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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-K



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2002



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-29723



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DIGITAS INC.

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 04-3494311                       
|-------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



|The Prudential Tower 800 Boylston Street Boston,
Massachusetts |  | 02199     
|-------------------------------------------------------------- |  | ----------
|(Address of principal executive offices)                       |  | (Zip Code)



(617)
867-1000

(Registrants Telephone Number, Including Area Code)



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Securities Registered Pursuant to Section 12(B) of The Act:



None



Securities Registered Pursuant to Section 12(G) of The Act:



Common Stock, $.01 Par Value Per Share

(Title of Each Class)



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Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  x  No ̈



Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes ̈No  x



The aggregate market value of the voting stock of the Registrant held by non-affiliates of the Registrant, based upon the closing sale
price of $4.54 on the Nasdaq National Market on June 28, 2002 was $83,415,027.



As of February 28, 2003, 63,641,181 shares of the Registrants Common Stock were issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive proxy statement relating to the Registrants Annual Meeting of Stockholders to be held on May 15, 2003 are
incorporated by reference into Part III of this report to the extent described therein.



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TABLE OF CONTENTS



|         |  |                                                                                       |  | PAGE
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  | PART I                                                                                |  |     
|        
|ITEM 1.  |  | BUSINESS                                                                              |  | 1   
|        
|ITEM 2.  |  | PROPERTIES                                                                            |  | 4   
|        
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 4   
|        
|         |  | PART II                                                                               |  |     
|        
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 5   
|        
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 5   
|        
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 6   
|        
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 7   
|        
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 21  
|        
|ITEM 8A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             |  | 22  
|        
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 22  
|        
|         |  | PART III                                                                              |  |     
|        
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT                                        |  | 23  
|        
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 23  
|        
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 23  
|        
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 23  
|        
|         |  | PART IV                                                                               |  |     
|        
|ITEM 14. |  | CONTROLS AND PROCEDURES                                                               |  | 23  
|        
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 24  





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FORWARD-LOOKING STATEMENTS



THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. YOU CAN IDENTIFY THESE
STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS MAY, WILL, EXPECT, ANTICIPATE, BELIEVE, ESTIMATE, AND CONTINUE 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 CONDITION, 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 THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN
OUR FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE FACTORS
DESCRIBED IN RISK FACTORS AND IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS BEGINNING ON PAGE 16. READERS SHOULD NOT PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING STATEMENTS, AND DIGITAS ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.



PART I



Item 1.Business



Overview



Digitas Inc., a
Delaware corporation organized in 1999 (Digitas), is a relationship marketing services provider offering strategy consulting, marketing agency and marketing technology infrastructure services. We help our clients attract, retain and grow
profitable customer relationships. Digitas serves several industry-leading clients including Allstate, American Express, AT&T, Delta Air Lines and General Motors. Headquartered in Boston, Digitas employs more than 1,100 people and has offices in
New York, San Francisco, Chicago and London.



Digitas maintains a website on the World Wide Web at www.digitas.com. Digitas makes available, free of charge, on its website its annual report on the Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
Digitas reports filed with, or furnished to, the SEC are also available at the SECs website at www.sec.gov.



The Digitas Approach



Digitas provides strategy, marketing and technology services that enable its clients to maximize the value of their customer base. We
believe in the power of personalized and contextual marketing to create long-term and valuable customer relationships. As a result, Digitas focuses on building multi-channel programs for its clients that drive market share gains through quantitative
and qualitative improvements in their customer relationships. Our services drive measurable results for clients. Our skill in performance measurement and use of that information allows us to continue to evolve and improve our programs.



We take an aggressive approach in reviewing our clients
entire business to solve their challenges. We consider our clients competitive positioning, their existing assets and brand strength, as well as their culture and organization before recommending solutions. We partner with our clients to
create long-term, stable relationships. We endeavor to understand our clients businesses intimately and anticipate challenges before they arise.



Our approach is highly disciplined, results-oriented and revolves around three major offerings. These offerings focus specifically on
supporting our clients efforts to manage their customers more effectively. They include designing customer relationship strategies to optimize marketing investment, providing agency services for



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designing and executing communications programs focused on acquiring, retaining, and growing customer
relationships, and building new technology infrastructure to improve the productivity of our marketing programs.



Customer Relationship Strategy. We analyze a clients customer base to find unrealized value and then design targeted customer
experiences across multiple marketing channels to recognize that value. The customer relationship management roadmaps we develop show how to spend wisely, scaling both program and infrastructure investments to build momentum while generating
immediate return. In-market customer responses determine the recommendations we make for the best possible marketing investment and channel communication mix. Ongoing testing measures the effectiveness of our programs and assists us in making them
better. It is the combination of top-down analysis of the economic opportunities and bottom-up customer and data insights that makes it possible for us to propose initiatives that immediately improve in-market performance while also supporting
long-term strategies for increasing customer profitability.



Marketing Agency Services. We build integrated marketing campaigns and communication programs focused on acquiring, retaining, and growing customer relationships. We focus on creating a consistent customer experience
regardless of the communication channel. By combining customer data sets in new ways, we get a better understanding of customer needs, attitudes and behaviors. This, along with primary research, helps us determine which marketing channels customers
use to fulfill their needs, and what decisions they make as they buy. With these insights, we design marketing programs that are delivered to the right customers at the right time in the right place.



Marketing Infrastructure Services. Recent technology
advances have revolutionized the way companies and their customers interact. Not only are there many new channels by which communication is possible, but also customers expect companies to track and understand their behavior across these multiple
channels. We help our clients by determining which technology solutions will have the greatest impact on their marketing programs. We build the technology platforms to enable multi-channel communication and data tracking. We build e-commerce
platforms to bring retailers online. We build applications to enable communication over wireless devices. We build call center platforms to enable one-to-one voice communication. In addition, we assist our clients in building the databases required
to store and track customer activity over multiple channels.



Clients, Marketing and Sales



Digitas does not have a separate sales and marketing force. Digitas relationship managers are primarily responsible for marketing and sales efforts. Members of our senior management team are directly involved in client engagements
and marketing efforts. Additionally, Digitas relies on its strong reputation, quality client base and proven results to retain existing clients and develop new client relationships.



Digitas develops long-term strategic relationships with primarily blue-chip companies whose primary assets
include leadership brands and customer bases. Digitas seeks 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 services, media and entertainment, healthcare and pharmaceuticals, business products and services, consumer services, technology and telecommunications and consumer
products.



Our results of operations and our
business depend on our relationships with a limited number of large clients. Of our total 2002 fee revenue, General Motors accounted for approximately 23%, American Express accounted for approximately 18%, and AT&T accounted for approximately
12%. Our top ten clients accounted for approximately 78% of our 2002 fee revenue.



Competition



We
compete with companies that offer strategic consulting, web design, advertising and direct marketing, information technology and e-commerce services as well as the in-house development efforts of many companies. Our current competitors include the
following:



| |  |  | strategic consulting firms such as Bain & Company, Boston Consulting Group, Braun Consulting and McKinsey & Company;
| | - |  | --------------------------------------------------------------------------------------------------------------------



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| |  |  | advertising and direct marketing agencies such as Ogilvy One, Modem Media, and Wunderman;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | customer relationship management units of systems integrators such as Accenture, Cap Gemini, PricewaterhouseCoopers, Sapient, and IBM Global Services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | internal information technology departments of current and potential clients; and
| | - |  | ---------------------------------------------------------------------------------



| |  |  | e-commerce and technology service providers.
| | - |  | --------------------------------------------



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 integrated solutions;
| | - |  | ----------------------------------------------------------------



| |  |  | value of the services provided compared to the price of such services;
| | - |  | ----------------------------------------------------------------------



| |  |  | reputation and experience of professionals delivering the service;
| | - |  | ------------------------------------------------------------------



| |  |  | project management capabilities;
| | - |  | --------------------------------



| |  |  | brand recognition and size of the firm;
| | - |  | ---------------------------------------



| |  |  | effectiveness of sales and marketing efforts; and
| | - |  | -------------------------------------------------



| |  |  | financial stability.
| | - |  | --------------------



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.



People and Culture



Our culture reflects the core values of our people. Our people are our single greatest asset and the key to reaching our company-wide goal to be the undisputed industry leader. Our employees are often characterized as being one
with the client, experts inspiring experts and the best getting better. In furtherance of this mission, our employees collaborate to apply their creativity in the conception, design, and implementation of innovative
client solutions. Our formal training program emphasizes improvement of individual skills as well as optimization of team performance. Our knowledge management infrastructure and processes are designed to ensure that best practices and thinking are
shared and leveraged globally to the extent permitted. We have a competency-based performance management process that encourages frequent, actionable feedback and ensures that all employees have specific, measurable goals and are supported in
developing skills and knowledge. The end result is a dynamic and rewarding work environment for our people.



To preserve this culture and uphold the high standard of quality work that we have set, we must continue to attract and retain qualified
individuals with superior strategic, creative, technological and management skills to meet the ongoing demands for our services. To this end, we have a dedicated recruiting team that utilizes various methods to attract the most talented and
promising professionals, including an internal referral bonus program.



We provide our employees with a competitive base salary, performance driven incentive programs, stock options and comprehensive benefits packages. Employees are rewarded for team performance, as well as individual
contribution to client success, people development, intellectual capital, and corporate citizenship. For many of our



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employees, however, a significant attraction is being part of a winning team that applies industry leading
expertise to help transform businesses to be the best in their industries.



Employees



As of December
31, 2002, we had approximately 1,110 employees, approximately 1,070 of whom were located in the United States. As of December 31, 2002, we had approximately 905 billable employees and 205 corporate and administrative, non-billable employees. Our
employees are not represented by any union and, except for senior management and certain other employees, are retained on an at-will basis.



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, vendors 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. 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.



U.S. and Foreign Government Regulation



Regulation of various aspects of the
Internet and emerging technologies, including on-line content, copyright infringement, user privacy, taxation, access charges, liability for third-party activities and jurisdiction, has increased. 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 and emerging technologies. Areas of potential regulation include libel, pricing, quality of
products and services and intellectual property ownership.



The European Union and European Commission have adopted directives to address the regulation of privacy, e-commerce, security, commercial piracy, consumer protection, taxation of transactions completed over the Internet and the
spread of illegal and socially harmful materials 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.



Item 2.Properties



Our headquarters and principal administrative and finance operations are located in leased facilities in Boston, Massachusetts consisting of approximately 325,000 square feet of office space. The leases for the Boston office
space expire in November 2005, December 2005 and June 2006. We lease approximately 132,000 square feet of office space in New York City. The New York City lease expires in March 2011. We also lease office space totaling approximately 143,00 square
feet, primarily in San Francisco, Chicago, Miami, and London. Of the approximately 600,000 total square feet that we lease, we have identified approximately 300,000 square feet as excess space. We are actively pursuing and evaluating our
alternatives with respect to our excess office space. See restructuring discussion in Item 7.



Item 3.Legal Proceedings



From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of our business. We believe we are not currently a party to any such claims or proceedings, which, if decided
adversely to us, would either individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.



The Company is a party to stockholder class action law suits filed in the United States District Court for the Southern District of New
York. Between June 26, 2001 and August 16, 2001, several stockholder class action complaints were filed in the United States District Court for the Southern District of New York against the Company, several of its officers and directors, and five
underwriters of its initial public offering (the Offering). The purported class actions are all brought on behalf of purchasers of the Companys common stock since



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March 13, 2000, the date of the Offering. The plaintiffs allege, among other things, that the
Companys prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially false and misleading because it failed to disclose that the underwriters had engaged in conduct
designed to result in undisclosed and excessive underwriters compensation in the form of increased brokerage commissions and also that this alleged conduct of the underwriters artificially inflated the Companys stock price in the period
after the Offering. The plaintiffs claim violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the Securities and Exchange
Commission and seek, among other things, damages, statutory compensation and costs of litigation. Effective October 9, 2002, the claims against the Companys officers and directors were dismissed without prejudice. Effective February 19, 2003,
the Section 10(b) claim against the Company was dismissed. The Company believes that the claims against it are without merit and intends to defend them vigorously. Management currently believes that resolving these matters will not have a material
adverse impact on the Companys financial position or its results of operations, however, litigation is inherently uncertain and there can be no assurances as to the ultimate outcome or effect of these actions.



PART II



Item 4.Submission of Matters to a Vote of Security Holders



No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the
fiscal year covered by this report.



Item 5.Market for Registrants Common Equity and Related Stockholder Matters



Market information. Our common stock is traded on the Nasdaq National Market under the symbol DTAS. As of February 28,
2003, there were 151 stockholders of record. The following table sets forth high and low last reported sales prices for the common stock for each fiscal quarter from January 1, 2001 through March 7, 2003.



|                                    |  | Closing Sales Prices
|----------------------------------- |  | --------------------
|                                    |  | High                
|2001                                |  |                     
|1st Quarter                         |  | $                   
|2nd Quarter                         |  | $                   
|3rd Quarter                         |  | $                   
|4th Quarter                         |  | $                   
|2002                                |  |                     
|1st Quarter                         |  | $                   
|2nd Quarter                         |  | $                   
|3rd Quarter                         |  | $                   
|4th Quarter                         |  | $                   
|2003                                |  |                     
|1st Quarter (through March 7, 2003) |  | $                   



Dividend policy. We have never declared or paid cash dividends on our common stock. Any future determination as to the payment of dividends will depend upon capital requirements and limitations imposed by our credit
agreements, if any, and such other factors as our Board of Directors may consider.



Equity compensation plan information. The following table sets forth information regarding securities authorized for issuance under Digitas equity compensation plans as of December 31,
2002, including the Companys 1998 Stock Option Plan (the 1998 Plan), 1999 Stock Option Plan (the 1999 Plan) and 2000 Stock Option and Incentive Plan (the 2000 Plan), and the Companys 2000 Employee
Stock Purchase Plan (the ESPP).



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|                                                           |  | Equity Compensation Plan Information                                                       
|---------------------------------------------------------- |  | -------------------------------------------------------------------------------------------
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and
rights
|                                                           |  | (a)                                                                                        
|Equity compensation plans approved by security holders     |  | 31,121,4201                                                                                
|Equity compensation plans not approved by security holders |  |                                                                                           
|                                                           |  |                                                                                            
|Total                                                      |  | 31,121,420                                                                                 
|                                                           |  |                                                                                            



| | 1 |  | Includes options outstanding under the 1998 Plan, the 1999 Plan and the 2000 Plan.
| | - |  | ----------------------------------------------------------------------------------



| | 2 |  | Includes shares available for future issuance under the 1998 Plan, the 1999 Plan, the 2000 Plan and the ESPP.
| | - |  | -------------------------------------------------------------------------------------------------------------



Item 6.Selected Financial Data



The following table sets forth selected financial data and other operating information of Digitas. The selected statement of operations and balance sheet data for 2002, 2001, 2000, 1999, and 1998 as
set forth below is derived from the audited financial statements of Digitas. The information is only a summary and you should read it in conjunction with Digitas audited financial statements and related notes and other financial information
included herein and Managements Discussion and Analysis of Financial Condition and Results of Operations.



|                                             |  | Year Ended December 31,               |        
|-------------------------------------------- |  | ------------------------------------- | -------
|                                             |  | 2002                                  |        
|                                             |  | (in thousands, except per share data) |        
|STATEMENT OF OPERATIONS DATA:                |  |                                       |        
|Revenue:                                     |  |                                       |        
|Fee revenue                                  |  | $                                     | 203,931
|Pass-through revenue                         |  |                                       | 117,093
|                                             |  |                                       |        
|Total revenue                                |  |                                       | 321,024
|Operating expenses:                          |  |                                       |        
|Professional services costs                  |  |                                       | 120,430
|Pass-through expenses                        |  |                                       | 117,093
|Selling, general and administrative expenses |  |                                       | 67,748 
|Stock-based compensation                     |  |                                       | 8,447  
|Amortization of intangible assets            |  |                                       | 706    
|Restructuring expenses                       |  |                                       | 47,114 
|                                             |  |                                       |        
|Total operating expenses                     |  |                                       | 361,538
|                                             |  |                                       |        
|Loss from operations                         |  |                                       | (40,514
|Other income (expense), net                  |  |                                       | 414    
|Benefit from (provision for) income taxes    |  |                                       | (200   
|                                             |  |                                       |        
|Net loss from continuing operations          |  |                                       | (40,300
|Extraordinary loss                           |  |                                       |       
|                                             |  |                                       |        
|Net loss                                     |  | $                                     | (40,300
|                                             |  |                                       |        
|Net loss per sharebasic and diluted         |  |                                       |        
|Net loss from continuing operations          |  | $                                     | (0.65  
|Extraordinary loss                           |  |                                       |       
|                                             |  |                                       |        
|Net loss                                     |  | $                                     | (0.65  
|                                             |  |                                       |        
|Weighted average shares outstanding          |  |                                       |        
|Basic and diluted                            |  |                                       | 62,354 



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|                                           |  | As of December 31, |        
|------------------------------------------ |  | ------------------ | -------
|                                           |  | 2002               |        
|                                           |  | (in thousands)     |        
|BALANCE SHEET DATA:                        |  |                    |        
|Cash and cash equivalents                  |  | $                  | 68,827 
|Total assets                               |  |                    | 259,249
|Total long-term debt, less current portion |  |                    | 563    
|Total liabilities                          |  |                    | 119,165
|Shareholders equity (deficit)             |  |                    | 140,084



Certain previously
reported amounts have been reclassified to conform to the current year presentation.



Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations



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 filing on Form 10-K. This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See Risk Factors and Important Factors that May Affect Future Results for a description of some of the risks and uncertainties
that could cause such a material difference.



Overview



In 1980, Bronner Slosberg Humphrey Co.
(BSH) was formed to provide direct marketing and promotion services. In 1995, Strategic Interactive Group (SIG), an Internet professional services firm, was formed to provide end-to-end Internet business solutions to
corporate clients. Between 1995 and 1998, SIG and BSH operated as two separate entities under common control. Effective January 1, 1999, the two entities were merged into a single entity under the BSH name following a recapitalization by a private
equity investor and several existing shareholders. BSH served as the ultimate parent of Digitas LLC, a Delaware limited liability company that holds all business operations. The purpose of the recapitalization was to combine the entities, 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 current and future employees and enhance our ability to make strategic
investments in our people and services. On December 22, 1999, Digitas Inc., a Delaware corporation, was formed to ultimately hold the interests of BSH including Digitas LLC. Effective December 31, 2001, BSH was merged into a newly formed
Massachusetts corporation Bronner Slosberg Humphrey Inc. The terms Company and Digitas refer to Digitas LLC prior to December 22, 1999 and to Digitas Inc. thereafter.



Business Operations



Digitas is a relationship marketing services provider
offering strategy consulting, marketing agency and marketing technology infrastructure services. We help our clients attract, retain and grow profitable customer relationships.



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 blue-chip clients. We attempt to limit our concentration of credit risk by securing
clients with significant assets or liquidity. While we often enter into written agreements with our clients, such contracts are typically terminable upon 30 to 90 days notice. Of our total 2002 fee revenue, General Motors accounted for approximately
23%, American Express accounted for approximately 18%, and AT&T



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accounted for approximately 12%. We believe a loss of any one of these significant clients or any
significant reduction in the use of our services by a major client could have a material adverse effect on our business, financial condition and results of operations. Our top ten clients accounted for approximately 78% of our 2002 fee revenue.



Historically, we have offered our services to
clients primarily on a time and materials basis. 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. Additionally, some of our contracts include a discretionary bonus provision whereby we earn additional compensation based on our performance as evaluated by our clients. We
are typically informed of bonus revenue in the first and second quarter of the fiscal year. Most of our contracts allow us to invoice our clients on a pro-rata basis for our services.



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 certain executives.



Selling, general and administrative expenses consist primarily of administrative and executive compensation, professional fees, non-client related travel expenses, rent and office expenses.



Stock-based compensation consists primarily of non-cash
compensation arising from stock options granted to employees at exercise prices below the estimated fair value of the underlying common stock. We have not granted or repurchased any options nor issued common stock at a price below the estimated fair
value subsequent to the initial public offering in March 2000.



In connection with the recapitalization in January 1999, we recorded $198.9 million of goodwill and other intangible assets. This amount, which represented the excess of purchase price over net assets acquired, consisted of goodwill,
favorable lease and assembled workforce. Assembled workforce was fully amortized as of December 31, 2000; accordingly, the cost and related accumulated amortization were written off. The favorable lease is being amortized over six years. Effective
January 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 142 were applied to all goodwill and other intangible assets recognized
in the financial statements at that date.



Restructuring expenses represent charges taken to better align our cost structure with changing market conditions and decreased demand for our services and to better approximate remaining real estate obligations related to our prior
restructuring estimates. Restructuring expenses include severance related to workforce reductions and related expenses and the consolidation of facilities. Costs for the consolidation of facilities are comprised of future obligations under the terms
of the leases for identified excess space and asset impairment charges for fixed assets related to these spaces, less anticipated income from subleasing activities.



Critical Accounting Policies and Estimates



Our discussion and analysis of our financial condition and results of our operations are based upon our
consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We review and update these estimates, including those related to revenue recognition, the allowance for doubtful accounts,
goodwill, stock-based compensation and restructuring, on an ongoing basis. We base our estimates on historical experience, and on various other assumptions that are believed to be reasonable under the circumstances. Among other things, these
estimates form the basis for judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following critical accounting policies affect
our more significant judgments and estimates used in the preparation of the consolidated financial statements.



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Revenue Recognition



Revenue pursuant to time and materials
contracts is recognized as services are provided. Revenue from fixed-price contracts is recognized using the percentage of completion method based on the ratio of costs incurred to the total estimated project costs. Project costs are based on the
direct salary and associated fringe benefits of the consultants on the engagement plus all direct expenses incurred to complete the engagement that are not reimbursed by the client. The percentage of completion method is used since reasonably
dependable estimates of the revenues and costs applicable to various stages of a contract can be made, based on historical experience and deliverables set in the contract. Our financial management maintains contact with project managers to discuss
the status of the projects and, for fixed-price engagements, financial management is updated on the budgeted costs and required resources to complete the project. These budgets are then used to calculate revenue recognition and to estimate the
anticipated income or loss on the project. Favorable changes in estimates result in additional revenue and profit recognition, and unfavorable changes in estimates result in a reduction of recognized revenue and profit. If a contract was anticipated
to result in a loss, provisions for the estimated loss on the contract would be made in the period in which the loss first becomes probable and reasonably estimable. Certain contracts contain provisions for performance incentives. Such contingent
revenue is recognized in the period in which the contingency is resolved. We recognize revenue for services only in those situations where collection from the client is reasonably assured. Our client relationship managers and finance personnel
monitor timely payments from our clients and assess any collection issues. Unbilled accounts receivable on contracts is comprised of costs incurred plus estimated earnings from revenue earned in advance of billings under the contract. Advance
payments are recorded as billings in excess of cost and estimated earnings on uncompleted contracts until the services are provided. Included in accounts receivable and unbilled accounts receivable are reimbursable costs.



We incur significant reimbursable costs, such as payments to
vendors for media and production services and postage and travel-related expenses, on behalf of our clients. In accordance with the client agreements, there is no markup on reimbursable costs and the clients approval is required prior to us
incurring them. Although we actively mitigate our credit risk related to these pass-through expenses and our customers participate in the management of such vendor relationships, Digitas is often the sole party that contracts with these vendors.



Effective January 1, 2002, upon adoption of the
Emerging Issues Task Force (EITF) Issue 01-14, Income Statement Characterization of Reimbursements Received for Out of Pocket Expenses Incurred, we report reimbursements received for pass-through costs incurred as a component
of revenue in the statement of operations. Prior periods have been reclassified to comply with the guidance in Issue 01-14. The effect of the accounting change was to increase revenue for the years ended December 31, 2001 and 2000 by $100 million
and $117 million, respectively, with an equivalent increase in expenses for each of these periods. This accounting change had no effect on net income, earnings per share, or cash from operations.



Allowance for Doubtful Accounts



We maintain an allowance for estimated losses resulting from
the inability of customers to make required payments. The collectibility of outstanding customer invoices is continuously assessed. In estimating the allowance, we consider factors such as historical collections, a customers current
credit-worthiness, age of the receivable balance both individually and in the aggregate, and general economic conditions that may affect a customers ability to pay. Actual customer collections could differ from our estimates, requiring
additional adjustments to the allowance for doubtful accounts.



Goodwill



Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, and ceased to amortize goodwill as of that date. SFAS No. 142 requires goodwill to be tested for impairment on an annual basis, and
between annual tests in certain circumstances, and written down when impaired. Such events or circumstances generally would have included the occurrence of operating losses or a significant decline in earnings associated with the asset. We evaluate
goodwill for impairment using the two-step process as prescribed in SFAS No. 142. The first step is to compare the fair value of the reporting unit to the carrying amount of the reporting unit. If the carrying amount exceeds the fair value, a second
step must be followed to calculate impairment. Otherwise, if the fair value of the reporting unit exceeds the carrying amount, the goodwill is not considered to be impaired as of the measurement date. We performed the initial step by considering our
fair market value as determined by our publicly



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traded stock to our carrying amount. Because our stock is thinly traded, we also considered future
discounted cash flows as compared to the carrying amount to assess the recoverability of the goodwill asset. Based upon these tests, we determined that the fair value exceeded the carrying amount resulting in no impairment. If impairment had
occurred, any excess of carrying value over fair value would have been recorded as a loss.



Stock-based Compensation



We apply the intrinsic value method of Accounting Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for our
employee stock-based compensation plans. We provide pro forma disclosures of compensation expense under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation.



In December 2002, the Financial Accounting Standards Board
(FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. SFAS No.148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. We have elected to continue to account for our
stock-based compensation in accordance with the provisions of APBO No. 25 as interpreted by FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25, (FIN
44) and present the pro forma disclosures required by SFAS No. 123 as amended by SFAS No. 148. See discussion of stock-based compensation in Note 1 to the financial statements for the pro forma effect on our net loss and loss per share had
stock-based compensation been determined using the fair value method, as well as for the assumptions used in calculating the fair value of options.



Restructuring



As part of our restructuring costs, we provide for the estimated costs of the net lease expense for office space that is no longer being
utilized. The provision is equal to the future minimum lease payments under contractual obligations offset by estimated future sublease payments. In determining these estimates, we evaluated our potential to sublease our excess space and our ability
to renegotiate various leases at more favorable terms and in some instances obtain relief through relocation of office space. These sublease estimates, which were made in connection with our real estate advisers, are based on current and projected
conditions in the real estate and economic markets in which we have excess office space. If actual market conditions are more or less favorable than those we have projected, we may be required to record or reverse restructuring expenses associated
with this excess office space.



Results of Operations



The following table sets forth selected
items included in our statement of operations as a percentage of fee revenue for the periods indicated. Pass-through revenue and pass-through expenses have been excluded from the table to better reflect our operating results.



|                                             |  | Year Ended December 31, |   
|-------------------------------------------- |  | ----------------------- | --
|                                             |  | 2002                    |   
|Fee revenue                                  |  | 100.0                   | % 
|Operating expenses:                          |  |                         |   
|Professional services costs                  |  | 59.1                    |   
|Selling, general and administrative expenses |  | 33.2                    |   
|Stock-based compensation                     |  | 4.1                     |   
|Amortization of intangible assets            |  | 0.3                     |   
|Restructuring expenses                       |  | 23.1                    |   
|                                             |  |                         |   
|Total operating expenses                     |  | 119.8                   |   
|                                             |  |                         |   
|Loss from operations                         |  | (19.8                   | )%
|                                             |  |                         |   



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Year ended December 31,
2002 compared to year ended December 31, 2001



Summary. Despite continued uncertainty in the global economy and the continued threat of terrorist attacks, Digitas results improved in 2002 as demand for our marketing and technology services stabilized at rates
consistent with the third and fourth quarters of 2001. However, we determined in 2002 that an additional restructuring charge would be required primarily to reflect our revised expectations of remaining real estate obligations related to excess
space initially restructured in 2001. Total restructuring charges for 2002 and 2001 were $47.1 million and $41.9 million, respectively. We reported a net loss for 2002 of $40.3 million, or $0.65 per share, as compared to a net loss of $94.1 million,
or $1.58 per share, for 2001, which includes amortization of goodwill of $24.5 million that is not included in the 2002 figures.



Revenue. Total revenue for 2002 decreased by $14.3 million, or 4.3%, to $321.0 million from $335.3 million in 2001. Fee revenue for
2002 decreased by $31.6 million, or 13.4%, to $203.9 million from $235.5 million in 2001. The decrease in revenue is attributable to the decline in demand as compared to the first six months of 2001 for marketing and technology services. Although
fee revenues have remained stable over the last six quarters at approximately $50 million per quarter, we remain cautious in our fee revenue outlook for 2003 given the continued uncertain global economic and political climate.



Professional services costs. Professional services
costs for 2002 decreased by $37.3 million, or 23.6%, to $120.4 million from $157.7 million in 2001. Professional services costs represented 59% of fee revenue for 2002 as compared to 67% of fee revenue for 2001. The decrease in professional services
costs, both in dollars and as a percentage of fee revenue, reflects cost savings resulting from restructuring activity and other cost cutting initiatives implemented in 2001. We believe that the rate of our professional services costs for the first
quarter of 2003 will approximate that for the fourth quarter of 2002. Pass-through expenses for 2002 increased $17.3 million, or 17.3%, to $117.1 million from $99.8 million in 2001. The increase in pass-through expenses is attributable to increased
media programs and production costs for our clients.



Selling, general and administrative expenses. Selling, general and administrative expenses for 2002 decreased by $27.8 million, or 29.1%, to $67.7 million from $95.5 million for 2001. As a percentage of fee revenue,
selling, general and administrative expenses decreased to 33% in 2002 from 41% in 2001. The decrease in selling, general and administrative expenses, both in dollars and as a percentage of fee revenue, reflects cost savings resulting from
restructuring activity and other cost cutting initiatives implemented in 2001. We believe that the rate of our selling, general and administrative expenses for the first quarter of 2003 will remain consistent with the fourth quarter of 2002.



Stock-based compensation. Stock-based
compensation, consisting of non-cash compensation, was $8.4 million for 2002 compared to $10.1 million for 2001. The decrease is due to the cancellation of stock options prior to their vesting dates in connection with restructuring activity and
normal attrition. We have not granted or repurchased any options nor issued common stock at a price below the estimated fair market value subsequent to the initial public offering in March 2000.



Amortization of intangible assets. Amortization of
intangible assets for 2002 decreased by $24.5 million, or 97.2%, to $0.7 million from $25.2 million for 2001. Effective January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. The provisions of SFAS No. 142 were
applied to all goodwill and other intangible assets recognized in the financial statements at that date. This resulted in an expense reduction of approximately $24.5 million in 2002 over 2001, as goodwill is no longer amortized, but instead is
subject to testing for impairment. We did not incur any impairment to existing intangible assets or goodwill during the year ended December 31, 2002, upon application of SFAS No. 142. See Note 1 of Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies goodwill policy for a quantification of the effect of SFAS No. 142 on our 2001 and 2000 net income.



Restructuring expenses.Restructuring expenses for 2002 increased by $5.2 million, or 12.4%, to $47.1 million from $41.9 million in
2001. During 2001, we recorded restructuring expenses totaling $41.9 million, consisting of $16.7 million for workforce reduction and related costs and $25.2 million for the consolidation of facilities and abandonment of related leasehold
improvements. These restructuring charges were taken to align our cost structure with changing market conditions and decreased demand for our services.



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We lease
approximately 600,000 square feet of office space under various operating leases and have identified approximately 300,000 square feet of that space as excess space. During 2001, we recognized $25.2 million in real estate related charges. This
represented our estimate of future obligations under the terms of the leases for the excess space less anticipated income from subleasing activities. In determining this estimate, we evaluated our potential to sublease this excess space and our
ability to renegotiate various leases at more favorable terms and in some instances obtain relief through relocation of office space.



During 2002, we recorded restructuring expenses totaling $47.1 million, consisting of $3.3 million for workforce reduction and related
costs and $43.8 million for the consolidation of facilities and abandonment of related leasehold improvements. These charges were taken to further align our cost structure with changing market conditions and to update estimates originally made in
2001 for current information.



We determined that
we would be unable to dispose of our excess office space in Boston, New York and San Francisco within our original assumptions. As a result, we recorded a restructuring expense of $39.2 million to reflect the revised estimate of our expected future
obligations under the terms of these leases less anticipated income from subleasing activities. The change in estimate is related to changes in estimated future sublease rates and terms. These sublease estimates, which were made in connection with
our real estate advisers, are based on current and projected conditions in the real estate and economic markets in which we have excess office space. In addition, we recorded restructuring expenses of $4.6 million for costs related to the closure of
our Miami and Salt Lake City facilities, which are included in the 300,000 square feet of excess space.



We continue to actively pursue and evaluate our alternatives and are monitoring our restructuring accrual on a quarterly basis to reflect
new developments and prevailing economic conditions in the real estate markets in which we lease office space.



The following is a summary of restructuring activity for the years ended December 31, 2002 and 2001:



|                                           |  | Workforce Reduction and Related Costs |         |   | Consolidation of Facilities |   |         | Total | 
|------------------------------------------ |  | ------------------------------------- | ------- | - | --------------------------- | - | ------- | ----- | 
|Accrued restructuring at December 31, 2000 |  | $                                     |        |   |                             | $ |        |       | 
|Restructuring expenses 2001                |  |                                       | 16,689  |   |                             |   | 25,199  |       | 
|Utilization 2001                           |  |                                       | (12,982 | ) |                             |   | (9,346  | )     | 
|                                           |  |                                       |         |   |                             |   |         |       | 
|Accrued restructuring at December 31, 2001 |  |                                       | 3,707   |   |                             |   | 15,853  |       | 
|Restructuring expenses 2002                |  |                                       | 3,311   |   |                             |   | 43,803  |       | 
|Utilization 2002                           |  |                                       | (5,530  | ) |                             |   | (10,756 | )     | 
|                                           |  |                                       |         |   |                             |   |         |       | 
|Accrued restructuring at December 31, 2002 |  | $                                     | 1,488   |   |                             | $ | 48,900  |       | 
|                                           |  |                                       |         |   |                             |   |         |       | 



As a
result of all restructuring activity, which commenced in the second quarter of 2001, the Company has reduced its workforce by approximately 700 employees across all business functions and regions.



For the years ended December 31, 2002 and 2001, cash
expenditures related to restructuring activities were $15.3 million and $18.9 million, respectively. As of December 31, 2002, total remaining cash expenditures related to restructuring activities were $41.7 million. Approximately $9.7 million in
cash expenditures are expected in fiscal 2003, and the remaining cash expenditures of approximately $32.0 million, primarily related to real estate rental obligations, are expected over the next ten years.



Other income, net. Other income, net of expenses,
decreased by $0.6 million, or 60%, to $0.4 million from $1.0 million. Other income, net, consists primarily of interest income earned on cash and cash equivalents offset by interest expense related to notes payable for tenant allowances, interest
expense on capitalized leases, and bank charges related to the companys revolving credit facility and standby letters of credit. The decrease in other income was due primarily to the decrease in the rate of interest earned on our cash and cash
equivalents.



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Year ended December 31, 2001 compared to year ended December 31, 2000



Summary. Fiscal 2001 was a challenging year for
Digitas as we reacted to overall market deterioration with a series of restructurings designed to realign our cost structure with reduced levels of demand. A slowing global economy, the impact of the September 11 terrorist attacks that disrupted the
national economy and negatively impacted our clients, and a continued softening in marketing and technology investments all contributed to a decrease in demand for our services in 2001. As a result, we reported a 2001 net loss of $94.1 million, or
$1.58 per share, as compared to a net loss of $23.2 million, or $0.41 per share, in 2000.



Revenue. Total revenue for 2001 decreased by $79.4 million, or 19.1%, to $335.3 million from $414.7 million in 2000. Fee revenue
for 2001 decreased by $52.7 million, or 18.3%, to $235.5 million from $288.2 million in 2000. The negative impact of the economic recession on both Digitas and our clients resulted in decreased demand for our services as client projects were delayed
or cancelled.



Professional services
costs. Professional services costs for 2001 decreased by $0.9 million, or 0.6%, to $157.7 million from $158.6 million in 2000. Professional services costs represented 67% of fee revenue for 2001, as compared to 55% of fee revenue for 2000. The
increase in professional service costs, as a percentage of fee revenue, was the result of the time lag between the decline in revenues and the realignment of our cost structure to reflect reduced levels of demand for our marketing and technology
services. The decrease in absolute dollars reflects the commencement of cost savings resulting from restructuring actions. Pass-through expenses for 2001 decreased $26.8 million, or 21.2%, to $99.8 million from $126.6 million in 2000. The decrease
in pass-through expenses is attributable to the decreased demand for our services due to the slowing economy forcing our clients to reduce spending.



Selling, general and administrative expenses. Selling, general and administrative expenses for 2001 decreased by $3.9
million, or 3.9%, to $95.5 million from $99.4 million for 2000. As a percentage of fee revenue, selling, general and administrative expenses increased to 41% in 2001 from 35% in 2000. The increase in selling, general and administrative expenses as a
percent of fee revenue was the result of the time lag between the decline in revenues and the realignment of our cost structure with reduced levels of demand for our marketing and technology services. The decrease in absolute dollars reflects the
commencement of cost savings resulting from restructuring actions.



Stock-based compensation. Stock-based compensation, consisting of non-cash compensation, was $10.1 million for 2001 compared to $14.8 million for 2000. The decrease is due to the cancellation of stock options prior to
their vesting dates in connection with restructuring activity and normal attrition. We have not granted or repurchased any options nor issued common stock at a price below the estimated fair market value subsequent to the initial public offering in
March 2000.



Amortization of intangible
assets. Amortization of intangible assets for 2001 decreased by $11.5 million, or 31.3%, to $25.2 million from $36.7 million for 2000. Amortization of intangible assets for 2001 consists of amortization of goodwill and favorable leases resulting
from our recapitalization, which was effected in January 1999. The decrease in absolute dollars was the result of intangible assets related to assembled workforce becoming fully amortized in 2000. Effective, January 1, 2002, with the adoption of
SFAS No. 142, we no longer amortize goodwill.



Restructuring expenses.In the second quarter of fiscal 2001, we recorded restructuring expenses of $16.9 million, consisting of $5.6 million in workforce reduction and other related costs and $11.3 million in the
consolidation of facilities and abandonment of related leasehold improvements. These restructuring expenses were taken to align our cost structure with the changing market conditions and decreased demand for our services. In September 2001, we
recorded additional restructuring expenses of $25.0 million, consisting of $11.1 million for workforce reduction and related costs and $13.9 million for the consolidation of facilities and abandonment of related leasehold improvements. These
restructuring expenses, which include the closing of our office in Hong Kong, were taken to further align our cost structure with changing market conditions and decreased demand for our services. The following is a summary of restructuring activity
(in thousands):



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|                                           |  | Workforce Reduction and Related Costs |         |   | Consolidation of Facilities |   |        | Total | 
|------------------------------------------ |  | ------------------------------------- | ------- | - | --------------------------- | - | ------ | ----- | 
|Accrued restructuring at December 31, 2000 |  | $                                     |        |   |                             | $ |       |       | 
|Restructuring expenses 2001                |  |                                       | 16,689  |   |                             |   | 25,199 |       | 
|Utilization 2001                           |  |                                       | (12,982 | ) |                             |   | (9,346 | )     | 
|                                           |  |                                       |         |   |                             |   |        |       | 
|Accrued restructuring at December 31, 2001 |  | $                                     | 3,707   |   |                             | $ | 15,853 |       | 
|                                           |  |                                       |         |   |                             |   |        |       | 



As a
result of the two restructuring actions, we reduced our workforce by approximately 650 employees, across all business functions and regions. Estimated costs for the consolidation of facilities are comprised of contractual rental commitments for
office space being vacated in addition to future depreciation of the related leasehold improvements, offset by estimated sublease income. Total cash expenditures related to restructuring activities during 2001 were $18.9 million.



Other income, net. Other income, net of expenses,
decreased by $0.3 million to $1.0 million from $1.3 million. Other income, net, for 2001 consisted of interest income earned on the investment of excess operating cash offset by interest expense related to notes payable for tenant allowances,
interest expense on capitalized leases and bank charges related to our revolving credit facility and standby letters of credit. Other income, net, for 2000 consisted of interest income earned on the invested portion of proceeds from our initial
public offering of common stock in March 2000 offset by interest expense primarily on long-term borrowings prior to the initial public offering. In addition, a realized gain on the termination of interest rate swap agreements was recorded.



Provision for income taxes. The provision
for income taxes for 2001 decreased by $1.5 million to $0.1 million from $1.6 million in 2000. The decrease was due to the generation of significantly less taxable income in 2001 than in 2000. The effective income tax rate is lower than the combined
federal and state statutory rates due primarily to an increase in the valuation allowance for deferred tax assets.



Extraordinary loss. In 2001, we did not recognize an extraordinary item. In March 2000, an extraordinary loss of $1.7 million was
recognized upon the early retirement of $68.5 million of long-term debt.



Liquidity and Capital Resources



We fund our operations primarily through cash generated from operations.



Cash and cash equivalents and working capital



Cash and cash equivalents increased from $46.5 million at the end of 2001 to $68.8 million at December 31, 2002. Cash provided by
operations for 2002 was $24.4 million. The $24.4 million was primarily the result of a $40.3 million net loss adjusted for $65.0 million of non-cash expenses, including depreciation and amortization, stock-based compensation and non-cash
restructuring expenses, $15.0 million of cash generated from normal operations, the result of improved working capital management and significant prepayments from customers, offset by $15.3 million in restructuring payments. Cash used in investing
activities for 2002 was $3.1 million, consisting of capital expenditures relating primarily to computer equipment and software purchases. Cash provided by financing activities for 2002 was $0.8 million, consisting primarily of proceeds from the
issuance of common stock through our employee stock purchase plan and upon the exercise of stock options offset by the repurchase of common shares. During 2002, we repurchased 666,000 common shares at an average price per share of $3.04. See
Subsequent Events below for a summary of the effect of the self-tender offer announced February 24, 2003.



Credit facility



Effective September 2001, we amended our existing credit facility originally dated July 25, 2000. The amended agreement allows us to
borrow up to $20 million, less any amounts committed under outstanding standby letters of credit. The credit facility expires on July 25, 2003. Amounts borrowed under the revolving credit facility bear interest at either the Prime Rate or at a
Eurocurrency rate plus an applicable margin of 2.50%-3.00%, depending on



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the Companys leverage ratio. Additionally, we are required to pay a commitment fee of 0.25% of the
average daily unused amount of the revolving credit. Effective September 2002, we further amended our credit facility. This amendment changed certain restrictive financial covenants, which include a maximum leverage ratio, a minimum EBITDA (earnings
before interest, taxes, depreciation and amortization) level, a minimum tangible net worth, a maximum leverage ratio, a minimum liquidity level, and a maximum annual capital expenditure level. As of December 31, 2002, we were in compliance with all
of our covenants. Borrowings under the credit facility are secured by substantially all the assets of the Company.



At December 31, 2002, we had no borrowings under the revolving credit facility and approximately $11.7 million outstanding under standby
letters of credit, leaving approximately $8.3 million available for future borrowings.



Other debt and commitments



The following table summarizes other cash obligations. (Note: Interest expense is included in payments due by period where applicable.)



|                                 |  | Payments Due by Period (in millions)
|-------------------------------- |  | ------------------------------------
|                                 |  | Total                               
|Notes payable, tenant allowances |  | $                                   
|Capital lease obligations        |  |                                     
|Operating leases                 |  |                                     
|                                 |  |                                     
|Total obligations                |  | $                                   
|                                 |  |                                     



Notes
Payable, Tenant Allowances. Since 1995, we have received tenant allowances, which are required to be reimbursed to the landlord through 2005.



Capital Lease Obligations.We have certain noncancelable leases to finance telephone equipment, copier equipment and software. The
total capitalized cost of the assets subject to capital leases was approximately $2,668,000 and $2,681,000 with accumulated amortization of approximately $2,273,000 and $1,663,000 as of December 31, 2002 and 2001, respectively.



Other Lease Obligations.We lease office facilities and
certain office equipment under cancelable and noncancelable operating lease agreements expiring at various dates through July 2015. We lease office space under noncancelable operating leases. Rent expense, including amounts described above,
consisting of minimum lease payments under noncancelable operating leases, net of any contractual sublease income, amounted to approximately $10,362,000, $14,936,000, and $13,713,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.



We expect that at current revenue
projections, we will continue to generate cash from operations. We expect that this cash from operations combined with current cash and cash equivalents and funds available under the credit facility will be sufficient to meet our working capital and
capital expenditure requirements for at least the next twelve months.



Subsequent Events



On
February 25, 2003, we announced a self-tender offer to purchase up to 6,426,735 shares of our common stock at a price of $3.89 per share, for an aggregate purchase price of up to approximately $25 million. The offer expires March 25, 2003, unless we
extend the offer. If more than 6,426,735 shares are tendered, we will purchase shares from each tendering shareholder on a pro rata basis. All shares tendered but not repurchased will be returned promptly to the shareholder.



Concurrently, we executed a fourth amendment to our credit
facility originally dated July 25, 2000. The amendment extended the expiration date of the credit facility from July 25, 2003 to February 23, 2006.



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Risks Factors and Important
Factors that may Affect Future Results



Set
forth below are certain risk factors that could harm our business prospects, results of operations and financial condition. You should carefully read the following risk factors, together with the financial statements, related notes and other
information contained in this Form 10-K. This Form 10-K contains forward-looking statements that contain risks and uncertainties. See Forward-Looking Statements on page one.



Risks Related to our Business



The loss of even one significant client or any significant reduction in the use of our services 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 with a limited number of clients. Most of these relationships, including those with our three largest clients, are
terminable by the client without penalty on 30 to 90 days prior written notice. For 2002, our three largest clients, General Motors, American Express and AT&T, collectively accounted for approximately 53% of our fee revenue, and our largest
client, General Motors, accounted for approximately 23% of fee revenue. The loss of any major client or any significant reduction in the use of our services by a major client could significantly reduce our revenue and have a negative impact on our
operating results, financial condition and reputation in our market. Our top ten clients accounted for approximately 78% of our 2002 fee revenue.



Our failure to meet our clients expectations could result in losses or negative publicity and could subject us to liability for
the services we provide



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. Any failure on our part to deliver our services in accordance with our clients expectations could result in:



| |  |  | additional expenditures to correct the problem;
| | - |  | -----------------------------------------------



| |  |  | delayed or lost client revenues;
| | - |  | --------------------------------



| |  |  | adverse client reactions and negative publicity; and
| | - |  | ----------------------------------------------------



| |  |  | claims against us.
| | - |  | ------------------



Although our client agreements often limit our liability to damages arising from our rendering of services, we cannot assure that these
provisions will be enforceable in all instances or would otherwise protect us from liability. While 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.



Acts of war or terrorism, or related effects could adversely affect our business, operating results and financial condition



An act of war or terrorism could adversely affect our business, operating results and financial condition. The related effects of an act
of war or terrorism, such as disruptions in air transportation, enhanced security measures and political instability in certain foreign countries may interrupt our business and that of our clients. An act of war or terrorism may result in a
significant reduction in client spending or contribute to the economic downturn and adversely affect our business, operating results and financial condition.



An economic recession or downturn in the United States or abroad may result in a reduction in our revenues and operating results



Our ability to succeed depends on the
continued investment of our current and future clients in the services we offer. Our business has been significantly adversely impacted during the last two years by a decline in demand for our services, primarily related to the current economic down
turn. A continuation of the economic recession or downturn in the United States and abroad may cause some of our current and future clients to continue to reduce or



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eliminate their budgets for our services. Furthermore, the reduction in client budgets may intensify
competition and further increase pressure for us to reduce the fees we charge our clients. A lasting economic recession or downturn in the United States or abroad may continue to have a material adverse effect on our business, financial condition
and results of operations.



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
or because a client insists, for whatever reason, that we not work with its competitors. 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 may receive reduced or no future revenue in that particular industry.



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 our services;
| | - |  | ----------------------------------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | -----------------------------------------------------



| |  |  | our ability to manage future growth;
| | - |  | ------------------------------------



| |  |  | timing and amount of client bonus payments; and
| | - |  | -----------------------------------------------



| |  |  | costs of attracting and training skilled personnel.
| | - |  | ---------------------------------------------------



Some of these factors are within our control while others are outside of our control.



Failure to manage our growth may impact our operating
results



If we succeed in expanding our
business, that expansion may 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 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. Our results of operations and financial condition could be harmed if we encounter difficulties in effectively
managing the budgeting, forecasting and other process control issues presented by our growth.



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If we are
not successful in expanding our ability to service our clients on a worldwide basis, we may jeopardize our relationships with existing clients and limit our ability to attract new clients



Failure to meet client demands that their relationship
marketing service providers be able to handle assignments on a worldwide basis may jeopardize our existing client relationships and limit our ability to attract new clients. Currently, we serve European markets from our office in London and can
serve markets in other regions from offices in the United States. To succeed we may also need to deepen and broaden our expertise in dealing with worldwide assignments by expanding our presence outside of the United States or by hiring more senior
executives with multi-national technology, marketing and customer relationship management expertise; and there is no assurance that we can attract those people or establish on a profitable basis offices outside of the United States.



We have limited experience in marketing, selling and
supporting our services outside of North America and the United Kingdom, and development of such skills may be more difficult or take longer than we anticipate. Operations outside the United States may be unprofitable or less profitable than
operations in the United States, especially due to language barriers, cultural differences, economic and political conditions in countries outside the United States, currency exchange risks, differences in terms of payment and collectibility of
receivables, reduced protection for intellectual property rights in some countries, the burden and expense of complying with foreign laws and regulations and the fact that the Internet infrastructure in foreign countries may be less advanced than in
the United States.



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. If our reputation
is damaged or if we are unable to establish name recognition, 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.



Our business will be negatively affected if we do not keep up with rapid technological changes, evolving industry standards and
changing client requirements



Our 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 in a timely and cost-effective manner. 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.
| | - |  | -------------------------------------------------------



Our industry is highly competitive and has low barriers to entry; if we cannot effectively compete, our revenue may decline



Our industry is relatively new and intensely
competitive. We expect competition to intensify even further as our industry evolves. Some of our current competitors have more clients, greater brand or name recognition and greater financial, technical, marketing and public relations resources
than we do. Furthermore, there are relatively low barriers to entry into our industry. 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 third parties to
increase their ability to address customer needs. Accordingly, it is possible that new competitors or



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alliances among competitors may emerge and rapidly acquire significant market share. We cannot assure you
that we will be able to continue to compete successfully with our existing competitors or any new competitors.



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 issuing equity securities.



We may need to raise additional capital, which may not be
available to us, and which may dilute the ownership interests of current investors



We may need to raise additional funds to meet our working capital and capital expenditure needs and to otherwise support our business and implement our strategy. 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:



| |  |  | create additional market-specific business units;
| | - |  | -------------------------------------------------



| |  |  | enhance our infrastructure;
| | - |  | ---------------------------



| |  |  | hire, train and retain employees;
| | - |  | ---------------------------------



| |  |  | keep up with technological advances; or
| | - |  | ---------------------------------------



| |  |  | respond to competitive pressures or unanticipated requirements.
| | - |  | ---------------------------------------------------------------



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, the ownership interest of our stockholders will be diluted.



We have a history of reported net losses and there can be no assurance that we will soon report net income



We have experienced substantial net losses
for the four years ended December 31, 2002. These losses have been attributable to charges for restructuring, stock-based compensation and the amortization of intangible assets. We expect to continue to report large charges for stock-based
compensation over the next two years under current accounting standards. Our anticipated revenue growth may not compensate for these charges and we may not achieve profitability during this time period.



Increased government regulation of various direct marketing
channels could adversely affect our business



State government regulation of various direct marketing channels, such as the Internet and telephone, is increasing. New laws and regulations, or new interpretations of existing laws and regulations, could impact us directly or
indirectly by preventing our clients from using certain direct marketing methods. New laws and regulations could create limitations on our clients ability to market to targeted customers which in turn could decrease the demand for our services
and have a material adverse effect on our future operating performance.



Risks Related to the Securities Markets



Our stock price has been and is likely to continue to be volatile and may result in substantial losses for investors



The market price of our common stock has been and is likely to continue to be highly volatile. Since we completed our initial public
offering in March 2000, the market price for our common stock has been as high as $40.00 per share and as low as $0.88 per share. Additionally, the stock market in general, and the market for



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technology-related stocks in particular, has been highly volatile and has been characterized by
significant decreases in market prices during 2000, 2001 and 2002. This volatility often has been unrelated to the operating performance of particular companies.



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.



Concentration of ownership may limit your ability to influence corporate matters



As of February 28, 2003, our executive officers, directors and
10% shareholders collectively owned approximately 60% of the outstanding shares of our common stock. On February 25, 2003, Digitas commenced a self-tender offer to purchase up to 6,426,735 shares of Digitas common stock. The tender offer will expire
on March 25, 2003, unless we extend it. One of our directors and certain of our major stockholders affiliated with other of our directors advised us that they intend to tender 36,977,293 shares in the tender offer. Assuming no additional shares are
tendered by other stockholders, and that 6,426,735 shares are purchased by Digitas in the self-tender offer from the one director and major stockholders affiliated with other of our directors who have stated their intention to tender shares, our
executive officers, directors and 10% shareholders collectively would own approximately 56% of the outstanding common stock. These shareholders 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 cannot enter 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.



Risks Related to Legal Uncertainty



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 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



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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 and other emerging technologies could adversely affect our business



To date, government regulations have not materially restricted the use of the Internet and other emerging technologies by our clients in
their markets. However, the legal and regulatory environment that pertains to such technologies may change. New state, federal and foreign laws and regulations, or new interpretations of existing laws and regulations, especially those relating to
privacy, could impact us directly or indirectly by preventing our clients from delivering products or services over technology-based distribution channels. Any new legislation could inhibit the increased use of the Internet and emerging technologies
as commercial mediums 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 that 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 and time-consuming and could distract our managements attention away from the operation of 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 that 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 to change our management and Board of Directors.



Item 8.Financial Statements and Supplementary Data



The financial statements and related notes are contained on the pages indicated on the Index to Financial Statements on page F-1 of this report.



The following table sets forth a summary of unaudited
quarterly operating results for each of the eight quarters ended December 31, 2002. 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 filing 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 performance that may be expected for any future period.



|                                                |  | Three Months Ended: (in thousands) |       
|----------------------------------------------- |  | ---------------------------------- | ------
|                                                |  | Dec. 31, 2002                      |       
|Revenue:                                        |  |                                    |       
|Fee revenue                                     |  | $                                  | 51,407
|Pass-through revenue                            |  |                                    | 40,854
|                                                |  |                                    |       
|Total revenue                                   |  |                                    | 92,261
|Operating expenses:                             |  |                                    |       
|Professional services costs                     |  |                                    | 30,780
|Pass-through expenses                           |  |                                    | 40,854
|Selling, general and administrative expense     |  |                                    | 16,649
|Stock-based compensation                        |  |                                    | 2,220 
|Amortization of intangible assets               |  |                                    | 177   
|Restructuring expenses                          |  |                                    |      
|                                                |  |                                    |       
|Total operating expenses                        |  |                                    | 90,680
|Income (loss) from operations                   |  |                                    | 1,581 
|Other income (expense):                         |  |                                    |       
|Interest income                                 |  |                                    | 257   
|Interest expense                                |  |                                    | (142  
|Other miscellaneous income (expense)            |  |                                    |      
|                                                |  |                                    |       
|                                                |  |                                    | 115   
|                                                |  |                                    |       
|Income (loss) before provision for income taxes |  |                                    | 1,696 
|Provision for income taxes                      |  |                                    |      
|                                                |  |                                    |       
|Net income (loss)                               |  | $                                  | 1,696 
|                                                |  |                                    |       



|* |  | As previously reported in the Companys Form 10-K for the year ended December 31, 2001, the first, second and third quarters of 2001 have been adjusted from
$3,122, $898, and $2,324, respectively, as reported in the Companys Form 10-Qs filed during 2001.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Certain previously reported
amounts have been reclassified to conform to the current year presentation.



Item 8a.Quantitative and Qualitative Disclosure About Market Risk



The Company does not believe that there is any material risk exposure with respect to derivative or other financial instruments that would require disclosure under this item.



Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



On March 27, 2002, the Audit Committee of the Board of Directors of Digitas informed Arthur Andersen LLP (Arthur Andersen), the Companys
independent public accountants for the fiscal year ended December 31, 2001, of its decision to no longer engage Arthur Andersen as the Companys independent public accountants. On April 1, 2002, the Company engaged Ernst & Young LLP to
serve as the Companys independent public accountants for the full year ending December 31, 2002. On April 3, 2002, Digitas filed a Form 8-K announcing this change in independent public accountants.



Arthur Andersens reports on the Companys consolidated financial
statements for each of the fiscal years ended December 31, 2001, 2000 and 1999 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.



During the fiscal years ended December 31, 2001 and 2000, there were no
disagreements with Arthur Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersens satisfaction, would have caused them to make
reference to the subject matter in connection with their report on the Companys consolidated financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.



The Company provided Arthur Andersen with a copy of the foregoing disclosures.
Attached as Exhibit 16.1 is a copy of Arthur Andersens letter, dated March 28, 2002, stating its agreement with such statements.



During the fiscal years ended December 31, 2001 and 2000 and through March 27, 2002, the Company did not consult Ernst & Young LLP with respect to the
application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Companys consolidated financial statements, or any other matters or reportable events as
set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.



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PART III



Item 10.Directors and Executive Officers of Registrant



(a) DIRECTORS



Incorporated herein by reference is the information appearing under the captions Information Concerning Directors and Compliance with Section 16(a) of the Securities Exchange Act of 1934 in the Digitas
definitive Proxy Statement for its 2003 Annual Meeting of Stockholders.



(b) EXECUTIVE OFFICERS



Incorporated herein by reference is the information appearing under the caption Executive Officers in the Digitas definitive Proxy Statement for its 2003 Annual Meeting of Stockholders.



Item 11.Executive Compensation



Incorporated herein by reference is the information appearing the caption Executive Compensation in the Digitas definitive Proxy Statement for its 2003 Annual Meeting of Stockholders.



Item 12.Security Ownership of Certain Beneficial Owners and Management



Incorporated herein by reference is the information appearing under the caption Security Ownership of Executive Officers and
Directors in the Digitas definitive Proxy Statement for its 2003 Annual Meeting of Stockholders. See Part I Item 5 for information regarding stockholder approved and non-stockholder approved equity compensation plans.



Item 13.Certain Relationships and Related Transactions



None.

PART IV



Item 14.Controls and Procedures



(a) Evaluation of disclosure controls and procedures.



As required by new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, we carried out an evaluation under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and
procedures, we and our management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to
apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that they believe that as of the date of completion of the
evaluation, our disclosure controls and procedures were reasonably effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and forms. In connection with the new rules, we will continue to review and document our disclosure controls and procedures, including our internal controls and
procedures for financial reporting, on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.



(b) Changes in internal controls.



None.



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Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



15(a)(1) FINANCIAL STATEMENTS



The financial statements and notes are listed in the Index to Financial Statements on page F-1 of this report.



15(a)(2) FINANCIAL STATEMENT SCHEDULES



The following are contained in this annual report on Form 10-K
immediately following the Notes to Consolidated Financial Statements:



| |  |  | Report of Independent Public Accountants
| | - |  | ----------------------------------------



| |  |  | Schedule II: Valuation and Qualifying Accounts
| | - |  | ----------------------------------------------



Schedules not listed above are omitted because they are not required or because the required information is given in the consolidated
financial statements or notes thereto.



15(a)(3)
EXHIBITS



Exhibits are as set forth in the
Index to Exhibits which follows the Notes to Financial Statements.



15(b) REPORTS ON FORM 8-K



On December 12, 2002, the Company filed a Form 8-K announcing an update of its expected fourth quarter results, the resignation of its president / chief operating officer and the resulting management reorganization.



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DIGITAS



INDEX TO FINANCIAL STATEMENTS



|                                                                                            |  | Page
|------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Auditors                                                              |  | F-2 
|Report of Independent Public Accountants                                                    |  | F-3 
|Consolidated Balance Sheets at December 31, 2002 and 2001                                   |  | F-4 
|Consolidated Statements of Operations for the Three Years Ended December 31,
2002           |  | F-5 
|Consolidated Statements of Shareholders Equity for the Three Years Ended December
31, 2002 |  | F-6 
|Consolidated Statements of Cash Flows for the Three Years Ended December 31,
2002           |  | F-7 
|Notes to Consolidated Financial Statements                                                  |  | F-8 



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REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Shareholders of Digitas Inc.:



We have audited the accompanying consolidated balance sheet of
Digitas Inc. as of December 31, 2002 and the related consolidated statements of operations, shareholders equity and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item
15(a)(2). These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The consolidated financial
statements and schedules of Digitas Inc. as of December 31, 2001 and December 31, 2000 and for the two years then ended, were audited by other auditors who have ceased operations and whose report dated January 23, 2002 expressed an unqualified
opinion on those statements and schedules before the adjustments described in Note 1.



We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



In our opinion, the 2002 financial statements referred to
above present fairly, in all material respects, the consolidated financial position of Digitas Inc. as of December 31, 2002, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.



As discussed
above, the consolidated financial statements of Digitas Inc. as of December 31, 2001 and December 31, 2000, and for the two years then ended, were audited by other auditors who have ceased operations. As discussed in Note 1 to the financial
statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets and Emerging Issues Task Force Issue Number 01-14: Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred (EITF 01-14). As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Statement
No. 142 and the addition of pass-through revenue and expenses for EITF 01-14, which were both adopted as of January 1, 2002. With respect to the adoption of Statement No. 142, we have audited the disclosures in Note 1. With respect to the adoption
of EITF 01-14, we have audited the adjustments to the statement of operations. With respect to these adjustments and disclosures, our procedures were limited to (a) agreeing the previously reported revenues, operating expenses and net loss to the
previously issued financial statements, (b) agreeing the adjustments to the underlying records obtained from management, and (c) testing the mathematical accuracy of the reconciliation of adjusted revenue and operating expenses and the revised
financial statements. In our opinion such disclosures and adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the consolidated financial statements of Digitas Inc. as
of December 31, 2001 and December 31, 2000, and for the two years then ended, other than with respect to such disclosures and adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated financial
statements as of December 31, 2001 and December 31, 2000, and for the two years then ended, taken as a whole.



/s/ Ernst & Young LLP



Boston, Massachusetts

January 27, 2003



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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of Digitas Inc.:



We have audited the accompanying balance sheets of Digitas
Inc. (a Delaware corporation) as of December 31, 2001 and 2000 and the related statements of operations, shareholders equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of Digitas Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the three years ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.



/s/ Arthur Andersen LLP



Boston, Massachusetts

January 23, 2002



NOTE:

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Digitas
Inc.s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.



F-3



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##### Table of Contents

DIGITAS



CONSOLIDATED BALANCE SHEETS

(dollars in thousands)



|                                                                                                                                                                            |  | December 31, |         
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------
|                                                                                                                                                                            |  | 2002         |         
|ASSETS                                                                                                                                                                      |  |              |         
|Current assets:                                                                                                                                                             |  |              |         
|Cash and cash equivalents                                                                                                                                                   |  | $            | 68,827  
|Accounts receivable, net of allowance for doubtful accounts of $944 and $2,209 at
December 31, 2002 and 2001, respectively                                                  |  |              | 34,920  
|Accounts receivable, unbilled                                                                                                                                               |  |              | 17,986  
|Prepaid expenses and other current assets                                                                                                                                   |  |              | 5,029   
|                                                                                                                                                                            |  |              |         
|Total current assets                                                                                                                                                        |  |              | 126,762 
|Fixed assets, net                                                                                                                                                           |  |              | 30,892  
|Goodwill, net                                                                                                                                                               |  |              | 98,130  
|Other intangible assets, net                                                                                                                                                |  |              | 1,411   
|Other assets                                                                                                                                                                |  |              | 2,054   
|                                                                                                                                                                            |  |              |         
|Total assets                                                                                                                                                                |  | $            | 259,249 
|                                                                                                                                                                            |  |              |         
|                                                                                                                                                                           
|LIABILITIES AND SHAREHOLDERS
EQUITY                                                                                                                                        |  |              |         
|Current liabilities:                                                                                                                                                        |  |              |         
|Accounts payable                                                                                                                                                            |  | $            | 17,092  
|Current portion of long-term debt                                                                                                                                           |  |              | 255     
|Billings in excess of cost and estimated earnings on uncompleted
contracts                                                                                                  |  |              | 24,685  
|Accrued expenses                                                                                                                                                            |  |              | 7,842   
|Accrued compensation                                                                                                                                                        |  |              | 17,749  
|Accrued restructuring                                                                                                                                                       |  |              | 11,117  
|Capital lease obligations                                                                                                                                                   |  |              | 276     
|                                                                                                                                                                            |  |              |         
|Total current liabilities                                                                                                                                                   |  |              | 79,016  
|Long-term debt, less current portion                                                                                                                                        |  |              | 563     
|Capital lease obligations, long-term portion                                                                                                                                |  |              |        
|Accrued restructuring, long-term                                                                                                                                            |  |              | 39,271  
|Other long-term liabilities                                                                                                                                                 |  |              | 315     
|                                                                                                                                                                            |  |              |         
|Total liabilities                                                                                                                                                           |  |              | 119,165 
|Shareholders equity:                                                                                                                                                       |  |              |         
|Preferred shares, $.01 par value per share; 25,000,000 shares authorized and none issued
and outstanding at December 31, 2002 and 2001                                      |  |              |        
|Common shares, $.01 par value per share, 175,000,000 shares authorized; 62,510,919 and
60,857,083 shares issued and outstanding at December 31, 2002 and 2001, respectively |  |              | 625     
|Additional paid-in capital                                                                                                                                                  |  |              | 346,898 
|Accumulated deficit                                                                                                                                                         |  |              | (197,642
|Cumulative foreign currency translation adjustment                                                                                                                          |  |              | (62     
|Deferred compensation                                                                                                                                                       |  |              | (9,735  
|                                                                                                                                                                            |  |              |         
|Total shareholders equity                                                                                                                                                  |  |              | 140,084 
|                                                                                                                                                                            |  |              |         
|Total liabilities and shareholders equity                                                                                                                                  |  | $            | 259,249 
|                                                                                                                                                                            |  |              |         



The
accompanying notes are an integral part of these consolidated financial statements.



F-4



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##### Table of Contents



DIGITAS



CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



|                                                                                         |  | Year Ended December 31, |        
|---------------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                         |  | 2002                    |        
|Revenue:                                                                                 |  |                         |        
|Fee revenue                                                                              |  | $                       | 203,931
|Pass-through revenue                                                                     |  |                         | 117,093
|                                                                                         |  |                         |        
|Total revenue                                                                            |  |                         | 321,024
|                                                                                         |  |                         |        
|Operating expenses:                                                                      |  |                         |        
|Professional services costs                                                              |  |                         | 120,430
|Pass-through expenses                                                                    |  |                         | 117,093
|Selling, general and administrative expenses                                             |  |                         | 67,748 
|Stock-based compensation                                                                 |  |                         | 8,447  
|Amortization of intangible assets                                                        |  |                         | 706    
|Restructuring expenses                                                                   |  |                         | 47,114 
|                                                                                         |  |                         |        
|Total operating expenses                                                                 |  |                         | 361,538
|                                                                                         |  |                         |        
|Loss from operations                                                                     |  |                         | (40,514
|Other income (expense):                                                                  |  |                         |        
|Interest income                                                                          |  |                         | 958    
|Interest expense                                                                         |  |                         | (562   
|Realized gain on investment                                                              |  |                         | 15     
|Gain (loss) on disposal of fixed assets                                                  |  |                         |       
|Other miscellaneous income                                                               |  |                         | 3      
|                                                                                         |  |                         |        
|Loss before provision for income taxes                                                   |  |                         | (40,100
|Provision for income taxes                                                               |  |                         | (200   
|                                                                                         |  |                         |        
|Loss from continuing operations                                                          |  |                         | (40,300
|Extraordinary loss relating to early extinguishment of debt (net of tax benefit of
$175) |  |                         |       
|                                                                                         |  |                         |        
|Net loss                                                                                 |  | $                       | (40,300
|                                                                                         |  |                         |        
|Net loss per sharebasic and diluted                                                     |  |                         |        
|Loss from continuing operations                                                          |  | $                       | (0.65  
|Extraordinary loss                                                                       |  |                         |       
|                                                                                         |  |                         |        
|Net loss                                                                                 |  | $                       | (0.65  
|                                                                                         |  |                         |        
|Weighted average common shares outstanding                                               |  |                         |        
|Basic and diluted                                                                        |  |                         | 62,354 
|                                                                                         |  |                         |        



The
accompanying notes are an integral part of these consolidated financial statements.





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##### Table of Contents



DIGITAS



CONSOLIDATED STATEMENTS OF
SHAREHOLDERS EQUITY

(in thousands, except share data)



|                                                   |  | Common Stock |   |  | Additional Paid-in Capital |     |   | Accumulated Deficit |   |         | Cumulative Foreign Currency Translation Adjustment |  |   | Deferred Compensation |   |  | Total Shareholders Equity |     
|-------------------------------------------------- |  | ------------ | - |  | -------------------------- | --- | - | ------------------- | - | ------- | -------------------------------------------------- |  | - | --------------------- | - |  | -------------------------- | ----
|                                                   |  | Shares       |   |  | Amount                     |     |   |                     |   |         |                                                   
|Balance at December 31, 1999                       |  | 50,703,479   |   |  | $                          |    |   |                     | $ | 208,153 |                                                    |  | $ | (40,028               | ) |  | $                          |    
|Comprehensive loss                                 |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   | (23,226               | ) |  |                            |    
|Exercise of stock options                          |  | 1,015,330    |   |  |                            | 10  |   |                     |   | 1,082   |                                                    |  |   |                       |   |  |                            |     
|Deferred stock-based compensation                  |  |              |   |  |                            |     |   |                     |   | 22,519  |                                                    |  |   |                       |   |  |                            |     
|Stock-based compensation                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Cancellation of stock options                      |  |              |   |  |                            |     |   |                     |   | (7,967  | )                                                  |  |   |                       |   |  |                            |     
|Issuance of common stock, net of issuance costs    |  | 6,358,992    |   |  |                            | 571 |   |                     |   | 136,388 |                                                    |  |   |                       |   |  |                            |     
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Balance at December 31, 2000                       |  | 58,077,801   |   |  |                            | 581 |   |                     |   | 360,175 |                                                    |  |   | (63,254               | ) |  |                            |    
|Net loss                                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   | (94,088               | ) |  |                            |     
|Cumulative foreign currency translation adjustment |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            | (396
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Total comprehensive loss                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Exercise of stock options                          |  | 2,268,397    |   |  |                            | 22  |   |                     |   | 2,973   |                                                    |  |   |                       |   |  |                            |     
|Stock-based compensation                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Cancellation of stock options                      |  |              |   |  |                            |     |   |                     |   | (19,005 | )                                                  |  |   |                       |   |  |                            |     
|Issuance of common stock                           |  | 510,885      |   |  |                            | 5   |   |                     |   | 1,766   |                                                    |  |   |                       |   |  |                            |     
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Balance at December 31, 2001                       |  | 60,857,083   |   |  |                            | 608 |   |                     |   | 345,909 |                                                    |  |   | (157,342              | ) |  |                            | (396
|Net loss                                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   | (40,300               | ) |  |                            |     
|Cumulative foreign currency translation adjustment |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            | 334 
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Total comprehensive loss                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Exercise of stock options                          |  | 2,060,985    |   |  |                            | 21  |   |                     |   | 3,000   |                                                    |  |   |                       |   |  |                            |     
|Stock-based compensation                           |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Cancellation of stock options                      |  |              |   |  |                            |     |   |                     |   | (711    | )                                                  |  |   |                       |   |  |                            |     
|Issuance of common stock                           |  | 258,851      |   |  |                            | 3   |   |                     |   | 721     |                                                    |  |   |                       |   |  |                            |     
|Repurchase of common stock                         |  | (666,000     | ) |  |                            | (7  | ) |                     |   | (2,021  | )                                                  |  |   |                       |   |  |                            |     
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     
|Balance at December 31, 2002                       |  | 62,510,919   |   |  | $                          | 625 |   |                     | $ | 346,898 |                                                    |  | $ | (197,642              | ) |  | $                          | (62 
|                                                   |  |              |   |  |                            |     |   |                     |   |         |                                                    |  |   |                       |   |  |                            |     



The
accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents



DIGITAS



CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                |  | Year Ended December 31, |        
|------------------------------------------------------------------------------- |  | ----------------------- | -------
|                                                                                |  | 2002                    |        
|Cash flows from operating activities:                                           |  |                         |        
|Net loss                                                                        |  | $                       | (40,300
|Adjustments to reconcile net loss to net cash provided by operating
activities: |  |                         |        
|Depreciation and amortization                                                   |  |                         | 12,743 
|Loss (gain) on disposal of fixed assets                                         |  |                         |       
|Stock-based compensation                                                        |  |                         | 8,447  
|Provision for doubtful accounts                                                 |  |                         |       
|Noncash restructuring expenses                                                  |  |                         | 43,809 
|Extraordinary loss                                                              |  |                         |       
|Changes in operating assets and liabilities:                                    |  |                         |        
|Accounts receivable                                                             |  |                         | 880    
|Accounts receivable, unbilled                                                   |  |                         | 508    
|Prepaid expenses and other current assets                                       |  |                         | 2,923  
|Other assets                                                                    |  |                         | 150    
|Accounts payable                                                                |  |                         | 2,680  
|Billings in excess of costs and estimated earnings on uncompleted
contracts     |  |                         | (604   
|Accrued expenses                                                                |  |                         | (1,820 
|Accrued compensation                                                            |  |                         | 6,448  
|Accrued restructuring                                                           |  |                         | (11,523
|Other long-term liabilities                                                     |  |                         | 58     
|                                                                                |  |                         |        
|Net cash provided by operating activities                                       |  |                         | 24,399 
|                                                                                |  |                         |        
|Cash flows from investing activities:                                           |  |                         |        
|Purchase of fixed assets                                                        |  |                         | (3,057 
|                                                                                |  |                         |        
|Net cash used in investing activities                                           |  |                         | (3,057 
|                                                                                |  |                         |        
|Cash flows from financing activities:                                           |  |                         |        
|Principal payments under capital lease obligations                              |  |                         | (665   
|Proceeds from sale leaseback                                                    |  |                         |       
|Payment of notes payable, tenant allowances                                     |  |                         | (231   
|Payment of notes payable, bank                                                  |  |                         |       
|Payment of notes payable, shareholders                                          |  |                         |       
|Repurchase of common stock                                                      |  |                         | (2,028 
|Proceeds from issuance of common stock, net of issuance costs                   |  |                         | 3,745  
|                                                                                |  |                         |        
|Net cash provided by financing activities                                       |  |                         | 821    
|                                                                                |  |                         |        
|Effect of exchange rate changes on cash and cash equivalents                    |  |                         | 191    
|                                                                                |  |                         |        
|Net increase (decrease) in cash and cash equivalents                            |  |                         | 22,354 
|Cash and cash equivalents, beginning of period                                  |  |                         | 46,473 
|                                                                                |  |                         |        
|Cash and cash equivalents, end of period                                        |  | $                       | 68,827 
|                                                                                |  |                         |        
|Supplemental disclosure of cash flow information:                               |  |                         |        
|Cash paid for taxes                                                             |  | $                       | 637    
|Cash paid for interest                                                          |  |                         | 552    
|Supplemental disclosure of noncash investing and financing activities:          |  |                         |        
|Issuance of notes payable to shareholders                                       |  | $                       |       
|Change in par value of common stock (Note 8)                                    |  |                         |       
|Assets acquired under capital lease obligations                                 |  |                         |       
|Income tax refund receivable (Note 10)                                          |  |                         |       



The
accompanying notes are an integral part of these consolidated financial statements.





F-7



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1. BASIS OF
PRESENTATION, DESCRIPTION OF BUSINESS, AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



Bronner Slosberg Humphrey Inc. was incorporated in Massachusetts in 1980 as a Subchapter S corporation. Strategic Interactive Group, Inc. was incorporated in Massachusetts in 1995 as a Subchapter S corporation. Through December 31,
1998, certain shareholders of Bronner Slosberg Humphrey Inc. (BSH) owned a majority of the outstanding shares of Strategic Interactive Group, Inc. (SIG).



On November 5, 1998, BSH and SIG completed transactions in which each company was reorganized into a Massachusetts business
trust (each a Trust and together the Trusts) with a wholly owned limited liability company (LLC) subsidiary. 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 Trusts as the 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.



Effective January 1, 1999, BSH and SIG completed a transaction with a private
equity investor and the existing shareholders (the Recapitalization). Under the terms of the Recapitalization, the private equity investor acquired a certain number of shares directly from the existing shareholders for $102.0 million. In
addition the Company borrowed $70.6 million from a bank. On the date following the close of the Recapitalization, SIG effectively merged into Bronner Slosberg Humphrey Co. Bronner Slosberg Humphrey Co. served as the ultimate parent of Digitas LLC,
the Delaware limited liability company through which the business was operated through December 31, 2001. Substantially all of the stock options and stock appreciation rights of BSH and SIG 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. On December 22, 1999, Digitas Inc., a Delaware corporation, was formed to ultimately hold the
ownership interests of Bronner Slosberg Humphrey Co. and Digitas LLC after completing a reorganization to become the sole shareholder of the Trust. Effective December 31, 2001, Bronner Slosberg Humphrey Co. was merged into a newly formed
Massachusetts corporation Bronner Slosberg Humphrey Inc. The terms Company and Digitas refer to Digitas LLC prior to the reorganization and Digitas Inc. thereafter.



Operations



Digitas is a relationship marketing services provider offering strategy consulting, marketing agency and marketing technology infrastructure services.
Digitas helps its clients attract, retain and grow profitable customer relationships.



Summary of Significant Accounting Policies



Cash and Cash Equivalents



Cash
and cash equivalents include all highly liquid instruments purchased with an original maturity of three months or less. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.



Allowance for Doubtful Accounts



The Company maintains an allowance for estimated losses resulting from the
inability of customers to make required payments. The collectibility of outstanding customer invoices is continuously assessed. In estimating the allowance, the Company considers factors such as historical collections, a customers current
credit-worthiness, age of the receivable balance both individually and in the aggregate, and general economic conditions that may affect a customers ability to pay. Actual customer collections could differ from estimates, requiring additional
adjustments to the allowance for doubtful accounts.



Fixed
Assets



Fixed assets are recorded at cost. Expenditures for
renewals and improvements are capitalized. 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 lives of the related assets,
which are as follows:





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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





|Furniture and fixtures          |  | 5-7 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



Goodwill



Goodwill is stated at cost less accumulated amortization.
Through December 31, 2001, goodwill was amortized on a straight-line basis over its estimated life of seven years. Effective January 1, 2002, with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, the Company no longer amortizes goodwill. SFAS No. 142 requires goodwill to be tested for impairment on an annual basis, and between annual tests in certain circumstances, and written down when impaired. Impairment exists if
the carrying value of the reporting unit exceeds the fair value of the reporting unit. The Company evaluates goodwill for impairment using the two-step process as prescribed in SFAS No. 142. The first step is an initial evaluation for potential
impairment, while the second step is a measurement of the amount of the impairment. The Company determined fair value using discounted cash flow analysis, which requires us to make certain assumptions and estimates regarding industry economic
factors and future profitability. The Company did not incur any impairment to existing intangible assets or goodwill in 2002. The effect of discontinuing the amortization of goodwill on net income and earnings per share for the years ended December
31, 2001 and 2000 is presented below.



|                                                        |  | Year Ended December 31, |        
|------------------------------------------------------- |  | ----------------------- | -------
|                                                        |  | 2001                    |        
|Net loss as reported                                    |  | $                       | (94,088
|Plus: amortization of goodwill                          |  |                         | 24,532 
|                                                        |  |                         |        
|Pro forma net income (loss)                             |  | $                       | (69,556
|                                                        |  |                         |        
|Basic and diluted net loss per share, as reported       |  | $                       | (1.58  
|Plus: amortization of goodwill                          |  |                         | 0.41   
|                                                        |  |                         |        
|Pro forma basic and diluted net income (loss) per share |  | $                       | (1.17  
|                                                        |  |                         |        



Other Intangible
Assets



Other intangible assets are stated at cost less
accumulated amortization. As of December 31, 2002, other intangible assets consist of favorable leases, which represents the difference between the fair market value of the new leases signed on the purchase date in conjunction with the
recapitalization and the actual leases in existence. Other intangible assets are amortized on a straight-line basis over their estimated lives. The estimated life of the favorable leases is six years.



Internal Use Software



American Institute of Certified Public Accountants (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



In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the recoverability of the carrying value of its long-lived assets based on estimated undiscounted cash flows to be
generated from each of such assets compared to the original estimates used in measuring the assets. To the extent impairment is identified, the Company reduces the carrying value of such impaired assets to fair value based on estimated discounted
future cash flows.



Fair Value of Financial Instruments



The fair value of cash and cash equivalents, accounts
receivable, short-term debt and accounts payable approximate their carrying value due to the immediate or short-term maturity of these financial instruments. The fair value of long-term debt is based on the current rates offered to the Company for
debt instruments of similar risks and maturities and approximates its carrying value.



Fee Revenue Recognition





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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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 is 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
incurred plus estimated earnings from revenue earned in advance of billings under the contract. Advance payments are recorded as billings in excess of cost and estimated earnings on uncompleted contracts until the services are provided.



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.



Pass-through Revenue and Expenses



The Company incurs significant reimbursable costs, such as payments to vendors for media and production services and postage and travel-related expenses, on behalf of clients. In accordance with the client agreements, there
is no markup on reimbursable costs and the clients approval is required prior to the Company incurring them. Although the Company actively mitigates its credit risk related to these pass-through costs and its customers participate in the
management of such vendor relationships, Digitas is often the sole party that contracts with these vendors. Effective January 1, 2002, upon adoption of the Emerging Issues Task Force (EITF) Issue No. 01-14, Income Statement
Characterization of Reimbursements Received for Out of Pocket Expenses Incurred, the Company reports pass-through costs incurred as a component of revenue and as a component of operating expenses in the statement of operations. Prior periods
have been reclassified to comply with the guidance in Issue No. 01-14. The effect of the accounting change was to increase revenue for the years ended December 31, 2001 and 2000 by $100 million and $117 million, respectively, with an equivalent
increase in expenses for each of these periods. This accounting change had no effect on net income, earnings per share, or cash from operations. Included in accounts receivable and unbilled accounts receivable are reimbursable costs.



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.



Research and Development Costs



Research and development costs are charged to operations as incurred. To date, substantially all research and development activities have been pursuant to
customer contracts and have been expensed as professional services costs.



Net Income Per Share



Basic and diluted
earnings per share are computed in accordance with SFAS No. 128, Earnings per Share. SFAS No. 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.



|                                                   |  | December 31,
|-------------------------------------------------- |  | ------------
|                                                   |  | 2002        
|Weighted average common shares outstanding         |  | 62,354,183  
|Dilutive effect of options and warrants            |  |            
|                                                   |  |             
|Diluted weighted average common shares outstanding |  | 62,354,183  
|                                                   |  |             



For the three years
ended December 31, 2002, 2001 and 2000, the Company incurred net losses; as a result, options and warrants totaling approximately 31,901,420, 33,382,534, and 31,071,626, respectively, were not included in the computations of diluted net loss per
share, as their effects would have been antidilutive.



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



F-10



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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 for 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.



Stock-based Compensation



The Company applies the intrinsic method of Accounting Principles Board
Opinion (APBO) No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for its employee stock option plans. The Company provides pro forma disclosures of compensation expense under the
fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure.



Had compensation cost for the 1998, 1999 and 2000 stock option plans
(excluding exchanged shares) been determined using the fair value method at the grant dates, the effect on the Companys net loss and earnings per share for the years ended December 31, 2002, 2001 and 2000 would have been as follows:



|                                                                           |  | 2002 |         |   | 2001 |   |          | 2000 | 
|-------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | ---- | 
|Net loss, as reported                                                      |  | $    | (40,300 | ) |      | $ | (94,088  | )    | 
|Plus: Stock-based compensation included in reported net loss, net of tax   |  |      | 8,447   |   |      |   | 10,147   |      | 
|Less: Stock-based compensation expense under fair value method, net of
tax |  |      | (22,400 | ) |      |   | (18,531  | )    | 
|                                                                           |  |      |         |   |      |   |          |      | 
|Pro forma net loss                                                         |  | $    | (54,253 | ) |      | $ | (102,472 | )    | 
|                                                                           |  |      |         |   |      |   |          |      | 
|Basic and diluted net loss per share, as reported                          |  | $    | (0.65   | ) |      | $ | (1.58    | )    | 
|Pro forma basic and diluted net loss per share                             |  | $    | (0.87   | ) |      | $ | (1.72    | )    | 



The Company calculated
the fair value of each option grant on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during 2002, 2001 and 2000: volatility of 65%, no expected dividend yield;
risk-free interest rates of 3.41%, 4.91% and 6.15% in 2002, 2001 and 2000, respectively; and expected lives of five years.



Foreign Currency Translation



Monetary assets and liabilities of the Companys foreign branch 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. Transaction gains and losses are reflected in selling, general and administrative expenses
in the statement of operations. Transaction gains were approximately $205,000 for the year ended December 31, 2002. Transaction losses were approximately $19,000 and $129,000 for the years ended December 31, 2001 and 2000, respectively.



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



The Company accounts for comprehensive income under SFAS No. 130, Reporting Comprehensive Income. All components of comprehensive income are reported in the financial statements in the period in which they are recognized.
The Companys comprehensive income is comprised of net income and foreign currency translation adjustment.



Reclassifications



Certain previously reported amounts have been reclassified to conform to the current year presentation.



Recently Issued Accounting Pronouncements





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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





In June 2001, the
Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations. SFAS No. 141 requires that all business combinations in the scope of that Statement be accounted for using one method, the purchase
method. SFAS No. 141 supersedes APBO No. 16, Business Combinations, and SFAS No. 38, Accounting for Preacquisition Contingencies of Purchased Enterprises. The provisions of this Statement apply to all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 has not had a material impact on the financial position or results of operations of the Company.



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31,
2002. The Company does not expect the adoption of SFAS No. 146 to have a material impact on its financial position or results of operations.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, it
amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported
results. The annual requirements of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 and the interim requirements are effective for interim periods beginning after December 15, 2002. The Company does not plan to transition
to the fair value method of accounting for its stock-based employee compensation.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). Along
with new disclosure requirements, FIN 45 requires guarantors to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. This differs from the current practice to record
a liability only when a loss is probable and reasonably estimable. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 is not
expected to have a material effect on the Companys results of operations or financial position. The Company has adopted the disclosure provisions as of December 31, 2002.



In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities, an Interpretation
of ARB No. 51 (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after
January 31, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Management does not anticipate that the adoption of FIN 46 will have a material effect on the Companys results of
operations or financial position.



1. RESTRUCTURING EXPENSES



During the year ended December 31, 2001, the Company
recorded restructuring expenses totaling $41.9 million, consisting of $16.7 million for workforce reduction and related costs and $25.2 million for the consolidation of facilities and abandonment of related leasehold improvements. These
restructuring charges were taken to align the Companys cost structure with changing market conditions and decreased demand for services.



The Company leases approximately 600,000 square feet of office space under various operating leases and has identified approximately 300,000 square feet
of that space as excess space. During 2001, Digitas recognized $25.2 million in real estate related charges. This represented the Companys estimate of future obligations under the terms of the leases for the excess space less anticipated
income from subleasing activities. In determining this estimate, the Company evaluated its potential to sublease this excess space and its ability to renegotiate various leases at more favorable terms and in some instances obtain relief through
relocation of office space.



During 2002, the Company recorded
restructuring expenses totaling $47.1 million, consisting of $3.3 million for workforce reduction and related costs and $43.8 million for the consolidation of facilities and abandonment of related leasehold improvements. These charges were taken to
further align the Companys cost structure with changing market conditions and to update estimates originally made in 2001 for current information.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





In 2002, the Company
determined that it would be unable to dispose of its excess office space in Boston, New York and San Francisco within its original assumptions. As a result, the Company recorded a restructuring expense of $39.2 million to reflect the revised
estimate of its expected future obligations under the terms of these leases less anticipated income from subleasing activities. The change in estimate is related to changes in estimated future sublease rates and terms. These sublease estimates,
which were made in connection with the Companys real estate advisers, are based on current and projected conditions in the real estate and economic markets in which the Company has excess office space. In addition, the Company recorded
restructuring expenses of $4.6 million for costs related to the closure of its Miami and Salt Lake City facilities, which are included in the 300,000 square feet of excess space.



The Company continues to actively pursue and evaluate its alternatives and is monitoring its restructuring accrual on a
quarterly basis to reflect new developments and prevailing economic conditions in the real estate markets in which it leases office space.



As a result of all restructuring activity, which commenced in the second quarter of 2001, the Company has reduced its workforce by approximately 700
employees across all business functions and regions.



The
following is a summary of restructuring activity for the years ended December 31, 2002 and 2001:



|                                           |  | Workforce Reduction and Related Costs |         |   | Consolidation of Facilities |   |         | Total | 
|------------------------------------------ |  | ------------------------------------- | ------- | - | --------------------------- | - | ------- | ----- | 
|Accrued restructuring at December 31, 2000 |  | $                                     |        |   |                             | $ |        |       | 
|Restructuring expenses 2001                |  |                                       | 16,689  |   |                             |   | 25,199  |       | 
|Utilization 2001                           |  |                                       | (12,982 | ) |                             |   | (9,346  | )     | 
|                                           |  |                                       |         |   |                             |   |         |       | 
|Accrued restructuring at December 31, 2001 |  |                                       | 3,707   |   |                             |   | 15,853  |       | 
|Restructuring expenses 2002                |  |                                       | 3,311   |   |                             |   | 43,803  |       | 
|Utilization 2002                           |  |                                       | (5,530  | ) |                             |   | (10,756 | )     | 
|                                           |  |                                       |         |   |                             |   |         |       | 
|Accrued restructuring at December 31, 2002 |  | $                                     | 1,488   |   |                             | $ | 48,900  |       | 
|                                           |  |                                       |         |   |                             |   |         |       | 



For the years ended
December 31, 2002 and 2001, cash expenditures related to restructuring activities were $15.3 million and $18.9 million, respectively. As of December 31, 2002, total remaining cash expenditures related to restructuring activities were $41.7 million.
Approximately $9.7 million in cash expenditures are expected in fiscal 2003, and the remaining cash expenditures of approximately $32.0 million, primarily related to real estate rental obligations, are expected over the next ten years.



3. FIXED ASSETS



Fixed assets consist of the following:



|                                |  | December 31, |        
|------------------------------- |  | ------------ | -------
|                                |  | 2002         |        
|Furniture and fixtures          |  | $            | 16,429 
|Computer equipment and software |  |              | 37,458 
|Leasehold improvements          |  |              | 22,860 
|Capital leases                  |  |              | 2,668  
|                                |  |              |        
|                                |  |              | 79,415 
|Less accumulated depreciation   |  |              | (48,523
|                                |  |              |        
|                                |  | $            | 30,892 
|                                |  |              |        



Depreciation expense for
the years ended December 31, 2002, 2001, and 2000 was approximately $11,974,000, $14,242,000 and $9,762,000, respectively.



4. GOODWILL



Goodwill consists of the following:



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





|                              |  | December 31, |        
|----------------------------- |  | ------------ | -------
|                              |  | 2002         |        
|Goodwill                      |  | $            | 171,726
|Less accumulated amortization |  |              | (73,596
|                              |  |              |        
|                              |  | $            | 98,130 
|                              |  |              |        



Amortization of goodwill
for each of the years ended December 31, 2001 and 2000 was approximately $24,532,000. Effective January 1, 2002, with the adoption of SFAS No. 142, the Company no longer amortizes goodwill.



5. OTHER INTANGIBLE ASSETS



Other intangible assets consist of the following:



|                              |  | December 31, |       
|----------------------------- |  | ------------ | ------
|                              |  | 2002         |       
|Favorable leases              |  | $            | 4,234 
|Less accumulated amortization |  |              | (2,823
|                              |  |              |       
|                              |  | $            | 1,411 
|                              |  |              |       



Amortization of other
intangible assets for the years ended December 31, 2002, 2001 and 2000 was approximately $706,000, $706,000, and $12,155,000, respectively. Other intangible assets during the year ended December 31, 2000 also included assembled workforce, which was
fully amortized by the end of that year and the cost and related accumulated amortization written off. Amortization expense for the years ended December 31, 2003 and 2004 is expected to be $706,000 per year.



6. ACCRUED COMPENSATION



Accrued compensation consists of the following:



|                           |  | December 31,
|-------------------------- |  | ------------
|                           |  | 2002        
|Accrued bonus              |  | $           
|Other accrued compensation |  |             
|                           |  |             
|                           |  | $           
|                           |  |             



7. DEBT



Term Loan





In March 2000 the Company completed an initial public offering. A portion of the proceeds was used to retire a $68,505,000 term loan balance due December 2004. This early extinguishment of debt resulted in an extraordinary loss of
$1,653,000 (net of a tax benefit of $175,000), which is included in the statement of operations for the year ended December 31, 2000.



Credit Agreements



Effective September 2001, the Company amended its existing credit facility originally dated July 25, 2000. The amended agreement allows the Company to
borrow up to $20 million, less any amounts committed under outstanding standby letters of credit. The credit facility expires on July 25, 2003. Amounts borrowed under the revolving credit facility bear interest at either the Prime Rate or at a
Eurocurrency rate plus an applicable margin of 2.50%3.00%, depending on the Companys leverage ratio. Additionally, the Company is required to pay a commitment fee of 0.25% of the average daily unused amount of the revolving credit.
Effective September 2002, the Company further amended its credit facility. This amendment changed certain restrictive financial covenants, which include a maximum leverage ratio, a minimum EBITDA (earnings before interest, taxes, depreciation and
amortization) level, a minimum tangible net worth, a maximum leverage ratio, a minimum liquidity level, and a maximum annual capital expenditure level. As of December 31, 2002, the Company was in compliance with all of its covenants.



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Borrowings under the credit facility are secured by substantially all the assets of the Company.



At December 31, 2002, the Company had no borrowings under the
revolving credit facility and approximately $11.7 million outstanding under standby letters of credit, leaving $8.3 million available for future borrowings. As described in Note 17, the credit facility was amended in February 2003.



Notes Payable, Tenant Allowances



Since 1995, the Company 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 $94,000, $116,000, and $136,000, for the years ended December 31, 2002, 2001 and 2000, respectively.



8. SHAREHOLDERS EQUITY



Common Stock



On March 14, 2000, the Company successfully completed its initial public
offering of common stock. The Company sold 6,200,000 shares of common stock in the initial public offering for approximately $148.8 million less issuance costs of $14.1 million. Additionally, the par value of the Companys common stock was
changed from zero to $0.01 per share.



Stock Split



On February 10, 2000, the Board of Directors approved a
2-for-1 stock split of the Companys common stock. All share and per share amounts have been restated to reflect the split.



Stock Repurchase Program



In June 2002, the Board of Directors authorized the repurchase of up to $20 million of common stock under its common stock repurchase program. During the
year ended December 31, 2002, the Company repurchased 666,000 shares of common stock at an average price of approximately $3.04 for an aggregate purchase price of approximately $2,028,000.



9. STOCK-BASED COMPENSATION



Common Stock Options



Effective January 1, 1999, the date of the recapitalization, the Board of Directors adopted the 1998 option plan (the 1998 Plan). The 1998
Plan authorized the grant of (i) 17,126,644.8 rollover options, which were granted in exchange for the cancellation of stock appreciation rights and stock options held by officers, directors and employees under stock plans in place prior to the
recapitalization, and (ii) an additional 11,744,700 options that were 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 10,152,000
shares. All shares of common stock underlying non-rollover options granted under the 1998 Plan that are forfeited or cancelled are added to the shares of common stock available for issuance under the Digitas Inc. 2000 Stock Option and Incentive
Plan.



All options granted under the 1998 Plan were non-qualified
stock options. Grants under the 1998 Plan were made to employees and non-employee directors, consultants and independent contractors. A committee of the Board of Directors administers the 1998 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 was 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 1998 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 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 1998 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 the Company or its affiliates.



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





In September 1999, the
Board of Directors adopted the 1999 Option Plan (the 1999 Plan), which initially allowed for the grant of up to 13,592,700 shares of common stock. All common stock shares underlying options granted under the 1999 Plan that are forfeited
or cancelled are added to the shares of common stock available for issuance under the Digitas Inc. 2000 Stock Option and Incentive Plan.



Grants under the 1999 Plan may be made to employees and non-employee directors, consultants and independent contractors who contribute to the management,
growth and profitability of the Companys business or its affiliates. A committee of the Board of Directors administers the 1999 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 1999 Plan may be granted at prices which are less than the fair market value of the underlying shares on the
date granted. Under the 1999 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 the Company or its affiliates.



Effective December 1999, the Board of Directors adopted the Digitas Inc. 2000 Stock Option and Incentive Plan (the 2000 Plan). The 2000 Plan initially allowed for the grant of up to 7,718,200 shares of common stock. In
May 2001, the Companys shareholders and Board of Directors approved an additional 15,000,000 shares of common stock for grant under the 2000 Plan. In addition, all common stock shares underlying non-rollover options granted under the 1998 Plan
and options granted under the 1999 Plan that are cancelled or forfeited are added to the shares of common stock available for issuance under the 2000 Plan.



Grants under the 2000 Plan may be made to employees and non-employee directors, consultants and independent contractors who contribute to the management,
growth and profitability of the Companys business or its affiliates. A committee of the Board of Directors administers the 2000 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 2000 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 the Company or its affiliates.



As of December 31, 2002, 16,640,606 shares of common stock were available for future grant and 47,762,026 shares of common stock were reserved for future issuance under the Companys option plans.



The following table summarizes stock option activity under the 1998, 1999 and
2000 Plans:



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                       |  | Year Ended December 31,
|-------------------------------------------------------------------------------------- |  | -----------------------
|                                                                                       |  | 2002                   
|                                                                                       |  | Shares                 
|Options outstanding at beginning of period                                             |  | 32,602,534             
|Options granted                                                                        |  | 2,439,310              
|Options exercised                                                                      |  | (2,060,985             
|Options canceled                                                                       |  | (1,859,439             
|                                                                                       |  |                        
|Options outstanding at end of period                                                   |  | 31,121,420             
|                                                                                       |  |                        
|Weighted-average fair value of options granted during the year at fair market
value    |  |                        
|Weighted-average fair value of options granted during the year below fair market
value |  |                        



|                        |  | Options Outstanding                     |  | Options Exercisable                                   
|----------------------- |  | --------------------------------------- |  | ------------------------------------------------------
|Range of exercise price |  | Number outstanding at December 31, 2002 |  | Weighted-average remaining contractual life (in years)
|$  0.94  $   2.19      |  | 9,389,036                               |  | 5.8                                                   
|$  2.40  $   3.10      |  | 12,144,485                              |  | 6.8                                                   
|$  3.26  $   4.95      |  | 4,069,836                               |  | 8.2                                                   
|$  5.35  $   8.74      |  | 1,528,118                               |  | 8.3                                                   
|$  8.75  $   8.97      |  | 3,314,958                               |  | 6.6                                                   
|$12.50  $16.88         |  | 433,987                                 |  | 7.3                                                   
|$18.00  $24.00         |  | 241,000                                 |  | 7.5                                                   
|                        |  |                                         |  |                                                       
|$  0.94  $24.00        |  | 31,121,420                              |  | 6.8                                                   
|                        |  |                                         |  |                                                       



In addition to the
recapitalization, during 2000 and 1999, the Company issued 2,438,000 and 8,360,000 stock options, respectively, to employees at exercise prices ranging from $2.52 to $8.75, which at the time of the grant were below the fair market value of the
Companys common stock. As a result of these option grants, the Company has recorded deferred compensation expense, which represents the aggregate difference between the option exercise price and the deemed fair market value of the common stock
determined for financial reporting purposes for grants to employees. These amounts are recognized as compensation expense over the vesting period of the underlying stock options. The Company recorded compensation expense of $8.4 million, $10.1
million and $14.8 million, respectively, during the years ended December 31, 2002, 2001 and 2000, related to these options.



Common Stock Warrants



During the year ended December 31, 1999, the Company issued warrants to purchase 900,000 shares of common stock at an exercise price of $2.52 per share.
Subsequently, during the same year, the Board of Directors authorized the Company to repurchase warrants to purchase 120,000 of these shares. The remaining warrants are fully exercisable and expire in January 2009.



10. INCOME TAXES



The components of loss before income taxes and the provision for income taxes
are as follows:



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|                                          |  | December 31, |        
|----------------------------------------- |  | ------------ | -------
|                                          |  | 2002         |        
|Loss before income taxes                  |  | $            | (40,100
|Benefit from (provision for) income taxes |  |              |        
|Federal                                   |  |              |        
|Current                                   |  |              | (14,039
|Deferred                                  |  |              | 12,883 
|                                          |  |              |        
|Total federal                             |  |              | (1,156 
|State                                     |  |              |        
|Current                                   |  |              | (2,007 
|Deferred                                  |  |              | 2,963  
|                                          |  |              |        
|Total state                               |  |              | 956    
|                                          |  |              |        
|Provision for income taxes                |  | $            | (200   
|                                          |  |              |        



The reconciliation of
income tax computed at statutory rates to the effective rate is as follows:



|                                         |  | December 31, |   
|---------------------------------------- |  | ------------ | --
|                                         |  | 2002         |   
|United States statutory rate             |  | 35.0         | % 
|State taxes, net of federal benefit      |  | 4.5          |   
|Goodwill and other permanent differences |  | (0.3         | ) 
|Change in valuation allowance            |  | (39.7        | ) 
|                                         |  |              |   
|Effective tax rate                       |  | (0.5         | )%
|                                         |  |              |   



The tax effects of
temporary differences that give rise to a significant portion of the deferred income tax assets (liabilities), net, are as follows:



|                                |  | December 31, |        
|------------------------------- |  | ------------ | -------
|                                |  | 2002         |        
|Deferred tax assets:            |  |              |        
|Amortization of intangibles     |  | $            | 20,962 
|Accrued expenses                |  |              | 7,636  
|Stock-based compensation        |  |              | 15,772 
|Allowance for doubtful accounts |  |              | 380    
|Depreciation                    |  |              | 999    
|Restructuring charge            |  |              | 19,251 
|Net operating loss carryforward |  |              | 15,169 
|                                |  |              |        
|Total deferred tax assets       |  |              | 80,169 
|                                |  |              |        
|Net deferred tax asset          |  |              | 80,169 
|Valuation allowance             |  |              | (79,969
|                                |  |              |        
|Total                           |  | $            | 200    
|                                |  |              |        



In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment.



At December 31, 2002 the Company has available
federal and various state net operating loss carryforwards of approximately $37,000,000 beginning to expire in 2020. At December 31, 2002, a full valuation allowance has been recorded.



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DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The December 31, 2001 deferred tax assets have been grossed up to recognize the tax consequences
associated with the increase to the net operating loss carryforward of approximately $9,000,000. These amounts are fully reserved and accordingly have no impact on the financial statements.



A receivable of approximately $293,000 and $5,600,000 related to the carryback
of 2001 losses is included in other current assets at December 31, 2002 and 2001, respectively.



11. EMPLOYEE BENEFIT PLANS



Effective December 1999, the Board of Directors and shareholders adopted the 2000 Employee Savings Plan (the 2000 Savings Plan). This plan provides for a discretionary Company match of employee contributions, up
to 4%, subject to certain IRS restrictions. For the years ended December 31, 2002, 2001 and 2000, the Company incurred approximately $0.8 million, $2.4 million and $3.2 million, respectively, representing matching contributions and administrative
expenses related to the 2000 Savings Plan. In addition, the Company has an employee stock purchase plan, under which a total of up to 2,200,000 shares of common stock are authorized to be sold to participating employees. Participating employees may
purchase shares of common stock at 85% of the stocks fair market value at the beginning or end of an offering period, whichever is lower, through payroll deductions in an amount not to exceed 10% of an employees base compensation.



12. RELATED PARTY TRANSACTIONS



During the year ended December 31, 2001, the Company provided approximately
$52,000 in services to a client whose chairman and founder is a current director of Digitas and shareholder of greater than ten percent of the Companys outstanding common stock. All services were provided to this company at arms-length
business terms.



13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT



Prior to the initial public offering, the Company entered
into interest rate swap agreements to fix interest rates on portions of existing long-term debt and to mitigate the effect of changes in interest rates on earnings. The Company entered into separate agreements on February 22 and 24, 1999, each for a
notional amount of $20.0 million and each having a maturity date of February 2001. Under the terms of the agreements, the Company locked in fixed rates of 5.36% and 5.30% on the notional amounts and the Company compensated the financial institution
or was compensated by the financial institution for the differential between the fixed rates and the current LIBOR rate. Through March 14, 2000, the interest rate differential payable or receivable on the agreements was recognized on an accrual
basis as an adjustment to interest expense. Immediately following the initial public offering, the Company repaid the entire outstanding term loan balance with the bank. As a result, the interest rate swap agreements were no longer considered
necessary as a hedge. These interest rate swap agreements were terminated in April 2000 at a total value of $447,000. A realized gain on investments of $447,000 is included in the statement of operations for the year ended December 31, 2000.



14. SEGMENTS AND RELATED INFORMATION



The Company manages its business as one segment. Accordingly, the financial
information disclosed in these financial statements represents the material financial information related to the Companys single operating segment.



The Company attempts to limit its concentration of credit risk by securing clients with significant assets or liquidity. While the Company enters into
written agreements with its clients, such contracts are typically terminable between 30 and 90 days notice. Management believes a loss of any one of its significant clients or any significant reduction in the use of its services by a major client
could have a material adverse effect on the Companys business, financial condition and results of operations. During the years ended December 31, 2002, 2001 and 2000, the Companys top ten clients represent 78%, 74% and 85%, respectively,
of the Companys total fee revenue. The table below summarizes customers that individually comprise greater than 10% of the Companys fee revenue.



F-19



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|     |  | Customer |  
|---- |  | -------- | -
|     |  | A        |  
|2002 |  | 12       | %
|2001 |  | *        |  
|2000 |  | *        |  



| | * |  | Less than 10% in year presented
| | - |  | -------------------------------



15. COMMITMENTS AND CONTINGENCIES



Capitalized Leases



The Company has certain noncancelable leases to finance telephone equipment, copier equipment and software. The total capitalized cost of the assets
subject to capital leases was approximately $2,668,000 and $2,681,000 with accumulated amortization of approximately $2,273,000 and $1,663,000 as of December 31, 2002 and 2001, respectively.



Other Lease Obligations



The Company leases office facilities and certain office equipment under
cancelable and noncancelable operating lease agreements expiring at various dates through July 2015. Certain of the facility leases contain renewal options and escalation clauses.



The Company leases office space under noncancelable operating leases. Rent expense, including amounts described above,
consisting of minimum lease payments under noncancelable operating leases amounted to approximately $10,362,000, $14,936,000, and $13,713,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Portions of the Companys space
are sublet to other tenants under leases expiring during the next one to ten years. For the years ended December 31, 2002, 2001 and 2000, the Companys rent expense was partially offset by tenant income of approximately $1,900,000, $800,000,
and $119,000, respectively. The future minimum rental payments required under capital and operating leases as of December 31, 2002 are as follows:



|                                            |  | Capital Leases |      |   | Operating Leases
|------------------------------------------- |  | -------------- | ---- | - | ----------------
|2003                                        |  | $              | 284  |   |                 
|2004                                        |  |                |     |   |                 
|2005                                        |  |                |     |   |                 
|2006                                        |  |                |     |   |                 
|2007                                        |  |                |     |   |                 
|Thereafter                                  |  |                |     |   |                 
|                                            |  |                |      |   |                 
|Total minimum rental payments required      |  |                | 284  |   |                 
|                                            |  |                |      |   |                 
|Less amount representing interest           |  |                | (8   | ) |                 
|                                            |  |                |      |   |                 
|Present value of net minimum lease payments |  |                | 276  |   |                 
|Less current maturities                     |  |                | (276 | ) |                 
|                                            |  |                |      |   |                 
|Long-term obligations, capital lease        |  | $              | _-   |   |                 
|                                            |  |                |      |   |                 



Minimum payments have
not been reduced by minimum sublease income of $16,179,000 due in the future under noncancelable subleases.



16. LEGAL PROCEEDINGS



From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. The Company believes it is not currently a party to any such claims or proceedings, which, if decided
adversely to it, would either individually or in the aggregate have a material adverse effect on the Companys business, financial condition or results of operations.



F-20



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##### Table of Contents

DIGITAS



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The Company is a party to stockholder class action law suits filed in the United States District Court
for the Southern District of New York. Between June 26, 2001 and August 16, 2001, several stockholder class action complaints were filed in the United States District Court for the Southern District of New York against the Company, several of its
officers and directors, and five underwriters of its initial public offering (the Offering). The purported class actions are all brought on behalf of purchasers of the Companys common stock since March 13, 2000, the date of the
Offering. The plaintiffs allege, among other things, that the Companys prospectus, incorporated in the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, was materially false and misleading because it failed
to disclose that the underwriters had engaged in conduct designed to result in undisclosed and excessive underwriters compensation in the form of increased brokerage commissions and also that this alleged conduct of the underwriters
artificially inflated the Companys stock price in the period after the Offering. The plaintiffs claim violations of Sections 11, 12 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission and seek, among other things, damages, statutory compensation and costs of litigation. Effective October 9, 2002, the claims against the Companys officers and
directors were dismissed without prejudice. Effective February 19, 2003, the Section 10(b) claims against the Company were dismissed. The Company believes that the remaining claims against it are without merit and intends to defend them vigorously.
Management currently believes that resolving these matters will not have a material adverse impact on the Companys financial position or its results of operations; however, litigation is inherently uncertain and there can be no assurances as
to the ultimate outcome or effect of these actions.



17.
SUBSEQUENT EVENTS



On February 25, 2003, the Company
announced that it commenced a self-tender offer to purchase up to 6,426,735 shares of its common stock at a purchase price of $3.89 per share, for an aggregate purchase price of up to approximately $25 million. The offer expires March 25, 2003,
unless the Company extends the offer. If more than 6,426,735 shares are tendered, the Company will purchase shares from each tendering shareholder on a pro rata basis. All shares tendered but not repurchased by the Company will be returned promptly
to the shareholder.



Concurrently, the Company executed a fourth
amendment to its credit facility originally dated July 25, 2000. The amendment extended the expiration date of the credit facility from July 25, 2003 to February 23, 2006.



F-21



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of Massachusetts, on March 14, 2003.



DIGITAS INC.By:

/s/    JEFFREY J. COTEJeffrey J. Cote Chief Financial Officer and Chief Operating
Officer






---

##### Table of Contents



I, Jeffrey J. Cote, certify
that:



| | 1. |  | I have reviewed this annual report on Form 10-K of Digitas Inc.;
| | -- |  | ----------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date with 90 days prior to the filing date of this annual report (the
Evaluation Date); and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date or our most recent evaluation, including any corrective action s with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 14, 2003



/s/    Jeffrey J.
CoteName:

Jeffrey J. CoteTitle:

Chief Financial Officer and Chief Operating Officer






---

##### Table of Contents



I, David W. Kenny, certify
that:



| | 1. |  | I have reviewed this annual report on Form 10-K of Digitas Inc.;
| | -- |  | ----------------------------------------------------------------



| | 2. |  | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. |  | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date with 90 days prior to the filing date of this annual report (the
Evaluation Date); and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions):
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6. |  | The registrants other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date or our most recent evaluation, including any corrective action s with regard to significant deficiencies and material weaknesses.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 14, 2003



/s/    David W.
KennyName:

David W. KennyTitle:

Chief Executive Officer






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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE



To Digitas Inc.:



We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial
statements of Digitas Inc. for the years ended December 31, 2001 and 2000 included in this Form 10-K and have issued our report thereon dated January 23, 2002.



Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is the
responsibility of the Companys management and is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic consolidated financial statements. The schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.



/s/ Arthur Andersen LLP



Boston, Massachusetts

January 23, 2002



NOTE:

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Digitas Inc.s filing on Form 10-K for the year ended December 31, 2001. This audit report has not
been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.





---

##### Table of Contents

DIGITAS



FINANCIAL STATEMENT SCHEDULE



Schedule II: Valuation and Qualifying Accounts

(in thousands)



|Allowance for Doubtful Accounts |  | Balance at Beginning of Period |       | Charged to Expense |   | Write-offs |  | Balance at End of Period
|------------------------------- |  | ------------------------------ | ----- | ------------------ | - | ---------- |  | ------------------------
|Year ended December 31, 2000    |  | $                              | 1,053 |                    | $ | 609        |  | $                       
|Year ended December 31, 2001    |  | $                              | 1,419 |                    | $ | 2,557      |  | $                       
|Year ended December 31, 2002    |  | $                              | 2,209 |                    | $ |           |  | $                       





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##### Table of Contents



POWER OF
ATTORNEY



KNOWN ALL MEN BY THESE PRESENTS
that each individual whose signature appears below constitutes and appoints each of Jeffrey J. Cote and Thomas M. Lemberg 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 Report, 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 Exchange Act of 1934 this report has been signed below by the following persons in the capacities and on the dates indicated.



|NAME                                                |  | CAPACITY                                                                                                           |  | DATE          
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | --------------
|/s/    DAVID W.
KENNYDavid W. Kenny                 |  | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)                       |  | March 14, 2003
|                                                   
|/s/    JEFFREY J.
COTEJeffrey J. Cote               |  | Chief Financial Officer and Chief Operating Officer (principal financial officer and principal accounting
officer) |  | March 14, 2003
|                                                   
|/s/    GREGOR S.
BAILARGregor S. Bailar             |  | Director                                                                                                           |  | March 14, 2003
|                                                   
|/s/    MICHAEL E.
BRONNERMichael E. Bronner         |  | Director                                                                                                           |  | March 14, 2003
|                                                   
|/s/    JOHN L. BUNCE,
JR.John
L. Bunce, Jr.         |  | Director                                                                                                           |  | March 14, 2003
|                                                   
|/s/    PATRICK J.
HEALYPatrick J. Healy             |  | Director                                                                                                           |  | March 14, 2003
|                                                   
|/s/    PHILIP U.
HAMMARSKJOLDPhilip U. Hammarskjold |  | Director                                                                                                           |  | March 14, 2003
|                                                   
|/s/    ARTHUR
KERNArthur
Kern                       |  | Director                                                                                                           |  | March 14, 2003







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##### Table of Contents



INDEX TO
EXHIBIT



|Exhibit No. |  | Exhibit Index Title                                                                                                                                                                                       |  | Method of Filing                                                                                                                                                              
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1         |  | Agreement and Plan of Merger between Between Bronner Slosberg Humphrey Co. and BSH Inc. dated December 19,
2001                                                                                           |  | Incorporated by reference to Exhibit 3.1 to the Annual Report of Form 10-K for the year ended December 31,
2001                                                               
|           
|3.1         |  | Amended and Restated Certificate of Incorporation of Digitas Inc.                                                                                                                                         |  | Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission 
|           
|3.2         |  | By-laws of Digitas Inc.                                                                                                                                                                                   |  | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission 
|           
|4.1         |  | Specimen certificate for shares of common stock, $.01 par value, of Digitas Inc.                                                                                                                          |  | Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission 
|           
|10.1        |  | The Bronner Slosberg Humphrey Co. 1998 Option Plan                                                                                                                                                        |  | Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|10.2        |  | The Bronner Slosberg Humphrey Co. 1999 Option Plan                                                                                                                                                        |  | Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|10.3        |  | Form of 2000 Stock Option and Incentive Plan                                                                                                                                                              |  | Incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|10.4        |  | Form of 2000 Employee Stock Purchase Plan                                                                                                                                                                 |  | Incorporated by reference to Exhibit 10.4 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|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) |  | Incorporated by reference to Exhibit 10.5 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|10.6        |  | Seventh Amendment to Lease, dated as of March 29, 1999, by and between BP Prucenter Acquisition, LLC and Bronner Slosberg
Humphrey, LLC                                                                   |  | Incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission
|           
|10.7        |  | Eight Amendment to Lease, dated as of July 30, 1999, by and between BP Prucenter Acquisition, LLC and Bronner Slosberg
Humphrey, LLC                                                                      |  | Incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission





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##### Table of Contents

INDEX TO EXHIBIT



|Exhibit No. |  | Exhibit Index Title                                                                                                                                                                                                     |  | Method of Filing                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8        |  | Sublease, dated as of December 22, 1997, by and between EMI Entertainment World, Inc., and Bronner Slosberg Humphrey
Inc.                                                                                               |  | Incorporated by reference to Exhibit 10.8 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission           
|           
|10.9        |  | Sublease, dated as of March 22, 1999, by and between EMI Music, Inc. and Bronner Slosberg Humphrey, LLC                                                                                                                 |  | Incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as amended,
as filed with the Securities and Exchange Commission           
|           
|10.10       |  | Agreement of Sublease, dated as of April 29, 1999, by and between Warner Music Group Inc. and Bronner Slosberg Humphrey,
LLC                                                                                            |  | Incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission          
|           
|10.11       |  | Agreement of Sublease, dated as of November 15, 1999, by and between Bill Communications, Inc. and Bronnercom,
LLC                                                                                                      |  | Incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission          
|           
|10.12       |  | Sub-Sublease Agreement, dated as of June 5, 1998, by and between Strategic Interactive Group, Inc. and Allegiance
Telecom, Inc. (including the termination of the Sub-Sublease Agreement, dated as of December 7, 1999) |  | Incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission          
|           
|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)   |  | Incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission          
|           
|10.14       |  | Lease Agreement, dated as of July 24, 2000, by and between M&S Balanced Property Fund, L.P. and Digitas
Inc.                                                                                                            |  | Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K for the year ended December 31,
2000                                                                        
|           
|10.15       |  | Master Security Agreement, dated September 27, 2000, by and among Digitas LLC and Fleet Capital
Corporation                                                                                                             |  | Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K for the year ended December 31,
2000                                                                        
|           
|10.16       |  | Warrant Agreement, dated as of January 6, 1999, by and between Bronner Slosberg Humphrey Co. and Positano Partners
Ltd.                                                                                                 |  | Incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission          
|           
|10.17       |  | First Amendment to 2000 Stock Option and Incentive Plan                                                                                                                                                                 |  | Incorporated by reference to Exhibit C to the Definitive Proxy Statement on Schedule 14A (SEC File No. 000-29723), as
filed with the Securities and Exchange Commission on April 3, 2001.
|           
|10.18       |  | Employment Agreement, dated as of January 6, 1999, by and between David W. Kenny and Bronner Slosberg                                                                                                                   |  | Incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-1 (SEC File No.                                                                                       





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##### Table of Contents

INDEX TO EXHIBIT



|Exhibit No. |  | Exhibit Index Title                                                                                                                                                                                                                           |  | Method of Filing                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  | Humphrey, LLC                                                                                                                                                                                                                                 |  | 333-93585), as amended, as filed with the Securities and Exchange Commission                                                                                                   
|           
|10.19       |  | Employment Agreement, dated as of January 6, 1999, by and between Michael Ward and Bronner Slosberg Humphrey,
LLC                                                                                                                             |  | Incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.20       |  | Advertising Agreement, dated as of January 19, 1999, by and between AT&T Corp. and Bronner Slosberg
Humphrey                                                                                                                                  |  | Incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.21       |  | General Agreement, dated as of April 12, 1999, by and between AT&T Corp. and Bronner Slosberg
Humphrey                                                                                                                                        |  | Incorporated by reference to Exhibit 10.30 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.22       |  | Advertising Agreement, dated as of April 12, 1999, by and between AT&T Corp. and Bronner Slosberg Humphrey (including
the Agreement Amendment, dated as of May 12, 1999)                                                                      |  | Incorporated by reference to Exhibit 10.31 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.23       |  | Advertising/Marketing Agreement, dated as of October 11, 1995, by and between AT&T Communications, Inc.-Business
Communications Services and Bronner Slosberg Humphrey Inc. (including the Agreement Amendment dated as of November 27, 1995) |  | Incorporated by reference to Exhibit 10.32 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.24       |  | Direct Marketing Agreement, dated as of July 24, 1997, by and between Cellular Telephone Company (d/b/a AT&T Wireless
Services, Northeast Region) and Bronner Slosberg Humphrey Inc.                                                          |  | Incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.25       |  | Letter of Engagement, dated as of July 1, 1999, by and among AT&T Interactive Group, AT&T Corporation, and
Strategic Interactive Group                                                                                                        |  | Incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.26       |  | Marketing & Advertising Services Agreement, dated as of January 1, 2000, by and between Bronnercom, LLC and General
Motors Corporation                                                                                                        |  | Incorporated by reference to Exhibit 10.35 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.27       |  | Agreement 2000 Compensation, dated as of January 5, 2000, by and between General Motors Corporation, Oldsmobile Division
and Bronnercom, LLC                                                                                                  |  | Incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.28       |  | Advertising/Marketing Promotion Agency Agreement, dated as of October 1, 1997, by and between American Express Travel
Related Services Company, Inc. and Bronner Slosberg Humphrey Inc.                                                       |  | Incorporated by reference to Exhibit 10.37 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission





---

##### Table of Contents

INDEX TO EXHIBIT



|Exhibit No. |  | Exhibit Index Title                                                                                                                                                                                                                                                          |  | Method of Filing                                                                                                                                                               
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29       |  | Form of Indemnification Agreement                                                                                                                                                                                                                                            |  | Incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-1 (SEC File No. 333-93585), as
amended, as filed with the Securities and Exchange Commission
|           
|10.30       |  | Ninth Amendment to Lease, dated as of February 24, 2000, by and between BP Prucenter Acquisition, LLC and Digitas LLC,
formerly known as Bronnercom, LLC, formerly known as Bronner Slosberg Humphrey, LLC                                                                   |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended March 31,
2000                                                            
|           
|10.31       |  | Tenth Amendment to Lease, dated as of April 20, 2000, by and between BP Prucenter Acquisition, LLC and Digitas LLC,
formerly known as Bronnercom, LLC, formerly known as Bronner Slosberg Humphrey, LLC                                                                      |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended June 30,
2000                                                             
|           
|10.32       |  | First Amendment to Office Lease, dated as of April 27, 2000, by and between Mosten Management Company, Inc. and Digitas
LLC, formerly known as Bronnercom, LLC                                                                                                               |  | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the Quarter ended June 30,
2000                                                             
|           
|10.33       |  | Copley Place Office Lease, dated as of March 3, 2000, by and between Copley Place Associates, LLC and Digitas
LLC                                                                                                                                                            |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000                                                        
|           
|10.34       |  | First Amendment to Copley Place Office Lease, dated as of June 15, 2000, by and between Copley Place Associates, LLC and
Digitas LLC                                                                                                                                         |  | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000                                                        
|           
|10.35       |  | Second Amendment to Copley Place Office Lease, dated as of October 6, 2000, by and between Copley Place Associates, LLC
and Digitas LLC                                                                                                                                      |  | Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000                                                        
|           
|10.36       |  | London Office Lease, dated as of July 27, 2000, by and between the Mayor and Commonality and Citizens of the City of
London and Digitas (Europe) Inc. and Digitas Inc.                                                                                                       |  | Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000                                                        
|           
|10.37       |  | Revolving Credit Agreement, dated as of July 25, 2000, by and among Digitas LLC (as borrower); The Lenders listed therein
(as Lenders); Fleet National Bank (as agent); and Digitas, Inc., Vesuvio, Inc., Bronner Slosberg Humphrey Co., and BSH Holding LLC (as guarantors) |  | Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2000                                                        
|           
|10.38       |  | Amendment to Digitas LLC Employee Savings Plan effective January 1, 2002                                                                                                                                                                                                     |  | Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K for the year ended December 31,
2001                                                                
|           
|10.39       |  | Amendment to Digitas LLC Employee Savings Plan effective May 1, 2001                                                                                                                                                                                                         |  | Incorporated by reference to Exhibit 10.39 to the Annual Report on Form 10-K for the year ended December 31,
2001                                                              





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##### Table of Contents

INDEX TO EXHIBIT



|Exhibit No. |  | Exhibit Index Title                                                                                                                                                                                                                                                                           |  | Method of Filing                                                                                                                                                                 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.40       |  | Second Amendment to Revolving Credit Agreement, dated November 26, 2001, by And among Digitas LLC (as borrower); the
Lenders listed therein (as Lenders); Fleet National Bank (as agent); and Digitas Inc., Vesuvio, Inc., Bronner Slosberg Humphrey Co., and BSH Holding LLC (as guarantors) |  | Incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the year ended December 31,
2001                                                                
|           
|10.41       |  | Third Amendment to Revolving Credit Agreement, dated September 30, 2002, by And among Digitas LLC (as borrower); the
Lenders listed therein (as Lenders); Fleet National Bank (as agent); and Digitas Inc., Bronner Slosberg Humphrey Inc., and BSH Holding LLC (as guarantors)               |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter ended September 30,
2002                                                          
|           
|10.42       |  | Fourth Amendment to Revolving Credit Agreement, dated February 24, 2003, by And among Digitas LLC (as borrower); the
Lenders listed therein (as Lenders); Fleet National Bank (as agent); and Digitas Inc., Bronner Slosberg Humphrey Inc., and BSH Holding LLC(as guarantors)                |  | Filed herewith                                                                                                                                                                   
|           
|10.43       |  | Form of Executive Employment Agreement                                                                                                                                                                                                                                                        |  | Filed herewith                                                                                                                                                                   
|           
|10.44       |  | Consulting Agreement, dated January 9, 2003, by and between Michael Ward and Digitas LLC                                                                                                                                                                                                      |  | Filed herewith                                                                                                                                                                   
|           
|10.45       |  | The Digitas LLC Deferred Compensation Plan, dated as of January 1, 2003                                                                                                                                                                                                                       |  | Filed herewith                                                                                                                                                                   
|           
|16.1        |  | Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated March 28, 2002                                                                                                                                                                                                |  | Incorporated by reference to Exhibit 16 to the Registration Statement on Form 8-K (SEC File No. 000-29723), as filed with
the Securities and Exchange Commission on April 2, 2002
|           
|21.1        |  | Subsidiaries of Digitas Inc.                                                                                                                                                                                                                                                                  |  | Filed herewith                                                                                                                                                                   
|           
|23.1        |  | Consent of Independent Auditors                                                                                                                                                                                                                                                               |  | Filed herewith                                                                                                                                                                   
|           
|23.2        |  | Information Regarding Consent of Arthur Andersen LLP                                                                                                                                                                                                                                          |  | Filed herewith                                                                                                                                                                   
|           
|24.1        |  | Powers of Attorney                                                                                                                                                                                                                                                                            |  | Included on signature page hereto                                                                                                                                                
|           
|99.1        |  | Letter to the Securities and Exchange Commission Pursuant to Temporary Note 3T                                                                                                                                                                                                                |  | Incorporated by reference to Exhibit 99.1 to the Annual Report on Form 10-K for the year ended December 31,
2001