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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               ----------------

                                   FORM 10-K

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

                  For the fiscal year ended December 31, 2000
                          Commission File No. 0-21935

                               ----------------

                               Modem Media, Inc.
            (Exact name of registrant as specified in its charter)

               Delaware                              06-1464807
    (State or other jurisdiction of      (I.R.S. Employer Identification No.)
    incorporation or organization)

                                230 East Avenue
                               Norwalk, CT 06855
                                (203) 299-7000
             (Address of principal executive offices and zip code)

          Securities registered pursuant to Section 12(b) of the Act:

                                     None

          Securities registered pursuant to Section 12(g) of the Act:

      Common Stock, $.001 par value, traded on the Nasdaq National Market

   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]

   The aggregate market value of the Company's Common Stock held by non-
affiliates as of March 15, 2001, computed by reference to the closing price of
such stock on such date, was approximately $38,068,381.

   There were 25,554,447 shares of the Registrant's Common Stock, $.001 par
value, outstanding as of March 15, 2001.

                     Documents Incorporated by Reference:

   The information required in response to Part III of Form 10-K is hereby
incorporated by reference to the specified portions of the registrant's
definitive proxy statement relating to the annual meeting of shareholders to
be held in 2001, which definitive proxy statement shall be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this report relates.

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
 Item Description                                                          Page
 ---- -----------                                                          ----
 <C>  <S>                                                                  <C>
                                    PART I
  1    Business........................................................     3
  2    Properties......................................................     8
  3    Legal Proceedings...............................................     8
  4    Submission of Matters to a Vote of Security Holders.............     8
                                    PART II
       Market for Registrant's Common Equity and Related Stockholder
  5    Matters.........................................................     11
  6    Selected Financial Data.........................................     12
       Management's Discussion and Analysis of Financial Condition and
  7    Results of Operations...........................................     13
  7A   Quantitative and Qualitative Disclosures About Market Risk......     19
  8    Financial Statements and Supplementary Data.....................     20
       Changes in and Disagreements with Accountants on Accounting and
  9    Financial Disclosure............................................     46
                                   PART III
 10    Directors and Executive Officers of the Registrant..............     47
 11    Executive Compensation..........................................     47
 12    Security Ownership of Certain Beneficial Owners and Management..     47
 13    Certain Relationships and Related Transactions..................     47
                                    PART IV
       Exhibits, Financial Statement Schedules, and Reports on Form 8-
 14    K...............................................................     48
       Index to Exhibits...............................................     48
       Signatures .....................................................     51
</TABLE>

                                       1
<PAGE>

          SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND RISK FACTORS

   This document includes forward-looking statements within the meaning of
Section 21E(i)(1) of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results to be materially different
from any future results expressed or implied by these statements. Such factors
include, among other things, the following:

 .  our history of operating losses;

                                          .  the cost and our ability to
 .  the scope and timing of new               expeditiously reduce our
   assignments and client                    workforce and infrastructure,
   initiatives;                              including real estate
                                             commitments, in light of future
                                             changes in client demand for our
                                             services;

 .  spending levels and budget
   constraints of our clients;


                                          .  our dependence on key management
                                             personnel;

 .  our dependence on a limited
   number of clients;                     .  exclusivity arrangements with
                                             clients that may limit our
                                             ability to provide services to
                                             others;

 .  variability of our operating
   results;

 .  our ability to accurately
   estimate costs in fixed-fee
   engagements;


                                          .  our ability to integrate acquired
                                             companies;

 .  our ability to attract and retain
   qualified professionals;               .  our ability to manage future
                                             growth, if any;

                                          .  our ability to respond to rapid
                                             technological change;

 .  our ability to successfully sell
   and implement the data
   distribution and marketing
   platform of our preferred vendor,
   CentrPort, Inc.;

                                          .  our dependence on the continued
                                             growth of the Internet;


                                          .  changes in government regulation,
 .  the ability of CentrPort to               including regulation of privacy
   execute its strategy and business         issues; and
   plan and to meet its obligations
   under certain equipment and real
   estate leases, of which we are
   guarantor;

                                          .  the cost and timing of the
                                             closing of our Japan office.

 .  the cost and timing of our
   current workforce reduction
   program;

   In light of these and other uncertainties, the forward-looking statements
included in this document should not be regarded as a representation by us
that our plans and objectives will be achieved.

                                       2
<PAGE>

                                    PART I

ITEM 1. BUSINESS

Overview

   We are a leading Internet professional services firm focused on solving the
marketing and customer management problems facing executives at those global
companies most impacted by digital change. Our approach combines technology-
driven solutions with a deep understanding of customer needs to create more
rewarding solutions for our clients and their customers. We leverage our
experience in marketing and business strategy, creative design, and technology
to deliver an integrated service offering that includes:

  .  Customer Insight: Driven by the fundamental belief that customers
     control the e-business relationship, we continuously seek to increase
     our clients' knowledge of their customers. By defining better services
     for each individual customer and identifying and understanding the
     customer's preferred delivery channel, we help our clients create a
     framework to measure and improve return on investment.

  .  Strategic Planning: By mapping customer-driven needs to economically
     viable and superior business models, we help our clients forge
     competitively advantageous strategies that result in more effective and
     efficient marketing of their products and services.

  .  Site and Application Development: From information distribution to e-
     commerce to e-care, we build web sites that enhance the relevance,
     utility and value of information for our clients' customers. At the same
     time, we recognize our clients' overall business objective--to realize a
     true return on customer relationships.

  .  Marketing Services: More than simply helping companies understand their
     customers, our approach is instrumental in helping our clients respond
     to those customers with the right information at the right time through
     the right channel. By providing such personalized cross-channel customer
     care and management, our clients can leverage every customer touchpoint,
     whether it's a web site, portal, wireless device, e-mail, etc., to
     develop and foster satisfaction and loyalty.

We believe this comprehensive approach, which focuses on positioning the
customers' needs first, is a winning approach to e-business. The benefit that
we deliver to our clients is the ability to drive higher customer value
through increased sales, greater efficiencies, and improved loyalty.

   Since our inception in 1987, we have established and maintained
relationships primarily with Global 500 companies. Our current clients number
over 35, and include Citigroup, CSFB Direct, Delta Air Lines, General
Electric, General Motors, IBM, Intel, Michelin and Philips. We service our
clients through a global network of nine offices in North America, Latin
America, Europe and Asia with our staff of approximately 840 employees as of
March 15, 2001.

   We and certain employees formed CentrPort, LLC in November 1999 to focus on
developing intelligent marketing platforms to build and enhance customer
relationships across multiple communication channels. In December 2000, we
completed a series of transactions that provided for the financing of, and
sale of a portion of our ownership in, CentrPort, Inc. ("CentrPort"), formerly
our majority-owned subsidiary. A venture capital group (the "CentrPort
Investors") purchased 8,332,000 shares of preferred stock of CentrPort from us
in exchange for (a) $2,500,000 in cash, (b) a $2,500,000 receivable due in
December 2001, subject to certain conditions, and (c) a warrant to purchase
391,604 shares of CentrPort common stock. Concurrent with such purchase, the
CentrPort Investors agreed to invest up to $22,000,000 directly into
CentrPort, of which $16,500,000 was payable at closing and $5,500,000 is
payable in December 2001, subject to CentrPort securing certain revenue
commitments by April 1, 2001, in exchange for 36,660,800 shares of newly-
issued CentrPort preferred stock. To the extent that CentrPort does not
receive this additional funding, the value of our investment in CentrPort may
decline and our deferred gain could be reduced (see Note 18 of "Notes to
Consolidated Financial Statements"). In addition, we purchased 1,842,657
shares of CentrPort common stock from certain minority shareholders in
exchange for $1,863,000 (315,858 shares) of our common stock. The purchase by
the CentrPort Investors of a portion of our ownership in CentrPort, the
investment by the CentrPort Investors

                                       3
<PAGE>

directly into CentrPort, and our purchase of CentrPort common stock from
certain minority shareholders, are hereinafter collectively referred to as the
"CentrPort Transactions".

  As a result of the CentrPort Transactions, our ownership in CentrPort was
reduced from approximately 59.0% to approximately 15.2%. Immediately prior to
the closing of the CentrPort Transactions, CentrPort, which was previously
organized as a limited liability company, was reorganized as a Delaware
corporation.

   In March 2000, we purchased 100% of the outstanding capital stock of our
affiliate in Sao Paulo, Brazil from our former parent, True North
Communications Inc. ("True North"), for $135,000.

   In February 2000, we acquired 100% of the outstanding capital stock of
Vivid Holdings, Inc. and its majority-owned subsidiary, Vivid Publishing, Inc.
(collectively hereinafter referred to as "Vivid") for approximately
$63,600,000. Vivid was a professional services company with 101 employees that
provided Internet engineering and information architecture services primarily
to Internet start-ups. As of the end of the fourth quarter of 2000, we
concluded that the goodwill associated with the Vivid acquisition was
impaired, resulting in the write-off of the unamortized balance of
$52,758,000.

   In February 2000, we acquired substantially all of the assets of Eurokapi
Multimedia S.A., a builder and marketer of e-businesses in Paris, France, for
approximately $450,000 in cash.

   In October 1999, we acquired 100% of the outstanding capital stock of MEX
Multimedia Experts GmbH, a developer of interactive business solutions in
Munich, Germany, for approximately $5,400,000, which was comprised of
$3,000,000 in cash and approximately $2,400,000 of our common stock.

   In June 1999, we acquired 100% of the outstanding capital stock of a
builder and marketer of e-businesses in Tokyo, Japan for approximately
$1,400,000 in cash. As of the end of the fourth quarter of 2000, we concluded
that the goodwill associated with this acquisition was impaired, resulting in
a write-off of the unamortized balance of $1,529,000. In March 2001, we
announced our decision to close our office in Tokyo, Japan and expect that
such office will cease operations during the second quarter of 2001.

   True North formed us in October 1996 to acquire Modem Media Advertising
Limited Partnership (the "Modem Partnership") and to combine it with True
North's digital interactive marketing operations, including Northern Lights
Interactive. Effective October 1, 1998, we acquired the strategic interactive
marketing operations of Poppe Tyson, Inc. (the "Poppe Tyson Strategic
Interactive Marketing Operations"), from True North in exchange for (1) our
non-strategic digital interactive marketing operations and (2) an aggregate of
1,619,028 shares of our common stock. In conjunction with this transaction,
True North forgave $5,763,000 of intercompany borrowings and transferred
$1,624,000 of fixed assets to us.

   The Modem Partnership was founded in 1987. Poppe Tyson, Inc. ("Poppe
Tyson") was formed in December 1985 and provided interactive marketing
services to domestic and international clients since 1988. Poppe Tyson became
a True North subsidiary in December 1997 when True North acquired Poppe
Tyson's parent company, Bozell, Jacob, Kenyon and Eckhardt, Inc.

Industry Background

   The Internet has fundamentally changed the way businesses and customers
interact, introducing new ways of communicating, obtaining information,
purchasing goods and services, providing customer service and soliciting
customer feedback. The Internet and electronic commerce have increased the
frequency and speed of interaction between a business and its trading partners
and customers by providing immediate access to, and facilitating the
interactive exchange of, information. Traditionally limited to in-person,
print and analog channels, customers today can interact with businesses
through a variety of digital communication channels. While web sites have been
the primary Internet communication channel, businesses increasingly interact
with their customers through such additional Internet-enabled channels as e-
mail, cellular phones and personal digital assistants (PDAs).

   The profound impact of the Internet has led to a shift in the balance of
power from the business to the customer. However, many companies today
continue to approach e-business from the context of the traditional

                                       4
<PAGE>

business-customer relationship. These companies view the Internet as a vehicle
that allows easy access to a larger customer base to whom they can market and
sell, or push, their products and services. Using the Internet simply as
another medium which connects customers to businesses fails to realize the
full potential of the Internet to transform the customer experience to one
that is more relevant, efficient, meaningful and mutually rewarding for both
the business and the customer.

   Given these market dynamics and the expansion of new Internet-enabled
communication channels, successful businesses must be able to identify what
personalized services the customer wants and have the ability to deliver those
services across multiple communication channels to begin and ultimately extend
a relationship between the business and the customer. As opposed to the push
approach, this pull approach utilizes knowledge gained about the customer
through multiple interactions to make available relevant personalized services
to drive customer satisfaction, retention and loyalty.

   Customer personalization requires the ability to capture and analyze
customer activity across multiple communication channels in an efficient and
effective manner. Currently, companies have significant investments in
channel-specific infrastructure including ad networks, web servers, e-mail and
customer call centers. Unfortunately, these systems may not communicate with
one another, track multiple communication channels, systematically store data
or incorporate prior learning from past results and may be slow to implement,
requiring extensive internal resources that may not be coordinated across the
divisions within a company. Inefficiencies arise because, as the customer
interacts with the company on each communication channel, the information that
the customer gives the company, or that the company observes, is generally
stored in separate databases. A company that can understand aggregate data on
a particular customer can dramatically increase e-business results and
activity. Once a company has a centralized cross-channel understanding of the
customer, it can intelligently deliver services across channels to better
service customers, thus optimizing the business relationship with, and
profitability of, each individual customer.

   Given the complexity and scale of these new Internet-related initiatives,
few businesses have in-house employees with the advanced skills necessary to
effectively conceive and implement customer-focused marketing strategies and
interactive solutions. Nor do they have the technology and systems required to
aggregate the data resulting from cross-channel customer contact that will
enable them to develop key insights that can drive a higher return on their
customer relationships. Given the pressures to get to market quickly, training
in-house employees may not be a practical alternative. Hiring trained
professionals may be difficult because they are in great demand. Outsourcing
this function to providers of Internet professional services is often the most
efficient and cost-effective solution for many companies.

   Currently, there are a large number of Internet professional services firms
that compete in the marketplace. We believe a greater portion of future
Internet-related services spending will be dedicated to the development,
implementation and ongoing management of customer-focused solutions that
enable the delivery of services to individual customers across multiple
Internet-enabled communication channels and devices. We believe that Internet
professional services firms that have a customer-focused approach, expertise
across multiple Internet-enabled communication channels, advanced data
analytics and a global delivery capability will capture an increased share of
Internet expenditures from Global 500 companies.

Our Solution

   A Customer Driven Approach. We have developed a business approach that
recognizes the power of the customer in a business relationship and seeks to
direct that power to the benefit of our clients. In following our approach, we
create customer-focused solutions by understanding customer needs, conceiving
services that fulfill those needs, building and scaling those services,
enabling our clients to distribute them across multiple communication channels
and measuring their effectiveness for both our clients and their customers on
a global basis. Our approach helps our clients increase the lifetime revenue
potential of their customers and transforms the customer experience to one
that is more relevant, efficient, meaningful and mutually rewarding for both
the client and the customer.

                                       5
<PAGE>

   Building and Delivering Services Across Multiple Internet Channels and
Devices. We build a client's web site not only as an e-commerce platform but
also as the foundation of a comprehensive online marketing strategy. We work
with our clients to build solutions that fulfill customer needs by providing
them with personalized services for each customer.

   Analyze and Customize Customer Information to Enhance Client-Customer
Relationships. We continuously analyze and measure our customer-focused
solutions to determine their effectiveness against client goals and customer
needs. In order to make this analysis and measurement more effective, we have
a preferred vendor relationship with CentrPort, in which we own a minority
share. By accumulating information on the customers' interactions through
these different channels and devices in a single database, our clients can
better understand their customers' needs and customize new Internet services
and features for them.

   Global Delivery Capabilities. We believe that multinational companies
prefer a single service provider to help them build and manage their Internet
activities around the world. Our knowledge of the international marketplace,
combined with our knowledge of our clients' businesses, enables us to help
design and create effective global e-business strategies. Through our global
network of nine offices in North America, Latin America, Europe and Asia, we
deliver successful customer-focused solutions tailored to the specific needs
and preferences of the local markets in which our multinational clients
operate.

Clients

   We have a diverse roster of clients. Our five largest clients in 2000
accounted for 38.9% of our revenues. Our clients include:

      Citigroup                               Intel
      Delta Air Lines                         JCPenney
      General Electric                        John Hancock
      General Motors                          Kraft
      Hewlett-Packard                         Michelin
      IBM                                     Philips

Sales and Marketing

   We target a select group of clients, primarily Global 500 companies. Many
of the Global 500 companies that we target have an existing presence on the
web but have yet to develop and deploy a comprehensive strategy for how it
will attract, sell to and service customers online. Fewer yet have integrated
these efforts across multiple communication channels, effectively leveraged
their domestic business strategies in markets around the world or integrated
these efforts with offline customer service efforts.

   Recognition of the importance of building online customer relationships
through effective Internet solutions on a global basis has contributed to the
demand for our expertise and services worldwide, particularly among the
largest multinational companies in the world.

   We market our Internet professional services through a combination of
business development teams, which target new prospects, and our existing
relationship managers, who are responsible for deepening our business
relationships with existing clients.

Backlog and Seasonality

   We believe that sales backlog is not a meaningful indication of future
revenue because most of our revenue is derived from short-term work orders. We
currently do not experience seasonality to any significant extent.

                                       6
<PAGE>

Technology

   Our background in developing e-commerce solutions for Global 500 businesses
and the skills of our technology professionals have helped us to utilize
technology to further the business and marketing objectives of our client
base. We utilize technology to implement customer-focused solutions for our
clients and to help them manage their customer relationships.

   We make use of third-party technologies and applications as part of the
solutions that we engineer for our clients. We have utilized third-party
technology in order to perform several essential business and marketing
functions for our clients, including systems integration, ad-serving, e-mail
management, data warehousing, order fulfillment and data processing. In
addition, we use the technology platform of CentrPort, our preferred vendor,
which is intended to provide: the ability to "make decisions" as to what
information or service to send to a specific customer; campaign management
across multiple communication channels; closed loop media tracking; and
analysis of clickstream and log file data.

   Utilizing third-party technology greatly reduces the cost of the solutions
that we provide for our clients, while increasing such solutions' scalability
as well as the speed with which we can bring them to market. We intend to
continue incorporating advanced third-party technologies into our service
offerings as the Internet professional services needs of our clients evolve.

Employees and Culture

   In order to maintain high levels of creativity and quality, we place great
importance on recruiting and retaining talented employees. As of March 15,
2001, we had approximately 840 full-time employees. We also hire temporary
employees and contract service providers as needed. Our employees are not
represented by any union and, except for certain members of senior management,
are retained on an at-will basis. We consider our employee relations to be
good. We believe our firm fosters an entrepreneurial, creative, and
professional culture, and as a result, attracts talented individuals. In
addition to recruiting talented professionals, we are committed to employee
training and orientation. We have various programs dedicated to the training
and development of our personnel.

Competition

   The Internet professional services market has grown in recent years due to
the increasing need for outsourced expertise in developing end-to-end Internet
solutions to create and maintain an e-business. Businesses have realized the
opportunity to increase revenue, reduce customer turnover, deepen
relationships and increase market share by allowing their customers to access
products and services over the Internet through various communication
channels. As a result, the market for our services is highly competitive. The
market is subject to rapid technological change and increased competition from
large existing players, new market entrants and internal Internet services
divisions. Our competitors include:

  .  Internet professional services firms, such as AGENCY.COM, Digitas, iXL,
     Organic, Proxicom, Razorfish, Sapient, Scient, and Viant;

  .  traditional technology services firms, such as Accenture, Computer
     Sciences Corporation, EDS, and IBM Global Services; and

  .  internal Internet services, technology, marketing and design
     departments.

   We believe that the main competitive factors in the Internet professional
services market include Internet expertise and talent, reliability of a high
quality solution, pricing and speed of service, ability to provide an
integrated solution, technological knowledge, creative design skills, brand
name and recognition and client references. We believe that we compete
favorably on these criteria and distinguish ourselves from our competitors
based on our customer-driven approach, which focuses on satisfying the needs
of our clients' customers.

                                       7
<PAGE>

Financial Information about Geographic Areas

   Reference is made to Note 13 of the Notes to Consolidated Financial
Statements. See "Item 8. Financial Statements and Supplementary Data" in Part
II of this report.

ITEM 2. PROPERTIES

   Our headquarters and principal operating office are located in Norwalk,
Connecticut where we lease approximately 107,000 square feet of space as of
December 31, 2000. This lease expires in January 2009. We also lease offices
in New York City, San Francisco, Toronto, London, Paris, Munich, Hong Kong,
and Sao Paulo, representing approximately 189,000 additional square feet of
office space, of which approximately 117,000 is currently in use. In our San
Francisco office, we lease approximately 38,500 square feet of office space
that is currently unoccupied, which we plan to sublet. In Toronto, we leased
new office space of approximately 33,500 square feet that we plan to occupy on
or about June 1, 2001, and plan to sublet approximately 11,800 square feet of
existing office space. Furthermore, we currently lease approximately 6,700
square feet of office space in Tokyo, Japan, of which 4,500 is currently in
use. In March 2001, we announced our decision to close such office and expect
to terminate the related lease no later than the third quarter of 2001.

ITEM 3. LEGAL PROCEEDINGS

   We are not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   There were no matters submitted to a vote of our security holders through
the solicitation of proxies or otherwise during the fourth quarter ended
December 31, 2000.

                                       8
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                              EXECUTIVE OFFICERS

   The following table sets forth certain information with respect to our
executive officers as of March 15, 2001:

<TABLE>
<CAPTION>
   Name                    Age                        Position(s)
   ----                    ---                        ----------
   <S>                     <C> <C>
   G. M. O'Connell          39 Chairman of the Board
   Marc C. Particelli       56 Chief Executive Officer and Director
   Robert C. Allen, II      33 President, Chief Operating Officer and Director
   John Nardone             36 President, International and Worldwide Director of Media
   Frank J. Connolly, Jr.   42 Chief Financial Officer
   Keryn M. Cerbone         45 Vice President, Controller
   Sloane Levy              36 Vice President, General Counsel and Corporate Secretary
   Amy Nenner               46 Vice President, Human Resources
   Melissa Viglielmo        38 Vice President, Corporate Marketing and Strategy
</TABLE>

   G.M. O'Connell is currently Chairman of the Board. Mr. O'Connell also
served as our Chief Executive Officer from November 1998 to January 2001. From
October 1996 to November 1998, Mr. O'Connell was our President and Chief
Operating Officer. From 1987 to October 1996, Mr. O'Connell was a Managing
Partner of the Modem Partnership, which he co-founded in 1987. Mr. O'Connell
is a director of the Direct Marketing Association. Mr. O'Connell has been a
director of ours since 1996.

   Marc C. Particelli was named our Chief Executive Officer in January 2001.
From 1997 to December 2000, Mr. Particelli was a partner and managing director
of Oak Hill Capital Partners, L.P., an investment firm. Between 1994 and 1997,
Mr. Particelli was a partner of Odyssey Partners, L.P., an investment
partnership for hedge funds. From 1973 to 1994, Mr. Particelli held various
positions with Booz Allen & Hamilton, Inc., a management and technology
consulting firm. He is a member of the board of directors of Caribbean
Restaurants, Inc., Oreck Corporation, Progressive Moulded Products, Ltd., and
EPIX. Mr. Particelli has been a director of ours since January 2001.

   Robert C. Allen, II has served as our President and Chief Operating Officer
since November 1998. From October 1996 to November 1998, Mr. Allen was
President of one of our divisions. From 1993 to October 1996, Mr. Allen served
as a Managing Partner of the Modem Partnership. From 1989 to 1992, Mr. Allen
was the Director of Business Development of the Modem Partnership. Mr. Allen
has been a director of ours since 1996.

   John Nardone is currently our President, International and Worldwide
Director of Media, a position that he has held since December 1998. From
October 1995 to December 1998, he was our Vice President, Director of Media
and Research. From September 1994 to October 1995 he held the title of Account
Director with us.

   Frank J. Connolly, Jr. was named our Chief Financial Officer in January
2001. From 1999 to 2001, Mr. Connolly was the Chief Financial Officer of E-
Sync Networks, Inc., a provider of e-business infrastructure products. From
1996 to 1999, he served as a Managing Director of DigaComm, LLC, a private
equity firm. Prior to 1996, he was the Senior Vice President, Finance and
Chief Financial Officer of DM Holdings, Inc., a consumer marketing information
company, and Vice President, Finance of Donnelley Marketing, Inc. Prior to
1991, Mr. Connolly was with The Dun & Bradstreet Corporation and Accenture.

   Keryn M. Cerbone is currently our Vice President, Controller, a position
she has held since February 1997. From 1994 to 1996, Ms. Cerbone was the Vice
President, Controller of MemberWorks, Inc., a provider of membership service
programs. Prior to 1994, Ms. Cerbone was the Assistant Corporate Controller at
EnviroSource, Inc., a supplier of recycling, stabilization and landfilling
services.

   Sloane Levy is currently our Vice President, General Counsel and Corporate
Secretary, a position she has held since May 1999. From April 1998 to May
1999, Ms. Levy was Director, Investor Relations of Witco Corporation, a
specialty chemical corporation, now CK Witco. From January 1996 through March
1998, she was

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Senior Attorney at Witco Corporation and from May 1994 through December 1995,
she was Corporate Counsel for OSi Specialties, Inc., which was subsequently
acquired by Witco Corporation. Prior to May 1994, Ms. Levy was associated with
the law firms Arent Fox Kitner Plotkin & Kahn and Weil, Gotshal & Manges.
Effective April 4, 2001, Ms. Levy will assume responsibility for the Human
Resources department.

   Amy Nenner is currently our Vice President, Human Resources, a position she
has held since February 2000. From February 1994 until February 2000, Ms.
Nenner was Vice President, Human Resources and Administration of Labatt USA, a
specialty beer company. Prior to joining Labatt USA, Ms. Nenner held various
positions in the human resources field including Vice President, Human
Resources of Reed Exhibition Companies and Director, Human Resources of Book
of the Month Club, Inc., a subsidiary of Time Warner, Inc. Ms. Nenner has
tendered her resignation to us effective April 4, 2001.

   Melissa Viglielmo is currently our Vice President, Corporate Marketing and
Strategy, a position she has held since August 2000. From 1997 to 1999, Ms.
Viglielmo was the Vice President, Urethane Additives of CK Witco Corporation.
Prior to 1997, Ms. Viglielmo was the Vice President, Strategy and Investor
Relations of Witco Corporation.

                                      10
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS

   (a) Our common stock is listed on the Nasdaq National Market under the
symbol "MMPT". The table below sets forth, for the periods indicated, the high
and low sales prices of our common stock as reported and reflects all stock
splits effected by us.

<TABLE>
<CAPTION>
     1999                                                          High   Low
     ----                                                         ------ ------
     <S>                                                          <C>    <C>
     First quarter (from February 5, 1999)....................... $27.56 $11.97
     Second quarter..............................................  26.00  10.63
     Third quarter...............................................  20.86   8.88
     Fourth quarter..............................................  39.50  17.78
<CAPTION>
     2000                                                          High   Low
     ----                                                         ------ ------
     <S>                                                          <C>    <C>
     First quarter............................................... $56.94 $31.22
     Second quarter..............................................  32.06   9.63
     Third quarter...............................................  18.88   3.69
     Fourth quarter..............................................   8.31   3.25
</TABLE>

   On March 21, 2001, there were approximately 8,100 shareholders of record of
our common stock.

   We have never declared, nor have we paid, any cash dividends on our common
stock. We currently intend to retain our earnings, if any, to finance future
growth and, therefore, do not anticipate paying any cash dividends on our
common stock in the foreseeable future.

   In connection with the CentrPort Transactions, on December 22, 2000, we
purchased 1,842,657 shares of CentrPort common stock from certain minority
shareholders in exchange for 315,858 shares of our common stock, with a value
of $1,863,000. We issued such shares to a limited number of CentrPort
shareholders in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.

   In February 2000, we acquired 100% of the outstanding capital stock of
Vivid for approximately $63,600,000. The consideration was paid with
approximately $14,400,000 in our common stock (446,010 shares) and
approximately $39,000,000 in value related to employee stock options that were
converted to options to purchase our common stock, with the remainder in cash.
We issued our shares to a limited number of Vivid shareholders in reliance
upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.

   (b) On February 4, 1999, the Securities and Exchange Commission declared
our registration statement on Form S-1 (No. 333-68057) effective. On February
10, 1999, we completed an initial public offering of an aggregate of 5,980,000
shares of our common stock at an offering price of $8.00 per share. The
managing underwriters for the offering were BancBoston Robertson Stephens,
NationsBanc Montgomery Securities LLC, and Bear, Stearns & Co. Inc. Net
proceeds to us, after deducting underwriting discounts and commissions of
$3,349,000 and offering expenses of $2,440,000 were $42,051,000. None of the
expenses incurred in the offering were direct or indirect payments to our
directors, officers, or general partners or their associates, to persons
owning ten percent or more of any class of our equity securities or to our
affiliates. We used $6,000,000 of these proceeds to settle an intercompany
note payable to True North, and the remainder to acquire and fund the
operations of businesses in Tokyo, Munich, Paris, Sao Paulo and San Francisco,
as well as to fund the operations of CentrPort prior to its financing in
December 2000 (see Note 2 of "Notes to Consolidated Financial Statements").

                                      11
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

   The following selected financial data should be read in conjunction with
the consolidated financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The statements of operations data for the fiscal
years ended December 31, 1997 and 1996 and the balance sheet data as of
December 31, 1998, 1997, and 1996 are derived from our consolidated financial
statements that have been audited by Arthur Andersen LLP, independent public
accountants, which are not included herein. The statements of operations data
for the fiscal years ended December 31, 2000, 1999, and 1998 and the balance
sheet data as of December 31, 2000 and 1999 are derived from our consolidated
financial statements that have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere herein.

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                                  --------------------------------------------
                                    2000(1)  1999   1998(2)   1997(3)   1996
                                  --------  ------- -------  -------   -------
<S>                               <C>       <C>     <C>      <C>       <C>
Statements of Operations Data:      (in thousands except per-share data)
Revenues........................  $134,344  $74,036 $42,544  $25,497   $ 2,093
Cost of revenues................    69,088   32,991  23,249   12,045     1,322
                                  --------  ------- -------  -------   -------
Gross profit....................    65,256   41,045  19,295   13,452       771
Sales and marketing.............     5,240    1,658   1,098      769        --
General and administrative......    57,154   29,683  19,750   12,118       712
Excess facility charge,
 severance, and write-off of
 offering-related costs.........     7,008       --      --       --        --
Impairment of goodwill..........    54,287       --      --       --        --
Amortization of goodwill........    15,400    2,959   1,768    1,666        --
Operating losses of True North
 Units Held for Transfer........        --       --      13    2,180     1,309
                                  --------  ------- -------  -------   -------
Operating (loss) income.........   (73,833)   6,745  (3,334)  (3,281)   (1,250)
Interest income (expense), net..     1,866    1,975      29      (76)       --
                                  --------  ------- -------  -------   -------
(Loss) income before income
 taxes..........................   (71,967)   8,720  (3,305)  (3,357)   (1,250)
Provision (benefit) for income
 taxes..........................     2,282    5,703    (102)    (248)     (548)
                                  --------  ------- -------  -------   -------
Net (loss) income...............  $(74,249) $ 3,017 $(3,203) $(3,109)  $  (702)
                                  ========  ======= =======  =======   =======
Basic net (loss) income per
 share..........................  $  (3.04) $  0.14 $ (0.21) $ (0.21)  $(17.55)
                                  ========  ======= =======  =======   =======
Diluted net (loss) income per
 share..........................  $  (3.04) $  0.13 $ (0.21) $ (0.21)  $(17.55)
                                  ========  ======= =======  =======   =======
<CAPTION>
                                                December 31,
                                  --------------------------------------------
                                    2000(1)  1999    1998     1997(2)  1996(3)
                                  --------  ------- -------  -------   -------
<S>                               <C>       <C>     <C>      <C>       <C>
Balance Sheet Data:                            (in thousands)
Cash and cash equivalents.......  $ 35,564  $30,265 $ 7,824  $ 7,056   $ 2,726
Short-term investments..........       201   16,859      --       --        --
Goodwill, net...................    50,496   55,742  33,139   31,645    32,161
Working capital (deficit).......    31,445   37,687  (5,917)   3,269     3,428
Total assets....................   161,505  145,732  71,286   59,024    54,022
Capital lease obligations, less
 current portion................       618      471     323      472       193
Related party obligations, less
 current portion................        --       --      --    9,346     6,000
Other long-term obligations.....     6,324      221      19       41        55
Total stockholders' equity......   104,271  111,476  35,560   35,618    40,493
</TABLE>
--------
(1) In February 2000, we acquired Vivid in a business combination accounted
    for under the purchase method of accounting. Accordingly, the statements
    of operations data presented above include the operating results of Vivid
    from the date of its acquisition.
(2) Effective October 1, 1998, we acquired the Poppe Tyson Strategic
    Interactive Marketing Operations from True North. Because the transaction
    occurred between True North and majority-owned, controlled subsidiaries,
    the transaction was recorded as of December 31, 1997, the date on which
    the Poppe Tyson Strategic Interactive Marketing Operations and we came
    under common control, at historical cost. Accordingly, the statements of
    operations data presented above include the operating results of the Poppe
    Tyson Strategic Interactive Marketing Operations beginning on January 1,
    1998 and the balance sheet data of such entity beginning on December 31,
    1997.
(3) On December 31, 1996, we acquired the Modem Partnership in a business
    combination accounted for under the purchase method of accounting.
    Accordingly, the statements of operations data presented above include the
    operating results of the Modem Partnership beginning on January 1, 1997
    and the balance sheet data of such entity beginning on December 31, 1996.

                                      12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS

Overview

   We are a leading Internet professional services firm focused on solving the
marketing and customer management problems facing executives at those global
companies most impacted by digital change. Our approach combines technology-
driven solutions with a deep understanding of customer needs to create more
rewarding solutions for our clients and their customers. We leverage our
experience in marketing and business strategy, creative design, and technology
to deliver an integrated service offering that includes Customer Insight,
Strategic Planning, Site and Application Development, and Marketing Services.

   True North formed us in October 1996 to acquire the Modem Partnership and
to combine it with True North's digital interactive marketing operations,
including Northern Lights Interactive. Effective October 1, 1998, we acquired
the Poppe Tyson Strategic Interactive Marketing Operations from True North in
exchange for (1) our non-strategic digital interactive marketing operations
and (2) an aggregate of 1,619,028 shares of our common stock. In conjunction
with this transaction, True North forgave $5,763,000 of intercompany
borrowings and transferred $1,624,000 of fixed assets to us. This transaction
occurred among companies under common control, and, accordingly, was recorded
as of December 31, 1997, the date of True North's acquisition of the Poppe
Tyson Strategic Interactive Marketing Operations, at historical cost.

   Our results of operations include the results of:

  .  the Modem Partnership;

  .  the digital interactive marketing operations contributed by True North
     to us in 1996, including both Northern Lights Interactive and the non-
     strategic digital interactive marketing operations that we sold back to
     True North effective October 1, 1998; and

  .  the Poppe Tyson Strategic Interactive Marketing Operations,

from their respective dates of acquisition by True North. The results of
operations of the businesses that we sold back to True North effective October
1, 1998 are included in our results through September 30, 1998 and are
presented as "Operating Losses of True North Units Held for Transfer" in our
consolidated financial statements.

   Clients hire us on a fixed-fee, retainer or time-and-material basis. A
majority of our revenues are derived from fixed-fee engagements. We recognize
revenues as services are rendered. We reassess our estimated costs on fixed-
fee engagements periodically and losses are accrued, on a project-by-project
basis, to the extent that costs incurred and anticipated costs to complete
projects exceed anticipated billings. Provisions for losses on uncompleted
fixed-fee contracts are recognized in the period in which such losses are
determined.

   Our five largest clients accounted for 38.9%, 45.1% and 53.4% of
consolidated revenues for the years ended December 31, 2000, 1999 and 1998,
respectively. Citibank accounted for 13.8% and 12.8% of our consolidated
revenues for the years ended December 31, 1999 and 1998, respectively, and
AT&T accounted for 20.7% of our consolidated revenues for the year ended
December 31, 1998. We expect a relatively high level of client concentration
to continue but not necessarily involve the same clients from period to
period.

   Our results of operations and our business depend on our relationships with
a limited number of large clients. We generally do not have long-term
contracts with our clients. Our clients typically hire us one project at a
time and generally have the right to terminate their relationships with us
without penalty and with relatively

                                      13
<PAGE>

short or no notice. Once a project is completed we cannot assure you that a
client will engage us for further services. As a result, a client that
generates substantial revenue for us in one period may not be a substantial
source of revenue in a subsequent period. The termination of our business
relationships with any of our significant clients, or a material reduction in
the use of our services by any of our significant clients, could adversely
affect our future financial performance.

   Cost of revenues consists of salaries, employee benefits and incentive
compensation for our professional services staff and costs for temporary
employees that we use to provide professional services, as well as certain
other direct costs. Sales and marketing consists of salaries, employee
benefits and incentive compensation of new business and other sales and
marketing personnel, as well as certain other marketing costs. General and
administrative includes salaries, employee benefits and incentive compensation
of administrative and other non-billable employees, as well as office rent,
utilities, depreciation, amortization of software, professional and consulting
fees, travel, telephone and other related expenses.

   In February 2000, we acquired Vivid, a privately held Internet engineering
and information architecture specialist, for approximately $63.6 million in
cash, common stock and value related to employee stock options that were
converted to options to purchase our common stock. We accounted for the Vivid
acquisition as a purchase, and accordingly, have included its results with
ours from the date of acquisition. The Vivid acquisition resulted in $64.5
million of goodwill. Late in the fourth quarter of 2000, and continuing into
the first quarter of 2001, the Vivid business weakened significantly, leading
us to conclude that the remaining value inherent in the Vivid goodwill could
not be realized. Specifically, the number of Vivid employees employed by the
Company continued to decrease, new assignments that would utilize the skills
of the remaining Vivid employees were not secured, and market conditions
impacted the ability of Internet start-ups to utilize our services. This
weakness reflects a further deterioration of conditions that we reviewed in
our Form 10-Q for the third quarter of 2000, as amended. Accordingly, we
recorded an impairment charge of $52.8 million in the fourth quarter of 2000.
As a result, we expect that our goodwill amortization in 2001 will be less
than $1.0 million per quarter.

   We have experienced operating or net losses in nine of the twelve quarters
in the period January 1, 1998 through December 31, 2000. We have experienced
significant revenue growth both domestically and internationally. As a result
of the economic downturn in the U.S. and limited increases in client
expenditures for our services, we do not expect revenue to continue to grow at
historic rates. We expect the annual rate of domestic revenue growth to slow
significantly. Revenue growth is also expected to be at slower annual rates
than in the past in Europe. Our operations in Asia are expected to experience
weak revenues in 2001. In the fourth quarter of 2000, our consolidated
revenues declined to $35.2 million from $37.8 million in the third quarter of
2000. During 2000, 79.0% of our revenues were generated domestically and 21.0%
were generated internationally. International margins will continue to be
lower than domestic margins due to lower billing rates, lower utilization
rates, higher benefit costs and higher occupancy and infrastructure costs.

   During 2000, we incurred substantial costs to expand and integrate our
operations both domestically and internationally, as well as to develop our
infrastructure. As a result of the economic downturn and decreasing demand of
our clients, we reduced our workforce by slightly less than 4%, consisting of
both billable and non-billable employees, in the fourth quarter of 2000, as
well as our office space in both our San Francisco and Tokyo locations. In
conjunction with these actions, we recorded a pre-tax charge of approximately
$6.3 million during the fourth quarter of 2000. In the first quarter of 2001,
we further reduced headcount by approximately 10%, consisting of both billable
and non-billable employees, and announced the closing of our Tokyo office,
which is expected to cease its operations in the second quarter of 2001. In
conjunction with these actions, we expect to record a one-time, pre-tax charge
of approximately $3.0 million during the first quarter of 2001.

   In December 2000, we completed a series of transactions that provided for
the financing of, and sale of a portion of our ownership in, CentrPort. The
CentrPort Investors purchased 8,332,000 shares of preferred stock of CentrPort
from us in exchange for (a) $2.5 million in cash, (b) a $2.5 million
receivable due in December 2001, subject to certain conditions, and (c) a
warrant to purchase 391,604 shares of CentrPort common stock. Concurrent with
such purchase, the CentrPort Investors agreed to invest up to $22.0 million
directly into

                                      14
<PAGE>

CentrPort, of which $16.5 million was payable at closing and $5.5 million is
payable in December 2001, subject to CentrPort securing certain revenue
commitments by April 1, 2001, in exchange for 36,660,800 shares of newly-
issued CentrPort preferred stock. To the extent that CentrPort does not
receive this additional funding, the value of our investment in CentrPort may
decline and our deferred gain could be reduced (see Note 18 of "Notes to
Consolidated Financial Statements"). In addition, we purchased 1,842,657
shares of CentrPort common stock from certain minority shareholders in
exchange for approximately $1.9 million (315,858 shares) of our common stock.
The purchase by the CentrPort Investors of a portion of our ownership in
CentrPort, the investment by the CentrPort Investors directly into CentrPort,
and our purchase of CentrPort common stock from certain minority shareholders,
are hereinafter collectively referred to as the "CentrPort Transactions". As a
result of the CentrPort Transactions, our ownership in CentrPort was reduced
from approximately 59.0% to approximately 15.2%. We will account for our
remaining investment in CentrPort of $3.7 million under the cost method of
accounting from the date of the CentrPort Transactions. Prior to the CentrPort
Transactions, we had reflected 100% of CentrPort's assets, liabilities and
operating losses in our consolidated results because we represented
CentrPort's sole source of funding and were its primary customer.

   In conjunction with the CentrPort Transactions, we have designated
CentrPort as a preferred vendor and committed to resell at least $5.0 million
of CentrPort's products and services during 2001 (the "CentrPort Commitment").
If the CentrPort Commitment is not met, we must pay the value of the shortfall
to CentrPort in cash or CentrPort common stock, at our election. Through March
16, 2001, we have sales orders for $1.6 million of CentrPort products and
services.

Historical Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

   Revenues. Revenues increased by $60.3 million, or 81.5%, to $134.3 million
for 2000 from $74.0 million for 1999. Revenues increased primarily as a result
of increased billing rates and billed hours, as well as our domestic and
international acquisitions, which accounted for approximately $12.1 million of
the increase in revenues.

   Cost of Revenues and Gross Margin. Cost of revenues increased by $36.1
million, or 109.4%, to $69.1 million for 2000 from $33.0 million for 1999.
Gross margin declined to 48.6% for 2000 from 55.4% for 1999. The increase in
cost of revenues was primarily due to a company-wide increase in headcount due
to the growth of our existing client relationships, as well as the addition of
new client relationships. The decline in gross margin in 2000 compared to 1999
was primarily due to higher production costs and lower utilization of
personnel, offset in part by higher billing rates.

   Sales and Marketing. Sales and marketing increased by $3.6 million, or
216.0%, to $5.2 million for 2000 from $1.7 million for 1999. Sales and
marketing represented 3.9% and 2.2% of revenues for 2000 and 1999,
respectively. The dollar and percentage increases in sales and marketing were
attributable to increased salaries, benefits and incentive compensation
associated with an increase in headcount, as well as an increase in spending
on company advertising.

   General and Administrative. General and administrative increased by $27.5
million, or 92.5%, to $57.2 million for 2000 from $29.7 million for 1999.
General and administrative represented 42.5% of revenues for 2000 and 40.1%
for 1999. The dollar and percentage increases in general and administrative
were due primarily to increased occupancy and office support expenses, as well
as increased salary, benefits and incentive compensation of administrative and
other non-billable employees incurred in connection with increases in
headcount.

   Excess Facility Charge, Severance and Write-Off of Offering-Related
Costs. We recorded charges in the fourth quarter of 2000 totaling $6.3
million, which related primarily to leased office space reductions in San
Francisco and Tokyo, with the remainder related to severance actions. In the
second quarter of 2000, we also recorded a $0.7 million charge for the write-
off of deferred costs related to a proposed public offering of our common
stock that we cancelled.

                                      15
<PAGE>

   Impairment of Goodwill. As discussed above, we concluded that, as of
December 31, 2000, the goodwill remaining from the Vivid acquisition totaling
$52.8 million was fully impaired and could not be recovered from expected
future cash flows. As a result, we incurred a one-time, non-cash charge of
$52.8 million in the fourth quarter of 2000. We also recorded a fourth quarter
charge of $1.5 million for the write-off of the goodwill associated with our
Japan operations. See Note 3 of "Notes to Consolidated Financial Statements".

   Amortization of Goodwill. Amortization of goodwill increased by $12.4
million, or 420.4%, to $15.4 million for 2000 from $3.0 million for 1999. The
increase is primarily a result of our acquisition of Vivid, as well as our
acquisitions in Japan, Germany and France. As a result of the impairment
charges discussed above, we expect that our goodwill amortization in 2001 will
be less than $1.0 million per quarter.

   Interest Income, Net. The decrease in interest income, net to $1.9 million
for 2000 from $2.0 million for 1999 is principally attributable to lower
average cash, cash equivalents and short-term investments balances during 2000
than in 1999.

   Income Taxes. We had a provision for income taxes of $2.3 million on a pre-
tax loss of $72.0 million for 2000 compared to a provision of $5.7 million on
pre-tax income of $8.7 million for 1999. The effective income tax rate was
3.2% in 2000 compared to 65.4% in 1999. These rates differ from the federal
statutory rate primarily due to the effect of non-deductible goodwill
amortization and impairment, and losses of certain foreign subsidiaries on
which we do not currently recognize tax benefits.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

   Revenues. Revenues increased by $31.5 million, or 74.0%, to $74.0 million
for 1999 from $42.5 million for 1998. Revenues increased primarily as a result
of increased services provided to existing clients and the addition of new
clients.

   Cost of Revenues and Gross Margin. Cost of revenues increased by $9.8
million, or 41.9%, to $33.0 million for 1999 from $23.2 million for 1998.
Gross margin improved to 55.4% for 1999 from 45.4% for 1998. The increase in
cost of revenues was primarily due to a company-wide increase in headcount due
to the growth of our existing client relationships, as well as the addition of
new client relationships. The improvement in gross margin in 1999 compared to
1998 was primarily due to improved utilization.

   Sales and Marketing. Sales and marketing increased by $0.6 million, or
51.0%, to $1.7 million for 1999 from $1.1 million for 1998. Sales and
marketing represented 2.2% and 2.6% of revenues for 1999 and 1998,
respectively. The dollar increase in sales and marketing was primarily
attributable to increased salaries, benefits and incentive compensation
associated with an increase in headcount. The decrease in sales and marketing
as a percentage of revenues was due primarily to a higher percentage growth
rate in revenues.

   General and Administrative. General and administrative increased by $9.9
million, or 50.3%, to $29.7 million for 1999 from $19.8 million for 1998.
General and administrative represented 40.1% of revenues for 1999 and 46.4%
for 1998. The dollar increase in general and administrative was due primarily
to increased occupancy and office support expenses, as well as increased
salary, benefits and incentive compensation of administrative and other non-
billable employees, incurred in connection with increases in headcount. The
decrease in office and general as a percentage of revenues was due primarily
to a higher percentage growth rate in revenues.

   Amortization of Goodwill. Amortization of goodwill increased by $1.2
million, or 67.4%, to $3.0 million for 1999 from $1.8 million for 1998. The
increase is primarily a result of payments of additional purchase price for
the Modem Partnership by True North to the former owners of the Modem
Partnership of $18.5 million in February 1999 and $3.3 million in May 1998, as
well as our acquisitions in Japan and Germany during 1999 (see Note 2 of
"Notes to Consolidated Financial Statements").


                                      16
<PAGE>

   Operating Losses of True North Units Held for Transfer. We sold our non-
strategic digital interactive marketing operations to True North effective
October 1, 1998. Accordingly, the operating results of such entities are not a
part of our operating results for 1999.

   Interest Income, Net. The increase in interest income, net to $2.0 million
for 1999 is principally attributable to interest income earned on investments
purchased with the proceeds from our initial public offering.

   Income Taxes. We had a provision for income taxes of $5.7 million on pre-
tax income of $8.7 million for 1999 compared to a benefit of $0.1 million on a
pre-tax loss of $3.3 million for 1998. The effective income tax rate was 65.4%
in 1999 compared to an effective income tax benefit rate of 3.1% in 1998.
These rates differ from the federal statutory rate primarily due to the effect
of non-deductible goodwill amortization and losses of certain foreign
subsidiaries on which we do not currently recognize tax benefits.

Factors Affecting Operating Results

   Our operating results have fluctuated in the past, and may continue to
fluctuate in the future, as a result of a variety of factors, including: the
scope and timing of new assignments and client initiatives; the spending
levels and budget constraints of our clients; our dependence on a limited
number of clients; the opening, closing or acquisition and integration of
offices; our relative mix of business; changes in our pricing strategies or
those of our competitors; our effectiveness in attracting and retaining
qualified personnel, including management; our ability to control costs in
light of changes in client demand for our services; our ability to accurately
estimate costs in fixed-fee engagements; exclusivity arrangements with clients
that may limit our ability to provide services to others; and other factors
that are outside of our control. Other factors that may affect our future
operating results are: our ability to fulfill the CentrPort Commitment;
CentrPort's ability to execute its strategy and business plan and to meet its
obligations under leases for which we are guarantor; our ability to manage
future growth, if any; our ability to respond to rapid technological change;
our dependence on the continued growth of the Internet; and changes in
government regulations, including regulation of privacy issues. As a result,
period-to-period comparisons of our operating results cannot be relied upon as
indicators of future performance.

Liquidity and Capital Resources

   We historically have financed our operations primarily from funds generated
from operations and the proceeds from our initial public offering. Net cash
provided by operating activities was $9.7 million, $11.2 million and $6.3
million for the years ended December 31, 2000, 1999 and 1998, respectively,
including depreciation and goodwill amortization totaling $21.5 million, $6.4
million and $3.6 million during such years, respectively.

   Net cash used in investing activities was $8.4 million, $31.8 million and
$4.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively. In 2000, 1999 and 1998, we invested $15.6 million, $10.4 million
and $4.1 million in capital expenditures, respectively. During 2000 and 1999,
we also used $11.2 million and $4.6 million of these funds, respectively, to
acquire businesses in San Francisco, Sao Paulo, Paris, Tokyo and Munich,
offset in 2000 by $2.0 million in proceeds from the sale of a portion of our
investment in CentrPort. In 2000, our investing activities included a net
reduction in our short-term investments of $16.4 million compared to a net
increase of $16.9 million in 1999.

   Net cash provided by (used in) financing activities was $3.9 million, $43.0
million and $(1.4) million for the years ended December 31, 2000, 1999 and
1998, respectively. Our primary sources of cash flows from financing
activities during 2000 and 1999 were the exercise of employee stock options of
$5.3 million and $4.7 million, respectively, and proceeds of $43.5 million
from our initial public offering in 1999. In 1998, cash used in financing
activities was primarily related to our intercompany credit arrangements with
True North.

   Our short-term capital commitments include net media payments of $9.6
million, 2000 bonus payments aggregating $4.7 million, Japan operating and
severance costs of approximately $2.0 million, other severance costs of $0.6
million, payments under a note payable of $1.4 million, lease payments over
the next twelve months aggregating approximately $8.3 million and the funding
of certain international operations that are not expected

                                      17
<PAGE>

to be self-sufficient in the near-term. Our long-term capital needs will
depend on numerous factors, including the rate at which we are able to obtain
new business from clients and expand our personnel and infrastructure to
accommodate growth, as well as the rate at which we choose to invest in new
technologies. Although we have ongoing needs for capital, including working
capital for operations, project development costs and capital expenditures to
maintain and expand our operations, we expect that such needs will be
substantially reduced during fiscal 2001 as compared to 2000.

   We are the guarantor for CentrPort's obligations under its lease for office
space, which expires on June 30, 2010, subject to renewal. As of December 31,
2000, the remaining base rent due under this lease is approximately $5.8
million, subject to adjustment in accordance with the terms of the lease. The
lease provides that once 50% of the original lease term has expired, this
guaranty may be replaced with an irrevocable letter of credit in favor of the
landlord in an amount not to exceed the remaining base rent. CentrPort has
committed to us that upon expiration of 50% of the lease term, CentrPort will
obtain such a letter of credit. Additionally, CentrPort has agreed to
cooperate with us to secure our release from our guaranty prior to that time,
if possible. In addition, we are the guarantor for CentrPort's thirty-six
month lease of certain network storage server equipment from a third party
vendor, which lease is terminable earlier upon payment for the outstanding
value of the equipment. As of December 31, 2000, the remaining payments under
this lease aggregate approximately $1.7 million. The lease provides that the
lessor will discharge our guaranty if CentrPort establishes a letter of credit
in favor of the lessor for an aggregate amount of 50% of the outstanding lease
payments as of the date of the letter of credit. CentrPort has committed to
establish such a letter of credit.

   We believe that our cash on hand and short-term investments, together with
funds available from operations, will be sufficient to meet our capital needs
for at least the next twelve months.

Recently Issued Accounting Pronouncements

   In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a Replacement of Statement No. 125, which replaces SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 140 revises criteria for accounting for
securitizations, other financial asset transfers and collateral, and
introduces certain new disclosures, but otherwise carries forward most of the
provisions of SFAS No. 125 without amendment. SFAS No. 140 has an immediate
impact with respect to the collateral provisions of SFAS No. 125, which must
be applied for fiscal years ending after December 15, 2000. The other
provisions of SFAS No. 140 apply prospectively to transfers of financial
assets and extinguishments of liabilities occurring after March 31, 2001,
except for transfers of assets required by commitments made before March 31,
2001, to transferees or beneficial interest holders other than the transferor,
its affiliates, or its agents. We do not believe that the adoption of SFAS No.
140 will have a material impact on our results of operations.

   In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which amends the
accounting and reporting standards of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, for certain derivative instruments and
hedging activities. SFAS No. 133 was previously amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which deferred the effective date of
SFAS No. 133 to fiscal years commencing after June 15, 2000. We will adopt
SFAS No. 138 concurrently with SFAS No. 133, however, we do not believe that
such adoptions will have a material impact on our results of operations.

   In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), Accounting
For Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25. Among other things, FIN 44 clarifies the definition of
employees, the criteria for determining whether a plan qualifies as a non-
compensatory plan, the accounting consequences of various modifications to the
terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000 but certain of its conclusions cover specific events
that occurred after either December 15, 1998 or January 12, 2000. We adopted
the provisions of FIN 44 as of July 1, 2000.

                                      18
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   Our consolidated financial statements are denominated in U.S. dollars. In
2000, we derived approximately 21.0% of our revenues from operations outside
of the United States. We face foreign currency risks primarily as a result of
the revenues that we receive from services delivered through our foreign
subsidiaries. These subsidiaries incur most of their expenses in the local
currency. Accordingly, our foreign subsidiaries use the local currency as
their functional currency. We are also exposed to foreign exchange rate
fluctuations, primarily with respect to the British Pound and the Yen, as the
financial results of foreign subsidiaries are translated into U.S. dollars for
consolidation. As exchange rates vary, these results, when translated, may
vary from expectations and adversely impact net income (loss) and overall
profitability. The effect of foreign exchange rate fluctuation for the year
ended December 31, 2000 was not material. Currently, we do not hedge foreign
currency transactions into U.S. dollars because we believe that, over time,
the cost of a hedging program will outweigh any benefit of greater
predictability in our U.S. dollar denominated results. However, as we continue
to extend the depth and breadth of our foreign operations, we will, from time-
to-time, reconsider the issue of whether a foreign currency hedging program
would be beneficial to our operations.

   At December 31, 2000, our balance sheet includes investments in marketable
equity securities with a fair value of approximately $0.1 million. The
securities are classified as available-for-sale in our consolidated balance
sheet, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of applicable deferred income taxes.

                                      19
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          -----
<S>                                                                       <C>
Modem Media, Inc. and Subsidiaries
  Report of Independent Public Accountants...............................    21
  Consolidated Balance Sheets as of December 31, 2000 and 1999...........    22
  Consolidated Statements of Operations for the years ended December 31,
   2000, 1999 and 1998...................................................    23
  Consolidated Statements of Changes in Stockholders' Equity for the
   years ended December 31, 2000, 1999 and 1998..........................    24
  Consolidated Statements of Cash Flows for the years ended December 31,
   2000, 1999 and 1998...................................................    25
  Notes to Consolidated Financial Statements............................. 26-46
</TABLE>


                                       20
<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
Modem Media, Inc.:

   We have audited the accompanying consolidated balance sheets of Modem
Media, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the 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 Modem Media, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.

Arthur Andersen LLP

Stamford, Connecticut
March 15, 2001

                                      21
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                          December 31,
                                                    --------------------------
                                                        2000          1999
                                                    ------------  ------------
<S>                                                 <C>           <C>
                      ASSETS
Current assets:
 Cash and cash equivalents......................... $ 35,564,000  $ 30,265,000
 Short-term investments............................      201,000    16,859,000
 Accounts receivable, net of bad debt reserve of
  $1,389,000 and $1,151,000, respectively..........   25,289,000    18,090,000
 Unbilled revenues.................................    3,031,000     2,066,000
 Unbilled charges..................................      991,000       642,000
 Deferred income taxes.............................    9,558,000     1,004,000
 Prepaid expenses and other current assets.........    7,103,000     2,325,000
                                                    ------------  ------------
   Total current assets............................   81,737,000    71,251,000
Property and equipment:
 Leasehold improvements............................    8,555,000     3,769,000
 Computers and software............................   15,110,000    11,158,000
 Furniture and other...............................    8,045,000     4,969,000
                                                    ------------  ------------
   Total property and equipment....................   31,710,000    19,896,000
 Less: accumulated depreciation and amortization...   (9,644,000)   (5,704,000)
                                                    ------------  ------------
   Total property and equipment, net...............   22,066,000    14,192,000
Other assets:
 Goodwill, net of accumulated amortization of
  $9,744,000 and $6,391,000, respectively..........   50,496,000    55,742,000
 Deferred income taxes.............................          --        602,000
 Other assets......................................    7,206,000     3,945,000
                                                    ------------  ------------
   Total other assets..............................   57,702,000    60,289,000
                                                    ------------  ------------
   Total assets.................................... $161,505,000  $145,732,000
                                                    ============  ============

       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable.................................. $  5,745,000  $  5,346,000
 Pre-billed media..................................   12,043,000     6,639,000
 Advance billings..................................    2,368,000     2,736,000
 Deferred revenues.................................    4,392,000     4,125,000
 Deferred gain on sale of CentrPort common stock...    4,052,000           --
 Accrued expenses and other current liabilities....   21,692,000    14,718,000
                                                    ------------  ------------
   Total current liabilities.......................   50,292,000    33,564,000
Noncurrent liabilities:
 Capital lease obligations, less current portion...      618,000       471,000
 Deferred income taxes.............................    2,093,000           --
 Other liabilities.................................    4,231,000       221,000
Commitments and contingencies (see Note 11)........
Stockholders' equity:
 Common stock, $.001 par value--145,000,000 shares
  authorized, 25,459,157 and
  12,115,970 issued, respectively..................       25,000        12,000
 Common stock, Class B, $.001 par value -- 0 and
  11,116,326 shares authorized, issued and
  outstanding, respectively........................          --         11,000
 Preferred stock, $.001 par value--5,000,000
  shares authorized, none issued and outstanding...          --            --
 Paid-in capital...................................  189,127,000   121,151,000
 Accumulated deficit...............................  (82,853,000)   (8,604,000)
 Treasury stock, 197,849 and 184,834 shares of
  common stock, respectively, at cost..............   (1,191,000)   (1,118,000)
 Accumulated other comprehensive income............     (837,000)       24,000
                                                    ------------  ------------
   Total stockholders' equity......................  104,271,000   111,476,000
                                                    ------------  ------------
   Total liabilities and stockholders' equity...... $161,505,000  $145,732,000
                                                    ============  ============
</TABLE>

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

                                       22
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                          -------------------------------------
                                              2000         1999        1998
                                          ------------  ----------- -----------
<S>                                       <C>           <C>         <C>
Revenues................................  $134,344,000  $74,036,000 $42,544,000
Cost of revenues........................    69,088,000   32,991,000  23,249,000
                                          ------------  ----------- -----------
Gross profit............................    65,256,000   41,045,000  19,295,000
                                          ------------  ----------- -----------
Operating expenses:
  Sales and marketing...................     5,240,000    1,658,000   1,098,000
  General and administrative............    57,154,000   29,683,000  19,750,000
  Excess facility charge, severance and
   write-off of offering-related costs..     7,008,000          --          --
  Impairment of goodwill................    54,287,000          --          --
  Amortization of goodwill..............    15,400,000    2,959,000   1,768,000
  Operating losses of True North Units
   Held for Transfer....................           --           --       13,000
                                          ------------  ----------- -----------
    Total operating expenses............   139,089,000   34,300,000  22,629,000
                                          ------------  ----------- -----------
Operating (loss) income.................   (73,833,000)   6,745,000  (3,334,000)
Interest income, net....................     1,866,000    1,975,000      29,000
                                          ------------  ----------- -----------
(Loss) income before income taxes.......   (71,967,000)   8,720,000  (3,305,000)
Provision (benefit) for income taxes....     2,282,000    5,703,000    (102,000)
                                          ------------  ----------- -----------
Net (loss) income.......................  $(74,249,000) $ 3,017,000 $(3,203,000)
                                          ============  =========== ===========
Net (loss) income per share:
  Basic.................................  $      (3.04) $      0.14 $     (0.21)
                                          ============  =========== ===========
  Diluted...............................  $      (3.04) $      0.13 $     (0.21)
                                          ============  =========== ===========
Weighted-average number of common shares
 outstanding:
  Basic.................................    24,386,000   21,563,000  14,930,000
                                          ============  =========== ===========
  Diluted...............................    24,386,000   22,958,000  14,930,000
                                          ============  =========== ===========
</TABLE>


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

                                       23
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                              Class B                                                Other         Total
                                      Common   Common     Paid-in     Accumulated    Treasury    Comprehensive Stockholders'
                                       Stock   Stock      Capital       Deficit        Stock        Income        Equity
                                      ------- --------  ------------  ------------  -----------  ------------- -------------
<S>                                   <C>     <C>       <C>           <C>           <C>          <C>           <C>
Balance as of December 31, 1997....   $ 5,000 $ 11,000  $ 44,828,000  $ (9,200,000) $       --     $ (26,000)  $ 35,618,000
Comprehensive income:
 Net loss..........................       --       --            --     (3,203,000)         --           --      (3,203,000)
 Foreign currency translation
  adjustment.......................       --       --            --            --           --       (20,000)       (20,000)
                                                                                                               ------------
 Total comprehensive income (loss)..                                                                             (3,223,000)
                                                                                                               ------------
Forgiveness of intercompany
 borrowings........................       --       --      5,763,000           --           --           --       5,763,000
Sale to True North of True North
 Units Held for Transfer...........       --       --     (7,444,000)          --           --           --      (7,444,000)
Acquisition of fixed assets from
 True North in connection with the
 Combination.......................       --       --      1,624,000           --           --           --       1,624,000
Payment by True North to former
 Modem Partnership partners........       --       --      3,263,000           --           --           --       3,263,000
Other, net.........................       --       --       (823,000)      782,000          --           --         (41,000)
                                      ------- --------  ------------  ------------  -----------    ---------   ------------
Balance as of December 31, 1998....     5,000   11,000    47,211,000   (11,621,000)         --       (46,000)    35,560,000
Comprehensive income:
 Net income........................       --       --            --      3,017,000          --           --       3,017,000
 Foreign currency translation
  adjustment.......................       --       --            --            --           --        70,000         70,000
                                                                                                               ------------
 Total comprehensive income........                                                                               3,087,000
                                                                                                               ------------
Initial public offering, net of
 offering costs....................     6,000      --     42,045,000           --           --           --      42,051,000
Exercise of stock options..........     1,000      --      3,704,000           --           --           --       3,705,000
Tax benefit from the exercise of
 stock options.....................       --       --      5,728,000           --           --           --       5,728,000
Shares issued under employee stock
 purchase plan.....................       --       --        956,000           --           --           --         956,000
Purchases of treasury stock........       --       --            --            --    (1,118,000)         --      (1,118,000)
Acquisition of MEX Multimedia
 Experts GmbH......................       --       --      2,400,000           --           --           --       2,400,000
Payment by True North to former
 Modem Partnership partners........       --       --     18,518,000           --           --           --      18,518,000
Other, net.........................       --       --        589,000           --           --           --         589,000
                                      ------- --------  ------------  ------------  -----------    ---------   ------------
Balance as of December 31, 1999....    12,000   11,000   121,151,000    (8,604,000)  (1,118,000)      24,000    111,476,000
Comprehensive income:
 Net loss..........................       --       --            --    (74,249,000)         --           --     (74,249,000)
 Unrealized loss on available-for-
  sale securities, net of taxes....       --       --            --            --           --      (164,000)      (164,000)
 Foreign currency translation
  adjustment.......................       --       --            --            --           --      (697,000)      (697,000)
                                                                                                               ------------
 Total comprehensive income (loss)..                                                                            (75,110,000)
                                                                                                               ------------
Conversion of Class B shares by
 True North........................    11,000  (11,000)          --            --           --           --             --
Exercise of stock options..........     1,000      --      2,499,000           --           --           --       2,500,000
Tax benefit from the exercise of
 stock options.....................       --       --      8,443,000           --           --           --       8,443,000
Shares issued under employee stock
 purchase plan.....................     1,000      --      2,751,000           --           --           --       2,752,000
Purchases of treasury stock........       --       --            --            --       (73,000)         --         (73,000)
Acquisition of Vivid Holdings, Inc.
 and Vivid Publishing, Inc.........       --       --     53,400,000           --           --           --      53,400,000
Acquisition of additional interest
 in CentrPort......................       --       --      1,863,000           --           --           --       1,863,000
SAB No. 51 non-cash loss on sale of
 CentrPort common stock............       --       --     (1,435,000)          --           --           --      (1,435,000)
Other, net.........................       --       --        455,000           --           --           --         455,000
                                      ------- --------  ------------  ------------  -----------    ---------   ------------
Balance as of December 31, 2000....   $25,000 $    --   $189,127,000  $(82,853,000) $(1,191,000)   $(837,000)  $104,271,000
                                      ======= ========  ============  ============  ===========    =========   ============
</TABLE>

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

                                       24
<PAGE>

                       MODEM MEDIA, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                         --------------------------------------
                                             2000         1999         1998
                                         ------------  -----------  -----------
<S>                                      <C>           <C>          <C>
Cash flows from operating activities:
 Net (loss) income.....................  $(74,249,000) $ 3,017,000  $(3,203,000)
 Adjustments to reconcile net (loss)
  income to net cash provided by
  operating activities:
   Depreciation........................     6,127,000    3,463,000    1,846,000
   Excess facility charge and unpaid
    severance..........................     5,933,000          --           --
   Impairment of goodwill..............    54,287,000          --           --
   Amortization of goodwill............    15,400,000    2,959,000    1,768,000
   Tax benefit from the exercise of
    stock options......................     2,025,000    5,703,000          --
   Bad debt expense....................       696,000      316,000      660,000
   Other...............................     1,136,000      268,000      155,000
   Changes in assets and liabilities:
     Accounts receivable...............    (7,432,000)  (4,432,000)  (6,865,000)
     Unbilled revenues.................    (1,002,000)    (179,000)    (217,000)
     Unbilled charges..................      (368,000)      53,000       18,000
     Prepaid expenses and other current
      assets...........................    (1,392,000)  (1,157,000)    (798,000)
     Accounts payable, accrued expenses
      and other current liabilities....     3,378,000    6,405,000    7,839,000
     Pre-billed media..................     5,446,000     (260,000)   3,028,000
     Advance billings..................      (359,000)     565,000        1,000
     Deferred revenues.................       386,000   (1,364,000)   3,868,000
     Other, net........................      (327,000)  (4,178,000)  (1,912,000)
     Net assets of True North Units
      Held for Transfer................           --           --       129,000
                                         ------------  -----------  -----------
      Net cash provided by operating
       activities......................     9,685,000   11,179,000    6,317,000
Cash flows from investing activities:
 Purchases of property and equipment...   (15,616,000) (10,403,000)  (4,133,000)
 Purchases of short-term investments...      (463,000) (16,859,000)         --
 Maturities of short-term investments..    16,859,000          --           --
 Acquisitions, net of cash acquired....   (11,162,000)  (4,624,000)         --
 Proceeds from sale of CentrPort common
  stock................................     2,019,000          --           --
 Other, net............................           --       115,000          --
                                         ------------  -----------  -----------
      Net cash used in investing
       activities......................    (8,363,000) (31,771,000)  (4,133,000)
Cash flows from financing activities:
 Proceeds from initial public
  offering.............................           --    43,459,000          --
 Funding to True North.................       (15,000)  (3,302,000)  (1,015,000)
 Purchases of treasury stock...........       (73,000)  (1,118,000)         --
 Principal payments made under capital
  lease obligations....................      (378,000)    (392,000)    (361,000)
 Exercises of stock options, including
  purchases under employee stock
  purchase plan........................     5,251,000    4,661,000          --
 Other, net............................      (892,000)    (339,000)     (40,000)
                                         ------------  -----------  -----------
      Net cash provided by (used in)
       financing activities............     3,893,000   42,969,000   (1,416,000)
                                         ------------  -----------  -----------
Effect of exchange rates on cash and
 cash equivalents......................        84,000       64,000          --
                                         ------------  -----------  -----------
Net increase in cash and cash
 equivalents...........................     5,299,000   22,441,000      768,000
Cash and cash equivalents, beginning of
 the year..............................    30,265,000    7,824,000    7,056,000
                                         ------------  -----------  -----------
Cash and cash equivalents, end of the
 year..................................  $ 35,564,000  $30,265,000  $ 7,824,000
                                         ============  ===========  ===========
</TABLE>

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

                                       25
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation and Summary of Significant Accounting Policies

   Nature of Operations--Modem Media, Inc. ("Modem Media" or the "Company") is
a leading Internet professional services firm focused on solving the marketing
and customer management problems facing executives at those global companies
most impacted by digital change. The Company's approach combines technology-
driven solutions with a deep understanding of customer needs to create more
rewarding solutions for its clients and their customers. Headquartered in
Norwalk, CT, the Company has offices in New York City, San Francisco, Toronto,
London, Paris, Munich, Hong Kong, and Sao Paulo.

   Principles of Consolidation--The accompanying consolidated financial
statements include all of the accounts of the Company and its subsidiaries.
All significant intercompany transactions have been eliminated in
consolidation.

   Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.

   Reclassifications--Certain reclassifications have been made in the prior
period consolidated financial statements to conform to the current period
presentation.

   Revenue Recognition and Billing--A majority of the Company's revenues is
derived from fixed-fee assignments. During the year ended December 31, 2000,
the Company adopted Staff Accounting Bulletin ("SAB") No. 101, Revenue
Recognition in Financial Statements. Among other things, SAB No. 101 provides
guidance on applying generally accepted accounting principles to certain
revenue recognition issues. The Company recognizes revenues as services are
rendered. Unbilled revenues represent labor costs incurred and estimated
earnings in excess of billings. Unbilled charges represent production and
other client reimbursable out-of-pocket costs in excess of billings. Revenue
is reported net of such reimbursable costs. Pre-billed media represents
amounts billed to customers for media placement in advance of the
advertisements being placed. Advance billings represent billings of production
and other client reimbursable out-of-pocket costs in excess of those incurred.
Amounts billed to clients in excess of revenues recognized to date are
classified as deferred revenues. The Company reassesses its estimated costs on
each project periodically and losses are accrued, on a project-by-project
basis, to the extent that costs incurred and anticipated costs to complete
projects exceed anticipated billings. Provisions for estimated losses on
uncompleted projects are made in the period in which such losses are
determinable.

   Business Combinations--Business combinations that have been accounted for
under the purchase method of accounting include the results of operations of
the acquired businesses from the dates of their respective acquisition. Net
assets of acquired companies are recorded at their fair value to the Company
at the date of acquisition unless any such company was acquired in a
transaction between entities under common control, in which case the assets of
such company are recorded at historical cost.

   Business Concentrations and Credit Risk--The Company's services have been
provided to a limited number of clients located worldwide in a variety of
industries. The Company had revenues from one client representing 13.8% of
total revenues during the year ended December 31, 1999 and two clients
representing 20.7% and 12.8% of total revenues during the year ended December
31, 1998. The Company generally does not require its clients to provide
collateral. Additionally, the Company is subject to a concentration of credit
risk with respect to its accounts receivable. The Company had three clients
accounting for 15.0%, 12.1%, and 10.7% of total gross accounts receivable as
of December 31, 2000 and one client accounting for 18.7% of total gross
accounts receivable as of December 31, 1999.

                                      26
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Income Taxes--The Company accounts for income taxes under the liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, Accounting for Income Taxes. In accordance with such standard, the
provision for income taxes includes deferred income taxes resulting from items
reported in different periods for income tax and financial statement purposes.
Deferred income tax assets and liabilities represent the expected future tax
consequences of the differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. The
effects of changes in tax rates on deferred income tax assets and liabilities
are recognized in the period that includes the enactment date.

   Stock-Based Compensation--The Company follows the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 encourages, but does not require, companies to record compensation expense
for stock-based employee compensation plans at fair value. As permitted, the
Company has elected to continue to account for stock-based compensation to
employees using the intrinsic value method presented in Accounting Principles
Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Accordingly, compensation cost of stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of grant over the option exercise price and is charged to
operations over the vesting period. Income tax benefits attributable to stock
options exercised are credited to paid-in capital.

   Cash, Cash Equivalents and Short-Term Investments--The Company considers
all highly liquid investments with a maturity of three months or less at the
time of purchase to be cash equivalents. All investments with maturities
greater than three months at the time of purchase are accounted for under SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. As
of December 31, 2000, all of the Company's short-term investments have been
classified as available-for-sale securities and are carried at fair market
value. Short-term investments principally consist of commercial paper maturing
less than six months from the date of purchase and marketable equity
securities.

   Property and Equipment--Property and equipment are stated at cost and are
depreciated, principally using the straight-line method, over their estimated
useful lives of three to five years for computers and software, and five to
seven years for furniture and other. Purchased software and third-party costs
incurred to develop software for internal use are capitalized and amortized
principally over three years. Leasehold improvements are amortized over the
lesser of their estimated useful lives or the remaining lease term.

   Goodwill--Goodwill represents acquisition costs in excess of the fair value
of net assets acquired and is amortized using the straight-line method over
periods of five to twenty years. Carrying values are periodically reviewed for
impairment and adjusted, if necessary, based upon current facts and
circumstances and management's estimates of the undiscounted future cash flows
from the related businesses (see Note 3).

   Long-Lived Assets--In accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, the
Company reviews its recorded long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and provides currently for any identified impairments (see
Note 3).

   Accounting for Sales of Stock by a Subsidiary--In accordance with SAB No.
51, Accounting for Sales of Stock by a Subsidiary, the Company accounts for
gains and losses on issuances of stock by its subsidiaries as equity
transactions.

   Net (Loss) Income Per Share--In accordance with SFAS No. 128, Earnings Per
Share, basic net (loss) income per share is computed using the weighted-
average number of common shares outstanding during each period. Diluted net
(loss) income per share gives effect to all potentially dilutive securities
that were outstanding

                                      27
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

during each period. The Company had net losses for the years ended December
31, 2000 and 1998; as a result, none of the options outstanding during those
periods were included in the computations of diluted net loss per share since
they were antidilutive.

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                               --------------------------------
                                                  2000       1999       1998
                                               ---------- ---------- ----------
   <S>                                         <C>        <C>        <C>
   Basic weighted-average number of common
    shares outstanding.......................  24,386,000 21,563,000 14,930,000
   Potentially dilutive effect of stock
    options and warrants.....................         --   1,395,000        --
                                               ---------- ---------- ----------
   Diluted weighted-average number of common
    shares outstanding.......................  24,386,000 22,958,000 14,930,000
                                               ========== ========== ==========
</TABLE>

   All historical weighted-average share and per-share amounts have been
restated to reflect the stock splits effected by the Company (see Note 6).

   Fair Value of Financial Instruments--The carrying values of the Company's
assets and liabilities approximate fair value because of the short maturities
of these financial instruments.

   Foreign Currency Translation--The Company's financial statements were
prepared in accordance with the requirements of SFAS No. 52, Foreign Currency
Translation. Under this method, net foreign currency transaction gains and
losses are included in the accompanying consolidated statements of operations.

   Comprehensive Income--The Company reflects its comprehensive income, such
as unrealized gains and losses on the Company's foreign currency translation
adjustments and available-for-sale securities, as a separate component of
stockholders' equity as required by SFAS No. 130, Reporting Comprehensive
Income. The Company has not recorded the tax effects related to the currency
translation adjustments because such adjustments relate to indefinite
investments in international subsidiaries. The Company's unrealized loss on
available-for-sale securities is shown net of deferred taxes of $114,000.

   The components of accumulated other comprehensive income as of December 31,
2000, 1999, and 1998 are as follows:
<TABLE>
<CAPTION>
                                                          December 31,
                                                   ---------------------------
                                                     2000      1999     1998
                                                   ---------  ------- --------
   <S>                                             <C>        <C>     <C>
   Foreign currency translation adjustment.......  $(673,000) $24,000 $(46,000)
   Unrealized loss on available-for-sale
    securities, net of taxes.....................   (164,000)     --       --
                                                   ---------  ------- --------
     Total accumulated other comprehensive
      income.....................................  $(837,000) $24,000 $(46,000)
                                                   =========  ======= ========
</TABLE>

   Recently Issued Accounting Pronouncements--In September 2000, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a Replacement of Statement No. 125, which replaces SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 140 revises criteria for accounting for
securitizations, other financial asset transfers and collateral, and
introduces certain new disclosures, but otherwise carries forward most of the
provisions of SFAS No. 125 without amendment. SFAS No. 140 has an immediate
impact with respect to the collateral provisions of SFAS No. 125, which must
be applied for fiscal years ending after December 15, 2000. The other
provisions of SFAS No. 140 apply prospectively to transfers of financial
assets and extinguishments of liabilities occurring after March 31, 2001,
except for transfers of assets required by commitments made before March 31,
2001, to transferees or beneficial interest holders other than the transferor,
its affiliates, or its agents. Management does not believe that the adoption
of SFAS No. 140 will have a material impact on the Company's results of
operations.

                                      28
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In June 2000, the FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, which amends the
accounting and reporting standards of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, for certain derivative instruments and
hedging activities. SFAS No. 133 was previously amended by SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133, which deferred the effective date of
SFAS No. 133 to fiscal years commencing after June 15, 2000. The Company will
adopt SFAS No. 138 concurrently with SFAS No. 133, however, management does
not believe that such adoptions will have a material impact on the Company's
results of operations.

   In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), Accounting
For Certain Transactions Involving Stock Compensation--an Interpretation of
APB Opinion No. 25. Among other things, FIN 44 clarifies the definition of
employees, the criteria for determining whether a plan qualifies as a non-
compensatory plan, the accounting consequences of various modifications to the
terms of a previously fixed stock option or award and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain of its conclusions cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
adopted the provisions of FIN 44 as of July 1, 2000.

NOTE 2. Acquisitions and Dispositions

   The Company and certain employees formed CentrPort, LLC in November 1999 to
focus on developing intelligent marketing platforms to build and enhance
customer relationships across multiple communication channels. In December
2000, the Company completed a series of transactions that provided for the
financing of, and sale of a portion of its ownership in, CentrPort, Inc.
("CentrPort"), formerly a majority-owned subsidiary. A venture capital group
(the "CentrPort Investors") purchased 8,332,000 shares of preferred stock of
CentrPort from the Company in exchange for (a) $2,500,000 in cash, (b) a
$2,500,000 receivable due in December 2001, subject to certain conditions, and
(c) a warrant to purchase 391,604 shares of CentrPort common stock. Concurrent
with such purchase, the CentrPort Investors agreed to invest up to $22,000,000
directly into CentrPort, of which $16,500,000 was payable at closing and
$5,500,000 is payable in December 2001, subject to CentrPort securing certain
revenue commitments by April 1, 2001, in exchange for 36,660,800 shares of
newly-issued CentrPort preferred stock. To the extent that CentrPort does not
receive this additional funding, the value of the Company's investment in
CentrPort may decline and its deferred gain could be reduced (see Note 18). In
addition, the Company purchased 1,842,657 shares of CentrPort common stock
from certain minority shareholders in exchange for $1,863,000 (315,858 shares)
of Modem Media common stock. The purchase by the CentrPort Investors of a
portion of the Company's ownership in CentrPort, the investment by the
CentrPort Investors directly into CentrPort, and the Company's purchase of
CentrPort common stock from certain minority shareholders, are hereinafter
collectively referred to as the "CentrPort Transactions". Immediately prior to
the closing of the CentrPort Transactions, CentrPort, which was previously
organized as a limited liability company, was reorganized as a Delaware
corporation.

   Prior to the CentrPort Transactions, the Company was CentrPort's sole
source of funding, as well as its primary customer. Consequently, despite
owning less than 100% of CentrPort's total equity interests during 2000 and
1999, the Company included 100% of CentrPort's assets, liabilities and
operating losses in its consolidated results. As a result of the CentrPort
Transactions, the Company's ownership in CentrPort was reduced from
approximately 59.0% to approximately 15.2%. From the date of the CentrPort
Transactions, the Company's remaining investment in CentrPort of $3,693,000
will be accounted for under the cost method of accounting. Such investment is
included in "Other assets" in the accompanying consolidated balance sheet as
of December 31, 2000.


                                      29
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   In conjunction with the CentrPort Transactions, the Company has designated
CentrPort as a preferred vendor and committed to resell at least $5,000,000 of
CentrPort's products and services during 2001 (the "CentrPort Commitment"). If
the CentrPort Commitment is not met, the Company must pay the value of the
shortfall to CentrPort in cash or CentrPort common stock, at the Company's
election. If certain resale targets above the CentrPort Commitment are met,
the CentrPort Investors will be required to pay an additional $700,000 in cash
to the Company on March 31, 2002. Furthermore, although no additional
commitment has been made to do so, the Company can earn warrants to purchase
up to an additional 2,349,624 shares of CentrPort common stock if certain
resale targets are achieved by the Company through 2002.

   The Company is deferring the gain from the CentrPort Transactions of
approximately $4,052,000 until the Company's obligations under the CentrPort
Commitment and other agreements are met (see Note 18). Furthermore, in
accordance with SAB No. 51, the Company realized a non-cash loss of
approximately $1,435,000, net of taxes, from the CentrPort Transactions, which
has been reflected as an equity transaction in the accompanying consolidated
financial statements.

   In February 2000, the Company acquired 100% of the outstanding capital
stock of Vivid Holdings, Inc. and its majority-owned subsidiary, Vivid
Publishing, Inc. (collectively hereinafter referred to as "Vivid") for
approximately $63,600,000. Vivid was a professional services company with 101
employees that provided engineering and information architecture services
primarily to Internet start-ups. The consideration was comprised of
approximately $10,200,000 in cash, approximately $14,400,000 in Modem Media
common stock (446,010 shares), and approximately $39,000,000 in value related
to employee stock options that were converted to Modem Media stock options.
The acquisition has been accounted for under the purchase method of accounting
and, accordingly, the operating results of Vivid have been included in the
Company's financial statements from the date of its acquisition. The
allocation of the excess of purchase price over the fair value of net assets
acquired of approximately $64,500,000 was being amortized over a five-year
period. As of the end of the fourth quarter of 2000, the Company concluded
that the goodwill associated with the Vivid acquisition was impaired,
resulting in the write-off of the unamortized balance of $52,758,000 (see Note
3).

   The following information reflects pro forma statement of operations data
for the year ended December 31, 1999 assuming that acquisition of Vivid
occurred on January 1, 1999.

<TABLE>
<CAPTION>
                                                                    Year Ended
                                                                     December
                                                                        31,
                                                                       1999
                                                                    -----------
     <S>                                                            <C>
     Revenues...................................................... $81,067,000
     Loss before income taxes......................................  (6,493,000)
     Net loss...................................................... (11,096,000)
     Basic and diluted net loss per common share...................       (0.50)
</TABLE>

   These pro forma results have been presented for comparative purposes only
and do not purport to be indicative of the results of operations that would
have actually resulted had the acquisition of Vivid occurred on January 1,
1999, or which may result in the future.

   All other acquisitions of the Company during the periods presented are as
follows:

   In March 2000, the Company purchased 100% of the outstanding capital stock
of its affiliate in Sao Paulo, Brazil ("Modem Media Brazil") from its former
parent, True North Communications Inc. ("True North"), for $135,000 in cash.
Because the transaction occurred among True North and majority-owned,
controlled subsidiaries, the transaction was recorded at historical cost. The
acquisition has been accounted for under the purchase method of accounting
and, accordingly, the operating results of Modem Media Brazil have been
included in the Company's financial statements from the date of its
acquisition.

                                      30
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In February 2000, the Company acquired substantially all of the assets of
Eurokapi Multimedia S.A. ("Eurokapi"), a builder and marketer of e-businesses
in Paris, France, for approximately $450,000 in cash. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
operating results of Eurokapi have been included in the Company's financial
statements from the date of its acquisition. The excess of purchase price over
the net assets acquired of approximately $500,000 is being amortized over a
five-year period.

   In October 1999, the Company acquired 100% of the outstanding capital stock
of MEX Multimedia Experts GmbH ("MEX"), a developer of interactive business
solutions in Munich, Germany, for approximately $5,400,000, which was
comprised of $3,000,000 in cash and approximately $2,400,000 in common stock
of the Company. The acquisition was accounted for under the purchase method of
accounting and, accordingly, the operating results of MEX have been included
in the Company's consolidated financial statements from the date of its
acquisition. The excess of purchase price over the net assets acquired of
approximately $4,700,000 is being amortized over a ten-year period.

   In June 1999, the Company acquired 100% of the outstanding capital stock of
a builder and marketer of e-businesses in Tokyo, Japan ("Modem Media Japan")
for approximately $1,400,000 in cash. The acquisition was accounted for under
the purchase method of accounting and, accordingly, the operating results of
Modem Media Japan have been included in the Company's consolidated financial
statements from the date of its acquisition. Pursuant to the acquisition
agreement, the Company made an additional payment to the former owners of
Modem Media Japan of approximately $274,000 because the acquired entity's
operating results exceeded certain targeted levels during 1999. Such payment
was allocated to the cost in excess of the fair value of net assets acquired.
As of the end of the fourth quarter of 2000, management concluded that the
value of its goodwill related to the acquisition of Modem Media Japan was
impaired, resulting in the write-off of the unamortized balance of $1,529,000
(see Note 3). In 2001, management decided to close its office in Tokyo, Japan
(see Note 18). It is expected that Modem Media Japan will cease its operations
during the second quarter of 2001.

   Effective October 1, 1998, the Company acquired the strategic interactive
marketing operations of Poppe Tyson, Inc. (the "Poppe Tyson Strategic
Interactive Marketing Operations") from True North in exchange for (a) the
Company's non-strategic digital interactive marketing operations and (b) an
aggregate of 1,619,028 shares of Modem Media common stock (the "Combination").
In conjunction with the Combination, True North forgave $5,763,000 of
intercompany borrowings and transferred $1,624,000 of fixed assets to the
Company. The historical financial results of the Poppe Tyson Strategic
Interactive Marketing Operations have been prepared on a carved-out basis, and
are included in the consolidated financial statements of the Company from
December 31, 1997, the date of the merger of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("Bozell"), the former parent of Poppe Tyson, Inc., with True
North, and therefore the date on which the Company and the Poppe Tyson
Strategic Interactive Marketing Operations came under common control. Because
the Combination occurred between True North and majority-owned, controlled
subsidiaries, the transaction has been recorded at historical cost. The
accumulated deficit arising from the carved-out operating results of the Poppe
Tyson Strategic Interactive Marketing Operations for the period from December
31, 1997 to October 1, 1998 is reflected as a reduction to paid-in capital.
The pre-tax losses of the non-strategic digital interactive marketing
operations through the date of sale to True North have been presented as
"Operating losses of True North Units Held for Transfer" in the accompanying
consolidated statements of operations in a manner similar to that of entities
held for sale. All adjustments necessary for the fair presentation of the
consolidated financial statements related to the Poppe Tyson Strategic
Interactive Marketing Operations are reflected herein.

   In connection with the Company's acquisition of Modem Media Advertising
Limited Partnership (the "Modem Partnership") in December 1996, True North
agreed to make payments of additional purchase price to the former owners of
the Modem Partnership based on certain targeted operating and performance
goals.

                                      31
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Pursuant to such agreement, True North made payments to the former owners of
the Modem Partnership of $18,518,000 and $3,263,000 during the years ended
December 31, 1999 and 1998, respectively, thereby resulting in corresponding
increases in goodwill on the books of the Company. Such amounts are being
amortized over the remainder of the original amortization period.

NOTE 3. Goodwill Impairment

   Vivid--Late in the fourth quarter of 2000, and continuing into the first
quarter of 2001, the Vivid business weakened significantly. Specifically, the
number of Vivid employees employed by the Company continued to decrease, new
assignments that would utilize the skills of the remaining Vivid employees
were not secured, and market conditions impacted the ability of Internet
start-ups to utilize our services. This weakness reflects a further
deterioration of conditions that were reviewed in the Company's Quarterly
Report on Form 10-Q for the third quarter of 2000, as amended. Due to the
significance of these developments, management performed an evaluation of the
recoverability of its long-lived assets in accordance with SFAS No. 121. Based
on this evaluation, management concluded that the remaining value of its
goodwill associated with the Vivid transaction was impaired. As a result, the
unamortized balance of approximately $52,758,000 was written-off in the fourth
quarter of 2000 and is included in "Impairment of goodwill" in the
accompanying consolidated statement of operations for the year ended December
31, 2000.

   Modem Media Japan--During 2000, Modem Media Japan experienced material,
adverse changes in market conditions and a gradual worsening of its client
relationships, which led to substantial declines in the office's operating
results and cash flows. As a result, management began an evaluation of its
operations in Tokyo and, in an effort to improve its performance, replaced the
entire local management team, as well as employees at various other levels
throughout the organization. Such efforts ultimately proved unsuccessful in
improving the office's financial performance. Due to these developments,
management performed an evaluation of the recoverability of its long-lived
assets in accordance with SFAS No. 121. Based on this evaluation, management
concluded that the value of its goodwill associated with Modem Media Japan was
impaired. As a result, the unamortized balance of approximately $1,529,000 was
written-off during the fourth quarter of 2000 and is included in "Impairment
of goodwill" in the accompanying consolidated statement of operations for the
year ended December 31, 2000. Subsequently, during the first quarter of 2001,
Modem Media management decided to close Modem Media Japan and expects the
cessation of such entity's operations during the second quarter of 2001 (see
Note 18).

NOTE 4. Excess Facility Charge, Severance and Write-Off of Offering-Related
Costs

   Excess Facility Charge--In December 2000, the Company announced a plan to
reduce office space under lease in its San Francisco and Tokyo locations in an
effort to reduce its overall operating expenses. In conjunction with such
plan, the Company recorded a one-time charge of approximately $5,656,000, of
which approximately $1,572,000 represents non-cash write-offs of leasehold
improvements and certain supporting assets. The remainder of the charge
represents future rent payments in excess of anticipated sublease income,
expected subtenant allowances and estimated brokers' fees.

   Severance--In November 2000, the Company proceeded to reduce its overall
expense base by terminating slightly less than 4.0% of the Company's total
workforce. In conjunction with such terminations, the Company incurred
approximately $630,000 in severance costs.

   Cancelled Stock Offering--In March 2000, the Company filed a registration
statement with the Securities and Exchange Commission relating to a proposed
public offering of its common stock. This offering

                                      32
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

was subsequently cancelled due to adverse market conditions. During the year
ended December 31, 2000, $722,000 in offering-related costs were charged to
operations.

NOTE 5. Debt

   Investment in CentrPort--In June 2000, the Company entered into an
agreement that obligated it to purchase, prior to December 1, 2000,
approximately 8.5% of the common stock of CentrPort (representing
approximately 3.9% of the common stock of CentrPort after the CentrPort
Transactions) from a minority interest holder in exchange for $2,550,000 (the
"Purchase Price"). The Company fulfilled such obligation during the fourth
quarter of 2000. As a result, the Company delivered a note payable to such
minority interest holder, the principal amount of which is approximately
$1,841,000, representing the Purchase Price less payments made prior to the
issuance of the note. Such note is payable in 17 equal monthly installments
and bears interest at a rate of 9.5% per annum.

   Interest Expense--The Company incurred interest expense on all borrowings,
including those from related parties, of $280,000, $134,000 and $185,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. Related party
interest expense in the respective totals above are $170,000, $63,000 and
$42,000.

NOTE 6. Equity

   Common Stock--Prior to June 5, 2000, the Company's common stock consisted
of Class A and Class B shares. On that date, the shareholders of the Company
approved an amendment to the Company's certificate of incorporation to (a)
eliminate references to the Company's Class B common stock, (b) reclassify the
Company's Class A common stock as common stock and (c) increase the number of
shares of common stock authorized for issuance to 145,000,000. At the time of
the amendment, no shares of Class B common stock were outstanding.

   Conversion of Class B Common Stock--On April 26, 2000, True North and its
subsidiaries converted all of their shares of the Company's Class B common
stock into shares of the Company's Class A common stock. As a result, True
North and its subsidiaries' combined voting power in the Company was reduced
below 50% of total voting power.

   Stock Splits--On March 1, 2000, the Company effected a 2-for-1 stock split,
paid in the form of a stock dividend, of its outstanding common stock. On
February 3, 1999, the Company effected a 0.95-for-1 reverse stock split of its
outstanding common stock. All historical share and per-share amounts have been
restated to reflect these stock splits.

   Registration Rights Agreement--In August 1999, the Company and True North
entered into a registration rights agreement that contains provisions granting
certain holders of common stock the right to participate in certain
registrations of the Company's common stock, subject to limitations outlined
therein. In addition, the agreement also provides certain holders the right to
initiate the registration of their securities, subject to timing and other
limitations.

   Stockholders' Agreement--The Company is party to a Stockholders' Agreement
dated May 4, 1999, as amended, with True North, G.M. O'Connell, the Company's
Chairman, and Robert C. Allen, II, the Company's President and Chief Operating
Officer, pursuant to which all of the parties have agreed that (1) until True
North no longer owns at least 10% of the Company's outstanding capital stock,
such parties would take all actions necessary in order to cause the election
of a least one director designated by True North to the Board of Directors of
the Company and (2) as long as Mr. O'Connell and Mr. Allen each serves the
Company as an executive officer, the parties to such agreement have agreed to
take all actions necessary in order to cause their election to the Company's
Board of Directors.

                                      33
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Warrant--In August 1999, the Company entered into an agreement to provide
$12,000,000 of services to General Electric Company ("GE") through September
30, 2000. In conjunction with GE's commitment to purchase the aforementioned
services, the Company granted General Electric Capital Corporation a warrant
to purchase 190,000 shares of the Company's common stock at $12.16 per share,
the average of the high and low trading prices during the five trading days
prior to the grant date. The warrant vested immediately and expires in August
2004. The fair value of this warrant, as determined by independent appraisal,
was approximately $587,000, which was reflected as a reduction of revenues
ratably as services were provided. Revenues were reduced by approximately
$203,000 and $234,000 during the years ended December 31, 2000 and 1999,
respectively. Since GE did not fulfill its commitment prior to September 30,
2000, the unamortized balance of approximately $150,000 was written-off during
the quarter then ended and is included in "General and administrative" in the
accompanying consolidated statement of operations.

   Initial Public Offering--On February 10, 1999, the Company completed an
initial public offering of 5,980,000 shares of its common stock at an offering
price of $8.00 per share. Total net proceeds from the offering were
approximately $42,051,000. The Company used $6,000,000 of these proceeds to
settle an intercompany note payable to True North, and the remainder to
acquire and fund the operations of businesses in Tokyo, Munich, Paris, Sao
Paulo and San Francisco, as well as to fund the operations of CentrPort prior
to its financing in December 2000 (see Note 2). In conjunction with this
offering, the Company incurred approximately $1,408,000 in offering-related
costs through December 31, 1998 that were deferred until the consummation of
such offering at which time they were charged against paid-in capital.

   Preferred Stock--Preferred stock may be issued, from time-to-time, pursuant
to a resolution by the Company's Board of Directors that will set forth the
voting powers and other pertinent rights of each series.

NOTE 7. Stock Purchase Plan

   In February 1999, the Company's Board of Directors adopted the 1999
Employee Stock Purchase Plan (the "Purchase Plan") under which a total of
1,900,000 shares of its common stock have been reserved for issuance. The
Purchase Plan, which is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code (the "Code"),
provides for consecutive, overlapping 24-month offering periods. Each offering
period contains four six-month purchase periods. Each participant will be
granted an option to purchase the Company's common stock on the first day of
each of the six-month purchase periods and such option will be automatically
exercised on the last day of each such purchase period. The purchase price of
each share of common stock under the Purchase Plan will be equal to 85% of the
lesser of the fair market value per share of common stock on the starting date
of that offering period or on the date of the purchase. Offering periods begin
on the first trading day on or after February 15 and August 15 of every year
and terminate twenty-four months later.

   Employees are eligible to participate in the Purchase Plan if they are
employed by the Company, or a subsidiary of the Company designated by the
Board of Directors, for at least 20 hours per week and for more than five
months in any calendar year. The Purchase Plan permits eligible employees to
purchase common stock through payroll deductions, which may not exceed 15% of
an employee's compensation, subject to certain limitations. Employees may
modify or end their participation in the offering at any time during the
offering period or on the date of purchase, subject to certain limitations.
Participation ends automatically on termination of employment with the
Company. The purchase plan will terminate in 2009 unless sooner terminated by
the Company's Board of Directors.

NOTE 8. Stock-Based Compensation

   The Company has established various stock option plans for its officers,
directors, key employees and consultants as described below.

                                      34
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   2000 Incentive Plan--During 2000, the Company adopted a stock incentive
plan pursuant to which a total of 400,000 shares of the Company's common stock
have been reserved for issuance. Pursuant to the stock incentive plan, the
Company may grant stock options, stock appreciation rights, restricted stock,
merit awards, performance awards and other stock-based awards to the Company's
employees (excluding executive officers), directors and consultants. The plan
is administered by the Board of Directors or a committee of two or more
outside directors. The committee interprets and construes the provisions of
the plan, adopts rules for administering the plan and specifies the vesting,
exercise prices and other terms of grants of equity awards under the plan. As
of December 31, 2000, stock options to purchase 344,750 shares of the
Company's common stock were granted under this plan, of which 284,000 were
outstanding.

   2000 Restricted Stock Plan--In December 2000, the Modem Media 2000
Restricted Stock Plan became effective. This restricted stock plan is an
equity-based compensation plan designed to reward certain employees of the
Company for their efforts in enhancing the value of CentrPort. The Company has
reserved 528,931 shares of common stock that it owns in CentrPort for this
restricted stock plan, representing 10% of the Company's common stock
ownership in CentrPort. Under this restricted stock plan, the Company may
grant common stock of CentrPort to its employees, which will vest at the end
of (a) a lock-up period after the initial public offering of CentrPort's stock
or (b) upon a liquidity event (any event in which the Company disposes of any
of its stake in CentrPort in exchange for cash or property other than
unregistered or restricted stock). An employee cannot resell the stock until
it vests and, until an initial public offering of CentrPort, the Company
retains the right to vote any stock granted to its employees. If the employee
is terminated for any reason, all unvested stock will be forfeited and
reacquired by the Company at no cost. The Company's Compensation Committee
administers this restricted stock plan. As of December 31, 2000, the Company
had not granted any stock under this plan.

   CentrPort, Inc. 2000 Stock Incentive Plan--During 2000, prior to the
CentrPort Transactions, the Company granted options to purchase 810,000 shares
of CentrPort common stock to certain of its employees pursuant to the
CentrPort, Inc. 2000 Stock Incentive Plan. All CentrPort options granted to
the Company's employees were fully vested at the time of grant. Until
CentrPort is a publicly traded company, CentrPort has the right to repurchase
vested options upon an employee's termination of employment.

   1999 Stock Incentive Plan--During 1999, the Company adopted a stock
incentive plan pursuant to which a total of 3,000,000 shares of the Company's
common stock have been reserved for issuance. Pursuant to the stock incentive
plan, the Company may grant stock options, stock appreciation rights,
restricted stock, merit awards, performance awards and other stock-based
awards to the Company's employees, directors and consultants. The plan is
administered by the Board of Directors or a committee of two or more outside
directors. The committee interprets and construes the provisions of the plan,
adopts rules for administering the plan and specifies the vesting, exercise
prices and other terms of grants of equity awards under the plan. As of
December 31, 2000, stock options to purchase 3,198,179 shares of the Company's
common stock were granted under this plan, of which 2,065,829 were
outstanding.

   1997 Stock Option Plan--During 1997, the Company established a stock option
plan pursuant to which a total of 6,080,000 shares of the Company's common
stock have been reserved for issuance. Pursuant to the stock option plan, the
Company may grant stock options and stock purchase rights to the Company's
employees, officers, directors and consultants. The Board of Directors, or a
committee to whom the Board of Directors has delegated authority, selects the
individuals to whom options and stock purchase rights are granted, interprets
and adopts rules for the operation of the stock option plan and specifies the
vesting, exercise price and other terms of options and stock purchase rights.
The maximum term of an incentive stock option granted under this plan is
generally limited to ten years. The exercise price of incentive stock options
granted under the stock option plan must be at least equal to the fair market
value of the Company's common stock on the date of grant, as defined. As of
December 31, 2000, stock options to purchase 6,192,226 shares of the Company's
common stock were granted under this plan, of which 3,850,552 were
outstanding.

                                      35
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In connection with the transfer to True North of the non-strategic digital
interactive marketing operations by the Company, True North agreed to satisfy
options to purchase up to an aggregate of 281,010 shares of the Company's
common stock held by employees of such operations, as well as options to
purchase an aggregate of 298,022 shares of the Company's common stock held by
former employees of the Poppe Tyson Strategic Interactive Marketing
Operations. As of December 31, 2000, options to purchase up to 208,039 shares
of common stock to be satisfied by True North remained outstanding. Upon the
exercise of such options, the exercise price will be paid to True North and
True North will surrender an equivalent number of shares of common stock to
the Company.

   Modem Media Advertising Limited Partnership 1996 Option Plan--The Modem
Partnership established an option plan pursuant to which units ("Units")
representing assignments of beneficial ownership of the Modem Partnership were
reserved for issuance. The Modem Partnership ceased to have its own separate
existence prior to the Company's initial public offering in February 1999 and
the Company assumed the terms and the conditions of this option plan. Pursuant
to the terms of the option plan, Units acquired under the option plan were
converted into shares of the Company's common stock and options to acquire
Units were converted into options to acquire shares of the Company's common
stock. Options to purchase 690,492 shares of common stock, which vested
immediately and expire on September 30, 2006, were issued under this plan at
an exercise price of $0.32 per share, of which 194,400 were outstanding as of
December 31, 2000. All available options have been granted under the option
plan and no further grants will be made. The Board of Directors and the
Compensation Committee of the Board administer this plan.

   Vivid Plan--As a result of our acquisition of Vivid in 2000, the Company
assumed the outstanding options of Vivid that were granted pursuant to the
Vivid Holdings, Inc. 1999 Stock Incentive Plan (the "Vivid Plan"). As a
result, shares of the Company's common stock are issued upon exercise of
options granted under the Vivid Plan. The Vivid Plan authorized grants of
stock options (including nonstatutory options and incentive stock options) and
common stock of Vivid. As of December 31, 2000, options to purchase an
aggregate of 1,218,396 shares of common stock had been granted under the Vivid
Plan, of which 337,647 shares are outstanding. Since the acquisition there
have been no grants pursuant to this Vivid Plan and there will be no further
grants under this Vivid Plan.

   The Company follows the disclosure-only provisions of SFAS No. 123 and
applies APB No. 25 and related interpretations in accounting for its stock
option plans. If compensation expense for stock options awarded under the
Company's plans had been determined in accordance with SFAS No. 123, the
Company's pro forma net loss and pro forma net loss per share would have been
as follows:

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                         -------------------------------------
                                             2000         1999        1998
                                         ------------  ----------  -----------
   <S>                                   <C>           <C>         <C>
   Net (loss) income:
     As reported........................ $(74,249,000) $3,017,000  $(3,203,000)
     Pro forma..........................  (89,832,000) (3,176,000)  (5,324,000)
   Basic net (loss) income per share:
     As reported........................ $      (3.04) $     0.14  $     (0.21)
     Pro forma..........................        (3.68)      (0.15)       (0.36)
   Diluted net (loss) income per share:
     As reported........................ $      (3.04) $     0.13  $     (0.21)
     Pro forma..........................        (3.68)      (0.15)       (0.36)
</TABLE>

   The effects of applying SFAS No. 123 in the pro forma net (loss) income
disclosures above are not likely to be representative of the effects on pro
forma disclosures of future years.


                                      36
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   The following is a summary of the activity under the Company's stock option
plans, excluding the CentrPort, Inc. 2000 Stock Incentive Plan, for each
annual period presented:

<TABLE>
<CAPTION>
                                          Year Ended December 31,
                          --------------------------------------------------------
                                 2000               1999               1998
                          ------------------ ------------------ ------------------
                                    Weighted           Weighted           Weighted
                                    Average            Average            Average
                                    Exercise           Exercise           Exercise
                           Shares    Price    Shares    Price    Shares    Price
                          --------- -------- --------- -------- --------- --------
<S>                       <C>       <C>      <C>       <C>      <C>       <C>
Outstanding at the
 beginning of the year..  5,786,228  $10.51  4,080,348  $ 4.74  1,936,440  $3.85
Granted.................  4,256,471   18.46  3,118,042   15.67  2,327,856   5.55
Assumed in the
 acquisition of Vivid...  1,218,396    2.32        --      --         --     --
Exercised...............  1,605,705    3.86    978,374    4.76      1,550   2.47
Forfeited...............  2,437,858   21.92    415,954    6.24    118,570   5.97
Expired.................    124,069   10.10     17,834    5.41     63,828   4.99
                          ---------          ---------          ---------
Outstanding at the end
 of the year............  7,093,463   11.47  5,786,228   10.51  4,080,348   4.74
                          =========          =========          =========
Exercisable at the end
 of the year............  3,043,626    9.08  1,643,748   11.10  1,632,184   3.44
                          =========          =========          =========
Weighted-average fair
 value of options
 granted................              16.33              11.02              5.20
Weighted-average fair
 value of options
 assumed in the
 acquisition of Vivid...              35.90                --                --
</TABLE>

   The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                    ----------------------------
                                                      2000      1999      1998
                                                    --------- --------- --------
   <S>                                              <C>       <C>       <C>
   Risk-free interest rate.........................     6.27%     5.89%    4.67%
   Expected life................................... 4.9 years 4.3 years 10 years
   Expected volatility.............................   131.13%    88.49%  111.47%
   Expected dividend yield.........................       --        --       --
</TABLE>

   The following table summarizes information regarding the Company's stock
options outstanding and exercisable as of December 31, 2000:

<TABLE>
<CAPTION>
                                                                   Options
                                  Options Outstanding            Exercisable
                          ----------------------------------- ------------------
                                        Weighted     Weighted           Weighted
                                        Average      Average            Average
                                       Remaining     Exercise           Exercise
Exercise Price             Shares   Contractual Life  Price    Shares    Price
--------------            --------- ---------------- -------- --------- --------
<S>                       <C>       <C>              <C>      <C>       <C>
$0.01....................    23,529    9.8 years      $ 0.01        --   $  --
$0.32....................   194,400    2.3 years        0.32    194,400    0.32
$1.50....................   270,059    0.7 years        1.50    247,638    1.50
$4.25--$6.50............. 2,919,391    5.3 years        5.53  1,405,453    5.56
$6.80--$9.88.............   589,738    6.0 years        9.41    171,664    9.78
$10.94--$15.56........... 1,867,946    5.6 years       13.94    562,371   13.62
$17.88--$26.50...........   652,600    4.3 years       19.38    377,664   19.82
$29.81--$44.00...........   434,500    4.9 years       31.26     84,436   30.35
$45.88--$50.38...........   141,300    2.4 years       48.99        --      --
</TABLE>

   Compensation Charges--During the year ended December 31, 2000, the Company
recognized compensation expense related to stock-based compensation of
approximately $401,000, which is comprised of

                                      37
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(a) $144,000 in stock options issued to a consultant, (b) $158,000 related to
modifications of existing, fully-vested stock options, and (c) $99,000 related
to fully-vested stock options issued below fair market value on the date of
grant. Compensation expense for such items is included in "General and
administrative" in the accompanying consolidated statement of operations.
Compensation expense related to stock options issued to the aforementioned
consultant is being recognized over such consultant's service period, which
ended in February 2001. The Company recognized the remainder of the
compensation expense related to such grant (approximately $62,000) during the
first quarter of 2001.

NOTE 9. Related Party Transactions

   CentrPort Transactions--In conjunction with the CentrPort Transactions, the
Company designated CentrPort as a preferred vendor and entered into the
CentrPort Commitment (see Notes 2 and 11).

   Sublease with Bozell--The Company entered into a sublease with Bozell
pursuant to which the Company leases office space in New York City. The rent
per square foot under the sublease agreement is based on the average monthly
rent per square foot and other related costs under Bozell's underlying lease.

   Tax Matters Agreement--In connection with the Combination, the Company and
True North entered into an agreement providing for certain unitary state tax-
sharing arrangements. Beginning in 2000, the Company is no longer included in
the state tax returns of True North (see Note 12).

   Parent Company Allocations--True North charges each of its operating units
for general corporate expenses incurred at the parent company level, including
costs to administer employee benefit plans; legal, accounting and treasury
services; use of office facilities; and other services for certain operations.
The amount of the charge is primarily based on budgeted revenue. The Company
believes that the method used to allocate these expenses is reasonable. These
charges amounted to approximately $308,000 for the year ended December 31,
1998 and are included in "General and administrative" in the consolidated
statements of operations. True North ceased charging allocations to the
Company as of June 30, 1998, because the Company has taken on responsibility
for the majority of the functions that generate the aforementioned corporate
expenses.

   True North Note Receivable--On May 26, 1998, the Company entered into an
agreement to loan up to $3,000,000 to True North under a demand note facility.
Such agreement was amended on November 24, 1998 to increase the availability
under such facility to $10,000,000. The Company received repayments from True
North under such facility from time-to-time, on demand. The loan bore interest
at 5.75% per annum, payable quarterly, unless the parties agreed upon other
arrangements. In February 1999, True North repaid all amounts outstanding
under this note.

   Due to True North--On December 31, 1996, the Company entered into an
agreement with True North, whereby True North provided the Company with a
credit facility. The Company received advances from True North under the
facility from time-to-time, as requested. In April 1999, the Company repaid
all amounts outstanding under this facility.

   Note Payable to True North--The Company had a $6,000,000 intercompany note
payable to True North due upon completion of an initial public offering of the
Company's common stock. This $6,000,000 note payable was repaid to True North
in February 1999, upon completion of the Company's initial public offering
(see Note 6).

                                      38
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   All future transactions between the Company and its officers, directors and
principal stockholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested directors of the Board, and will be on terms equivalent to those
that the Company could obtain from unaffiliated third parties.

NOTE 10. Employee Benefit Plans

   The Company maintains a profit-sharing plan with a 401(k) feature for the
benefit of its eligible employees. There is no minimum length of service
required to participate in the plan and employees of the Company are eligible
to begin participation on designated quarterly enrollment dates provided that
they have reached 21 years of age. The Company makes annual matching and/or
profit-sharing contributions to the plan at its discretion. In addition,
certain employees of the Company have participated in other similar defined
contribution plans. Such employees subsequently became participants of the
aforementioned profit-sharing plan. The aggregate cost of contributions made
by the Company to all employee benefit plans was $593,000, $389,000 and
$217,000 during the years ended December 31, 2000, 1999 and 1998,
respectively.

   In February 1999, the Company adopted the Purchase Plan (see Note 7).

NOTE 11. Commitments and Contingencies

   Lease Obligations--The Company leases its office facilities and certain
equipment under both operating and capital leases, the expirations of which
extend through 2009. Future minimum lease payments under noncancellable leases
with lease terms in excess of one year as of December 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                         Capital     Operating
                                                        ----------  -----------
      <S>                                               <C>         <C>
      2001............................................. $  499,000  $ 7,807,000
      2002.............................................    474,000    7,396,000
      2003.............................................    234,000    7,251,000
      2004.............................................      2,000    6,999,000
      2005.............................................         --    6,689,000
      Thereafter.......................................         --   24,535,000
                                                        ----------  -----------
                                                         1,209,000  $60,677,000
                                                                    ===========
      Less: amount representing interest...............    (92,000)
                                                        ----------
                                                        $1,117,000
                                                        ==========
</TABLE>

   In connection with certain leases of office space, the Company has
approximately $2,600,000 and $2,495,000 invested in highly liquid, short-term
investments as of December 31, 2000 and 1999, respectively, against which the
landlords of such space would be able to make claims in the event of default
by the Company of its lease obligations. Such amounts are included in "Other
assets" in the accompanying consolidated balance sheets. The Company is not
aware of any defaults of its obligations under these leases.

   Rent expense, including rent expense resulting from leases with related
parties (see Note 9), was $7,322,000, $3,716,000 and $2,329,000 for the years
ended December 31, 2000, 1999 and 1998, respectively.

   Lease Guarantees--The Company is guarantor for CentrPort's obligations
under its lease for office space, which expires on June 30, 2010, subject to
renewal. As of December 31, 2000, the remaining base rent due under this lease
is approximately $5,758,000, subject to adjustment in accordance with the
terms of the lease. The lease provides that once 50% of the original lease
term has expired, this guaranty may be replaced with an irrevocable

                                      39
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

letter of credit in favor of the landlord in an amount not to exceed the
remaining base rent. CentrPort has committed to the Company that upon
expiration of 50% of the lease term, CentrPort will obtain such a letter of
credit. Additionally, CentrPort has agreed to cooperate with the Company to
secure the Company's release from its guaranty prior to that time, if
possible. In addition, the Company is guarantor for CentrPort's thirty-six
month lease of certain network storage server equipment from a third party
vendor, which lease is terminable earlier upon payment for the outstanding
value of the equipment. As of December 31, 2000, the remaining payments under
this lease aggregate approximately $1,684,000. The lease provides that the
lessor will discharge the Company's guaranty if CentrPort establishes a letter
of credit in favor of the lessor for an aggregate amount of 50% of the
outstanding lease payments as of the date of the letter of credit. CentrPort
has committed to establish such a letter of credit.

   CentrPort Transactions--In conjunction with the CentrPort Transactions, the
Company designated CentrPort as a preferred vendor and entered into the
"CentrPort Commitment". If the CentrPort Commitment is not met, the Company
must pay the value of the shortfall to CentrPort in cash or CentrPort common
stock, at the Company's election (see Note 2).

   Employment Agreements--In December 1996, the Company entered into five year
employment agreements with two senior executives providing for initial annual
base salaries of approximately $300,000 each, subject to increases at the
discretion of the Company's Board of Directors. Pursuant to the agreements, if
the Company terminates either executive's employment without cause, or if
either executive terminates his employment for good reason, the executive is
entitled to receive severance benefits equal to salary plus bonus for a period
equal to the lesser of three years after such termination or the time
remaining in the initial term of employment.

   During January 2001, the Company entered into a three-year employment
agreement with a senior executive for an initial base salary of $500,000.
Pursuant to the agreement, if the Company or a successor terminates such
executive's employment without cause or if such executive terminates his
employment with good reason during this three-year time period, he is entitled
to receive a lump sum payment equal to the discounted present value of the sum
of the lesser of (i) the product of three times his base salary and any
applicable bonuses or (ii) the base salary that would have been payable for
the balance of the initial term of employment plus any applicable bonuses.

   Assuming that all of the severance agreements above become operative, the
minimum amount of pay-out under such arrangements would be approximately
$2,702,000.

   Accrued Bonuses--"Accrued expenses and other current liabilities" in the
accompanying consolidated balance sheets include accrued bonuses of $4,717,000
and $4,513,000 as of December 31, 2000 and 1999, respectively.

   Litigation--From time-to-time, the Company becomes involved in various
routine legal proceedings in the ordinary course of its business. The Company
believes that the outcome of all pending legal proceedings and unasserted
claims in the aggregate will not have a material adverse effect on its
consolidated results of operations, consolidated financial position or
liquidity.

                                      40
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 12. Income Taxes

   Prior to 2000, the Company was included in certain state tax returns of
True North. The Company and True North are parties to a tax-sharing
arrangement whereby the Company provided for and paid or received certain
state tax liabilities or refunds, respectively. Until October 1, 1998, the
effective date of the Combination, the Poppe Tyson Strategic Interactive
Marketing Operations were included in the consolidated group of which True
North is the common parent for federal income tax purposes. Prospectively from
the date of the Combination, the federal income and losses of the Poppe Tyson
Strategic Interactive Marketing Operations are included in the consolidated
tax returns filed by the Company.

   The components of (loss) income before income taxes are as follows:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                        --------------------------------------
                                            2000         1999         1998
                                        ------------  -----------  -----------
   <S>                                  <C>           <C>          <C>
   Domestic...........................  $(63,471,000) $10,449,000  $(2,489,000)
   International......................    (8,496,000)  (1,729,000)    (803,000)
   True North Units Held for
    Transfer..........................           --           --       (13,000)
                                        ------------  -----------  -----------
    Total (loss) income before income
     taxes............................  $(71,967,000) $ 8,720,000  $(3,305,000)
                                        ============  ===========  ===========

   The provision (benefit) for income taxes consists of the following:

<CAPTION>
                                              Year Ended December 31,
                                        --------------------------------------
                                            2000         1999         1998
                                        ------------  -----------  -----------
   <S>                                  <C>           <C>          <C>
   Current provision (benefit):
     Federal..........................  $  3,105,000  $ 4,735,000  $   175,000
     Foreign..........................       263,000       16,000      (17,000)
     State............................     1,419,000    1,845,000       71,000
                                        ------------  -----------  -----------
                                           4,787,000    6,596,000      229,000
                                        ------------  -----------  -----------
   Deferred benefit:
     Federal..........................    (1,928,000)    (639,000)    (227,000)
     Foreign..........................        (6,000)      (5,000)     (25,000)
     State............................      (571,000)    (249,000)     (79,000)
                                        ------------  -----------  -----------
                                          (2,505,000)    (893,000)    (331,000)
                                        ------------  -----------  -----------
   Total provision (benefit)..........  $  2,282,000  $ 5,703,000  $  (102,000)
                                        ============  ===========  ===========
</TABLE>

   Differences between the Company's effective income tax rate and the U.S.
statutory rate were as follows:

<TABLE>
<CAPTION>
                                                        Year Ended
                                                       December 31,
                                                     --------------------
                                                     2000    1999   1998
                                                     -----   ----   -----
   <S>                                               <C>     <C>    <C>     <C>
   Statutory federal tax rate.......................  35.0 % 35.0 %  35.0 %
   State taxes, net of federal benefit..............  (0.8)  11.9     0.1
   Goodwill amortization and impairment............. (33.7)  11.9   (20.9)
   Impact of foreign operations.....................  (0.2)  (0.5)   (2.1)
   Other............................................   --     0.4    (4.4)
                                                     -----   ----   -----   ---
                                                       0.3   58.7     7.7
   Valuation allowance..............................  (3.5)   6.7    (4.6)
                                                     -----   ----   -----
   Effective rate...................................  (3.2)% 65.4 %   3.1 %
                                                     =====   ====   =====
</TABLE>

                                      41
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The deferred income tax assets and liabilities included in the consolidated
financial statements as of the balance sheet dates consist of the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           2000         1999
                                                        -----------  ----------
   <S>                                                  <C>          <C>
   Deferred tax assets:
     Net operating loss carryforwards.................. $ 6,375,000  $1,516,000
     Excess facility reserves..........................   4,891,000         --
     Investment in CentrPort...........................   1,718,000         --
     Other assets, accruals and reserves...............   2,253,000   1,094,000
                                                        -----------  ----------
                                                         15,237,000   2,610,000
     Valuation allowance...............................  (3,437,000)   (833,000)
                                                        -----------  ----------
                                                         11,800,000   1,777,000
                                                        -----------  ----------
   Deferred tax liabilities:
     Excess facility reserves..........................   3,415,000         --
     Investment in CentrPort...........................     920,000         --
     Other.............................................         --      171,000
                                                        -----------  ----------
                                                          4,335,000     171,000
                                                        -----------  ----------
     Net deferred tax assets........................... $ 7,465,000  $1,606,000
                                                        ===========  ==========
</TABLE>

   At December 31, 2000, the Company had net operating loss carryforwards of
approximately $11,443,000, which may be used to offset future taxable income,
if any. This amount excludes net operating losses generated by Modem Media
Japan given management's intention to close such office (see Note 18). The
Company's carryforwards resulted from unused tax benefits from the exercise of
stock options and losses of certain foreign subsidiaries. Certain of the
Company's net operating losses may be carried forward for periods ranging from
five to twenty years and others may be carried forward indefinitely. A
valuation allowance of $971,000 has been established for a portion of these
deferred tax assets. Should the Company be deemed to have undergone an
ownership change as defined in Section 382 of the Code, the Company's net
operating loss carryforwards generated prior to the ownership change will be
subject to an annual limitation, which could reduce or defer the utilization
of these losses.

                                      42
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 13. Geographic Information

   Information about the Company's operations in different geographic regions
as of and for the years ended December 31, 2000, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
                                                   December 31,
                                       ---------------------------------------
                                           2000          1999         1998
                                       ------------  ------------  -----------
   <S>                                 <C>           <C>           <C>
   Revenues:
      Domestic.......................  $106,109,000  $ 61,603,000  $37,348,000
      International..................    28,235,000    12,433,000    5,196,000
                                       ------------  ------------  -----------
                                       $134,344,000  $ 74,036,000  $42,544,000
                                       ============  ============  ===========
   (Losses) earnings before interest,
    taxes and amortization and
    impairment of goodwill:
      Domestic.......................  $  1,901,000  $ 11,217,000  $  (801,000)
      International..................    (6,047,000)   (1,513,000)    (752,000)
      True North Units Held for
      Transfer.......................            --            --      (13,000)
                                       ------------  ------------  -----------
                                       $ (4,146,000) $  9,704,000  $(1,566,000)
                                       ============  ============  ===========
   (Loss) income before income taxes:
      Domestic.......................  $(63,471,000) $ 10,449,000  $(2,489,000)
      International..................    (8,496,000)   (1,729,000)    (803,000)
      True North Units Held for
      Transfer.......................            --            --      (13,000)
                                       ------------  ------------  -----------
                                       $(71,967,000) $  8,720,000  $(3,305,000)
                                       ============  ============  ===========
   Net (loss) income:
      Domestic.......................  $(65,496,000) $  4,757,000  $(2,312,000)
      International..................    (8,753,000)   (1,740,000)    (762,000)
      True North Units Held for
      Transfer.......................            --            --     (129,000)
                                       ------------  ------------  -----------
                                       $(74,249,000) $  3,017,000  $(3,203,000)
                                       ============  ============  ===========
   Identifiable assets:
      Domestic.......................  $141,507,000  $126,521,000  $66,620,000
      International..................    19,998,000    19,211,000    4,666,000
                                       ------------  ------------  -----------
                                       $161,505,000  $145,732,000  $71,286,000
                                       ============  ============  ===========
</TABLE>

NOTE 14. Assets Under Capital Leases

   Assets under capital leases are included in the accompanying consolidated
balance sheets as follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                         ----------------------
                                                            2000        1999
                                                         ----------  ----------
   <S>                                                   <C>         <C>
   Computers and software............................... $      --   $  135,000
   Furniture and other..................................  1,420,000     977,000
                                                         ----------  ----------
                                                          1,420,000   1,112,000
   Less: accumulated depreciation and amortization......   (327,000)   (386,000)
                                                         ----------  ----------
     Total assets under capital leases, net............. $1,093,000  $  726,000
                                                         ==========  ==========
</TABLE>

   Depreciation on assets under capital leases is included in depreciation
expense for all periods presented.

                                      43
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 15. Supplemental Cash Flow Information

   Information about the Company's cash flow activities related to
acquisitions during the years ended December 31, 2000, 1999, and 1998 is as
follows:

<TABLE>
<CAPTION>
                                             Year Ended December 31,
                                       --------------------------------------
                                           2000         1999         1998
                                       ------------  -----------  -----------
   <S>                                 <C>           <C>          <C>
   Fair value of assets acquired, net
    of cash acquired.................. $ 66,824,000  $ 8,276,000  $       --
   Liabilities assumed................   (2,262,000)  (1,252,000)         --
   Common stock issued................  (14,400,000)  (2,400,000)         --
   Stock-based compensation
    obligations assumed...............  (39,000,000)         --           --
                                       ------------  -----------  -----------
   Acquisitions, net of cash
    acquired.......................... $ 11,162,000  $ 4,624,000  $       --
                                       ============  ===========  ===========
</TABLE>

   Information about the Company's other cash flow activities during the years
ended December 31, 2000, 1999, and 1998 is as follows:
<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                  ------------------------------
                                                    2000       1999      1998
                                                  --------- ---------- ---------
   <S>                                            <C>       <C>        <C>
   Supplemental disclosures of cash flow
    information:
    Cash paid during the year for interest......  $ 264,000 $  134,000 $ 185,000
    Cash paid during the year for income taxes,
     net of refunds received....................     88,000    875,000   861,000
   Supplemental disclosures of non-cash
    investing and financing activities:
    Capital lease and other obligations incurred
     for the purchase
     of property and equipment..................  2,687,000    435,000   245,000
    Note payable issued in connection with the
     Company's purchase of an additional
     interest in CentrPort (see Note 5).........  1,841,000        --        --
    Common stock issued in connection with the
     Company's purchase of an additional
     interest in CentrPort (see Note 2).........  1,863,000        --        --
    SAB No. 51 loss on the sale of CentrPort
     common stock, net of taxes (see Note 2)....  1,435,000        --        --
    Stock-based compensation (see Note 8).......    463,000        --        --
    Unrealized loss on available-for-sale
     securities, net of taxes...................    164,000        --        --
    Increase in goodwill as a result of payments
     by True North to the former Modem
     Partnership Partners (see Note 2)..........        --  18,518,000 3,263,000
    Forgiveness by True North of intercompany
     borrowings in
     connection with the Combination (see Note
     2).........................................        --         --  5,763,000
    Sale to True North of True North Units Held
     for Transfer (see Note 2)..................        --         --  7,444,000
    Acquisition of fixed assets from True North
     in connection with the Combination (see
     Note 2)....................................        --         --  1,624,000
</TABLE>

                                      44
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


NOTE 16. Bad Debt Reserve

   The bad debt reserve and related activity is as follows:

<TABLE>
<CAPTION>
                            Balance at            Write-
                            Beginning             offs,               Balance at
                                of     Bad Debt   Net of                End of
                               Year    Expense  Recoveries   Other       Year
                            ---------- -------- ----------  --------  ----------
   <S>                      <C>        <C>      <C>         <C>       <C>
   Year ended December 31,
    2000................... $1,151,000 $696,000 $(436,000)  $(22,000) $1,389,000
   Year ended December 31,
    1999...................    968,000  316,000  (147,000)    14,000   1,151,000
   Year ended December 31,
    1998...................    452,000  660,000  (144,000)       --      968,000
</TABLE>

NOTE 17. Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                           Three Months Ended
                            ---------------------------------------------------
                                                       September
                             March 31      June 30        30       December 31
                            -----------  -----------  -----------  ------------
   <S>                      <C>          <C>          <C>          <C>
   2000
   Revenues................ $28,537,000  $32,825,000  $37,788,000  $ 35,194,000
   Gross profit............  14,221,000   14,990,000   18,601,000    17,444,000
   Operating loss..........  (2,864,000)  (5,768,000)  (2,629,000)  (62,572,000)
   Loss before income
    taxes..................  (2,320,000)  (5,331,000)  (2,202,000)  (62,114,000)
   Net loss................  (2,967,000)  (5,755,000)  (3,795,000)  (61,732,000)
   Basic net loss per
    share..................       (0.13)       (0.24)       (0.15)        (2.47)
   Diluted net loss per
    share..................       (0.13)       (0.24)       (0.15)        (2.47)

   1999
   Revenues................ $12,383,000  $16,042,000  $21,121,000  $ 24,490,000
   Gross profit............   5,877,000    9,231,000   12,058,000    13,879,000
   Operating (loss)
    income.................    (614,000)   1,309,000    2,889,000     3,161,000
   (Loss) income before
    income taxes...........    (277,000)   1,813,000    3,454,000     3,730,000
   Net (loss) income.......    (473,000)     581,000    1,308,000     1,601,000
   Basic net (loss) income
    per share..............       (0.02)        0.03         0.06          0.07
   Diluted net (loss)
    income per share.......       (0.02)        0.03         0.06          0.06
</TABLE>

   The quarterly earnings per share data above are computed independently for
each of the quarters presented. As such, the sum of the quarterly per common
share information may not equal the full year amounts due to rounding
differences resulting from changes in the weighted-average number of common
shares outstanding.

   During the first quarter of 2000, the Company acquired Vivid in a business
combination accounted for under the purchase method of accounting (see Note
2). Goodwill resulting from such acquisition was being amortized over a five-
year period and resulted in approximately $3,200,000 in goodwill amortization
per quarter during 2000. Such amortization began in the month of acquisition
and, therefore, the impact on the first quarter was less significant than in
subsequent quarters. Furthermore, during the fourth quarter of 2000, the
Company recognized a one-time, non-cash goodwill impairment charge of
$52,758,000, or $2.11 per share, related to the acquisition of Vivid (see Note
3).

   During the second quarter of 2000, the Company cancelled its postponed
secondary offering of common stock resulting in a write-off of $722,000
(approximately $422,000 after taxes, or $0.02 per share) in deferred offering
costs during such quarter (see Note 4).

   During the fourth quarter of 2000, in addition to the Vivid goodwill
impairment charge discussed above, the Company incurred $7,815,000
(approximately $5,674,000 after taxes, or $0.23 per share) in one-time charges

                                      45
<PAGE>

                      MODEM MEDIA, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

related to the reduction of office space, severance costs, and the impairment
of goodwill related to the acquisition of Modem Media Japan (see Notes 3 and
4).

NOTE 18. Subsequent Events

   Expense Reduction Actions--In March 2001, the Company announced that it
completed a number of actions to reduce company-wide expenses. These actions
included (a) a reduction in headcount of approximately 10% of the Company's
total workforce, (b) the decision to close Modem Media Japan, which is
expected to cease operations during the second quarter of 2001, and (c) the
realignment of capacity across multiple offices. As a result of these actions,
the Company expects to take a one-time, pre-tax charge of approximately
$3,000,000 in the first quarter of 2001.

   CentrPort Funding--During the first quarter of 2001, CentrPort did not
secure certain revenue commitments and, therefore, will likely not receive the
additional funding of $5,500,000 (See Note 2). Accordingly, the Company
expects to reduce its investment in CentrPort and its pre-tax deferred gain by
approximately $800,000 during the first quarter of 2001.

   Change in Control of True North--On March 19, 2001, True North entered into
a definitive agreement with Interpublic Group of Companies, Inc.
("Interpublic") pursuant to which Interpublic will acquire True North in a
stock-for-stock pooling-of-interests transaction. The transaction is expected
to close during the summer of 2001.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
     FINANCIAL DISCLOSURE

   None

                                      46
<PAGE>

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 (a) Identification of Directors

   Reference is made to pages 6 through 7 of our Proxy Statement, which will
be filed pursuant to Regulation 14A no later than March 31, 2001.

 (b) Identification of Executive Officers

   Reference is made to Part I of this Form 10-K.

 (c) Business Experience

   Reference is made to Part I of this Form 10-K for the business experience
of our executive officers. Reference is made to pages 6 through 7 of our Proxy
Statement, which will be filed pursuant to Regulation 14A no later than March
31, 2001 and to Part I of this Form 10-K for the business experience of our
directors.

Compliance with Section 16(a) of the Exchange Act

   Reference is made to page 11 of our Proxy Statement, which will be filed
pursuant to Regulation 14A no later than March 31, 2001.

ITEM 11. EXECUTIVE COMPENSATION

   Reference is made to the information set forth under the captions "Director
Compensation" and "Executive Compensation" on pages 8 and 13, respectively, of
our Proxy Statement, which will be filed pursuant to Regulation 14A no later
than March 31, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   For information with respect to beneficial ownership of our voting
securities, reference is made to the information set forth under the caption
"Stock Ownership" of our Proxy Statement, which will be filed pursuant to
Regulation 14A no later than March 31, 2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Reference is made to the information set forth under the captions "Certain
Relationships and Related Transactions" on page 8 of our Proxy Statement,
which will be filed pursuant to Regulation 14A no later than March 31, 2001.

                                      47
<PAGE>

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) The following financial statements are filed as part of this Annual
Report on Form 10-K under "Item 8. Financial Statements and Supplementary
Data" in Part II of this report.

   1. Financial Statements

      Modem Media, Inc. and Subsidiaries

      Report of Independent Public Accountants

      Consolidated Balance Sheets as of December 31, 2000 and 1999

      Consolidated Statements of Operations for the years ended December
      31, 2000, 1999 and 1998

      Consolidated Statements of Changes in Stockholders' Equity for the
      years ended December 31, 2000, 1999 and 1998

      Consolidated Statements of Cash Flows for the years ended December
      31, 2000, 1999 and 1998

      Notes to Consolidated Financial Statements

   2. Financial Statement Schedules

   All schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or notes thereto.

   3. Exhibits

<TABLE>
<CAPTION>
 Exhibit
   No.   Description
 ------- -----------
 <C>     <S>
  3.1    Amended and Restated Certificate of Incorporation of the Company,
         effective as of June 5, 2000 (1)

  3.2    Amended and Restated Bylaws of the Company, effective as of June 5,
         2000 (1)

  4.1    Form of the Company's Class A common stock certificate (2)

  4.2    Stockholders Agreement dated as of May 4, 1999 by and among the
         Company, True North Communications, Inc., Gerald M. O'Connell and
         Robert C. Allen, II (3)

  4.3    Registration Rights Agreement dated August 1, 1999 by and between
         certain Class A Common Stock Holders, Class B Common Stock Holders and
         the Company (4)

  4.4    Warrant Agreement effective August 9, 1999 by and between Modem Media.
         Poppe Tyson, Inc. and General Electric Capital Corporation (4)

  4.5    Form of Warrant Exercise Agreement dated as of December 17, 1999 among
         the Company, Vivid Holdings, Inc. and certain holders of warrants to
         purchase shares of common stock of Vivid Holdings, Inc. (5)

  4.6    Form of Note Exchange Agreement dated as of December 17, 1999 among
         the Company, Vivid Holdings, Inc. and certain holders of promissory
         notes issued by Vivid Holdings, Inc. (5)

  4.7    Provisions of Stock Purchase Agreement among Vivid Holdings, Inc.,
         Vivid Publishing, Inc., Computer Associates International, Inc. and
         the Company dated as of December 17, 1999 relating to registration
         rights (included in Exhibit 10.9) (6)

  4.8    Agreement dated April 26, 2000, by and between True North
         Communications, Inc. and the Company, amending the Intercompany Credit
         Agreement, dated February 3, 1999, and the Stockholders Agreement,
         dated May 4, 1999 (7)

 10.1(a) 1997 Stock Option Plan, as amended (2)

 10.1(b) 1999 Employee Stock Purchase Plan (2)
</TABLE>


                                      48
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No.   Description
 ------- -----------
 <C>     <S>
 10.1(c) Modem Media Advertising Limited Partnership 1996 Option Plan and its
         amendment (3)

 10.1(d) 1999 Stock Incentive Plan (8)

 10.1(e) Vivid Holdings, Inc. 1999 Stock Incentive Plan (9)

 10.1(f) Modem Media 2000 Stock Incentive Plan (10)

 10.1(g) Modem Media 2000 Restricted Stock Plan

 10.2(a) Amended and Restated Employment Agreement between the Company and
         Gerald M. O'Connell, dated as of January 1, 1997, as amended and
         restated as of November 25, 1998 (2)

 10.2(b) Amended and Restated Employment Agreement between the Company and
         Robert C. Allen, II, dated as of January 1, 1997, as amended and
         restated as of November 25, 1998 (2)

 10.2(c) Letter Agreement dated January 31, 2000 between the Company and Gerald
         M. O'Connell (5)

 10.2(d) Letter Agreement dated January 31, 2000 between the Company and Robert
         C. Allen, II (5)

 10.2(e) Letter Agreement dated April 19, 1999 between the Company and Sloane
         Levy (5)

 10.2(f) Letter Agreement dated January 31, 2000 between the Company and Sloane
         Levy (5)

 10.2(g) Employment Agreement dated December 31, 1998 between the Company and
         John Nardone (7)

 10.2(h) Letter Agreement dated January 31, 2000 between the Company and John
         Nardone (7)

 10.2(i) Letter Agreement dated January 31, 2000 between the Company and Amy
         Nenner (7)

 10.2(j) Letter Agreement dated July 19, 2000 between the Company and Melissa
         Viglielmo (11)

 10.2(k) Letter Agreement dated February 4, 1997 between the Company and Keryn
         M. Cerbone

 10.2(l) Employment Agreement dated January 4, 2001 between the Company and
         Frank J. Connolly, Jr.

 10.2(m) Employment Agreement dated January 15, 2001 between the Company and
         Marc C. Particelli

 10.3(a) Covenant Not to Compete or Solicit Business dated as of December 31,
         1996 between the Company and Gerald M. O'Connell (2)

 10.3(b) Covenant Not to Compete or Solicit Business dated as of December 31,
         1996 between the Company and Douglas C. Ahlers (2)

 10.3(c) Covenant Not to Compete or Solicit Business dated as of December 31,
         1996 between the Company and Robert C. Allen, II (2)

 10.3(d) Covenant Not to Compete or Solicit Business dated as of December 31,
         1998 between the Company and John Nardone (7)

 10.3(e) Covenant Not to Compete or Solicit Business dated January 15, 2001
         between the Company and Marc C. Particelli

 10.4    Douglas C. Ahlers Resignation Letter dated April 30, 1999 (4)

 10.5    Form of Indemnification Agreement (2)

 10.6    Sublease Agreement dated August 1, 1998 between the Company and
         Bozell, Jacobs, Kenyon & Eckhardt, Inc. (2)

 10.7    Form of Affiliate Agreement by and between the Company and Modem
         Media. Poppe Tyson do Brasil Ltda. (2)

 10.8    Agreement and Plan of Merger dated as of December 17, 1999 among the
         Company, Modem Media. Poppe Tyson Merger Corp., Vivid Holdings, Inc.,
         Vivid Publishing, Inc. and the stockholders of Vivid Holdings, Inc.
         (6)

 10.9    Stock Purchase Agreement dated December 17, 1999 among Vivid Holdings,
         Inc., Vivid Publishing, Inc., Computer Associates International, Inc.
         and the Company (6)

 10.10   Form of Asset Purchase Agreement dated February 2, 1999 by and between
         the Company and True North Communications Inc. (2)
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
 Exhibit
   No.   Description
 ------- -----------

 <C>     <S>
 10.11   Form of Asset Purchase Agreement dated February 2, 1999 by and between
         the Company and R/GA Media Group, Inc. (2)

 10.12   Form of Agreement and Plan of Merger dated February 2, 1999 among True
         North Communications Inc., PT Controlled, Inc., the Company and each
         of Douglas C. Ahlers, Robert C. Allen, II, Gerald M. O'Connell and
         Kraft Enterprises, Ltd. (2)

 10.13+  Share Transfer Agreement dated October 4, 1999 of Mex MULTIMEDIA
         EXPERTS GmbH by Modem Media Germany Holding Company GmbH, a wholly-
         owned subsidiary of the Company (4)

 10.14++ Stock Purchase Agreement dated December 22, 2000 among CentrPort,
         Inc., the Company and the Investors named therein (12)

 10.15   Resellers Agreement dated December 22, 2000 by and between CentrPort,
         Inc. and the Company

 21.1    List of subsidiaries
</TABLE>
--------
 (1) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended June 30, 2000
 (2) Incorporated by reference to the Company's Registration Statement on Form
     S-1 (File No. 333-68057)
 (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended June 30, 1999
 (4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended September 30, 1999
 (5) Incorporated by reference to the Company's Annual Report on Form 10-K
     filed on March 15, 2000 for the period ended December 31, 1999
 (6) Incorporated by reference to the Company's Current Report on Form 8-K
     filed on February 25, 2000, as amended
 (7) Incorporated by reference to the Company's Quarterly Report on the Form
     10-Q for the period ended March 31, 2000
 (8) Incorporated by reference to the Company's Registration Statement on Form
     S-8 (File No. 333-96483)
 (9) Incorporated by reference to the Company's Registration Statement on Form
     S-8 (File No. 333-30096)
(10) Incorporated by reference to the Company's Registration Statement on Form
     S-8. (File No. 333-46204)
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended September 30, 2000
(12) Incorporated by reference to the Company's Current Report on Form 8-K/A
     filed on January 5, 2001, amending the Form 8-K filed on December 22,
     2000

 + The Company was granted confidential treatment by the Securities and
   Exchange Commission for portions of this document.
++ The Company has requested confidential treatment from the Securities and
   Exchange Commission for portions of this document.

   (b) Reports on Form 8-K

   The Company filed a Form 8-K, dated December 22, 2000, reporting in Item 5
the completion of a series of transactions that provided funds to the Company
and its subsidiary CentrPort, resulting in a significant reduction in the
Company's equity ownership in CentrPort, Inc.

   The Company filed, on January 5, 2001, a Form 8-K/A amending the Form 8-K
filing made on December 22, 2000.

   (c) The Exhibits filed with this report are listed in response to Item
14(a) 3.

                                      50
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Norwalk, State of Connecticut, on this 28th day of March, 2001.

<TABLE>
<S>                                              <C>
                                                 Modem Media, Inc.


                                                         /s/ Marc C. Particelli
                                                 By: _______________________________________
                                                             Marc C. Particelli
                                                           Chief Executive Officer
</TABLE>

                               POWER OF ATTORNEY

   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Marc C. Particelli, Robert C. Allen, II, Frank
Connolly, and Sloane Levy acting severally, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this report, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

   Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
                 Signature                            Title                  Date
                 ---------                            -----                  ----

<S>                                         <C>                        <C>
          /s/ Gerald M. O'Connell           Chairman of the Board of    March 28, 2001
___________________________________________  Directors
            Gerald M. O'Connell

        /s/ Marc C. Particelli              Chief Executive Officer     March 28, 2001
___________________________________________  and Director (Principal
            Marc C. Particelli               Executive Officer)

      /s/ Frank J. Connolly, Jr.            Chief Financial Officer     March 28, 2001
___________________________________________  (Principal Financial and
          Frank J. Connolly, Jr.             Accounting Officer)

        /s/ Robert C. Allen, II             Director                    March 28, 2001
___________________________________________
            Robert C. Allen, II

         /s/  Robert H. Beeby               Director                    March 28, 2001
___________________________________________
              Robert H. Beeby

</TABLE>


                                      51
<PAGE>

<TABLE>
<CAPTION>
                 Signature                            Title                  Date
                 ---------                            -----                  ----

<S>                                         <C>                        <C>
      /s/ Donald M. Elliman, Jr.            Director                    March 28, 2001
___________________________________________
          Donald M. Elliman, Jr.

          /s/ Terry D. Peigh                Director                    March 28, 2001
___________________________________________
              Terry D. Peigh

            /s/ Don Peppers                 Director                    March 28, 2001
___________________________________________
                Don Peppers

         /s/ Donald L. Seeley               Director                    March 28, 2001
___________________________________________
             Donald L. Seeley

         /s/ Joseph R. Zimmel               Director                    March 28, 2001
___________________________________________
             Joseph R. Zimmel
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                           Exhibit Index

Exhibit No.                                                 Description
-----------                                                 -----------
<S>           <C>
3.1           Amended and Restated Certificate of Incorporation of the Company, effective as of June 5, 2000 (1)
3.2           Amended and Restated Bylaws of the Company, effective as of June 5, 2000 (1)
4.1           Form of the Company's Class A common stock certificate (2)
4.2           Stockholders Agreement dated as of May 4, 1999 by and among the Company, True North Communications, Inc.,
              Gerald M. O'Connell and Robert C. Allen, II (3)
4.3           Registration Rights Agreement dated August 1, 1999 by and between certain Class A Common Stock Holders, Class B
              Common Stock Holders and the Company (4)
4.4           Warrant Agreement effective August 9, 1999 by and between Modem Media. Poppe Tyson, Inc. and General Electric
              Capital Corporation (5)
4.5           Form of Warrant Exercise Agreement dated as of December 17, 1999 among the Company, Vivid Holdings, Inc. and
              certain holders of warrants to purchase shares of common stock of Vivid Holdings, Inc. (5)
4.6           Form of Note Exchange Agreement dated as of December 17, 1999 among the Company, Vivid Holdings, Inc. and
              certain holders of promissory notes issued by Vivid Holdings, Inc. (5)
4.7           Provisions of Stock Purchase Agreement among Vivid Holdings, Inc., Vivid Publishing, Inc., Computer Associates
              International, Inc. and the Company dated as of December 17, 1999 relating to registration rights (included in
              Exhibit 10.12) (6)
4.8           Agreement dated April 26, 2000, by and between True North Communications, Inc. and the Company, amending the
              Intercompany Credit Agreement, dated February 3,1999, and the Stockholders Agreement, dated May 4, 1999 (7)
10.1(a)       1997 Stock Option Plan, as amended (2)
10.1(b)       1999 Employee Stock Purchase Plan (2)
10.1(c)       Modem Media Advertising Limited Partnership 1996 Option Plan and its amendment (3)
10.1(d)       1999 Stock Incentive Plan (8)
10.1(e)       Vivid Holdings, Inc. 1999 Stock Incentive Plan (9)
10.1(f)       Modem Media 2000 Stock Incentive Plan (10)
10.1(g)       Modem Media 2000 Restricted Stock Plan
10.2(a)       Amended and Restated Employment Agreement between the Company and Gerald M. O'Connell, dated as of January 1,
              1997, as amended and restated as of November 25, 1998 (2)
10.2(b)       Amended and Restated Employment Agreement between the Company and Robert C. Allen, II, dated as of January 1,
              1997, as amended and restated as of November 25, 1998 (2)
10.2(c)       Letter Agreement dated January 31, 2000 between the Company and Gerald M. O'Connell (5)
10.2(d)       Letter Agreement dated January 31, 2000 between the Company and Robert C. Allen, II (5)
10.2(e)       Letter Agreement dated April 19, 1999 between the Company and Sloane Levy (5)
10.2(f)       Letter Agreement dated January 31, 2000 between the Company and Sloane Levy (5)
10.2(g)       Employment Agreement dated December 31, 1998 between the Company and John Nardone (7)
10.2(h)       Letter Agreement dated January 31, 2000 between the Company and John Nardone (7)
10.2(i)       Letter Agreement dated January 31, 2000 between the Company and Amy Nenner (7)
10.2(j)       Letter Agreement dated July 19, 2000 between the Company and Melissa Viglielmo (11)
10.2(k)       Letter Agreement dated February 4, 1997 between the Company and Keryn M. Cerbone
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
<S>           <C>
10.2(l)       Employment Agreement dated January 4, 2001 between the Company and Frank J. Connolly, Jr.
10.2(m)       Employment Agreement dated January 15, 2001 between the Company and Marc C. Particelli
10.3(a)       Covenant Not to Compete or Solicit Business dated as of December 31, 1996 between the Company and Gerald M.
              O'Connell (2)
10.3(b)       Covenant Not to Compete or Solicit Business dated as of December 31, 1996 between the Company and Douglas C.
              Ahlers (2)
10.3(c)       Covenant Not to Compete or Solicit Business dated as of December 31, 1996 between the Company and Robert C.
              Allen, II (2)
10.3(d)       Covenant Not to Compete or Solicit Business dated as of December 31, 1998 between the Company and John Nardone
              (7)
10.3(e)       Covenant Not to Compete or Solicit Business dated January 15, 2001 between the Company and Marc C. Particelli
10.4          Douglas C. Ahlers Resignation Letter dated April 30, 1999 (4)
10.5          Form of Indemnification Agreement (2)
10.6          Sublease Agreement dated August 1, 1998 between the Company and Bozell, Jacobs, Kenyon & Eckhardt, Inc. (2)
10.7          Form of Affiliate Agreement by and between the Company and Modem
              Media. Poppe Tyson do Brasil Ltda. (2)
10.8          Agreement and Plan of Merger dated as of December 17, 1999 among the
              Company, Modem Media. Poppe Tyson Merger Corp., Vivid Holdings,
              Inc., Vivid Publishing, Inc. and the stockholders of Vivid Holdings,
              Inc. (6)
10.9          Stock Purchase Agreement dated December 17, 1999 among Vivid Holdings, Inc., Vivid Publishing, Inc., Computer
              Associates International, Inc. and the Company. (6)
10.10         Form of Asset Purchase Agreement dated February 2, 1999 by and between the Company and True North
              Communications Inc. (2)
10.11         Form of Asset Purchase Agreement dated February 2, 1999 by and between the Company and R/GA Media Group, Inc.
              (2)
10.12         Form of Agreement and Plan of Merger dated February 2, 1999 among True North Communications Inc., PT
              Controlled, Inc., the  Company and each of Douglas C. Ahlers, Robert C. Allen, II, Gerald M. O'Connell and
              Kraft Enterprises, Ltd. (2)
10.13+        Share Transfer Agreement dated October 4, 1999 of Mex MULTIMEDIA EXPERTS GmbH by Modem Media Germany Holding
              Company GmbH, a wholly-owned subsidiary of the Company (4)
10.14++       Stock Purchase Agreement dated December 22, 2000 among CentrPort, Inc., the Company and the Investors named
              therein (12)
10.15         Resellers Agreement dated December 22, 2000 by and between CentrPort, Inc. and the Company
21.1          List of subsidiaries
</TABLE>


______________________
(1)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended June 30, 2000.
(2)  Incorporated by reference to the Company's Registration Statement on Form
     S-1 (File No. 333-68057).
(3)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended June 30, 1999.
(4)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended September 30, 1999.
(5)  Incorporated by reference to the Company's Annual Report on Form 10-K filed
     on March 15, 2000 for the period ended December 31, 1999
<PAGE>

(6)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     on February 25, 2000, as amended.
(7)  Incorporated by reference to the Company's Quarterly Report on the Form
     10-Q for the period ended March 31, 2000
(8)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 (File No. 333-96483).
(9)  Incorporated by reference to the Company's Registration Statement on Form
     S-8 (File No. 333-30096).
(10) Incorporated by reference to the Company's Registration Statement on Form
     S-8.  (File No. 333-46204)
(11) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the period ended September 30, 2000.
(12) Incorporated by reference to the Company's Current Report on Form 8-K/A
     filed on January 5, 2001, amending the Form 8-K filed on December 22, 2000.


+  The Company was granted confidential treatment by the Securities Exchange
Commission for portions of this document.
++ The Company has requested confidential treatment from the Securities and
Exchange Commission for portions of this document.