signature has been placed on such certificate shall have
ceased to be the Member or an officer of the Member, as the case may be, before
such certificate is issued, it may be issued by the LLC with the same effect as
if such person were the Member or an officer of the Member at the time of its
issue. The certificate shall contain a legend with respect to any restrictions
on transfer.
(b) Application of Article 8 of the Uniform Commercial Code. The LLC
-------------------------------------------------------
hereby irrevocably elects that all interests in the LLC shall be securities
governed by Article 8 of the Uniform Commercial Code in effect in the State of
Delaware. Each certificate, if any, evidencing an interest in the LLC shall
bear the following legend:
"This Certificate evidences a membership interest in Bronner Slosberg
Humphrey, LLC and shall be a security for purposes of Article 8 of the
Uniform Commercial Code in effect in the State of Delaware."
No change to this provision shall be effective until all outstanding
certificates have been surrendered for cancellation and any new certificates
thereafter issued shall not bear the foregoing legend.
2
<PAGE>
7. Management.
----------
(a) General. The management of the LLC's business and affairs shall
-------
be vested in the Member. The Member shall have full power and authority (a) to
take any action and execute any documents on behalf of the LLC, and (b) to
appoint such officers, representatives, or agents for the LLC (each of whom
shall serve in such capacity until the Member removes such person or appoints a
successor for such person), and to grant to any such officer, representative or
agent the power and authority to take such action and execute such documents on
behalf of the LLC as may be determined by the Member. In addition, the Member
may enter into one or more management agreements with one or more third party
managers, and assign such managers the rights, duties and obligations as
provided in such management agreement. Any delegation of powers and duties
pursuant to this Section 7 may be revoked at any time by the Member. Any
officer of the LLC may be removed with or without cause at any time by the
Member.
(b) Officers of the LLC. Unless the Member decides otherwise, the
-------------------
officers of the Member from time to time shall have the authority to act on
behalf of the Member in managing and conducting the business of the LLC as
provided for in this Section 7. Unless the Member decides otherwise, if an
official title is one commonly used for officers of a business corporation
formed under the Delaware General Corporation Law, the assignment or incumbency
of such title to a person who serves as such officer of the Member shall
constitute assignment of the same title, and delegation of the authorities and
duties normally associated with that office, to such person as such officer of
the LLC.
8. Limitation of Liability. Except as otherwise provided in the Act, the
-----------------------
Member shall not be obligated personally for any debt, obligation or liability
of the LLC, whether arising in contract, tort or otherwise, solely by reason of
being a member of the LLC. The Member shall have no responsibility to restore
any negative balance in its capital account. The Member shall not be personally
liable to the LLC for acting in good faith reliance upon the provisions of this
Agreement, or for breach of any fiduciary or other duty that does not involve
(i) a breach of the duty of loyalty to the LLC, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) a transaction from which the Member derived an improper personal
benefit.
9. Other Business. The Member may engage or have an interest in other
--------------
business ventures which are similar to or competitive with the business of the
LLC, and the pursuit of such ventures, even if competitive, shall not be deemed
wrongful or improper or give the LLC any rights with respect thereto. The
Member shall not be obligated to present an investment opportunity to the LLC
even if it is similar or consistent with the business of the LLC, and it shall
have a right to take for its own account or recommend to others any such
investment opportunity.
10. Indemnification. To the fullest extent permitted by law, the LLC
---------------
shall indemnify the Member and any and all officers and agents of the LLC and
the officers,
3
<PAGE>
directors, trustees, partners, members and shareholders of any such person which
is a corporation, trust, partnership, limited liability company or other entity,
against any and all liability incurred and/or for any act performed by them in
good faith within the scope of the authority conferred on them by this
Agreement, and/or for any act in good faith omitted to be performed by them
(including, without limitation, reasonable legal and other professional fees and
expenses), except for their gross negligence or willful misconduct.
11. Term. The LLC shall have a perpetual existence and shall not
----
terminate upon the resignation, bankruptcy or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of the
Member in the LLC; provided, however, the LLC shall terminate upon the first to
-------- -------
occur of the following:
(a) the written consent of the Member; or
(b) the entry of a decree of judicial dissolution under Section 18-802
of the Act.
Upon any such dissolution, the Member shall proceed to liquidate the LLC and
wind up its affairs and make final distributions as provided in the Act. The
cost of dissolution and liquidation shall be borne as an expense of the LLC. On
completion of the liquidation, the LLC shall be terminated and the Member (or
such other person or persons as the Act may require or permit) shall file a
Certificate of Cancellation with the Secretary of State of the State of Delaware
under the Act and take such other actions as may be necessary to terminate the
existence of the LLC and cancel any other filings as appropriate.
12. Amendment. This Agreement may only be amended pursuant to an
---------
instrument in writing signed by the Member.
13. Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the laws of the State of Delaware, exclusive of its conflict-
of-laws principles.
14. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
matter.
[Remainder of this page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
MEMBER:
------
Bronner Slosberg Humphrey Co.,
a Massachusetts business trust
By:__________________________________________
Name: Michael E. Bronner
Title: Trustee
LLC:
---
Bronner Slosberg Humphrey, LLC,
a Delaware limited liability company
By: Bronner Slosberg Humphrey Co.,
a Massachusetts business trust, as
sole Member
By:__________________________________________
Name: Michael E. Bronner
Title: Trustee
<PAGE>
Exhibit 2.4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of January 7, 1999, by and
among BSH Holding LLC, a Delaware limited liability company ("BSH Holding"), SIG
Holding LLC, a Delaware limited liability company ("SIG Holding"), and Bronner
Slosberg Humphrey Co., a business trust formed under the laws of The
Commonwealth of Massachusetts ("Parent").
W I T N E S S E T H:
WHEREAS, each of BSH Holding and SIG Holding is a limited liability company
duly formed and validly existing under the laws of the State of Delaware;
WHEREAS, Parent is a business trust duly organized and validly existing
under the laws of The Commonwealth of Massachusetts and is (i) the sole member
and 100% beneficial owner of BSH Holding, and (ii) the sole member and 100%
beneficial owner of SIG Holding;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware Limited Liability Company Act (the "Act"), the
Limited Liability Company Agreement of BSH Holding dated December 30, 1998 (the
"BSH Agreement"), and the Limited Liability Company Agreement of SIG Holding
dated December 30, 1998 (the "SIG Agreement"), BSH Holding, SIG Holding, and
Parent desire to enter into a business combination transaction pursuant to which
SIG Holding will merge with and into BSH Holding, with BSH Holding surviving,
which merger is intended to constitute a merger of one disregarded entity with
another for tax purposes under the Internal Revenue Code of 1986, as amended;
and
WHEREAS, Parent, as the sole member of BSH Holding and as sole member of
SIG Holding, has adopted and approved this Agreement and the Merger (as
hereinafter defined) in accordance with Section 209 of the Act and, as the case
may be, the BSH Agreement and the SIG Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, each
of BSH Holding and SIG Holding agree as follows:
1. The Merger. In accordance with the relevant provisions of the Act, at
----------
the Effective Time (as hereinafter defined), SIG Holding shall be merged with
and into the BSH Holding (the "Merger"). As a result of and following the
Merger, the separate existence of SIG Holding shall cease to exist and BSH
Holding shall continue as the surviving entity of the Merger (the "Surviving
Company"), and all identity, rights, powers, privileges, assets and all
obligations, liabilities and debts of SIG Holding shall be vested in the
Surviving Company in accordance with Section 209(g) of the Act.
<PAGE>
2. The Effective Time. The Merger shall become effective (the "Effective
------------------
Time") immediately upon the later of (i) the date on which a Certificate of
Merger, together with any other documents required to be filed to consummate the
Merger, is filed with and accepted by the Secretary of State of the State of
Delaware, or (ii) any future effective date or time of the Merger stated in the
Certificate of Merger filed with and accepted by the Secretary of State of the
State of Delaware.
3. Certificate of Formation. The Certificate of Formation of BSH
------------------------
Holding, as in effect on the Effective Date, shall be the Certificate of
Formation of the Surviving Company until thereafter changed or amended as
provided therein or by applicable law.
4. Limited Liability Company Operating Agreement. The Limited Liability
---------------------------------------------
Company Operating Agreement of BSH Holding as in effect on the Effective Date
and attached hereto as Exhibit A (the "Surviving Company Operating Agreement")
---------
shall be the Limited Liability Company Operating Agreement of the Surviving
Company until thereafter changed or amended as provided therein or by applicable
law.
5. Purposes. The purposes of the Surviving Company shall be as set forth
--------
in the Surviving Company Operating Agreement as in effect on the date hereof
until such time as such purposes may be changed or amended as provided in the
Surviving Company Operating Agreement and by applicable law.
6. Officers of Surviving Company. The officers of BSH Holding on the
-----------------------------
Effective Date shall be the officers of the Surviving Company in accordance with
the Surviving Company Operating Agreement and the delegation of authority
thereunder by the sole member of the Surviving Company, until successors
therefor are duly appointed and qualified, or such delegation is revoked, as the
case may be.
7. LLC Membership Interests. As of the Effective Date, all of the
------------------------
membership interests in SIG Holding and any certificates evidencing the same,
shall be canceled, and the membership interests in the Surviving Company
outstanding immediately prior to the Merger shall remain issued and outstanding
from and after the Effective Date.
8. Additional Actions. If, at any time on and after the Effective Time,
------------------
the Surviving Company or its successors and assigns shall consider or be advised
that any further assignments or assurances in law or any organizational or other
acts are necessary or desirable (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Company title to and possession of any property or
right of SIG Holding acquired or to be acquired by reason of, or as a result of,
the Merger, or (b) otherwise to carry out the purposes of this Agreement, SIG
Holding, its sole member and its officers shall be deemed to have granted to the
Surviving Company an irrevocable power of attorney to execute and deliver all
such proper deeds,
2
<PAGE>
assignments and assurances in law and to do all acts necessary or proper to
vest, perfect or confirm title to and possession of such property or rights in
the Surviving Company and otherwise to carry out the purposes of this Agreement.
9. Termination. Notwithstanding the prior approval of this Agreement by
-----------
Parent, this Agreement may be terminated by Parent for any reason and at any
time prior to the Effective Time.
10. Amendment. Notwithstanding the prior approval of this Agreement by
---------
Parent, any term or provision of this Agreement may be amended by Parent for any
reason and at any time prior to the Effective Time; provided, however, that any
-------- -------
amendment which directly, materially and adversely affects any right
specifically granted hereunder to a particular party in a manner different than
other parties shall not be effective unless such party has consented to such
amendment.
[Remainder of this page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first set forth above.
BSH HOLDING LLC, a Delaware limited liability
company
By: /s/ David W. Kenny
-----------------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
SIG HOLDING LLC, a Delaware limited liability
company
By: /s/ David W. Kenny
-----------------------------------------
Name: David W. Kenny
Title: Chief Financial Officer
BRONNER SLOSBERG HUMPHREY CO., a
Massachusetts business trust
By: /s/ David W. Kenny
-----------------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the parties
hereto acknowledges and agrees that this Agreement
is not executed on behalf of the trustees or
officers of the Trust as individuals or, in the
event the trustee is a corporation or other
entity, on behalf of the individual owners of such
corporation or entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
<PAGE>
Exhibit A
BSH HOLDING LLC
Limited Liability Company Agreement
-----------------------------------
This Agreement is made as of December 30, 1998 by and between BSH Holding
LLC, a Delaware limited liability company (the "LLC"), and Bronner Slosberg
Humphrey Co., a Massachusetts business trust with a business office at The
Prudential Tower, 800 Boylston Street, Boston, MA 02199, as the sole member
(the "Member") of the LLC.
WHEREAS, the LLC was formed as a limited liability company under the
Delaware Limited Liability Company Act (as amended from time to time, the "Act")
on December 28, 1998; and
WHEREAS, the Member wishes to set out fully its rights, obligations and
duties regarding the LLC and its assets and liabilities.
NOW, THEREFORE, in consideration of the mutual covenants expressed herein,
the parties hereby agree as follows:
1. Purpose; Powers. The principal business activity and purposes of the
---------------
LLC shall initially be to receive, hold and manage the 100% membership interest
of the Member in Bronner Slosberg Humphrey, LLC, a Delaware limited liability
company (which membership interest shall be assigned and transferred by the
Member to the LLC on or immediately after the date hereof), and to engage in any
business related thereto or useful in connection therewith, as well as any and
all other activities permitted under the Act. The LLC shall possess and may
exercise all the powers and privileges granted by the Act, any other law or this
Agreement, together with any powers incidental thereto, and may take any other
action not prohibited under the Act or other applicable law, so far as such
powers and actions are necessary or convenient to the conduct, promotion or
attainment of the business, purposes or activities of the LLC.
2. Principal Place of Business. The principal office and place of
---------------------------
business of the LLC shall be located at The Prudential Tower, 800 Boylston
Street, Boston, Massachusetts 02199. The Member may change the principal office
or place of business of the LLC at any time and may cause the LLC to establish
other offices or places of business in various jurisdictions and appoint agents
for service of process in such jurisdictions. The initial registered agent of
the LLC shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801. The registered office of the LLC in the State of Delaware, as
required by Section 18-104 of the Act, shall be The Corporation Trust Company at
such address.
3. Fiscal Year. The fiscal year end of the LLC shall be December 31.
-----------
4. Capital Contributions. The Member is contributing the amount
---------------------
specified on Schedule A attached hereto in cash to the capital of the LLC at the
----------
date hereof. Future contributions to capital, if any, shall be made in such
amounts and at such times as the
<PAGE>
members of the LCC may mutually agree. The percentage interest of each member of
the LLC in the profits or losses of the LLC shall be denominated by membership
units (the "Membership Units"), with the Member's initial number of Membership
Units being as listed on Schedule A, which Membership Units shall be in
----------
proportion to each member's capital contributions. The aggregate number of
Membership Units which the LLC shall have authority to issue is 1,000. Each such
Membership Unit shall be entitled to one vote on all matters for which a vote or
decision of the membership of the LLC is required or taken.
5. Capital Account; Distributions. A capital account shall be
------------------------------
established for the Member and shall be maintained in accordance with applicable
regulations under Section 704(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). A capital account shall be maintained for the sole
purpose of allocating income, gain, loss and deduction to the Member and shall
have no effect on the amount of any distributions to the Member in liquidation
or otherwise.
6. Certificates.
------------
(a) General. At the option of the Member, interests in the LLC may be
-------
represented by one or more certificates, in such form as may from time to time
be prescribed by the Member. Such certificate shall be signed by the Chief
Executive Officer, President, or Vice President of the LLC and by the Chief
Financial Officer, Treasurer, Assistant Treasurer, Secretary or Clerk of the
LLC, which signatures may be facsimiles thereof. In case an officer of the LLC
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to serve as such officer of the LLC before such certificate is
issued, it may be issued by the LLC with the same effect as if such person were
an officer of the LLC at the time of its issue. The certificate shall contain a
legend with respect to any restrictions on transfer.
(b) Application of Article 8 of the Uniform Commercial Code. The LLC
-------------------------------------------------------
hereby irrevocably elects that all interests in the LLC shall be securities
governed by Article 8 of the Uniform Commercial Code in effect in the State of
Delaware. Each certificate, if any, evidencing an interest in the LLC shall
bear the following legend:
"This Certificate evidences a membership interest in BSH Holding LLC and
shall be a security for purposes of Article 8 of the Uniform Commercial
Code in effect in the State of Delaware."
No change to this provision shall be effective until all outstanding
certificates have been surrendered for cancellation and any new certificates
thereafter issued shall not bear the foregoing legend.
2
<PAGE>
7. Management.
----------
(a) General. The management of the LLC's business and affairs shall
-------
be vested in the Member. The Member shall have full power and authority (a) to
take any action and execute any documents on behalf of the LLC, and (b) to
appoint such officers, representatives, or agents for the LLC (each of whom
shall serve in such capacity until the Member removes such person or appoints a
successor for such person), and to grant to any such officer, representative or
agent the power and authority to take such action and execute such documents on
behalf of the LLC as may be determined by the Member. In addition, the Member
may enter into one or more management agreements with one or more third party
managers, and assign such managers the rights, duties and obligations as
provided in such management agreement. Any delegation of powers and duties
pursuant to this Section 7 may be revoked at any time by the Member. Any
officer of the LLC may be removed with or without cause at any time by the
Member.
(b) Officers of the LLC. Unless the Member decides otherwise, the
-------------------
officers of the Member from time to time shall have the authority to act on
behalf of the Member in managing and conducting the business of the LLC as
provided for in this Section 7. Unless the Member decides otherwise, if an
official title is one commonly used for officers of a business corporation
formed under the Delaware General Corporation Law, the assignment or incumbency
of such title to a person who serves as such officer of the Member shall
constitute assignment of the same title, and delegation of the authorities and
duties normally associated with that office, to such person as such officer of
the LLC.
(c) Assignment of Membership Interest; Withdrawal of Member. The
-------------------------------------------------------
membership interest of the Member in the LLC shall be assignable in whole (but
not in part) by the Member. At the option of the Member, the person to whom
such membership interest is assigned may be admitted a new member of the LLC (a
"Successor Member"), with all the rights, privileges, duties and obligations
thereof, including without limitation the right to manage the business of the
LLC, provided that (i) the Member executes a signed writing evidencing its
resignation and withdrawal from membership in the LCC in favor of such Successor
Member, and (ii) such Successor Member consents in writing to be admitted as a
member of the LLC and to assume all the rights, privileges, duties and
obligations of the Member thereof.
8. Limitation of Liability. Except as otherwise provided in the Act, the
-----------------------
Member shall not be obligated personally for any debt, obligation or liability
of the LLC, whether arising in contract, tort or otherwise, solely by reason of
being a member of the LLC. The Member shall have no responsibility to restore
any negative balance in its capital account. The Member shall not be personally
liable to the LLC for acting in good faith reliance upon the provisions of this
Agreement, or for breach of any fiduciary or other duty that does not involve
(i) a breach of the duty of loyalty to the LLC, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or (iii) a transaction from which the Member derived an improper personal
benefit.
3
<PAGE>
9. Other Business. The Member may engage or have an interest in other
--------------
business ventures which are similar to or competitive with the business of the
LLC, and the pursuit of such ventures, even if competitive, shall not be deemed
wrongful or improper or give the LLC any rights with respect thereto. The
Member shall not be obligated to present an investment opportunity to the LLC
even if it is similar or consistent with the business of the LLC, and it shall
have a right to take for its own account or recommend to others any such
investment opportunity.
10. Indemnification. To the fullest extent permitted by law, the LLC
---------------
shall indemnify the Member and any and all officers and agents of the LLC and
the officers, directors, trustees, partners, members and shareholders of any
such person which is a corporation, trust, partnership, limited liability
company or other entity, against any and all liability incurred and/or for any
act performed by them in good faith within the scope of the authority conferred
on them by this Agreement, and/or for any act in good faith omitted to be
performed by them (including, without limitation, reasonable legal and other
professional fees and expenses), except for their gross negligence or willful
misconduct.
11. Term. The LLC shall have a perpetual existence and shall not
----
terminate upon the resignation, bankruptcy or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of the
Member in the LLC; provided, however, the LLC shall terminate upon the first to
-------- -------
occur of the following:
(a) the written consent of the Member; or
(b) the entry of a decree of judicial dissolution under Section 18-802
of the Act.
Upon any such dissolution, the Member shall proceed to liquidate the LLC and
wind up its affairs and make final distributions as provided in the Act. The
cost of dissolution and liquidation shall be borne as an expense of the LLC. On
completion of the liquidation, the LLC shall be terminated and the Member (or
such other person or persons as the Act may require or permit) shall file a
Certificate of Cancellation with the Secretary of State of the State of Delaware
under the Act and take such other actions as may be necessary to terminate the
existence of the LLC and cancel any other filings as appropriate.
12. Amendment. This Agreement may only be amended pursuant to an
---------
instrument in writing signed by the Member.
13. Governing Law. This Agreement is governed by and shall be construed
-------------
in accordance with the laws of the State of Delaware, exclusive of its conflict-
of-laws principles.
14. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
matter.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
MEMBER: BRONNER SLOSBERG HUMPHREY CO.,
- ------
By:
-----------------------------------------
Michael E. Bronner, as sole trustee
Bronner Slosberg Humphrey Co. (the "Trust")
is a Massachusetts business trust. A copy of
the Trust's Declaration of Trust, as the same
may be amended and/or restated from time to
time, is on file with the Secretary of State
of The Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and agrees
that this Agreement is not executed on behalf
of the trustees or officers of the Trust as
individuals or, in the event the trustee is a
corporation or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this Agreement
are not binding upon any of the trustees,
officers or shareholders of the Trust, or any
of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the
assets and property of the Trust. Each of the
parties hereto agrees that no shareholder,
trustee or officer of the Trust, or any of
their respective trustees, officers,
directors, partners, members and
shareholders, may be held personally liable
or responsible for any obligations of the
Trust arising out of this Agreement. With
respect to obligations of the Trust arising
out of this Agreement, each of the parties
hereto shall look for payment or satisfaction
of any claim solely to the assets and
property of the Trust.
LLC: BSH HOLDING LLC, a Delaware
- --- limited liability company
By: BRONNER SLOSBERG HUMPHREY CO.,
as sole member
By:
------------------------------------------
Michael E. Bronner, as sole trustee
Bronner Slosberg Humphrey Co. (the "Trust")
is a Massachusetts business trust. A copy of
the Trust's Declaration of Trust, as the same
may be amended and/or restated from time to
time, is on file with the Secretary of State
of The Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and agrees
that this Agreement is not executed on behalf
of the trustees or officers of the Trust as
individuals or, in the event the trustee is a
corporation or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this Agreement
are not binding upon any of the trustees,
officers or shareholders of the Trust, or any
of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the
assets and property of the Trust. Each of the
parties hereto agrees that no shareholder,
trustee or officer of the Trust, or any of
their respective trustees, officers,
directors, partners, members and
shareholders, may be held personally liable
or responsible for any obligations of the
Trust arising out of this Agreement. With
respect to obligations of the Trust arising
out of this Agreement, each of the parties
hereto shall look for payment or satisfaction
of any claim solely to the assets and
property of the Trust.
<PAGE>
Schedule A
----------
Initial Capital Membership Percentage
--------------- ---------- ----------
Member Contribution Units Interest
- ------ ------------ ----- --------
Bronner Slosberg Humphrey Co. $10 1 100%
<PAGE>
EXHIBIT 2.5
EXECUTION COPY
=============================================================
RECAPITALIZATION AGREEMENT
among
HELLMAN & FRIEDMAN CAPITAL PARTNERS III, L.P.,
H&F ORCHARD PARTNERS III, L.P.,
H&F INTERNATIONAL PARTNERS III, L.P.,
POSITANO PARTNERS LTD.,
BRONNER SLOSBERG HUMPHREY CO. ("BSH"),
STRATEGIC INTERACTIVE GROUP CO. ("SIG"),
THE SHAREHOLDERS OF BSH AND SIG,
THE OPTION HOLDERS OF BSH AND SIG,
THE SHARE APPRECIATION RIGHTS HOLDERS OF BSH AND SIG
and
THE OTHER RIGHTS HOLDERS OF BSH
Dated November 28, 1998
=============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS.............................................................................. 1
1.1 Definitions.............................................................................. 1
ARTICLE 2 - PLAN OF RECAPITALIZATION................................................................. 9
2.1 Adoption of Plan of Recapitalization..................................................... 9
ARTICLE 3 - THE TRANSACTION.......................................................................... 9
3.1 The Closing Date......................................................................... 9
3.2 Transaction Steps........................................................................ 10
3.3 Escrowed Amount.......................................................................... 13
3.4 Tax Matters.............................................................................. 13
3.5 Client Interviews........................................................................ 17
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE COMPANIES ......................................... 18
4.1 Organization, Good Standing and Foreign Qualification.................................... 18
4.2 Capitalization........................................................................... 18
4.3 Absence of Outstanding Rights to Shares or Other Securities.............................. 19
4.4 Subsidiaries............................................................................. 20
4.5 Financial Statements..................................................................... 21
4.6 Dividends and Other Distributions; Past Conduct of Business.............................. 22
4.7 Absence of Undisclosed Liabilities....................................................... 22
4.8 Taxes.................................................................................... 22
4.9 Absence of Changes....................................................................... 25
4.10 Absence of Unusual Transactions.......................................................... 25
4.11 Title to Properties, Liens and Encumbrances.............................................. 26
4.12 Equipment................................................................................ 26
4.13 Real Property............................................................................ 27
4.14 Absence of Contracts..................................................................... 27
4.15 Good Standing of Contracts............................................................... 28
4.16 Clients.................................................................................. 28
4.17 Indebtedness; Guarantees................................................................. 29
4.18 Company Name............................................................................. 29
4.19 Authority Relative to Agreements......................................................... 29
4.20 Litigation............................................................................... 30
4.21 Insurance................................................................................ 31
4.22 Personnel; Employment Agreements......................................................... 31
4.23 Brokers.................................................................................. 31
4.24 Compliance with Law...................................................................... 31
4.25 Employee Benefit Plans................................................................... 31
4.26 Overtime, Back Wages, Vacation and Minimum Wages......................................... 33
4.27 Indebtedness of Holders and Key Employees................................................ 33
4.28 Intellectual Property Rights............................................................. 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.29 Records.................................................................................. 34
4.30 Compliance with Declaration of Trust..................................................... 34
4.31 Accounts Receivable; Unbilled Accounts Receivable; Work-in-Process; Accounts Payable..... 34
4.32 Interested Party Transactions............................................................ 35
4.33 No Prior Transactions.................................................................... 35
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE SIGNING HOLDERS.................................... 35
5.1 Authority Relative to Agreement.......................................................... 35
5.2 Ownership Free of Encumbrances........................................................... 36
5.3 No Bankruptcy............................................................................ 36
5.4 Litigation, Etc.......................................................................... 36
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF POSITANO AND THE HFCP INVESTORS........................ 37
6.1 Organization and Good Standing........................................................... 37
6.2 Authority Relative to this Agreement..................................................... 37
6.3 No Broker................................................................................ 37
6.4 Governmental Filings; No Violations...................................................... 38
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.............................. 38
7.1 Survival of Representations and Warranties of the Parties................................ 38
7.2 Indemnification by the Signing Holders................................................... 38
7.3 Indemnification by the HFCP Investors.................................................... 39
7.4 Procedure................................................................................ 39
7.5 Compensation to the HFCP Investors and Positano under Holders'
Indemnification Obligation............................................................... 40
7.6 Arbitration.............................................................................. 41
7.7 Exclusive Remedy......................................................................... 42
7.8 Shareholder Representatives.............................................................. 42
ARTICLE 8 - CONDUCT OF COMPANIES PRIOR TO CLOSING DATE............................................... 42
8.1 Access for Investigation................................................................. 42
8.2 Conduct Business in Ordinary Course...................................................... 43
8.3 Perform Obligations...................................................................... 43
8.4 Prevent Certain Changes.................................................................. 43
8.5 Revised Disclosure Memorandum............................................................ 43
8.6 Prohibited Distributions................................................................. 43
8.7 Exclusivity.............................................................................. 44
8.8 Shareholder Approval..................................................................... 44
8.9 Amendment and Restatement of Declaration of Trust........................................ 44
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 9 - CONDITIONS PRECEDENT TO THE PERFORMANCE OF EACH PARTY'S OBLIGATION UNDER THIS AGREEMENT.. 44
9.1 HSR Clearance............................................................................ 45
9.2 Legality................................................................................. 45
9.3 Absence of Proceedings to Restrain Consummation of the Agreement......................... 45
9.4 Financing................................................................................ 45
9.5 Additional Holders....................................................................... 45
ARTICLE 10 - CONDITIONS PRECEDENT TO THE PERFORMANCE BY THE
HFCP INVESTORS AND POSITANO OF THEIR OBLIGATIONS UNDER THIS AGREEMENT.................... 45
10.1 Performance of Agreements................................................................ 46
10.2 Truth and Accuracy of Representations and Warranties..................................... 46
10.3 Ownership of Shares, Options, SARs, Other Rights......................................... 46
10.4 Execution of Documents and Performance of Obligations.................................... 46
10.5 Indebtedness of Holders and Key Employees................................................ 46
10.6 No Material Adverse Change............................................................... 46
10.7 Management; Roll-Over Equity............................................................. 46
10.8 Employment Agreements.................................................................... 46
10.9 Client Interviews........................................................................ 47
10.10 Stock Option Plan........................................................................ 47
10.11 Letter Agreement......................................................................... 47
10.12 Benefit Plan Remedial Obligation......................................................... 47
ARTICLE 11 - CONDITIONS PRECEDENT TO THE PERFORMANCE
BY THE COMPANIES AND THE HOLDERS OF
THEIR OBLIGATIONS UNDER THIS AGREEMENT................................................... 47
11.1 Performance of Agreements................................................................ 47
11.2 Truth and Accuracy on Closing Date of Representations and Warranties..................... 47
11.3 Execution of Documents and Performance of Obligations.................................... 47
ARTICLE 12 - THE CLOSING.............................................................................. 47
12.1 Delivery of Share Certificates........................................................... 48
12.2 Shareholders Agreement................................................................... 48
12.3 Registration Rights Agreement............................................................ 48
12.4 Indebtedness of Holders and Key Employees................................................ 48
12.5 Certificates............................................................................. 48
12.6 Opinion of Counsel for the Holders and the Companies..................................... 48
12.7 Opinion of Counsel for the HFCP Investors................................................ 48
12.8 Consents................................................................................. 48
ARTICLE 13 - TERMINATION.............................................................................. 49
13.1 Termination by Mutual Consent............................................................ 49
13.2 Termination by Either Positano or the Companies.......................................... 49
13.3 Termination by HFCP Investors............................................................ 49
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
13.4 Effect of Termination and Abandonment.................................................... 49
ARTICLE 14 - GENERAL PROVISIONS; OTHER AGREEMENTS ................................................... 49
14.1 Opinions of Counsel...................................................................... 49
14.2 Expenses................................................................................. 49
14.3 Governing Law............................................................................ 50
14.4 Headings................................................................................. 50
14.5 Notices.................................................................................. 50
14.6 Parties in Interest...................................................................... 51
14.7 Entire Agreement......................................................................... 52
14.8 Counterparts............................................................................. 52
14.9 Amendment................................................................................ 52
14.10 Public Announcements..................................................................... 52
14.11 Gender, Etc.............................................................................. 52
14.12 Further Assurances....................................................................... 52
</TABLE>
Annex A Equity Capitalization / Redemption & Purchase / Escrow Table
Annex B Terms Relating to BSH Roll-Over Options
Annex C Form of Escrow Agreement
Annex D Client Interviews
Annex E Form of Employment Agreement
Annex F Form of Stock Option Plan
Annex G Form of Principal Shareholder Letter Agreement
Annex H Form of Joinder Agreement
Annex I Form of Investment Agreement Including Release
Annex J Form of Shareholders Agreement
Annex K Form of Registration Rights Agreement
Annex L Form of Release of Holders Not Investing
Annex M Matters to be covered by Opinion of counsel to the Holders
Annex N Matters to be covered by Opinion of counsel to the HFCP Investors
Annex O Form of Governance Agreement
-iv-
<PAGE>
RECAPITALIZATION AGREEMENT, dated November 28, 1998 (this "Agreement"),
---------
among POSITANO PARTNERS LTD., a Bermuda exempt company ("Positano"), HELLMAN &
--------
FRIEDMAN CAPITAL PARTNERS III, L.P., a California limited partnership, H&F
ORCHARD PARTNERS III, L.P., a California limited partnership, H&F INTERNATIONAL
PARTNERS III, L.P., a California limited partnership (collectively, the "HFCP
----
Investors"), BRONNER SLOSBERG HUMPHREY CO., a Massachusetts business trust
- ---------
having its principal office at Prudential Tower, 800 Boylston Street, Boston, MA
02199 ("BSH"), STRATEGIC INTERACTIVE GROUP CO., a Massachusetts business trust
---
having its principal office at Prudential Tower, 800 Boylston Street, Boston, MA
02199 ("SIG" and, together with BSH, the "Companies" and, individually, each a
--- ---------
"Company") and the shareholders of the Companies, holders of options to purchase
-------
shares of the Companies and holders of share appreciation rights in the
Companies listed as signing parties on Annex A, which is being delivered
-------
concurrently herewith but is not attached hereto (the "Signing Holders").
---------------
WHEREAS, pursuant to a business reorganization effected on November 6, 1998
(the "Reorganization"), BSH, through a wholly owned limited liability company
--------------
("LLC"), operates the business and operations of such LLC's predecessor, Bronner
---
Slosberg Humphrey Inc., a Massachusetts corporation, and SIG, through a wholly
owned LLC, operates the business and operations of such LLC's predecessor,
Strategic Interactive Group, Inc., a Massachusetts corporation;
WHEREAS, the parties seek to effect the recapitalization of the Companies
upon the terms and conditions set forth herein (the "Recapitalization");
----------------
WHEREAS, the Board of Directors and shareholders of Positano, the
respective general partners of the HFCP Investors and the respective trustees of
the Companies have approved the terms of this Agreement and the transactions
contemplated hereby; and
WHEREAS, the Companies, Positano, the HFCP Investors and the Signing
Holders desire to make certain representations, warranties and agreements in
connection with the transactions provided for herein;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
-----------
following meanings:
"Adjusted Financial Statements" has the meaning specified in Section
-----------------------------
4.5(a).
"Agreement" has the meaning specified in the preamble.
---------
"Allocation Schedule" has the meaning specified in Section 3.4(c).
-------------------
<PAGE>
"Amended and Restated Declaration of Trust" has the meaning set forth in
-----------------------------------------
Section 8.9.
"Ancillary Documents" as to any Person means all agreements, releases,
-------------------
certificates and other documents contemplated by this Agreement to be entered
into or executed by such Person at or prior to the Closing.
"Basket Amount" has the meaning specified in Section 7.4(c).
-------------
"Benefit Plan Excess" shall have the meaning set forth in Section
-------------------
3.2(b)(xiii).
"Benefit Plan Reduction Amount" shall have the meaning set forth in Section
-----------------------------
3.2(b)(xiii).
"Benefit Plan Remediation Obligation" has the meaning set forth in BSH
-----------------------------------
Schedule 4.25(b)1 of the Disclosure Memorandum.
"BSH" has the meaning specified in the preamble.
---
"BSH Borrowed Funds" has the meaning specified in Section 3.2(b).
------------------
"BSH Holders" means the holders of BSH Shares, the holders of BSH Options,
-----------
the holders of BSH SARs and the Other Rights Holders, as set forth in Annex A
-------
hereto.
"BSH Holding" has the meaning specified in Section 3.2(a).
-----------
"BSH LLC" has the meaning specified in Section 3.2(a).
-------
"BSH Options" when used with reference to periods prior to the Closing,
-----------
means the options to purchase BSH Shares outstanding as of the date of this
Agreement set forth on Annex A and further described in Section 4.3(a), and when
-------
used with reference to periods from and after the Closing, shall mean options to
purchase BSH Shares which remain outstanding, or are issued, in accordance with
Section 3.2.
"BSH Per Share Price" has the meaning specified in Section 3.2(b).
-------------------
"BSH SARs" means the Share Appreciation Rights granted under the BSH SAR
--------
Plan, as set forth on Annex A and further described in Section 4.3(c).
-------
"BSH Shares" means the shares of beneficial interest in BSH.
----------
"BSH Warrants" means the warrants to purchase BSH Shares issued to
------------
Positano, as described in Section 3.2(b).
"Client Interviews" has the meaning specified in Section 3.5.
-----------------
"Closing" has the meaning specified in Section 3.1.
-------
"Closing Date" has the meaning specified in Section 3.1.
------------
-2-
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commitment Letter" means the Commitment Letter from Bankers Trust Company
-----------------
dated November 25, 1998, a copy of which has been provided to the Companies.
"Companies" and "Company" have their respective meanings specified in the
--------- -------
preamble.
"Company Material Adverse Effect" has the meaning specified in Section 4.1.
-------------------------------
"Company Properties and Assets" has the meaning specified in Section 4.11.
-----------------------------
"Company Shares" means the Shares.
--------------
"Damage Claim Notice" has the meaning specified in Section 7.4(a).
-------------------
"Damages" has the meaning specified in Section 7.2(a).
-------
"Determination" means a "determination" as defined by Section 1313(a) of
-------------
the Code.
"Disclosure Memorandum" has the meaning specified in the first paragraph of
---------------------
Article 4.
"Dispute Notice" has the meaning specified in Section 7.6 hereof.
--------------
"Dispute Period" has the meaning specified in Section 7.6 hereof.
--------------
"Employee" means a regular employee on the payroll of either Company or
--------
their Subsidiaries.
"Encumbrance" means, with respect to any asset, any mortgage, lien, pledge,
-----------
charge, security interest, conditional sale agreement, financing statement or
encumbrance of any kind, or any other type of preferential arrangement that has
the practical effect of creating a security interest in respect of such asset.
"Equity-Related Interests" as to any Person means all options, warrants or
------------------------
other rights to acquire, or obligations to issue, capital stock or share
interests of, or equity interests in, such Person, or similar securities or
contractual obligations the value of which is derived from the value of any
capital stock or share interests of or equity interests in such Person
(including any agreement of such Person to share past, present or future
commissions, fees or other income or profits), or securities convertible into or
exchangeable for capital stock or share interests of, equity interests in, or
similar securities or contractual obligations of, such Person.
"ERISA" has the meaning specified in Section 4.25(a).
-----
"ERISA Affiliate" means, with respect to any entity, trade or business, any
---------------
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a
-3-
<PAGE>
member of the same "controlled group" as the first entity, trade or business
pursuant to Section 4001(a)(14) of ERISA.
"ERISA Plans" has the meaning specified in Section 4.25(b).
-----------
"Escrow Agent" has the meaning specified in Section 3.3.
------------
"Escrow Agreement" shall have the meaning specified in Section 3.3.
----------------
"Escrowed Amount" has the meaning specified in the Escrow Agreement.
---------------
"Escrowed Cash" has the meaning specified in the Escrow Agreement.
-------------
"Escrowed Shares" has the meaning specified in the Escrow Agreement.
---------------
"Fair Market Value" has the meaning set forth in Section 7.5(c).
-----------------
"Financial Statements" has the meaning specified in Section 4.5(b).
--------------------
"Financial Summary" has the meaning specified in Section 4.5(a).
-----------------
"Fiscal 1999 Financial Statements" means the balance sheet of BSH as at
--------------------------------
December 31, 1999 and the statement of operations, statement of cash flows and
statement of shareholders' equity (deficit) of BSH for the fiscal year ended
December 31, 1999, each as audited by BSH's independent auditors.
"General Claims" has the meaning specified in Section 7.2(b).
--------------
"Governance Agreement" has the meaning specified in Section 12.2.
--------------------
"Governmental Entity" means any government or governmental, regulatory or
-------------------
administrative authority or agency, domestic or foreign.
"HFCP Investors" has the meaning set forth in the preamble.
--------------
"Historical Financial Statements" has the meaning specified in Section
-------------------------------
4.5(a).
"Holder Indemnitors" has the meaning specified in Section 7.4(a).
------------------
"Holders" means the BSH Holders and the SIG Holders, and "Holder" means any
------- ------
one of them.
"Holding Merger Agreement" has the meaning specified in Section 3.2(c).
------------------------
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended.
-4-
<PAGE>
"Income Tax" or "Income Taxes" means income, capital gains or franchise
---------- ------------
Taxes or other Taxes measured by reference to income or capital gains, together
with any interest, penalties, charges or fees imposed with respect thereto.
"Indemnitee" has the meaning specified in Section 7.4(a).
----------
"Indemnitors" has the meaning specified in Section 7.4(a).
-----------
"Intellectual Property Rights" means all patents, patent applications,
----------------------------
patent rights, and inventions and discoveries and invention disclosures (whether
or not patentable) (collectively, "Patents"); all trade names, trade dress,
-------
logos, packaging design, slogans, Internet domain names, registered and
unregistered trademarks and service marks and applications (collectively,
"Marks"); all copyrights in both published and unpublished works, including
-----
without limitation all compilations, databases and computer programs, and all
copyright registrations and applications, and all derivatives, translations,
adaptations and combinations of the above (collectively, "Copyrights"); and all
----------
know-how, trade secrets, customer lists, research in progress, algorithms, data,
designs, processes, formulae, drawings, schematics, blueprints, flow charts,
models, prototypes, and techniques used in the businesses of the Companies to
provide a competitive advantage and which are not generally known (collectively,
"Trade Secrets").
-------------
"Interested Party Transaction" means any transaction or series of similar
----------------------------
transactions to which any of the Companies, the Subsidiaries or the Predecessor
Entities is a party, in which the amount involved exceeds $50,000 (other than
(a) compensation for services rendered or perquisites in lieu of compensation
received as an employee in the ordinary course of business pursuant to the
compensation and bonus policies and procedures of BSH or SIG and (b)
transactions in the ordinary course of business between BSH and SIG) and in
which any of the following persons has a direct or indirect material interest:
any trustee or Employee of BSH or its Subsidiaries, any trustee or Employee of
SIG or its Subsidiaries or any holder of more than 1% of the BSH Shares, the BSH
Options, the SIG Shares or the SIG Options.
"Interim Valuation Date" has the meaning specified in Section 7.5(c).
----------------------
"Interview Period" has the meaning specified in Section 3.5.
----------------
"Joint Designees" has the meaning specified in Section 3.2(b).
---------------
"Key Employee" means the Principal Shareholder and any Chief Executive
------------
Officer, President, Executive Vice President or Senior Vice President or other
Employee whose annual base compensation exceeds $250,000, of the Companies or
their Subsidiaries.
"Knowledge" means, with respect to BSH, SIG and their respective
---------
Subsidiaries and Predecessor Entities, the actual knowledge of Michael E.
Bronner, David W. Kenny, Jean Alexander, Reuben Hendell, John Hoholik, Betsy
Karp, Harvey Kipnis, Clare Robinson, Myron Slosberg, Malcolm Speed, Kathleen
Biro, Reuben Pinchanski, Robert Cosinuke, Meryl Beckingham and Michael Ward.
-5-
<PAGE>
"Lease" and "Leases" have their respective meanings specified in Section
----- ------
4.13.
"LLC" has the meaning specified in the recitals.
---
"LLC Merger Agreement" has the meaning specified in Section 3.2(c).
--------------------
"LLCs" means BSH LLC and SIG LLC.
----
"MB" means Michael E. Bronner.
--
"Management Designees" has the meaning specified in Section 3.2(b).
--------------------
"Material Contracts" has the meaning specified in Section 4.15.
------------------
"Material Adverse Effect" as to a Person other than a Company shall mean a
-----------------------
material adverse effect on the business, properties, assets, financial condition
or results of operations of such Person and its Subsidiaries, taken as a whole.
"MBCL" means the Massachusetts Business Corporation Law.
----
"Option Holders" means the holders of all outstanding Options, and "Option
-------------- ------
Holder" means any one of them. The names and addresses of the Option Holders,
- ------
the number of Options held by each of them and the exercise price of such
Options are set forth on Annex A hereto.
-------
"Options" means the BSH Options and the SIG Options.
-------
"Option Agreement" means an agreement substantially in the form of the
----------------
option agreement attached as an exhibit to the Stock Option Plan.
"Other Rights" means the rights to obtain certain amounts upon a sale of
------------
the Companies, as set forth on Annex A and further described in Section 4.3(d).
-------
"Other Rights Holders" means the holders of all outstanding Other Rights.
--------------------
The names and addresses of the Other Rights Holders, the number of Shares for
which such Person is entitled to Other Rights and the amounts payable with
respect to such Other Rights are set forth on Annex A hereto.
-------
"Person" means a natural person, corporation, partnership or other business
------
entity, or any Governmental Entity.
"Plan" has the meaning specified in Section 4.25(a).
----
"Positano" has the meaning specified in the preamble.
--------
"Positano Control Proceeding" has the meaning specified in Section 3.4(h).
---------------------------
"Positano Designees" has the meaning specified in Section 3.2(b).
------------------
-6-
<PAGE>
"Predecessor Entity" means, with respect to BSH LLC, Bronner Slosberg
------------------
Humphrey Inc., a Massachusetts corporation, and with respect to SIG LLC,
Strategic Interactive Group, Inc., a Massachusetts corporation. References
herein to the Predecessor Entity of a given Company mean the Predecessor Entity
of the LLC of which such Company is the sole member.
"Principal Shareholder" means MB.
---------------------
"PWC" means PricewaterhouseCoopers LLP or its predecessors.
---
"QSS Sub" means a "qualified subchapter S subsidiary" within the meaning of
-------
Section 1361(b)(3) of the Code and comparable provisions of state and local law.
"Recapitalization" has the meaning specified in the recitals.
----------------
"Registration Rights Agreement" has the meaning specified in Section 12.3.
-----------------------------
"Release Date" has the meaning specified in Section 3.3.
------------
"Reorganization" has the meaning set forth in the recitals.
--------------
"Returns" means any Internal Revenue Service Form-1120S and Schedule K-1
-------
and any other Tax returns, reports and forms required to be filed with any
Governmental Entity.
"S corporation" means, with respect to any specified period, a corporation
-------------
that has in effect throughout such period a valid election under Section 1362(a)
of the Code (and comparable provisions of applicable state and local law) to be
an S corporation which is, and whose shareholders are, subject to the tax
treatment provided for under the provisions of Subchapter S of the Code (and
comparable provisions of applicable state and local law).
"SAR Holders" means the holders of all outstanding SARs, and "SAR Holder"
-----------
means any one of them. The names and addresses of the SAR Holders, the number
of SARs held by each of them and the base value of such SARs are set forth on
Annex A hereto.
- -------
"SAR Plans" means the Share Appreciation Rights Plans of BSH and SIG
---------
pursuant to which the SARs were granted.
"SARs" means the Share Appreciation Rights granted under the SAR Plans, as
----
set forth on Annex A and further described in Section 4.3(c).
-------
"Section 338 Forms" means all Returns, documents, statements, and other
-----------------
forms that are required to be submitted to any federal, state or local
Governmental Entity in connection with the Section 338(h)(10) Election. Section
338 Forms shall include, without limitation, any "statement of section 338
election" and IRS Form 8023 (together with any schedules or attachments thereto)
that are required pursuant to Treas. Reg. Section 1.338-1 or Treas. Reg. Section
1.338(h)(10)-1.
"Section 338(h)(10) Election" means an election described in Section
---------------------------
338(h)(10) of the Code with respect to the acquisition of each of the Companies
and the Subsidiaries pursuant to
-7-
<PAGE>
this Agreement. Section 338(h)(10) Election shall include any election actually
made or deemed to have been made corresponding to an election described in Code
Section 338(h)(10) under any other relevant Tax laws for which a separate
election is permissible with respect to such acquisitions.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Senior Bank Facility" means the Senior Secured Credit Facilities as
--------------------
contemplated by the Commitment Letter.
"September 30 Balance Sheet" has the meaning specified in Section 4.5(a).
--------------------------
"September Financial Statements" has the meaning specified in Section
------------------------------
4.5(a).
"Shareholder Representatives" for purposes of this Agreement and the Escrow
---------------------------
Agreement, means MB and David W. Kenny, collectively; provided that, in the
-------- ----
event of MB's death, his estate shall be entitled to designate his replacement
as a Shareholder Representative.
"Shareholders" means the holders of all outstanding Shares, and
------------
"Shareholder" means any one of them. The names and addresses of the
Shareholders and the number of Shares held by each of them are set forth on
Annex A hereto.
- -------
"Shareholders Agreement" has the meaning specified in Section 12.2.
----------------------
"Shares" means the BSH Shares and the SIG Shares.
------
"SIG" has the meaning specified in the preamble.
---
"SIG Borrowed Funds" has the meaning specified in Section 3.2(b).
------------------
"SIG Holders" means the holders of SIG Shares, the holders of SIG Options,
-----------
and the holders of SIG SARs, as set forth on Annex A hereto.
-------
"SIG Holding" has the meaning specified in Section 3.2(a).
-----------
"SIG LLC" has the meaning set forth in Section 3.2(a).
-------
"SIG Options" means the options to purchase SIG Shares, as set forth on
-----------
Annex A and further described in Section 4.3(a).
- -------
"SIG Per Share Price" means the purchase price of $4,386.76 per SIG share.
-------------------
"SIG SARs" means the Share Appreciation Rights granted under the SIG SAR
--------
Plan, as set forth on Annex A and further described in Section 4.3(c).
-------
"SIG Shares" means the shares of beneficial interest in SIG.
----------
"Signing Holders" has the meaning specified in the preamble.
---------------
-8-
<PAGE>
"Stock Option Plan" has the meaning specified in Section 10.10.
-----------------
"Subject Tax Claim" has the meaning specified in Section 7.4(a).
-----------------
"Straddle Period" has the meaning specified in Section 3.4(e)
---------------
"Subsidiary" has the meaning specified in Section 4.4(c).
----------
"Tax" and "Taxes" means all taxes (whether federal, state, local or
--- -----
foreign) based upon or measured by income and any other tax (whether federal,
state, local or foreign) whatsoever, including, without limitation, gross
receipts, profits, sales, use, occupation, value added, ad valorem, transfer,
franchise, withholding, payroll, social security, employment, excise, stamp and
property taxes, levies, imposts, deductions, charges, rates and duties together
with any interest, penalties, charges or fees imposed with respect thereto.
"Tax Claim" means an asserted, proposed or actual Tax deficiency,
---------
adjustment, assessment, audit, examination or other administrative or court
proceeding, suit, dispute or other claim with respect to Taxes.
"Tax Differential" has the meaning specified in Section 3.4(h).
----------------
"Tax Proceeding" means any Tax audit, examination, suit, dispute, contest,
--------------
litigation or other proceeding.
"Trustee" has the meaning specified in Section 3.2(b).
-------
"Trustee Board" has the meaning specified in Section 3.2(b).
-------------
ARTICLE 2 - PLAN OF RECAPITALIZATION
2.1 Adoption of Plan of Recapitalization. The parties hereto hereby adopt a
------------------------------------
plan of recapitalization which, if consummated in accordance with the terms and
conditions of this Agreement, is intended to be accounted for under generally
accepted accounting principles as a recapitalization of the Companies not
subject to purchase or push down accounting treatment.
ARTICLE 3 - THE TRANSACTION
3.1 The Closing Date. Subject to the terms and conditions of this Agreement,
----------------
the closing of the transactions contemplated herein (the "Closing") shall take
-------
place at the offices of Wachtell, Lipton, Rosen & Katz, New York, New York, at
10:00 a.m. on January 4, 1999, or at such other place or time, or on such other
date, as the Companies and Positano may agree (the "Closing Date").
------------
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<PAGE>
3.2 Transaction Steps.
-----------------
(a) Prior to the Closing:
(i) the HFCP Investors shall capitalize Positano with an
aggregate of $102 million in equity which amount will be used to purchase BSH
Shares and SIG Shares as set forth in clause (x) of this Section 3.2(a). In the
event that (A) the requirement for the currently outstanding letters of credit
to landlords is reduced by at least $3 million and (B) there is otherwise
sufficient cash flow, together with amounts available under the revolving
portion of the Senior Bank Facility to prudently provide for the Company's
working capital requirements, Positano will endeavor to (I) decrease the amount
of equity to be contributed from $102 million to $99 million and (II) increase
the amount of the Senior Bank Facility by $3 million, such that the same total
amount of cash will be used to purchase and redeem Equity-Related Interests as
is provided in this Section 3.2, and this Section 3.2 will be revised as
necessary, in a manner mutually satisfactory to each of Positano and the
Company, to reflect such changes.
(ii) BSH shall form BSH Holding LLC, a Delaware limited
liability company of which BSH shall be the sole member ("BSH Holding"). SIG
shall form SIG Holding LLC, a Delaware limited liability company of which SIG
shall be the sole member ("SIG Holding").
(iii) BSH, the sole member of Bronner Slosberg Humphrey, LLC, a
Delaware limited liability company ("BSH LLC"), shall contribute 100% of the
membership interests in BSH LLC to BSH Holding. SIG, the sole member of
Strategic Interactive Group, LLC, a Delaware limited liability company ("SIG
LLC"), shall contribute 100% of the membership interests in SIG LLC to SIG
Holding.
(b) At the Closing, the parties hereto shall cause the following
transactions to take place in the sequence indicated (provided, that all cash
payments set forth below shall be subject to withholding of any taxes that are
required by applicable law or regulation to be withheld therefrom):
(i) An Amended and Restated Declaration of Trust of BSH, in
the form contemplated by Section 8.9 and satisfactory to Positano and BSH, shall
be adopted by (A) MB as the trustee of BSH and (B) the BSH Shareholders, to the
extent required by the Massachusetts law applicable to Massachusetts business
trusts.
(ii) MB shall appoint Sorrento, Inc., a newly formed Delaware
corporation to be owned by Positano (the "Trustee"), as trustee of BSH, and
-------
immediately thereafter, shall resign as trustee. The parties hereto shall take
all necessary action such that the Board of Directors of the Trustee (the
"Trustee Board") has a total of six members, two of whom shall be MB and the
-------------
Chief Executive Officer of the Company (the "Management Designees"); two of whom
--------------------
shall be designees of Positano (the "Positano Designees") and two of whom shall
------------------
be jointly selected by the Positano Designees and the Management Designees (the
"Joint Designees").
---------------
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<PAGE>
(iii) BSH LLC and SIG LLC shall borrow an aggregate of $78
million under the Senior Bank Facility (to be allocated between them as
determined prior to Closing, as so allocated, the "BSH Borrowed Funds" and the
------------------
"SIG Borrowed Funds").
------------------
(iv) BSH LLC shall prepay all outstanding debt and accrued
interest as well as all notes held by the BSH Holders set forth in Section 4.17
of the Disclosure Memorandum. SIG LLC shall prepay all outstanding debt and
accrued interest as well as all notes held by the SIG Holders set forth in
Section 4.17 of the Disclosure Memorandum. BSH and SIG LLC shall pay transaction
bonuses to such individuals in such amounts as are listed in Annex A.
-------
(v) BSH LLC shall distribute the remaining BSH Borrowed
Funds to BSH Holding, which shall distribute such funds to BSH. SIG LLC shall
distribute the remaining SIG Borrowed Funds to SIG Holding, which shall
distribute such funds to SIG.
(vi) BSH shall redeem 168,416.15 BSH Shares (from such BSH
Shareholders and in such amounts listed in Annex A hereto) at a purchase price
-------
of $151.10 per share (the "BSH Per Share Price"). SIG shall not redeem any SIG
-------------------
Shares.
(vii) BSH shall redeem BSH Options to purchase 13,822.04 BSH
Shares (from such holders of BSH Options and in such amounts listed in Annex A
-------
hereto) at a purchase price per BSH Option equal to the difference between the
BSH Per Share Price and the exercise price of such BSH Option multiplied by the
number of BSH Shares subject to such BSH Option (as indicated on Annex A
-------
hereto). Each unredeemed BSH Option shall remain outstanding at its current
exercise price and shall have the terms set forth in the Stock Option Plan and
in Annex B hereto. SIG shall not redeem any SIG Options to purchase SIG Shares.
-------
Each unredeemed SIG Option shall remain outstanding at the exercise price set
forth in Annex A.
-------
(viii) BSH shall redeem BSH SARs relating to 4,000 BSH Shares
(from such holders of BSH SARs and in such amounts listed in Annex A hereto) at
-------
a purchase price per BSH SAR equal to the difference between the BSH Per Share
Price and the base value of such BSH SAR multiplied by the number of BSH Shares
to which such BSH SAR relates (as indicated on Annex A hereto). Each unredeemed
-------
BSH SAR shall be converted into a BSH Option relating to the same number of BSH
Shares exercisable at the current base value of such BSH SAR having the terms
set forth in the Stock Option Plan and in Annex B hereto. SIG shall not redeem
-------
any SIG SARs relating to SIG Shares. Each unredeemed SIG SAR shall be converted
into a SIG Option for the same number of SIG Shares, exercisable at the current
base value of such SIG SAR.
(ix) BSH shall pay to such individuals listed in Annex A
-------
hereto, the aggregate amount of $5,397,925.15 in satisfaction of its obligations
with respect to the Other Rights.
(x) Positano shall purchase (i) 524,790.39 BSH Shares (from
such BSH Shareholders and in such amounts listed in Annex A hereto) at a
-------
purchase price per share equal to the BSH Per Share Price and (ii) 5,175.62 SIG
Shares (from such SIG Shareholders and in
-11-
<PAGE>
such amounts listed in Annex A hereto) at a purchase price per share equal to
-------
the SIG Per Share Price. Subject to Section 3.2(a)(i), the aggregate purchase
price for the BSH Shares and the SIG Shares purchased by Positano shall be $102
million.
(xi) The parties shall (A) elect as Chairman of the Trustee
Board a director nominated by the Management Designees; (B) appoint as a member
of each committee and subcommittee of the Trustee Board, a member designated by
the Positano Designees and a member designated by the Management Designees; (C)
create an audit committee of the Trustee Board consisting of a total of three
members, one of whom shall be a Management Designee (as selected by the
Management Designees), one of whom shall be a Positano Designee (as selected by
the Positano Designees) and one of whom shall be a Joint Designee (as selected
by the Joint Designees); and (D) create a compensation committee of the Trustee
Board consisting of a total of three members, one of whom shall be a Management
Designee (as selected by the Management Designees), one of whom shall be a
Positano Designee (as selected by the Positano Designees) and one of whom shall
be a Joint Designee (as selected by the Joint Designees).
(xii) Each BSH Option which remains outstanding, or is issued
pursuant to Sections 3.2(b) or (c), shall be evidenced by a new Option Agreement
pursuant to the Stock Option Plan, which shall incorporate the terms and
conditions set forth in Annex B hereto.
-------
(xiii) BSH shall deliver to Positano a warrant to purchase 15,000
BSH Shares at $151.10 per share, which shall be immediately exercisable, shall
have a ten-year term and customary anti-dilution adjustments, and shall be
evidenced by a Warrant Agreement to be entered into at Closing in form
satisfactory to each of BSH and Positano. To the extent that the Benefit Plan
Remedial Obligation (as defined in BSH Schedule 4.25(b)1 of the Disclosure
Memorandum) is determined to (A) exceed $1.2 million at any time prior to the
fifth anniversary of Closing (the amount of such excess being the "Benefit Plan
------------
Excess"), BSH shall issue an additional ten-year warrant to purchase an
- ------
additional number of BSH Shares at $151.10 per share as follows: the number of
BSH Shares subject to such additional warrant shall bear the same ratio to
15,000 as the amount of the Benefit Plan Excess bears to $1.2 million; provided
that such adjustment shall only be made if the Benefit Plan Excess is an amount
greater than $300,000 and (B) be less than $1.2 million at any time prior to the
fifth anniversary of the Closing (the amount of such difference being the
"Benefit Plan Reduction Amount"), Positano shall surrender a portion of the
-----------------------------
warrant as follows: the number of BSH Shares subject to the portion surrendered
shall bear the same ratio to 15,000 as the Benefit Plan Reduction Amount bears
to $1.2 million; provided that such adjustment shall only be made if the Benefit
Plan Reduction Amount is greater than $300,000. To the extent required under BSH
Schedule 4.17 of the Disclosure Memorandum, Positano will be granted an
additional warrant as set forth therein.
(c) On the day following the Closing Date:
(i) SIG shall transfer all of the membership interests of SIG
Holding to BSH in exchange for 37,442.33 BSH Shares. In connection with such
transfer, each remaining SIG Option shall be converted into a BSH Option to
purchase a number of BSH Shares equal to the number of SIG Shares underlying
such SIG Option multiplied by 29.03, as indicated on
-12-
<PAGE>
Annex A hereto, at an exercise price equal to the exercise price of the SIG
- -------
Option divided by 29.03, as indicated on Annex A hereto, and shall have the
-------
terms set forth in the Stock Option Plan and in Annex B hereto.
-------
(ii) SIG shall transfer such 37,442.33 BSH Shares in such
amounts and to such individuals listed on Annex A hereto and shall thereafter
-------
liquidate and terminate its existence.
(iii) Pursuant to the merger agreement in a form satisfactory to
Positano and BSH (the "LLC Merger Agreement"), SIG LLC shall merge with and into
--------------------
BSH LLC. Pursuant to the merger agreement in a form satisfactory to Positano
and BSH (the "Holding Merger Agreement"), SIG Holding shall merge with and into
------------------------
BSH Holding.
3.3 Escrowed Amount. Of the cash to be paid pursuant to Section 3.2(b),
---------------
Positano shall place $9,350,000, allocated among the Holders in the amounts set
forth on Annex A hereto, in escrow pursuant to the terms of the escrow
-------
agreement, to be dated as of the Closing Date, among MB and David W. Kenney,
BSH, SIG, Positano and an institutional escrow agent mutually satisfactory to
them (the "Escrow Agent") substantially in the form attached as Annex C hereto
------------ -------
(the "Escrow Agreement"). Furthermore, pursuant to the Escrow Agreement, BSH
----------------
Shares and BSH Options allocated among the Holders in the amounts set forth on
Annex A hereto, with an aggregate value of $9,350,000 shall be placed in escrow
- -------
(with such BSH Shares valued at the BSH Per Share Price upon contribution to the
escrow and such BSH Options valued at the difference between the BSH Per Share
Price and the per share exercise price of such option, multiplied by the number
of BSH Shares subject to such option). The Escrowed Amount shall be security
for the faithful performance of the indemnity obligations of the Holders to
Positano under Section 7.2 hereof and will be subject to transfer to Positano in
satisfaction of the indemnification obligations of the Holders as provided in
this Agreement and the Escrow Agreement. Subject to the terms of Article 7 of
this Agreement and the terms of the Escrow Agreement, the Escrowed Amount, less
(a) any amount which shall be transferred to the HFCP Investors and Positano
pursuant to the terms of this Agreement and the Escrow Agreement and (b) any
Reserved Amount (as defined in the Escrow Agreement), shall be released to the
Holders on the date which is 30 days after the receipt by BSH of the Fiscal 1999
Financial Statements (the "Release Date").
------------
3.4 Tax Matters
-----------
(a) Tax Returns. The Shareholders shall prepare or cause to be
-----------
prepared and file or cause to be filed (i) all Returns of any of the Companies,
the Subsidiaries or the Predecessor Entities required to be filed (taking into
account extensions) prior to the Closing Date and (ii) all federal Income Tax
Returns of the Companies or the Predecessor Entities (and all state and local
Income Tax Returns of the Companies or the Predecessor Entities) for all taxable
periods ending on or prior to the Closing Date which are required to be filed
after the Closing Date; provided, however, that (A) the Shareholders shall
provide Positano for its review and comment each such Return described in clause
(i) or (ii) at least thirty days prior to filing, (B) such Returns shall be
prepared consistently with this Agreement and past practice and (C) in the event
that Positano
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<PAGE>
reasonably objects to any item in such Returns that could reasonably be expected
to have an adverse impact on Positano, such dispute shall be resolved by a
neutral accounting firm prior to the date such Return is required to be filed.
Positano shall prepare or cause to be prepared and file or cause to be filed all
other Returns of the Companies, the Predecessor Entities or the Subsidiaries. To
the extent permitted by applicable law, the Shareholders shall include any
income, gain, loss, deduction or other Tax items for periods ending on or prior
to the Closing Date on their Returns in a manner consistent with the Schedule K-
1s prepared as provided in this Section 3.4(a) for such periods.
(b) Cooperation. The Holders, the Companies and Positano shall
-----------
cooperate fully in connection with the filing of Returns pursuant to this
Section 3.4 and any Tax Proceeding. Such cooperation shall include the retention
and (upon the other parties' request) the provision of records and information
which are reasonably relevant to any such Tax Proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Holders and the Companies
agree: (i) to retain all books and records with respect to Tax matters pertinent
to the Companies, the Predecessor Entities or the Subsidiaries relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by the Holders or Positano,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority; and (ii) to
give the other parties reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other parties so
request, the Holders or Positano, as the case may be, shall allow the other
parties to take possession of such books and records.
(c) Section 338 Election. (i) With respect to the acquisition under
--------------------
this Agreement of the Companies and the Subsidiaries, the Shareholders and
Positano shall properly make a Section 338(h)(10) Election in accordance with
applicable Tax laws; provided, however, that neither the Shareholders nor
Positano shall make any such election (or any election corresponding to any
election under Section 338 of the Code) for purposes of Massachusetts Income
Taxes. The Holders, the Companies and Positano agree to report such acquisitions
consistent with the Section 338(h)(10) Election (and the treatment for
Massachusetts Tax purposes of each such acquisition as an acquisition of
interests in a Massachusetts business trust with respect to which no election
under Section 338 of the Code or corresponding provision of state or local Tax
law was made) and shall take no position contrary thereto unless required to do
so by applicable Tax laws pursuant to a Determination.
(ii) Positano shall be responsible for the preparation and filing
of all Section 338 Forms; provided, however, that in the event that the
Shareholders reasonably object to any item in such Section 338 Forms that could
reasonably be expected to have an adverse impact on the Shareholders, such
dispute shall be resolved by a neutral accounting firm prior to the date that is
20 days prior to the date such Section 338 Form is required to be filed. The
Holders shall execute and deliver to Positano such documents or forms as are
reasonably requested and are required by any Tax laws properly to complete the
Section 338 Forms, at least 20 days prior to the date such Section 338 Forms are
required to be filed.
-14-
<PAGE>
(iii) Within 60 days following the Closing Date, Positano and
the Shareholders shall jointly prepare as follows a schedule (the "Allocation
----------
Schedule") allocating the "modified aggregate deemed sale price" as defined in
- --------
Treasury Regulation Section 1.338(h)(10)-1(f) with respect to the Section
338(h)(10) Election; provided, however, that the Allocation Schedule shall be
based upon a proposal by Positano, shall be reasonable, shall be based on fair
market values in accordance with Section 338 of the Code and the regulations
thereunder, and, notwithstanding any other provision, shall provide that the
tangible assets of the Companies and the Subsidiaries (and the shares or
interests in each Subsidiary, if any, organized outside of the United States or
any State thereof) shall be allocated an amount not in excess of their
respective tax bases. All relevant Income Tax Returns shall be filed in
accordance with the Allocation Schedule, which shall be binding upon the
Holders, Positano and the Companies unless otherwise provided in a
Determination. Positano and the Shareholders agree that, unless (A) otherwise
provided pursuant to a Determination or (B) there is a change in applicable Tax
law pursuant to which such treatment does not have a reasonable basis, (i) any
BSH Option or SIG Option that has vested on or prior to the Closing Date, is
held (or received) by an employee of a Company or a Subsidiary on the Closing
Date, is not redeemed on the Closing Date pursuant to Section 3.2(b)(vii) and is
not exercised (or cashed-out) on or prior to December 31, 1999 shall be treated
as a "contingent liability" for purposes of Treasury Regulation (S)1.338(b)-
3T(b)(1), (ii) any BSH Option or SIG Option that has vested on or prior to the
Closing Date, is held (or received) by an employee of a Company or a Subsidiary
on the Closing Date, is not redeemed on the Closing Date pursuant to Section
3.2(b)(vii) and is exercised (or cashed-out) after the Closing Date but before
January 1, 2000, shall be treated as a "liability" for purposes of Treasury
Regulation (S) 1.338(h)(10)-1(f)(3), (iii) the exercise (or cash-out) of an
option described in clause (i) above shall be treated as an "adjustment event"
for purposes of Treasury Regulation (S)1.338(b)-3T(b)(1) and (iv) any ordinary
income recognized by the employee at the time that an option described in clause
(i) or (ii) is exercised (or cashed-out) shall be treated as an additional
amount realized in calculating the "modified aggregate deemed sale price" and as
deductible by the Shareholders. BSH shall promptly advise the Shareholder
Representatives at the time any such option is exercised (or cashed-out) and the
amount of ordinary income recognized by the employee (unless clause (A) of the
immediately preceding sentence applies), and the Shareholders shall promptly
advise Positano at the time of any Determination referred to in clause (A) of
the immediately preceding sentence.
(iv) Notwithstanding any other provision hereof, the
Shareholders shall be liable for, and shall hold the HFCP Investors, Positano,
the Companies and the Subsidiaries harmless from, any Tax (other than the Tax
Differential) imposed on any Shareholder arising by reason of the Section
338(h)(10) Election. The Shareholders shall pay Positano the amount of any
refund, credit or other benefit received or realized by reason of any payment by
any of the Companies or their Subsidiaries of any Massachusetts Tax arising from
the transactions contemplated by Section 3.2(b)(vi) and (x) or an actual or
deemed election under Section 338 of the Code or corresponding provision of
state or local Tax law. The Shareholders shall file original or amended Returns
claiming any refund, credit or other benefit which they may be entitled to
receive or realize by reason of such a payment by any of the Companies or their
Subsidiaries.
-15-
<PAGE>
(d) Section 1374 Treatment; S Corporation Treatment. The Holders shall
-----------------------------------------------
not take any position before any Governmental Entity or otherwise (including in
any Income Tax Return) inconsistent with the treatment that no net recognized
built-in gain (as defined in Section 1374 of the Code or any similar provisions
of state and local Tax laws) results from any of the transactions contemplated
by this Agreement or any prior transaction involving the Companies, the
Subsidiaries, the Predecessor Entities or the LLCs, unless required to do so by
applicable Tax laws pursuant to a Determination. Unless, in each case, required
to do otherwise by applicable Tax laws pursuant to a Determination, none of the
Holders, Positano, the Companies or any of the Subsidiaries shall take any
action (including in connection with the filing of Returns) inconsistent with
the treatment of (i) BSH and its Predecessor Entity as an S corporation for
federal Income Tax purposes for all periods from October 1, 1987, to and
including the Closing Date, (ii) SIG and its Predecessor Entity as an S
corporation for all periods to and including the Closing Date, (iii) BSH's
Predecessor Entity as an S corporation for Massachusetts Income Tax purposes for
all periods from October 1, 1987, to and including the occurrence of the
Reorganization, (iv) SIG's Predecessor Entity as an S corporation for
Massachusetts Income Tax purposes for all periods to and including the
occurrence of the Reorganization, (v) each Subsidiary (other than BSH LLC, SIG
LLC, BSH Holding and SIG Holding) as a QSS Sub for all periods to and including
the Closing Date for federal Income Tax purposes, (vi) each Subsidiary (other
than BSH LLC, SIG LLC, BSH Holding and SIG Holding) as a QSS Sub for
Massachusetts Income Tax purposes for all periods to and including the
occurrence of the Reorganization and as a division for Massachusetts Income Tax
purposes for all periods from the occurrence of the Reorganization to and
including the Closing Date, (vii) BSH LLC, SIG LLC, BSH Holding, and SIG Holding
as disregarded entities for all Income Tax purposes, (viii) each of BSH and SIG
as a "corporate trust" for Massachusetts Income Tax purposes for all periods
from the occurrence of the Reorganization to and including the Closing Date,
(ix) BSH and SIG as the successor pursuant to a reorganization within the
meaning of Code Section 368(a)(1)(F) to their respective Predecessor Entities,
and (x) for all Income Tax purposes (other than federal and Massachusetts Income
Tax purposes), (A) BSH and its Predecessor Entity as an S corporation for all
periods from October 1, 1987, to and including the Closing Date, (B) SIG and its
Predecessor Entity as an S corporation for all periods to and including the
Closing Date, and (C) each Subsidiary (other than BSH LLC, SIG LLC, BSH Holding
and SIG Holding) as a QSS Sub for all periods to and including the Closing Date.
(e) Allocation of Certain Taxes. Positano and the Holders agree that
---------------------------
if any of the Companies are permitted but not required under applicable state or
local Income Tax laws to treat the Closing Date as the last day of a taxable
period, Positano and the Holders shall treat such day as the last day of a
taxable period. Where it is necessary to apportion between Positano and the
Holders the Tax liability of the Companies or the Subsidiaries for a period that
includes but does not end on the Closing Date (a "Straddle Period"), such
---------------
liability shall be apportioned between the period deemed to end at the close of
the Closing Date and the period deemed to begin at the beginning of the day
following the Closing Date on the basis of an interim closing of the books,
except that Taxes, such as real property Taxes, imposed on a periodic basis
shall be apportioned on a daily basis and exemptions, allowances and deductions
that are otherwise calculated on an annual basis shall be apportioned on a daily
basis.
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<PAGE>
(f) Survival of Obligations. Notwithstanding anything to the contrary
-----------------------
in this Agreement, the obligations of the parties set forth in this Section 3.4
shall be unconditional and absolute and shall remain in effect until 90 days
after the applicable statute of limitations has expired.
(g) Refunds and Credits. The Companies and the Subsidiaries shall be
-------------------
entitled to receive and retain all refunds and credits of Taxes of the
Companies, the Predecessor Entities and the Subsidiaries.
(h) The Tax Differential. (i) Positano shall indemnify and hold
--------------------
harmless the Shareholders against any federal income taxes resulting from the
Section 338(h)(10) Election in an amount equal to the product of (A) the amount
of income recognized by the Shareholders for federal income tax purposes and
subject to tax at ordinary income rates under the Code as a result of the
Section 338(h)(10) Election and (B) the excess of (I) the ordinary income rate
applicable to such income under the Code as a result of the Section 338(h)(10)
Election over (II) the capital gains rates that would have applied to such
income under the Code if the deemed asset sales giving rise to such income had
been subject to tax at capital gains rates. The amount for which Positano is
liable pursuant to this Section 3.4(h) (the "Tax Differential") shall be
----------------
calculated in a manner that is consistent with the Allocation Schedule, unless
otherwise required pursuant to a Determination. The amount of any payment
required to be made by Positano to a Shareholder pursuant to this Section 3.4(h)
shall be increased to take account of any income tax imposed on such Shareholder
that would not have been imposed but for the receipt of such payment by such
Shareholder.
(ii) Positano shall pay the Shareholders the Tax Differential no
later than the date on which the Shareholders are required to pay such amount to
the Internal Revenue Service.
(iii) Notwithstanding any other provision of this Agreement: (A)
Positano shall be entitled to control, including with respect to settlement, any
Tax Proceeding relating to any Tax Differential (or which could reasonably be
expected to affect the amount or timing of any Tax Differential) (a "Positano
--------
Control Proceeding"); (B) the Holders shall provide Positano with their complete
- ------------------
cooperation with respect to any Positano Control Proceeding, which cooperation
shall include, without limitation, providing Positano with any reasonably
requested powers of attorney; and (C) the Holders shall promptly notify Positano
upon receipt of any Tax claim which could give rise to any Tax Differential or a
Positano Control Proceeding and shall thereafter promptly forward to Positano
copies of any written communications received from any Governmental Entity in
connection with any such Tax claim or any Positano Control Proceeding.
3.5 Client Interviews. The Companies shall arrange for the HFCP Investors
-----------------
to conduct client interviews with each of the clients of the Companies listed on
Annex D hereto (the "Client Interviews") within five days of the execution of
- ------- -----------------
this Agreement, or by such later date as may be either (a) necessary for the
Company to arrange such interviews or (b) agreed upon in writing by the
Companies and the HFCP Investors (the "Interview Period"). If as a result of
----------------
such Client Interviews, Positano shall determine in its sole discretion that the
circumstances or prospects
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<PAGE>
relating to any relationship between such Company and one or more of its clients
are, individually or in the aggregate, materially and adversely different
(including, without limitation, with respect to historical and/or projected
client revenue) from such circumstances or prospects as described to Positano
prior to execution of this Agreement, or if Positano shall learn of material and
adverse facts (as determined in Positano's sole discretion) relating to such
relationships that were not previously described to Positano, then Positano may
terminate this Agreement by delivering notice to that effect to the Companies no
later than the second business day following the conclusion of the Interview
Period. If the HFCP Investors do not terminate this Agreement pursuant to this
Section 3.5, then, notwithstanding anything contained in this Agreement to the
contrary, including, without limitation, Section 8.5 hereof, the Companies shall
have the right to update the Disclosure Memorandum to include such new
information obtained through the Client Interviews within five days of the
conclusion of the Interview Period so as to make the representations and
warranties contained in Section 4.16(c) true and correct for all purposes of
this Agreement.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
Except as otherwise set forth in the disclosure memorandum delivered by the
Companies to Positano at or prior to the execution of this Agreement (the
"Disclosure Memorandum"), each Company hereby represents and warrants, jointly
---------------------
and severally, to Positano and the HFCP Investors as follows:
4.1 Organization, Good Standing and Foreign Qualification. Such Company is
-----------------------------------------------------
(and at the time of the Closing will be) a business trust duly organized and
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts. Such Company is duly qualified or has filed a certificate of
designation by an agent for service of process in each other jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of business makes such qualification or designation necessary
other than in such jurisdictions where the failure to make such designation or
to be so qualified or licensed individually or in the aggregate, would not have
a material adverse effect on the business, properties, assets, financial
condition or results of operations of such Company and its Subsidiaries, taken
as a whole (a "Company Material Adverse Effect"). The Disclosure Memorandum sets
-------------------------------
forth all states and foreign jurisdictions in which such Company is qualified to
do business or has designated an agent subject to service of process in such
jurisdiction. Such Company has all requisite power and authority to own,
operate, lease and encumber its properties and to carry on its business as now
being conducted. A complete and correct copy of the Declaration of Trust, and
the bylaws or other organizational documents, if any, each as amended to date,
of such Company have been provided to Positano (it being understood for purposes
of this Agreement that "provided to Positano" shall include items or information
provided to the HFCP Investors or their accountants or attorneys in connection
with the transactions contemplated by this Agreement).
4.2 Capitalization. The entire beneficial interest in BSH consists of
--------------
815,500.36 issued and outstanding BSH Shares. The entire beneficial interest in
SIG consists of 6,465.33 issued
-18-
<PAGE>
and outstanding SIG Shares. All outstanding Shares are duly authorized and
validly issued. The number of Shares that such Company has authority to issue is
unlimited.
4.3 Absence of Outstanding Rights to Shares or Other Securities.
-----------------------------------------------------------
(a) Except for the Options, SARs and Other Rights set forth in Annex
-----
A, and except as specifically set forth in Schedule 4.3 of the Disclosure
- -
Memorandum, as of the date of this Agreement, there were no outstanding Equity-
Related Interests of such Company. The SIG Options are issued under SIG's 1995
Equity Incentive Plan, a complete and accurate copy of which has been provided
to Positano. The BSH Options were not issued under a Plan. Annex A sets forth a
-------
complete and accurate list of the names of each Option Holder of such Company,
the number of Options held by such Person, the exercise price of such Options
and the date of issuance of such Options.
(b) The Disclosure Memorandum lists, and such Company has provided to
Positano, complete and accurate copies of any and all agreements which have been
entered into among any of such Company (or its Subsidiaries or Predecessor
Entity), any Holder and/or any other Person which relate to the issuance,
purchase, sale or other disposition, or voting of any Shares or Equity-Related
Interests of such Company (or its Subsidiaries or Predecessor Entity), which (i)
have been entered into since January 1, 1996 or (ii) have been entered into as
of an earlier date but which have not been fully performed as of the date of
this Agreement. Except as disclosed in the Disclosure Memorandum, such Company
does not have any executory obligations with respect to any of such agreements.
(c) Annex A sets forth a complete and accurate list of the names of
-------
each SAR Holder of such Company, the number of SARs held by such Person and the
base value and date of issuance of such SARs.
(d) Annex A sets forth a complete and accurate list of the names of
-------
the Other Rights Holders and describes the nature and value of the Other Rights
held by such Persons. Payments to holders of such Other Rights sufficient to
perform and satisfy all obligations to such Holders in respect of such Other
Rights, will not exceed the amounts specified in the Disclosure Memorandum.
(e) No former holder of Shares, Options, SARs, Other Rights or other
Equity-Related Interests would be entitled to a payment in respect of such
Shares, Options, SARs, Other Rights or other Equity-Related Interests as a
result of the consummation of the transactions contemplated hereby.
(f) Except as set forth in the Disclosure Memorandum, there are no (i)
agreements (written or oral) to which such Company or any of its Subsidiaries is
a party restricting the transfer of Shares, Options, SARs, Other Rights or other
Equity-Related Interests, (ii) preemptive or anti-dilutive rights on the part of
any other Person relating to such Company or (iii) existing rights with respect
to registration under the Securities Act of any such Company's securities.
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<PAGE>
4.4 Subsidiaries. (a) BSH owns all of the outstanding equity interests
------------
(including without limitation, rights, options, convertible securities or other
Equity-Related Interests) in BSH LLC. BSH LLC (i) is (and at the time of the
Closing will be) a limited liability company duly organized and validly existing
and in good standing under the laws of the State of Delaware, (ii) is duly
licensed or qualified to do business as a foreign limited liability company and
is in good standing under the laws of Massachusetts and New York and will, prior
to Closing, be duly licensed or qualified in each other jurisdiction in which
the character of the properties owned or leased by it therein or in which the
transaction of business makes such qualification necessary other than in such
jurisdictions where the failure to be so qualified or licensed, individually or
in the aggregate, would not have a Material Adverse Effect on BSH or BSH LLC,
and (iii) has all requisite power and authority to own, operate, lease and
encumber its properties and to carry on its business as now being conducted. The
Disclosure Memorandum sets forth all states and foreign jurisdictions in which
BSH LLC is qualified to do business. Complete and correct copies of (A) the
limited liability company operating agreement, as amended to date, of BSH LLC,
(B) the merger agreement providing for the merger of a Predecessor Entity into
BSH LLC and (C) all other documents relating to the formation and organization
of BSH and BSH LLC, have been provided to Positano.
(b) SIG owns all of the outstanding equity interests (including
without limitation, rights, options, convertible securities or other Equity-
Related Interests) in SIG LLC. SIG LLC (i) is (and at the time of the Closing
will be) a limited liability company duly organized and validly existing and in
good standing under the laws of the State of Delaware, (ii) is duly licensed or
qualified to do business as a foreign limited liability company and is in good
standing under the laws of Massachusetts, New York and each other jurisdiction
in which the character of the properties owned or leased by it therein or in
which the transaction of business makes such qualification necessary other than
in such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a Material Adverse Effect on
SIG or SIG LLC, and (iii) has all requisite power and authority to own, operate,
lease and encumber its properties and to carry on its business as now being
conducted. The Disclosure Memorandum sets forth all states and foreign
jurisdictions in which SIG LLC is qualified to do business. Complete and correct
copies of (A) the limited liability company operating agreement, as amended to
date, of SIG LLC, (B) the merger agreement providing for the merger of a
Predecessor Entity into SIG LLC and (C) all other documents relating to the
formation and organization of SIG and SIG LLC, have been provided to Positano.
(c) The Disclosure Memorandum contains a complete and correct list of
entities in which such Company or its LLC owns or controls any shares or other
equity securities, other than marketable securities acquired by such Company or
its LLC for investment, and lists the nature and extent of such ownership and
control (each such entity in which such Company or its LLC owns 50% or more of
the equity interests, by economic value or by voting rights, is referred to as a
"Subsidiary"). Each Subsidiary (other than BSH LLC and SIG LLC, which are
----------
addressed in clauses (a) and (b) of this Section 4.4) of such Company is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power to own,
lease and operate its properties and carry on its business as now
-20-
<PAGE>
conducted. Except as set forth in the Disclosure Memorandum, there are no
outstanding Equity-Related Interests of any such Subsidiary of a Company.
4.5 Financial Statements. (a) Such Company has delivered to Positano the
--------------------
following financial statements:
(i) the balance sheets of such Company's Predecessor Entity as
at each of December 31, 1997, 1996 and 1995 and the statement of operations,
statement of cash flows and statement of shareholders' equity (deficit) of such
Company's Predecessor Entity for the fiscal years then ended, in each case
audited by PWC (such Company's "Historical Financial Statements");
-------------------------------
(ii) the unaudited balance sheet of such Company's Predecessor
Entity as at September 30, 1998 (such Company's "September 30 Balance Sheet")
--------------------------
and the unaudited Management Financial Summary and Budget Update for the
quarter, and for the nine months, ended September 30, 1998 (the "Financial
---------
Summary"), in each case prepared by such Company (together with the September 30
- -------
Balance Sheet, such Company's "September Financial Statements"); and
------------------------------
(iii) the "profit restatement" consolidated statements of income
(and explanations regarding the pro forma adjustments) for the years ended
December 31, 1997, 1996 and 1995 (the "Adjusted Financial Statements").
-----------------------------
(b) Except as set forth in the Disclosure Memorandum, such Company's
Historical Financial Statements and its September Financial Statements,
including the related schedules and notes thereto in the case of the Historical
Financial Statements (sometimes referred to collectively as such Company's
"Financial Statements"), are complete and correct and have been prepared in
- ---------------------
accordance with generally accepted accounting principles, consistently applied
throughout the periods indicated (subject, in the case of the September
Financial Statements, to the absence of notes and normal year end adjustments,
none of which, individually or in the aggregate, could have a Company Material
Adverse Effect). Except as set forth in the Disclosure Memorandum, the
respective balance sheets included in such Company's Financial Statements
present fairly the consolidated financial position of such Company's Predecessor
Entity as at the dates thereof, and the related statements of income, cash flows
and owners' equity, as well as the Financial Summary, present fairly the results
of operations and changes in financial position of such Company's Predecessor
Entity for the respective periods thereof (subject, in the case of the September
Financial Statements, to the absence of notes and normal year end adjustments,
none of which, individually or in the aggregate, could have a Company Material
Adverse Effect).
The Adjusted Financial Statements include adjustments to exclude certain
cash payments to Holders from compensation expense, reclassify payroll taxes and
other benefits from overhead to compensation expense, and exclude depreciation
expense from overhead, and are based upon actual amounts charged or credited as
the case may be in the books and records of the Predecessor Entities.
-21-
<PAGE>
(c) An unaudited pro forma balance sheet of such Company as at
September 30, 1998 and an unaudited Management Financial Summary and Budget
Update for the quarter, and for the nine months, ended September 30, 1998, in
each case presenting fairly the consolidation of the respective LLC owned by
such Company, would not differ from the September Financial Statements.
4.6 Dividends and Other Distributions; Past Conduct of Business.
-----------------------------------------------------------
(a) Except as otherwise set forth in the Disclosure Memorandum, since
December 31, 1997, (i) none of such Company, its Predecessor Entity, BSH LLC or
SIG LLC has declared or made any payment of any dividend or other distribution
in respect of Shares, Options, SARs or Equity-Related Interests or other equity
interests, (ii) there has not been any split, combination or reclassification of
any Shares of such Company, or equity interests in its Predecessor Entity, BSH
LLC or SIG LLC and (iii) none of the Company, its Predecessor Entity, BSH LLC or
SIG LLC has paid additional salaries, bonuses, distributions, profit
participations, or other payments above regular base salary amounts paid in the
ordinary course of business (whether or not otherwise required under bonus
plans, profit participation arrangements, options, SARs or any other agreements
or arrangements) which aggregate in excess of $100,000 to any given Employee,
Key Employee or Holder.
(b) Since December 31, 1997, except as set forth in the Disclosure
Memorandum, such Company together with its Predecessor Entity and its
Subsidiaries has conducted its business according to its ordinary and usual
course of business and, except as set forth in the Disclosure Memorandum, has
maintained its records and books of account in accordance with generally
accepted accounting principles consistently applied.
4.7 Absence of Undisclosed Liabilities. Except as set forth in the
----------------------------------
Disclosure Memorandum, none of such Company or its Subsidiaries has any
liabilities or obligations of the type required by generally accepted accounting
principles consistently applied to be set forth or reserved against in financial
statements (whether known, unknown, accrued, absolute, contingent or otherwise
or whether due or to become due) for the periods covered by the Financial
Statements of such Company's Predecessor Entity that are not reflected or
reserved against in such Financial Statements. Such Company has no Knowledge of
any basis for the assertion against such Company or its Subsidiaries of any
claim or liability (of the types that, in accordance with generally accepted
accounting principles consistently applied, are required to be reflected or
reserved against in the Financial Statements of such Company) of any nature or
in any amount not fully reflected or reserved against in the Financial
Statements of such Company's Predecessor Entity or its Subsidiaries.
4.8 Taxes.
-----
(a) Such Company, its Predecessor Entity, BSH LLC and SIG LLC have
timely filed all Returns that they were required to file through the date hereof
and will timely file all Returns required to be filed by them after the date
hereof and on or prior to the Closing Date. All such Returns were correct and
complete in all material respects. All Taxes required to be paid, by such
Company, its Predecessor Entity, BSH LLC and SIG LLC (whether or not shown on
any
-22-
<PAGE>
Return) with respect to periods (or portions thereof) ending on or prior to the
Closing Date have been duly and timely paid or will be duly and timely paid on
or prior to the date such Taxes are due. None of such Company, its Predecessor
Entity, BSH LLC or SIG LLC is currently the beneficiary of any extension of time
within which to file any Return.
(b) Except as set forth in the Disclosure Memorandum, there is no
material dispute, claim or investigation concerning any Tax liability of such
Company, its Predecessor Entity, BSH LLC or SIG LLC that is either (i) claimed
or raised by any authority in writing or (ii) as to which such Company, its
Predecessor Entity, BSH LLC or SIG LLC has Knowledge based upon personal contact
with any agent of such authority.
(c) Schedule 4.8 lists all federal, state, local, and foreign Income
Tax returns filed with respect to such Company, its Predecessor Entity, BSH LLC
or SIG LLC for taxable periods ended on or after December 31, 1993; indicates
all Income Tax returns that have been audited; and indicates all Income Tax
returns that currently are the subject of audit. Schedule 4.8 lists all federal,
state, local and foreign Returns (other than Income Tax Returns) with respect to
such Company, its Predecessor Entity, BSH LLC or SIG LLC that have been audited
and indicates all Returns that currently are the subject of audit. The
applicable Holders have delivered to Positano correct and complete copies of all
Returns, examination reports, and statements of deficiencies filed by, assessed
against, or agreed to by such Company, its Predecessor Entity, BSH LLC or SIG
LLC since December 31, 1993. None of such Company, its Predecessor Entity, BSH
LLC or SIG LLC has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to Tax payment, assessment,
deficiency or collection.
(d) None of such Company, its Predecessor Entity, BSH LLC or SIG LLC
has filed a consent under Section 341(f) of the Code concerning collapsible
corporations. None of such Company, its Predecessor Entity, BSH LLC or SIG LLC
has ever been a United States real property holding corporation within the
meaning of Section 897(c)(1)(A)(ii) of the Code. None of such Company, its
Predecessor Entity, BSH LLC or SIG LLC is or has ever been a party to any Tax
allocation or sharing agreement. None of such Company, its Predecessor Entity,
BSH LLC or SIG LLC (i) is or has ever been a member of an affiliated group
filing a consolidated federal Income Tax Return (or any consolidated, combined
or unitary state, local or foreign Return) or (ii) has or ever has had any
liability for the Taxes of any other person under Reg. (S) 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(e) The taxable year of such Company for federal and state Income Tax
purposes is the calendar year.
(f) (i) BSH and its Predecessor Entity have been, and will be as of
the Closing Date, an S corporation for federal Income Tax purposes for all
periods from October 31, 1987 to and including the Closing Date, (ii) SIG and
its Predecessor Entity have been, and will be as of the Closing Date, an S
corporation for all periods to and including the Closing Date, (iii) BSH's
Predecessor Entity was an S corporation for Massachusetts Income Tax purposes
for all periods from October 31, 1987 to and including the occurrence of the
Reorganization, (iv) SIG's
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<PAGE>
Predecessor Entity was an S corporation for Massachusetts Income Tax purposes
for all periods to and including the occurrence of the Reorganization, (v) each
Subsidiary (other than BSH LLC, SIG LLC, BSH Holding and SIG Holding) has been,
and will be as of the Closing Date, a QSS Sub for all periods to and including
the Closing Date for federal Income Tax Purposes, (vi) each Subsidiary (other
than BSH LLC, SIG LLC, BSH Holding and SIG Holding) has been, and will be as of
the Closing Date, a QSS Sub for Massachusetts Income Tax purposes for all
periods to and including the occurrence of the Reorganization and a division for
Massachusetts Income Tax purposes for all periods from the occurrence of the
Reorganization to and including the Closing Date, (vii) BSH LLC, SIG LLC, BSH
Holding and SIG Holding are and have always been disregarded entities for all
Income Tax purposes, (viii) for federal Income Tax purposes, BSH and SIG are the
successors pursuant to a reorganization within the meaning of Code Section
368(a)(1)(F) to the respective Predecessor Entities and (ix) for all Income Tax
purposes (other than federal and Massachusetts Income Tax purposes), (A) BSH and
its Predecessor Entity have been, and will be as of the Closing Date, an S
corporation for all periods from October 31, 1987 to and including the Closing
Date, (B) SIG and its Predecessor Entity have been, and will be as of the
Closing Date, an S corporation for all periods to and including the Closing
Date, and (C) each Subsidiary (other than BSH LLC, SIG LLC, BSH Holding and SIG
Holding) has been, and will be as of the Closing Date, a QSS Sub for all periods
to and including the Closing Date.
(g) None of such Company, its Predecessor Entity, BSH LLC or SIG LLC
is, will be or has ever been liable for the Tax imposed under Section 1374(a) or
1375(a) of the Code, whether by reason of the transactions contemplated hereby
or otherwise.
(h) All Taxes required to be withheld by or on behalf of such Company,
its Predecessor Entity, BSH LLC or SIG LLC have been withheld, and such withheld
Taxes have been duly and timely paid to the appropriate Governmental Entity.
(i) None of such Company, its Predecessor Entity, BSH LLC or SIG LLC
is or has ever been (A) a passive foreign investment company, (B) a foreign
personal holding company, (C) a FSC, (D) a foreign investment company or (E) a
person other than a United States person, each within the meaning of the Code.
(j) The current Taxes payable of the Companies (determined in
accordance with generally accepted accounting principles consistently applied)
as of November 6, 1998 and as of the Closing Date, respectively, do not exceed
in the aggregate $375,000 and $475,000, respectively.
(k) The representations set forth in Section 4.8(a) and 4.8(f)(viii)
shall not apply with respect to any Massachusetts tax liability incurred by such
Company or its Predecessor Entity that would not have been incurred but for the
Section 338(h)(10) Election or the transactions contemplated by Section
3.2(b)(vi) and (x).
For purposes of this Section 4.8 (other than Section 4.8(f)), any reference to a
Company shall also refer to any Predecessor Entity and any Subsidiary of the
Company or such entity (including BSH LLC, SIG LLC, BSH Holding and SIG
Holding).
-24-
<PAGE>
4.9 Absence of Changes. Except as set forth in the Disclosure Memorandum,
------------------
since December 31, 1997, there has not been:
(a) any material adverse change in the financial position of such
Company (together with its Predecessor Entity and their respective Subsidiaries)
from that reflected in the Historical Financial Statements for such Company's
Predecessor Entity as of December 31, 1997 or for the fiscal year then ended, or
any material adverse change in the condition or operations of the business of
such Company (together with its Predecessor Entity and their respective
Subsidiaries);
(b) any damage, destruction or loss from fire, water, accident or
other such casualty (whether or not covered by insurance) materially and
adversely affecting the business or properties of such Company (together with
its Predecessor Entity and their respective Subsidiaries); or
(c) any increase in the compensation payable or to become payable by
such Company (together with its Predecessor Entity and their respective
Subsidiaries) to its Key Employees, or any increase in any compensation and/or
benefits to any Key Employees pursuant to any Plan, or any entry into, or
material change in, any employment, severance or other agreement with any Key
Employee, except as reflected in Section 4.22 of the Disclosure Memorandum.
4.10 Absence of Unusual Transactions. Except as contemplated by this
-------------------------------
Agreement, or as set forth in the Disclosure Memorandum, since December 31, 1997
none of such Company, its Predecessor Entity or their respective Subsidiaries
has:
(a) issued, authorized for issuance or sold any of its Shares, other
securities or Equity-Related Interests;
(b) issued, authorized for issuance, delivered or granted any right,
option or other commitment for the issuance of Shares, other securities or
Equity-Related Interests;
(c) incurred any obligation or liability (fixed or contingent) except
unsecured current obligations and liabilities not in excess of $250,000 incurred
in the ordinary course of business;
(d) discharged or satisfied any lien or encumbrance or paid any
material obligation or liability (fixed or contingent) other than liabilities
included in the September Financial Statements for such Company's Predecessor
Entity and liabilities or obligations incurred since September 30, 1998 in the
ordinary course of business;
(e) purchased or redeemed, or made any commitment to purchase or
redeem, any Shares, other securities or Equity-Related Interests;
(f) mortgaged, pledged or granted a security interest in any of its
assets, tangible or intangible, except in the ordinary course of business;
-25-
<PAGE>
(g) acquired, sold, assigned or transferred any material assets or
canceled any debts or claims in excess of $250,000, except, in each case, in the
ordinary course of business;
(h) suffered any extraordinary loss in excess of $250,000;
(i) entered into any material commitment, contract or transaction not
in the ordinary course of business or released or relinquished any Material
Contract rights, other than in the ordinary course of business consistent with
past practice of such Company, its Predecessor Entity and their respective
Subsidiaries;
(j) entered into any agreements restricting the transfer of, or
affecting the voting rights of holders of, its Shares, securities or Equity-
Related Interests, granted any preemptive or anti-dilutive rights to any holder
of any class of Shares, securities or Equity-Related Interests, or granted
registration rights with respect to any of its Shares, securities or Equity-
Related Interests;
(k) amended its Declaration of Trust or other organizational
documents;
(l) engaged, directly or indirectly, in any Interested Party
Transaction;
(m) replaced its independent auditors or made any material change in
any method of financial accounting or accounting practice, except for any such
change required by reason of a current change in generally accepted accounting
principles; or
(n) entered into any agreement (written or oral) to do any of the
foregoing.
4.11 Title to Properties, Liens and Encumbrances. Except as set forth in
-------------------------------------------
the Disclosure Memorandum, such Company (or its wholly owned Subsidiaries) has
good title to all real and personal properties, interests in such properties,
and other assets (tangible and intangible) (collectively, the "Company
-------
Properties and Assets") reflected in the September Financial Statements or
- ---------------------
acquired thereafter (except as sold or otherwise disposed of, mortgaged, pledged
or otherwise used as security since September 30, 1998 in the ordinary course of
business), free and clear of all Encumbrances. Except as set forth in the
Disclosure Memorandum, such Company Properties and Assets are all of the real
and personal properties, interests in such properties, and other assets
(tangible and intangible) reasonably necessary to conduct such Company's
business substantially in the same manner as such business has been conducted by
the Company and its Predecessor Entity. The Disclosure Memorandum includes as
Exhibit A to Schedule 4.11 thereto a list of artwork located on the premises of
BSH's offices which is owned by MB or the artist.
4.12 Equipment. The Disclosure Memorandum lists all equipment, other than
---------
personal property and fixtures, having a replacement value, in each case, in
excess of $250,000 which is owned or leased by such Company (or its wholly owned
Subsidiaries), licensed to such Company (or its wholly owned Subsidiaries) or
held under similar arrangements. Such equipment is all of the equipment
reasonably necessary to conduct such Company's business substantially in the
same manner as such business has been conducted by the Company and its
Predecessor Entity.
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<PAGE>
4.13 Real Property. Neither such Company nor its Subsidiaries directly or
-------------
indirectly owns any real property, either beneficially or of record. The
Disclosure Memorandum sets forth a complete and accurate list of all real estate
leases, subleases, licenses, or other occupancy agreements (collectively, the
"Leases" and each a "Lease") to which such Company (or its Subsidiaries) is a
------ -----
party. Such Company (or Subsidiary) which is the lessee thereof enjoys peaceful
and undisturbed possession under all Leases under which it operates. Except as
set forth in the Disclosure Memorandum, each of such Leases is in full force and
effect and (i) neither the Company (or its Subsidiary), nor to such Company's
Knowledge, any other party thereto, has breached any Lease or is in default
thereunder in any material respect, and (ii) to such Company's Knowledge, no
event has occurred which, with the passage of time or the giving of notice,
would constitute a breach or default. A complete and accurate copy of each Lease
has previously been provided to, or made available for review by, Positano.
4.14 Absence of Contracts. Except for contracts and commitments listed in
--------------------
the Disclosure Memorandum, copies of which have been made available to Positano,
none of such Company nor any of its Subsidiaries is a party to any oral or
written:
(a) contract or series of related contracts for the future purchase of
materials, supplies or equipment, in each case, in excess of $250,000 or
contract for future services which requires the payment by such Company or its
Subsidiaries of, in each case, $250,000 annually and is not terminable without
penalty upon 60 days (or less) notice;
(b) contract for the employment of any Key Employee;
(c) bonus, incentive, deferred compensation, severance pay, pension,
profit-sharing, retirement, share purchase, share option or other equity,
hospitalization, employees' insurance or other plan (including insurance
policies on the life of any Employee or Employees), agreement or arrangement
providing employee benefits;
(d) collective bargaining agreement or other agreements or awards
between such Company (or any of its Subsidiaries) and any labor union;
(e) lease to which such Company (or any of its Subsidiaries) is a
party (i) which is not terminable without penalty on notice of 60 days or less
with respect to personal property involving an annual rental payment of $250,000
or more, or (ii) with respect to any real property, whether as lessor or lessee;
(f) chattel mortgage or conditional sales agreement to which such
Company (or any of its Subsidiaries) is a party involving $250,000 or more;
(g) agreement, indenture or other instrument to which such Company (or
any of its Subsidiaries) is a party relating to the borrowing of money or the
guaranty of any obligation for the borrowing of money involving $250,000 or
more;
(h) agreement between such Company (or any of its Subsidiaries) and
any Person relating to sharing of past, present or future commissions, fees, or
other income or profits;
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<PAGE>
(i) agreement or arrangement with any supplier or consultant in which
any officer of such Company (its Subsidiaries) has any ownership interest (other
than shares in a publicly owned company) or participation in income or profits;
(j) material agreement not made in the ordinary course of business; or
(k) non-competition or exclusivity arrangements limiting such
Company's ability to compete or otherwise do business and not otherwise
disclosed in Section 4.16.
4.15 Good Standing of Contracts. The contracts listed in Section 4.14 and
--------------------------
4.16 of the Disclosure Memorandum (the "Material Contracts") include all
------------------
contracts and commitments, including contracts with clients, to which such
Company (or any of its Subsidiaries) is a party or may be bound that would be
required to be filed under Regulation S-K Item 601(b)(10) promulgated by the
Securities and Exchange Commission, as if such Company were a registrant subject
to such regulation. A complete and accurate copy of each Material Contract has
previously been provided to, or made available for review by, Positano. Each
Material Contract is in full force and effect and except as set forth in the
Disclosure Memorandum (i) neither such Company (nor any of its Subsidiaries),
nor to such Company's Knowledge, any other party thereto, has breached or is in
default thereunder in any material respect, (ii) no event has occurred, which,
with the passage of time or the giving of notice, would constitute such a
material breach or default, (iii) no claim of material default thereunder has
been asserted in writing, or to such Company's Knowledge, threatened, and (iv)
neither such Company (nor any of its Subsidiaries), nor to such Company's
Knowledge, any other party thereto is seeking the renegotiation thereof in any
material respect or substitute performance thereunder in any material respect.
4.16 Clients.
-------
(a) The Disclosure Memorandum (i) lists each active client of such
Company (and its Subsidiaries and Predecessor Entity) as of the date of this
Agreement which such Company reasonably expects to produce 1998 revenues in
excess of $1 million (it being understood that such expectation by such Company
does not constitute a representation hereunder as to future revenues) and (ii)
sets forth actual calendar year 1997 revenues from each such client. The
Disclosure Memorandum lists each written agreement with each such active client
and sets forth accurate summaries of the fee arrangements with respect to any
such active client that does not have a written contract with such Company (or
its Subsidiaries) in effect as of the date of this Agreement .
(b) Except as disclosed in the Disclosure Memorandum, no such active
client of such Company, or its Subsidiaries (i) has, to the Knowledge of such
Company, filed a petition in bankruptcy or had a bankruptcy proceeding commenced
against it or (ii) has entered into an oral or written agreement with such
Company (together with its Subsidiaries) to delay or modify the amount or timing
of the collection of any amounts due from such client, or made any request with
such Company (or its Subsidiaries) to do so.
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<PAGE>
(c) Except as disclosed in the Disclosure Memorandum, as of the date
hereof, to the knowledge of Michael E. Bronner, David W. Kenny, Harvey Kipnis
and Malcolm Speed, no client set forth in Section 4.16(c) of the Disclosure
Memorandum has, since December 31, 1997, advised such Company or its
Subsidiaries or its Predecessor Entity that it (i) is not continuing, or is
terminating or placing "in review," the handling of its business by such Company
(or its Subsidiaries or Predecessor Entity), as a whole or in respect of any
material product, project or service, or (ii) will reduce its future spending
with such Company (or its Subsidiaries) in any material manner relative to the
assumptions heretofore outlined to the HFCP Investors.
(d) The Disclosure Memorandum lists any non-competition or exclusivity
obligations of such Company (or its Subsidiaries) to any client which are
contained in any current client agreement and have not been waived by such
client. Such Company (together with its Subsidiaries) is not in violation of
any such obligations.
4.17 Indebtedness; Guarantees.
------------------------
(a) Except as set forth in Schedule 4.17(b) of the Disclosure
Memorandum, none of such Company or its Subsidiaries has any outstanding
indebtedness, other than trade or business obligations incurred in the ordinary
course of business; and none of such Company or its Subsidiaries is in default
in respect of any terms or conditions of any indebtedness (which for these
purposes consist of all bank loans and all leases listed as "Equipment Lease
Agreements" on Section 4.12 of the Disclosure Memorandum) which would permit an
acceleration of the due date thereof; and none of such Company or its
Subsidiaries has received written notice that it is in default in respect of any
terms or conditions of any indebtedness which would permit an acceleration of
the due date thereof.
(b) The Disclosure Memorandum lists all loan agreements, lines of
credit or other financing arrangements (other than leasing arrangements on
specific machinery or equipment which are covered elsewhere in this Article 4)
to which such Company (or any of its Subsidiaries) is a party, whether as
obligor or guarantor.
(c) The Disclosure Memorandum sets forth all obligations of such
Company (or any of its Subsidiaries) which are guaranteed by the Principal
Shareholder or Myron Slosberg.
4.18 Company Name. None of such Company, its Subsidiaries or its
------------
Predecessor Entity has received from any Person any notice of conflict with
respect to the rights of others regarding its name. Except as disclosed in the
Disclosure Memorandum, none of such Company, its Subsidiaries or its Predecessor
Entity has authorized any Person doing business, either within or outside the
United States, to use its name or to hold itself out to the public as an
associate or affiliate thereof.
4.19 Authority Relative to Agreements. Each of such Company and its
--------------------------------
Subsidiaries has the requisite power and authority to enter into this Agreement
and all Ancillary Documents to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and each Ancillary
Document, and the consummation of the transactions provided for herein and
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therein, have been duly authorized by the trustee of such Company, have been
duly authorized by all other necessary action on the part of such Company or
such Subsidiary, as the case may be, and do not violate any provision of the
Declaration of Trust or other organizational document of such Company or such
Subsidiary, as the case may be. Such Company has delivered to Positano true and
correct copies of resolutions adopted by the trustee of such Company and the
sole manager of each LLC, as applicable, approving this Agreement and the
Ancillary Documents to which it is a party. Except as set forth in the
Disclosure Memorandum, the execution, delivery and performance by such Company
of this Agreement and each Ancillary Document, or by such LLC of any Ancillary
Agreement to which it is a party, and the consummation of the transactions
provided for hereby and thereby, will not conflict with or effect a breach,
violation, default, or cause an event of default (with or without notice or the
lapse of time) under, or give rise to a "change of control," right of
termination, cancellation, acceleration of, or a right to put, or compel a
tender offer for (except as contemplated in this Agreement), outstanding
securities under, or result in the imposition of any Encumbrance under, or
require any consent under, any term of (i) the Declaration of Trust or other
organizational documents of such Company or any of its Subsidiaries, or (ii) any
Material Contract or any statute, regulation, order, judgment or decree to which
such Company (or any of its Subsidiaries) is a party or by which it is bound, or
any law or governmental regulation applicable to such Company (or any of its
Subsidiaries), or require the consent of any Person (other than the parties to
this Agreement). Without limiting the generality of the foregoing, except for
required consents under the HSR Act, no notices, reports or other filings are
required to be made by such Company or any of its Subsidiaries with, nor are any
consents, waivers, registrations, approvals, permits or authorizations required
to be obtained by such Company or any of its Subsidiaries from, any Governmental
Entity, in connection with the execution and delivery of this Agreement or the
Ancillary Agreements by such Company or any of its Subsidiaries and the
consummation by such Company of the transactions contemplated by this Agreement
and the Ancillary Documents. This Agreement and the Ancillary Documents have
been duly executed and delivered by a duly authorized officer of such Company
and its Subsidiaries which are a party thereto and constitute legal, valid and
binding obligations of such Company and such Subsidiaries, enforceable in
accordance with their terms, except as enforcement thereof may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting rights of creditors generally and general principles of equity,
whether applied at law or in equity.
4.20 Litigation. Except as set forth in the Disclosure Memorandum, there
----------
is no prosecution, suit, action, arbitration proceeding or governmental
proceeding pending, or to the Knowledge of such Company, threatened, against or
affecting such Company (or any of its Subsidiaries), its properties and
business, or the transactions contemplated by this Agreement or the Ancillary
Documents, that is reasonably likely to have a Company Material Adverse Effect
or to delay or hinder consummation of any of the transactions contemplated by
this Agreement or the Ancillary Documents. Except as set forth in the Disclosure
Memorandum, there is not outstanding against such Company or any of its
Subsidiaries or the property or business of such Company or any of its
Subsidiaries any decision, judgment, decree, injunction, rule or order of any
court, arbitrator or Governmental Entity.
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<PAGE>
4.21 Insurance. Such Company (and its Subsidiaries) have in full force and
---------
effect policies of insurance of the types and in the amounts set forth in the
Disclosure Memorandum (including all key man life policies) and will continue
all of such insurance or comparable replacement policies in full force and
effect up to and including the Closing Date. Except as disclosed in the
Disclosure Memorandum, such Company or its Subsidiary is the sole owner of each
such policy. All premiums due on such policies or renewals thereof have been
timely paid. The Disclosure Memorandum sets forth the policy amounts payable to
such Company or its Subsidiary (or premium amounts refundable to such Company or
its Subsidiary) in the event of the death of any named insured on any life
insurance policy in which such Company or its Subsidiary has an interest.
4.22 Personnel; Employment Agreements.
--------------------------------
(a) The Disclosure Memorandum contains a complete and accurate list of
all Key Employees of such Company or its Subsidiaries, setting forth their
respective names, current positions, salaries and other remuneration and
benefits.
(b) Except as otherwise disclosed in the Disclosure Memorandum, none
of such Company or its Subsidiaries is a party to any union collective
bargaining agreement.
4.23 Brokers. Except for fees payable by such Company or its Subsidiaries
-------
to Smith Barney Inc. and Salomon Brothers Inc., collectively doing business as
"Salomon Smith Barney" which shall not exceed $2 million, none of such Company,
its Subsidiaries or Shareholders has incurred any liability to any broker,
finder, agent or the like with respect to the payment of any commissions or
finder's fees regarding the consummation of the transactions contemplated
hereby.
4.24 Compliance with Law. (a) Such Company and each of its Subsidiaries is
-------------------
in compliance with all federal, state and local (including foreign) laws,
regulations and ordinances applicable to its business and operations except
where the failure to be in compliance would not have a Company Material Adverse
Effect. To such Company's Knowledge, none of such Company, its Subsidiaries or
its Predecessor Entity has received any written communication that alleges that
such Company, any of its Subsidiaries or its Predecessor Entity is or was not in
compliance with, or may be liable under, any federal, state or local (including
foreign) laws, regulations or ordinances applicable to its business and
operations except where the failure to be in compliance or such liability would
not have a Company Material Adverse Effect.
(b) (i) Such Company and each of its Subsidiaries has duly secured and
possesses, on the date hereof, all necessary licenses and authorizations from,
and has filed all material required registrations, applications, reports and
other documents with any Governmental Entity exercising jurisdiction over such
Company or its Subsidiaries which are applicable to the business, and (ii) such
licenses and authorizations are valid and in full force and effect without
adverse conditions.
4.25 Employee Benefit Plans. (a) The Disclosure Memorandum lists and such
----------------------
Company (or its Subsidiaries or Predecessor Entity) have made available to
Positano true, correct and
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<PAGE>
complete copies of any employee benefit plan, program, policy, practice or other
arrangement providing benefits to any current or former employee, officer,
director or consultant, including without limitation any employee welfare
benefit plan within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), any employee pension benefit
-----
plan within the meaning of Section 3(2) of ERISA or any profit-sharing, deferred
compensation, bonus, retainer, employment, consulting, health, welfare,
incentive, fringe benefit, vacation, disability, sick leave, medical,
hospitalization, or severance agreement, plan, policy, practice or arrangement
(each, a "Plan").
----
(b) All employee benefit plans, as that term is used in Section 3(3)
of ERISA, sponsored or maintained by either Company or any of its Subsidiaries
are hereinafter referred to as the "ERISA Plans." With respect to the ERISA
-----------
Plans, except as set forth in the Disclosure Memorandum, such Company and its
Subsidiaries has complied in all material respects with all requirements of
ERISA. Additionally, such Company and its Subsidiaries has incurred no material
liability for a prohibited transaction as defined in Section 4975 of the Code,
arising out of transactions involving assets of such ERISA Plans. The Disclosure
Memorandum identifies each ERISA Plan that is intended to be qualified and tax-
exempt under Sections 401(a) and 501(a) of the Code and each such ERISA Plan has
received a favorable determination letter from the Internal Revenue Service, the
related trust has not been revoked, and except as set forth in the Disclosure
Memorandum, there are no existing circumstances or any events that have occurred
that could adversely affect the qualified status of any such Plan or related
trust.
(c) With respect to each Plan, except as set forth in the Disclosure
Memorandum, each Company and its Subsidiaries has complied, and is now in
compliance, in all material respects with all provisions of ERISA, the Code and
all laws, regulations, ordinances, codes and other legally binding rules
applicable to such Plans and except as set forth in the Disclosure Memorandum,
each Plan has been administered in all material respects in accordance with its
terms. Each Plan that is an employee welfare benefit plan under Section 3(1) of
ERISA is unfunded. Except as disclosed in the Disclosure Memorandum, none of
such Company nor any Subsidiary has any liability for life, health, medical or
other welfare benefits to former employees or beneficiaries or dependents
thereof, except for health continuation coverage as required by Section 4980B of
the Code or Part 6 of Title I of ERISA and at no expense to such Company and its
Subsidiaries. No Plan is intended to meet the requirements of Code Section
501(c)(9).
(d) True, correct and complete copies of the most recent Annual Report
(Form 5500 Series), accompanying schedule and current summary plan description
(and any material modifications thereto, if any) with respect to the ERISA Plans
have been made available to Positano. Except as specifically provided in the
documents delivered or made available to Positano under (a) above or under this
subsection (d), or as disclosed in the Disclosure Memorandum, there are no
amendments to any Plan that have been adopted or approved nor has such Company
and its Subsidiaries undertaken to make any such amendments or to adopt or
approve any new Plan. Except as set forth in the Disclosure Memorandum, there
are no pending or threatened claims (other than claims for benefits in the
ordinary course), lawsuits or arbitrations which have been asserted or
instituted in connection with any Plan, and no set of
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<PAGE>
circumstances exists in connection with any Plan, except as otherwise disclosed
in the Disclosure Memorandum, which may reasonably give rise to a claim or
lawsuit, which could reasonably be expected to result in any material liability
of any Company and its Subsidiaries to the Department of Treasury, the
Department of Labor, any Plan or any participant in a Plan.
(e) Neither Company nor any Subsidiary, nor any ERISA Affiliate
thereof, has or could have any liability (i) under Title IV of ERISA, (ii) under
section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, or (iv) as
a result of a failure to comply with the continuation coverage requirements of
Section 601 et seq. of ERISA and Section 4980B of the Code.
(f) No amount paid or payable by the Company or any of its
Subsidiaries in connection with the transactions contemplated hereby (either
solely as a result thereof or as a result of such transactions in conjunction
with the formation of the Company, actions by the Predecessor Entity or any
other event) will be an "excess parachute payment" within the meaning of Section
280G of the Code.
(g) No labor organization or group of employees of any Company and its
Subsidiaries has made a pending demand for recognition or certification, and
there are no representation or certification proceedings or petitions seeking a
representation proceeding presently pending or threatened to be brought or
filed, with the National Labor Relations Board or any other labor relations
tribunal or authority. There are no organizing activities, strikes, material
arbitrations or grievances, or other material labor disputes pending or
threatened against or involving any Company or Subsidiary. Each Company and its
Subsidiaries is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and hours and
occupational safety and health.
4.26 Overtime, Back Wages, Vacation and Minimum Wages. Except as described
------------------------------------------------
on the Disclosure Memorandum, no present or former employee of such Company or
Subsidiary (including without limitation any person treated as a "free-lance
employee") has any material claim against such Company or Subsidiary (whether
under federal or state law, any employment agreement, or otherwise) on account
of or for (a) overtime pay (other than overtime pay for the current payroll
period), (b) wages, salary or other compensation for any period (other than the
current payroll period), (c) vacation, sick or personal time, (d) severance pay,
(e) any other compensation or benefits under any Plan that are not expressly
provided for in the applicable Plan document and properly accrued in the
Financial Statements or (f) any violation of any statute, ordinance or
regulation relating to minimum wages, maximum hours of work, termination of
employment or similar matters.
4.27 Indebtedness of Holders and Key Employees. The Disclosure Memorandum
-----------------------------------------
sets forth any and all indebtedness of, or guarantees on behalf of, any Holder
or any Key Employee or any other employee which indebtedness or guarantee
exceeds $10,000 to such Company or its Subsidiaries existing as of the date
hereof. Except as set forth in Section 4.27 of the Disclosure Memorandum, all
such indebtedness will be paid in full and all such guarantees released as of
the Closing Date, and there will be no indebtedness of any Holder or any Key
Employee to such Company or its Subsidiaries as of the Closing Date.
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<PAGE>
4.28 Intellectual Property Rights.
----------------------------
(a) Such Company and its Subsidiaries generally develop work product
and provide services to its customers under arrangements by which the customer
is assigned all right, title and interest to the Intellectual Property Rights
embodied in the deliverables. To the extent such Company or any of its
Subsidiaries has developed proprietary methodologies, test designs, and/or
models to which such Company or its Subsidiaries contractually retains ownership
to the Intellectual Property Rights, a non-exclusive license to use such
methodologies, designs and models is granted to the customer. Except as set
forth in the Disclosure Memorandum, all current non-temporary Employees of such
Company and its Subsidiaries have executed written instruments with such Company
or its Subsidiaries that assign to such Company or its Subsidiaries all rights
to any inventions, improvements, discoveries, or information relating to the
business of such Company or its Subsidiaries. Such Company and its Subsidiaries
have taken all reasonable security measures (including, without limitation,
entering into appropriate confidentiality and nondisclosure agreements with all
officers, directors, Employees, and consultants of such Company and its
Subsidiaries with access to Trade Secrets) to protect the secrecy,
confidentiality and value of all Trade Secrets.
(b) The Disclosure Memorandum lists all registered Patents, Marks, and
Copyrights of such Company and its Subsidiaries (including the dates of all
applications and any action thereon). The Disclosure Memorandum also sets forth
all Trademarks used and owned by such Company and its Subsidiaries for which
U.S. trademark registration has not been obtained or applied for. Such Company
and its Subsidiaries owns, or has the defensible right to use, the Intellectual
Property Rights. Except as disclosed in the Disclosure Memorandum, no claims
have been asserted in writing by any Person (i) challenging the ownership,
validity or effectiveness of any Intellectual Property Right owned or used by
such Company or its Subsidiaries, (ii) to the effect that any activity of such
Company or its Subsidiaries infringes on any other party's intellectual property
or (iii) against the use by such Company or its Subsidiaries of any Intellectual
Property Right necessary for the conduct of its business.
4.29 Records. Copies of the Share record books and minute books of such
-------
Company, its Subsidiaries and its Predecessor Entity have been made available to
Positano and are true and complete in all material respects.
4.30 Compliance with Declaration of Trust. None of the Companies nor BSH
------------------------------------
LLC or SIG LLC is in violation of any term of its Declaration of Trust or other
organizational documents, as the case may be.
4.31 Accounts Receivable; Unbilled Accounts Receivable; Work-in-Process;
-------------------------------------------------------------------
Accounts Payable. The amount of all work-in-process, accounts receivable,
- ----------------
expenditures billable to clients and other debts due or recorded in the records
and books of account of such Company and its Subsidiaries as being due to such
Company or its Subsidiaries and reflected in the Financial Statements arose from
bona fide transactions in the ordinary course of business and such Company and
its Subsidiaries or Predecessor Entity have made such provisions, reserves or
similar adjustments in such records and books of account as its management has
estimated in
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<PAGE>
good faith and believes to be appropriate for such accounts receivable or other
debts that may not be good and collectible in full. There has been no change
since December 31, 1997 in the amount or aging of the work in process, accounts
receivable, expenditures billable to clients or other debts due to such Company
and its Subsidiaries or Predecessor Entity or the reserves with respect thereto,
or accounts payable of such Company and its Subsidiaries or Predecessor Entity,
that would, either individually or in the aggregate, have a Company Material
Adverse Effect.
4.32 Interested Party Transactions. The Disclosure Memorandum contains an
-----------------------------
accurate and complete listing of all contracts, agreements or understandings, in
effect on the date hereof and by which such Company (and its Subsidiaries) is
bound, that involve an Interested Party Transaction, and complete and accurate
copies of such agreements have been provided to, Positano.
4.33 No Prior Transactions. None of the Companies or the LLCs has
---------------------
incurred, directly or indirectly, any liabilities or obligations, except those
incurred in connection with its formation and capitalization or with the
negotiation of this Agreement and the Senior Bank Facility, the consummation of
the transactions contemplated hereby and thereby, the merger of the LLCs with
each of their respective Predecessor Entities and the operation of the
businesses of the Predecessor Entities by the LLCs from and after November 6,
1998. None of the Companies nor the LLCs has engaged, directly or indirectly,
in any business or activity of any type or kind, or entered into any agreement
or arrangement with any Person, or is subject to or bound by any liability,
obligation or undertaking, that is not contemplated by or in connection with its
formation and capitalization, this Agreement and the transactions contemplated
hereby, the merger of the LLCs with each of their respective Predecessor
Entities and the operation of the businesses of the Predecessor Entities by the
LLCs from and after November 6, 1998.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
OF THE SIGNING HOLDERS
Each Signing Holder hereby warrants and represents, severally and not
jointly, to the HFCP Investors and Positano as follows:
5.1 Authority Relative to Agreement. Such Signing Holder has the requisite
-------------------------------
power and authority to enter into this Agreement and each Ancillary Document and
to carry out his obligations hereunder and thereunder. To the extent
authorization is required, the execution and delivery of this Agreement and each
Ancillary Document and the consummation of the transactions provided for hereby
and thereby have been duly authorized by such Signing Holder. Except as set
forth in the Disclosure Memorandum, the execution by such Signing Holder of this
Agreement and each Ancillary Document will not conflict with or effect a breach,
violation, default, or cause an event of default under any agreement,
instrument, order, judgment or decree to which such Signing Holder is a party or
by which such Signing Holder is bound, or any law or governmental regulation
applicable to such Signing Holder, or require the consent of any Person (other
than the parties to this Agreement). Without limiting the generality of the
foregoing, except for the required consents under the HSR Act, no notices,
reports or other filings are required to be made by such Signing Holder with,
nor are any consents, registrations, approvals,
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<PAGE>
permits or authorizations required to be obtained by such Person from, any
Governmental Entity in connection with the execution and delivery of this
Agreement by such Signing Holder or the consummation by such Signing Holder of
the transactions contemplated by this Agreement and the Ancillary Documents.
This Agreement and each Ancillary Document constitute legal, valid and binding
obligations of such Signing Holder, enforceable in accordance with their terms,
except as enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting rights of
creditors generally and general principles of equity, whether applied at law or
in equity.
5.2 Ownership Free of Encumbrances.
------------------------------
(a) Each Signing Holder who is a Shareholder represents and warrants
that immediately prior to the Closing Date, such Signing Holder will own,
beneficially and of record, free and clear of any and all Encumbrances, and will
deliver valid and marketable title to all of the Shares listed after his or its
name on Annex A hereto. Except as otherwise disclosed in Annex A, such Signing
------- -------
Holder (i) owns no other Shares, Options, SARs, Other Rights or Equity-Related
Interests of the Companies and (ii) is not a party to any option agreement or
other agreement with any other Person pursuant to which such other Person has or
may have the right to acquire Shares held of record by such Signing Holder.
(b) Each Signing Holder who is an Option Holder represents and
warrants that immediately prior to the Closing Date, such Signing Holder will
own, beneficially and of record, free and clear of any and all Encumbrances, all
of the Options listed after his or her name on Annex A hereto. Except as
-------
otherwise disclosed in Annex A, such Signing Holder (i) owns no other Shares,
-------
Options, SARs, Other Rights or Equity-Related Interests of the Companies and
(ii) is not a party to any option agreement or other agreement with any other
Person pursuant to which such other Person has or may have the right to acquire
Options held of record by such Signing Holder.
(c) Each Signing Holder who is an SAR Holder represents and warrants
that immediately prior to the Closing Date, such Signing Holder will own,
beneficially and of record, free and clear of any and all Encumbrances, all of
the SARs listed after his or her name on Annex A hereto. Except as otherwise
-------
disclosed in Annex A, such Signing Holder (i) owns no other Shares, Options,
-------
SARs, Other Rights or Equity-Related Interests of the Companies and (ii) is not
a party to any option agreement or other agreement with any other Person
pursuant to which such other Person has or may have the right to acquire SARs
held of record by such Signing Holder.
5.3 No Bankruptcy. Such Signing Holder is not bankrupt or insolvent and
-------------
has not committed any act of bankruptcy or assigned his or her estate for the
benefit of creditors or entered into any scheme or arrangement with creditors.
5.4 Litigation, Etc. Each Signing Holder represents and warrants that
---------------
there is no prosecution, suit, action, arbitration proceeding or governmental
proceeding pending, or to the knowledge of such Signing Holder, threatened,
against or affecting the Shares, Options, SARs or Other Rights owned by such
Signing Holder or the transactions contemplated by this Agreement.
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<PAGE>
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF POSITANO AND THE HFCP INVESTORS
Positano and the HFCP Investors hereby severally but not jointly
represent and warrant to the Companies and to the Holders as follows:
6.1 Organization and Good Standing. Each of the HFCP Investors and
------------------------------
Positano is (and, at the time of the Closing, will be) a partnership or, in the
case of Positano, a Bermuda exempt company duly organized and validly existing
under the laws of the jurisdiction of its organization and has all requisite
power and authority to own or hold under lease its properties and assets and to
carry on its business as now being conducted or as presently proposed to be
conducted, and is (or, in the case of Positano, will prior to the Closing be)
duly qualified and in good standing as a foreign corporation in each
jurisdiction where the nature of the property owned or leased or the business
transacted by it makes such qualification necessary.
6.2 Authority Relative to this Agreement. Each of the HFCP Investors and
------------------------------------
Positano has the requisite power and authority to enter into this Agreement and
all Ancillary Documents, and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and each Ancillary
Document to which the HFCP Investors or Positano are parties, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary action on the part of the HFCP Investors or
Positano, and do not violate any provision of the agreement of limited
partnership or other organizational documents of any HFCP Investor or Positano,
and no other proceedings on the part of the HFCP Investors or Positano are
necessary to authorize this Agreement and the Ancillary Documents and the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and each Ancillary Document by the HFCP Investors and Positano and the
consummation of the transactions provided for hereby and thereby will not
conflict with or effect a breach, violation or default, or cause an event of
default under any mortgage, lease, or other material agreement or instrument, or
any statute, regulation, order, judgment or decree to which any of the HFCP
Investors or Positano is a party or by which any HFCP Investor or Positano is
bound, or any law or governmental regulation applicable to any HFCP Investor or
Positano, or require the consent of any Person (other than the parties to this
Agreement), except for such conflicts, breaches, violations, defaults or
consents which would not, either individually or in the aggregate, have a
material adverse effect on the ability of the HFCP Investors or Positano to
consummate the transactions contemplated by, and perform their obligations
under, this Agreement and the Ancillary Documents. This Agreement and the
Ancillary Documents to which they are a party constitute the legal, valid and
binding obligations of the HFCP Investors and Positano, enforceable in
accordance with their terms, except as enforcement thereof may be limited by any
applicable bankruptcy, reorganization, insolvency, moratorium, or similar laws
affecting rights of creditors generally and general principles of equity,
whether applied at law or in equity.
6.3 No Broker. All negotiations relative to this Agreement and the
---------
transactions contemplated hereby have been carried on directly by the HFCP
Investors with the Companies without the intervention of any person on behalf of
the HFCP Investors in such manner as to give
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<PAGE>
rise to any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment.
6.4 Governmental Filings; No Violations. Other than the required consents
-----------------------------------
under the HSR Act, no notices, reports or other filings are required to be made
by the HFCP Investors or Positano with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the HFCP
Investors or Positano from, any Governmental Entity in connection with the
execution and delivery of this Agreement by the HFCP Investors and Positano and
the consummation by the HFCP Investors and Positano of the transactions
contemplated by this Agreement and the Ancillary Documents.
ARTICLE 7 - SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties of the Parties. Except as
---------------------------------------------------------
provided in the next sentence, all representations and warranties made by any
party hereto contained in this Agreement or in any Ancillary Document, and the
indemnification obligations of each party hereto, shall survive the Closing Date
until the Release Date. Provided that a party has made a claim for
indemnification in accordance with the procedures set forth in this Article 7 on
or prior to the expiration of the applicable survival period referred to in the
previous sentence, then the indemnity obligations relating to such claim shall
survive until the final resolution of such claim, as further provided in this
Article 7.
7.2 Indemnification by the Signing Holders.
--------------------------------------
(a) The Signing Holders agree to indemnify and hold the HFCP Investors
and Positano harmless (subject to the terms of this Article 7) from and against
any and all damages, losses, liabilities, deficiencies, costs and/or expenses
(including all reasonable legal fees, expenses and other out-of-pocket costs)
(collectively, "Damages") incurred, directly or indirectly, by the HFCP
-------
Investors and Positano resulting from, arising out of or in connection with, any
misrepresentation or breach of warranty on the part of any such Holder, BSH, SIG
or their Subsidiaries or the nonfulfillment by any such Signing Holder, BSH, SIG
or their Subsidiaries of any covenant or agreement of such Signing Holder, BSH,
SIG or their Subsidiaries under this Agreement or any Ancillary Document,
whether or not any such Damages are in connection with any action, suit,
proceeding, demand or judgment of a third party (including Governmental
Entities). The foregoing indemnity, and all other provisions of this Article 7
other than Section 7.7, shall not apply to or include, the Benefit Plan Remedial
Obligation, which is covered by Section 3.2(b)(xiii).
(b) In no event shall the aggregate indemnity obligations of such
Holders under this Agreement exceed the amount represented by the Escrowed
Amount. For purposes of this Agreement, claims made by the HFCP Investors or
Positano for indemnification under this Section 7.2 are referred to as "General
-------
Claims."
- ------
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<PAGE>
(c) To the extent that that HFCP Investors and Positano indirectly
incur Damages as a result of Damages to the Company which give rise to an
indemnification obligation under Section 7.2(a), the HFCP Investors and Positano
shall be deemed to have incurred Damages in an amount that represents the same
percentage of the Damages suffered by the Company as the percentage of the
outstanding BSH Shares then beneficially owned by the HFCP Investors and
Positano. The amount of Damages in respect of which indemnity may be sought
hereunder shall be net of the present value of any net tax benefit that would
accrue to the Company.
7.3 Indemnification by the HFCP Investors.
-------------------------------------
(a) The HFCP Investors and Positano hereby agree to indemnify and hold
the Holders harmless (subject to the terms of this Article 7) from and against
any and all Damages resulting from, arising out of or in connection with any
misrepresentation or breach of warranty or non-fulfillment of any covenant or
agreement on the part of the HFCP Investors or Positano.
(b) Except as otherwise specifically provided herein, in no event
shall the aggregate indemnity obligations of the HFCP Investors and Positano
under this Agreement exceed $18,700,000.
7.4 Procedure.
---------
(a) Upon receipt by one party of notice of any claim by a third party
which might give rise to indemnification hereunder, or upon such party's
discovery of facts which might give rise to indemnification hereunder, the party
claiming indemnification hereunder (the "Indemnitee") shall give prompt written
----------
notice to the party or parties against whom such Indemnitee is seeking
indemnification pursuant to this Article 7 (collectively, the "Indemnitors" or,
-----------
to the extent such Indemnitor is one or more Holders, the "Holder Indemnitors"),
------------------
which notice shall describe in reasonable detail the Damages anticipated to be
suffered (if ascertainable) and the specific circumstances thereof, and
specifying the provisions of this Agreement to which such claim for Damages
relates (the "Damage Claim Notice"). The Indemnitee may amend the Damage Claim
-------------------
Notice, without prejudice to its rights hereunder, if it becomes aware of facts
indicating that the Damages anticipated to be suffered have increased or
decreased from those estimated in the previous Damage Claim Notice. The
Indemnitors shall be entitled to participate in the defense of any such claim or
action which is a third party claim or action at the Indemnitors' own cost and
to assume the defense thereof, with counsel of Indemnitors' own choosing, the
cost of which shall be paid for by the Indemnitors. Upon notice from
Indemnitors to Indemnitee of Indemnitors' election to assume the defense, the
Indemnitors will not be liable to the Indemnitee for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the defense thereof.
The Indemnitee may not compromise or settle any claim for which it has asserted
or may assert its right to indemnification without the prior written consent of
the Indemnitors, which consent shall not be unreasonably withheld or delayed;
provided, however, that in the case of any such claim for Taxes (the "Subject
-------
Tax Claim") which arises in a Tax Proceeding that also includes claims for Taxes
- ---------
that are not the subject of indemnification under this Article 7, the Indemnitee
may compromise or settle the Subject Tax Claim (and any other claim included in
the Tax Proceeding) without the consent of the Indemnitors, and the
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<PAGE>
Indemnitee shall consult with the Indemnitors with respect to the settlement of
the Subject Tax Claim. In the event that the Holder Indemnitors have elected to
assume the defense of any third party claim which might give rise to
indemnification hereunder, the Holder Indemnitors may not compromise or settle
any such claim without the prior written consent of the HFCP Investors and
Positano, which consent shall not be unreasonably withheld or delayed.
(b) Upon receipt by Indemnitors of a Damage Claim Notice which does
not relate to a third party claim, the Indemnitors and Indemnitee shall make all
reasonable efforts to promptly resolve such claim on an amicable basis within
the thirty (30) day period following such receipt, failing which the existence
and/or the amount of the indemnification obligation set forth in the Damage
Claim Notice shall, at the option of either party, be finally resolved by
arbitration pursuant to the provisions of Section 7.6 hereof.
(c) Notwithstanding the foregoing, (i) the Signing Holders shall not
be required to indemnify the HFCP Investors or Positano for indemnification
obligations under Section 7.2(a) unless and to the extent that the Damages to
the HFCP Investors and Positano thereunder exceed Two Million Dollars
($2,000,000) (the "Basket Amount") in the aggregate, and to the extent such
-------------
Damages exceed the Basket Amount the Signing Holders will be obligated to
indemnify the HFCP Investors and Positano only with respect to the excess, and
(ii) the HFCP Investors and Positano shall not be required to indemnify the
Holders for indemnification obligations under Section 7.3, unless and to the
extent that the Damages to the Holders thereunder exceed the Basket Amount in
the aggregate, and to the extent such Damages exceed the Basket Amount, the HFCP
Investors and Positano (collectively) will be obligated to indemnify the Holders
only with respect to the excess. Notwithstanding the foregoing, losses by the
HFCP Investors or Positano relating to the representations and warranties of the
Companies and/or the Signing Holders with respect to the number and ownership of
the outstanding Company Shares, Options, SARs and Other Rights (A) will not be
subject to any Basket Amount with respect to claims by the HFCP Investors or
Positano for indemnification, (B) shall be paid dollar for dollar up to the
Escrowed Amount and (C) shall not be counted in determining whether the Damages
resulting from the breach of any other representations and warranties hereunder
exceed a Basket Amount. The amount of any Damages shall be determined after
taking into account any insurance recoveries and other recoveries against third
parties and to the extent that the sum of the indemnification received from the
Indemnitors and the amounts recovered from such third parties (net of any
deductibles under applicable insurance policies) exceeds the amount of the
indemnification payable to the Indemnitee hereunder, the Indemnitee shall refund
such excess to the Indemnitor.
7.5 Compensation to the HFCP Investors and Positano under Holders'
--------------------------------------------------------------
Indemnification Obligation.
- --------------------------
(a) The Holder Indemnitors will, on demand, compensate the HFCP
Investors and Positano in respect of any Damages which are mutually agreed or
finally determined to be covered by the indemnities set forth in Section 7.2
hereof, in the manner provided in this Article 7 and the Escrow Agreement.
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<PAGE>
(b) If a demand for indemnification with respect to any General Claim
is made by the HFCP Investors or Positano under Section 7.2 hereof prior to the
Release Date, and if it is finally agreed, or determined (pursuant to Section
7.6 or by a court of competent jurisdiction) that the Holder Indemnitors are
obligated to indemnify the HFCP Investors or Positano, such indemnification
shall be paid upon notice to the Escrow Agent by the Holder Indemnitors and the
Indemnitees directing the Escrow Agent to (i) set off the Damages to be paid
against the applicable Escrowed Amount allocated to such Holder Indemnitors and
(ii) pay the Damages amount to the HFCP Investors and Positano, in accordance
with the procedures set forth in the Escrow Agreement.
(c) Each notice to the Escrow Agent of an indemnification obligation
under Section 7.5(b) shall include a statement of the then applicable "Fair
----
Market Value" of the BSH Shares. To determine such value, the Company shall
- ------------
retain an independent investment banking firm mutually acceptable to the
Management Designees and the Positano Designees to render its written opinion to
the Company as to the Public Market Value of such BSH Shares as of a date no
more than 30 days prior to the date of such notice (the "Interim Valuation
-----------------
Date"), based on the definition of Public Market Value set forth in the
Shareholders Agreement, adjusted to reflect (i) changes from the date of the
most recent Public Market Value through the Interim Valuation Date and (ii) the
facts and circumstances underlying the claim for indemnification giving rise to
such notice, including its impact on the business and financial condition of the
Company.
(d) In the event that, prior to the Release Date, Positano or the HFCP
Investors shall have delivered a Damage Claim Notice pursuant to Section 7.4
hereof and shall not have received the amount claimed thereunder from the Escrow
Agent, then the Escrow Agreement shall provide that the total of the amounts set
forth in such Damage Claim Notice (whether actually incurred, pending or
threatened) shall be set aside and retained by the Escrow Agent as a reserve to
cover such General Claim(s), in accordance with the Escrow Agreement.
7.6 Arbitration. In the event that either party disputes the existence
-----------
and/or amount of a claim for indemnification set forth in a Damage Claim Notice,
such party will be entitled (a) if such dispute relates primarily to accounting
issues, to engage a firm of independent accountants at its own expense to
examine the disputed claim and to deliver a notice to the other party confirming
or disputing its validity or the amount thereof, or (b) if such dispute does not
relate primarily to accounting issues, to deliver a notice to the other party
disputing its validity or the amount thereof (the "Dispute Notice"). The
--------------
Dispute Notice will be given within 60 days of receipt of the Damage Claim
Notice to which the Dispute Notice relates. The party receiving such Dispute
Notice shall provide the other party or the independent public accountants
retained by such other party with access to such books and records as may be
reasonably requested by them for purposes of verifying such claim. Each party
shall pay the expenses of any independent public accountants retained by it in
any dispute under this Section 7.6. The parties shall in good faith meet
promptly after such review so as to come to a settlement of the matter. In the
event a settlement is not achieved within 30 days after the date of the Dispute
Notice (the "Dispute Period"), (A) if the dispute relates primarily to
--------------
accounting issues, the HFCP Investors' independent accountants and the
applicable Holders' independent public accountants will have 30 additional days
in which to engage another firm of independent public accountants
-41-
<PAGE>
unaffiliated with the HFCP Investors, Positano, the Companies or the applicable
Holders, the expenses of which shall be borne jointly by Positano and the
applicable Holders, to render a final and binding determination of the dispute,
and (B) if the dispute does not relate primarily to accounting issues, the
matter will be submitted by the parties within 10 days after the end of the
Dispute Period to resolution by final and binding arbitration in Boston,
Massachusetts pursuant to the then applicable rules and regulations of the
American Arbitration Association, the expenses of which shall be borne jointly
and equally by Positano and the applicable Holders. The identity of the
arbitrator must be agreed upon in advance by the parties and shall be bound by
Massachusetts law. The decision of the outside firm of independent accountants
or of the arbitrator(s) shall be given not later than 30 days from appointment
thereof and shall be final and binding on the parties and may be confirmed in
any court of competent jurisdiction. Each party shall pay its own legal expenses
in connection with any dispute under this Section 7.6.
7.7 Exclusive Remedy. As among the parties hereto and subject to Section
----------------
14.2, the rights and obligations set forth in Sections 3.2(b)(xiii) and 3.4, and
this Article 7, will be the exclusive post-closing rights and obligations with
respect to this Agreement and the transactions provided for herein or
contemplated hereby. Each of the parties to this Agreement hereby waives any
claim or cause of action which it otherwise might assert by reason of this
Agreement and the transactions contemplated hereby except no such waiver is
given with respect to, and each party hereto shall remain free to assert, a
cause of action for fraud.
7.8 Shareholder Representatives. In any dealings with the Holders
---------------------------
regarding Section 3.4 and in any dealings with the Holders regarding
indemnification obligations under Section 7.2(a) or Section 7.3, including
disputes as to the existence or amount of any indemnification obligation or
regarding the Escrow Agreement, the HFCP Investors and Positano shall be
entitled to rely on their communications with the Shareholder Representatives,
collectively, on behalf of all applicable Holders; and any notice required to be
given by the HFCP Investors and Positano in connection with any indemnification
obligations under Section 7.2(a) or Section 7.3 shall be deemed given to all of
the Holders if given to the Shareholder Representatives.
ARTICLE 8 - CONDUCT OF COMPANIES PRIOR TO CLOSING DATE
Prior to the Closing, and provided that this Agreement has not been
terminated pursuant to Article 13 hereof, the Companies shall, and the Principal
Shareholder shall cause the Companies to, do the following:
8.1 Access for Investigation. At reasonable times and places, and upon
------------------------
reasonable notice, permit the HFCP Investors, Positano and their accountants and
counsel and other representatives to have full access to the premises and to all
the books, contracts, commitments and records (including, but not limited to,
tax returns filed and those in preparation) of the Companies, their Subsidiaries
and their Predecessor Entities during customary business hours and furnish the
HFCP Investors and Positano with such financial and operating data and other
information with respect to the business and properties of the Companies, their
Subsidiaries as the HFCP Investors and Positano shall from time to time
reasonably request.
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<PAGE>
8.2 Conduct Business in Ordinary Course. The Companies shall conduct their
-----------------------------------
business in the ordinary course and shall not, without the prior consent of
Positano (which consent shall not be unreasonably withheld), enter into any
transaction or agreement involving amounts in excess of $250,000, except in the
ordinary course of business.
8.3 Perform Obligations. The Companies and their Subsidiaries shall
-------------------
perform in all material respects all of their respective obligations and comply
in all material respects with all laws affecting the operation of their
respective businesses and pay when due (unless contested in good faith by the
Companies) all required taxes, licenses and fees and file all required returns
as and when such returns are required to be filed.
8.4 Prevent Certain Changes. Without the prior written consent of
-----------------------
Positano, except as set forth in the Disclosure Memorandum, the Companies shall
not and the Shareholders of such Company shall not permit such Company or its
Subsidiaries to:
(a) Amend its Declaration of Trust or other organizational documents
(except as contemplated under Section 8.9);
(b) Authorize for issuance, issue or deliver any additional Shares,
any securities convertible into Shares or any other Equity-Related Interests or
grant any right, option, warrant or other commitment for the issuance of Shares
or any other securities of such Company or Subsidiary;
(c) Split, combine or reclassify any Shares of such Company, or
declare, set aside or pay any dividend (whether in cash, shares or property); or
(d) Except as set forth in the Disclosure Memorandum, perform any of
the acts or do any of the things contemplated by Sections 4.6(a) (except as
specifically permitted under Section 8.6), 4.9(c) or 4.10 hereof.
8.5 Revised Disclosure Memorandum. Three business days prior to the
-----------------------------
Closing Date, the Companies shall deliver to the HFCP Investors a revised
Disclosure Memorandum which updates all of the information required to be
contained therein (other than with respect to Sections 4.3, 4.16(c), 8.4 and
8.6) up to and including the date of its delivery to the HFCP Investors. Any
such amendment shall be effective to make the representations and warranties
contained in Article 4 true for purposes of Article 7 hereof, but shall be
disregarded for purposes of Article 10, such that if, in the absence of such
amendment, the HFCP Investors would have the right not to consummate the
transactions contemplated hereby by virtue of the occurrence of such event, such
right not to consummate shall continue notwithstanding such amendment to the
Disclosure Memorandum.
8.6 Prohibited Distributions. Except as otherwise agreed to with the HFCP
------------------------
Investors and set forth in Section 8.6 of the Disclosure Memorandum, and
notwithstanding any other provision of this Agreement, no additional salaries,
bonuses, distributions, profit participations, or other payments above regular
base salary amounts paid in the ordinary course of business will be paid
(whether or not otherwise required under bonus plans, profit participation
arrangements,
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<PAGE>
Options, SARs or any other agreements or arrangements) to any Employee, Key
Employee or any other Holder from October 29, 1998 forward, other than (a) up to
$3 million in Executive Vice President bonus payments (which will be made in
March 1999), (b) up to $3 million in tax distributions which will be made to the
Shareholders to cover Income Taxes on their respective shares of 1998 taxable
profits arising in the ordinary course of business of the Companies (which
Income Taxes shall be calculated consistent with this Agreement and past
practice) and (c) in the event the Closing occurs later than January 15, 1999,
tax distributions to Shareholders to cover federal Income Taxes on their
respective shares of taxable profits (for the period from January 1, 1999
through Closing) arising in the ordinary course of business of the Companies
(which federal Income Taxes shall be calculated consistent with this Agreement
and past practice). The Shareholders shall present their estimate of such Income
Taxes to the HFCP Investors for the HFCP Investors' review and comment at least
twenty days prior to the date on which such distribution is to be made and, in
the event that the HFCP Investors reasonably object to such estimate, any
resulting dispute shall be resolved by a neutral accounting firm prior to the
date such distribution is made.
8.7 Exclusivity. None of the Companies, their Subsidiaries and the
-----------
officers, trustees and representatives of the Companies and their Subsidiaries
shall, directly or indirectly, provide information to, engage in negotiations
with, solicit, facilitate or otherwise engage in discussions with, or enter into
any agreement with, any potential purchaser interested in engaging in a direct
or indirect acquisition of all or part of the Companies, their Subsidiaries, or
their shares, an option on their shares or assets, or a loan, recapitalization,
merger or similar transaction other than the HFCP Investors and Positano.
8.8 Shareholder Approval. The Companies and the Shareholder
--------------------
Representatives shall use their reasonable best efforts to obtain (a)
Shareholder approval of this Agreement and the transactions contemplated hereby
and (b) the signatures required under Section 9.5.
8.9 Amendment and Restatement of Declaration of Trust. Prior to the
-------------------------------------------------
Closing, BSH and MB shall take all steps necessary to file with all necessary
Governmental Entities an Amended and Restated Declaration of Trust, in a form
mutually satisfactory to Positano and the Company (the "Amended and Restated
--------------------
Declaration of Trust") to reflect (a) that actions by BSH which do not comply
- --------------------
with the Governance Agreement shall be ultra vires and (b) that in the event
that the Trustee is, for any reason, unable to serve as such, that one or more
other trustees shall be appointed, and further amendments shall be made, if
necessary, to the Amended and Restated Declaration of Trust, so as to
incorporate the governance arrangements contemplated by this Agreement and the
Governance Agreement.
ARTICLE 9 - CONDITIONS PRECEDENT TO THE PERFORMANCE
OF EACH PARTY'S OBLIGATION UNDER THIS AGREEMENT
The respective obligations of each party to this Agreement shall be subject
to the fulfillment, at or prior to the Closing Date, of the following
conditions, or waiver by the party to whom such obligation is owed:
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<PAGE>
9.1 HSR Clearance. The appropriate filings shall have been made with the
-------------
United States Federal Trade Commission and the Justice Department in accordance
with the HSR Act and all clearances shall have been granted by the appropriate
governmental authorities thereunder or the required time periods shall have
lapsed, as applicable.
9.2 Legality. At the time of the Closing, the transactions contemplated by
--------
this Agreement shall be legally permitted by all laws and regulations to which
each Holder, the Companies, the HFCP Investors and Positano are subject.
9.3 Absence of Proceedings to Restrain Consummation of the Agreement. No
----------------------------------------------------------------
judgment or order shall have been entered restraining or prohibiting the
transactions contemplated herein, and no action or proceeding shall have been
instituted or threatened before a court or other Governmental Entity, by any
third party or by any public authority to restrain or prohibit, or which will
materially and adversely affect the consummation of, the transactions
contemplated herein.
9.4 Financing. A definitive Senior Bank Facilities agreement in the form
---------
and on terms not less favorable to the Company and Positano than those
specifically set forth in the Commitment Letter and satisfactory to the HFCP
Investors and the Companies shall have been entered into by BSH LLC, SIG LLC and
the lenders and the lenders thereunder shall be prepared to fund simultaneously
with the Closing.
9.5 Additional Holders. (a) The Holders listed in Annex H shall have (i)
------------------ -------
approved the terms of this Agreement and the transactions contemplated hereby
and (ii) executed a Joinder Agreement to this Agreement in the form attached
hereto as Annex H and an Investment Agreement Including Release in the form
-------
attached hereto as Annex I.
-------
(b) The Holders listed in Annex I shall have executed an Investment
-------
Agreement Including Release in the form attached hereto as Annex I.
-------
(c) The Holders listed in Annex L shall have executed a Release in the
-------
form attached hereto as Annex L.
-------
(d) Katherin Dyer and Steve Hickson shall have executed a written
waiver of the offer of Equity-Related Interests in their respective offer
letters.
ARTICLE 10 - CONDITIONS PRECEDENT TO THE PERFORMANCE BY
THE HFCP INVESTORS AND POSITANO OF THEIR
OBLIGATIONS UNDER THIS AGREEMENT
All obligations of the HFCP Investors and Positano shall be subject to the
fulfillment or waiver prior to or at the Closing Date of the conditions listed
in this Article 10:
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<PAGE>
10.1 Performance of Agreements. The Companies and the Holders shall have
-------------------------
performed in all material respects their respective agreements contained in this
Agreement required to be performed by them prior to the Closing Date.
10.2 Truth and Accuracy of Representations and Warranties. There shall
----------------------------------------------------
have arisen no facts which would make any of the representations and warranties
of the Companies and the Holders made in or pursuant to this Agreement (without
regard to any amendment to the Disclosure Memorandum) (a) which are qualified as
to materiality, untrue or inaccurate in any respect or (b) which are not
qualified as to materiality, untrue or inaccurate in any material respect, in
each case as of the Closing Date as if made on such date (other than
representations and warranties which speak only as of a certain date, which need
only be accurate as of such date).
10.3 Ownership of Shares, Options, SARs, Other Rights. The Shares shall be
------------------------------------------------
held by the Shareholders, the Options shall be held by the Option Holders, the
SARs shall be held by the SAR Holders and the Other Rights shall be held by the
Other Rights Holders, each in the amounts set forth in Annex A hereto, free and
-------
clear of all Encumbrances.
10.4 Execution of Documents and Performance of Obligations. The Companies,
-----------------------------------------------------
their Subsidiaries and each of the Holders, and their agents and
representatives, shall have executed and delivered all Ancillary Documents
provided for in this Agreement to be executed and delivered by them and shall
have performed or caused to be performed, in all material respects, all of the
actions required to be performed by them or on their behalf, pursuant to this
Agreement hereof (including the procurement of all consents referred to in
Article 12).
10.5 Indebtedness of Holders and Key Employees. Except as set forth in
-----------------------------------------
Schedule 4.27 of the Disclosure Memorandum, all obligations, and guarantees of
any Holder, any Key Employee or any employee subject to Section 4.27 to the
Companies or their Subsidiaries shall have been paid in full and released at or
prior to the Closing.
10.6 No Material Adverse Change. Since December 31, 1997, there shall not
--------------------------
have been any material adverse change in the business or financial position of
the Companies or their Subsidiaries (or the Predecessor Entities) taken together
as a whole.
10.7 Management; Roll-Over Equity. The composition of the management
----------------------------
Holders group and the new equity value of the BSH Shares and BSH Options
retained by such Holders shall be as set forth on Annex A. The following
-------
employees of the Companies shall continue to hold the positions and offices they
hold with such Company as of the date hereof: Michael E. Bronner, David W.
Kenny, Jean Alexander, Reuben Hendell, John Hoholik, Betsy Karp, Harvey Kipnis,
Clare Robinson, Myron Slosberg, Malcolm Speed, Kathleen Biro, Reuben Pinchanski,
Robert Cosinuke, Meryl Beckingham and Michael Ward.
10.8 Employment Agreements. At the Closing, each of the Employees listed
---------------------
in Annex E shall have entered into an Employment Agreement substantially in the
-------
form attached hereto as Annex E.
-------
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<PAGE>
10.9 Client Interviews. Subject to Section 3.5 hereof, the Companies shall
-----------------
have arranged and the HFCP Investors shall have conducted satisfactory Client
Interviews with each of the clients listed on Annex D hereto.
-------
10.10 Stock Option Plan. BSH shall have adopted the BSH Stock Option Plan
-----------------
(the "Stock Option Plan"), substantially in the form attached hereto as Annex F.
----------------- -------
10.11 Letter Agreement. At the Closing, the Principal Shareholder shall
----------------
have entered into a letter agreement containing a non-competition and non-
solicitation agreement substantially in the form attached hereto as Annex G.
-------
10.12 Benefit Plan Remedial Obligation. The Benefit Plan Remedial
--------------------------------
Obligation shall not exceed $8 million, in Positano's reasonable judgement.
ARTICLE 11 - CONDITIONS PRECEDENT TO THE PERFORMANCE
BY THE COMPANIES AND THE HOLDERS OF
THEIR OBLIGATIONS UNDER THIS AGREEMENT
All obligations of the Companies and the Holders under this Agreement shall
be subject to the fulfillment or waiver prior to or at the Closing Date of the
conditions listed in this Article 11.
11.1 Performance of Agreements. The HFCP Investors and Positano shall
-------------------------
have performed in all material respects their agreements contained in this
Agreement required to be performed prior to the Closing Date.
11.2 Truth and Accuracy on Closing Date of Representations and Warranties.
--------------------------------------------------------------------
The representations and warranties of the HFCP Investors and Positano made in or
pursuant to this Agreement (a) which are qualified as to materiality, shall be
true and accurate or (b) which are not so qualified as to materiality, shall be
true and accurate in all material respects, in each case as of the Closing Date
as if made on such date (other than representations and warranties which speak
only as of a certain date, which need only be accurate as of such date).
11.3 Execution of Documents and Performance of Obligations. The HFCP
-----------------------------------------------------
Investors, Positano and their agents and representatives shall have executed and
delivered all Ancillary Documents provided for in this Agreement to be executed
and delivered by them and shall have performed or caused to be performed, in all
material respects, all of the actions required to be performed by the HFCP
Investors and Positano, or on their behalf, pursuant to this Agreement.
ARTICLE 12 - THE CLOSING
Provided that the conditions precedent to the obligations of the parties to
close described in Articles 9 through 11 hereof have been met, at the Closing,
the parties shall deliver the following documents and instruments and take the
following actions:
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12.1 Delivery of Share Certificates. The Shareholders will deliver to
------------------------------
Positano canceled share certificates representing the cancellation of Company
Shares redeemed by such Company; the Option Holders will deliver the option
agreements evidencing their respective options; the SAR Holders will deliver the
SAR unit agreements evidencing their respective SARs; and the Other Rights
Holders will deliver copies of the agreements evidencing their Other Rights.
12.2 Shareholders Agreement. At the Closing, Positano, the Holders and the
----------------------
Companies shall enter into an Agreement among Shareholders (the "Shareholders
------------
Agreement") substantially in the form attached hereto as Annex J (it being
- --------- -------
understood that the timing of the valuation dates in relation to the Puts and
Calls (as defined therein) is subject to revision, in a manner mutually
satisfactory to Positano and the Chief Executive Officer of the Company, in
order to assure optimal accounting treatment for the Company (by avoiding
compensation charges) in the event such Puts and Calls are exercised) and a
Governance Agreement (the "Governance Agreement") substantially in the form
--------------------
attached hereto as Annex O.
-------
12.3 Registration Rights Agreement. At the Closing, Positano, BSH and the
-----------------------------
Holders shall enter into a registration rights agreement (the "Registration
------------
Rights Agreement") substantially in the form attached hereto as Annex K.
- ---------------- -------
12.4 Indebtedness of Holders and Key Employees. Except as set forth in
-----------------------------------------
Section 4.27 of the Disclosure Memorandum, each Company shall deliver evidence
that all obligations of and guarantees on behalf of, any Holder, any Key
Employee or any employee subject to Section 4.27 to such Company have been paid
in full and released at or prior to the Closing.
12.5 Certificates.
------------
(a) The Companies and the Holders shall deliver to the HFCP Investors
such closing certificates as are reasonably requested by Positano.
(b) The HFCP Investors and Positano shall deliver to the Companies and
the Holders such closing certificates as are reasonably requested by BSH.
12.6 Opinion of Counsel for the Holders and the Companies. The HFCP
----------------------------------------------------
Investors and Positano shall have received an opinion of Goodwin, Procter & Hoar
LLP, dated the Closing Date, addressing the matters set forth in Annex M hereto.
-------
12.7 Opinion of Counsel for the HFCP Investors. The Companies and Holders
-----------------------------------------
shall have received opinions of Wachtell, Lipton, Rosen & Katz and, as
applicable, California and Bermuda counsel, dated the Closing Date, addressing
the matters set forth as Annex N hereto.
-------
12.8 Consents. The Companies and the Holders shall have obtained, or to
--------
the reasonable satisfaction of Positano obviated the need to obtain, all
consents or waivers from third parties (a) specified in Schedule 12.8 of the
Disclosure Memorandum or (b) otherwise necessary to continue the operations of
the Companies and their Subsidiaries after the Closing and to continue in effect
all Material Contracts listed in the Disclosure Memorandum at no material cost
to the Companies or their Subsidiaries, except, in the case of clause (b)
hereof, where the failure to
-48-
<PAGE>
obtain such consent or waiver will not have a Company Material Adverse Effect on
either Company.
ARTICLE 13 - TERMINATION
13.1 Termination by Mutual Consent. This Agreement may be terminated and
-----------------------------
transactions contemplated hereby may be abandoned at any time prior to the
Closing by the mutual written consent of Positano and the Companies.
13.2 Termination by Either Positano or the Companies. This Agreement may
-----------------------------------------------
be terminated (upon notice from the terminating party to the other parties) and
the transactions contemplated hereby may be abandoned by action of the Board of
Directors of either Positano on the one hand or the Companies on the other hand,
if (a) the Closing shall not have been consummated by March 31, 1999 (provided
that the right to terminate this Agreement under this clause (a) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Closing to
occur on or before such date) or (b) any Governmental Entity shall have issued a
decision, judgment, decree, injunction, rule or order permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated hereby and such
decision, judgment, decree, injunction, rule or order shall have become final
and nonappealable. For purposes of this Section 13.2 only, the Companies shall
be deemed a single party to this Agreement.
13.3 Termination by HFCP Investors. This Agreement may be terminated and
-----------------------------
the transactions contemplated hereby may be abandoned by the HFCP Investors in
accordance with Section 3.5 hereof.
13.4 Effect of Termination and Abandonment. In the event of termination of
-------------------------------------
this Agreement and other transactions contemplated hereby pursuant to this
Article 13, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in Article 7 and Section 14.2 hereof, and except that nothing herein
will relieve any party from liability for any breach of this Agreement occurring
prior to such termination.
ARTICLE 14 - GENERAL PROVISIONS; OTHER AGREEMENTS
14.1 Opinions of Counsel. In rendering an opinion referred to in Article
-------------------
12 hereof, counsel may rely, as to any factual matters involved in such opinion,
on certificates of public officials and of corporate officers and such other
evidence as such counsel may reasonably deem appropriate.
14.2 Expenses. (a) If the transactions contemplated by this Agreement are
--------
not consummated for any reason other than: (i) a material breach by the HFCP
Investors or Positano, (ii) failure to obtain clearance under the HSR Act, (iii)
failure of the banks to enter into a definitive agreement to provide the Senior
Bank Facility contemplated by the Commitment
-49-
<PAGE>
Letter or (iv) failure of the banks to fund under the Senior Bank Facility based
on a material adverse change in financial, banking or capital markets, the
Company shall pay all expenses incurred by the HFCP Investors and Positano
(including the fees and expenses for its accountants, attorneys and other
advisors and under the Commitment Letter) in connection with the negotiation,
preparation, financing and consummation of this Agreement and the Ancillary
Documents, and the transactions contemplated hereby and thereby, up to a maximum
of Five Hundred Thousand Dollars ($500,000).
(b) If the transactions contemplated by this Agreement are
consummated, the Companies shall pay all expenses incurred by the HFCP Investors
and Positano (including the fees and expenses for its accountants, attorneys and
other advisors and under the Commitment Letter) in connection with the
negotiation, preparation, financing and consummation of this Agreement and the
Ancillary Documents, and the transactions contemplated hereby and thereby.
(c) The Companies shall pay all reasonable expenses incurred by the
parties hereto (other than the HFCP Investors and Positano which are covered by
clauses (a) and (b) hereof) (including investment banking, brokerage, legal and
accounting expenses incurred by the Companies and the Principal Shareholder) in
connection with the negotiation, preparation and consummation of this Agreement
and the Ancillary Documents, and the transactions contemplated hereby and
thereby; provided, however, that the investment banking and legal expenses
incurred by the Companies and the Principal Shareholder in connection with the
negotiation, preparation and consummation of this Agreement and the transactions
contemplated hereby and thereby shall not exceed Three Million Dollars
($3,000,000).
14.3 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed wholly within such state.
14.4 Headings. Article and Section headings used in this Agreement are for
--------
convenience only and shall not affect the meaning or construction of this
Agreement.
14.5 Notices. All notices, requests, demands or other communications
-------
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered by hand, by
messenger or by a nationally recognized overnight delivery company, when
delivered by telecopy and confirmed by return telecopy, or when delivered by
first class mail, postage prepaid and return receipt requested, in each case to
the applicable addresses set forth below:
-50-
<PAGE>
(a) if to either Company to:
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner
and David W. Kenney
Facsimile: (617) 867-7217
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
(b) if to the HFCP Investors or Positano
H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
(c) if to a Holder, to the address listed after such Holder's name
on Annex A hereto, with copies to such person as such Holder may
-------
by notice to all parties designate in writing.
14.6 Parties in Interest. All the terms and provisions of this Agreement
-------------------
shall be binding upon and inure to the benefit of and be enforceable by the
successors of the Companies and Positano, and by the successors, heirs,
executors and personal representatives of the Holders; provided, that, except as
otherwise expressly set forth in this Agreement, neither the rights nor the
obligations of any party may be assigned or delegated without the prior written
consent of the other parties.
-51-
<PAGE>
14.7 Entire Agreement. This Agreement, the Ancillary Documents, and any
----------------
agreements set forth as an annex to the Agreement or any Ancillary Document
constitute the entire agreement between the parties hereto and supersede all
prior agreements and understandings, both written and oral, with respect to the
subject matter hereof.
14.8 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
14.9 Amendment. This Agreement may be amended only by an instrument in
---------
writing signed by the HFCP Investors, Positano, the Companies and the
Shareholder Representatives on behalf of the Holders.
14.10 Public Announcements. The HFCP Investors and the Companies shall
--------------------
mutually agree on any public announcements concerning the transactions
contemplated hereby.
14.11 Gender, Etc. Whenever the context may require, any pronouns used
------------
herein shall be deemed to refer to the masculine, feminine, or neuter forms, and
the singular form of nouns, pronouns and verbs shall include the plural, and
vice versa. Whenever used herein, the terms "include," "includes" and
"including" shall mean to include without limitation.
14.12 Further Assurances. Each party agrees to use its reasonable best
------------------
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Ancillary Agreements to which it is a party, including, without
limitation, (a) the obtaining of all other necessary actions or nonactions,
waivers, consents, licenses, permits, authorizations, orders and approvals from
Governmental Entity and the making of all other necessary registrations and
filings, (b) the obtaining of all consents, approvals or waivers from third
parties that are necessary to consummate the transactions contemplated by this
Agreement or required to prevent a Company Material Adverse Effect, and (c) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
-52-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
HELLMAN & FRIEDMAN CAPITAL
PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
---------------------------------------
Name: Patrick J. Healy
Title: Vice President
H&F ORCHARD PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
---------------------------------------
Name: Patrick J. Healy
Title: Vice President
H&F INTERNATIONAL PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
---------------------------------------
Name: Patrick J. Healy
Title: Vice President
[SIGNATURE PAGE TO THE RECAPITALIZATION AGREEMENT]
<PAGE>
POSITANO PARTNERS LTD.
By /s/ Patrick J. Healy
---------------------------------------
Name: Patrick J. Healy
Title: Vice President
BRONNER SLOSBERG HUMPHREY CO.
By /s/ Michael E. Bronner
---------------------------------------
Name: Michael E. Bronner
Title: Chairman
Bronner Slosberg Humphrey Co. (the
"Trust") is a Massachusetts business
trust. A copy of the Trust's Declaration
of Trust, as the same may be amended
and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and
agrees that this Agreement is not
executed on behalf of the trustees or
officers of the Trust as individuals or,
in the event the trustee is a corporation
or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the
Trust, or any of their respective
trustees, officers, directors, partners,
members or shareholders, individually,
but are binding only upon the assets and
property of the Trust. Each of the
parties hereto agrees that no
shareholder, trustee or officer of the
Trust, or any of their respective
trustees, officers, directors, partners,
members and shareholders, may be held
personally liable or responsible for any
obligations of the Trust arising out of
this Agreement. With respect to
obligations of the Trust arising out of
this Agreement, each of the parties
hereto shall look for payment or
satisfaction of any claim solely to the
assets and property of the Trust.
[SIGNATURE PAGE TO THE RECAPITALIZATION AGREEMENT]
<PAGE>
STRATEGIC INTERACTIVE GROUP CO.
By /s/ Michael E. Bronner
---------------------------------------
Name: Michael E. Bronner
Title: Chairman
Strategic Interactive Group Co. (the
"Trust") is a Massachusetts business
trust. A copy of the Trust's Declaration
of Trust, as the same may be amended
and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and
agrees that this Agreement is not
executed on behalf of the trustees or
officers of the Trust as individuals or,
in the event the trustee is a corporation
or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the
Trust, or any of their respective
trustees, officers, directors, partners,
members or shareholders, individually,
but are binding only upon the assets and
property of the Trust. Each of the
parties hereto agrees that no
shareholder, trustee or officer of the
Trust, or any of their respective
trustees, officers, directors, partners,
members and shareholders, may be held
personally liable or responsible for any
obligations of the Trust arising out of
this Agreement. With respect to
obligations of the Trust arising out of
this Agreement, each of the parties
hereto shall look for payment or
satisfaction of any claim solely to the
assets and property of the Trust.
/s/ Michael E. Bronner
-----------------------------------------
MICHAEL E. BRONNER
/s/ David W. Kenny
-----------------------------------------
DAVID W. KENNY
[SIGNATURE PAGE TO THE RECAPITALIZATION AGREEMENT]
<PAGE>
EXHIBIT 2.5
AMENDMENT AGREEMENT
AMENDMENT AGREEMENT, dated January 6, 1999 (this "Agreement"), among
POSITANO PARTNERS LTD., a Bermuda exempt company ("Positano"), HELLMAN &
FRIEDMAN CAPITAL PARTNERS III, L.P., a California limited partnership, H&F
ORCHARD PARTNERS III, L.P., a California limited partnership, H&F INTERNATIONAL
PARTNERS III, L.P., a California limited partnership (collectively, the"HFCP
Investors"), BRONNER SLOSBERG HUMPHREY CO., a Massachusetts business trust
having its principal office at Prudential Tower, 800 Boylston Street, Boston, MA
02199 ("BSH"), STRATEGIC INTERACTIVE GROUP CO., a Massachusetts business trust
having its principal office at Prudential Tower, 800 Boylston Street, Boston, MA
02199 ("SIG" and, together with BSH, the "Companies") and Michael E. Bronner
and David Kenny as Shareholder Representatives. All capitalized terms not
defined herein shall have the meanings ascribed to such terms in the
Recapitalization Agreement, dated as of November 28, 1998 (the "Recapitalization
Agreement") among Positano, the HFCP Investors, the Companies, and the
shareholders of the Companies, holders of options to purchase shares of the
Companies and holders of share appreciation rights in the Companies listed as
signing parties on Annex A.
WHEREAS, the parties hereto have entered into the Recapitalization
Agreement, pursuant to which the parties shall effect the recapitalization of
the Companies upon the terms and conditions set forth in the Recapitalization
Agreement;
WHEREAS, Annex A to the Recapitalization Agreement was delivered
concurrently with the Recapitalization Agreement on November 28, 1998 (the
"11/28/98 Annex A");
WHEREAS, the parties hereto have mutually agreed to revise the
11/28/98 Annex A in various respects and have further agreed that such revised
Annex A, marked "FINAL" in the upper right hand corner of each of its eight
pages (the "Final Annex A"), shall replace and supersede in all respects the
11/28/98 Annex A;
WHEREAS, in accordance with Section 14.9 of the Recapitalization
Agreement, the parties hereto wish to modify and clarify the terms of the
Recapitalization Agreement as set forth below.
NOW, THEREFORE, in consideration of the foregoing and the premises,
representations, warranties and agreements contained in the Recapitalization
Agreement, the parties hereto agree as follows:
FIRST: The Final Annex A, attached hereto, shall replace and
supersede in all respects the 11/28/98 Annex A. All references in the
Recapitalization Agreement to "Annex A" shall mean the Final Annex A.
<PAGE>
SECOND: Section 3.2(c)(i) of the Recapitalization Agreement shall be
amended by replacing the number "37,442.33" which appears in the first sentence
of such Section 3.2(c)(i) with the number "187,690.58."
THIRD: Section 3.2(c)(ii) of the Recapitalization Agreement shall
be amended by deleting the existing text and replacing such deleted text with
the following excerpt:
Of the 187,690.58 BSH Shares transferred to SIG pursuant
to Section 3.2(c)(i) above, SIG shall transfer (i)
37,442.33 BSH Shares in such amounts and to such
individuals listed on Annex A hereto and (ii) 150,248.25
-------
BSH Shares to Positano. Following the foregoing transfers,
SIG shall liquidate and terminate its existence.
FOURTH: Section 3.3 of the Recapitalization Agreement shall be
amended by deleting the first sentence of such Section 3.3 in its entirety and
replacing such deleted text with the following excerpt:
Of the cash to be paid pursuant to Section 3.2(b),
Positano, BSH and BSH LLC shall place an aggregate of
$9,350,000, allocated among the Holders in the amounts
set forth on Annex A hereto, in escrow pursuant to the
-------
terms of the escrow agreement, to be dated as of the
Closing Date, among MB and David W. Kenny, BSH, SIG,
Positano and an institutional escrow agent mutually
satisfactory to them (the "Escrow Agent") substantially
------------
in the form attached as Annex C hereto (the "Escrow
------- ------
Agreement").
---------
FIFTH: All references to Sorrento, Inc. shall mean instead Vesuvio,
Inc., a newly formed Delaware corporation to be owned by Positano.
SIXTH: This Agreement shall be construed and enforced in accordance
with the laws of the Commonwealth of Massachusetts applicable to contracts made
and to be performed wholly within such state.
SEVENTH: This Agreement may be executed in two or more counterparts,
each of which shall be considered an original, but all of which together shall
constitute the same instrument.
[SIGNATURE PAGES TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
HELLMAN & FRIEDMAN CAPITAL
PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
--------------------------------------
Name: Patrick J. Healy
Title: Vice President
H&F ORCHARD PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
--------------------------------------
Name: Patrick J. Healy
Title: Vice President
H&F INTERNATIONAL PARTNERS III, L.P.
By its General Partner,
H&F Investors III
By its Managing General Partner,
Hellman & Friedman Associates III, L.P.
By its Managing General Partner,
H&F Investors III, Inc.
By /s/ Patrick J. Healy
--------------------------------------
Name: Patrick J. Healy
Title: Vice President
[SIGNATURE PAGE TO THE AMENDMENT AGREEMENT]
<PAGE>
POSITANO PARTNERS LTD.
By /s/ Patrick J. Healy
--------------------------------------
Name: Patrick J. Healy
Title: Vice President
BRONNER SLOSBERG HUMPHREY CO.
By /s/ Michael E. Bronner
--------------------------------------
Name: Michael E. Bronner
Title: Chairman
Bronner Slosberg Humphrey Co. (the "Trust")
is a Massachusetts business trust. A copy
of the Trust's Declaration of Trust, as the
same may be amended and/or restated from
time to time, is on file with the Secretary
of State of The Commonwealth of
Massachusetts. Each of the parties hereto
acknowledges and agrees that this Agreement
is not executed on behalf of the trustees
or officers of the Trust as individuals or,
in the event the trustee is a corporation
or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the
Trust, or any of their respective trustees,
officers, directors, partners, members or
shareholders, individually, but are binding
only upon the assets and property of the
Trust. Each of the parties hereto agrees
that no shareholder, trustee or officer of
the Trust, or any of their respective
trustees, officers, directors, partners,
members and shareholders, may be held
personally liable or responsible for any
obligations of the Trust arising out of
this Agreement. With respect to obligations
of the Trust arising out of this Agreement,
each of the parties hereto shall look for
payment or satisfaction of any claim solely
to the assets and property of the Trust.
[SIGNATURE PAGE TO THE AMENDMENT AGREEMENT]
<PAGE>
STRATEGIC INTERACTIVE GROUP CO.
By /s/ Michael E. Bronner
--------------------------------------
Name: Michael E. Bronner
Title: Chairman
Strategic Interactive Group Co. (the
"Trust") is a Massachusetts business
trust. A copy of the Trust's Declaration
of Trust, as the same may be amended
and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and
agrees that this Agreement is not
executed on behalf of the trustees or
officers of the Trust as individuals or,
in the event the trustee is a
corporation or other entity, on behalf
of the individual owners of such
corporation or entity, and the
obligations of this Agreement are not
binding upon any of the trustees,
officers or shareholders of the Trust,
or any of their respective trustees,
officers, directors, partners, members
or shareholders, individually, but are
binding only upon the assets and
property of the Trust. Each of the
parties hereto agrees that no
shareholder, trustee or officer of the
Trust, or any of their respective
trustees, officers, directors, partners,
members and shareholders, may be held
personally liable or responsible for any
obligations of the Trust arising out of
this Agreement. With respect to
obligations of the Trust arising out of
this Agreement, each of the parties
hereto shall look for payment or
satisfaction of any claim solely to the
assets and property of the Trust.
By /s/ Michael E. Bronner
--------------------------------------
Name: Michael E. Bronner
Title: Shareholder Representative
By: /s/ David W. Kenny
-------------------------------------
Name: David W. Kenny
Title: Shareholder Representative
[SIGNATURE PAGE TO THE AMENDMENT AGREEMENT]
<PAGE>
EXHIBIT 10.1
BRONNER SLOSBERG HUMPHREY CO.
1998 OPTION PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give Bronner Slosberg Humphrey Co., a
Massachusetts business trust (the "Company") and its Affiliates (each as defined
below) a competitive advantage in attracting, retaining and motivating key
employees and other individuals providing services to the Company and its
Affiliates, and to enable the Company and its Affiliates to provide incentives
linked to the financial results of the Company's and its subsidiaries'
businesses.
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" of a Person means a Person directly or indirectly
controlled by, controlling or under common control with such Person.
"Board" means the Board of Directors of the Trustee.
"Closing" and "Closing Date" have the meanings set forth in the
Recapitalization Agreement.
"Closing Options" has the meaning set forth in Section 5(a).
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"Committee" has the meaning set forth in Section 2(a).
"Company" means Bronner Slosberg Humphrey Co., a Massachusetts
business trust.
"Employment/Service" means employment with, or the performance of
services as a non-employee director, consultant or other independent contractor
for, the Company or any of its Affiliates.
"Escrow Agreement" means the escrow agreement, dated as of January 6,
1999, by and among Michael E. Bronner and David W. Kenny, the Company, Strategic
Interactive Group Co., a Massachusetts business trust, Positano and Boston Safe
Deposit and Trust Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
"Exercise Date" has the meaning set forth in Section 6(b).
<PAGE>
"Exercise Notice" means a written notice by a Participant to the
Company, on such form as the Committee may prescribe from time to time, stating
that an Option is being exercised.
"Exercise Price" shall mean the price per Share at which Shares can be
purchased pursuant to Options.
"Fair Market Value" of a Share as of any given date means (i) if the
Shares are not then listed on any exchange or NASDAQ, the fair market value of a
Share as determined in good faith by the Committee, and (ii) if the Shares are
so listed, the mean between the highest and lowest reported sales prices on such
date of a Share on the New York Stock Exchange or, if not listed on such
exchange, on any other national securities exchange on which the Shares is
listed or, if not so listed, on NASDAQ on the last preceding date on which there
was a sale of Shares on such exchange or on NASDAQ.
"Incentive Stock Option" means any Option that is designated in the
applicable Option Agreement, and that qualifies as, an "incentive stock option"
within the meaning of Section 422 of the Code.
"IPO" means an Initial Public Offering, as defined in the Shareholders
Agreement.
"Mature Shares" means Shares that have been owned by the Participant
in question for at least six months.
"NASDAQ" means the NASDAQ Stock Market, Inc. National Market.
"Nonqualified Stock Option" means any Option that is not an Incentive
Stock Option.
"Option" means a right to purchase Shares granted pursuant to this
Plan.
"Option Agreement" means an agreement setting forth the terms and
conditions of an Option or Options.
"Participant" means any individual eligible to receive grants of
Options as set forth in Section 4 to whom an Option has been granted.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization, government
(or any department or agency thereof) or other entity.
"Plan" means the Bronner Slosberg Humphrey Co. 1998 Option Plan, as
set forth herein and as hereinafter amended from time to time.
"Plan Shares" has the meaning set forth in Section 11(b).
"Positano" means Positano Partners Ltd., a Bermuda exempt company.
-2-
<PAGE>
"Positano's Consent" means the written consent of Positano
"Recapitalization Agreement" means the Recapitalization Agreement,
dated November 28, 1998, among Positano Partners Ltd., Hellman & Friedman
Capital Partners III, L.P., H&F Orchard Partners III, L.P., H&F International
Partners III, L.P., the Company, Strategic Interactive Group Co., and certain
individuals listed on Annex A thereto.
-------
"Rollover Options" has the meaning set forth in Section 5(b).
"Rule 13d-3" means Rule 13d-3, as promulgated by the SEC under the
Exchange Act, as amended from time to time.
"SEC" means the Securities and Exchange Commission or any successor
agency.
"Section 162(m) Option" means an Option that is (i) granted at a time
when the Company is a "publicly held corporation" within the meaning of Section
162(m)(2) of the Code, and (ii) not exempt from the application of Section
162(m) of the Code by reason of one of the transition rules set forth in
Treasury Regulation Section 1.162-27(f) or a similar transition rule.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor thereto.
"Shareholders Agreement" means the Shareholders Agreement, dated as of
January 6, 1999, among the Company and certain shareholders of the Company, as
amended from time to time.
"Shares" means the shares of beneficial interest in the Company.
"Trustee" means Vesuvio, Inc., a Delaware corporation and the sole
trustee of the Company.
SECTION 2. Administration
(a) Committee. The Plan shall be administered by a committee of the
Board designated for such purpose (the "Committee"), or, if no Committee has
been designated, by the Board (in which case all references herein to the
Committee shall include the Board).
(b) Powers of Committee. Among other things, the Committee shall
have the authority, subject to the terms of the Plan, to:
(i) select the Participants to whom Options are granted;
(ii) determine whether and to what extent awards of Incentive Stock
Options and Nonqualified Stock Options or any combination thereof are to be
granted hereunder;
(iii) determine the number of Shares to be covered by each Option
granted hereunder;
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(iv) determine the terms and conditions of any Option granted
hereunder;
(v) with Positano's Consent, accelerate the vesting, and otherwise
modify, amend or adjust the terms and conditions, of any Option, at any time or
from time to time;
(vi) adopt, alter and repeal such administrative rules, guidelines
and practices governing the Plan as it shall from time to time deem advisable;
(vii) interpret the terms and provisions of the Plan and any Option
issued under the Plan and the Option Agreement relating thereto in its sole
discretion; and
(viii) otherwise supervise the administration of the Plan.
(c) Action by Majority. The Committee may act only by a majority of
its members, except that the members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Committee.
(d) Dispute Resolution. Any dispute or disagreement which may arise
under, or as a result of, or in any way relate to, the interpretation,
construction or application of the Plan or an Option (or related Option
Agreement) granted hereunder shall be resolved by the Committee in its sole
discretion. All decisions made by the Committee shall be final and binding on
all Persons, including the Company and the Participants.
(e) Indemnification. No member of the Committee or the Board shall
be liable for any action or determination made in good faith with respect to the
Plan or any Option or Option Agreement. To the full extent permitted by law, the
Company shall indemnify and save harmless each Person made or threatened to be
made a party to any civil or criminal action or proceeding by reason of the fact
that such Person, or such Person's testator or intestate, is or was a member of
the Committee.
SECTION 3. Shares Subject to Plan
(a) Number of Shares. The total number of Shares reserved and
available for grant under the Plan shall be the sum of (i) 195,745; and (ii) the
number of Shares subject to Rollover Options, determined immediately after the
Closing. Shares subject to Options under the Plan may be authorized and unissued
shares or may be treasury shares. If any Option other than a Rollover Option
terminates without being exercised, the shares subject to such Options shall
again be available for grants of Options under the Plan. In addition, the
maximum number of shares with respect to which Section 162(m) Options may be
granted to any one individual in any one calendar year shall be 50,000.
(b) Adjustments. In the event of any incorporation, merger,
reorganization, consolidation, recapitalization, spinoff, share dividend, split
or reverse split, extraordinary distribution with respect to the Shares or other
change in the structure of the Company affecting the Shares, the Committee or
the Board may make such substitution or adjustment in the
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aggregate number and kind of shares or other property reserved for issuance
under the Plan, in the number, kind and Exercise Price of shares or other
property subject to outstanding Options, in the limitation set forth in the last
sentence of Section 3(a), and/or such other equitable substitution or
adjustments as it may determine to be fair and appropriate in its sole
discretion.
SECTION 4. Participants
Any individual who is employed by, or performs services as a non-
employee director, consultant or other independent contractor for, the Company
or any of its Affiliates, and who is responsible for or contributes to the
management, growth and profitability of the business of the Company and/or its
Affiliates, shall be eligible to be granted Options under the Plan.
SECTION 5. Grants of Options
(a) Closing Options. Effective immediately following the Closing,
there shall be granted Options with respect to 97,873 Shares (the "Closing
Options") to those eligible individuals who are selected by the Committee based
upon the recommendation of the Chairman of the Board and the Chief Executive
Officer of the Company. The Closing Options shall have the following terms and
conditions:
(i) none of the Closing Options shall be Incentive Stock Options;
(ii) the Exercise Price of the Closing Options shall be $151.10;
(iii) the Closing Options shall have a term ending at the close of
business on the tenth anniversary of the Closing Date; and
(iv) each Participant's Closing Options shall vest in three equal
installments on the third, fourth and fifth anniversaries of the
Closing Date, subject to the limitations set forth in Section 7
below, unless Positano's Consent to another vesting schedule is
obtained.
(b) Rollover Options. In addition, effective immediately following
the Closing, there shall be granted Options as contemplated by Section 3.2 of
the Recapitalization Agreement (the "Rollover Options"). Each Rollover Option
shall have a term ending on the date the term of the option it replaces would
have ended and otherwise shall be subject to the terms and conditions set forth
in the Option Agreement relating to each Rollover Option.
(c) Required Terms for Other Options. Options other than the Closing
Options and the Rollover Options shall have the following terms and conditions:
(i) the Exercise Price per Share of such an Option shall be not less
than the Fair Market Value of a Share on the date of grant;
(ii) Each such Option shall have a term ending at the close of
business on the tenth anniversary of the date of grant; and
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(iii) each such Option shall vest in three equal installments on the
third, fourth and fifth anniversaries of the date of grant,
subject to the limitations set forth in Section 7 below, unless
Positano's Consent to another vesting schedule is obtained.
(d) Requirements Applicable to All Options. Options shall be
evidenced by Option Agreements setting forth the terms and conditions thereof in
such detail as the Committee may determine from time to time. An Option
Agreement shall expressly indicate whether it is intended to be an agreement for
an Incentive Stock Option or a Nonqualified Stock Option. Except as to Rollover
Options, the grant of an Option shall occur on the date the Committee by
resolution selects an individual to receive a grant of an Option, determines the
number of Shares to be subject to such Option to be granted to such individual
and specifies the terms and provisions of the Option, or on such later date as
the Committee may determine. The Company shall notify a Participant of any grant
of an Option, and a written Option Agreement shall be duly executed and
delivered by the Company to the Participant. Subject to Section 11(a), such
agreement shall become effective upon execution by the Company and the
Participant.
(e) Change-of-Control Vesting. Notwithstanding any other provision of
this Plan, unless otherwise provided in the applicable Option Agreement, each
Option shall vest, to the extent not theretofore vested, upon the acquisition,
for consideration consisting solely of cash, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) that is
not affiliated with the Company or its owners immediately before such
acquisition, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of the equity interests,
measured by vote or value, of the Company.
(f) Incentive Stock Options. Options granted under the Plan may be
either Incentive Stock Options or Nonqualified Stock Options, and shall be
designated as such in the applicable Option Agreement. Incentive Stock Options
may be granted only to employees of the Company or any Affiliate that is a
"subsidiary corporation" within the meaning of Section 424(f) of the Code. To
the extent that any Option does not qualify as an Incentive Stock Option, even
if so designated, it shall be deemed to be a Nonqualified Stock Option.
SECTION 6. Exercise of Options
(a) Exercise. Subject to the provisions of this Section 6, Options
may be exercised, in whole or in part, at any time during the option term after
they have vested by giving an Exercise Notice to the Company in accordance with
this Section 6; provided, that no Option may be exercised with respect to a
number of Shares that is less than the lesser of (i) one hundred and (ii) the
total number of Shares remaining available for exercise pursuant to the Option.
(b) Procedures. Unless otherwise permitted by the Committee, an
Exercise Notice shall be delivered no less than two business days in advance of
the effective date of the proposed exercise (the "Exercise Date"). An Exercise
Notice shall be accompanied by the Stock Option Agreement evidencing the Option
and shall specify the number of Shares with respect to which the Option is being
exercised, the Exercise Date and any requests with respect to the form
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of payment and withholding taxes or as provided in Sections 6(c) and 11(f),
respectively, and shall be signed by the Participant. The partial exercise of an
Option shall not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an Option, the Stock
Option Agreement evidencing such Option, marked with any notations deemed
appropriate by the Committee, shall be returned to the Participant exercising
such Option.
(c) Payment. Each Exercise Notice shall be accompanied by payment in
full of the aggregate Exercise Price for the shares being purchased. Such
payment shall be made by certified or bank check, wire transfer, or such other
instrument as the Committee may accept. If approved by the Committee, payment,
in full or in part, may also be made in the form of unrestricted Mature Shares,
based on the Fair Market Value of the Shares on the date the Option is
exercised; provided, however, that, in the case of an Incentive Stock Option the
right to make a payment in such Shares may be authorized only at the time the
Option is granted. In the discretion of the Committee, payment for any Shares in
connection with the exercise of an Option at a time when the Shares are listed
on a national securities exchange or on NASDAQ may also be made by delivering a
properly executed exercise notice to the Company, together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the purchase price, and, if requested by
the Company, the amount of statutory and regulatory federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage firms.
(d) Rights as Shareholders. Notwithstanding any other provision of
this Plan or any Option Agreement, no Shares shall be issued pursuant to the
exercise of an Option until full payment therefor has been made. Except as
otherwise provided in the Shareholders Agreement or the applicable Option
Agreement, subject to a Participant's compliance with Section 11(a) hereof, a
Participant shall have all of the rights of a shareholder of the Company holding
the class or series of Shares that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends and
distributions), when the Participant has given written notice of exercise, has
paid in full for such shares and, if requested, has given the representations
referred to in Section 11(c).
SECTION 7. Effect of Termination of Employment/Service
Except as otherwise provided in the Option Agreement or as otherwise
determined by the Committee, in the event that a Participant's
Employment/Service is terminated for any reason, (A) each then-outstanding
Option granted to such Participant that had vested as of the date of such
termination of Employment/Service shall remain exercisable until the earlier of
the close of business on the 30th day following the date of such termination of
Employment/Service and the end of its term and (B) all then-outstanding Options
granted to such Participant that had not vested as of the date of such
termination of Employment/Service shall be forfeited.
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SECTION 8. Transferability of Options
(a) Limit on Transfers. No Option shall be transferable by the
Participant other than (i) by designation of a beneficiary in accordance with
Section 8(b), or (ii) in the case of a Nonqualified Stock Option, as otherwise
expressly permitted under the applicable Option Agreement including, if so
permitted, pursuant to a gift to such Participant's spouse, children,
grandchildren or other living descendants, whether directly or indirectly or by
means of a trust, partnership, limited liability company or otherwise. All
Options shall be exercisable, subject to the terms of this Plan, during the
Participant's lifetime, only by the Participant or any Person to whom such
Option is transferred pursuant to the preceding sentence. The term "Participant"
includes the beneficiary of the Participant pursuant to Section 8(b) and any
Person to whom an Option is otherwise transferred in accordance with this
Section 8; provided, however, that references herein to Employment/Service of a
Participant or termination of Employment/Service of a Participant shall continue
to refer to the Employment/Service or termination of Employment/Service of the
Participant to whom the Option was granted hereunder.
(b) Beneficiaries. A Participant shall have the right to designate a
beneficiary who shall be entitled to exercise the Participant's Options (subject
to their terms and conditions) following the Participant's death, and to whom
any amounts payable or Shares deliverable following the Participant's death
shall be paid or delivered, as applicable. Such designations shall be made in
accordance with procedures established by the Committee from time to time. If no
beneficiary designation form is on file with the Committee at the time of a
Participant's death, or the Committee determines in good faith that the form on
file is invalid, then the Participant's beneficiary shall be deemed to be the
Participant's estate.
SECTION 9. Amendment, Termination and Cancellation
(a) Plan. The Board may amend, alter, or terminate the Plan,
prospectively or retroactively, but no amendment, alteration or termination
shall impair the rights of any Participant under an Option theretofore granted
without the Participant's consent.
(b) Options. The Committee may amend the terms of any Option,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant thereunder without the Participant's consent.
(c) Cancellation. Notwithstanding any other provision of this Plan or
any Option Agreement, the Committee may elect at any time before or upon receipt
of notice of exercise of an Option to cancel all or any portion of any Option by
delivering to the Participant Shares having a Fair Market Value equal to (i) the
excess of the Fair Market Value of one Share on the effective date of such
cancellation over the Exercise Price per Share of the Option, times (ii) the
number of Shares as to which the Option is being cancelled.
SECTION 10. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other
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arrangements to meet the obligations created under the Plan to deliver Shares or
make payments; provided, however, that unless the Committee otherwise
determines, the existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan.
SECTION 11. General Provisions
(a) Shareholders Agreement. Notwithstanding anything in this Plan to
the contrary, unless the Committee determines otherwise, it shall be a condition
to receiving any Option under the Plan or transferring any Option in accordance
with Section 8 that the Participant (or transferee in the case of such a
transfer) shall become a party to the Shareholders Agreement, and such
Participant (or transferee in the case of such transfer) shall become a "Holder"
thereunder (or such transferee shall become a "Permitted Transferee" of a
"Holder" thereunder).
(b) Options and Certificates. (i) Shares issuable upon the exercise
of an Option (each, a "Plan Share") shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry registration or issuance of
one or more share certificates. Any certificate issued in respect of Plan Shares
shall be registered in the name of such Participant and shall bear appropriate
legends referring to the terms, conditions, and restrictions applicable to such
Option, substantially in the following form:
"The transferability of this certificate and the shares represented
hereby are subject to the terms, conditions and restrictions set forth
in the Shareholders Agreement among the issuer and certain
shareholders of the issuer, including the registered holder hereof.
Copies of such agreement are on file at the offices of Bronner
Slosberg Humphrey Co., Prudential Tower, 800 Boylston Street, Boston,
MA 02199."
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state, and may not be sold or otherwise
disposed of except pursuant to an effective registration statement
under said Act and applicable state securities laws or an applicable
exemption to the registration requirements of such Act and laws."
Such Plan Shares may bear other legends to the extent the Committee determines
it to be necessary or appropriate, including any required by the Shareholders
Agreement or pursuant to any applicable Option Agreement. If and when all
restrictions expire without a prior forfeiture of the Plan Shares theretofore
subject to such restrictions, new certificates for such shares shall be
delivered to the Participant without the first legend listed above.
(ii) The Committee may require that any certificates evidencing Plan
Shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that the Participant deliver a share power, endorsed in blank,
relating to the Plan Shares.
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(c) Representations and Warranties. The Committee may require each
Person purchasing or receiving Plan Shares to (i) represent to and agree with
the Company in writing that such Person is acquiring the shares without a view
to the distribution thereof and (ii) make any other representations and
warranties that the Committee deems appropriate.
(d) Additional Compensation. Nothing contained in the Plan shall
prevent the Company or any of its Affiliates from adopting other or additional
compensation arrangements for its employees.
(e) No Right of Employment/Service. Adoption of the Plan or grant of
any Option shall not confer upon any individual eligible for grants of Options
any right to continued Employment/Service, nor shall it interfere in any way
with the right of the Company or any of its Affiliates thereof to terminate the
Employment/Service of any such individual at any time.
(f) Withholding Taxes. No later than the date as of which an amount
first becomes includible in the gross income of a Participant for federal income
tax purposes with respect to any Option under the Plan, such Participant shall
pay to the Company or, if appropriate, any of its Affiliates, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. If approved by the Committee, and subject
to Positano's Consent, withholding obligations may be settled with Mature
Shares. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Shares.
(g) Governing Law. Except to the extent that provisions of the Plan
are governed by applicable provisions of the Code or other substantive
provisions of Federal law, the Plan and all Options made and actions taken
thereunder shall be governed by and construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts without regard to the principles
of conflicts of law thereof.
(h) Compliance with Laws. If any law or any regulation of any
commission or agency having jurisdiction shall require the Company or a
Participant seeking to exercise Options to take any action with respect to the
Plan Shares to be issued upon the exercise of Options, then the date upon which
the Company shall issue or cause to be issued the certificate or certificates
for the Plan Shares shall be postponed until full compliance has been made with
all such requirements of law or regulation; provided, that the Company shall use
its reasonable efforts to take all necessary action to comply with such
requirements of law or regulation. Moreover, in the event that the Company shall
determine that, in compliance with the Securities Act or other applicable
statutes or regulations, it is necessary to register any of the Plan Shares with
respect to which an exercise of an Option has been made, or to qualify any such
Plan Shares for exemption from any of the requirements of the Securities Act or
any other applicable statute or regulation, no Option may be exercised and no
Plan Shares shall be issued to the exercising Participant until the required
action has been completed; provided, that the Company shall use its reasonable
efforts to take all necessary action to comply with such requirements of law or
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regulation. Notwithstanding anything to the contrary contained herein, neither
the Board nor the members of the Committee owes a fiduciary duty to any
Participant in his or her capacity as such.
(i) Notices. All Exercise Notices, notices, requests, demands or
other communications required by or otherwise with respect to the Plan shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by facsimile, or when delivered by first-class
mail, postage prepaid and return receipt requested, in each case to the
applicable addresses set forth below:
If to the Participant:
To the address shown on the Stock Option Agreement.
If to the Company:
Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention: Chairman of the Board
Facsimile: (617) 867-1111
(or to such other address as the party in question shall from time to time
designate by written notice to the other parties). Notices sent by registered
or certified mail in accordance with this Section shall be deemed delivered as
of the date posted in the United States mail.
SECTION 12. Effective Date of Plan
The Plan shall be effective as of the Closing Date.
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EXHIBIT 10.2
BRONNER SLOSBERG HUMPHREY CO.
1999 OPTION PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give Bronner Slosberg Humphrey Co., a
Massachusetts business trust (the "Company") and its Affiliates (each as defined
below) a competitive advantage in attracting, retaining and motivating key
employees and other individuals providing services to the Company and its
Affiliates, and to enable the Company and its Affiliates to provide incentives
linked to the financial results of the Company's and its subsidiaries'
businesses.
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" shall mean with respect to a specified Person, any Person that
directly, or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, the specified Person.
"Board" means the Board of Directors of the Trustee.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"Committee" has the meaning set forth in Section 2(a).
"Company" means Bronner Slosberg Humphrey Co., a Massachusetts business
trust.
"Control" shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, contract, or otherwise.
"Employment/Service" means employment with, or the performance of services
as a non-employee director, consultant or other independent contractor for, the
Company or any of its Affiliates.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
"Exercise Date" has the meaning set forth in Section 6(b).
"Exercise Notice" means a written notice by a Participant to the Company,
on such form as the Committee may prescribe from time to time, stating that an
Option is being exercised.
"Exercise Price" shall mean the price per Share at which Shares can be
purchased pursuant to Options.
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"Fair Market Value" of a Share as of any given date means (i) if the Shares
are not then listed on any exchange or NASDAQ, the fair market value of a Share
as determined in good faith by the Committee, and (ii) if the Shares are so
listed, the mean between the highest and lowest reported sales prices on such
date of a Share on the New York Stock Exchange or, if not listed on such
exchange, on any other national securities exchange on which the Shares is
listed or, if not so listed, on NASDAQ on the last preceding date on which there
was a sale of Shares on such exchange or on NASDAQ.
"Incentive Stock Option" means any Option that is designated in the
applicable Option Agreements, and that qualifies as, an "incentive stock option"
within the meaning of Section 422 of the Code.
"IPO" means the consummation of the first sale of Shares for cash by the
Company (or its successor entity), or by the holders of such Shares, in each
case in an underwritten public offering registered under the Act.
"Mature Shares" means Shares that have been owned by the Participant in
question for at least six months.
"NASDAQ" means the NASDAQ Stock Market, Inc. National Market.
"Non-Qualified Stock Option" means any Option that is not an Incentive
Stock Option.
"Option" means a right to purchase Shares granted pursuant to this Plan.
"Option Agreement" means an agreement setting forth the terms and
conditions of an Option or Options.
"Participant" means any individual eligible to receive grants of Options as
set forth in Section 4 to whom an Option has been granted.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, government (or any
department or agency thereof) or other entity.
"Plan" means the Bronner Slosberg Humphrey Co. 1999 Option Plan, as set
forth herein and as hereinafter amended from time to time.
"Plan Shares" has the meaning set forth in Section 11(b).
"Positano" means Positano Partners Ltd., a Bermuda exempt company.
"Positano's Consent" means the written consent of Positano.
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"Rule 13d-3" means Rule 13d-3, as promulgated by the SEC under the Exchange
Act, as amended from time to time.
"SEC" means the Securities and Exchange Commission or any successor agency.
"Section 162(m) Option" means an Option that is (i) granted at a time when
the Company is a "publicly held corporation" within the meaning of Section
162(m)(2) of the Code, and (ii) not exempt from the application of Section
162(m) of the Code by reason of one of the transition rules set forth in
Treasury Regulation Section 1.162-27(f) or a similar transition rule.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and any successor thereto.
"Shares" means the shares of beneficial interest, no par value per share,
in the Company, together with any other securities into which Shares may be
converted or exchanged, as provided herein.
"Trustee" means Vesuvio, Inc., a Delaware corporation and the sole trustee
of the Company.
SECTION 2. Administration
(a) Committee. The Plan shall be administered by a committee of the
Board designated for such purpose (the "Committee"), or, if no Committee has
been designated, by the Board (in which case all references herein to the
Committee shall include the Board).
(b) Powers of Committee. Among other things, the Committee shall
have the authority, subject to the terms of the Plan, to:
(i) select the Participants to whom Options are granted;
(ii) determine whether and to what extent awards of Incentive
Stock Options and Non-Qualified Stock Options or any
combination thereof are to be granted hereunder;
(iii) determine the number of Shares to be covered by each
Option granted hereunder;
(iv) determine the terms and conditions of any Option granted
hereunder;
(v) with Positano's Consent, accelerate the vesting, and
otherwise modify, amend or adjust the terms and
conditions, of any Option, at any time or from time to
time;
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(vi) adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall
from time to time deem advisable;
(vii) interpret the terms and provisions of the Plan and any
Option issued under the Plan and the Option Agreement
relating thereto in its sole discretion; and
(viii) otherwise supervise the administration of the Plan.
(c) Action by Majority. The Committee may act only by a majority of
its members, except that the members thereof may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Committee.
(d) Delegation of Authority to Grant Options. The Committee, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Committee's authority and duties with respect to the granting of
Options at Fair Market Value to individuals who are not subject to the reporting
and other provisions of Section 16 of the Exchange Act or "covered employees"
within the meaning of Section 162(m) of the Code. Any such delegation by the
Committee shall include a limitation as to the amount of Options that may be
granted during the period of the delegation and shall contain guidelines as to
the determination of the Fair Market Value exercise price of any Option and the
vesting criteria. The Committee may revoke or amend the terms of a delegation at
any time but such action shall not invalidate any prior actions of the
Committee's delegate or delegates that were consistent with the terms of the
Plan.
(e) Dispute Resolution. Any dispute or disagreement which may arise
under, or as a result of, or in any way relate to, the interpretation,
construction or application of the Plan or an Option (or related Option
Agreement) granted hereunder shall be resolved by the Committee in its sole
discretion. All decisions made by the Committee shall be final and binding on
all Persons, including the Company and the Participants.
(f) Indemnification. No member of the Committee or the Board shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option or Option Agreement. To the full extent permitted by law,
the Company shall indemnify and save harmless each Person made or threatened to
be made a party to any civil or criminal action or proceeding by reason of the
fact that such Person, or such Person's testator or intestate, is or was a
member of the Committee.
SECTION 3. Shares Subject to Plan
(a) Number of Shares. The total number of Shares reserved and
available for grant under the Plan shall be 226,545 Shares. Shares subject to
Options under the Plan may be authorized and unissued shares or may be treasury
shares. If any Option terminates without being exercised, the shares subject to
such Option shall again be available for grants of Options
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under the Plan. In addition, the maximum number of shares with respect to which
Section 162(m) Options may be granted to any one individual in any one calendar
year shall be 50,000.
(b) Adjustments. In the event of any incorporation, merger,
reorganization, consolidation, recapitalization, spinoff, share dividend, split
or reverse split, extraordinary distribution with respect to the Shares or other
change in the structure of the Company affecting the Shares, the Committee or
the Board may make such substitution or adjustment in the aggregate number and
kind of shares or other property reserved for issuance under the Plan, in the
number, kind and Exercise Price of shares or other property subject to
outstanding Options, subject to the limitation set forth in the last sentence of
Section 3(a), and/or such other equitable substitution or adjustments as it may
determine to be fair and appropriate in its sole discretion.
SECTION 4. Participants
Any individual who is employed by, or performs services as a non-employee
director, consultant or other independent contractor for, the Company or any of
its Affiliates, and who is responsible for or contributes to the management,
growth and profitability of the business of the Company and/or its Affiliates,
shall be eligible to be granted Options under the Plan.
SECTION 5. Grants of Options
(a) Required Terms for All Options. All Options shall have the
following terms and conditions:
(i) Except as otherwise approved by the Committee, the
Exercise Price per Share of such an Option shall be not
less than the Fair Market Value of a Share on the date of
grant;
(ii) Each such Option shall have a term ending at the close of
business on the tenth anniversary of the date of grant;
and
(iii) Subject to the limitations set forth in Section 7 below
and unless Positano's Consent to another vesting schedule
is obtained, each such Option shall vest with respect to
the shares issuable thereunder (the "Option Shares")
according to the following schedule:
(A) Twenty-five percent (25%) of the Option Shares shall
vest one year following the date of grant; and
(B) An additional six and one-quarter percent (6 1/4%) of
the Option Shares shall vest (i) one year and three
months following the date of grant; and (ii) at the
end of each three month period thereafter, until the
Option Shares are
5
<PAGE>
one hundred percent (100%) vested on the date which is
four years following the date of grant.
(b) Additional Requirements Applicable to All Options. Options shall
be evidenced by Option Agreements setting forth the terms and conditions thereof
in such detail as the Committee may determine from time to time. An Option
Agreement shall expressly indicate whether it is intended to be an agreement for
an Incentive Stock Option or a Non-Qualified Stock Option. The grant of an
Option shall occur on the date the Committee by resolution selects an individual
to receive a grant of an Option, determines the number of Shares to be subject
to such Option to be granted to such individual and specifies the terms and
provisions of the Option (including the vesting schedule, if any), or on such
later date as the Committee may determine. The Company shall notify a
Participant of any grant of an Option, and a written Option Agreement shall be
duly executed and delivered by the Company to the Participant. Subject to
Section 11(a), such agreement shall become effective upon execution by the
Company and the Participant.
(c) Change-of-Control Vesting. Notwithstanding any other provision
of this Plan, unless otherwise provided in the applicable Option Agreement, each
Option shall vest, to the extent not theretofore vested, upon the acquisition,
for consideration consisting solely of cash, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) that is
not affiliated with the Company or its owners immediately before such
acquisition, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of more than 50% of the equity interests,
measured by vote or value, of the Company.
(d) Types of Stock Options. Options granted under the Plan may be
either Incentive Stock Options or Non-Qualified Stock Options, and shall be
designated as such in the applicable Option Agreement. Incentive Stock Options
may be granted only to employees of the Company or any Affiliate that is a
"subsidiary corporation" within the meaning of Section 424(f) of the Code. To
the extent that any Option does not qualify as an Incentive Stock Option, even
if so designated, it shall be deemed to be a Non-Qualified Stock Option.
SECTION 6. Exercise of Options
(a) Exercise. Subject to the provisions of this Section 6, Options
may be exercised, in whole or in part, at any time during the option term after
they have vested by giving an Exercise Notice to the Company in accordance with
this Section 6; provided, that no Option may be exercised with respect to a
number of Shares that is less than the lesser of (i) one hundred and (ii) the
total number of Shares remaining available for exercise pursuant to the Option.
(b) Procedures. Unless otherwise permitted by the Committee, an
Exercise Notice shall be delivered no less than two business days in advance of
the effective date of the proposed exercise (the "Exercise Date"). An Exercise
Notice shall be accompanied by the Stock Option Agreement evidencing the Option
and shall specify the number of Shares with respect to which the Option is being
exercised, the Exercise Date and any requests with respect to the form
6
<PAGE>
of payment and withholding taxes or as provided in Sections 6(c) and 11(f),
respectively, and shall be signed by the Participant. The partial exercise of an
Option shall not cause the expiration, termination or cancellation of the
remaining portion thereof. Upon the partial exercise of an Option, the Stock
Option Agreement evidencing such Option, marked with any notations deemed
appropriate by the Committee, shall be returned to the Participant exercising
such Option.
(c) Payment. Each Exercise Notice shall be accompanied by payment in
full of the aggregate Exercise Price for the shares being purchased. Such
payment shall be made by certified or bank check, wire transfer, or such other
instrument as the Committee may accept. If approved by the Committee, payment,
in full or in part, may also be made in the form of unrestricted Mature Shares,
based on the Fair Market Value of the Shares on the date the Option is
exercised; provided, however, that, in the case of an Incentive Stock Option the
right to make a payment in such Shares may be authorized only at the time the
Option is granted. In the discretion of the Committee, payment for any Shares in
connection with the exercise of an Option at a time when the Shares are listed
on a national securities exchange or on NASDAQ may also be made by delivering a
properly executed exercise notice to the Company, together with a copy of
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds to pay the purchase price, and, if requested by
the Company, the amount of statutory and regulatory federal, state, local or
foreign withholding taxes. To facilitate the foregoing, the Company may enter
into agreements for coordinated procedures with one or more brokerage firms.
(d) Rights as Shareholders. Notwithstanding any other provision of
this Plan or any Option Agreement, no Shares shall be issued pursuant to the
exercise of an Option until full payment therefor has been made. Except as
otherwise provided in the applicable Option Agreement, subject to a
Participant's compliance with Section 11(a) hereof, a Participant shall have all
of the rights of a shareholder of the Company holding the class or series of
Shares that is subject to such Option (including, if applicable, the right to
vote the shares and the right to receive dividends and distributions), when the
Participant has given written notice of exercise, has paid in full for such
shares and, if requested, has given the representations referred to in Section
11(b).
SECTION 7. Effect of Termination of Employment/Service
Except as otherwise provided in the Option Agreement or as otherwise
determined by the Committee, in the event that a Participant's
Employment/Service is terminated for any reason, (A) each then-outstanding
Option granted to such Participant that had vested as of the date of such
termination of Employment/Service shall remain exercisable until the earlier of
the close of business on the 30th day following the date of such termination of
Employment/Service and the end of its term and (B) all then-outstanding Options
granted to such Participant that had not vested as of the date of such
termination of Employment/Service shall be forfeited.
7
<PAGE>
SECTION 8. Transferability of Options
(a) Limit on Transfers. No Option shall be transferable by the
Participant other than (i) by designation of a beneficiary in accordance with
Section 8(b), or (ii) in the case of a Non-Qualified Stock Option, as otherwise
expressly permitted under the applicable Option Agreement including, if so
permitted, pursuant to a gift to such Participant's spouse, children,
grandchildren or other living descendants, whether directly or indirectly or by
means of a trust, partnership, limited liability company or otherwise. All
Options shall be exercisable, subject to the terms of this Plan, during the
Participant's lifetime, only by the Participant or any Person to whom such
Option is transferred pursuant to the preceding sentence. The term
"Participant" includes the beneficiary of the Participant pursuant to Section
8(b) and any Person to whom an Option is otherwise transferred in accordance
with this Section 8; provided, however, that references herein to
Employment/Service of a Participant or termination of Employment/Service of a
Participant shall continue to refer to the Employment/Service or termination of
Employment/Service of the Participant to whom the Option was granted hereunder.
(b) Beneficiaries. A Participant shall have the right to designate
a beneficiary who shall be entitled to exercise the Participant's Options
(subject to their terms and conditions) following the Participant's death, and
to whom any amounts payable or Shares deliverable following the Participant's
death shall be paid or delivered, as applicable. Such designations shall be made
in accordance with procedures established by the Committee from time to time. If
no beneficiary designation form is on file with the Committee at the time of a
Participant's death, or the Committee determines in good faith that the form on
file is invalid, then the Participant's beneficiary shall be deemed to be the
Participant's estate.
SECTION 9. Amendment, Termination and Cancellation
(a) Plan. The Board may amend, alter, or terminate the Plan,
prospectively or retroactively, but no amendment, alteration or termination
shall impair the rights of any Participant under an Option theretofore granted
without the Participant's consent.
(b) Options. The Committee may amend the terms of any Option,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant thereunder without the Participant's consent.
(c) Cancellation. Notwithstanding any other provision of this Plan
or any Option Agreement, the Committee may elect at any time before or upon
receipt of notice of exercise of an Option to cancel all or any portion of any
Option by delivering to the Participant Shares having a Fair Market Value equal
to (i) the excess of the Fair Market Value of one Share on the effective date of
such cancellation over the Exercise Price per Share of the Option, times (ii)
the number of Shares as to which the Option is being canceled.
8
<PAGE>
SECTION 10. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Shares or make payments; provided, however, that unless the Committee
otherwise determines, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
SECTION 11. General Provisions
(a) Options and Certificates. Shares issuable upon the exercise of
an Option (each, a "Plan Share") shall be evidenced in such manner as the
Committee may deem appropriate, including book-entry registration or issuance of
one or more share certificates. Any certificate issued in respect of Plan Shares
shall be registered in the name of such Participant and shall bear appropriate
legends referring to the terms, conditions, and restrictions applicable to such
Option, substantially in the following form:
"The transferability of this certificate and the shares represented
hereby are subject to the terms, conditions and restrictions set
forth in a certain Stock Option Agreement, dated as of
_______,_____ by and between the issuer and the registered holder
hereof. Copies of such agreement are on file at the offices of
Bronner Slosberg Humphrey Co., Prudential Tower, 800 Boylston
Street, Boston, MA 02199."
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
the securities laws of any state, and may not be sold or otherwise
disposed of except pursuant to an effective registration statement
under said Act and applicable state securities laws or an
applicable exemption to the registration requirements of such Act
and laws."
Such Plan Shares may bear other legends to the extent the Committee determines
it to be necessary or appropriate, including any required pursuant to any
applicable Option Agreement. If and when all restrictions expire without a prior
forfeiture of the Plan Shares theretofore subject to such restrictions, new
certificates for such shares shall be delivered to the Participant without the
first legend listed above.
(ii) The Committee may require that any certificates
evidencing Plan Shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that the Participant deliver a share power,
endorsed in blank, relating to the Plan Shares.
(b) Representations and Warranties. The Committee may require
each Person purchasing or receiving Plan Shares to (i) represent to and agree
with the Company in writing that such Person is acquiring the shares without a
view to the distribution thereof and (ii) make any other representations and
warranties that the Committee deems appropriate.
9
<PAGE>
(c) Additional Compensation. Nothing contained in the Plan shall
prevent the Company or any of its Affiliates from adopting other or additional
compensation arrangements for its employees.
(d) No Right of Employment/Service. Adoption of the Plan or
grant of any Option shall not confer upon any individual eligible for grants of
Options any right to continued Employment/Service, nor shall it interfere in any
way with the right of the Company or any of its Affiliates thereof to terminate
the Employment/Service of any such individual at any time.
(e) Withholding Taxes. No later than the date as of which an
amount first becomes includible in the gross income of a Participant for federal
income tax purposes with respect to any Option under the Plan, such Participant
shall pay to the Company or, if appropriate, any of its Affiliates, or make
arrangements satisfactory to the Committee regarding the payment of, any
federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount. If approved by the Committee, and subject
to Positano's Consent, withholding obligations may be settled with Mature
Shares. The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant. The Committee may establish such
procedures as it deems appropriate, including making irrevocable elections, for
the settlement of withholding obligations with Shares.
(f) Governing Law. Except to the extent that provisions of the
Plan are governed by applicable provisions of the Code or other substantive
provisions of Federal law, the Plan and all Options made and actions taken
thereunder shall be governed by and construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts without regard to the principles
of conflicts of law thereof.
(g) Compliance with Laws. If any law or any regulation of any
commission or agency having jurisdiction shall require the Company or a
Participant seeking to exercise Options to take any action with respect to the
Plan Shares to be issued upon the exercise of Options, then the date upon which
the Company shall issue or cause to be issued the certificate or certificates
for the Plan Shares shall be postponed until full compliance has been made with
all such requirements of law or regulation; provided, that the Company shall use
its reasonable efforts to take all necessary action to comply with such
requirements of law or regulation. Moreover, in the event that the Company shall
determine that, in compliance with the Securities Act or other applicable
statutes or regulations, it is necessary to register any of the Plan Shares with
respect to which an exercise of an Option has been made, or to qualify any such
Plan Shares for exemption from any of the requirements of the Securities Act or
any other applicable statute or regulation, no Option may be exercised and no
Plan Shares shall be issued to the exercising Participant until the required
action has been completed; provided, that the Company shall use its reasonable
efforts to take all necessary action to comply with such requirements of law or
regulation. Notwithstanding anything to the contrary contained herein, neither
the Board nor the members of the Committee owes a fiduciary duty to any
Participant in his or her capacity as such.
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<PAGE>
(h) Notices. All Exercise Notices, notices, requests, demands or
other communications required by or otherwise given with respect to the Plan
shall be in writing and shall be deemed to have been duly given to any party
when delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by facsimile, or when delivered by first-class
mail, postage prepaid and return receipt requested, in each case to the
applicable addresses set forth below:
If to the Participant:
To the address shown on the Stock Option Agreement.
If to the Company:
Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attention: President
Facsimile: (617) 867-1111
(or to such other address as the party in question shall from time to time
designate by written notice to the other parties). Notices sent by registered
or certified mail in accordance with this Section shall be deemed delivered as
of the date posted in the United States mail.
SECTION 12. Effective Date of Plan
The Plan shall be effective as of September 29, 1999.
ADOPTED BY BOARD: September 29, 1999
APPROVED BY POSITANO: September 29, 1999
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EXHIBIT 10.18
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement"), is made and entered into
this 6/th/ day of January, 1999, by and between BRONNER SLOSBERG HUMPHREY CO., a
Massachusetts business trust (the "Company") and POSITANO PARTNERS LTD., a
Bermuda exempt company (the "Purchaser").
RECITALS
1. The parties hereto and certain other parties named therein have
entered into a Recapitalization Agreement dated November 28, 1998 (the
"Recapitalization Agreement"). All capitalized terms not defined herein have the
meanings ascribed to them in the Recapitalization Agreement.
2. Pursuant to the Recapitalization Agreement, the Company has agreed
to grant to the Purchaser a warrant to purchase 15,000 BSH Shares on the terms
and subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:
1.1. Grant of Warrant. The Company hereby grants to the Purchaser an
exclusive and irrevocable warrant (the "Warrant") to purchase from the Company
15,000 authorized but unissued BSH Shares (collectively, the "Warrant Shares")
at a cash price per share of $151.10 (the "Exercise Price") subject to
adjustment as provided in Sections 1.6 and 1.7 hereof.
1.2. Exercise of the Warrant. (a) (i) Subject to the conditions set
forth in Section 1.3 hereof, the Warrant may be exercised by the Purchaser, in
whole or in part, at any time or from time to time after the date hereof and
until the expiration of the Warrant for cash or BSH Shares.
(ii) The Company shall not, prior to the termination of the
Warrant, take any action which would have the effect of preventing or disabling
the Company from delivering the Warrant Shares to the Purchaser upon exercise of
the Warrant or otherwise performing the Company's obligations under this
Agreement.
(b) In the event the Purchaser elects to exercise the Warrant, the
Purchaser shall give a written notice to the Company specifying the number of
the Warrant Shares the Purchaser will purchase and the place and date (not later
than ten business days, nor earlier than three
<PAGE>
business days, from the date such notice is mailed, but not earlier than the
expiration of any applicable waiting period under the HSR Act) for the closing
of such purchase.
1.3. Payment and Delivery of Certificate(s) upon Exercise of Warrant.
(a) At any closing of any purchase of any of the Warrant Shares hereunder:
(i) the Purchaser shall (1) if exercising the Warrant for cash,
pay to the Company the aggregate price for the Warrant Shares so purchased
by certified or cashier's check or by wire transfer, and (2) if exercising
the Warrant for BSH Shares, deliver to the Company a certificate or
certificates representing the number of BSH Shares equal to the number of
Warrant Shares so purchased multiplied by a fraction, the numerator of
which is 151.10 and the denominator of which is the Public Market Value (as
defined in the Shareholders Agreement) per BSH Share as of the most recent
Regular Valuation (as defined in the Shareholders Agreement) preceding the
date of notice of exercise pursuant to Section 2(b) of the Shareholders
Agreement (or, if prior to the first Regular Valuation, $151.10); provided
that the BSH Shares so used to exercise must meet then applicable
eligibility criteria under GAAP;
(ii) the Company shall deliver to the Purchaser a duly issued
certificate (or certificates in the denominations designated by the
Purchaser in its notice of exercise) representing the number of the Warrant
Shares purchased (or if necessary due to the delivery under clause (i)(2)
of this Section 1.3(a) by the Purchaser of a certificate for a number of
BSH Shares in excess of the number of shares required to be delivered under
clause (i)(2) of this Section 1.3(a), the Company shall deliver to the
Purchaser a duly issued certificate (or certificates in the denominations
designated by the Purchaser in its notice of exercise) representing the
number of the Warrant Shares purchased plus the number of BSH Shares
represented by the certificate delivered to the Company by the Purchaser
minus the number of BSH Shares required to be delivered by the Purchaser
under clause (i)(2) of this Section 1.3(a)); and
(iii) the number of Warrant Shares subject to the Warrant shall
be reduced by the number of BSH Shares acquired by the Purchaser at such
closing.
(b) The obligation of the Company to deliver Warrant Shares at such
closing shall be subject to the conditions that no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, shall be in effect which would prohibit such sale and delivery, and
any applicable waiting period under the HSR Act shall have expired.
1.4. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
(a) Due Authorization, Etc. This Agreement has been duly authorized
by all necessary action on the part of the Company, has been duly executed by a
duly authorized officer of the Company and is valid, binding and enforceable
against the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization,
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<PAGE>
moratorium and other similar laws of general application which may affect the
enforcement of creditors' rights generally, by general equitable principles and
by implied covenants of good faith and fair dealing.
(b) Warrant Shares. The Company has taken all necessary corporate
action to authorize and reserve for issuance, upon exercise of the Warrant, the
Warrant Shares. The Warrant Shares, upon purchase by the Purchaser, will be duly
authorized, validly issued, fully paid and nonassessable, and delivered to the
Purchaser free and clear of all claims, liens, charges, security interests or
encumbrances of any kind, including, without limitation, any preemptive or
similar rights other than those set forth in the Ancillary Documents.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the Amended and Restated Declaration of Trust or other
organizational document of the Company or any of its Subsidiaries; or any
indenture, loan or credit agreement or any 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 may be affected or is bound, which would have a
Company Material Adverse Effect.
1.5. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary action on the part of the Purchaser and has been duly executed by
a duly authorized officer of the Purchaser, and is valid, binding and
enforceable against the Purchaser in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application which may affect the enforcement of
creditors' rights generally, by general equitable principles and by implied
covenants of good faith and fair dealing.
(b) Distribution. Any Warrant Shares to be acquired upon exercise of
the Warrant will not be acquired by the Purchaser with a view to the public
distribution thereof, and will not be transferred, except in a transaction
registered or exempt from registration under the Securities Act and permitted by
this Agreement.
(c) No Violation. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
result in any breach or violation of, be in conflict with, or will constitute a
default under, the Memorandum of Association or the Bye-laws of the Purchaser or
any indenture, loan or credit agreement or any other agreement or instrument to
which the Purchaser is a party, or by which the Purchaser or any of its
subsidiaries may be affected or is bound, which would have a Material Adverse
Effect upon the Purchaser.
1.6. Adjustment Based Upon Amount of Benefit Plan Remedial Obligation.
To the extent that the Benefit Plan Remedial Obligation (as defined in BSH
Schedule 4.25(b)1 of the Disclosure Memorandum) is determined to (A) exceed $1.2
million at any time prior to the fifth anniversary of Closing (the amount of
such excess being the "Benefit Plan Excess"), additional
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<PAGE>
BSH Shares shall be subject to the Warrant as follows: the additional BSH Shares
subject to the Warrant shall bear the same ratio to 15,000 as the amount of the
Benefit Plan Excess bears to $1.2 million; provided that such adjustment shall
only be made if the Benefit Plan Excess is an amount greater than $300,000 and
(B) be less than $1.2 million at any time prior to the fifth anniversary of the
Closing (the amount of such difference being the "Benefit Plan Reduction
Amount"), Positano shall surrender a portion of the Warrant as follows: the
number of Warrant Shares subject to the portion surrendered shall bear the same
ratio to 15,000 as the Benefit Plan Reduction Amount bears to $1.2 million;
provided that such adjustment shall only be made if the Benefit Plan Reduction
Amount is greater than $300,000. In the event that a downward adjustment is
required pursuant to clause (B) above, such adjustment shall, in the first
instance, reduce the number of Warrant Shares subject to the unexercised portion
of the Warrant; provided that if an insufficient number of Warrant Shares
subject to the unexercised portion of the Warrant is available to satisfy such
downward adjustment, (1) Purchaser shall surrender to the Company, and the
Company shall cancel, a number of BSH Shares previously acquired by Purchaser
pursuant to the Warrant which represents the balance of the required downward
adjustment and (2) the Company shall pay to the Purchaser an amount equal to the
purchase price of such BSH Shares.
1.7. Adjustment Upon Changes in Capitalization. In the event of any
change in, or affecting, the issued and outstanding BSH Shares by reason of any
dividend, stock split, merger, recapitalization, combination, conversion,
exchange of shares or other change in the capital structure of the Company, the
number and kind of shares or securities subject to the Warrant and the Exercise
Price shall be appropriately and equitably adjusted (with adjustments being
cumulative if more than one of such events shall have occurred) so that the
Purchaser shall receive, upon exercise of the Warrant, the number and class of
Warrant Shares or other securities or property that the Purchaser would have
received in respect of Warrant Shares if the Warrant had been exercised
immediately prior to such event.
1.8. Ownership of Warrant Shares. The Purchaser shall hold the
Warrant Shares issued upon exercise of the Warrant subject to the terms of the
Shareholders Agreement.
1.9. Specific Performance. The Company and the Purchaser acknowledge
that the Warrant and the Warrant Shares are unique and that neither party hereto
will have an adequate remedy at law if the other breaches any covenant contained
herein or fails to perform any of its obligations under this Agreement.
Accordingly, each party agrees that the other shall have the right, in addition
to any other rights which it may have, to specific performance and equitable
injunctive relief if the other party shall fail or threaten to fail to perform
any of its obligations under this Agreement.
1.10. Expiration. The Warrant shall expire on the earlier to occur of
(i) the date on which the number of Warrant Shares is reduced to zero, and (ii)
the tenth anniversary of the Closing.
1.11. Miscellaneous. (a) Assignability. (i) The rights and
obligations of the Purchaser with respect to all or a portion of the Warrant
shall be assignable by the Purchaser to
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<PAGE>
and only to any affiliate of the Purchaser, if and only if such affiliate shall,
by a written instrument reasonably satisfactory to the Company, agree to assume
all of the Purchaser's obligations hereunder and to be bound by all of the terms
and conditions of this Agreement and the Shareholders Agreement.
(ii) The obligations of the Company shall not be assignable
without the prior written consent of the Purchaser, and any purported assignment
without such prior written consent shall be null and void.
(b) Third Parties. Nothing expressed or implied in this Agreement is
intended or shall be construed to confer upon or give to any third party any
rights or remedies by virtue of this Agreement or any exercise or non-exercise
of the Warrant granted hereby.
(c) Amendments. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(d) Notices. Except as otherwise expressly provided herein, all
notices, requests, claims, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger or by a nationally recognized overnight delivery
company, when delivered by telecopy and confirmed by return telecopy, or when
delivered by first-class mail, postage prepaid and return receipt requested, to
the parties at the addresses set forth below:
If to the Company: Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: David W. Kenny
Facsimile: (617) 867-7217
with a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
If to the Purchaser: H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
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<PAGE>
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
The addresses set forth above may be changed by any party upon furnishing to the
other party a notice of change of address in accordance with the terms of this
paragraph.
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the law of the Commonwealth of Massachusetts.
(f) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same Agreement.
(g) Effect of Headings. The section and paragraph headings herein are
for convenience only and shall not affect the construction hereof.
(h) Time of the Essence. The parties agree that time shall be of the
essence in the performance of obligations hereunder.
(i) Survival of Representations and Warranties. The representations,
warranties, covenants and agreements shall survive any closing pursuant to this
Agreement.
(j) Expenses. Each of the parties hereto shall pay all fees and
expenses it incurs in connection with this Agreement.
(k) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(l) Entire Agreement. This Agreement and the other agreements
referenced herein constitute the entire agreement between the Company and the
Purchaser with respect to the matters covered herein and supersede any prior
negotiations, understandings or agreements with respect to the matters
contemplated hereby.
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties set forth below.
BRONNER SLOSBERG HUMPHREY CO.
By /s/ Michael E. Bronner
-----------------------------
Name: Michael E. Bronner
Title: Sole Trustee
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the
parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the
trustees or officers of the Trust as individuals
or, in the event the trustee is a corporation or
other entity, on behalf of the individual owners
of such corporation or entity, and the obligations
of this Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
POSITANO PARTNERS LTD.
By /s/ Patrick J. Healy
-----------------------------
Name: Patrick J. Healy
Title: Vice President
[SIGNATURE PAGE TO THE WARRANT AGREEMENT]
<PAGE>
EXHIBIT 10.19
EXECUTION COPY
ESCROW AGREEMENT dated as of January 6, 1999, among Michael
E. Bronner and David W. Kenny (collectively, the "Committee" and,
individually, a "Representative" of the holders of equity
interests in Bronner Slosberg Humphrey Co. and Strategic
Interactive Group Co., each a Massachusetts business trust ("BSH"
and "SIG," respectively) in respect of whose equity interests,
cash, shares and options shall be placed in escrow in accordance
with Section 3.3 of the Recapitalization Agreement described
below (collectively, the "Signing Holders")), BSH, SIG, Positano
Partners Ltd., a Bermuda exempt company (in its own capacity and
as agent for the HFCP Investors (as defined in the
Recapitalization Agreement), "Positano") and Boston Safe Deposit
and Trust Company (the "Escrow Agent").
Upon the terms and subject to the conditions of a Recapitalization
Agreement (the "Agreement") dated November 28, 1998, among BSH, SIG, Positano,
the HFCP Investors and the Signing Holders, the parties will effect a
recapitalization (the "Recapitalization") of BSH and SIG which results in the
acquisition of 80% of the equity in a combined BSH/SIG at a price of $151.10 per
share of beneficial interest in BSH ("BSH Share") and $4,386.76 per share of
beneficial interest in SIG ("SIG Share"). In addition, pursuant to the
Agreement, an aggregate of $9,350,000 in cash, a total of 47,673.98 BSH Shares
and options to purchase 26,955.25 BSH Shares shall, at the Closing, be deposited
by Positano, BSH, BSH LLC and the Signing Holders with the Escrow Agent in order
to secure such Signing Holders' obligations to Positano and the HFCP Investors
as set forth in Article 7 of the Agreement and Section 3 hereof. All
capitalized terms used and not defined herein shall have the meanings set forth
in the Agreement.
The parties hereto hereby agree as follows:
1. Appointment and Agreement of Escrow Agent. Boston Safe Deposit
-----------------------------------------
and Trust Company is hereby appointed as, and agrees to perform the duties of,
Escrow Agent under this Escrow Agreement. This Escrow Agreement shall be
administered at and funds held in Boston, Massachusetts, by the Escrow
Department of the Escrow Agent, currently located at One Boston Place, Boston.
2. Deposit of Escrowed Amount. At the Closing of the
--------------------------
Recapitalization: (a) as a holdback of cash payable to the Signing Holders in
respect of Equity-Related Interests purchased under the Agreement, Positano
shall deliver to the Escrow Agent, for deposit in escrow pursuant to the
provisions hereof, cash in the amount of $8,997,903.44, (b) as a holdback of
cash payable to the Signing Holders in respect of Equity-Related Interests
redeemed under the Agreement, BSH shall deliver to the Escrow Agent, for deposit
in escrow pursuant to the provisions hereof, cash in the amount of $166,196.81,
(c) as a holdback of cash payable to the Signing Holders in respect of
Transaction Bonuses payable under the terms of the Agreement, BSH LLC shall
deliver to the Escrow Agent, for deposit in escrow pursuant to the provisions
hereof, cash in the amount of $185,899.76 and (d) an aggregate of 47,673.98 BSH
Shares and BSH Options to purchase a total of 26,955.25 BSH Shares shall be
delivered to the Escrow Agent for deposit in escrow pursuant to the provisions
hereof. The aggregate amount of cash so deposited, and the aggregate number of
BSH Shares and BSH Options so deposited, shall be
<PAGE>
allocated among the Signing Holders according to the intrinsic value of the BSH
and SIG Equity-Related Interests owned prior to the Recapitalization by such
Signing Holders, as set forth in Annex A to the Recapitalization Agreement (the
amount of cash and number of BSH Shares and BSH Options so allocated to each
Signing Holder being referred to as such "Signing Holder's Allocable Amount").
The aggregate amount of cash so delivered to the Escrow Agent for deposit, plus
all interest and other income thereafter accrued with respect thereto, shall be
held in escrow hereunder and, is hereinafter referred to as the "Escrowed Cash."
The aggregate number of BSH Shares and BSH Options so delivered to the Escrow
Agent for deposit, together with all dividends or other distributions made with
respect thereto and any shares, other securities or cash for which such Shares
may hereafter be exchanged pursuant to a transaction involving the Company
affecting the BSH Shares or BSH Options, shall be held in escrow hereunder and
is hereinafter referred to as the "Escrowed Shares." The Escrowed Cash, together
with the Escrowed Shares, are collectively referred to as the "Escrowed Amount."
3. Indemnification Obligations. This Escrow Agreement has been
---------------------------
executed and the deposit of the Escrowed Amount hereunder has been made for the
purpose of securing the faithful performance of the indemnity obligations of the
Signing Holders to Positano and the HFCP Investors under Section 7.2 of the
Agreement and will be subject to transfer to Positano (in its own capacity and
as agent for the HFCP Investors) in satisfaction of such indemnification
obligations as provided in this Escrow Agreement and the Agreement.
4. Delivery of Escrowed Amount. (a) Whenever there shall be
---------------------------
delivered to the Escrow Agent either:
(i) a certificate signed by each of Positano and the Committee,
certifying, or
(ii) a certified copy of a final judgment of a court of competent
jurisdiction determining,
that Positano or the HFCP Investors are entitled to indemnification under
Article 7 of the Agreement (either, an "Escrow Certificate"), the Escrow Agent
shall deliver the amount of such indemnification obligation as set forth in such
Escrow Certificate (the "Indemnification Amount") to Positano in accordance with
the following procedures: (A) fifty percent of the Indemnification Amount shall
be paid out of Escrowed Cash, and fifty percent out of Escrowed Shares, in each
case up to the Escrowed Amount, (B) such amounts shall be charged pro rata to
each Holder in proportion to the amount that each Signing Holder's Allocable
Amount bears to the full initial Escrowed Amount (such Signing Holder's "Pro
Rata Share") and (C) in the event that an amount is allocable to a Signing
Holder with respect to whom both BSH Shares and BSH Options were held by the
Escrow Agent, payment shall be made first from BSH Shares then from BSH Options
allocated to such Signing Holder.
(b) The Escrow Certificates delivered pursuant to Section 4(a)(i) and
(ii) shall include a statement of the then applicable "Fair Market Value" per
share of the BSH Shares pursuant to Section 7.5(c) of the Agreement. If any BSH
Shares or BSH Options are required to be distributed from the Escrowed Shares
pursuant to this Section 4, (i) the number of such BSH Shares to be delivered
shall be calculated by dividing the amount of the indemnification obligation
-2-
<PAGE>
being satisfied by such distribution by the then applicable Fair Market Value
and (ii) in the case of BSH Options being used to satisfy an indemnification
obligation, the value of the options so delivered shall be determined by
multiplying the difference between such Fair Market Value and the exercise price
of such BSH Options by the number of BSH Shares covered by the BSH Options so
delivered.
5. Investment of Escrowed Cash; Voting of Escrowed Shares. (a)
------------------------------------------------------
Escrowed Cash (including any Reserved Amounts, as defined in Section 7(a)
hereof) shall, upon direction in writing by the Committee, be invested by the
Escrow Agent from time to time in securities designated thereby which are:
(i) obligations of the United States Government maturing within
one year from the date of purchase,
(ii) certificates of deposit maturing within 180 days issued by
Boston Safe Deposit and Trust Company,
(iii) commercial paper of finance companies organized under the
laws of any state of the United States or any political subdivision
thereof and in each case having a rating assigned to such commercial
paper by Standard & Poor's Corporation or Moody's Investors Service,
Inc., equal to the highest rating assigned by such organization, or
(iv) money market escrow accounts or separate interest bearing
accounts held at Boston Safe Deposit and Trust Company.
(b) Whenever the Escrow Agent shall be required to deliver Escrowed
Cash to Positano pursuant to Section 4 hereof, the Escrow Agent shall, if the
actual cash held by it hereunder is insufficient for such purpose, liquidate
such of the securities held pursuant to Section 5 hereunder as the Committee
shall select or, in the absence of such selection, in the order of maturity, in
order to make the delivery required by Section 4 hereof.
(c) The Escrow Agent shall vote the Escrowed Shares in the manner
directed by the Committee in connection with any meeting of, or action by, BSH
shareholders, the record date for which occurs prior to the distribution of such
shares by the Escrow Agent in accordance with this Escrow Agreement.
6. Termination of Escrow. (a) On the Release Date (as defined in
---------------------
the Agreement), Positano and the Committee shall jointly notify the Escrow Agent
in writing that the Release Date has occurred and whether any portion of the
Escrowed Amount is required to be retained as a reserve under Section 7.5(a) of
the Agreement. Upon receipt of such notice, the Escrow Agent shall deliver to
each of the Signing Holders, such Signing Holder's Pro Rata Share of (i) the
initial Escrowed Amount (plus interest, income and other distributions held in
escrow pursuant to Section 2) held hereunder minus (ii) the sum of (A) the
-----
Reserved Amount (as defined in Section 7(a) hereof) plus (B) all amounts
distributed previously from the Escrowed Amount during the relevant period in
accordance with the terms hereof. The Escrow Agent is authorized (i) to
liquidate all securities held pursuant to Section 5 hereunder (unless directed
in writing by the
-3-
<PAGE>
Committee to distribute such securities in some other specified manner) and (ii)
to distribute BSH Shares and BSH Options in kind, in each case to the extent
necessary to distribute to the Signing Holders the portion of the Escrowed
Amount to be distributed as provided for in the preceding sentence.
(b) This Escrow Agreement may be terminated at any time by and upon
the receipt by the Escrow Agent of a written notice of termination executed by
Positano and the Committee directing the distribution of all property then held
by the Escrow Agent under and pursuant to this Escrow Agreement. This Escrow
Agreement shall automatically terminate if and when all of the Escrowed Amount
shall have been distributed in its entirety by the Escrow Agent in accordance
with the terms of this Escrow Agreement.
7. Retention of Escrowed Amount Following the Release Date. (a) In
-------------------------------------------------------
the event that the written notice of the Release Date includes a statement that
a portion of the Escrowed Amount is required to be retained as a reserve, the
total of the amounts set forth in such written notice with respect to the claim
or claims described therein (whether incurred, pending or threatened) shall be
set aside and retained by the Escrow Agent (in accordance with each Signing
Holders' Pro Rata Share) as a reserve to cover such claim or claims (such amount
so set aside and reserved, as reduced from time to time pursuant to the
provisions of this Section 7 or of Section 4 hereof, being herein called the
"Reserved Amount"); it being understood that (i) fifty percent of the Reserved
Amount shall take the form of Escrowed Cash, and fifty percent of the Reserved
Amount shall take the form of Escrowed Shares and (ii) in the event that an
amount is allocable to a Signing Holder with respect to whom both BSH Shares and
BSH Options are held by the Escrow Agent, such Signing Holder's Pro Rata Share
of the Reserved Amount shall be drawn first from BSH Shares, then from BSH
Options allocated to such Signing Holder.
(b) Any portion of the Reserved Amount retained by the Escrow Agent
shall be distributed to Positano to the extent required in accordance with
Section 4 and thereafter any remaining Reserved Amount shall be distributed to
the Signing Holders in accordance with the provisions hereof upon written notice
from Positano and the Committee that all of the outstanding claims for which
such reserve was established have been resolved or paid.
8. No Transfer of Escrowed Amount; Taxes. While any Escrowed Amount
-------------------------------------
shall continue to be held by the Escrow Agent, the Signing Holders will not
transfer, sell, pledge or otherwise dispose of their rights to any of the
Escrowed Amount, except that such rights may be transferred, subject to the
provisions of this Escrow Agreement, by will or the laws of descent and
distribution. The Escrowed Amount shall be treated as owned by the Signing
Holders for all tax purposes. The Signing Holders shall report and pay all
income taxes on, or with respect to, the Escrowed Amount.
9. Notices and Distributions. Any and all notices or other
-------------------------
instruments or papers to be sent to any party hereto by any other party hereto
pursuant to this Escrow Agreement shall be in writing and shall be deemed duly
given if delivered personally, or sent by certified mail (return receipt
requested), and any distributions of cash or BSH Shares to the Signing Holders
or Positano hereunder shall be made, unless otherwise previously instructed by
the intended recipient thereof, if in cash, by wire transfer to the respective
Signing Holders, Positano or the HFCP Investors, as the case may be, or, if in
BSH Shares or BSH Options, by delivery of the share
-4-
<PAGE>
certificates or option agreements in good deliverable form, by registered mail,
to their respective accounts and addresses provided in this paragraph or
otherwise designated in writing:
(a) If to Positano or the HFCP Investors:
H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
(b) If to the Signing Holders:
At the respective addresses set forth in Schedule 1 hereto.
(c) If to the Committee:
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner and David W. Kenny
Facsimile: (617) 867-7217
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
(d) If to the Escrow Agent:
Boston Safe Deposit and Trust Company
One Boston Place
Boston, Massachusetts 02108
-5-
<PAGE>
Attention: Brian Gregory
Facsimile: (617) 722-7982
10. Escrow Agent's Liability. The Escrow Agent may act upon any
------------------------
instrument or other writing believed by it in good faith to be genuine, and to
be signed or presented by the proper person or persons, and shall not be liable
in connection with the performance by it of its duties pursuant to the
provisions of this Escrow Agreement, except for its own gross negligence or
wilful misconduct. The Escrow Agent may decline to act and shall not be liable
for failure to act if in doubt as to its duties under this Agreement. The
Escrow Agent's duties shall be determined only with reference to this Agreement
and applicable laws and it shall have no implied duties. The Escrow Agent is
not charged with knowledge of or any duties or responsibilities under any
agreement or understanding to which this Agreement relates. The Escrow Agent
may sell or liquidate investments in order to comply with this Agreement and
shall not be responsible for any loss due to interest rate fluctuation, early
withdrawal penalty or market value changes. The parties hereto authorize the
Escrow Agent, if the Escrow Agent is threatened with litigation or is sued, to
interplead all interested parties in any court of competent jurisdiction and to
deposit the Escrow Amount with the clerk of that court.
11. Escrow Agent to Follow Instructions of Positano and the
-------------------------------------------------------
Committee. Any provision herein contained to the contrary notwithstanding, the
- ---------
Escrow Agent shall at any time and from time to time take such action hereunder
with respect to the Escrowed Amount as shall be agreed to in writing jointly by
Positano and the Committee, provided that the Escrow Agent shall first be
indemnified to its satisfaction with respect to any of its costs or expenses
which might be involved.
12. Escrow Agent's Fees. The Company shall pay to the Escrow Agent
-------------------
its reasonable fees for the services rendered by the Escrow Agent pursuant to
the provisions of this Escrow Agreement. Such payments shall be made on a
quarterly basis to the Escrow Agent and shall not exceed $1050.
13. Successors. The obligations imposed and the rights conferred by
----------
this Escrow Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of Positano, the Signing Holders and the
Escrow Agent.
14. Governing Law. This Escrow Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts.
15. Entire Agreement. This Escrow Agreement contains the entire
----------------
agreement among the parties hereto with respect to the specific transactions
contemplated herein.
16. Amendment. This Escrow Agreement cannot be modified or amended
---------
except pursuant to an instrument in writing signed by Positano, the Committee
and the Escrow Agent.
17. Right of Escrow Agent to Act in Good Faith. The Escrow Agent
------------------------------------------
shall not be liable for any action taken by it in good faith and believed by it
to be authorized or within the
-6-
<PAGE>
rights or powers conferred upon it by this Escrow Agreement, and may consult
with counsel of its own choice and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
18. Resignation of Escrow Agent. The Escrow Agent may resign and be
---------------------------
discharged from its duties or obligations hereunder by giving notice in writing
of such resignation specifying a date when such resignation shall take effect,
which date shall be a date not less than 60 days after the date of the notice in
writing of such resignation. In the event of such resignation, a successor
Escrow Agent shall be agreed upon between Positano and the Committee and shall
be a bank having trust powers. If Positano and the Committee are unable to
agree upon an acceptable successor Escrow Agent, then application shall be made
to the District Court of the Commonwealth of Massachusetts for the appointment
of such successor. The Escrow Agent's resignation shall be effective as of the
date specified by the Escrow Agent; provided, however, that the Escrow Agent
-------- -------
shall act as a depository until such appointment has been made, the Escrowed
Amount has been delivered to the successor and the successor's acceptance of
this Escrow Agreement and receipt for the Escrowed Amount shall have been
obtained from the successor Escrow Agent and copies thereof shall have been
mailed registered mail to Positano and the Committee.
19. Indemnification of Escrow Agent. The Company agrees to indemnify
-------------------------------
the Escrow Agent against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Escrow Agent, arising out of or in
connection with its entering into this Escrow Agreement and carrying out its
duties hereunder, including the costs and expenses of defending itself against
any claim of liability with respect thereto.
20. Authority of Representatives. Each Representative shall be
----------------------------
authorized and empowered to act on behalf of the Committee and Positano and the
Escrow Agent shall be entitled to rely upon any such action by any
Representative.
21. Counterparts. This Escrow Agreement may be signed in any number
------------
of counterparts with the same effect as if the signature to each such
counterpart were upon the same instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be signed as of the date first above written.
POSITANO PARTNERS LTD.
By: /s/ Patrick J Healy
---------------------------------
Name: Patrick J. Healy
Title: Vice President
BRONNER SLOSBERG HUMPHREY CO.
By: /s/ David w. Kenny
---------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
and President
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the
parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the
trustees or officers of the Trust as individuals
or, in the event the trustee is a corporation or
other entity, on behalf of the individual owners
of such corporation or entity, and the obligations
of this Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
[SIGNATURE PAGE TO THE ESCROW AGREEMENT]
<PAGE>
STRATEGIC INTERACTIVE GROUP CO.
By: /s/ David W. Kenny
---------------------------------
Name: David W. Kenny
Title: Treasurer and Chief
Financial Officer
Strategic Interactive Group Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the
parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the
trustees or officers of the Trust as individuals
or, in the event the trustee is a corporation or
other entity, on behalf of the individual owners
of such corporation or entity, and the obligations
of this Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
THE COMMITTEE
By: /s/ Michael E. Bronner
---------------------------------
Name: Michael E. Bronner
By: /s/ David W. Kenny
---------------------------------
Name: David W. Kenny
[SIGNATURE PAGE TO THE ESCROW AGREEMENT]
<PAGE>
BOSTON SAFE DEPOSIT AND TRUST
COMPANY
By: /s/ Brian Gregory
-------------------------------
Name: Brian Gregory
Title: Vice President
[SIGNATURE PAGE TO THE ESCROW AGREEMENT]
<PAGE>
Schedule 1
Michael E. Bronner
40 Sargent Crossway
Brookline, MA 02445
The Michael E. Bronner 1998 Annuity
Trust, dated as of July 16, 1998
40 Sargent Crossway
Brookline, MA 02445
Jean Alexander
160 Commonwealth Avenue, #701
Boston, MA 02116
Meryl Beckingham
192 Commonwealth Avenue, Apt. 5
Boston, MA 02116
Kathleen Biro
296 Commonwealth Avenue
Boston, MA 02115-2423
Robert Cosinuke
59 Locke Street
Watertown, MA 02172
Reuben Hendell
14 Salem Drive
Scarsdale, NY 10583-5202
John Hoholik
20 Wood Island Road
Scituate, MA 02066
Betsy Karp
770 Boylston Street, Apt. 26I
Boston, MA 02199
David W. Kenny
77 Monadnock
Wellesley, MA 02481-1335
Harvey Kipnis
1 Main Street
South Salem, NY 10590
<PAGE>
Ruben Pinchanski
475 Arsenal Street, Unit G
Watertown, MA 02172
Clare S. Robinson
78 Leighton Road
Wellesley Hills, MA 02181
Myron Slosberg
15 West 67/th/ Street, Apt. 5ME
New York, NY 10023
Malcolm Speed
134 Border Street
Cohasset, MA 02025
Michael Ward
38 Garden Street
Wellesley, MA 02181
<PAGE>
EXHIBIT 10.20
EXECUTION COPY
===============================================================
SHAREHOLDERS AGREEMENT
dated as of
January 6, 1999
===============================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Definitions............................................... 1
-----------
SECTION 2. Determination of Public Market Value...................... 6
------------------------------------
SECTION 3. Restrictions Following an Initial Public Offering......... 7
-------------------------------------------------
SECTION 4. Purchase of Shares on Termination of Employment of
--------------------------------------------------
Holders................................................. 7
-------
SECTION 5. Determination of Termination Discount..................... 9
-------------------------------------
SECTION 6. Payments for Shares Purchased by the Company.............. 9
--------------------------------------------
SECTION 7. The Company's Obligations Conditional..................... 9
-------------------------------------
SECTION 8. Withholding and Offset Rights of the Company.............. 10
--------------------------------------------
SECTION 9. Holding Periods........................................... 11
---------------
SECTION 10. Tag-Along Rights.......................................... 11
----------------
SECTION 11. Termination............................................... 12
-----------
SECTION 12. Legend.................................................... 12
------
SECTION 13. Binding Effect; Successors................................ 12
--------------------------
SECTION 14. Amendment and Waiver...................................... 13
--------------------
SECTION 15. Governing Law............................................. 13
-------------
SECTION 16. Specific Performance...................................... 13
--------------------
SECTION 17. Unenforceability.......................................... 13
----------------
SECTION 18. Headings.................................................. 13
--------
SECTION 19. Copies on File............................................ 13
--------------
SECTION 20. Notices................................................... 13
-------
SECTION 21. Waiver and Consent........................................ 14
------------------
SECTION 22. Counterparts.............................................. 15
------------
</TABLE>
Schedules
Schedule 1 Holders
Schedule 2 Terms of Notes
-i-
<PAGE>
SHAREHOLDERS AGREEMENT (the "Agreement") dated as of January 6, 1999,
---------
by and among Positano, the Holders (as such terms are defined herein), Michael
E. Bronner and the Michael E. Bronner 1998 Annuity Trust, dated as of July 16,
1998 (together, "MB") (with each of the foregoing parties, together with such
--
additional signatories as may be added from time to time, being referred to
herein as the "Shareholders"), Bronner Slosberg Humphrey Co., a Massachusetts
------------
business trust (the "Company"), Bronner Slosberg Humphrey, LLC, a Delaware
-------
limited liability company ("BSH LLC"), of which BSH Holding LLC, a Delaware
-------
limited liability company ("BSH Holding"), is the sole member, and BSH Holding.
-----------
WHEREAS, the Shareholders, the Company and certain other parties are
parties to a Recapitalization Agreement, dated November 28, 1998 (the
"Recapitalization Agreement"), setting forth the terms and conditions of a
--------------------------
proposed investment by Positano in the shares of beneficial interest in the
Company in connection with the proposed recapitalization of the Company and
Strategic Interactive Group Co., a Massachusetts business trust ("SIG") (such
---
investment and recapitalization and the other transactions contemplated by the
Recapitalization Agreement being the "Transactions");
------------
WHEREAS, the Holders, MB, Positano, the Company, BSH LLC and BSH
Holding wish to make certain arrangements with respect to the rights of the
parties hereto;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
SECTION 1. (a) Definitions. Capitalized terms used herein but not
-----------
defined below shall have their respective meanings as set forth in the
Recapitalization Agreement. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
"Act" means the Securities Act of 1933, as amended, and the
---
regulations promulgated thereunder.
"Affiliate" has the meaning specified in Rule 12b-2 under the Exchange
---------
Act.
"Agreement" has the meaning specified in the preamble.
---------
"Applicable Call Price" means the Public Market Value per share as of
---------------------
the Applicable Valuation Date, less the Termination Discount, plus an amount
accrued thereon at the applicable Rate, measured from the date of notice of
exercise of the Call to the Applicable Payment Date.
"Applicable Payment Date" means: (a) in the case of Company Call
-----------------------
rights and the Employee Put right, the June 30 or December 31, as the case may
be, which immediately follows and is closest in time to, the Applicable
Valuation Date and (b) in the case of the Positano/MB Call, 30 days after the
date of the notice to the Holder of the exercise by Positano or MB, as the case
may be.
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<PAGE>
"Applicable Put Price" means the Public Market Value per share as of
--------------------
the Applicable Valuation Date, less the Termination Discount, plus an amount
accrued thereon at the applicable Rate, measured from the Applicable Valuation
Date to the Applicable Payment Date.
"Applicable Valuation Date" means (a) in the case of Company Call
-------------------------
rights or the Positano/MB Call, the December 31 which immediately precedes, and
is closest in time to, the Termination Date; provided, however, that (i) if such
December 31 is within three months of (prior to or following) the date on which
the Employee last acquired Shares then the Applicable Valuation Date shall be
the next December 31 and (ii) if the Termination Date occurs during 1999, such
Applicable Valuation Date shall be no earlier than December 31, 1999, and (b) in
the case of the Employee Put right, the December 31 which immediately follows,
and is closest in time to, the seven month anniversary of the Termination Date.
"Beneficial Ownership" and "beneficially own" and similar terms have
-------------------- ----------------
the meanings ascribed to such terms in Rule 13d-3 under the Exchange Act.
"Board" means the Board of Directors of the Trustee.
-----
"BSH Holding" has the meaning specified in the preamble.
-----------
"BSH LLC" has the meaning specified in the preamble.
-------
"Call" has the meaning specified in Section 4.
----
"Cause" means and shall be limited to: (a) willful misappropriation
-----
of the funds or property of the Company or an Affiliate of the Company; (b) use
of alcohol or illegal drugs interfering with the performance of an employee's
obligations, continuing after written warning of such actions; (c) admission,
confession, indictment or plea bargain to, or conviction of, a felony, or of any
crime involving moral turpitude, dishonesty, theft, unethical or unlawful
conduct; (d) commission of any willful or intentional act which could reasonably
be expected to injure the reputation, business or business relationships of the
Company or any Affiliate of the Company or which may tend to bring the employee
or the Company or any Affiliate of the Company into disrepute, or the willful
commission of any act which is a breach of an employee's fiduciary duties to the
Company or any Affiliate of the Company; and (e) commission of any act which
constitutes a breach of the policies of the Company, including but not limited
to the disclosure of any confidential information or trade secrets pertaining to
the Company or any Affiliate of the Company, or any of their clients. For
purposes of this paragraph, any act or failure to act of the employee shall not
be considered "willful" unless done or omitted to be done by the employee not in
good faith and without reasonable belief that the employee's action or omission
was in the best interest of the Company or any Affiliate of the Company. Any
determination of Cause shall be made by the Board in its sole discretion.
"Company" has the meaning specified in the preamble.
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"Company Call" means Company Call #1 and Company Call #2,
------------
collectively.
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<PAGE>
"Company Call #1" has the meaning specified in Section 4(a).
---------------
"Company Call #2" has the meaning specified in Section 4(c).
---------------
"Compensation Committee" means the Compensation Committee of the
----------------------
Board.
"Credit Agreement" means the Senior Credit Facility.
----------------
"Employee Put" has the meaning set forth in Section 4(d).
------------
"Employment" or "employment" means active employment with the Company
---------- ----------
or any Affiliate or any predecessor or successor thereof. For purposes of this
Agreement, employment also includes work by any Person as an independent
contractor for the Company or any Affiliate or any predecessor thereof.
"Employee," "employee," "Employed" and "employed" have correlative meanings.
-------- -------- -------- --------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the regulations promulgated thereunder.
"Holders" means each of the Persons listed on Schedule 1 hereto
-------
together with any individuals who become holders of Shares after the date hereof
who become parties to this Agreement in accordance with the terms of Section 13
or otherwise.
"Holder Tagging Shareholder" has the meaning specified in Section 10.
--------------------------
"Initial Public Offering" means the consummation of the first sale of
-----------------------
Shares for cash by the Company (or its successor entity), or by the
Shareholders, in each case in an underwritten public offering registered under
the Act.
"Mature Shares" as of a given date, means all Shares which, as of such
-------------
date, have been issued and outstanding and owned by a Holder (or such Holder's
direct or indirect transferee or assignee) for more than six months.
"MB" has the meaning specified in the preamble.
--
"MB Permitted Transfer" shall mean a transfer by MB to (a) his spouse
---------------------
(or ex-spouse if the transfer is pursuant to a marital dissolution order), any
lineal ancestor, any lineal descendant or any adopted child (or a spouse of any
of the foregoing) (each an "MB Related Party"), (b) (i) any lineal descendant or
----------------
adopted child of, or (ii) any lineal descendant or adopted child of such lineal
descendant or adopted child of, any MB Related Party (collectively "MB Other
--------
Related Parties"), (c) a trust of which there are no beneficiaries other than
- ---------------
(i) MB (the grantor), (ii) any MB Related Parties or (iii) any MB Other Related
Parties, provided that MB or the beneficiaries or the trustees of such trust
have the power to act with respect to the trust's assets without obtaining court
approval; or (d) any charitable organization which qualifies under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended, including any
transfer in trust for the benefit of such organization, provided that such
charitable organization (i) is controlled by either MB, an MB Related Party or
an MB Other Related Party ("control" here mean-
-3-
<PAGE>
ing majority representation by such persons on the board of directors, trustees
or comparable governing body of such organization) or (ii) has been approved by
a majority of the members of the Board present at a meeting of the Board at
which a quorum is present. Notwithstanding the foregoing, no transfer shall
constitute an MB Permitted Transfer (A) until the applicable transferee shall
agree in writing, in form and substance reasonably satisfactory to the Company,
to become bound, and becomes bound, by all the terms of this Agreement to the
same extent as the transferor thereof is bound and (B) unless such transfer is
made in compliance with the terms of this Agreement in its entirety and with all
state and federal securities laws.
"NASDAQ" has the meaning specified in Section 2(d).
------
"Note" has the meaning specified in Section 6(a).
----
"Outstanding Shares" as of a given time means the sum of (a) the
------------------
number of Shares then issued and outstanding and (b) the number of Shares
issuable upon exercise of all options, warrants and rights to acquire, and the
conversion of any securities convertible into, Shares, to the extent such rights
to acquire Shares are then exercisable. When calculating the percentage of the
Outstanding Shares owned by a specified Person, such Person shall be deemed to
own all Shares beneficially owned by such Person assuming the exercise of all of
such Person's options, warrants and rights to acquire, and the conversion by
such Person of any securities convertible into, Shares only to the extent such
rights to acquire Shares are then exercisable by such Person.
"Positano" shall mean Positano Partners Ltd., a Bermuda exempt
--------
company.
"Positano/MB Call" has the meaning specified in Section 4(b).
----------------
"Positano Tagging Shareholder" has the meaning specified in Section
----------------------------
10.
"Public Market Value" means the value per share of the Shares
-------------------
determined pursuant to Section 2.
"Publicly Traded" has the meaning specified in Section 4.
---------------
"Put" has the meaning specified in Section 4.
---
"Rate" means the applicable Federal rate (based on the scheduled
----
maturity or anticipated payment date of such obligation) in effect under Section
1274(d) of the Internal Revenue Code of 1986, as amended (as of the date on
which the Company incurs such obligation or further defers such obligation or
such Rate begins to apply), compounded semi-annually.
"Recapitalization Agreement" has the meaning specified in the
--------------------------
recitals.
"Regular Valuation" has the meaning specified in Section 2(b).
-----------------
"Reorganization" has the meaning specified in Section 1(b).
--------------
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<PAGE>
"Representative" has the meaning specified in Section 14.
--------------
"Shareholders" has the meaning specified in the preamble.
------------
"Shares" shall mean (a) all shares of beneficial interest in the
------
Company issued and outstanding immediately following the Closing, together with
any other shares of beneficial interest in the Company which are issued by the
Company during the life of this Agreement to any Person who is, by the terms of
this Agreement or otherwise, required to subject such shares to this Agreement,
and (b) any economic interest in such shares, whether or not constituting
Beneficial Ownership of such shares.
"SIG" has the meaning specified in the recitals.
---
"Tag-Along Right" has the meaning specified in Section 10(a).
---------------
"Tag-Along Sale" means, (a) with respect to Section 10(a), the sale,
--------------
directly or indirectly, by Positano or its Affiliates, in a private transaction
prior to an Initial Public Offering, of Shares representing 10% or more of the
Outstanding Shares if immediately following such sale Positano and its
Affiliates would beneficially own less than 65% of the number of Shares
beneficially owned by Positano on the day immediately following the Closing
(such number, as adjusted for stock splits, distributions paid in Shares,
reclassifications of the Shares, and similar events, the "Initial Positano
----------------
Shares"), without regard to whether Positano beneficially owned more than 65% of
- ------
the Initial Positano Shares immediately prior to such sale, and (b) with respect
to Section 10(b), the sale, directly or indirectly, by MB and any transferee of
MB in an MB Permitted Transfer ("MB Permitted Transferees"), in a private
------------------------
transaction prior to an Initial Public Offering, of Shares representing 10% or
more of the Outstanding Shares if immediately following such sale MB, together
with any MB Permitted Transferees, would beneficially own less than 65% of the
number of Shares beneficially owned by MB on the day immediately following the
Closing (such number, as adjusted for stock splits, distributions paid in
Shares, reclassifications of the Shares, and similar events, the "Initial MB
----------
Shares"), without regard to whether MB, together with any MB Permitted
- ------
Transferees, beneficially owned more than 65% of the Initial MB Shares
immediately prior to such sale; provided, however, that an MB Permitted Transfer
-------- -------
shall not, in and of itself, constitute a Tag-Along Sale.
"Termination Date" means, with respect to any Holder, the date of
----------------
Termination of Employment.
"Termination Discount" means the termination discount applicable to a
--------------------
Holder's Termination of Employment calculated pursuant to Section 5.
"Termination of Employment" has the meaning specified in Section 4.
-------------------------
"Transactions" has the meaning specified in the recitals.
------------
"Transfer" has the meaning specified in Section 13.
--------
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<PAGE>
"Trustee" means Vesuvio, Inc., a Delaware corporation, as sole trustee
-------
of the Company.
(b) In the event of an Initial Public Offering it is anticipated that
the Company and its subsidiaries will consummate a series of transactions
contemplated in Section 2.01(b) of the Registration Rights Agreement (the
"Reorganization") in which the Shares shall be exchanged or converted into
--------------
shares of common stock of a successor entity to the Company and such successor
entity would register for sale such shares of common stock. For all purposes of
this Agreement, unless explicitly specified otherwise, all references to the
Company shall be deemed to refer to such successor entity from and after the
Reorganization, and all references to the Shares and Shareholders shall be
deemed to refer to such shares and holders, respectively, of common stock of the
successor entity from and after the Reorganization.
SECTION 2. Determination of Public Market Value. (a) The "Public
------------------------------------ ------
Market Value" per Share as of a given date shall be the per Share price at which
- ------------
small numbers of Shares would trade (i) if the Company were a publicly-traded
company with a well-distributed ownership profile, (ii) if the market were to
take into account the number of Fully-Diluted Shares (as defined in the
Governance Agreement) and (iii) if the market were to assume that there would be
no material change in the composition of management of the Company.
(b) The Company shall retain an independent investment banking firm
mutually acceptable to the Management Designees and the Positano Designees to
render its written opinion to the Company as to the Public Market Value per
Share as of December 31 of each year (such a regularly obtained valuation is
referred to herein as a "Regular Valuation"). The first such Regular Valuation
-----------------
shall be as of December 31, 1999. Such opinion will be obtained as soon as
practicable following the availability of the audited financial statements for
the Company as of, and for the year ended on, December 31 (but in no event later
than April 15). The Public Market Value per Share as of such dates so
determined shall be binding upon all parties hereto (and all Persons holding
Shares and all other Persons claiming through or under a party hereto) to the
extent applicable hereunder.
(c) BSH LLC shall bear all fees and costs of any investment banking
firm retained by the Company in connection with the determination of the Public
Market Value per Share for any Regular Valuation.
(d) Notwithstanding the foregoing provisions of this Section 2, if at
any time the Shares are listed for trading on a national securities exchange, or
eligible for quotation on the National Association of Securities Dealers
Automated Quotation system ("NASDAQ"), then the "Public Market Value" per Share
------ -------------------
as of a given date shall be the average closing price per Share for the ten
trading day period ending on such day, as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading in the New York Stock Exchange or, if the Shares are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Shares are listed or
admitted to trading or, if the Shares are not listed or admitted to trading on
any national securities
-6-
<PAGE>
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ.
SECTION 3. Restrictions Following an Initial Public Offering. In an
-------------------------------------------------
Initial Public Offering, to improve the marketability of the Shares sold in such
Initial Public Offering, each of the parties hereto hereby covenants and agrees
that it shall agree with the underwriters of such Initial Public Offering,
subject to customary terms and conditions, not to sell any Shares (other than
(a) Shares to be sold in the Initial Public Offering or (b) Shares Transferred
to the Company, Positano or MB pursuant to Section 4 for which a notice of
exercise of a Call has been given prior to a Initial Public Offering) for a
period of up to 180 days following consummation of the Initial Public Offering.
SECTION 4. Purchase of Shares on Termination of Employment of
--------------------------------------------------
Holders. If an individual Holder's employment with the Company or an Affiliate
- -------
of the Company shall terminate for any reason (a "Termination of Employment"),
-------------------------
the Company, Positano and MB shall have the right to purchase the Shares owned
by such Holder (including, as provided herein, following the exercise of any
options subsequent to such Termination of Employment) (a "Call") and the Holder
----
shall have the right to cause the Company to purchase such Shares (including, as
provided herein, following the exercise of any options subsequent to such
Termination of Employment) (a "Put") at the times, upon the terms and subject to
---
the conditions set forth in Sections 4 through 7. The Calls and Puts with
respect to any Shares for which a notice of exercise of a Call or Put has not
yet been given shall terminate (unless otherwise unanimously determined by the
Compensation Committee of the Board) upon the earlier to occur of an Initial
Public Offering or such time as the Shares are listed for trading on a national
securities exchange or eligible for quotation on NASDAQ ("Publicly Traded").
---------------
The Calls and Puts with respect to Shares for which a notice of exercise of a
Call or Put has been given prior to such Initial Public Offering and prior to
the Shares becoming Publicly Traded shall apply in accordance with their terms,
notwithstanding the occurrence of such Initial Public Offering or the fact that
such Shares are Publicly Traded. Notwithstanding the foregoing or any other
provision in this Section 4, in no event shall any Shares owned by Myron
Slosberg be subject to any Call or Put.
(a) Company Call #1. Following a Termination of Employment, the
Company shall have the right (but not the obligation), by written notice to the
Holder whose employment has terminated (and any direct or indirect transferees
or assignees of the Holder whose employment has terminated) no later than the
later of (i) 45 days after the Termination Date and (ii) 15 days after the date
on which the Company receives the determination of Public Market Value per share
as of the Applicable Valuation Date, as the case may be, to Call (the "Company
-------
Call #1") all or any specified portion of the Shares owned by such Holder or any
- -------
of his or her direct or indirect transferees or assignees owning any such Shares
(including pursuant to the exercise of any options subsequent to such
Termination of Employment) at the Applicable Call Price. If the Company
exercises the Company Call #1 to purchase any Shares, the Company shall, on the
Applicable Payment Date, purchase such Shares from the Holder for the Applicable
Call Price per share, payable in cash or as provided in Sections 6 through 8.
BSH LLC shall pay any applicable transfer taxes.
-7-
<PAGE>
(b) Positano/MB Call. If the Company shall fail (or elect not),
within the period provided therefor, to exercise the Company Call #1 to purchase
some or all of the Shares owned by a Holder (or such Holder's direct or indirect
transferee or assignee) following Termination of Employment, the Company shall
give prompt notice thereof to Positano and MB, which notice shall include the
number of Shares not purchased by the Company which were Mature Shares as of the
Termination Date of such Holder. Each of Positano and MB shall have the right
(but not the obligation) to Call (the "Positano/MB Call") on a pro rata basis
----------------
(or on such other basis as Positano and MB may agree in writing at or prior to
the day the Positano/MB Call must be exercised) relative to the then current
ownership of Shares by each of Positano and MB, all or any specified portion of
such Mature Shares not purchased by the Company at the Applicable Call Price by
giving notice of the exercise of such right to the Holder whose employment has
terminated (and any direct or indirect transferees or assignees of the Holder
whose employment has terminated) and each other, within 45 days after the date
of such notice from the Company. If Positano and/or MB shall so elect to
purchase Mature Shares, each of Positano and MB, as the case may be shall, no
later than the Applicable Payment Date, purchase the number of Mature Shares
specified in their respective notice to the Holder (and any direct or indirect
transferees or assignees of the Holder) for cash from the Holder (or direct or
indirect transferees or assignees of the Holder) for the Applicable Call Price
per share.
(c) Company Call #2. From and after the seven-month anniversary of
the Termination Date, the Company shall have the right (but not the obligation),
by written notice to the Holder whose employment has terminated (and any direct
or indirect transferees or assignees of the Holder whose employment has
terminated) no later than the later of (i) 30 days after such seven-month
anniversary and (ii) 15 days after the date on which the Company receives the
determination of Public Market Value per share as of the Applicable Valuation
Date, to Call (the "Company Call #2") all or any specified portion of the Shares
---------------
owned by such Holder (or any of his or her direct or indirect transferees or
assignees) owning any such Shares (including Shares owned pursuant to the
exercise of any options subsequent to the Termination of Employment) at the
Applicable Call Price. If the Company exercises the Company Call #2 to purchase
any Shares the Company shall, on the Applicable Payment Date, purchase such
Shares from the Holder for the Applicable Call Price per share, payable in cash
or as provided in Sections 6 through 8. BSH LLC shall pay any applicable
transfer taxes.
(d) Employee Put. If the Company shall fail or decline, within the
period provided therefor, to exercise the Company Call #2 to purchase all of the
Shares then held by such Holder, then the Holder whose employment has terminated
(and any direct or indirect transferees or assignees of the Holder whose
employment has terminated) shall have the right, but not the obligation, upon
written notice to the Company given no later than 30 days after notice from the
Company to such Person that the Company has elected not to purchase all the
Shares owned by such Person (including Shares owned pursuant to the exercise of
any Options subsequent to the Termination of Employment), to require the Company
to purchase (the "Employee Put") all such Shares at the Applicable Put Price.
------------
Upon receipt of such notice by the Company, no later than the Applicable Payment
Date the Company shall purchase such Shares from the Holder for the Applicable
Put Price, payable in cash or as provided in Sections 6 through 8.
-8-
<PAGE>
SECTION 5. Determination of Termination Discount. The "Termination
------------------------------------- -----------
Discount" per Share shall be equal to (a) in the case of termination for Cause,
- --------
or a voluntary termination without the Company's prior written approval, 30% of
the Public Market Value per share as of the Applicable Valuation Date, (b) in
the case of an involuntary termination for any reason other than for Cause or a
voluntary termination with the Company's prior written approval, 15% of the
Public Market Value per share as of the Applicable Valuation Date, and (c) zero
(i.e. there shall be no discount) in the event of a termination as a result of
the death or disability of any Holder.
SECTION 6. Payments for Shares Purchased by the Company. (a) The
--------------------------------------------
Company may, at its election and notwithstanding the provisions of Section 4
hereof, pay for Shares purchased by it pursuant to a Call or Put under Section 4
in up to three equal annual installments, the first such installment being
payable in cash (subject to Section 7) upon the Applicable Payment Date pursuant
to Section 4 hereof and the remaining installments being evidenced by a non-
negotiable document (a "Note") from BSH LLC to the Holder as contemplated by
----
Sections 6 and 7. Immediately prior to payment by the Company for Shares
purchased by it pursuant to a Call or Put under Section 4, BSH LLC shall
distribute to BSH Holding and BSH Holding shall distribute to the Company cash
and/or Notes sufficient for the Company to fulfill its obligations contained
herein.
(b) If the Company elects to make such payments in installments (i)
the amount payable at each installment shall be the Applicable Call Price or the
Applicable Put Price, as the case may be, divided by the number of installments
and (ii) the Company shall promptly deliver to the relevant Holder a Note
evidencing the obligation of BSH LLC to make such payments, which obligation
shall be limited as provided in Section 7 hereof, and shall be subordinated to
the obligations of BSH LLC and its Subsidiaries under the Credit Agreement to
the extent set forth in Schedule 2 hereto.
(c) An additional amount shall accrue at the Rate and be payable (i)
annually, on the twelve month anniversary of the Applicable Payment Date, on the
principal amount of all subordinated deferred payment obligations pursuant to
Section 6(a), and (ii) semi-annually on each June 30 and December 31 on all
amounts deferred by reason of Section 7(b).
(d) In the event that, for any reason, the Company has not yet, on
the date on which it purchases any Shares pursuant to Section 4, received a
determination of the Public Market Value per Share as of the Applicable
Valuation Date, the Company shall make an initial installment payment based on
the Public Market Value per share as of the Regular Valuation most recently
preceding the Applicable Payment Date and, after the determination of the Public
Market Value per share as of the Applicable Valuation Date, make appropriate
adjustments in subsequent installment payments made under this Section 6.
SECTION 7. The Company's Obligations Conditional. (a)
-------------------------------------
Notwithstanding anything to the contrary herein, (i) the Company shall not be
required hereunder to purchase any Shares from any Holder, or to make payments
with respect to any such purchase, (ii) BSH LLC shall not be required to make
distributions to BSH Holding, (iii) BSH Holding shall not be re-
-9-
<PAGE>
quired to make distributions to the Company and (iv) BSH LLC shall not be
required to make payments under the Notes, unless and until such time as the
Company, BSH Holding and BSH LLC are legally permitted to do so and such
purchase, payment or distribution would not violate or breach or cause a default
under any provisions of the Credit Agreement. In the event that (i) BSH LLC is
not legally permitted to distribute cash or Notes to BSH Holding or (ii) BSH
Holding is not legally permitted to distribute cash or Notes to the Company with
respect to the purchase of any Shares required to be purchased by the Company
pursuant to this Agreement, or (iii) BSH LLC is not legally permitted to make
payments under the Notes, or (iv) such distribution or payment would violate or
breach or cause a default under any of the provisions of the Credit Agreement,
the Company's rights and obligation hereunder to purchase such Shares and BSH
LLC's obligations under the Notes shall be postponed until such time as (A) BSH
LLC is legally permitted to distribute cash and Notes to BSH Holding and BSH
Holding is legally permitted to distribute cash and Notes to the Company to pay
for such Shares and make payments under the Notes, or (B) such time as such
distribution or payment would not violate or breach or cause a default under any
of the provisions of the Credit Agreement.
(b) In the event that, as of any Applicable Payment Date, the
aggregate amount of cash required (i) to be distributed by BSH LLC to BSH
Holding and by BSH Holding to the Company for the Company to purchase Shares on
such date pursuant to Section 4 (or the initial installment thereof pursuant to
Section 6), (ii) to pay installments with respect to Shares theretofore
purchased by the Company pursuant to Section 6, (iii) to pay other amounts
theretofore deferred pursuant to Sections 6 and 7 and (iv) to make interest
payments pursuant to Section 6, exceeds the maximum amount that BSH LLC or BSH
Holding is permitted to expend for such purposes pursuant to the Credit
Agreement, the amounts permitted to be expended shall be utilized in the
following priority (with all amounts not paid by reason hereof to be deferred):
first, to pay $1.00 per Share as a portion of the purchase price for
Shares to be purchased on such date;
second, to pay amounts payable pursuant to Section 6(c) (to be paid
pro rata to the extent insufficient amounts are available);
third, to pay amounts theretofore deferred pursuant to this Section 7
(to be paid pro rata to the extent insufficient amounts are available); and
fourth, to pay, pro rata, a portion of all such other amounts then
due.
SECTION 8. Withholding and Offset Rights of the Company. To the
--------------------------------------------
extent permitted by applicable law and notwithstanding any other provisions of
this Agreement, the Company may offset against any payment to be made by it in
respect of any Shares purchased by it pursuant to this Agreement (including
purchase price, installment payments and interest payments) any damages
(including consequential damages), expenses, fees, losses or costs of any kind
or nature whatsoever incurred by the Company or its Affiliates arising out of
(a) any malfeasance by such Holder or (b) violation by such Holder of any non-
compete or non-solicitation agreement by which such Holder is bound. In
addition, the Company shall be entitled to reduce
-10-
<PAGE>
any payments hereunder by any applicable statutory or regulatory withholding
taxes or other similar charges.
SECTION 9. Holding Period. For purposes of determining the holding
--------------
period of a direct or indirect transferee or assignee with respect to a Share
for purposes of this Agreement, such holding period shall include the holding
period of such direct or indirect transferee's or assignee's respective
transferor or assignor with respect to such Share.
SECTION 10. Tag-Along Rights. (a) If at any time prior to the
----------------
Initial Public Offering, Positano proposes to make a Tag-Along Sale, MB and the
Holders shall have the right to participate (a "Tag-Along Right") in such sale
---------------
with respect to any Shares held by them, on a pro rata basis (based on the
lesser of (i) the ratio of the aggregate number of Shares then beneficially
owned by MB and such Holders to the aggregate number of Shares then beneficially
owned by Positano and (ii) the ratio of the Shares sought to be included in such
sale by MB and such Holders and the aggregate number of Shares to be sold by
Positano), on the same terms (including price and consideration received) by
which Positano sells its Shares. If circumstances occur which give rise to the
Tag-Along Right, Positano shall give written notice to the Company, MB and the
Holders not less than 30 days prior to such proposed sale providing a summary of
the terms of the proposed sale. MB and such Holders may exercise their Tag-
Along Right (each, a "Holder Tagging Shareholder") by written notice to Positano
--------------------------
not less than 5 days prior to such proposed sale stating the number of Shares
that it wishes to sell. If a Holder Tagging Shareholder gives written notice
indicating that such Holder Tagging Shareholder wishes to sell Shares in the
Tag-Along Sale, such Holder Tagging Shareholder shall be obligated to sell that
number of Shares specified in such Holder Tagging Shareholder notice on the same
terms as provided in the original notice from Positano, such obligation to be
conditioned upon and contemporaneous with completion of the transaction of
purchase and sale with the proposed buyer.
(b) If at any time prior to the Initial Public Offering, MB proposes
to make a Tag-Along Sale, Positano and/or each of its transferees, shall have a
Tag-Along Right in such sale with respect to any Shares held by it, on a pro
rata basis (based on the ratio of the aggregate number of Shares beneficially
owned by Positano and/or each of its transferees seeking to participate in such
sale immediately prior to such sale to the aggregate number of Shares then
beneficially held by MB), on the same terms (including price and consideration
to be received) by which MB sells his Shares. If circumstances occur which give
rise to the Tag-Along Right, MB shall give written notice to Positano not less
than 30 days prior to such proposed sale providing a summary of the terms of the
proposed sale. Positano and/or each of its transferees may exercise its Tag-
Along Right (each, a "Positano Tagging Shareholder") by written notice to MB not
----------------------------
less than 5 days prior to such proposed sale stating the number of Shares that
it wishes to sell. If a Positano Tagging Shareholder gives written notice
indicating that such Positano Tagging Shareholder wishes to sell Shares in the
Tag-Along Sale, such Positano Tagging Shareholder shall be obligated to sell
that number of Shares specified in such Positano Tagging Shareholder notice on
the same terms as provided in the original notice from MB, such obligation to be
conditioned upon and contemporaneous with completion of the transaction of
purchase and sale with the proposed buyer.
-11-
<PAGE>
SECTION 11. Termination. This Agreement shall terminate upon an
-----------
Initial Public Offering; provided that, in the case of Sections 4 through 7 and
related definitions and general provisions, any unexercised Call right or Put
right shall terminate but any executory payment obligation relating to any
theretofore exercised Call right or Put right shall be performed in accordance
with its terms.
SECTION 12. Legend. All certificates representing Shares shall
------
bear a legend stamped, typed or otherwise legibly placed on the face or reverse
side thereof substantially in the form set forth below:
NOTICE IS HEREBY GIVEN THAT the securities represented by
this certificate have not been registered under the
Securities Act of 1933, as amended, or the securities laws
of any state of the United States or any non-U.S.
jurisdiction. The securities cannot be offered, sold,
transferred or otherwise disposed of except (i) pursuant to
an effective registration statement or amendment thereto
under such Act and any other applicable laws or (ii)
pursuant to an exemption from, or in a transaction not
subject to the registration requirements of such Act and
such other applicable laws. The sale, transfer or other
disposition of the securities represented by this
certificate and certain other rights and obligations of the
holder of this certificate are also subject to the
Shareholders Agreement dated as of January 6, 1999 and by
and among Bronner Slosberg Humphrey Co. (the "Company") and
the other parties thereto (copies of which are available for
review at the principal office of the Company by contacting
the trustee of the Company) and the Company reserves the
right to refuse the transfer of such securities until all
terms and conditions have been fulfilled with respect to
such transfer as set forth in such agreements.
SECTION 13. Binding Effect; Successors. This Agreement shall be
--------------------------
binding upon and inure to the benefit of and shall be enforceable by the parties
hereto and their respective legal representatives, heirs, legatees, successors
and assigns (including, without limitation the Call rights and Put rights which
shall apply following a Holder's death); provided that the rights and
obligations of MB shall apply to his legal representatives, heirs and legatees
and MB and such parties shall have the rights described in Section 4(b) with
respect to the Positano/MB Call only so long as they collectively own at least
five percent of the Outstanding Shares. Prior to an Initial Public Offering, no
sale, transfer, assignment, pledge, hypothecation or other encumbrance or
disposition of any Shares (each, a "Transfer"), other than Transfers to the
--------
Company, shall be effective unless, as a condition to any such Transfer, each
transferee that is not a party hereto shall, prior to such Transfer, agree in
writing to be bound by all of the provisions of this Agreement applicable to the
transferor and no such transferee shall be permitted to make any Transfer other
than in accordance with the terms of this Agreement. Each such transferee shall
thereafter be deemed to be a Shareholder hereunder and shall have the benefit
of, and be subject to, all of
-12-
<PAGE>
the rights, obligations and limitations with respect to such transferred Shares
to the same extent as the original transferor under this Agreement.
SECTION 14. Amendment and Waiver. This Agreement may be amended,
--------------------
modified or supplemented or any term or condition waived only by a written
instrument executed by the parties hereto; provided, however, that each Holder
hereby delegates the Chief Executive Officer of the Company (the
"Representative") the authority to act on his or her behalf for purposes of this
--------------
Section 14.
SECTION 15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the Commonwealth of
Massachusetts without regard to principles of conflict of laws.
SECTION 16. Specific Performance. Each party hereto agrees that
--------------------
irreparable damages would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms, or were
otherwise breached. It is, accordingly, agreed that the parties hereto shall be
entitled to injunctive relief to prevent breaches of the provisions of this
Agreement, and to enforce specifically the terms and provisions hereof, in
addition to any other remedy to which they may be entitled at law or in equity.
SECTION 17. Unenforceability. If any provision of this Agreement
----------------
is held or deemed to be invalid or unenforceable to any extent when applied to
any Person or circumstance, the remaining provisions of this Agreement and the
enforcement of such provisions to other Persons or circumstances shall not be
affected, and each provision of this Agreement shall be enforced to the fullest
extent allowed by law.
SECTION 18. Headings. The headings of Articles and Sections
--------
contained in this Agreement are solely for convenience of reference, are not
part of the agreement of the parties, and shall not affect the meaning or
interpretation of this Agreement.
SECTION 19. Copies on File. Copies of this Agreement and of every
--------------
agreement amending or supplementing this Agreement shall be available for review
at the Company's principal office by contacting the Trustee.
SECTION 20. Notices. All notices, requests, demands or other
-------
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by telecopy and confirmed by return telecopy,
or when delivered by first-class mail, postage prepaid and return receipt
requested, in each case to the applicable addresses set forth below:
If to the Company: c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner
-13-
<PAGE>
David W. Kenny
Facsimile: (617) 867-7217
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
If to Positano: H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
If to a Holder, to the address listed after such Holder's name on
Schedule 1 hereto, with copies to such person as such Holder may
by notice to all parties designate in writing.
(or, as to any party, to such other address as such party shall from time to
time designate by written notice to the other parties). Notices sent by
registered or certified mail in accordance with this Section 20 shall be deemed
delivered as of the date posted in the United States mail.
SECTION 21. Waiver and Consent. Upon the mutual written agreement of
------------------
the Company, Positano, MB and the Representative, any party may by notice to the
other parties hereto (a) extend the time for the performance of any of the
obligations or other actions of such other party under this Agreement; (b) waive
compliance with any of the conditions or covenants of such other party contained
in this Agreement; and (c) waive or modify performance of any of the obligations
of such other party under this Agreement. Except as provided in the preceding
sentence, no action taken pursuant to this Agreement, including, without
limitation, any investi-
-14-
<PAGE>
gation by or on behalf of any party, shall be deemed to constitute a waiver by
the party taking such action of compliance with any representations, warranties,
covenants or agreements contained herein. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any preceding or succeeding breach and no failure by any party to
exercise any right or privilege hereunder shall be deemed a waiver of such
party's rights or privileges hereunder or shall be deemed a waiver of such
party's rights to exercise the same at any subsequent time or times hereunder.
SECTION 22. Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to constitute one and the same agreement.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Shareholders
Agreement as of the date first above written.
POSITANO PARTNERS LTD.,
a Bermuda exempt company
By: /s/ Patrick J. Healy
----------------------------------
Name: Patrick J. Healy
Title: Vice President
BRONNER SLOSBERG HUMPHREY CO.,
a Massachusetts business trust
By: /s/ David W. Kenny
----------------------------------
Name: David W. Kenny
Title: Chief Executive Officer
and Vice President
Bronner Slosberg Humphrey Co. (the "Trust")
is a Massachusetts business trust. A copy of
the Trust's Declaration of Trust, as the same
may be amended and/or restated from time to
time, is on file with the Secretary of State
of The Commonwealth of Massachusetts. Each of
the parties hereto acknowledges and agrees
that this Agreement is not executed on behalf
of the trustees or officers of the Trust as
individuals or, in the event the trustee is a
corporation or other entity, on behalf of the
individual owners of such corporation or
entity, and the obligations of this Agreement
are not binding upon any of the trustees,
officers or shareholders of the Trust, or any
of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the
assets and property of the Trust. Each of the
parties hereto agrees that no shareholder,
trustee or officer of the Trust, or any of
their respective trustees, officers,
directors, partners, members and
shareholders, may be held personally liable
or responsible for any obligations of the
Trust arising out of this Agreement. With
respect to obligations of the Trust arising
out of this Agreement, each of the parties
hereto shall look for payment or satisfaction
of any claim solely to the assets and
property of the Trust.
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
BSH HOLDING LLC,
a Delaware limited liability company
By: /s/ David W. Kenny
----------------------------
Name: David W. Kenny
Title: Chief Executive
Officer and President
BRONNER SLOSBERG HUMPHREY, LLC,
a Delaware limited liability company
By: /s/ David W. Kenny
----------------------------
Name: David W. Kenny
Title: Chief Executive
Officer and President
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
By: /s/ Michael E. Bronner
-----------------------
Michael E. Bronner
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
By: /s/ Michael Bronner
--------------------------------
Michael Bronner as Trustee under
the Michael E. Bronner Annuity
Trust, dated as of July 16, 1998
By: /s/ Lisa Bronner
--------------------------------
Lisa Bronner as Trustee under
the Michael E. Bronner Annuity
Trust, dated as of July 16, 1998
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
By: /s/ Jean Alexander
--------------------
Jean Alexander
By: /s/ Alan Beck
--------------------
Alan Beck
By: /s/ Meryl Beckingham
--------------------
Meryl Beckingham
By: /s/ Seraj Bharwani
--------------------
Seraj Bharwani
By: /s/ Kathleen Biro
--------------------
Kathleen Biro
By: /s/ Robert Cosinuke
--------------------
Robert Cosinuke
By: /s/ Charles DeSnyder
--------------------
Charles DeSnyder
By: /s/ Michael Dresner
--------------------
Michael Dresner
By: /s/ Katharin Dyer
--------------------
Katharin Dyer
By: /s/ Gretchen Gayton
--------------------
Gretchen Gayton
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
By: /s/ Peggy J. Heeg
----------------------
Peggy J. Heeg
By: /s/ Reuben Hendell
----------------------
Reuben Hendell
By: /s/ John Hoholik
----------------------
John Hoholik
By: /s/ Robert Hurley
----------------------
Robert Hurley
By: /s/ Greg D. Johnson
----------------------
Greg D. Johnson
By: /s/ Greg R. Johnson
----------------------
Greg R. Johnson
By: /s/ Betsy Karp
----------------------
Betsy Karp
By: /s/ David Kenny
----------------------
David Kenny
By: /s/ Arthur Kern
----------------------
The Arthur Kern Revocable
Trust
Arthur Kern, Trustee
By: /s/ Harvey Kipnis
----------------------
Harvey Kipnis
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
By: /s/ Robert Maher
----------------------
Robert Maher
By: /s/ Stephen Olderman
----------------------
Stephen Olderman
By: /s/ Jonathan Phillips
----------------------
Jonathan Phillips
By: /s/ Ruben Pinchanski
----------------------
Ruben Pinchanski
By: /s/ Clare S. Robinson
----------------------
Clare S. Robinson
By: /s/ Myron Slosberg
----------------------
Myron Slosberg
By: /s/ Malcolm Speed
----------------------
Malcolm Speed
By: /s/ Michael Ward
----------------------
Michael Ward
By: /s/ Robert Willms
----------------------
Robert Willms
[SIGNATURE PAGE TO THE SHAREHOLDERS AGREEMENT]
<PAGE>
Schedule 1 to the Shareholders Agreement
Holders
The Michael E. Bronner 1998 Annuity
Trust, dated as of July 16, 1998
40 Sargent Crossway
Brookline, MA 02445
Jean Alexander
160 Commonwealth Avenue, #701
Boston, MA 02116
Alan Beck
American Media Management, Inc.
3 Waterview Drive
Port Jefferson, NY 11777
Meryl Beckingham
192 Commonwealth Avenue, Apt. 5
Boston, MA 02116
Seraj Bharwani
60 Pleasant Street, #203
Arlington, MA 02174
Kathleen Biro
296 Commonwealth Avenue
Boston, MA 02115-2423
Robert Cosinuke
59 Locke Street
Watertown, MA 02172
Charles DeSnyder
182 Hill Street
Holliston, MA 01746
Michael Dresner
505 West End Avenue, Apt. 9C
New York, NY 10024
Katherin S. Dyer
<PAGE>
Schedule 1 to the Shareholders Agreement
Gretchen Gayton
5 Madison Road
Marblehead, MA 01945
Peggy J. Heeg
P.O. Box 4127
Portsmouth, NH 03802-4127
Reuben Hendell
14 Salem Drive
Scarsdale, NY 10583-5202
John Hoholik
20 Wood Island Road
Scituate, MA 02066
Robert Hurley
25 Lockwood Road
West Newton, MA 02165
Greg D. Johnson
7 Fieldstone Lane
South Natick, MA 01760
Greg R. Johnson
118 South Street, Unit 2B
Boston, MA 02111
Betsy Karp
770 Boylston Street, Apt. 26I
Boston, MA 02199
David W. Kenny
77 Monadnock
Wellesley, MA 02481-1335
Arthur Kern
1940 Webster Street
San Francisco, CA 94115
Harvey Kipnis
1 Main Street
South Salem, NY 10590
Robert Maher
275 Old Billerica Road
Bedford, MA
<PAGE>
Schedule 1 to the Shareholders Agreement
Stephen Olderman
45 Gramercy Park N #14B
New York, NY
Jonathan Phillips
851 Parrott Drive
San Mateo, CA 94402
Ruben Pinchanski
475 Arsenal Street, Unit G
Watertown, MA 02172
Clare S. Robinson
78 Leighton Road
Wellesley Hills, MA 02181
Myron Slosberg
15 West 67/th/ Street, Apt. 5ME
New York, NY 10023
Malcolm Speed
134 Border Street
Cohasset, MA 02025
Michael Ward
38 Garden Street
Wellesley, MA 02181
Robert Willms
247 Temple Street
Newton, MA 02165
<PAGE>
Schedule 2 to the Shareholders Agreement
Terms of Subordination
Terms of
Notes of BSH
Under (S)(S) 6 and 7 of the
Shareholders Agreement
--------------------------------------------------
1. Non-negotiable
2. Principal Amount: Aggregate Applicable Call or Put Price
for Shares to be repurchased from
Holder.
3. Term: Principal payable in up to three equal
annual installments: First installment
on Applicable Payment Date (as defined
under the Shareholders Agreement, the
June 30 or December 31 which follows
the later of the Applicable Valuation
Date and 30 days after notice of
exercise), the remaining installments
on the annual anniversaries of such
date.
4. Interest: The Rate, which shall be equal to the
applicable Federal rate in effect
under Section 1274(d) of the Internal
Revenue Code of 1986, as amended, at
the time such Note is first incurred,
for obligations of like maturity
compounded semi-annually, payable
annually.
5. Subordination: All claims with respect to principal
or interest, or otherwise, relating to
the Notes shall be subordinated and
junior in right of payment to all
claims under the Credit Agreement, as
set forth below:
5.(a)
Deferral of Interest and/or Principal:
-------------------------------------
Unless and until permitted under
Section 7.5 of the Credit Agreement
and as provided herein, no payment or
other distribution of any kind will be
made in respect of interest or
principal, or otherwise, on the Notes,
whether in cash, property, securities
or otherwise; provided that payments
shall not, in any event, be deferred
after January 15, 2005. In the event
that, as of any date on which a
payment of
<PAGE>
Schedule 2 to the Shareholders Agreement
principal or interest is required
under the Notes, the aggregate amount
required by the Company to (1)
purchase Shares pursuant to the
Shareholders Agreement and (2) make
payments of principal and interest on
Notes exceeds the maximum amount of
Restricted Junior Payments (as defined
in the Credit Agreement) the Company
is permitted to make under Section 7.5
of the Credit Agreement, then the
amount of Restricted Junior Payments
permitted to be made as of such date
will be made in the following order:
first, to pay $1.00 per Share as a
-----
portion of the purchase price for
shares to be purchased on such date;
second, to pay amounts payable as
------
interest on Notes (to be paid pro rata
--- ----
to the extent insufficient amounts are
available);
third, to pay the principal amount
-----
of the Notes (including amounts of
interest which become principal as a
result of the deferral pursuant to
this provision) (to be paid pro rata
--- ----
to the extent insufficient amounts are
available);
fourth, to pay, pro rata, a
------ --- ----
portion of all such other amounts then
due.
Any payments of principal or interest
not made as a result of such priority
of payments shall thereafter be
treated as additional principal and
shall bear interest at the Rate until
the next applicable date for payment
of interest or principal (with such
additional principal being payable pro
---
rata over the remaining installments);
----
provided that payments shall not, in
any event, be deferred after January
15, 2005.
5.(b)
In Event of Default:
-------------------
No payment of principal or interest,
or otherwise, shall be made in respect
of the Notes upon the oc-
-2-
<PAGE>
Schedule 2 to the Shareholders Agreement
currence, and during the continuance,
of an Event of Default (as defined in
the Credit Agreement).
5.(c)
Liquidation or Bankruptcy:
-------------------------
All obligations (principal, interest,
fees, indemnities, costs, expenses and
otherwise) under the Credit Agreement
shall be paid in full before any
payments are made with respect to the
Notes.
6. Events of Default: 6.(a)
Right to Accelerate:
-------------------
Notes will accelerate:
- upon notice by the Holder if the
Company defaults in the payment of
principal or interest, except if
payment of principal or interest
is prohibited under Sections 5(a)
or 5(b) above;
- upon voluntary bankruptcy petition
and similar events;
- if within 60 days involuntary
proceeding not dismissed.
6.(b)
No Enforcement by Holder:
------------------------
So long as any obligations under the
Credit Agreement remain unpaid, the
holder of any Note shall not (i)
commence any involuntary proceeding or
(ii) if and so long as payment is
required to be deferred under Sections
5(a) or 5(b) above, declare any
payment default.
-3-
<PAGE>
EXHIBIT 10.21
EXECUTION COPY
=======================================================================
GOVERNANCE AGREEMENT
dated as of
January 6, 1999
=======================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions ................................................ 1
ARTICLE 2
BOARD COMPOSITION
Section 2.1 Composition of the Board ................................... 4
Section 2.2 Continuing Committee Representation......................... 4
ARTICLE 3
APPROVAL ITEMS
Section 3.1 Positano Approval Required for Certain Actions ............. 5
ARTICLE 4
REPRESENTATIONS & WARRANTIES
Section 4.1 Trustee Representations and Warranties...................... 6
Section 4.2 Positano Representations and Warranties..................... 7
Section 4.3 MB Representations and Warranties........................... 8
ARTICLE 5
MISCELLANEOUS
Section 5.1 Termination................................................. 8
Section 5.2 Counterparts................................................ 8
Section 5.3 Governing Law............................................... 8
Section 5.4 Entire Agreement............................................ 9
Section 5.5 Enforcement................................................. 9
Section 5.6 Notices..................................................... 9
Section 5.7 Successors and Assigns...................................... 10
Section 5.8 Headings.................................................... 10
Section 5.9 Amendments and Waivers...................................... 11
Section 5.10 Interpretation; Absence of Presumption...................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 5.11 Severability................................................ 11
Section 5.12 Further Assurances.......................................... 11
</TABLE>
-ii-
<PAGE>
THIS GOVERNANCE AGREEMENT (the "Agreement"), dated as of January 6,
---------
1999, is made by and among Positano Partners Ltd., a Bermuda exempt company
("Positano"), Vesuvio, Inc., a Delaware corporation (the "Trustee"), Michael E.
-------- -------
Bronner, a natural person ("MB") and David W. Kenny, a natural person.
--
RECITALS:
--------
WHEREAS, Positano, MB and certain others are party to a
Recapitalization Agreement dated November 28, 1998 (the "Recapitalization
----------------
Agreement") setting forth the terms and conditions of a proposed investment by
- ---------
Positano in the shares of beneficial interest in Bronner Slosberg Humphrey Co.,
a Massachusetts business trust ("BSH") in connection with the proposed
---
recapitalization of BSH and Strategic Interactive Group Co., a Massachusetts
business trust ("SIG");
---
WHEREAS, following consummation of the transactions contemplated by
the Recapitalization Agreement (the "Transactions"), Positano on the one hand,
------------
and MB and the other current shareholders of BSH and SIG, on the other hand (the
"Holders") each will own a significant percentage of the equity interests in
-------
BSH;
WHEREAS, as of the closing of the Transactions (the "Closing"), the
-------
Trustee will be the sole trustee of BSH, and Positano is and will, as of the
Closing be, the sole stockholder of the Trustee;
WHEREAS, it is the intention of the parties that BSH be operated by
the management of BSH and Bronner Slosberg Humphrey, LLC, a Delaware limited
liability company ("BSH LLC"), subject to the overall direction and supervision
-------
of the Trustee, the Board of Directors of the Trustee and Committees of such
Board, as further set forth herein; and
WHEREAS, it is a condition to the Transactions, and the parties
believe it to be in their best interests, that they enter into this Agreement to
provide for certain rights and restrictions with respect to the corporate
governance of BSH and the Trustee.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE 1
---------
DEFINITIONS
-----------
Section 1.1 Definitions. Capitalized terms not defined herein shall
-----------
have their respective meanings specified in the Recapitalization Agreement. As
used in this Agreement, the following terms shall have the following respective
meanings:
<PAGE>
"1933 Act" shall mean the Securities Act of 1933, as amended, and the
--------
regulations promulgated thereunder.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
--------
amended, and the regulations promulgated thereunder.
"Affiliate" shall have the meaning ascribed thereto in Rule 12b-2
---------
promulgated under the 1934 Act, and as in effect on the date hereof.
"Agreement" shall have the meaning specified in the preamble.
---------
"Beneficially Own" shall mean, with respect to any security, having
----------------
direct or indirect "beneficial ownership" of such security, as determined
pursuant to Rule 13d-3 under the 1934 Act, including pursuant to any agreement,
arrangement or understanding, whether or not in writing.
"Board" shall mean the board of directors of the Trustee.
-----
"Board Composition" shall have the meaning specified in Section 2.1.
-----------------
"BSH" shall have the meaning specified in the recitals.
---
"BSH Holding" shall mean BSH Holding LLC, a Delaware limited
-----------
liability company.
"BSH LLC" shall have the meaning specified in the recitals.
-------
"Chairman" shall mean the chairman of the Board.
--------
"Closing" shall have the meaning specified in the recitals.
-------
"Committees" shall mean the committees and subcommittees of the
----------
Board.
"Common Stock" shall mean the common stock, par value $.01 per share,
------------
of the Trustee.
"Director" shall mean a member of the Board.
--------
"Fully-Diluted Shares" means the number of Shares issued and
--------------------
outstanding assuming the exercise of all options, warrants and rights to
acquire, and the conversion of any securities convertible into, Shares, whether
or not then vested or exercisable. When calculating the percentage of the
Fully-Diluted Shares owned by a specified person, such person shall be deemed to
own all Shares beneficially owned by such person assuming the exercise of all
options, warrants and rights to acquire, and the conversion of any securities
convertible into, Shares, whether or not then vested or exercisable.
"Holders" shall have the meaning specified in the recitals.
-------
-2-
<PAGE>
"Interested Party Transaction" means any transaction or series of
----------------------------
similar transactions to which BSH or any of its subsidiaries is a party, in
which the amount involved exceeds $50,000 (other than (a) compensation for
services rendered or perquisites in lieu of compensation received as an employee
in the ordinary course of business pursuant to BSH's compensation and bonus
policies and procedures or (b) pursuant to the Stock Option Plan (and related
agreements) or the Shareholders Agreement) and in which any of the following
persons has a direct or indirect material interest: any director or employee of
BSH or its subsidiaries, or any holder of more than 1% of the Fully-Diluted
Shares.
"Initial Public Offering" means the consummation of the first sale of
-----------------------
Shares for cash by the Company, or by one or more Holders, in an underwritten
public offering registered under the 1933 Act following the date hereof.
"Joint Designees" shall have the meaning specified in Section 2.1.
---------------
"Management Designees" shall have the meaning specified in Section
--------------------
2.1.
"Management Representatives" as of a given time, shall mean each of MB
--------------------------
and the person who is then the Chief Executive Officer of the Company; provided
--------
that in the event of the death of MB, the Chief Executive Officer shall be the
- ----
sole Management Representative for all purposes hereunder.
"MB" shall have the meaning specified in the preamble.
--
"person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, trust, unincorporated organization, other form
of business or legal entity or government authority.
"Positano" shall have the meaning specified in the preamble.
--------
"Positano Designees" shall have the meaning specified in Section 2.1.
------------------
"Recapitalization Agreement" shall have the meaning specified in the
--------------------------
recitals.
"Shares" shall mean units of beneficial interest in BSH.
------
"SIG" shall have the meaning specified in the recitals.
---
"Transactions" shall have the meaning specified in the recitals.
------------
"Trustee" shall have the meaning specified in the preamble.
-------
-3-
<PAGE>
ARTICLE 2
---------
BOARD COMPOSITION
-----------------
Section 2.1 Composition of the Board. (a) The parties hereto shall
------------------------
take all necessary action as is required under applicable law to cause the
Board, effective from and after the Closing, to have the following size and
composition (the "Board Composition"):
-----------------
(i) the Board shall include: (A) Michael E. Bronner and the
Chief Executive Officer, which initially is David W. Kenny (the
"Management Designees"), (B) two individuals designated by
--------------------
Positano (the "Positano Designees") and (C) two individuals
------------------
designated jointly by the Positano Designees and the Management
Designees (the "Joint Designees"); provided, however, that upon
--------------- -------- -------
mutual agreement by the Management Designees and the Positano
Designees, the Board may increase the size of the Board, but only
by adding a proportionate number of Management Designees and
Positano Designees;
(ii) in the event of MB's death, (A) so long as his estate owns
at least five percent of the Fully-Diluted Shares, such estate
shall be entitled to nominate his replacement as a Management
Designee; however (B) the Chief Executive Officer shall nominate
the replacement Management Designee for MB if his estate owns
less than five percent of the Fully-Diluted Shares or fails to
exercise the right provided under clause (A);
(iii) the Chairman shall be nominated by the Management
Designees.
(b) In the event that a vacancy is created at any time by the
death, disability, retirement, resignation or removal (with or without cause) of
any Positano Designee or Management Designee, Positano or, subject to Section
2.1(a), the Management Representatives, respectively, shall have the right to
designate a replacement Positano Designee or Management Designee, respectively,
to fill such vacancy. In the event that a vacancy is created at any time by the
death, disability, retirement, resignation or removal (with or without cause) of
any Joint Designee, the Positano Designees and the Management Designees shall
jointly designate a replacement Joint Designee to fill such vacancy.
Section 2.2 Continuing Committee Representation. The parties shall
-----------------------------------
take all necessary action as is required under applicable law to assure that
each Committee shall include at least one Positano Designee and at least one
Management Designee. At all times during the term hereof the Audit Committee and
the Compensation Committee shall consist of one Positano Designee, one
Management Designee and one Joint Designee.
-4-
<PAGE>
ARTICLE 3
---------
APPROVAL ITEMS
--------------
Section 3.1 Positano Approval Required for Certain Actions. In
----------------------------------------------
addition to approval by a majority of the Board of Directors of the Trustee, the
approval of Positano, as sole stockholder of the Trustee, shall be required to
approve any of the following actions by the Trustee affecting BSH, BSH Holding
or BSH LLC:
(a) the amendment of the Declaration of Trust or other
organizational documents of such entities, or the amendment,
termination or waiver of any provision under the Recapitalization
Agreement or the Shareholders Agreement;
(b) the declaration, setting aside, making or paying of any
dividend or other distribution in respect of its shares or equity
interests, or the purchase or redemption, directly or indirectly,
of such shares or equity interests (other than pursuant to the
Shareholders Agreement and the Stock Option Plan (and related
agreements));
(c) an Initial Public Offering or, other than with respect to
grant or exercise of the options pursuant to the Stock Option
Plan (and related agreements), the issuance, delivery or sale of
any shares or equity interests, or any options, warrants,
conversion or other rights to purchase any such shares or equity
interests, or any securities convertible into or exchangeable for
such shares or equity interests, or the issuance of any other
security in respect of or in lieu of or in substitution for
shares or equity interests, or the entry into any agreements
restricting the transfer of, or affecting the rights of holders
of shares or equity interests, the granting of any preemptive or
anti-dilutive rights to any holder of any class of securities, or
the granting of registration rights with respect to any class of
securities;
(d) except for amounts available for draw under the Senior Bank
Facility, the incurrence of any indebtedness for borrowed money,
the making of any guarantee of any such indebtedness, or the
issuance or sale of any debt securities, in each case in excess
of $5 million in the aggregate, or (other than pursuant to the
revolving credit facility under the Senior Bank Facility) the
prepayment or refinancing of any indebtedness for borrowed money;
(e) the engaging in any Interested Party Transaction;
(f) the approval of the annual business plan of BSH and its
subsidiaries, taken as a whole including, without limitation, the
adoption of any strategic international expansion plan;
-5-
<PAGE>
(g) except as contemplated by the annual business plan approved
pursuant to clause (f) hereof, the acquisition of any assets or
properties (in one or more related transactions) for cash or
otherwise for an amount in excess of $5 million in the aggregate
in one year;
(h) the replacement of the independent auditors or the making of
any material change in any method of financial accounting or
accounting practice, except for any such change required by
reason of a concurrent change in generally accepted accounting
principles;
(i) the sale or other disposition of assets material to BSH and
its subsidiaries, taken as a whole;
(j) the adoption of any material change in the overall
compensation structure of BSH and its subsidiaries;
(k) the consummation of (i) a complete liquidation or
dissolution of such entity, (ii) a merger or consolidation (A) in
which such entity or any of its subsidiaries is a constituent
corporation or (B) with respect to which the shares or other
entity interests would have the right to vote under applicable
state law or the applicable organizational documents, (iii) the
sale of all or substantially all of the assets, or (iv) any
similar business combination;
(l) the appointment or removal of the Chief Executive Officer;
and
(m) the entry into any agreement with respect to the foregoing.
ARTICLE 4
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Trustee Representations and Warranties. The Trustee
--------------------------------------
represents and warrants to MB and Positano as follows:
(a) Organization. The Trustee is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
(b) Authority. The Trustee has full corporate power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated on its part hereby. The execution, delivery and performance by the
Trustee of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the part of the
Trustee. No other action on the part of the Trustee is necessary to authorize
the execution and delivery of this Agreement by the Trustee or the performance
by the Trustee of its obligations hereunder. This Agreement has been duly
executed and delivered by the Trustee and constitutes a legal, valid and binding
agreement of the Trustee, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, moratorium, reorganization or
-6-
<PAGE>
similar laws affecting creditors' rights generally and subject to general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) No Violation. The execution and delivery of this Agreement by
------------
the Trustee, the performance by the Trustee of its obligations hereunder and the
consummation by the Trustee of the transactions contemplated hereby, will not
(i) violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to the Trustee, (ii)
require the consent, waiver, approval, license or authorization of or any filing
by the Trustee with any governmental authority (other than any filings required
under the 1934 Act) or (iii) violate, result (with or without notice or the
passage of time, or both) in a breach of or give rise to the right to
accelerate, terminate or cancel any obligation under or constitute (with or
without notice or the passage of time, or both) a default under, any of the
terms or provisions of any charter document or bylaw, agreement, note,
indenture, mortgage, contract, order, judgment, ordinance, regulation or decree
to which the Trustee is subject or by which the Trustee is bound and which would
have an adverse effect on the ability of the Trustee to perform its obligations
under this Agreement.
Section 4.2 Positano Representations and Warranties. Positano
---------------------------------------
represents and warrants to MB and the Trustee as follows:
(a) Organization. Positano is an exempt company duly organized,
------------
validly existing and in good standing under the laws of Bermuda.
(b) Authority. Positano has full power and authority to execute and
---------
deliver this Agreement and to consummate the transactions contemplated on its
part hereby. The execution, delivery and performance by Positano of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of Positano. No other action
on the part of Positano is necessary to authorize the execution and delivery of
this Agreement by Positano or the performance by Positano of its obligations
hereunder. This Agreement has been duly executed and delivered by Positano and
constitutes a legal, valid and binding agreement of Positano, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting creditors'
rights generally and subject to general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(c) No Violation. The execution and delivery of this Agreement by
------------
Positano, the performance by Positano of its obligations hereunder and the
consummation by Positano of the transactions contemplated hereby will not (i)
violate any provision of law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award applicable to Positano, (ii) require
the consent, waiver, approval, license or authorization of or any filing by
Positano with any governmental authority (other than any filings required under
the 1934 Act) or (iii) violate, result (with or without notice or the passage of
time, or both) in a breach of or give rise to the right to accelerate, terminate
or cancel any obligation under or constitute (with or without notice or the
passage of time, or both) a default under, any of the terms or provisions of any
charter document or bylaw, agreement, note, indenture, mortgage, contract,
order, judgment,
-7-
<PAGE>
ordinance, regulation or decree to which Positano is subject or by which
Positano is bound and which would have an adverse effect on the ability of
Positano to perform its obligations under this Agreement.
Section 4.3 MB Representations and Warranties. MB represents and
---------------------------------
warrants to Positano and the Trustee as follows:
(a) Authority. MB has full power and authority to execute and deliver
---------
this Agreement and to consummate the transactions contemplated on his part
hereby. This Agreement has been duly executed and delivered by MB and
constitutes a legal, valid and binding agreement of MB, enforceable against him
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting creditors' rights generally
and subject to general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) No Violation. The execution and delivery of this Agreement by MB,
------------
the performance by MB of his obligations hereunder and the consummation by MB of
the transactions contemplated hereby will not (i) violate any provision of law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to MB, (ii) require the consent, waiver, approval, license or
authorization of or any filing by MB with any governmental authority (other than
any filings required under the 1934 Act) or (iii) violate, result (with or
without notice or the passage of time, or both) in a breach of or give rise to
the right to accelerate, terminate or cancel any obligation under or constitute
(with or without notice or the passage of time, or both) a default under, any of
the terms or provisions of any agreement, note, indenture, mortgage, contract,
order, judgment, ordinance, regulation or decree to which MB is subject or by
which MB is bound and which would have an adverse effect on the ability of MB to
perform his obligations under this Agreement.
ARTICLE 5
---------
MISCELLANEOUS
-------------
Section 5.1 Termination. This Agreement shall terminate and be of no
-----------
further force or effect upon the consummation of an Initial Public Offering.
Section 5.2 Counterparts. This Agreement may be executed in one or
------------
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party. Copies of executed
counterparts transmitted by telecopy, telefax or other electronic transmission
service shall be considered original executed counterparts for purposes of this
Section, provided receipt of copies of such counterparts is confirmed.
Section 5.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
-8-
<PAGE>
STATE OF DELAWARE WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 5.4 Entire Agreement. This Agreement contains the entire
----------------
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
Section 5.5 Enforcement; Specific Performance. In the event that MB
---------------------------------
for any reason is no longer a party hereto, the Chief Executive Officer of the
Company shall be entitled to enforce the provisions hereof as if he were a party
hereto. The parties hereto each acknowledge that, in view of the uniqueness of
arrangements contemplated by this Agreement, the parties hereto would not have
an adequate remedy at law for money damages in the event that this Agreement
were not performed in accordance with its terms, and therefore agree that the
parties hereto shall be entitled to specific enforcement of the terms hereof in
addition to any other remedy to which the parties hereto may be entitled at law
or in equity.
Section 5.6 Notices. All notices, requests, demands or other
-------
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by telecopy and confirmed by return telecopy,
or when delivered by first-class mail, postage prepaid and return receipt
requested, in each case to the applicable addresses set forth below. Notices to
the Trustee shall be addressed to:
Vesuvio, Inc.
c/o H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Telecopy Number: (415) 788-0176
with a copy to:
The Management Designees
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner and David W. Kenny
Telecopy Number: (617) 867-7217
or at such other address and to the attention of such other person as the
Trustee may designate by written notice to Positano and MB. Notices to Positano
shall be addressed to:
-9-
<PAGE>
H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Telecopy Number: (415) 788-0176
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Telecopy Number: (212) 403-2000
or at such other address and to the attention of such other person as Positano
may designate by written notice to the Trustee and MB. Notices to MB shall be
addressed to:
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner and David W. Kenny
Telecopy Number: (617) 867-7217
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Telecopy Number: (617) 523-1231
or at such other address and to the attention of such other person as MB may
designate by written notice to Positano and the Trustee.
Section 5.7 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors; provided however that except as set forth in the next two sentences,
no party may assign its rights and obligations hereunder. Positano may assign
its rights and obligations hereunder to one or more majority-owned, direct or
indirect subsidiaries or other affiliates. In the event of MB's death, the
estate of MB shall have the rights set forth in Section 2.1(a)(ii)(A) hereof.
Section 5.8 Headings. The Section, Article and other headings
--------
contained in this Agreement are inserted for convenience of reference only and
will not affect the meaning or
-10-
<PAGE>
interpretation of this Agreement. All references to Sections or Articles
contained herein mean Sections or Articles of this Agreement unless otherwise
stated.
Section 5.9 Amendments and Waivers. This Agreement may not be
----------------------
modified or amended except by an instrument or instruments in writing signed by
the parties against whom enforcement of any such modification or amendment is
sought. Any party hereto may, only by an instrument in writing, waive compliance
by the other parties hereto with any term or provision hereof on the part of
such other parties hereto to be performed or complied with. The waiver by any
party hereto of a breach of any term or provision hereof shall not be construed
as a waiver of any subsequent breach.
Section 5.10 Interpretation; Absence of Presumption. (a) For the
--------------------------------------
purposes hereof, (i) words in the singular shall be held to include the plural
and vice versa and words of one gender shall be held to include the other gender
as the context requires, (ii) the terms "hereof," "herein," and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement,
and Article, Section and paragraph references are to the Articles, Sections and
paragraphs to this Agreement unless otherwise specified, (iii) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified, (iv) the word "or" shall not be exclusive, and (v)
provisions shall apply, when appropriate, to successive events and transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party
drafting or causing any instrument to be drafted.
Section 5.11 Severability. Any provision hereof which is invalid or
------------
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without affecting in any way the remaining provisions hereof.
Section 5.12 Further Assurances. The parties hereto agree that, from
------------------
time to time, each of them will, and will cause their respective Affiliates to,
execute and deliver such further instruments and take such other action as may
be necessary to carry out the purposes and intents hereof.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties hereto as of the day first above written.
VESUVIO, INC.
as Trustee of Bronner Slosberg Humphrey Co.
By: /s/ David W. Kenny
------------------------------------------
Name: David W. Kenny
Title: President and Chief Executive Officer
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the parties
hereto acknowledges and agrees that this Agreement
is not executed on behalf of the trustees or
officers of the Trust as individuals or, in the
event the trustee is a corporation or other
entity, on behalf of the individual owners of such
corporation or entity, and the obligations of this
Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
POSITANO PARTNERS LTD.
By: /s/ Patrick J. Healy
-------------------------------------------
Name: Patrick J. Healy
Title: Vice President
[SIGNATURE PAGE TO THE GOVERNANCE AGREEMENT]
<PAGE>
By: /s/ Michael E. Bronner
-----------------------------
Michael E. Bronner
By: /s/ David W. Kenny
-----------------------------
David W. Kenny
[SIGNATURE PAGE TO THE GOVERNANCE AGREEMENT]
<PAGE>
EXHIBIT 10.22
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of January 6, 1999 (this
"Agreement"), among BRONNER SLOSBERG HUMPHREY CO., a Massachusetts business
---------
trust having its principal office at Prudential Tower, 800 Boylston Street,
Boston, MA 02199 (the "Company"), POSITANO PARTNERS LTD., a Bermuda exempt
-------
company ("Positano"), Michael E. Bronner ("MB") and the persons listed on
-------- --
Schedule 1 hereto (such persons, together with Positano and MB, the "Holders")
- ---------- -------
(the Holders, together with the Company, the "Parties").
-------
WHEREAS, the Parties and certain other parties have entered into a
Recapitalization Agreement, dated as of November 28, 1998 (the "Recapitalization
----------------
Agreement"), providing for the recapitalization (the "Recapitalization") of the
- --------- ----------------
Company and its related entities;
WHEREAS, each Holder will hold Company Shares or options to acquire
Company Shares upon consummation of the Recapitalization; and
WHEREAS, the Recapitalization Agreement provides that the Parties
shall enter into this Agreement in connection with the closing of the
transactions contemplated by the Recapitalization Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
-----------
the meanings set forth below.
"Commission" means the Securities and Exchange Commission.
----------
"Company Shares" means the units of beneficial interest in the
--------------
Company.
"Demand Registration" has the meaning specified in Section 2.01(a).
-------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Initial Public Offering" means the sale of Company Shares by the
-----------------------
Company or one or more Holders in an underwritten public offering registered
under the Securities Act.
"Piggyback Registration" has the meaning specified in Section 2.02(a).
----------------------
"Registrable Securities" means (a) Company Shares now beneficially
----------------------
owned by any Holder or hereafter acquired upon the exercise of BSH Options (as
defined in the Recapitalization Agreement) and (b) any securities issued or
issuable directly or indirectly in
<PAGE>
respect of such Company Shares by way of conversion, exchange, share dividend,
share split or combination, recapitalization, merger, consolidation, other
reorganization or otherwise; provided, that any security referred to in clause
--------
(a) or (b) shall cease to be a Registrable Security when (a) a registration
statement covering such security has been declared effective by the Commission
and such security has been disposed of pursuant to such effective registration
statement, (b) such security is sold or may be sold pursuant to Rule 144
promulgated under the Securities Act (or another exemption from the registration
requirements of the Securities Act), or (c) such security shall have ceased to
be outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) (1) Positano shall have the
-------------------
right at any time and from time to time to make up to three requests that the
Company register, in an underwritten public offering or otherwise, under the
Securities Act, all or part of the Registrable Securities held by it; provided,
--------
that the registration resulting from the first such request by Positano, if made
prior to an Initial Public Offering, shall constitute an Initial Public
Offering, and (2) at any time following an Initial Public Offering, MB shall
have the right to make up to one request that the Company register, in an
underwritten public offering or otherwise, under the Securities Act, all or part
of his Registrable Securities; provided, that the expected market value of the
--------
Registrable Securities to be offered by MB is at least equal to $15 million (any
registration resulting from a request described in clause (1) or (2) a "Demand
------
Registration"). A request for a Demand Registration shall specify the number of
- ------------
shares of Registrable Securities proposed to be sold. A registration shall not
count as a Demand Registration until (a) the registration statement relating
thereto has been declared effective by the Commission and (b) the Holder making
the demand for registration is able to register and sell at least 75% of the
Registrable Securities requested to be included in such registration.
(b) In the event that Positano makes its first request for a Demand
Registration prior to an Initial Public Offering, the Company shall, promptly
after receipt of such request (but conditioned, to the extent practicable, on
consummation of the Initial Public Offering), cause the Company to be
reconstituted into a corporation organized under the laws of the State of
Delaware, or any other jurisdiction selected by Positano, and to convert the
Company Shares into shares of common stock of such corporation by merger or
otherwise pursuant to a transaction which will be tax-free to the holders of
Company Shares.
(c) Promptly (but in no event more than 10 days) after receipt of a
request for a Demand Registration, the Company shall provide notice of such
request to all Holders other than those who made the request under Section
2.01(a), and (1) each such Holder shall have the right, within 10 days after the
date of receipt of such notice from the Company, to request that the Company
include in the offering to which the Demand Registration relates all or a
portion of such Holder's Registrable Securities and (2) in the case of a request
by MB for a Demand
-2-
<PAGE>
Registration, Positano shall have the right, within 10 days after the date of
receipt of notice of such request from the Company, to request that the Company
defer such request by MB for a Demand Registration to a date up to 180 days
after the date of such request, and if so requested by Positano, the Company
shall not act on such request by MB prior to the date requested by Positano.
(d) The Company shall not include in any Demand Registration any
securities that are not Registrable Securities without the prior written consent
of the Holder making the demand for registration. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that, in their opinion, the number or class of Registrable Securities
and, if permitted hereunder, other securities requested to be included in such
offering, exceeds the number or class of Registrable Securities and other
securities, if any, which can be sold therein without adversely affecting the
marketability of the offering, (i) in the case of a Demand Registration pursuant
to the first request by Positano under Section 2.01(a), where such Demand
Registration is effected prior to an Initial Public Offering, the Company shall
include in such Demand Registration (A) first, the number of Registrable
Securities requested to be included in such Demand Registration by Positano, (B)
second, the number of equity securities to be registered for the account of the
Company, (C) third, the number of Registrable Securities requested to be
included in such Demand Registration by any other Holders pro rata, if
necessary, among such other Holders based on the number of Registrable
Securities owned by each such other Holder and (D) fourth, any other securities
of the Company requested to be included in such registration pro rata, if
necessary, on the basis of the number of such other securities owned by each
holder of such other securities and (ii) in the case of any other Demand
Registration, the Company shall include in such Demand Registration (A) first,
the number of Registrable Securities requested to be included in such
registration by any Holders pro rata, if necessary, among such Holders based on
the number of Registrable Securities owned by each such Holder and (B) second,
any other securities of the Company requested to be included in such
registration pro rata, if necessary, on the basis of the number of such other
securities owned by each holder of such other securities.
(e) Positano shall select the book-running and other managing
underwriters in connection with an offering pursuant to a Demand Registration
(other than an MB Demand Registration in which Positano is not offering a
greater number of Company Shares than MB) and any additional investment bankers
and managers to be used in connection with the offering, in each case which
shall be reasonably satisfactory to the Company.
SECTION 2.2. Piggyback Registration. (a) At any time that the
----------------------
Company proposes to register any of its common equity securities under the
Securities Act for sale solely for cash, for its own account or pursuant to a
Demand Registration, and the registration form to be used may be used for the
registration of Registrable Securities (each a "Piggyback Registration"), the
----------------------
Company shall give written notice of such proposed registration to the Holders
as soon as practicable (but in no event less than 20 days before the anticipated
filing date of the registration statement effecting such registration), and the
Company shall include in any such registration by it all Registrable Securities
with respect to which it has received written requests for inclusion therein
within 10 days after receipt by such Holders of such written notice
-3-
<PAGE>
from the Company. If any Piggyback Registration is an underwritten offering, the
Company and Positano shall select the book-running and other managing
underwriters in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering.
(b) If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, the Company shall include in such
registration all securities requested to be included in such registration;
provided, that if the managing underwriters advise the Company in writing that
- --------
in their opinion the number or class of such securities requested to be included
in such registration exceeds the number or class which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company shall include in such registration (1) first, the securities that the
Company proposes to sell, (2) second, to the extent Registrable Securities
requested for inclusion therein need to be reduced as a result of such advice,
the Registrable Securities requested to be included in such registration, pro
rata among the Holders of such Registrable Securities on the basis of the number
of Registrable Securities owned by each such Holder and (3) third, other
securities, if any, requested to be included in such registration, pro rata
among the holders of such securities on the basis of the number of such
securities owned by each such holder.
(c) If a Piggyback Registration is in connection with a Demand
Registration, the restrictions set forth in Section 2.01(d) shall apply. If a
Piggyback Registration is an underwritten secondary registration on behalf of
holders of securities of the Company (and is not a Demand Registration) and the
managing underwriters advise the Company in writing that in their opinion the
number or class of securities requested to be included in such registration
exceeds the number or class which can be sold in such offering without adversely
affecting the marketability of the offering, the Company shall include in such
registration (1) first, the Registrable Securities requested to be included in
such registration, pro rata among the Holders of such Registrable Securities on
the basis of the number of Registrable Securities owned by each such Holder and
(2) second, any other securities requested to be included in such registration
not covered by clause (1) above pro rata among the holders of such securities on
the basis of the number of such securities owned by each such holder.
(d) The Company shall not be obligated to include any Registrable
Securities in a registration statement (1) filed on Forms S-4 or S-8 or such
other similar successor forms then in effect under the Securities Act, (2)
pursuant to which the Company is offering to exchange its own securities or (3)
relating solely to dividend reinvestment plans.
(e) Any Piggyback Registration relating to a sale of securities by
the Company for its own account shall be managed by the Company; the Company
shall have the power to select the managing underwriter(s) for such offering,
and shall in consultation with the managing underwriter(s) have the power to
determine the offering price, the underwriting discounts and commissions, the
terms of the underwriting agreement, the timing of the registration and related
offering, counsel to the Company, and all other administrative matters related
to the registration and related offering. To the extent that Holders participate
in such a registration and related offering, such Holders shall enter into, and
sell their Registrable
-4-
<PAGE>
Securities only pursuant to, the underwriting arranged by the Company, and shall
either commit to attend the closing of the offering and take such other actions
as may be reasonably necessary to effect their participation in the offering and
to provide any assurances reasonably requested by the Company and the managing
underwriter(s) in that regard, or shall deliver to the Company in custody
certificates representing all Registrable Securities to be included in the
registration and shall execute and deliver to the Company a custody agreement
and a power of attorney, each in form and substance appropriate for the purpose
of effecting their participation in such registration.
ARTICLE III
REGISTRATION
SECTION 3.1. Registration Procedures. Subject to the limitations in
-----------------------
Article II, whenever the Holders have requested that any Registrable Securities
be registered pursuant to this Agreement, the Company shall use its reasonable
best efforts to effect the registration and sale of such Registrable Securities
in accordance with the intended method of disposition thereof, and pursuant
thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than six months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) if requested, prior to filing such registration statement or any
amendment or supplement thereto, furnish to the selling Holders and each
managing underwriter, if any, copies thereof, and thereafter furnish to the
selling Holders and each such underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein)
and the prospectus included in such registration statement (including each
preliminary prospectus) as such Holders or such underwriter may reasonably
request in order to facilitate the sale of the Registrable Securities;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, that the Company shall not be
--------
required to (1) qualify generally to do business in any jurisdiction where it
would not otherwise be required
-5-
<PAGE>
to qualify but for this subsection, (2) subject itself to taxation in any such
jurisdiction, or (3) consent to general service of process (i.e., service of
process which is not limited solely to securities law violations) in any such
jurisdiction;
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, promptly prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus shall not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) notify each seller of such Registrable Securities and, if
requested by any such seller of Registrable Securities, confirm such notice in
writing, (1) when the prospectus or any prospectus supplement or post-effective
amendment included in such registration statement has been filed, and, with
respect to any registration statement or any post-effective amendment thereto,
when the same has become effective, (2) of any request by the Commission for
amendments to such registration statement or amendments or supplements to the
prospectus or for additional information relating thereto, (3) of the issuance
by the Commission of any stop order suspending the effectiveness of the
registration statement under the Securities Act or of the suspension by any
state securities commission of the qualification of such Registrable Securities,
as applicable, for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes;
(g) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the Nasdaq National Market (or
such other national securities exchange as the Board of Directors of the Company
determines provides the best liquidity on which such Registrable Securities may
be listed), if so requested by the holders of a majority of the Registrable
Securities being sold, or if so requested by the managing underwriter of an
offering pursuant to such registration statement;
(h) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(i) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities;
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the managers,
officers, members, employees and independent accountants of the Company to
supply
-6-
<PAGE>
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(k) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the first full calendar quarter of the Company after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
(l) permit any Holder of Registrable Securities (which Holder, in the
Company's sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company) to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such Holder and its counsel should be included;
(m) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal
of such order;
(n) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of such Registrable
Securities;
(o) obtain a "cold comfort" letter from the independent public
accountants of the Company in customary form and covering such matters of the
type customarily covered by "cold comfort" letters as the holders of a majority
of the Registrable Securities being sold reasonably request;
(p) cooperate, and cause its management to cooperate, in the selling
effort of such offering, and, if the holders of a majority of the Registrable
Securities being sold in such offering reasonably request, coordinate and
conduct a "road show" in connection with such offering; and
(q) otherwise facilitate such registration and related offering.
The Company may require the Holders promptly to furnish in writing to
the Company such information regarding the Holders' plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.
SECTION 3.2. Registration Expenses. In connection with any Demand
---------------------
Registration or Piggyback Registration, each participating Holder shall be
responsible for any
-7-
<PAGE>
underwriting discounts or commission that may be payable in connection with the
sale of its respective securities. The Company shall pay all other expenses
incurred in connection with such registration, including, but not limited to,
(1) all filing fees with the Commission, (2) fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the securities), (3)
printing expenses, (4) the fees and expenses incurred in connection with the
listing of the securities, (5) fees and expenses of counsel and independent
certified public accountants for the Company (including the expenses of any
comfort letters pursuant to Section 3.01(o) hereof), (6) the reasonable fees and
expenses of any additional experts retained by the Company in connection with
such registration and (7) fees and expenses of one counsel to the selling
Holders to be selected by Positano, if Positano is a selling Holder.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Holder, its employees, officers and directors,
and each person, if any, who controls such Holder within the meaning of either
Section 15 of the Securities Act or section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Company by or on behalf of such Holder
expressly for use therein; provided, however, that this indemnity agreement with
-------- -------
respect to any preliminary prospectus shall not inure to the benefit of any
Holder if a copy of the current prospectus was not provided to a purchaser and
such current prospectus would have cured the defect giving rise to such loss,
claim, damage or liability or for any sales occurring after the Company has
informed such Holder under Section 3.01(e) and prior to the delivery by the
Company of any supplement or amendment to such prospectus. The Company also
agrees to indemnify any underwriters of Registrable Securities, their officers
and directors and each person who controls such underwriters on substantially
the same basis as that of the indemnification of the Holders provided in this
Section 4.01.
SECTION 4.2. Indemnification by the Holders. Each Holder agrees to
------------------------------
indemnify and hold harmless the Company, its officers and directors, and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to the Holders, but only with reference
to information furnished in writing by or on behalf of such Holder expressly for
use in any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus.
-8-
<PAGE>
Each Holder also agrees to indemnify and hold harmless underwriters of
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.02. Notwithstanding
anything to the contrary in this Agreement, the obligation of each Holder to
indemnify according to this Agreement shall be individual to each Holder and
shall be limited to the net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such registration statement.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any
--------------------------------------
proceeding (including any governmental investigation) shall be instituted
involving any Party in respect of which indemnity may be sought pursuant to
Section 4.01 or 4.02, such Party (the "Indemnified Party") shall promptly notify
-----------------
the Party against whom such indemnity may be sought (the "Indemnifying Party")
------------------
in writing and the Indemnifying Party, upon the request of the Indemnified
Party, shall retain counsel reasonably satisfactory to such Indemnified Party to
represent such Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any Indemnified
Party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party unless (1) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (2) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the Indemnifying Party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for all such Indemnified Parties, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Indemnified Parties, such firm shall be
designated in writing by the Indemnified Parties. The Indemnifying Party shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent, or if there be a final judgment for
the plaintiff, the Indemnifying Party shall indemnify and hold harmless such
Indemnified Parties from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment.
SECTION 4.4. Contribution. (a) To the extent any indemnification
------------
by an Indemnifying Party to an Indemnified Party is prohibited or limited by
law, the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such Indemnifying Party or Indemnified
Party, and such Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such
-9-
<PAGE>
action. The amount paid or payable by a Party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such Party in connection with any
investigation or proceeding.
(b) The Parties agree that it would not be just and equitable if
contribution pursuant to this Section 4.04 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Party guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Party
who was not guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No
-------------------------------------------
Holder may participate in any underwritten registered offering contemplated
hereunder unless such Holder (a) agrees to sell its securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms hereof and of such
underwriting arrangements.
SECTION 5.2. Rule 144. The Company covenants that from and after
--------
an Initial Public Offering it shall use its reasonable best efforts to file any
reports required to be filed by it under the Securities Act and the Exchange Act
and that it shall take such further action as the Holders may reasonably
request, all to the extent required from time to time to enable the Holders to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 under the Securities Act,
as such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
shall promptly deliver to the Holders a written statement as to whether it has
complied with such requirements.
SECTION 5.3. Holdback Agreements. (a) To the extent not
-------------------
inconsistent with applicable law, each Holder agrees not to effect any public
sale or distribution (including sales pursuant to Rule 144) of equity securities
of the Company or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the period of up to 180
days beginning on the effective date of any Demand Registration or Piggyback
Registration for a public offering to be underwritten on a firm commitment basis
in which Registrable Securities are included (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree.
(b) The Company agrees (1) not to effect any public sale or
distribution (including sales pursuant to Rule 144) of its equity securities, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the period of up to 180 days
beginning on the effective date of any Demand Registration or Piggyback
-10-
<PAGE>
Registration for a public offering to be underwritten on a firm commitment basis
in which Registrable Securities are included (except as part of such
underwritten registration or pursuant to registrations on Forms S-4 or S-8 or
any successor forms), unless the underwriters managing the registered public
offering otherwise agree, and (2) to use its reasonable best efforts to cause
each other holder of at least 5% (on a fully diluted basis) of equity securities
of the Company or any securities convertible into or exchangeable or exercisable
for such equity securities, purchased from the Company at any time after the
date hereof (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
SECTION 5.4. Successors and Assigns. This Agreement shall inure to
----------------------
the benefit of and be binding upon the successors, assigns and transferees of
Positano and the Company but no other Holder shall be permitted to assign any
rights or obligations hereunder. If any successor, assignee or transferee of
Positano shall acquire Registrable Securities in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held subject
to all of the terms of this Agreement, and by taking and holding such
Registrable Securities such person shall be conclusively deemed to have agreed
to be bound by and to perform all of the terms and provisions of this Agreement
and to receive the benefits hereof. For purposes of this Agreement, "successor"
for any entity other than a natural person shall mean a successor to such entity
as a result of such entity's merger, consolidation, liquidation, dissolution,
sale of substantially all of its assets, or similar transaction.
SECTION 5.5. Termination. (a) This Agreement shall be terminated
-----------
upon the earlier to occur of (1) the sale of all Registrable Securities by the
Holders and (2) the mutual consent of the Parties; provided, however, that
-------- -------
Article IV shall survive such termination.
(b) This Agreement shall terminate as to a given Holder other than
Positano and MB at such time following an Initial Public Offering as such Holder
beneficially owns, in the aggregate, fewer than 1% of the Company Shares then
outstanding.
SECTION 5.6. Notices. All notices, requests, demands or other
-------
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered by hand, by messenger, or by a nationally recognized overnight
delivery company, when delivered by telecopy and confirmed by return telecopy,
or when delivered by first-class mail, postage prepaid and return receipt
requested, in each case to the applicable addresses set forth below:
-11-
<PAGE>
(a) if to the Company to:
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner and David W. Kenny
Facsimile: (617) 867-7217
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
(b) if to Positano:
H&F Investors III, Inc.
One Maritime Plaza
12/th/ Floor
San Francisco, California 94111
Attention: Philip Hammarskjold
Facsimile: (415) 788-0176
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Patricia A. Vlahakis, Esq.
Facsimile: (212) 403-2000
(c) if to MB to:
c/o Bronner Slosberg Humphrey Co.
Prudential Tower
800 Boylston Street
Boston, Massachusetts 02199
Attention: Michael E. Bronner
Facsimile: (617) 867-7217
with a copy to:
-12-
<PAGE>
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Stuart M. Cable, P.C.
Facsimile: (617) 523-1231
(d) if to a Holder other than Positano or MB, to the address listed
after such Holder's name on Schedule 1 hereto, with copies to
such person as such Holder may by notice to all parties designate
in writing.
SECTION 5.7. Amendments. Unless otherwise expressly provided
----------
herein, this Agreement may not be amended or modified except by an instrument in
writing signed by, or on behalf of, each of the Parties.
SECTION 5.8. Severability. In the event that any one or more of the
------------
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
SECTION 5.9. Specific Performance. The Parties acknowledge that
--------------------
there would be no adequate remedy at law if any Party fails to perform in any
material respect any of its obligations hereunder, and accordingly agree that
each Party, in addition to any other remedy to which it may be entitled at law
or in equity, shall be entitled to compel specific performance of the
obligations of any other Party under this Agreement in accordance with the terms
and conditions of this Agreement in any court of the United States or any State
thereof having jurisdiction.
SECTION 5.10. Governing Law. This Agreement shall be construed and
-------------
enforced in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed wholly within such state.
SECTION 5.11. Descriptive Headings, Etc. The headings in this
-------------------------
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires: (1) words of any gender shall be deemed to include
each other gender; (2) words using the singular or plural number shall also
include the plural or singular number, respectively; (3) the words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Article, Section and paragraph references are to the
Articles, Sections and paragraphs to this Agreement unless otherwise specified;
(4) the word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless otherwise specified; (5) "or"
is not exclusive; and (6) provisions apply to successive events and
transactions.
-13-
<PAGE>
SECTION 5.12. Counterparts. This Agreement may be executed and
------------
delivered in one or more counterparts, each of which, when so executed and
delivered, shall be deemed to be an original, but all of which counterparts,
taken together, shall constitute one and the same instrument.
SECTION 5.13. Entire Agreement. This Agreement is intended by the
----------------
Parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the Parties hereto
in respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the Company, on the one hand, and
the other Parties to this Agreement, on the other, with respect to such subject
matter.
-14-
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as
of the date first written above.
BRONNER SLOSBERG HUMPHREY CO.
By: /s/ David W. Kenny
---------------------------------------
Name: David W. Kenny
Title: Chief Executive Officer and
President
Bronner Slosberg Humphrey Co. (the "Trust") is a
Massachusetts business trust. A copy of the
Trust's Declaration of Trust, as the same may be
amended and/or restated from time to time, is on
file with the Secretary of State of The
Commonwealth of Massachusetts. Each of the
parties hereto acknowledges and agrees that this
Agreement is not executed on behalf of the
trustees or officers of the Trust as individuals
or, in the event the trustee is a corporation or
other entity, on behalf of the individual owners
of such corporation or entity, and the obligations
of this Agreement are not binding upon any of the
trustees, officers or shareholders of the Trust,
or any of their respective trustees, officers,
directors, partners, members or shareholders,
individually, but are binding only upon the assets
and property of the Trust. Each of the parties
hereto agrees that no shareholder, trustee or
officer of the Trust, or any of their respective
trustees, officers, directors, partners, members
and shareholders, may be held personally liable or
responsible for any obligations of the Trust
arising out of this Agreement. With respect to
obligations of the Trust arising out of this
Agreement, each of the parties hereto shall look
for payment or satisfaction of any claim solely to
the assets and property of the Trust.
POSITANO PARTNERS LTD.
By: /s/ Patrick J. Healy
---------------------------------------
Name: Patrick J. Healy
Title: Vice President
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
By: /s/ Michael E. Bronner
----------------------------
Michael E. Bronner
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
By: /s/ Michael Bronner
------------------------------------
Michael Bronner as Trustee under the
Michael E. Bronner Annuity Trust,
dated as of July 16, 1998
By: /s/ Lisa Bronner
------------------------------------
Lisa Bronner as Trustee under the
Michael E. Bronner Annuity Trust,
dated as of July 16, 1998
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
By: /s/ Jean Alexander
-------------------------------
Jean Alexander
By: /s/ Alan Beck
-------------------------------
Alan Beck
By: /s/ Meryl Beckingham
-------------------------------
Meryl Beckingham
By: /s/ Seraj Bharwani
-------------------------------
Seraj Bharwani
By: /s/ Kathleen Biro
-------------------------------
Kathleen Biro
By: /s/ Robert Cosinuke
-------------------------------
Robert Cosinuke
By: /s/ Charles DeSnyder
-------------------------------
Charles DeSnyder
By: /s/ Michael Dresner
-------------------------------
Michael Dresner
By: /s/ Katharin Dyer
-------------------------------
Katharin Dyer
By: /s/ Gretchen Gayton
-------------------------------
Gretchen Gayton
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
By: /s/ Peggy J. Heeg
--------------------------------
Peggy J. Heeg
By: /s/ Reuben Hendell
--------------------------------
Reuben Hendell
By: /s/ John Hoholik
--------------------------------
John Hoholik
By: /s/ Robert Hurley
--------------------------------
Robert Hurley
By: /s/ Greg D. Johnson
--------------------------------
Greg D. Johnson
By: /s/ Greg R. Johnson
--------------------------------
Greg R. Johnson
By: /s/ Betsy Karp
--------------------------------
Betsy Karp
By: /s/ David Kenny
--------------------------------
David Kenny
By: /s/ Arthur Kern
--------------------------------
The Arthur Kern Revocable Trust
Arthur Kern, Trustee
By: /s/ Harvey Kipnis
--------------------------------
Harvey Kipnis
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
By: /s/ Robert Maher
------------------------------
Robert Maher
By: /s/ Stephen Olderman
------------------------------
Stephen Olderman
By: /s/ Jonathan Phillips
------------------------------
Jonathan Phillips
By: /s/ Ruben Pinchanski
------------------------------
Ruben Pinchanski
By: /s/ Clare S. Robinson
------------------------------
Clare S. Robinson
By: /s/ Myron Slosberg
------------------------------
Myron Slosberg
By: /s/ Malcolm Speed
------------------------------
Malcolm Speed
By: /s/ Michael Ward
------------------------------
Michael Ward
By: /s/ Robert Willms
------------------------------
Robert Willms
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENT]
<PAGE>
Schedule 1
The Michael E. Bronner 1998 Annuity
Trust, dated as of July 16, 1998
40 Sargent Crossway
Brookline, MA 02445
Jean Alexander
160 Commonwealth Avenue, #701
Boston, MA 02116
Alan Beck
American Media Management, Inc.
3 Waterview Drive
Port Jefferson, NY 11777
Meryl Beckingham
192 Commonwealth Avenue, Apt. 5
Boston, MA 02116
Seraj Bharwani
60 Pleasant Street, #203
Arlington, MA 02174
Kathleen Biro
296 Commonwealth Avenue
Boston, MA 02115-2423
Robert Cosinuke
59 Locke Street
Watertown, MA 02172
Charles DeSnyder
182 Hill Street
Holliston, MA 01746
Michael Dresner
505 West End Avenue, Apt. 9C
New York, NY 10024
Katherin S. Dyer
Gretchen Gayton
5 Madison Road
Marblehead, MA 01945
<PAGE>
Peggy J. Heeg
P.O. Box 4127
Portsmouth, NH 03802-4127
Reuben Hendell
14 Salem Drive
Scarsdale, NY 10583-5202
John Hoholik
20 Wood Island Road
Scituate, MA 02066
Robert Hurley
25 Lockwood Road
West Newton, MA 02165
Greg D. Johnson
7 Fieldstone Lane
South Natick, MA 01760
Greg R. Johnson
118 South Street, Unit 2B
Boston, MA 02111
Betsy Karp
770 Boylston Street, Apt. 26I
Boston, MA 02199
David W. Kenny
77 Monadnock
Wellesley, MA 02481-1335
Arthur Kern
1940 Webster Street
San Francisco, CA 94115
Harvey Kipnis
1 Main Street
South Salem, NY 10590
Robert Maher
275 Old Billerica Road
Bedford, MA
Stephen Olderman
45 Gramercy Park N #14B
New York, NY
<PAGE>
Jonathan Phillips
851 Parrott Drive
San Mateo, CA 94402
Ruben Pinchanski
475 Arsenal Street, Unit G
Watertown, MA 02172
Clare S. Robinson
78 Leighton Road
Wellesley Hills, MA 02181
Myron Slosberg
15 West 67/th/ Street, Apt. 5ME
New York, NY 10023
Malcolm Speed
134 Border Street
Cohasset, MA 02025
Michael Ward
38 Garden Street
Wellesley, MA 02181
Robert Willms
247 Temple Street
Newton, MA 02165
<PAGE>
Exhibit 10.23
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of the 6/th/ day of January, 1999, by and between
Bronner Slosberg Humphrey, LLC, a Delaware limited liability company, (the
"Company") and Kathleen Biro (the "Executive").
WHEREAS, Bronner Slosberg Humphrey Co., a Massachusetts business trust
("BSH") of which the Company is a subsidiary, has entered into a
Recapitalization Agreement dated as of November 28, 1998, with Positano Partners
Ltd., Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III,
L.P., H&F International Partners III, L.P., Strategic Interactive Group Co., and
certain individuals listed on Annex A thereto (the "Recapitalization
Agreement"), pursuant to which BSH is being recapitalized (the "Transaction,"
and references herein to the "Company" refer to the Company both before and
after the Transaction, and terms which are capitalized but not defined herein
shall have the meaning set forth in the Recapitalization Agreement); and
WHEREAS, in connection with the Transaction, the Executive will become a
party to the Shareholders Agreement, as defined in the Recapitalization
Agreement (the "Shareholders Agreement); and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and conditions under which the Executive will continue to
render services to the Company after the consummation of the Transaction;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. Effectiveness of Agreement.
--------------------------
(a) Effective Date. This Agreement shall become effective upon the
--------------
Closing, as defined in the Recapitalization Agreement, if, but only if, the
Transaction is consummated.
(b) Employment Period. The Company shall employ the Executive, and
-----------------
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period (the "Employment Period") beginning on the
Closing Date and ending on the second anniversary of the Closing Date; provided,
--------
however, that on the first anniversary of the Closing Date, and on each
- -------
subsequent anniversary of such date (each such anniversary thereof being
hereinafter referred to as a "Renewal Date"), the Employment Period shall be
automatically extended by one year, unless at least 60 days before the Renewal
Date either party hereto shall give notice to the other that the Employment
Period shall not be so extended.
<PAGE>
2. Position and Duties.
-------------------
(a) Position. During the Employment Period, the Executive shall serve
--------
as Chief Executive Officer and President of the Strategic Interactive Group,
with the duties and responsibilities customarily assigned to such position and
such other duties and responsibilities as the Board of Directors (the "Board")
of Vesuvio, Inc. (which is the trustee of BSH) or the Chief Executive Officer of
the Company shall from time to time assign to the Executive.
(b) Duties. During the Employment Period, and excluding any periods
------
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote her full business attention and time to the business and affairs of
the Company and shall use her reasonable best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not materially interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
3. Compensation.
------------
(a) Base Salary. As compensation for the Executive's services
-----------
hereunder during the Employment Period, the Company shall pay to the Executive
an annual salary (the "Base Salary") of not less than $400,000 during the
Employment Period, payable at such times and intervals as the Company pays the
base salaries of its other executive employees. During the Employment Period,
the Base Salary shall be reviewed annually for possible increase. The Base
Salary shall not be reduced after any such increase, and the term "Base Salary"
shall thereafter refer to the Base Salary as so increased.
(b) Annual Bonus. In addition to the Base Salary, the Executive shall
------------
be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period, in an amount recommended by the Chief Executive
Officer, subject to approval by the Compensation Committee of the Board.
(c) Deferred Compensation. In addition to the other compensation to
---------------------
be paid to the Executive hereunder, the Executive shall be entitled to receive
deferred compensation in the amount of $872,333.00 (the "Deferred
Compensation"), subject to the following terms: (a) $15,000 will be paid to the
Executive on or before March 15, 1999, (b) $643,000.00 will be paid to the
Executive on or before May 15, 1999, and (c) $214,333.00 will be paid to the
Executive on or before May 30, 2000; provided, however, that the Company shall
not make such payments if and to the extent they would otherwise be due after
the termination of the Executive's employment with the Company, voluntarily by
the Executive (other than for Good Reason) or by the Company for Cause.
2
<PAGE>
(d) Benefits. During the Employment Period, the Executive shall be
--------
entitled to receive employee benefits (including without limitation medical,
life insurance and other welfare benefits and benefits under retirement and
savings plans), Company-provided parking, and paid vacation, in each case to the
same extent as, and on the same terms and conditions as, other similarly
situated senior executives of the Company from time to time.
(e) Expenses. The Executive shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Executive during the
Term in carrying out her duties under this Agreement, provided that the
Executive complies with the policies, practices and procedures of the Company
for submission of expense reports, receipts, or similar documentation of such
expenses.
4. Employment Termination.
----------------------
(a) By the Company. The Executive's employment may be terminated by
--------------
the Company under any of the following circumstances: (i) upon the "Disability"
of the Executive, defined as the inability of the Executive to perform her
duties hereunder on a full-time basis by reason of physical or mental
incapacity, sickness or infirmity that continues for more than 180 days or for
periods aggregating more than 180 days during any period of 365 consecutive
days; (ii) for "Cause," as defined below; and (iii) for any other reason (a
termination without "Cause"). "Cause" means and shall be limited to: (A)
willful misappropriation of the funds or property of the Company or any of its
Affiliated Companies (as defined below); (B) use of alcohol or illegal drugs
interfering with the performance of an employee's obligations, continuing after
written warning of such actions; (C) admission, confession, indictment or plea
bargain to, or conviction of, a felony, or of any crime involving moral
turpitude, dishonesty, theft, unethical or unlawful conduct; (D) commission of
any willful or intentional act which could reasonably be expected to injure the
reputation, business or business relationships of the Company or any of its
Affiliated Companies or which may tend to bring the employee or the Company or
any of its Affiliated Companies into disrepute, or the willful commission of any
act which is a breach of an employee's fiduciary duties to the Company or any of
its Affiliated Companies; and (E) commission of any act which constitutes a
material breach of the policies of the Company, including but not limited to the
disclosure of any confidential information or trade secrets pertaining to the
Company or any of its Affiliated Companies, or any of their respective clients.
For purposes of this paragraph, any act or failure to act of the employee shall
not be considered "willful" unless done or omitted to be done by the employee
not in good faith and without reasonable belief that the employee's action or
omission was in the best interest of the Company or any of its Affiliated
Companies. Any determination of Cause shall be made by the Board in its sole
discretion. The Company shall give the Executive notice of termination
specifying which of the foregoing provisions is applicable and (in the case of
clause (A) or (B)) the factual basis therefor, and the termination shall be
effective upon the 30th business day after such notice is given (such day, the
"Date of Termination"). For purposes of this Agreement, the term "Affiliated
Companies" shall mean the Company, Positano Partners Ltd. and any of their
respective affiliates and their respective businesses.
3
<PAGE>
(b) By the Executive. The Executive's employment may be terminated by
----------------
the Executive for "Good Reason," defined as a termination within 30 days after
and as a result of (i) the assignment to the Executive of duties inconsistent in
any material respect with Section 2 of this Agreement, other than actions that
are not taken in bad faith and are remedied by the Company within ten business
days after receipt of notice thereof from the Executive; (ii) any material
failure by the Company to comply with any provision of Section 3 of this
Agreement, other than failures that are not taken in bad faith and are remedied
by the Company within ten business days after receipt of notice thereof from the
Executive; or (iii) a change, without the Executive's consent, in the
Executive's principal place of employment with the Company to a location outside
the greater metropolitan area in which such principal place of employment was
located as of the Closing. The Executive shall give the Company notice of
termination specifying which of the foregoing provisions is applicable and the
factual basis therefor, and the termination shall be effective upon the 30th
business day after such notice is given unless the Company agrees to an earlier
day (such day, the "Date of Termination").
(c) Severance Benefits. If, during the Employment Period, the
------------------
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any further
compensation provided for under this Agreement except as provided in the
following sentence. The Company shall (i) continue to pay the Executive the
Base Salary, at the rate in effect immediately before the Date of Termination
(but, in the case of a termination by the Executive for Good Reason,
disregarding any reduction thereof that was the basis for such termination), for
twelve months after the Date of Termination, (ii) continue to provide the
Executive with group health benefits on the terms and conditions applicable to
active employees of the Company ("Group Health Benefits") for twelve months
after the Date of Termination; provided, that during any period when the
--------
Executive is eligible to receive any such benefits under another employer-
provided plan or a government plan, the Group Health Benefits or substitute
benefits provided by the Company under this clause (ii) may be made secondary to
those provided under such other plan; (iii) pay the Executive, in accordance
with Section 3(c), any Deferred Compensation that has not yet been paid; and
(iv) pay the Executive any other amounts that have been earned but not yet paid
under Section 3 hereof.
(d) Other Employment Terminations. If, during the Employment Period,
-----------------------------
the Executive's employment is terminated by reason of the Executive's death or
for any other reason, other than by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any
compensation provided for under this Agreement, other than (i) Base Salary
through the 90th day following the Date of Termination in the case of the
Executive's death, and through the Date of Termination in all other cases, (ii)
any unpaid Annual Bonus for a fiscal year that ended before the Date of
Termination, (iii) benefits under any long-term disability insurance coverage in
the case of termination because of Disability, (iv) any Deferred Compensation
that has not yet been paid, in accordance with Section 3(c), in the case of
termination because of death or disability, and (v) vested benefits, if any,
required to be paid or provided by law.
4
<PAGE>
5. Non-Competition; Non-Solicitation; Confidentiality and Termination
------------------------------------------------------------------
Notices.
- -------
(a) The Executive hereby covenants and agrees that:
(i) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for any competitor of the Company or any of its
Affiliated Companies on the account of any client of the Company or
any of its Affiliated Companies with whom the Executive had a direct
relationship or as to which the Executive had a significant
supervisory responsibility or otherwise was significantly involved at
any time during the two years prior to such termination;
(ii) for six (6) months after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for a principal competitor of the Company or any of its
Affiliated Companies in a substantially similar corporate function as
the Executive held with the Company or any of its Affiliated Companies
during the two-year period prior to termination of employment;
(iii) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not directly or indirectly solicit or hire, or assist any other
person in soliciting or hiring, any employee of the Company or any of
its Affiliated Companies (as of the date of termination) or any person
who, as of the date of termination, was in the process of being
recruited by the Company or any of its Affiliated Companies or induce
any such employee to terminate his or her employment with the Company
or any of its Affiliated Companies; and
(iv) the Executive shall retain in strictest confidence all
confidential information of the Company and its Affiliated Companies
and their respective clients learned by the Executive during the
period of her employment by the Company and its Affiliated Companies,
and shall not disclose any of such information to anyone outside the
Company and its Affiliated Companies, except in the course of her
duties for the Company and its Affiliated Companies or with the
Company's express written consent.
(b) The covenants contained in Section 5(a) are for the benefit of the
Company and its Affiliated Companies and shall survive any termination of this
Agreement.
(c) The Executive acknowledges and agrees that: (i) the purpose of the
foregoing covenants is to protect the goodwill, trade secrets and other
confidential information of the Company; (ii) because of the nature of the
business in which the Company and its Affiliated Companies are engaged and
because of the nature of the confidential information to which the Executive has
access, it would be impractical and excessively difficult to determine
5
<PAGE>
the actual damages of the Company in the event the Executive breached any of the
covenants of this Section 5; and (iii) remedies at law (such as monetary
damages) for any breach of the Executive's obligations under this Section 5
might be inadequate. The Executive therefore agrees and consents that if she
commits any breach of a covenant under this Section 5 or threatens to commit any
such breach, the Company shall have the right (in addition to, and not in lieu
of, any other right or remedy that may be available to it) to temporary and
permanent injunctive relief from a court of competent jurisdiction, without
posting any bond or other security and without the necessity of proof of actual
damage. In addition, and without limiting the remedies available to the Company
in the event of a breach by the Executive of any of the provisions of this
Section 5, to the extent permitted by applicable law and notwithstanding any
other provisions of this Agreement or of the Shareholders Agreement (as defined
in the Recapitalization Agreement), if the Executive violates any provision of
this Section 5, (i) the Executive shall cease to be entitled to receive any
payment or benefit pursuant to Section 4 of this Agreement, and (ii) the Company
may offset against any payment to be made by it in respect of any Shares (as
defined in the Shareholders Agreement) purchased by it pursuant to the
Shareholders Agreement (including purchase price, installment payments and
interest payments) any damages (including consequential damages), expenses,
fees, losses or costs of any kind or nature whatsoever incurred by the Company
or and of its Affiliated Companies arising out of such violation.
(d) With respect to any provision of this Section 5 finally determined
by a court of competent jurisdiction to be unenforceable, the Executive and the
Company hereby agree that such court shall have jurisdiction to reform this
Agreement or any provision hereof so that it is enforceable to the maximum
extent permitted by law, and the parties agree to abide by such court's
determination. If any of the covenants of this Section 5 are determined to be
wholly or partially unenforceable in any jurisdiction, such determination shall
not be a bar to or in any way diminish the Company's right to enforce any such
covenant in any other jurisdiction.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
for which the Executive may qualify, nor, subject to Section 9 below, shall
anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its Affiliated Companies. Vested benefits and other amounts that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of,
or any contract or agreement with, the Company or any of its Affiliated
Companies on or after the Date of Termination shall be payable in accordance
with such plan, policy, practice, program, contract or agreement, as the case
may be, except as explicitly modified by this Agreement, and except that the
Executive shall not be entitled to receive severance pay or benefits under any
severance plan, program or policy of the Company or any of its Affiliated
Companies if and to the extent they would duplicate the compensation and
benefits provided under Section 4 of this Agreement.
6
<PAGE>
7. No Mitigation. In no event shall the Executive be obligated to seek
-------------
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in clause (ii) of Section 4(c) above, such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
8. Notices.
-------
(a) Each notice, demand, request, consent, report, approval or
communication (hereinafter "Notice") which is or may be required to be given by
any party to any other party in connection with this Agreement and the
transactions contemplated hereby, shall be in writing, and given by facsimile,
personal delivery, receipted delivery services, or by certified mail, return
receipt requested, prepaid and properly addressed to the party to be served as
shown in Section 8(b) below.
(b) Notices shall be effective on the date sent via facsimile, the
date delivered personally or by receipted delivery service, or three (3) days
after the date mailed:
If to the Company: Bronner Slosberg Humphrey LLC
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attn: David Kenny
Facsimile: (617) 867-1111
If to the Executive: At her residence address
Kathleen Biro: most recently filed with the Company.
In each case, with a copy to HFCP Investor
If to HFCP Investor: 1 Maritime Plaza
12th Floor
San Francisco, CA 94111
Attn: Philip Hammarskjold
Facsimile: (415) 788-0176
(c) Each party may designate by Notice to the other in writing, given
in the foregoing manner, a new address to which any Notice may thereafter be so
given, served or sent.
7
<PAGE>
9. Entire Agreement; Effect if No Transaction. As of the Effective Time,
------------------------------------------
this Agreement shall constitute the entire agreement of the parties with respect
to the subject matter hereof and, except for the Shareholders Agreement, the
Stock Option Plan and the Option Agreement, shall supersede all prior
agreements, whether oral or written with the Company or any of its Affiliated
Companies and their respective predecessor entities with respect to employment,
ownership of Equity-Related Interests, or otherwise, including without
limitation, the documents set forth on Schedule A hereto. Notwithstanding
----------
anything to the contrary contained herein, this Agreement shall not supersede
the agreements and plans set forth on Schedule B hereto, which agrements and
----------
plans shall remain in full force and effect except as provided in Schedule B.
----------
Notwithstanding any other provision of this Agreement, this Agreement shall
be null and void and of no force or effect if the Transaction is not
consummated.
10. Successors.
----------
(a) This Agreement is personal to the Executive and, without the prior
written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain
8
<PAGE>
valid and enforceable and continue in full force and effect to the fullest
extent consistent with law.
(c) Notwithstanding any other provision of this Agreement, the Company
may withhold from amounts payable under this Agreement all federal, state, local
and foreign taxes that are required to be withheld by applicable laws or
regulations.
(d) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(e) The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
9
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set her hand and, pursuant
to the authorization of its Board of Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ Kathleen Biro
------------------------------------
Kathleen Biro
BRONNER SLOSBERG HUMPHREY, LLC
By /s/ David Kenny
----------------------------------
Name: David Kenny
Title: President
<PAGE>
Schedule A
Kathleen Biro
(Employment and Release Agreements)
Amended and Restated Employment Agreement by and between
Strategic Interactive Group, Inc. (predecessor in interest to
Strategic Interactive Group, LLC) and Kathleen Biro, dated June
18, 1997, effective as of January 1, 1997, as amended by
amendment dated December 1, 1997.
Deferred Compensation Agreement by and between Strategic
Interactive Group, Inc. (predecessor in interest to Strategic
Interactive Group, LLC) and Kathleen Biro, dated June 18, 1997.
Employment Agreement, by and between Strategic Interactive
Group, Inc. (predecessor in interest to Strategic Interactive
Group, LLC) and Kathleen Biro, dated March 31, 1995.
Employee Incentive Stock Option Agreement by and between
Strategic Interactive Group, Inc. (predecessor in interest to
Strategic Interactive Group Co.) and Kathleen Biro, dated March
31, 1995.
Memorandum of Understanding between Bronner Slosberg Humphrey
Inc. (predecessor in interest to Bronner Slosberg Humphrey,
LLC) and Kathleen Biro, Ruben Pinchanski, and Robert Cosinuke,
dated February 23, 1995.
<PAGE>
Schedule B
Kathleen Biro
(Employment and Release Agreements)
Non-Qualified Stock Option Agreement by and between Strategic
Interactive Group, Inc. (predecessor in interest to Strategic
Interactive Group Co.) and Kathleen Biro, dated June 18, 1997.
The Strategic Interactive Group, Inc. (predecessor in interest
to Strategic Interactive Group Co.) 1995 Equity Incentive Plan.
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of the 6/th/ day of January, 1999, by and
between Bronner Slosberg Humphrey, LLC, a Delaware limited liability company,
(the "Company") and David W. Kenny (the "Executive").
WHEREAS, Bronner Slosberg Humphrey Co., a Massachusetts business trust
("BSH") of which the Company is a subsidiary, has entered into a
Recapitalization Agreement dated as of November 28, 1998, with Positano Partners
Ltd., Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III,
L.P., H&F International Partners III, L.P., Strategic Interactive Group Co., and
certain individuals listed on Annex A thereto (the "Recapitalization
Agreement"), pursuant to which BSH is being recapitalized (the "Transaction,"
and references herein to the "Company" refer to the Company both before and
after the Transaction, and terms which are capitalized but not defined herein
shall have the meaning set forth in the Recapitalization Agreement); and
WHEREAS, in connection with the Transaction, the Executive will become
a party to the Shareholders Agreement, as defined in the Recapitalization
Agreement (the "Shareholders Agreement"); and
WHEREAS, the Company and the Executive desire to set forth in a
written agreement the terms and conditions under which the Executive will
continue to render services to the Company after the consummation of the
Transaction;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. Effectiveness of Agreement.
--------------------------
(a) Effective Date. This Agreement shall become effective upon
--------------
the Closing, as defined in the Recapitalization Agreement, if, but only if, the
Transaction is consummated.
(b) Employment Period. The Company shall employ the Executive,
-----------------
and the Executive shall serve the Company, on the terms and conditions set forth
in this Agreement, for the period (the "Employment Period") beginning on the
Closing Date and ending on the second anniversary of the Closing Date; provided,
--------
however, that on the first anniversary of the Closing Date, and on each
- -------
subsequent anniversary of such date (each such anniversary thereof being
hereinafter referred to as a "Renewal Date"), the Employment Period shall be
automatically extended by one year, unless at least 60 days before the Renewal
Date either party hereto shall give notice to the other that the Employment
Period shall not be so extended.
<PAGE>
2. Position and Duties.
-------------------
(a) Position. During the Employment Period, the Executive shall
--------
serve as the Chief Executive Officer of the Company, with the duties and
responsibilities customarily assigned to such position.
(b) Duties. During the Employment Period, and excluding any
------
periods of vacation and sick leave to which the Executive is entitled, the
Executive shall devote his full business attention and time to the business and
affairs of the Company and shall use his reasonable best efforts to carry out
such responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not materially interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
3. Compensation.
------------
(a) Base Salary. As compensation for the Executive's services
-----------
hereunder during the Employment Period, the Company shall pay to the Executive
an annual salary (the "Base Salary") of not less than $500,000 during the
Employment Period, payable at such times and intervals as the Company pays the
base salaries of its other executive employees. During the Employment Period,
the Base Salary shall be reviewed annually for possible increase. The Base
Salary shall not be reduced after any such increase, and the term "Base Salary"
shall thereafter refer to the Base Salary as so increased.
(b) Annual Bonus. In addition to the Base Salary, the Executive
------------
shall be eligible for an annual bonus (the "Annual Bonus") for each fiscal year
ending during the Employment Period in an amount determined by the Compensation
Committee of the Board of Directors (the "Board") of Vesuvio, Inc. (which is the
trustee of BSH); provided, that, Executive's target bonus for the fiscal year
--------
ending in 1999 (the "1999 Bonus") shall be $450,000 and, provided further, that
-------- -------
Executive's 1999 Bonus shall not be less than $300,000 and shall not exceed
$600,000.
(c) Benefits. During the Employment Period, the Executive shall
--------
be entitled to receive employee benefits (including without limitation medical,
life insurance and other welfare benefits and benefits under retirement and
savings plans), Company-provided parking, and paid vacation, in each case to the
same extent as, and on the same terms and conditions as, other similarly
situated senior executives of the Company from time to time.
(d) Expenses. The Executive shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Executive during the
Term in carrying out his duties under this Agreement, provided that the
Executive complies with the
2
<PAGE>
policies, practices and procedures of the Company for submission of expense
reports, receipts, or similar documentation of such expenses.
4. Employment Termination.
----------------------
(a) By the Company. The Executive's employment may be terminated
--------------
by the Company under any of the following circumstances: (i) upon the
"Disability" of the Executive, defined as the inability of the Executive to
perform his duties hereunder on a full-time basis by reason of physical or
mental incapacity, sickness or infirmity that continues for more than 180 days
or for periods aggregating more than 180 days during any period of 365
consecutive days; (ii) for "Cause," as defined below; and (iii) for any other
reason (a termination without "Cause"). "Cause" means and shall be limited to:
(A) willful misappropriation of the funds or property of the Company or any of
its Affiliated Companies (as defined below); (B) use of alcohol or illegal drugs
interfering with the performance of an employee's obligations, continuing after
written warning of such actions; (C) admission, confession, indictment or plea
bargain to, or conviction of, a felony, or of any crime involving moral
turpitude, dishonesty, theft, unethical or unlawful conduct; (D) commission of
any willful or intentional act which could reasonably be expected to injure the
reputation, business or business relationships of the Company or any of its
Affiliated Companies or which may tend to bring the employee or the Company or
any of its Affiliated Companies into disrepute, or the willful commission of any
act which is a breach of an employee's fiduciary duties to the Company or any of
its Affiliated Companies; and (E) commission of any act which constitutes a
material breach of the policies of the Company, including but not limited to the
disclosure of any confidential information or trade secrets pertaining to the
Company or any of its Affiliated Companies, or any of their respective clients.
For purposes of this paragraph, any act or failure to act of the employee shall
not be considered "willful" unless done or omitted to be done by the employee
not in good faith and without reasonable belief that the employee's action or
omission was in the best interest of the Company or any of its Affiliated
Companies. Any determination of Cause shall be made by the Board in its sole
discretion. The Company shall give the Executive notice of termination
specifying which of the foregoing provisions is applicable and (in the case of
clause (A) or (B)) the factual basis therefor, and the termination shall be
effective upon the 30th business day after such notice is given (such day, the
"Date of Termination"). For purposes of this Agreement, the term "Affiliated
Companies" shall mean the Company, Positano Partners Ltd. and any of their
respective affiliates and their respective businesses.
(b) By the Executive. The Executive's employment may be terminated
----------------
by the Executive for "Good Reason," defined as a termination within 30 days
after and as a result of (i) the assignment to the Executive of duties
inconsistent in any material respect with Section 2 of this Agreement, other
than actions that are not taken in bad faith and are remedied by the Company
within ten
3
<PAGE>
business days after receipt of notice thereof from the Executive; (ii) any
material failure by the Company to comply with any provision of Section 3 of
this Agreement, other than failures that are not taken in bad faith and are
remedied by the Company within ten business days after receipt of notice thereof
from the Executive; (iii) the removal of the Executive from the office of the
Chairman of the Board without the Executive's consent or (iv) a change, without
the Executive's consent, in the Executive's principal place of employment with
the Company to a location outside the greater metropolitan area in which such
principal place of employment was located as of the Closing. The Executive shall
give the Company notice of termination specifying which of the foregoing
provisions is applicable and the factual basis therefor, and the termination
shall be effective upon the 30th business day after such notice is given unless
the Company agrees to an earlier day (such day, the "Date of Termination").
(c) Severance Benefits. If, during the Employment Period, the
------------------
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any further
compensation provided for under this Agreement except as provided in the
following sentence. The Company shall (i) continue to pay the Executive the
Base Salary, at the rate in effect immediately before the Date of Termination
(but, in the case of a termination by the Executive for Good Reason,
disregarding any reduction thereof that was the basis for such termination), for
twenty-four months after the Date of Termination, (ii) continue to provide the
Executive with group health benefits on the terms and conditions applicable to
active employees of the Company ("Group Health Benefits") for twenty-four months
after the Date of Termination; provided, that during any period when the
--------
Executive is eligible to receive any such benefits under another employer-
provided plan or a government plan, the Group Health Benefits or substitute
benefits provided by the Company under this clause (ii) may be made secondary to
those provided under such other plan; and (iii) pay the Executive any amounts
that have been earned but not yet paid under Section 3 hereof.
(d) Other Employment Terminations. If, during the Employment Period,
-----------------------------
the Executive's employment is terminated by reason of the Executive's death or
for any other reason, other than by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any
compensation provided for under this Agreement, other than (i) Base Salary
through the 90/th/ day following the Date of Termination in the case of the
Executive's death, and through the Date of Termination in all other cases, (ii)
any unpaid Annual Bonus for a fiscal year that ended before the Date of
Termination, (iii) benefits under any long-term disability insurance coverage in
the case of termination because of Disability, and (iv) vested benefits, if any,
required to be paid or provided by law.
5. Non-Competition; Non-Solicitation; Confidentiality and Termination
------------------------------------------------------------------
Notices.
- -------
(a) The Executive hereby covenants and agrees that:
(i) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for any competitor of the Company or any of its
Affiliated Companies on
4
<PAGE>
the account of any client of the Company or any of its Affiliated
Companies with whom the Executive had a direct relationship or as to
which the Executive had a significant supervisory responsibility or
otherwise was significantly involved at any time during the two years
prior to such termination;
(ii) for six (6) months after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for a competitor of the Company or any of its
Affiliated Companies on the account of any substantial competitor of
any client of the Company for which the Executive had substantial
responsibility during the two-year period prior to termination of
employment and shall not work directly for such a competitor of such a
client;
(iii) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not directly or indirectly solicit or hire, or assist any other
person in soliciting or hiring, any employee of the Company or any of
its Affiliated Companies (as of the date of termination) or any person
who, as of the date of termination, was in the process of being
recruited by the Company or any of its Affiliated Companies or induce
any such employee to terminate his or her employment with the Company
or any of its Affiliated Companies; and
(iv) the Executive shall retain in strictest confidence all
confidential information of the Company and its Affiliated Companies
and their respective clients learned by the Executive during the
period of his employment by the Company and its Affiliated Companies,
and shall not disclose any of such information to anyone outside the
Company and its Affiliated Companies, except in the course of his
duties for the Company and its Affiliated Companies or with the
Company's express written consent.
(b) The covenants contained in Section 5(a) are for the benefit of
the Company and its Affiliated Companies and shall survive any termination of
this Agreement.
(c) The Executive acknowledges and agrees that: (i) the purpose of
the foregoing covenants is to protect the goodwill, trade secrets and other
confidential information of the Company; (ii) because of the nature of the
business in which the Company and its Affiliated Companies are engaged and
because of the nature of the confidential information to which the Executive has
access, it would be impractical and excessively difficult to determine the
actual damages of the Company in the event the Executive breached any of the
covenants of this Section 5; and (iii) remedies at law (such as monetary
damages) for any breach of the Executive's obligations under this Section 5
might be inadequate. The Executive therefore agrees and consents that if he
commits any breach of a covenant under this Section 5 or threatens to commit any
such breach, the Company shall have the right (in addition to, and not
5
<PAGE>
in lieu of, any other right or remedy that may be available to it) to temporary
and permanent injunctive relief from a court of competent jurisdiction, without
posting any bond or other security and without the necessity of proof of actual
damage. In addition, and without limiting the remedies available to the Company
in the event of a breach by the Executive of any of the provisions of this
Section 5, to the extent permitted by applicable law and notwithstanding any
other provisions of this Agreement or of the Shareholders Agreement (as defined
in the Recapitalization Agreement), if the Executive violates any provision of
this Section 5, (i) the Executive shall cease to be entitled to receive any
payment or benefit pursuant to Section 4 of this Agreement, and (ii) the Company
may offset against any payment to be made by it in respect of any Shares (as
defined in the Shareholders Agreement) purchased by it pursuant to the
Shareholders Agreement (including purchase price, installment payments and
interest payments) any damages (including consequential damages), expenses,
fees, losses or costs of any kind or nature whatsoever incurred by the Company
or and of its Affiliated Companies arising out of such violation.
(d) With respect to any provision of this Section 5 finally
determined by a court of competent jurisdiction to be unenforceable, the
Executive and the Company hereby agree that such court shall have jurisdiction
to reform this Agreement or any provision hereof so that it is enforceable to
the maximum extent permitted by law, and the parties agree to abide by such
court's determination. If any of the covenants of this Section 5 are determined
to be wholly or partially unenforceable in any jurisdiction, such determination
shall not be a bar to or in any way diminish the Company's right to enforce any
such covenant in any other jurisdiction.
6. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its Affiliated
Companies for which the Executive may qualify, nor, subject to Section 9 below,
shall anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its Affiliated Companies. Vested benefits and other amounts that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of,
or any contract or agreement with, the Company or any of its Affiliated
Companies on or after the Date of Termination shall be payable in accordance
with such plan, policy, practice, program, contract or agreement, as the case
may be, except as explicitly modified by this Agreement, and except that the
Executive shall not be entitled to receive severance pay or benefits under any
severance plan, program or policy of the Company or any of its Affiliated
Companies if and to the extent they would duplicate the compensation and
benefits provided under Section 4 of this Agreement.
7. No Mitigation. In no event shall the Executive be obligated to
-------------
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and, except as specifically provided in
6
<PAGE>
clause (ii) of Section 4(c) above, such amounts shall not be reduced, regardless
of whether the Executive obtains other employment.
8. Notices.
-------
(a) Each notice, demand, request, consent, report, approval or
communication (hereinafter "Notice") which is or may be required to be given by
any party to any other party in connection with this Agreement and the
transactions contemplated hereby, shall be in writing, and given by facsimile,
personal delivery, receipted delivery services, or by certified mail, return
receipt requested, prepaid and properly addressed to the party to be served as
shown in Section 8(b) below.
(b) Notices shall be effective on the date sent via facsimile, the
date delivered personally or by receipted delivery service, or three (3) days
after the date mailed:
If to the Company: Bronner Slosberg Humphrey LLC
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attn: Meryl Beckingham
Facsimile: (617) 867-1111
If to the Executive: At his residence address
David Kenny: most recently filed with the Company.
In each case, with a copy to HFCP Investor
If to HFCP Investor: 1 Maritime Plaza
12th Floor
San Francisco, CA 94111
Attn: Philip Hammarskjold
Facsimile: (415) 788-0176
(c) Each party may designate by Notice to the other in writing, given
in the foregoing manner, a new address to which any Notice may thereafter be so
given, served or sent.
9. Entire Agreement; Effect if No Transaction. As of the Effective
------------------------------------------
Time, this Agreement shall constitute the entire agreement of the parties with
respect to the subject matter hereof and, except for the Shareholders Agreement,
the Stock Option Plan and the Option
7
<PAGE>
Agreement, shall supersede all prior agreements, whether oral or written with
the Company or any of its Affiliated Companies and their respective predecessor
entities with respect to employment, ownership of Equity-Related Interests, or
otherwise, including without limitation, the documents set forth on Schedule A
----------
attached hereto.
Notwithstanding any other provision of this Agreement, this Agreement
shall be null and void and of no force or effect if the Transaction is not
consummated.
10. Successors.
----------
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(c) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
8
<PAGE>
(d) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(e) The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
9
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization of its Board of Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ David W. Kenny
-------------------------------------
David W. Kenny
BRONNER SLOSBERG HUMPHREY, LLC
By __________________________________
Name: Meryl Beckingham
Title: Chief Financial Officer
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization of its Board of Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ David W. Kenny
---------------------------------
David W. Kenny
BRONNER SLOSBERG HUMPHREY, LLC
By /s/ Meryl Beckingham
-----------------------------
Name: Meryl Beckingham
Title: Chief Financial Officer
<PAGE>
Schedule A
David Kenny
Employment Agreement by and between David Kenny and Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey,
LLC), dated November 22, 1996.
Exchange Agreement by and between David Kenny and Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey
Co.), dated July 1997, effective as of April 1, 1997.
Stock Appreciation Unit Agreement by and between Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey
Co.) and David Kenny relating to issuance of 100,000 SAR Units on
April 1, 1997.
The Bronner Slosberg Humphrey Inc. (predecessor in interest to Bronner
Slosberg Humphrey Co.) Stock Appreciation Rights Plan.
12
<PAGE>
Exhibit 10.25
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of the 6th day of January, 1999, by and between
Bronner Slosberg Humphrey, LLC, a Delaware limited liability company, (the
"Company") and Michael Ward (the "Executive").
WHEREAS, Bronner Slosberg Humphrey Co., a Massachusetts business trust
("BSH") of which the Company is a subsidiary, has entered into a
Recapitalization Agreement dated as of November 28, 1998, with Positano Partners
Ltd., Hellman & Friedman Capital Partners III, L.P., H&F Orchard Partners III,
L.P., H&F International Partners III, L.P., Strategic Interactive Group Co., and
certain individuals listed on Annex A thereto (the "Recapitalization
Agreement"), pursuant to which BSH is being recapitalized (the "Transaction,"
and references herein to the "Company" refer to the Company both before and
after the Transaction, and terms which are capitalized but not defined herein
shall have the meaning set forth in the Recapitalization Agreement); and
WHEREAS, in connection with the Transaction, the Executive will become a
party to the Shareholders Agreement, as defined in the Recapitalization
Agreement (the "Shareholders Agreement); and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and conditions under which the Executive will continue to
render services to the Company after the consummation of the Transaction;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, agree as follows:
1. Effectiveness of Agreement.
--------------------------
(a) Effective Date. This Agreement shall become effective upon the
--------------
Closing, as defined in the Recapitalization Agreement, if, but only if, the
Transaction is consummated.
(b) Employment Period. The Company shall employ the Executive, and
-----------------
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the period (the "Employment Period") beginning on the
Closing Date and ending on the second anniversary of the Closing Date; provided,
--------
however, that on the first anniversary of the Closing Date, and on each
- -------
subsequent anniversary of such date (each such anniversary thereof being
hereinafter referred to as a "Renewal Date"), the Employment Period shall be
automatically extended by one year, unless at least 60 days before the Renewal
Date either party hereto shall give notice to the other that the Employment
Period shall not be so extended.
<PAGE>
2. Position and Duties.
-------------------
(a) Position. During the Employment Period, the Executive shall serve
--------
as Chief Operating Officer and Executive Vice President, with the duties and
responsibilities customarily assigned to such position and such other duties and
responsibilities as the Board of Directors (the "Board") of Vesuvio, Inc. (which
is the trustee of BSH) or the Chief Executive Officer of the Company shall from
time to time assign to the Executive.
(b) Duties. During the Employment Period, and excluding any periods
------
of vacation and sick leave to which the Executive is entitled, the Executive
shall devote his full business attention and time to the business and affairs of
the Company and shall use his reasonable best efforts to carry out such
responsibilities faithfully and efficiently. It shall not be considered a
violation of the foregoing for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not materially interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement.
3. Compensation.
------------
(a) Base Salary. As compensation for the Executive's services
-----------
hereunder during the Employment Period, the Company shall pay to the Executive
an annual salary (the "Base Salary") of not less than $350,000 during the
Employment Period, payable at such times and intervals as the Company pays the
base salaries of its other executive employees. During the Employment Period,
the Base Salary shall be reviewed annually for possible increase. The Base
Salary shall not be reduced after any such increase, and the term "Base Salary"
shall thereafter refer to the Base Salary as so increased.
(b) Annual Bonus. In addition to the Base Salary, the Executive shall
------------
be eligible for an annual bonus (the "Annual Bonus") for each fiscal year ending
during the Employment Period, in an amount recommended by the Chief Executive
Officer, subject to approval by the Compensation Committee of the Board.
(c) Benefits. During the Employment Period, the Executive shall be
--------
entitled to receive employee benefits (including without limitation medical,
life insurance and other welfare benefits and benefits under retirement and
savings plans), Company-provided parking, and paid vacation, in each case to the
same extent as, and on the same terms and conditions as, other similarly
situated senior executives of the Company from time to time.
(d) Expenses. The Executive shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Executive during the
Term in carrying out his duties under this Agreement, provided that the
Executive complies with the policies, practices and procedures of the Company
for submission of expense reports, receipts, or similar documentation of such
expenses.
2
<PAGE>
4. Employment Termination.
----------------------
(a) By the Company. The Executive's employment may be terminated by
--------------
the Company under any of the following circumstances: (i) upon the "Disability"
of the Executive, defined as the inability of the Executive to perform his
duties hereunder on a full-time basis by reason of physical or mental
incapacity, sickness or infirmity that continues for more than 180 days or for
periods aggregating more than 180 days during any period of 365 consecutive
days; (ii) for "Cause," as defined below; and (iii) for any other reason (a
termination without "Cause"). "Cause" means and shall be limited to: (A) willful
misappropriation of the funds or property of the Company or any of its
Affiliated Companies (as defined below); (B) use of alcohol or illegal drugs
interfering with the performance of an employee's obligations, continuing after
written warning of such actions; (C) admission, confession, indictment or plea
bargain to, or conviction of, a felony, or of any crime involving moral
turpitude, dishonesty, theft, unethical or unlawful conduct; (D) commission of
any willful or intentional act which could reasonably be expected to injure the
reputation, business or business relationships of the Company or any of its
Affiliated Companies or which may tend to bring the employee or the Company or
any of its Affiliated Companies into disrepute, or the willful commission of any
act which is a breach of an employee's fiduciary duties to the Company or any of
its Affiliated Companies; and (E) commission of any act which constitutes a
material breach of the policies of the Company, including but not limited to the
disclosure of any confidential information or trade secrets pertaining to the
Company or any of its Affiliated Companies, or any of their respective clients.
For purposes of this paragraph, any act or failure to act of the employee shall
not be considered "willful" unless done or omitted to be done by the employee
not in good faith and without reasonable belief that the employee's action or
omission was in the best interest of the Company or any of its Affiliated
Companies. Any determination of Cause shall be made by the Board in its sole
discretion. The Company shall give the Executive notice of termination
specifying which of the foregoing provisions is applicable and (in the case of
clause (A) or (B)) the factual basis therefor, and the termination shall be
effective upon the 30th business day after such notice is given (such day, the
"Date of Termination"). For purposes of this Agreement, the term "Affiliated
Companies" shall mean the Company, Positano Partners Ltd. and any of their
respective affiliates and their respective businesses.
(b) By the Executive. The Executive's employment may be terminated by
----------------
the Executive for "Good Reason," defined as a termination within 30 days after
and as a result of (i) the assignment to the Executive of duties inconsistent in
any material respect with Section 2 of this Agreement, other than actions that
are not taken in bad faith and are remedied by the Company within ten business
days after receipt of notice thereof from the Executive; (ii) any material
failure by the Company to comply with any provision of Section 3 of this
Agreement, other than failures that are not taken in bad faith and are remedied
by the Company within ten business days after receipt of notice thereof from the
Executive; or (iii) a change, without the Executive's consent, in the
Executive's principal place of employment with the Company to a location outside
the greater metropolitan area in which such principal place of employment was
located as of the Closing. The Executive shall give the Company notice of
termination
3
<PAGE>
specifying which of the foregoing provisions is applicable and the factual basis
therefor, and the termination shall be effective upon the 30th business day
after such notice is given unless the Company agrees to an earlier day (such
day, the "Date of Termination").
(c) Severance Benefits. If, during the Employment Period, the
------------------
Executive's employment is terminated by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any further
compensation provided for under this Agreement except as provided in the
following sentence. The Company shall (i) continue to pay the Executive the
Base Salary, at the rate in effect immediately before the Date of Termination
(but, in the case of a termination by the Executive for Good Reason,
disregarding any reduction thereof that was the basis for such termination), for
twelve months after the Date of Termination, (ii) continue to provide the
Executive with group health benefits on the terms and conditions applicable to
active employees of the Company ("Group Health Benefits") for twelve months
after the Date of Termination; provided, that during any period when the
--------
Executive is eligible to receive any such benefits under another employer-
provided plan or a government plan, the Group Health Benefits or substitute
benefits provided by the Company under this clause (ii) may be made secondary to
those provided under such other plan; and (iii) pay the Executive any amounts
that have been earned but not yet paid under Section 3 hereof.
(d) Other Employment Terminations. If, during the Employment Period,
-----------------------------
the Executive's employment is terminated by reason of the Executive's death or
for any other reason, other than by the Company without Cause or by the
Executive for Good Reason, the Executive shall not be entitled to any
compensation provided for under this Agreement, other than (i) Base Salary
through the 90th day following the Date of Termination in the case of the
Executive's death, and through the Date of Termination in all other cases, (ii)
any unpaid Annual Bonus for a fiscal year that ended before the Date of
Termination, (iii) benefits under any long-term disability insurance coverage in
the case of termination because of Disability, and (iv) vested benefits, if any,
required to be paid or provided by law.
5. Non-Competition; Non-Solicitation; Confidentiality and Termination
------------------------------------------------------------------
Notices.
- -------
(a) The Executive hereby covenants and agrees that:
(i) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for any competitor of the Company or any of its
Affiliated Companies on the account of any client of the Company or
any of its Affiliated Companies with whom the Executive had a direct
relationship or as to which the Executive had a significant
supervisory responsibility or otherwise was significantly involved at
any time during the two years prior to such termination;
(ii) for six (6) months after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not work for a principal competitor of the Company or any of its
Affiliated
4
<PAGE>
Companies in a substantially similar corporate function as the
Executive held with the Company or any of its Affiliated Companies
during the two-year period prior to termination of employment;
(iii) for one (1) year after termination of employment with the
Company and its Affiliated Companies for any reason, the Executive
shall not directly or indirectly solicit or hire, or assist any other
person in soliciting or hiring, any employee of the Company or any of
its Affiliated Companies (as of the date of termination) or any person
who, as of the date of termination, was in the process of being
recruited by the Company or any of its Affiliated Companies or induce
any such employee to terminate his or her employment with the Company
or any of its Affiliated Companies; and
(iv) the Executive shall retain in strictest confidence all
confidential information of the Company and its Affiliated Companies
and their respective clients learned by the Executive during the
period of his employment by the Company and its Affiliated Companies,
and shall not disclose any of such information to anyone outside the
Company and its Affiliated Companies, except in the course of his
duties for the Company and its Affiliated Companies or with the
Company's express written consent.
(b) The covenants contained in Section 5(a) are for the benefit of the
Company and its Affiliated Companies and shall survive any termination of this
Agreement.
(c) The Executive acknowledges and agrees that: (i) the purpose of the
foregoing covenants is to protect the goodwill, trade secrets and other
confidential information of the Company; (ii) because of the nature of the
business in which the Company and its Affiliated Companies are engaged and
because of the nature of the confidential information to which the Executive has
access, it would be impractical and excessively difficult to determine the
actual damages of the Company in the event the Executive breached any of the
covenants of this Section 5; and (iii) remedies at law (such as monetary
damages) for any breach of the Executive's obligations under this Section 5
might be inadequate. The Executive therefore agrees and consents that if he
commits any breach of a covenant under this Section 5 or threatens to commit any
such breach, the Company shall have the right (in addition to, and not in lieu
of, any other right or remedy that may be available to it) to temporary and
permanent injunctive relief from a court of competent jurisdiction, without
posting any bond or other security and without the necessity of proof of actual
damage. In addition, and without limiting the remedies available to the Company
in the event of a breach by the Executive of any of the provisions of this
Section 5, to the extent permitted by applicable law and notwithstanding any
other provisions of this Agreement or of the Shareholders Agreement (as defined
in the Recapitalization Agreement), if the Executive violates any provision of
this Section 5, (i) the Executive shall cease to be entitled to receive any
payment or benefit pursuant to Section 4 of this Agreement, and (ii) the Company
may offset against any payment to be made by it in respect of any Shares (as
defined in the Shareholders Agreement) purchased by it pursuant to
5
<PAGE>
the Shareholders Agreement (including purchase price, installment payments and
interest payments) any damages (including consequential damages), expenses,
fees, losses or costs of any kind or nature whatsoever incurred by the Company
or and of its Affiliated Companies arising out of such violation.
(d) With respect to any provision of this Section 5 finally determined
by a court of competent jurisdiction to be unenforceable, the Executive and the
Company hereby agree that such court shall have jurisdiction to reform this
Agreement or any provision hereof so that it is enforceable to the maximum
extent permitted by law, and the parties agree to abide by such court's
determination. If any of the covenants of this Section 5 are determined to be
wholly or partially unenforceable in any jurisdiction, such determination shall
not be a bar to or in any way diminish the Company's right to enforce any such
covenant in any other jurisdiction.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
for which the Executive may qualify, nor, subject to Section 9 below, shall
anything in this Agreement limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its Affiliated Companies. Vested benefits and other amounts that the Executive
is otherwise entitled to receive under any plan, policy, practice or program of,
or any contract or agreement with, the Company or any of its Affiliated
Companies on or after the Date of Termination shall be payable in accordance
with such plan, policy, practice, program, contract or agreement, as the case
may be, except as explicitly modified by this Agreement, and except that the
Executive shall not be entitled to receive severance pay or benefits under any
severance plan, program or policy of the Company or any of its Affiliated
Companies if and to the extent they would duplicate the compensation and
benefits provided under Section 4 of this Agreement.
7. No Mitigation. In no event shall the Executive be obligated to seek
-------------
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as specifically provided in clause (ii) of Section 4(c) above, such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
8. Notices.
-------
(a) Each notice, demand, request, consent, report, approval or
communication (hereinafter "Notice") which is or may be required to be given by
any party to any other party in connection with this Agreement and the
transactions contemplated hereby, shall be in writing, and given by facsimile,
personal delivery, receipted delivery services, or by certified mail, return
receipt requested, prepaid and properly addressed to the party to be served as
shown in Section 8(b) below.
6
<PAGE>
(b) Notices shall be effective on the date sent via facsimile, the
date delivered personally or by receipted delivery service, or three (3) days
after the date mailed:
If to the Company: Bronner Slosberg Humphrey LLC
Prudential Tower
800 Boylston Street
Boston, MA 02199
Attn: David Kenny
Facsimile: (617) 867-1111
If to the Executive: At his residence address
Michael Ward: most recently filed with the Company.
In each case, with a copy to HFCP Investor
If to HFCP Investor: 1 Maritime Plaza
12th Floor
San Francisco, CA 94111
Attn: Philip Hammarskjold
Facsimile: (415) 788-0176
(c) Each party may designate by Notice to the other in writing, given
in the foregoing manner, a new address to which any Notice may thereafter be so
given, served or sent.
9. Entire Agreement; Effect if No Transaction. As of the Effective Time,
------------------------------------------
this Agreement shall constitute the entire agreement of the parties with respect
to the subject matter hereof and, except for the Shareholders Agreement, the
Stock Option Plan and the Option Agreement, shall supersede all prior
agreements, whether oral or written with the Company or any of its Affiliated
Companies and their respective predecessor entities with respect to employment,
ownership of Equity-Related Interests, or otherwise, including without
limitation, the documents set forth on Schedule A attached hereto.
----------
Notwithstanding any other provision of this Agreement, this Agreement shall
be null and void and of no force or effect if the Transaction is not
consummated.
10. Successors.
----------
(a) This Agreement is personal to the Executive and, without the
prior written consent of the Company, shall not be assignable by the Executive
otherwise than by
7
<PAGE>
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company may assign this Agreement to any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company that expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
assignment had taken place. As used in this Agreement, "Company" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without reference to
principles of conflict of laws. This Agreement may not be amended or modified
except by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
(b) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(c) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(d) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(e) The Section headings contained in this Agreement are for
convenience only and in no manner shall be construed as part of this Agreement.
8
<PAGE>
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
9
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization of its Board of Directors, the Company has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ Michael Ward
--------------------------------
Michael Ward
BRONNER SLOSBERG HUMPHREY, LLC
By /s/ David Kenny
-----------------------------
Name: David Kenny
Title: President
<PAGE>
Schedule A
Michael Ward
Offer letter to Michael Ward, dated June 9, 1997, from Bronner
Slosberg Humphrey Inc. (predecessor in interest to Bronner Slosberg
Humphrey, LLC).
Stock Appreciation Unit Agreement by and between Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey
Co.) and Michael Ward relating to issuance of 2,500 SAR Units on April
1, 1997.
Stock Appreciation Unit Agreement by and between Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey
Co.) and Michael Ward relating to issuance of 2,500 SAR Units on April
1, 1998.
Stock Appreciation Unit Agreement by and between Bronner Slosberg
Humphrey Inc. (predecessor in interest to Bronner Slosberg Humphrey
Co.) and Michael Ward relating to issuance of 5,000 SAR Units on June
1, 1998.
The Bronner Slosberg Humphrey Inc. (predecessor in interest to Bronner
Slosberg Humphrey Co.) Stock Appreciation Rights Plan.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name State of Organization or Incorporation
- ---- --------------------------------------
Bronner Slosberg Humphrey Co. Massachusetts business trust
BSH Holding LLC Delaware limited liability company
Bronnercom, LLC Delaware limited liability company
Sansome, Inc. Massachusetts corporation
Bronnercom (UK), Inc. Massachusetts corporation
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 15, 1999 relating to the financial statements and
financial statement schedules included in Item 27 (a) of this Form S-1 of
Digitas Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 23, 1999
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 37 1,364
<SECURITIES> 0 0
<RECEIVABLES> 37,724 67,076
<ALLOWANCES> (741) (767)
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<CURRENT-ASSETS> 42,426 69,856
<PP&E> 31,421 24,103
<DEPRECIATION> (13,446) (4,699)
<TOTAL-ASSETS> 62,270 264,250
<CURRENT-LIABILITIES> (88,094) (64,094)
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0 0
<COMMON> (2) (10)
<OTHER-SE> 27,762 (134,095)
<TOTAL-LIABILITY-AND-EQUITY> (62,270) (264,250)
<SALES> 122,309 133,907
<TOTAL-REVENUES> 122,309 133,907
<CGS> (65,696) (73,238)
<TOTAL-COSTS> (65,696) (73,238)
<OTHER-EXPENSES> (74,305) (72,440)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2,698) (5,332)
<INCOME-PRETAX> (20,390) (17,103)
<INCOME-TAX> 1,439 (1,773)
<INCOME-CONTINUING> (18,951) (18,876)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18,951) (18,876)
<EPS-BASIC> 0 (0.76)
<EPS-DILUTED> 0 (0.76)
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