<PAGE>
As filed with the Securities and Exchange Commission on September 26, 1996
Registration No. 333-___________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
the Securities Act of 1933
----------------------------
THINK New Ideas, Inc.
(Exact name of Registrant as specified in its charter)
----------------------------
Delaware 7389 95-4578104
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
45 West 36th Street
New York, New York 10018
(212) 629-6800
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
----------------------------
Scott A. Mednick
Chief Executive Officer
THINK New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
(310) 842-8444
(Name, address, including zip code and telephone number, including area code,
of agent for service)
----------------------------
Copies to:
Ralph V. De Martino, Esq. Sheldon E. Misher, Esq.
De Martino Finkelstein Rosen & Virga Bachner, Tally, Polevoy & Misher, LLP
1818 N Street, NW, Suite 400 380 Madison Avenue
Washington, DC 20036-2492 New York, NY 10017
(202) 659-0494 (212) 687-7000
----------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box.
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class Amount to be Offering Price Per Aggregate Offering Amount of
of Securities to be Registered Registered/(2)/ Share/(1)/ Price/(1)/ Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0001/(2)/ 3,450,000 $5.00 $17,250,000 $5,948
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriter Warrants/(3)/ 300,000 .001 $300 --
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001/(4)/ 300,000 $6.00 $1,800,000 $621
- ------------------------------------------------------------------------------------------------------------------------------------
Total $19,050,000 $6,569
====================================================================================================================================
(notes on continued overleaf)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
(2) Includes 450,000 shares of Common Stock subject to the over-allotment
option granted to the Underwriter.
(3) To be issued to the Underwriter in the Offering.
(4) Issuable upon exercise of the warrants to be issued to the Underwriter.
*Note: Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
- ----- Registration Statement covers such additional indeterminate number of
shares of Common Stock as may be issued by reason of adjustments in the
number of shares of Common Stock issuable pursuant to anti-dilution
provisions applicable to the securities subject hereto. Because such
additional shares of Common Stock will, if issued, be issued for no
additional consideration, no registration fee is required.
ii
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information contained herein is subject to completion or amendment. A +
+ registration statement relating to the securities described herein has been +
+ filed with the Securities and Exchange Commission. The securities may not be +
+ sold nor may offers to buy be accepted prior to the time the registration +
+ statement becomes effective. This prospectus shall not constitute an offer to+
+ sell or the solicitation of an offer to buy, nor shall there be any sale of +
+ these securities described herein in any State in which such offer, +
+ solicitation or sale would be unlawful prior to registration or qualification+
+ under the securities laws of any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1996
PROSPECTUS
THINK New Ideas, Inc.
3,000,000 Shares of Common Stock
----------------
All of the shares of common stock, par value $.0001 (the "Common Stock"),
offered hereby are being sold by THINK New Ideas, Inc. (the "Company"), except
for certain shares that may be sold in connection with the exercise of the over-
allotment option granted to the Underwriter. Prior to this Offering (the
"Offering"), there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be $5.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied for listing of the Common Stock for quotation on The Nasdaq National
Market ("Nasdaq") under the symbol "THNK."
-------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 9 AND "DILUTION."
-------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions/(1)/ Company/(2)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- --------------------------------------------------------------------------------
Total/(3)/ $ $ $
================================================================================
</TABLE>
(1) Does not include additional underwriting compensation in the form of: (a) a
warrant to purchase up to 300,000 shares of Common Stock exercisable for a
period of four years commencing one year from the date of this Prospectus at
a price equal to 120% of the initial public offering price (the
"Underwriter's Warrant"); (b) a non-accountable expense allowance equal to
3.0% of the initial public offering price; and (c) an advisory fee (the
"Advisory Fee") equal to 3.0% of the initial public offering price. The
Company and Benchmark Equity Group, Inc. (the "Benchmark" or "Selling
Stockholder") have agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of the Offering payable by the Company,
including the non-accountable expense allowance and the Advisory Fee,
estimated at $________ ($______ if the Underwriter's over-allotment option
is exercised in full). See "Underwriting."
(3) The Company and the Selling Stockholder have granted to Commonwealth
Associates (the "Underwriter) a 30-day option to purchase up to 450,000
additional shares of Common Stock on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. Pursuant to the terms
of such option, upon exercise thereof by the Underwriter, the first 300,000
shares of Common Stock will be offered and sold by the Selling Stockholder
and the remaining 150,000 shares of Common Stock will be offered and sold by
the Company. The Company will not receive any of the proceeds from the sale
of shares of Common Stock by the Selling Stockholder. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Company will be $__________, $_________ and
$__________, respectively. See "Principal and Selling Stockholders" and
"Underwriting."
-------------------------
The shares of Common Stock are being offered by the Underwriter subject
to prior sale, when, as and if delivered to and accepted by the Underwriter, and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify the Offering and to reject any order in whole or in
part. It is expected that delivery of certificates representing the Common Stock
will be made against payment therefor at the offices of Commonwealth Associates,
733 Third Avenue, New York, New York 10017, on or about _________, 1996. See
"Underwriting."
-------------------------
Commonwealth Associates
The date of this Prospectus is _________, 1996
<PAGE>
- --------------------------------------------------------------------------------
SPACE
RESERVED
FOR
ARTWORK
- --------------------------------------------------------------------------------
Think New Ideas, On Ramp, Metaverse, Internet One, CubePublisher, Market
Advantage, CubeBuilder, CubeEditor, CubeEngine, CubeFactory, CubeTech,
UpperClass, Office of the Future, Inc., OFI, NetCube, and VINNI are trademarks
of the Company or its subsidiaries. The Company or its subsidiaries has filed
servicemark applications with the U.S. Patent and Trademark Office for "Think
New Ideas" and the "Thinking Head" logo. The Company or its subsidiaries has
filed various product trademarks with the U.S. Patent and Trademark Office. This
Prospectus also includes product names, trade names and trademarks of other
companies.
<PAGE>
- --------------------------------------------------------------------------------
SPACE
RESERVED
FOR
ARTWORK
- --------------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET, ON NASDAQ OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
- --------------------------------------------------------------------------------
SPACE
RESERVED
FOR
ARTWORK
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety and should
be read in conjunction with the more detailed information and consolidated
financial statements (including the notes thereto) appearing elsewhere in this
prospectus (the "Prospectus"). The information provided throughout this
Prospectus assumes that the over-allotment option granted to the Underwriter is
not exercised and gives retroactive effect to a one to .496225157 reverse stock
split effected by the Company in September 1996. References hereinafter to the
Company shall include its subsidiaries as the context may require. Prospective
investors are urged to consider the factors discussed in "Risk Factors" in
evaluating an investment in the Common Stock offered hereby.
The Company
The Company develops and provides a broad range of marketing and
communications solutions to corporate clients by combining traditional marketing
expertise with advanced Internet/intranet capabilities. In addition, the Company
has developed proprietary software applications that allow users to easily
access, analyze and utilize multiple server and mainframe databases over the
Internet.
The Company's mission is to become the leading provider of integrated
marketing solutions by drawing upon its core strengths, which include: corporate
brand name marketing and positioning, sophisticated Internet and intranet
content development, and desk-top driven database management and software
design. These strengths and capabilities allow the Company to assist its
corporate clients as follows:
Position and Brand Products and Services. The Company utilizes its experience
in traditional advertising and marketing, as well as its understanding of the
capabilities of different and emerging media, to position clients and market
their products. The Company provides a range of services, including brand
positioning, developing corporate identity and print, television and packaging
design.
Market Products and Services Using Internet Technology. The Company develops
Websites that incorporate the latest in multi-layered Internet technology to
employ creative marketing strategies. For example, the Company developed a
"smart Website" for NEC that allows visitors to perform comparative product
searches and quickly generate customized product presentations from the NEC
database based on the visitors' product preferences, interests and desired
specifications.
Communicate and Operate More Effectively Internally. The Company's user-
friendly interfaces and Internet tools, combined with training software and
methodology, enable it to develop and deploy sophisticated intranet solutions
for its clients. For example, the Company developed a proprietary intranet
security solution to allow Anheuser Busch to exchange proprietary data with its
distributors over the Internet.
Access Data More Efficiently. The Company's proprietary technologies allow
users of both the World Wide Web and corporate intranets to: (i) craft on-line
marketing solutions that are responsive to user needs, allowing the user to more
easily access, analyze and utilize data; and (ii) provide necessary tools to
allow the Website sponsor to assess the effectiveness of its marketing
solutions.
The Company's current clients include: Anheuser Busch Companies, Inc.,
Avon, Bankers Trust, Berlitz International, Inc., Bloomingdale's, Busch
Entertainment Corporation, Chrysler Corporation, The Coca-Cola Company,
Continental Airlines, Inc., General Motors Corporation, Janus Funds, Liz
Claiborne, Inc., Microsoft, MITA, Moet, NEC USA, Inc., Pioneer Electronics (USA)
Inc., Random House, Reebok International, Ltd., Samsung Electronics of America,
Inc., Sea World, Sega of America, Inc., Sony, Sprint, Tambrands, Time Warner,
The Toro Company, Turner Entertainment Group and United Distillers.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The Company's growth strategy includes the following elements: (i) market
and cross-market the Company's broad range of services to new and existing
clients; (ii) apply the Company's experience in Internet and data management
technologies to provide clients interactive functionality; (iii) create
recurring revenue; (iv) develop solutions which incorporate the latest
technologies; and (v) continue to develop compelling content to increase user
traffic.
In August 1996, the Company entered into a strategic relationship with
Omnicom Group Inc. ("Omnicom"). Omnicom is the third largest advertising company
in the world. Pursuant to the Company's agreement with Omnicom (the "Omnicom
Agreement"), Omnicom purchased 1,408,000 shares of Common Stock from the Company
in exchange for payment to the Company of $4,998,000 (the "Omnicom
Transaction"). Since June 1996, the Company and Omnicom have engaged in joint
marketing of their services to several Omnicom clients and the Company believes
that the relationship could provide access to a substantial additional client
base. See "Recent Developments - Omnicom Transaction".
The Company's executive offices are located at 45 West 36th Street, New
York, New York 10018. Its telephone number at that location is (212) 629-6800.
The addresses of the Company and the Subsidiaries on the Internet include the
following: http://metaverse.com; http://www.thinkinc.com; and
http://www.internetone.com. None of the information contained in any of the
Websites mentioned in this Prospectus is deemed to be incorporated herein.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
The Offering
<TABLE>
<S> <C>
Common Stock offered by the Company............................. 3,000,000 Shares
Common Stock outstanding after the Offering..................... 9,400,000 Shares/(1)(2)/
Use of Proceeds................................................. The Company intends to use the net proceeds from the Offering
for general corporate purposes, including working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol.......................... THNK
Risk Factors.................................................... The Offering involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and "Dilution."
</TABLE>
- ---------------
/(1)/ Excludes: (a) 300,000 shares of Common Stock issuable upon exercise of
the Underwriter's Warrants; and (b) 1,800,000 shares of Common Stock
reserved for issuance pursuant to the Company's 1996 Stock Option Plan,
pursuant to which options to purchase 1,245,000 shares of Common Stock are
issued and outstanding. See "Management--Stock Option Plan," "Description
of Securities" and "Underwriting."
/(2)/ Includes 1,500,000 shares of Common Stock (the "Escrow Shares") which have
been deposited into escrow by the holders thereof. The Escrow Shares are
subject to cancellation and will be contributed to the capital of the
Company if the Company does not attain certain earnings levels or the
market price of the Common Stock does not achieve certain levels. If such
earnings or market price levels are met, the Company will record a
substantial non-cash charge to earnings, for financial reporting purposes,
as compensation expense relating to the value of the Escrow Shares
released to Company officers and employees. See "Risk Factors -- Potential
Charges to Earnings," "Capitalization" and "Principal and Selling
Stockholders."
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Summary Consolidated Financial Information
The table below contains certain summary historical and pro forma financial
information of the Company for the three-year period ended June 30, 1996. The
information has been derived from the consolidated financial statements included
elsewhere in this Prospectus (the "Financial Statements") and, with respect to
the pro forma balance sheet information, gives effect to the sale of certain
shares of Common Stock and the conversion and repayment of certain debt and
other obligations subsequent to June 30, 1996. See Notes 2, 5, 10 and 12 of
Notes to Financial Statements. This information should be read in conjunction
with the Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Consolidated Statement of Operations Data Fiscal Year Ended June 30,
---------------------------------------------------------
1994 1995 1996
---------------- ---------------- -----------------
(in thousands, except per share and share amounts)
<S> <C> <C> <C>
Revenues ......................................................... $ 8,486 $ 10,332 $ 12,146
Operating expenses:
Direct salaries and related expenses ........................... 3,321 3,557 4,587
Other direct expenses .......................................... 3,776 3,935 4,815
Selling, general and administrative expenses ................... 1,963 2,622 3,286
Merger expenses .................................................. -- -- 981
---------- ---------- ----------
Operating income (loss) .......................................... (574) 218 (1,523)
Interest expense ................................................. (82) (132) (418)
Other, net........................................................ 8 77 146
---------- ---------- ----------
Income (loss) before taxes on income ............................. (648) 163 (1,795)
Taxes on income .................................................. 103 (234) (149)
---------- ---------- ----------
Net loss ......................................................... $ (545) $ (71) $ (1,944)
========== ========== ==========
Pro forma data (unaudited)/(1)/
Net loss ....................................................... $ ( 791)
Loss per common share .......................................... (.18)
Shares used in computing loss per common share ................. 4,393,681
Supplemental loss per share .................................... (.14)
Shares used in computing supplemental loss per share ........... 4,549,356
<CAPTION>
Consolidated Balance Sheet Data At June 30, 1996
---------------------------------------------------------
Pro Forma
Actual Pro Forma/(2)/ As Adjusted/(3)/
---------------- ---------------- -----------------
<S> <C> <C> <C>
Cash and cash equivalents ........................................ $ 430 $ 2,709 $ 15,452
Working capital .................................................. 342 3,121 15,864
Total assets ..................................................... 4,778 7,003 19,528
Convertible promissory notes ..................................... 2,070 -- --
Note payable to related party .................................... 788 500 500
Total shareholders' equity (deficit) ............................. (1,080) 4,003 16,528
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
- ----------
/(1)/ Excludes the costs incurred by the Company in connection with its
acquisitions of the Subsidiaries and includes: (a) the impact of
employment agreements between the Company and certain key employees as if
such agreements had been in effect throughout fiscal 1996; and (b) the
effect of taxation of the Company and the Subsidiaries as if all of such
entities had been taxed as C corporations throughout fiscal 1996.
Supplemental proforma net loss further excludes the effect of interest
expense on debt repaid with proceeds received from the Omnicom
Transaction. Shares used in computing supplemental pro forma loss per
share are increased to give effect to the assumed use of the net proceeds
of the Omnicom Transaction to repay debt rather than the assumed
repurchase of treasury stock.
/(2)/ Gives effect to the following transactions effected by the Company
subsequent to June 30, 1996: (a) the receipt of proceeds of $4,998,000
(excluding related expenses) pursuant to the Omnicom Transaction; (b) the
conversion of $27,000 in principal amount of certain Non-Negotiable 10%
Convertible Promissory Notes (the "10% Notes") pursuant to the terms of
such notes into 325,000 shares of Common Stock; (c) the conversion of
$162,495 in principal amount of certain Series I Non-Negotiable 12%
Promissory Notes (the "12% Notes") pursuant to the terms of such notes
into 324,990 shares of Common Stock; (d) repayment of the remaining
$243,000 and $1,637,505 in principal amount respectively outstanding under
the 10% Notes and the 12% Notes; (e) repayment of $288,000 of amounts due
under a promissory note issued to a related party; and (f) payment of
$500,000 pursuant to the terms of a certain finder's agreement upon
termination thereof. See Notes 2, 5, 10 and 12 of Notes to Financial
Statements. See "Certain Transactions."
/(3)/ Gives effect to the sale of the 3,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $5.00 per share and
receipt of the net proceeds therefrom. Reflects the accrual at June 30,
1996, of $218,000 of expenses related to the Offering.
- --------------------------------------------------------------------------------
7
<PAGE>
RECENT DEVELOPMENTS
The Reorganization
The Company was incorporated pursuant to the laws of the State of Delaware
in January 1996. In June 1996, in exchange for the issuance of an aggregate of
1,084,750 shares of Common Stock, the Company acquired all of the issued and
outstanding capital stock of seven companies: Scott Mednick & Associates, Inc.
("Mednick Group"); On Ramp, Inc. ("On Ramp"); Internet One, Inc. ("Internet
One"); Creative Resources Agency, Inc. ("Creative Resources"); The S.D. Goodman
Group, Inc. ("Goodman Group"), and NetCube Corporation of Delaware and NetCube
Corporation of New Jersey (collectively, "NetCube"). The foregoing companies
have been defined and are collectively referred to hereinafter as the
"Subsidiaries" and the combination of the Subsidiaries with the Company is
referred to hereafter as the "Reorganization." See "Certain Transactions."
Omnicom Transaction
Pursuant to the terms of the Omnicom Agreement, Omnicom purchased 1,408,000
shares of Common Stock from the Company in exchange for $4,998,000. Pursuant to
the terms of the Omnicom Agreement: (a) the Company has appointed Barry Wagner
to represent Omnicom on the Company's board of directors (the "Board of
Directors"); (b) Omnicom has agreed not to increase its ownership interest in
the Company absent the approval of the Board of Directors; and (c) Omnicom has
granted the Company a right of first refusal to purchase the shares of Common
Stock owned by Omnicom.
The Company entered into the Omnicom Transaction to establish a strategic
relationship which management of the Company believes could provide access to a
substantial additional client base, although there can be no assurance that such
result will occur. Since June 30, 1996, Omnicom and the Company have engaged in
the joint marketing of their services to several Omnicom clients. There can be
no assurance that such joint marketing will continue, nor can there be any
assurance with respect to the effect of such marketing on the Company's
operations.
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Common Stock offered hereby involves a high degree of risk. In addition
to the other information contained in this Prospectus, prospective investors
should carefully consider the following risk factors in evaluating whether to
purchase the Common Stock offered hereby. Moreover, prospective investors are
cautioned that the statements in this Prospectus that are not descriptions of
historical facts may be forward looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors.
Operating Loss
During the fiscal year ended June 30, 1996 the Company realized an
operating loss of $1,523,000 and a net loss of $1,944,000. Those losses
resulted primarily from non-recurring merger expenses in the amount of $981,000
incurred in combining the Subsidiaries and losses from operations realized by
one of the Subsidiaries, NetCube, in the amount of $1,033,000. During the
fiscal year ended June 30, 1996, NetCube modified its business so as to
emphasize the development of its proprietary NetCube data applications and de-
emphasize hourly consulting services, resulting in a significant decrease in
revenues. Although the Company believes that the losses at NetCube may be
reduced as NetCube changes its focus from product development to the marketing
of its proprietary data applications, there can be no assurance that the Company
will be able to achieve or sustain profitable operations at NetCube. Moreover,
there can be no assurance that any other Subsidiary or that the Company as a
whole will be profitable. The Company also intends to increase marketing and
other operating expenses and increase the level of capital expenditures,
including costs related to Internet infrastructure. Such increases in operating
expense levels and capital expenditures may adversely affect operating results.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Fluctuations in Operating Results
The Company's quarterly operating results have varied significantly in the
past and the Company expects operating results to continue to fluctuate in
future quarters. Factors which may affect the Company's operating results in
the future include timing of the completion or cancellation of projects, the
loss of a client, receipt of new business and variations in business mix, and
other factors outside the control of the Company. The Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and a shortfall in actual revenues as compared to estimated revenues
would have an immediate, material adverse effect on the Company's business,
financial condition and operating results. The Company's operating results
could also be materially adversely affected by increased competition in the
Company's markets. The Company believes that period to period comparisons of
its revenues and operating results are not necessarily meaningful and that such
comparisons should not be relied upon as indicators of future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Lack of Combined Operating History; Risk of Integration
While certain of the Subsidiaries have been in existence for several years,
the Reorganization occurred in June 1996. See "Recent Developments." The
Company's success will depend in part on its ability to manage the combined
operations of those companies, and to integrate the operations of those
companies in a single organizational structure. The Company currently operates
at five principal locations and has only recently commenced centralizing
administrative functions at its New York office. There can be no assurance that
the Company will be able to effectively integrate the operations of its
Subsidiaries in a single
9
<PAGE>
organizational structure. Integration of these operations could also place
additional strain on the management and key technical resources of the Company.
The failure to successfully manage this integration could have a material
adverse effect on the Company. Finally, while a key motivation for the
Reorganization is the belief that the Subsidiaries can market their services to
existing clients of other Subsidiaries, there can be no assurance that this
cross-marketing will be achieved or sustained. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Business Strategy."
Management of Growth; Future Capital Requirements
The Company and the Subsidiaries have experienced significant growth since
their inception, which places demands on the management, employees, operations
and physical resources of the organization. Although the Company's strategy
contemplates continued future growth, there can be no assurance that such growth
will be achieved. In order to manage any future growth, the Company will be
required to continue to improve its operating systems, attract and retain
superior management, marketing and new media talent and expand the Company's
facilities. If the Company is unable to effectively manage its growth, the
Company's business, operating results and financial condition could be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Future growth, if achieved, may also strain the Company's capital
resources. Although the Company anticipates that cash flow from operations and
the proceeds of the Offering contemplated hereby will be sufficient to fund its
operations during the next 12 months, the Company may require additional
financing in order to expand its business. There can be no assurance that the
Company will be able to successfully negotiate or obtain additional financing,
or that such financing will be on terms favorable or acceptable to the Company.
The failure to secure necessary financing could have a material adverse impact
on the Company. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business."
Dependence on the Internet; Developing Market
The Company's ability to derive revenues by providing marketing solutions
will depend in part upon a robust industry and the infrastructure for providing
Internet access and carrying Internet traffic. There can be no assurance that
the necessary infrastructure, such as a reliable network backbone, or
complementary products, such as high speed modems, will be developed or that the
Internet will become a viable commercial marketplace. Critical issues
concerning the commercial use of the Internet, including security, reliability,
cost, ease of use and access, and quality of service, remain unresolved and may
impact the growth of Internet use. In the event that the necessary
infrastructure or complementary products are not developed, or the Internet does
not become a viable commercial marketplace, the business, operating results and
financial condition of the Company could be adversely affected.
Dependence on Proprietary Technologies
The Company regards certain of its products and technologies, including its
software applications, as proprietary and relies upon a combination of
trademark, copyright and trade secret law, together with non-disclosure
licensing and invention assignment agreements, to establish and protect its
proprietary rights. Much of the Company's proprietary information may not be
patentable, and the Company does not currently possess any patents. There can
be no assurance that the Company's current intellectual property rights will
afford meaningful protection or that the Company's competitors will not
independently develop technologies
10
<PAGE>
that are substantially equivalent or superior to the Company's technologies.
There can be no assurance that others will not infringe the Company's
proprietary rights or assert claims that the Company's technologies infringe
their proprietary rights. Litigation concerning the alleged violation of
intellectual property rights is inherently uncertain and could result in
significant costs to the Company, whether or not any such claims are valid.
Rapid Technological Change
The market for interactive marketing services is characterized by rapid
changes in technology. The rapid pace of technological change presents
substantial challenges to a provider of marketing services to maintain its
technical competence and competitive position. In addition to competing with
other integrated marketing service providers and traditional advertising
agencies, the Company competes with specialized service providers that are
highly skilled in their particular discipline. The Company believes that, in
order for it to compete successfully, each of the disciplines that is utilized
in developing a solution for a client must demonstrate competence equal or
superior to that demonstrated by competitive specialty firms that limit the
scope of their services to that particular discipline. There can be no
assurance that the Company will be successful in attracting and maintaining a
high level of technical and artistic competence or that it will be successful in
providing competitive solutions to clients. Failure to do so could result in
the loss of existing customers or the inability to attract and retain new
customers, which developments could have a material adverse effect on the
business, financial condition and operating results of the Company. See
"Business."
Reliance on Key Management Personnel
The Company's operations are dependent upon the continued efforts of its
senior management, including Scott A. Mednick, the Chief Executive Officer of
the Company; Ronald Bloom, the President and Chief Operating Officer of the
Company; and Adam Curry, the Chief Technology Officer of the Company, each of
whom performs significant marketing, sales and product development functions.
The loss of the services of any of the foregoing officers could be detrimental
to the Company. Messrs. Mednick, Bloom and Curry, along with certain other
members of senior management, have entered into employment agreements with the
Company. These agreements contain noncompete provisions that may not be
enforceable in certain states. The Company intends to obtain key man life
insurance on the lives of Messrs. Mednick, Bloom and Curry. See "Management."
Qualified employees are in great demand and are likely to remain a limited
resource for the foreseeable future. Competition for skilled creative and
technical talent is intense. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. In addition, the
Company's ability to generate revenues relates directly to the number and
expertise of the personnel that are available to work on its projects. Any
failure by the Company to retain existing employees or to hire new employees
when necessary could have a material adverse effect upon the Company's business,
financial condition and results of operations. See "Business -- Employees."
Broad Discretionary Use of Proceeds
The Company has broad discretion with respect to the specific application
of the net proceeds of this Offering. Such amounts are intended to be used for
working capital, including salaries, equipment and development of technology.
Thus, purchasers of the shares offered hereby will be entrusting their funds to
11
<PAGE>
the Company's management, upon whose judgment the investors must depend, with
only limited information concerning management's specific intentions.
Dependence on Significant Projects; Limited Contractual Relationships
The Company's five largest clients accounted for approximately 38% of the
Company's revenues for the fiscal year ended June 30, 1996, with significant
quarterly fluctuations in the amount of revenue contribution from each such
client. Pioneer Electronics (USA), Inc., SEGA of America, Inc., Toshiba of
America, Inc., Reebok International, Ltd., and Source Informatics, the Company's
five largest clients during the period, accounted for approximately 14.6%, 7.1%,
5.4%, 5.3% and 5.2% of the Company's revenues, respectively, during the period.
The Company's clients generally retain the Company on a project by project
basis. Consequently, a client from whom the Company generates substantial
revenue in one period may not be a substantial source of revenue in a subsequent
period. There can be no assurance that a client will engage the Company for
further services once a project is completed. Moreover, the Company typically
does not enter into long-term contractual relationships with its clients, and
therefore such clients may unilaterally reduce their use of the Company's
services or terminate existing projects at their discretion. The termination of
a business relationship with any of the Company's significant clients or a
material reduction in a significant client's use of the services provided by the
Company could have a material adverse effect on the business, financial
condition and operating results of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Project Profit Exposures; Need to Develop Recurring Revenue
The Company generates the substantial majority of its revenues through
project fees on a fixed fee for service basis. The Company assumes greater
financial risk on fixed-price type contracts than on either time-and-material or
cost-reimbursable contracts. Failure to anticipate technical problems, estimate
costs accurately or control costs during performance of a fixed-price contract
may reduce the Company's profit or cause a loss. Although the majority of the
Company's projects typically last four to eight weeks and therefore each
individual short-term project creates less exposure than a long-term fixed-price
contract, in the event the Company does not accurately anticipate the progress
of a number of significant revenue-generating projects it could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success will depend in part on its ability to
convert its project by project relationships to continuing relationships
characterized by recurring revenue. There can be no assurance that the
Company's efforts will be successful. See "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Competition
The market for the Company's services is highly competitive and is
characterized by pressures to incorporate new capabilities and accelerate job
completion schedules. The Company faces competition from a number of sources,
including national and regional new media marketing companies and national and
local advertising agencies, many of which have started to develop or acquire
interactive media capabilities. New boutiques that either provide integrated or
specialized services (e.g., corporate identity and packaging, advertising
services or Website design) and are technologically proficient, have emerged and
are competing with the Company. Many of the Company's competitors or potential
competitors have longer operating histories, longer client relationships and
significantly greater financial, management, technology, development, sales,
marketing and other resources than the Company. The Company's ability to
maintain its existing
12
<PAGE>
clients and generate new clients depends to a significant degree on the quality
of its services and its reputation among its clients and potential clients, as
compared with the quality of services provided by and the reputations of the
Company's competitors. In the event that the Company loses clients to
competitors because of dissatisfaction with the services performed or provided
by the Company, or the reputation of the Company is otherwise adversely
impacted, the business, financial condition and operating results of the Company
could be materially adversely affected.
There are relatively low barriers to entry into the Company's business.
The Company expects that it will face additional competition in the future from
new entrants into the market. There can be no assurance that existing or future
competitors will not develop or offer marketing communication services and
products that provide significant performance, price, creative or other
advantages over those offered by the Company, which could have a material
adverse effect on the business, financial condition and operating results of the
Company.
System Security
The Company currently operates servers and maintains Internet connectivity
from its offices in New York and Colorado. Despite the implementation of
network security measures by the Company, such as limiting physical and network
access to its routers, the Company's Internet infrastructure is vulnerable to
computer viruses, break-ins and similar disruptive problems caused by its
customers or other Internet users. Computer viruses, break-ins or other security
problems could lead to interruption, delays or cessation in service to the
Company's Internet customers. Further, such inappropriate use of the Internet
could also potentially jeopardize the security of confidential information
stored in the computer systems of the Company's customers and other parties
connected to the Internet, which may deter potential customers and give rise to
uncertain liability to users whose security or privacy has been infringed. The
security and privacy concerns of existing and potential customers may inhibit
the growth of the Internet service industry in general and the Company's
customer base and revenues in particular. A significant security breach could
result in loss of customers, damage to the Company's reputation, direct damages,
costs of repair and detection, and other expenses. The occurrence of any of the
foregoing events could have a material adverse effect on the Company's business,
results of operations and financial condition.
Risk of System Failure
The success of the Company is dependent upon its ability to deliver high
quality, uninterrupted Internet hosting, which requires that the Company protect
its computer equipment and the information stored in its servers against damage
by fire, natural disaster, power loss, telecommunications failures, unauthorized
intrusion and other catastrophic events. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on its business, results of operations and financial condition. In particular, a
failure at its New York offices, if prolonged, could result in reduced revenues,
loss of customers and damage to the Company's reputation, any of which could in
turn have a material adverse effect on the Company's business, results of
operations and financial condition. While the Company carries property and
business interruption insurance to cover its operations, the coverage may not be
adequate to compensate the losses that may occur.
13
<PAGE>
Regulatory Uncertainty; Legal Uncertainties
The Company is not currently subject to government regulation, except to
the extent that it is subject to regulations of general applicability to
business. However, due to the increasing media attention on the Internet, it is
possible that laws and regulations applicable to the Internet may be adopted
that will address user privacy, or the pricing, taxation, characteristics or
quality of products or services offered over the Internet. The adoption of any
such laws or regulations could restrict the growth of the Internet, which in
turn could adversely affect the demand for the Company's services, affect the
Company's cost structure or cause the Company to modify its operations.
Moreover, the applicability of existing laws governing property ownership, libel
and privacy to the Internet is unsettled. It is possible, therefore, that
businesses that develop Websites could be subject to liability for certain
actions of their clients, including liability for infringement of intellectual
property rights, defamation and libel. The Company is unable to predict the
impact that any future change in applicable law may have on its business. Any
imposition of liability on the Company could have a material adverse effect on
the Company's financial condition and operations.
Potential Charges to Earnings
The Securities and Exchange Commission (the "Commission") has taken the
position with respect to escrow arrangements such as that entered into by the
Company and certain of its stockholders that in the event any shares are
released from escrow to the holders who are officers, directors, employees or
consultants of the Company, a compensation expense will be recorded for
financial reporting purposes. Accordingly, in the event of the release of the
Escrow Shares, the Company will recognize during the period in which the
earnings thresholds are probable of being met or such stock levels achieved, a
substantial noncash charge to earnings equal to the fair market value of such
shares on the date of their release, which would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. The recognition of such compensation expense may have a
depressive effect on the market price of the Company's securities.
Notwithstanding the foregoing discussion, there can be no assurance that the
Company will attain the targets which would enable the Escrow Shares to be
released from escrow. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Principal and Selling Stockholders --
Escrow Shares."
Absence of Prior Trading Market; Possible Volatility of Stock Price
Prior to the Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained upon completion of the Offering. The initial public
offering price of the shares of Common Stock will be determined by negotiation
among the Company and the Underwriter and does not necessarily bear any
relationship to the Company's assets, book value, net worth or any other
established criteria of value. See "Underwriting" for a discussion of the
factors that will be considered in determining the initial public offering
price. The market price of the shares of Common Stock, like that of the common
stock of many other companies engaged in technology-related fields, is likely to
be highly volatile. Factors such as fluctuations in the Company's operating
results, the operating results of the Company's competitors and other technology
companies, and general market conditions may have a significant impact on the
market price of the Common Stock.
14
<PAGE>
Future Sales of Common Stock; Registration Rights
Future sales of shares of Common Stock by existing stockholders pursuant to
Rule 144 under the Securities Act of 1933 (the "Securities Act"), through the
exercise of outstanding registration rights or through the issuance of shares of
Common Stock upon exercise of options, warrants or otherwise, could have an
adverse effect on the price of the Company's Common Stock. In addition to the
3,000,000 shares of Common Stock offered hereby, subject to compliance with Rule
144 under the Securities Act, 6,400,000 shares of Common Stock will be eligible
for sale in the public market beginning February 1998. An additional 415,000
shares of Common Stock issuable upon the exercise of vested options will also
become eligible for sale in the public market pursuant to Rule 701 and Rule 144
under the Securities Act beginning approximately one year from the date of this
Prospectus. The Commission has recently proposed an amendment to the holding
period requirements of Rule 144 to permit resales of restricted securities after
a one year holding period rather than a two year holding period, and to permit
unrestricted resales by non-affiliates after a two year holding period
rather than a three year holding period. Additionally, the holders of 1,781,385
shares of Common Stock have certain demand and/or piggyback registration rights
with respect to shares owned by them. Holders of 5,775,010 shares of outstanding
Common Stock and 624,990 shares of Common Stock have agreed not to sell or
transfer any of their shares for periods of six months and 12 months,
respectively, following the Offering without the prior written consent of the
Underwriter. The Underwriter may, at its sole discretion and at any time without
notice, release all or any portion of the shares subject to such lock-up
agreements. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale."
Potential Anti-Takeover Provisions
The Certificate of Incorporation of the Company, as amended (the
"Certificate of Incorporation") authorizes the issuance of up to 5,000,000
shares of Preferred Stock with such rights and preferences as may be determined
from time to time by the Board of Directors. Accordingly, the Board of
Directors may, without stockholder approval, issue shares of Preferred Stock
with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of Common
Stock. However, the Company's ability to issue such securities is, with certain
exceptions, subject to the prior approval of the Underwriter for a period of
twelve months from the date of this Prospectus. See "Underwriting." Although
the Company does not currently intend to issue any shares of Preferred Stock,
there can be no assurance that the Company will not do so in the future. In
addition to the foregoing, the Certificate of Incorporation and the Bylaws of
the Company (the "Bylaws") contain provisions which may discourage certain
transactions involving an actual or threatened change in control of the Company.
The Bylaws prescribe the manner in which shareholder proposals may be presented
for consideration at meetings of stockholders. The Company is also subject to a
Delaware statute regarding business combinations. Any of the foregoing may have
the effect of rendering more difficult, or discouraging, an acquisition of the
Company or changes in control of the Company. See "Management" and "Description
of Securities."
Control by Existing Stockholders
As of the date hereof, the officers and directors of the Company (and their
affiliates) own an aggregate of 6,045,010 shares of Common Stock (including
1,500,000 Escrow Shares with respect to which the owners thereof have voting
rights). Immediately upon completion of the Offering, the officers and directors
of the Company will own or control the voting of 64.3% of the Company's issued
and outstanding voting Common Stock. Moreover, pursuant to the Bylaws, holders
of 33% of all outstanding shares of Common Stock entitled to vote shall
constitute a quorum and the holders of a majority of such quorum
15
<PAGE>
may control the vote. The officers and directors of the Company, as holders of
the Company's securities, will therefore have the ability to significantly
influence the election of the Board of Directors, to potentially control the
outcome of any corporate action requiring less than a majority of the
outstanding voting securities entitled to vote, and consequently, to
significantly influence the business and affairs of the Company. See "Recent
Transactions," "Management," "Certain Transactions" and "Principal and Selling
Stockholders."
Immediate and Substantial Dilution
Purchasers of the Common Stock in the Offering will suffer immediate
substantial dilution in the net tangible book value of shares of Common Stock
purchased in the amount of $2.91 per share or 58.2%. In January 1996, the
founders of the Company paid $.0001 (par value) per share for their shares of
Common Stock. In March 1996 and April 1996, respectively, the holders of the 10%
Notes agreed to pay (and subsequently paid) $.08 per share for their shares of
Common Stock and the holders of the 12% Notes agreed to pay (and subsequently
paid) $.50 per share for their shares of Common Stock. Upon completion of the
Offering, the Company's current stockholders will have paid $7,154,788 for
4,900,000 shares of Common Stock (excluding the Escrow Shares) or 62% of the
Company's then outstanding shares of Common Stock, and purchasers of shares of
Common Stock in the Offering will have paid $15,000,000 for 3,000,000 shares of
Common Stock, or 38% of the Company's then outstanding shares of Common Stock.
Therefore, investors' shares of Common Stock will bear a substantially greater
financial risk than the Company's current stockholders. See "Dilution,"
"Management -- Stock Option Plan," "Certain Transactions" and "Description of
Securities."
Possible Delisting; Risks of Low-Priced Stock
Under the rules of the National Association of Securities Dealers, Inc.
("NASD"), in order to maintain listing on Nasdaq, a company must have, among
other things, between $1,000,000 and $4,000,000 in net tangible assets
(depending upon whether or not such company has sustained operating losses) and,
alternatively, either: (i) $3,000,000 in market value of public float and
$4,000,000 in net tangible assets; or (ii) a minimum bid price of $1.00 per
share. In the event that the Company is unable to satisfy the requirements for
continued quotation on the Nasdaq National Market or on the Nasdaq SmallCap
Market, quotation, if any, of the Common Stock would be in the over-the-counter
market in what are commonly referred to as the "pink sheets" of the National
Quotation Bureau, Inc. or on the NASD OTC Electronic Bulletin Board. As a
result, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the price of such securities. If the Company's
securities were delisted from Nasdaq they could become subject to Rule 15g-9
under the Exchange Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together
with their spouses).
In addition, Commission regulations define a "penny stock" to be any non-
Nasdaq equity security that has a market price (as therein defined) of less than
$5.00 per share or with an exercise price of less than $5.00 per share, subject
to certain exceptions. The Commission's rules impose additional requirements on
broker-dealers for any transactions involving penny stocks.
In the event that the Company's securities are delisted or become subject
to Rule 15g-9 or the penny stock rules, the liquidity of the Company's
securities will be adversely affected and investors may find it more difficult
to dispose of or obtain accurate quotations to the prices thereof.
16
<PAGE>
Absence of Dividends
The Company has not paid any dividends on its Common Stock since its
incorporation and anticipates that, for the foreseeable future, working capital
and earnings, if any, will be retained for use in the Company's business
operations and in the expansion of its business. See "Dividend Policy" and
"Description of Securities."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby at an assumed initial public offering price of $5.00 per
share and after deducting underwriting discounts and commissions and estimated
expenses payable by the Company, will be approximately $12,525,000 (or
approximately $13,177,500 if the over-allotment option granted to the
Underwriter is exercised in full). The Company will receive the proceeds of the
sale of the shares of Common Stock offered by the Company, but will not receive
any of the proceeds from the sale of any shares of Common Stock offered by the
Selling Stockholder pursuant to exercise of the Underwriter's over-allotment
option. The Company intends to use the net proceeds of the Offering for working
capital, including salaries, equipment and development of technology and other
general corporate purposes.
The Company may also use a portion of such net proceeds and investment
securities balances to acquire or invest in businesses, products and
technologies that are complementary to those of the Company, although no such
acquisitions are planned or being negotiated as of the date of this Prospectus
and no portion of the net proceeds has been allocated for any specific
acquisitions.
The Company's intended allocation of net proceeds of the Offering is based
upon the Company's current plans and prevailing economic and industry
conditions. Although the Company does not currently contemplate material changes
with respect to allocation of the net proceeds, to the extent that management of
the Company finds that adjustment thereto is required, the amounts shown may be
adjusted among the uses indicated above. Pending their ultimate use, the net
proceeds will be invested in short-term, investment grade, interest-bearing
securities, certificates of deposit or direct or guaranteed obligations of the
United States.
DIVIDEND POLICY
The Company has not paid, and does not anticipate paying, any dividends on
its Common Stock in the foreseeable future. The Company currently intends to
retain its future earnings for use in operations and expansion of its business.
Declaration and payment of future dividends, if any, will be at the sole
discretion of the Board of Directors. Certain of the Subsidiaries have declared
dividends in connection with such Subsidiaries' former elections to be treated
as Subchapter S corporations under the Internal Revenue Code of 1986, as amended
(to enable the former owners of such Subsidiaries to pay applicable Federal
income taxes).
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as of
June 30, 1996; (ii) on a pro forma basis after giving effect to the issuance of
1,408,000 shares of Common Stock to Omnicom and an aggregate of 624,990 shares
of Common Stock to the holders of the 10% Notes and the 12% Notes upon the
conversion thereof and the repayment of certain debt and other obligations
subsequent to June 30, 1996; and (iii) as adjusted to give effect to the sale of
the Common Stock offered hereby at an assumed initial public offering price of
$5.00 per share and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------
(in thousands)
Pro Forma As
Actual(1) Pro Forma/(1)(2)/ Adjusted/(1)(2)(3)/
--------- ----------------- -------------------
<S> <C> <C> <C>
Note payable to related party.................................. $ 788 $ 500 $ 500
Convertible promissory notes................................... 2,070 -- --
Stockholders' Equity:
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized; no shares outstanding............................. -- -- --
Common Stock, $.0001 par value; 50,000,000 shares authorized;
4,342,010 shares issued (actual)(1); 6,400,000 shares
issued (pro forma)/(1)(2)/; and 9,400,000 shares issued
(as adjusted)/(1)(2)(3)/...................................... -- 1 1
Additional paid-in capital.................................... -- 5,136 17,661
Accumulated deficit........................................... (1,080) (1,134) (1,134)
--------- --------- ----------
Total shareholders' equity (deficit)....................... (1,080) 4,003 16,528
--------- --------- ----------
Total capitalization................................... $ 1,778 $ 4,503 $ 17,028
========= ========= ==========
- -------------------
</TABLE>
(1) Includes 1,500,000 shares of Common Stock held in escrow. See "Principal
and Selling Securityholders."
(2) Gives effect to the following transactions effected by the Company
subsequent to June 30, 1996: (a) the issuance of 1,408,000 shares of Common
Stock to Omnicom and the receipt of proceeds of $4,998,000 pursuant to the
Omnicom Transaction; (b) the issuance of 325,000 shares of Common Stock
upon conversion of $27,000 in principal amount under the 10% Notes; (c) the
issuance of 324,990 shares of Common Stock upon conversion of $162,495 in
principal amount under the 12% Notes; (d) repayment of principal (and
accrued interest) on the remaining $1,880,505 principal amount of the 10%
Notes and the 12% Notes; (e) repayment of $288,000 of amounts due under a
promissory note issued to a related party; and (f) payment of $500,000
pursuant to the terms of a certain finder's agreement upon termination
thereof. See "Certain Transactions."
(3) Gives effect to the sale of all of the Common Stock offered hereby at an
assumed initial public offering price of $5.00 per share and receipt of the
net proceeds thereof.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was $3,746,000 or approximately $.76 per share of Common Stock, after giving
effect to the following transactions effected by the Company subsequent to June
30, 1996: (i) the issuance of 1,408,000 shares of Common Stock to Omnicom and
the receipt of $4,998,000 in proceeds therefrom (excluding related expenses);
(ii) the issuance of 325,000 shares of Common Stock upon conversion of $27,000
in principal amount under the 10% Notes; (iii) the issuance of 324,990 shares
upon conversion of $162,495 in principal amount under the 12% Notes; (iv)
repayment of the remaining $243,000 in principal amount under the 10% Notes and
the remaining $1,637,505 in principal amount under the 12% Notes; (v) repayment
of $288,000 of amounts due under a promissory note issued to a related party;
and (vi) payment of $500,000 pursuant to the terms of a certain finder's
agreement upon termination thereof. Pro forma net tangible book value per share
represents the amount of the Company's pro forma stockholders' equity, less
intangible assets, divided by the number of shares of Common Stock outstanding
(excluding the Escrow Shares) after giving effect to the issuance of shares of
Common Stock as set forth above.
Dilution to new investors represents the difference between the amount per
share paid by purchasers of shares of Common Stock in the Offering made hereby
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering. After giving effect to the sale of 3,000,000
shares of Common Stock by the Company at an assumed initial public offering
price of $5.00 per share and receipt of the estimated pro forma net proceeds
therefrom, the pro forma net tangible book value of the Company as of June 30,
1996 would have been $16,488,000 or $2.09 per share. This represents an
immediate increase in net tangible book value of $1.33 per share to existing
stockholders and an immediate dilution in net tangible book value of $2.91 per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $5.00
Pro forma net tangible book value per share as of June 30, 1996.. 0.76
Increase per share attributable to new investors................. 1.33
Pro forma net tangible book value per share after the Offering...... ---- 2.09
-----
Dilution per share to new investors................................. $2.91
=====
</TABLE>
In the event that the Underwriter's over-allotment option is exercised in
full, the pro forma net tangible book value of the Company at June 30, 1996
would be approximately $2.13 per share (excluding the Escrow Shares), which
would result in dilution per share to the new investors in the Offering of
approximately $2.87 per share.
The following table summarizes on a pro forma basis at June 30, 1996 the
difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders since inception and by new investors in this Offering (at
an assumed initial public offering price of $5.00 per share):
20
<PAGE>
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
--------------------- --------------------------
Number Percent Amount Percent Per Share
------ ------- ------ -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 6,400,000/(1)/ 68% $7,154,788/(2)/ 32% $1.12
New Investors.......... 3,000,000 32% 15,000,000 68% $5.00
--------- ---- ------------- ----
Totals................. 9,400,000 100% $ 22,154,788 100%
========= ==== ============= ====
</TABLE>
(1) Includes 1,500,000 shares of Common Stock held in escrow.
(2) Includes $4,998,000 paid by Omnicom in the Omnicom Transaction.
The foregoing tables do not give effect to the exercise of any outstanding
options or the release of the Escrow Shares. See "Management--Stock Option
Plan" and "Principal and Selling Stockholders."
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected consolidated financial information of the Company
for the three-year period ended June 30, 1996 has been derived from the
Financial Statements included elsewhere in this Prospectus and, with respect to
the pro forma balance sheet information, gives effect to the sale and issuance
of certain shares of Common Stock and the conversion and repayment of certain
debt and other obligations subsequent to June 30, 1996. See Notes 2, 5, 10 and
12 of Notes to Financial Statements. This information should be read in
conjunction with the Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Consolidated Statement of Operations Data Fiscal Year Ended June 30,
-----------------------------------------------
1994 1995 1996
-----------------------------------------------
(in thousands, except per share and share amounts)
<S> <C> <C> <C>
Revenues......................................... $ 8,486 $ 10,332 $ 12,146
Operating expenses:
Direct salaries and related expenses............ 3,321 3,557 4,587
Other direct expenses........................... 3,776 3,935 4,815
Selling, general and administrative expenses.... 1,963 2,622 3,286
Merger expenses.................................. -- -- 981
------- -------- --------
Operating income (loss).......................... (574) 218 (1,523)
Interest expense................................. (82) (132) (418)
Other net........................................ 8 77 146
------- -------- --------
Income (loss) before taxes on income............. (648) 163 (1,795)
Taxes on income.................................. 103 (234) (149)
------- -------- --------
Net loss......................................... $ (545) $ (71) $ (1,944)
======= ======== ========
Pro forma data (unaudited)/(1)/
Net loss........................................ $ ( 791)
Loss per common share........................... (.18)
Shares used in computing loss per
common share................................... 4,393,681
Supplemental loss per share..................... (.14)
Shares used in computing supplemental loss
per share...................................... 4,549,356
<CAPTION>
Consolidated Balance Sheet Data At June 30, 1996
---------------------------------------------------
Pro Forma
Actual Pro Forma/(2)/ As Adjusted/(3)/
---------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 430 $ 2,709 $ 15,452
Working capital.................................. 342 3,121 15,864
Total assets..................................... 4,778 7,003 19,528
Convertible promissory notes..................... 2,070 -- --
Note payable to related party.................... 788 500 500
Total shareholders' equity (deficit)............. (1,080) 4,003 16,528
</TABLE>
22
<PAGE>
- --------------------
/(1)/ Excludes the costs incurred by the Company in connection with its
acquisitions of the Subsidiaries and includes: (a) the impact of
employment agreements between the Company and certain key employees as if
such agreements had been in effect throughout fiscal 1996; and (b) the
effect of taxation of the Company and the Subsidiaries as if all of such
entities had been taxed as C corporations throughout fiscal 1996.
Supplemental pro forma net loss further excludes the effect of interest
expense on debt repaid with proceeds received from the Omnicom
Transaction. Shares used in computing supplemental pro forma loss per
share are increased to give effect to the assumed use of the net proceeds
of the Omnicom Transaction to repay debt rather than the assumed
repurchase of treasury stock.
/(2)/ Gives effect to the following transactions effected by the Company
subsequent to June 30, 1996: (a) the receipt of proceeds of $4,998,000
(excluding related expenses) pursuant to the Omnicom Transaction; (b) the
conversion of $27,000 in principal amount of the 10% Notes pursuant to the
terms of such notes into 325,000 shares of Common Stock; (c) the
conversion of $162,495 in principal amount of the 12% Notes pursuant to
the terms of such notes into 324,990 shares of Common Stock; (d) repayment
of the remaining $243,000 and $1,637,505 in principal amount respectively
outstanding under the 10% Notes and the 12% Notes; (e) repayment of
$288,000 of amounts due under a promissory note issued to a related party;
and (f) payment of $500,000 pursuant to the terms of a certain finder's
agreement upon termination thereof. See Notes 2, 5, 10 and 12 of Notes to
Financial Statements. See "Certain Transactions."
/(3)/ Gives effect to the sale of the 3,000,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $5.00 per share and
receipt of the net proceeds therefrom. Reflects the accrual at June
30, 1996 of $218,000 of expenses related to the Offering.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company was incorporated in the State of Delaware in January 1996 for
the purpose of creating a corporate structure to facilitate the combination and
integration of specialized businesses operating in the areas of advertising,
marketing, Internet and intranet services and data management. See "Recent
Developments -- The Reorganization." On June 30, 1996, the Company completed
the acquisition of all of the outstanding shares of common stock of the
Subsidiaries in exchange an aggregate of 1,084,750 shares of Common Stock. Each
of the acquisitions was accounted for using the pooling of interests method.
Accordingly, the results of operations for each of the Subsidiaries has been
included in the Company's Financial Statements since the earlier of July 1, 1993
or each Subsidiary's inception.
The Subsidiaries generate revenue from Internet and interactive media
services including Website development and hosting, corporate internal
communications solutions, database marketing, corporate identity and product
branding and packaging, on-line and off-line training systems, advertising and
media placement services, and interface solutions that provide high-speed access
via the Internet to off-line databases. Historically, revenues from these
services by the Subsidiaries have been derived on a project-by-project basis,
which tends to cause fluctuations in revenues between reporting periods. A
substantial portion of those revenues have been fixed fees for services to be
delivered. While the Company has recently entered into a number of contracts
for ongoing maintenance, content updates, server hosting and software licensing,
which will create recurring revenue streams for the life of their respective
contracts (typically 12 months), it is anticipated that project revenue will
continue to be a significant component of total revenues and therefore revenue
may continue to fluctuate significantly from quarter to quarter.
The Company generally provides Website design and development and
traditional marketing services under contracts that vary in duration from two to
four weeks in the case of smaller projects and up to five months in the case of
larger projects. In connection with Website design and development, the Company
typically enters into twelve-month arrangements providing for maintenance,
content updates of Websites and software licensing and hosting of a client
Website on the Company's servers. Revenues from contracted services are
generally recognized using the percentage of completion method based upon the
ratio of costs incurred to total estimated costs of the project. Revenues from
hosting, maintenance and updates are recognized as the services are provided.
Part of the Company's strategy to increase revenues is to attempt to
increase the percentage of revenue which is recurring and to increase the number
of services provided to a particular client. The Company intends to implement
this strategy by increasing its over-all marketing and cross-marketing efforts.
See "Business -- Business Strategy."
24
<PAGE>
Results of Operations
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Financial
Statements and notes thereto included elsewhere in this Prospectus.
Interim Operating Results. For the month ended July 31, 1996, the Company
had revenues of approximately $1,450,000 and net income of approximately $30,000
as compared to revenues of approximately $735,000 and a net loss of
approximately $200,000 for the month ended July 31, 1995. The increase in
revenues and net income is primarily attributed to an increase in the volume of
business at On Ramp, Mednick, and Creative Resources.
Revenues. The following table presents the Company's consolidated
revenues, by reference to the Subsidiaries, for the fiscal years ended June 30,
1994, 1995 and 1996. The individual and combined historical revenues of the
Subsidiaries are not necessarily indicative of the future revenues that may be
expected.
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1994 1995 1996
------------------ -------------------- ------------------
$ % $ % $ %
-------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mednick Group, Creative
Resources, Goodman Group................. $5,317 63% $ 5,881 57% $ 7,084 58%
On Ramp..................................... 7 -- 776 8 2,323 19
Internet One................................ 76 1 674 6 1,338 11
NetCube..................................... 3,086 36 3,001 29 1,401 12
------ ---- ------- ---- ------- ----
$8,486 100% $10,332 100% $12,146 100%
====== ==== ======= ==== ======= ====
</TABLE>
Revenues for Mednick Group, Creative Resources and Goodman Group,
consisting primarily of strategic marketing and corporate and brand positioning,
increased to $7,084,000 in fiscal 1996 from $5,881,000 in fiscal 1995 (20%) and
from $5,317,000 in fiscal 1994 (11%). The increase in revenues in fiscal 1996
resulted from sales to new clients of Mednick Group and Creative Resources
completing its first full year of operations. The increase in revenues in
fiscal 1995 resulted primarily from the completion of the first full year of
operations at Goodman Group and the start-up of operations at Creative
Resources.
Revenues for On Ramp and Internet One, consisting primarily of Internet and
intranet systems and services, on-line systems and implementation of tools and
training, increased to $3,661,000 in fiscal 1996 from $1,450,000 in fiscal 1995
(152%) and from $83,000 in fiscal 1994 (1,647%). The increase in revenues in
fiscal 1996 is primarily the result of increased corporate awareness and demand
for Internet access, infrastructure, security, and training, while the increase
in revenues in 1995 is primarily attributed to On Ramp and Internet One
completing their first full year of operations.
Revenues for NetCube, consisting primarily of data access consulting and
services, decreased to $1,401,000 in fiscal 1996 from $3,001,000 in fiscal 1995
(53%) and from $3,086,000 in fiscal 1994 (3%). The decrease in revenues in
fiscal 1996 was primarily the result of the strategic decision by the management
of NetCube to more fully develop its data base interface application and to de-
emphasize NetCube's historical
25
<PAGE>
focus of providing hourly consulting services. This shift in business focus
resulted in a significant reduction in revenues and higher development costs
without offsetting revenues.
Direct salaries and related expenses. Direct salaries and related expenses
consist of wages, payroll taxes and employee benefits. Direct salaries and
related expenses increased to $4,587,000 in fiscal 1996 from $3,557,000 in
fiscal 1995 (29%) and from $3,321,000 in fiscal 1994 (7%). The increase in
fiscal 1996 is primarily due to the hiring of additional personnel necessitated
by growth at Mednick Group, On Ramp and Internet One. The increase in fiscal
1995 is primarily attributed to an increase of $640,000 in salary expenses at
Internet One, On Ramp and Goodman Group which were all completing their first
full year of operation, offset in part by a decrease of $450,000 at NetCube due
to a reduction in performance bonuses.
Other direct expenses. Other direct expenses consist of contract labor,
materials and facility expenses associated with providing services to the
Subsidiaries' clients. Other direct expenses increased to $4,815,000 in fiscal
1996 from $3,935,000 in fiscal 1995 (22%) and from $3,776,000 in fiscal 1994
(4%). The increase in fiscal 1996 is primarily due to incremental costs incurred
by the Subsidiaries as a result of higher levels of operations. The increase in
1995 is comprised of increased direct expenses of approximately $660,000 at
Internet One, On Ramp, Creative Resources and Goodman Group associated with
those companies completing their first full year of operations, offset in part
by an approximate $500,000 reduction in production material and contract labor
expenses at Mednick Group and NetCube.
General and administrative expenses. General and administrative expenses
consist primarily of salaries and related payroll costs for financial and
administrative personnel, occupancy costs, consulting and professional fees,
general office expenses and bad debt expense. General and administrative
expenses increased to $3,286,000 in fiscal 1996 from $2,622,000 in fiscal 1995
(25%) and from $1,962,000 in fiscal 1994 (34%). The increase in fiscal 1996 is
due to increased occupancy expenses and administrative salaries as most of the
Subsidiaries expanded upon their corporate infrastructure to accommodate
operational growth and the increase in 1995 is primarily the reflection of
several of the Subsidiaries completing their first full year of operations.
Economies of scale, elimination of duplicate overhead and administrative
costs, and reduction in professional fees paid by the Subsidiaries for services
which will be performed in-house are expected to reduce future operating costs.
Offsetting these anticipated benefits are anticipated increases in personnel
costs due to increased administrative personnel and expenses to be incurred in
developing the Company's corporate infrastructure.
Merger Expenses. Merger expenses consist of the nonrecurring costs
incurred by the Company in completing the acquisitions of the Subsidiaries on
June 30, 1996, including a $500,000 finder's fee paid to an affiliate of the
Company. See "Certain Transactions -- Consulting and Finders' Agreements."
Interest Expense. Interest expense increased to $418,000 in fiscal 1996
from $132,000 in fiscal 1995 (216%) and from $83,000 in fiscal 1994 (59%). The
increase in fiscal 1996 was primarily due to expense associated with the
Company's convertible promissory note borrowings. The increase in 1995 was
primarily the result of increased related party borrowings made by NetCube to
finance its operations.
Income taxes. The Company had income tax expenses of $149,000 in fiscal
1996 and $234,000 in fiscal 1995 and the Company had an income tax benefit of
$103,000 in fiscal 1994. Given that certain of the Subsidiaries were not
subject to taxation (as such Subsidiaries had elected S corporation status under
26
<PAGE>
applicable provisions of the Internal Revenue Code of 1986, as amended, and
certain state statutes) and the remaining Subsidiaries were subject to income
taxes based on their respective discreet operations, the effective income tax
rate on a consolidated historical basis is not meaningful. The Company will
file consolidated tax returns in the future.
Liquidity and Capital Resources
Since their respective formations, the Subsidiaries have financed their
operations primarily through cash generated from operations, bank borrowings and
shareholder contributions and financings.
During 1996, the Company entered into a series of transactions in order to
fund the operations of the Subsidiaries and to prepare itself for the Offering.
The Company raised $270,000 through the issuance of three 10% Notes. Proceeds
obtained from the issuance have been used to cover costs related to the
Company's acquisitions of the Subsidiaries and the Offering. The Company raised
an additional $1,800,000 through a private placement of 12% Notes. Proceeds
received by the Company, after deducting placement agent fees and other
expenses, totaled $1,582,500. Of the funds received from the private placement,
$1,000,000 was loaned to On Ramp in order to complete a transaction in which On
Ramp redeemed outstanding shares of its common stock. The remaining funds
received from the private placement have been used to provide working capital
for On Ramp and Internet One. See "Certain Transactions -- Recent Financings."
In August 1996, the Company received proceeds of $4,998,000 through the
issuance of shares of Common Stock to Omnicom. See "Recent Developments --
Omnicom Transaction." Proceeds raised from the Omnicom Transaction were used by
the Company to retire the nonconvertible portion of the outstanding principal
and accrued interest under the 10% Notes and 12% Notes (aggregating $1,880,505),
to retire certain other debt and outstanding obligations, to fund the operations
of the Subsidiaries and to cover expenses and costs incurred in connection with
the acquisitions of the Subsidiaries and the Offering.
At June 30, 1996, the Company had cash and cash equivalents of
approximately $430,000 and working capital of approximately $342,000. Subsequent
to June 30, 1996, the Company effected the following transactions: (i) the sale
of 1,408,000 shares of Common Stock to Omnicom and the receipt of proceeds
therefrom of $4,998,000; (ii) the conversion of $27,000 in principal amount
under the 10% Notes and $162,000 in principal amount under the 12% Notes,
respectively, into 325,000 and 324,990 shares of Common Stock; (iii) the
repayment of the non-convertible portion of the 10% Notes and the 12% Notes,
aggregating $1,881,000 from the proceeds of the Omnicom Transaction; (iv) the
payment of a finder's fee in consideration for the termination of a certain
finder's agreement using proceeds from the Omnicom transaction; and (v) the
renegotiation of the terms of a note payable to a related party, providing for
liquidation of $288,000 of such debt using proceeds from the Omnicom Transaction
and extending the maturity of the remaining balance of $500,000 until March
1998. Upon completion of the foregoing transactions, the Company's cash and cash
equivalents and working capital positions on a pro forma basis at June 30, 1996
were $2,709,000 and $3,121,000, respectively.
The Company has entered into employment agreements ranging in term from one
year to three years (exclusive of extensions) with several of its executive
officers pursuant to which the Company is obligated to pay such individuals up
to an aggregate of $1,285,000 per year. See "Management--Executive
Compensation."
27
<PAGE>
The Company anticipates significant changes in its operating cost structure
once the Subsidiaries have been completely integrated, and administration and
control of the Company's future operations have been centralized. The Company
expects that the cash generated from future operations and from the Offering
will be sufficient to fund the anticipated expenditures required for product
development, organizational infrastructure (including additional personnel and
upgraded telecommunications and computer systems) and general corporate needs
for the next 12 months. See "Use of Proceeds."
There can be no assurance that the Company will not be required to seek
additional sources of financing within the foreseeable future. The failure to
raise the funds necessary to finance the Company's future cash requirements
would adversely affect the Company's ability to pursue its operational
strategies.
In the event of the release of the Escrow Shares, the Company will
recognize during the period in which the earnings thresholds are probable of
being met or such stock levels achieved, a substantial noncash charge to
earnings equal to the fair market value of such shares on the date of their
release, which would have the effect of significantly increasing the Company's
loss or reducing or eliminating earnings, if any, at such time. The recognition
of such compensation expense may have a depressive effect on the market price of
the Company's securities. Notwithstanding the foregoing discussion, there can be
no assurance that the Company will attain the targets which would enable the
Escrow Shares to be released from escrow.
Impact of New Accounting Pronouncements. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS No. 123")
issued by the Financial Accounting Standards Board ("FASB") is effective for
specific transactions entered into after December 15, 1995, while the disclosure
requirements are effective for financial statements for fiscal years beginning
after December 15, 1995. The new standards establish a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting in APB Opinion No.
25 must make pro forma disclosures of net income and earnings per share, as of
the fair value based method of accounting defined in the Statement had been
applied. Management believes that the Company will elect to make pro forma
disclosures as allowed by SFAS No. 123.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS No. 121), issued by the FASB is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment and certain
identifiable intangible assets and goodwill, should be recognized and how
impairment losses should be measured. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
28
<PAGE>
BUSINESS
Overview
The Company develops and provides a broad range of marketing and
communications solutions to corporate clients by combining traditional marketing
expertise with advanced Internet/intranet capabilities. In addition, the
Company has developed proprietary software applications that allow users to
easily access, analyze and utilize server and mainframe databases over the
Internet.
The Company's mission is to become the leader of integrated marketing
solutions by drawing upon its core strengths, which include: corporate brand
name marketing and positioning, sophisticated Internet and intranet content
development, and desk-top driven database management and software design.
The Company is a collection of seven diverse and experienced companies.
The following table summarizes the types of services provided by each
Subsidiary:
<TABLE>
<CAPTION>
Commencement
Subsidiary of Operations Predominant Type of Service Provided
- -------------------------- ------------- -----------------------------------
<S> <C> <C>
Mednick Group October 1982 Strategic Marketing and Corporate
and Brand Positioning
On Ramp February 1994 Internet and Intranet Systems and
Services
NetCube February 1978 Database and Information
Management and Utilization
Goodman Group July 1993 Strategic Marketing and Corporate
and Brand Positioning
Creative Resources November 1994 Strategic Marketing and Corporate
and Brand Positioning
Internet One November 1993 Secure On-Line Systems
Implementation and Internet Tools
Training
</TABLE>
The Company's current clients include Anheuser Busch Companies, Inc., Avon,
Bankers Trust, Berlitz International, Inc., Bloomingdale's, Busch Entertainment
Corporation, Chrysler Corporation, The Coca-Cola Company, Continental Airlines,
Inc., General Motors Corporation, Janus Funds, Liz Claiborne, Inc., Microsoft,
MITA, Moet, NEC USA, Inc., Pioneer Electronics (USA) Inc., Random House, Reebok
International, Ltd., Samsung Electronics of America, Inc., Sea World, Sega of
America, Inc., Sony, Sprint, Tambrands, Time Warner, The Toro Company, Turner
Entertainment Group and United Distillers.
In August 1996, the Company entered into a strategic relationship with
Omnicom. Omnicom is the third largest advertising company in the world. Pursuant
to the Omnicom Agreement, Omnicom purchased 1,408,000 shares of Common Stock for
the Company in exchange for payment to the Company of $4,998,000. Since June
1996, the Company and Omnicom have engaged in joint marketing of their services
to several Omnicom clients and the Company believes that the relationship could
provide access to a substantial additional client base and to additional
advertising agent support systems.
29
<PAGE>
The Industry
The recent proliferation of new technologies, particularly the Internet,
has changed the way companies market and distribute their products and services
and communicate with their vendors, suppliers, customers and employees. These
developments are creating the following trends:
Substantial Opportunities for Internet Marketing and Advertising. As the
Internet emerges as a global information network, corporations are struggling to
discover and develop the marketing, advertising and communication strategies
that will enable them to utilize this interactive network to their advantage.
The World Wide Web offers corporations the ability to market their products and
services, enhance their corporate identity and brand image to a worldwide
audience, distribute products or information targeted to groups or individuals,
and operate more efficiently and cost-effectively. These capabilities offer the
opportunity to enhance the relationship between marketer and consumer and
challenge the marketers to take full advantage of the capabilities offered by
the Internet.
Demand for More Marketing Information. In order to design effective and
targeted marketing campaigns, corporations desire information regarding
customers' characteristics, interests and behavior. The Internet provides a new
technical means to efficiently obtain this information from individual users and
react to it in real time. Further, Internet usage itself creates additional
marketing information about users. However, most companies lack the skill,
experience or technology to exploit the information gathering potential of the
Internet.
Businesses Are Searching For Ways To Maximize Their Interactive Investment.
Businesses are experiencing competitive pressure to draw more value from their
Internet presence. Internet presences are becoming more elaborate and
expensive, increasing the need for companies to be able to quantify the return
on investment and make rapid changes based on measured reaction. As the novelty
of simply having a Website diminishes, the competitive, solutions-driven
capabilities of the Internet become more critical.
Evolution of the Communications Infrastructure. Internet technology and
the World Wide Web have revolutionized on-line communications and data sharing.
Many companies have begun to adopt Internet technology for their corporate
intranets. An intranet is a private data communications network that utilizes
Internet technology to provide improved communications, reduced deployment and
maintenance costs, and increased ability to access corporate data, within a
secure environment. Key elements in successful corporate intranet
implementations include the creation of a user friendly interface and the
integration of this interface into the existing information infrastructure.
Effective user interfaces encompass Internet-style point-and click graphics,
audio and video, page scrolling and bookmarking.
The Company's Services and Products
The Company combines technological expertise in Internet and interactive
communications with extensive traditional marketing experience to provide
integrated solutions to leading corporate accounts. The Company's solutions
incorporate brand and corporate strategy and positioning, Website development,
maintenance, updating and hosting, corporate intranet solutions, sophisticated
content development capabilities, data access and profile-driven response
technologies, on-line and off-line training systems, and advertising and media
placement services. The Company has developed several proprietary software
applications (including NetCube, ASAP, Comparabase, VINNI and PenPals) that it
utilizes in delivering marketing solutions to its clients. The Company focuses
on assisting its clients in the following areas:
30
<PAGE>
Position and Brand Products and Services. The Company utilizes its
experience in traditional advertising and marketing, as well as its
understanding of the capabilities of different and emerging media, to position
clients and market their products. The Company provides a range of services,
including brand positioning, developing corporate identity and print, television
and packaging design.
Market Client Products and Services Using Internet Technology. The Company
combines traditional and interactive media approaches advertising and marketing
to position its clients and market their products and services on the Internet.
This includes the development of Websites that incorporate the latest in
Internet technology. For example, at the NEC Website a visitor can request a
database-driven catalogue to compare a number of NEC products and generate
customized Webpages displaying a comparative presentation of those NEC products
in which that visitor has an interest (http://www.nec.com). The Company's
"smart Websites" track and analyze a visitor's travels through a Website and
make suggestions regarding additional links or Websites that may be of interest
to the user in real time (http://www.hitsathome.com/idsst). The Company's
intelligent interfaces allow users to customize a personalized interface with
links to the user's favorite Websites. The Company's user-directed interactive
technology results in Internet experiences which are unique for each user, based
on the user's indicated preferences, characteristics or past behavior
(http://www.4adventure.com). The skillful application of these technologies
enable a business to market directly with the consumer, improving the
effectiveness of the marketing message.
Identify and Develop New Lines Of Distribution. The Company is working
with its clients to develop new channels of distribution utilizing the Internet.
For example, Avon sought to utilize a marketing channel not currently addressed
by its traditional distribution system. The Company is assisting Avon in
establishing a Website from which it will market directly to customers over the
Internet and allow Avon representatives to receive product information and
communicate internally. The Website (http://www.avon.com) is expected to be
introduced in September 1996. The Company is also creating a Website that will
enable Bloomingdale's to sell a variety of merchandise on-line, allowing it to
extend its distribution beyond its current retail store and catalog presence
(http://www.bloomingdales.com).
Communicate and Operate More Effectively Internally. The Company's user-
friendly interfaces and Internet tools, combined with training software and
methodology, enable it to develop and deploy sophisticated intranet solutions
for its clients. For example, the Company developed a password-protected
intranet to allow Anheuser Busch to deliver proprietary marketing information to
its distributors. This intranet allows Anheuser Busch, among other things, to
distribute information and engage in communication with its distributors quickly
and provides a means for distributors to order marketing materials easily
through a secure medium.
Access Data More Efficiently. The Company's proprietary technologies allow
users of both the World Wide Web and corporate intranets to easily access,
analyze and utilize data on-line. The Company's software components include
NetCube, ASAP and Comparabase. NetCube is a database interface application that
enables highly flexible viewing, analysis and reporting of information generated
from multiple databases. ASAP, the Advanced Statistical Analysis Program, is a
software application that provides proprietary statistical analysis to the
sponsor of a Website regarding the number and nature of the visits to that
Website. Comparabase is a searchable comparative on-line database that enables
consumers to select products from a sizeable on-line catalogue and compare them
to similar products by feature. These proprietary tools allow the Company to:
(i) craft on-line marketing solutions that are responsive to user needs,
allowing the user to more easily access, compile and analyze data; and (ii)
provide necessary tools to allow the Website sponsor to assess the effectiveness
of its marketing solutions.
31
<PAGE>
Business Strategy
The Company continues to leverage its core strengths in order to further
enhance its ability to provide high-quality, innovative marketing and
communications solutions, both in traditional media and interactive media, with
a special focus on the Internet and intranet applications. The Company's
strategies include the following key elements:
Market and Cross-Market Services. In fiscal 1996, the Company provided
services to over 100 companies. See "Business -- Customers" below. Many of
these companies are leaders in their respective industries. The entry level of
the Company into a business is typically at a senior management level, enabling
the Company to position itself for future assignments as its client's needs
expand. The Company leverages these client relationships in a number of ways.
First, the Company often sells expanded or updated solutions or new services to
its existing clients. Second, clients of one of the Subsidiaries are often
offered solutions or services by another Subsidiary. For example, the Rockport
Company, historically a client of Mednick Group for traditional marketing
services, was introduced to the Internet capabilities of On Ramp, resulting in
the creation of both Internet (http://www.rockport.com) and intranet solutions
for Rockport. Third, the Company uses experience gained working for existing
clients, or leads or endorsements furnished by an existing client, to secure new
client engagements.
Apply the Company's Experience in Internet and Data Management Technologies
to Provide Clients Interactive Functionality. The Company differentiates its
solutions by providing technological expertise in Website creation and Internet
tools and database access and analytical technologies. In addition, the Company
draws upon its proprietary software components to enhance the effectiveness of
its integrated solutions. The Company applies this technology in order to
create an Internet presence for clients who previously did not have a Website,
to create enhanced Websites for clients with first-generation Websites, and to
add, extend and enhance functionality to client Websites by incorporating
technologies such as data management, intuitive interface, intelligent agents or
transaction security. Recently, the Company has been applying its on-line
communications skills and Internet technology expertise to build communications
solutions for corporate intranets.
Create Recurring Revenue Sources. The Company is attempting to increase
the percentage of revenue that is recurring, thereby reducing its dependence on
project by project fees. The Company derives recurring revenue in a number of
ways: (i) updating client Websites to add new content or functionality,
maintaining client Websites to optimize performance, hosting client Websites on
the Company's servers and providing clients with periodic analytical reports on
use of their Websites; (ii) licensing its proprietary software applications to
its clients; and (iii) selling advertising space, sponsorships and "hot links"
on its proprietary content Websites (http://www.metaverse.com,
http://www.alterworld.com) and infotainment events (such as the 37th Annual
Grammy Awards).
Develop Solutions which Incorporate the Latest Technologies. The Company
maintains its technological leadership by continuously evaluating and adopting
the latest Internet tools, data management and profile-based customization
technologies, in order to create more effective solutions. For example, the
Company works with leading technology providers to evaluate pre-release versions
of new Internet tools (such as Microsoft's Active X, Real Audio's Streaming
Audio and MacroMedia's Shockwave, Sun Microsystem's Java). Such opportunities
allow the Company to comment on "beta" or pre-release versions of software
allowing it the opportunity to potentially influence the ultimate product, and
to develop an early expertise in the use of such software. Moreover, the
acquisition of NetCube provides the Company with database access
32
<PAGE>
and analysis expertise and proprietary tools not available to traditional
marketing and communications firms.
Continue to Develop Compelling Content. The Company creates content for
use in: (i) client Websites; (ii) Company sponsored Websites; and (iii) Company
sponsored promotions and events. The Company's Websites provide "Infotainment,"
a combination of information and entertainment on the Internet
(http://www.metaverse.com, http://www.alterworld.com, http://melroseplace.com).
For example, Metaverse.com features, among other things, film, music, politics,
World Wide Web-related information, photography exhibits and receives millions
of "hits" each month. The Company has hosted a number of cybercasts (live
broadcasts of media events over the Internet) of an entertainment or marketing
events (http://www.metaverse.com/cyber). Entertainment cybercasts have included
the 37/th/ Annual Grammy Awards, the Mike Tyson Comeback Fight and the NFL
Draft. Corporate Cybercasts have included the Reebok Supershow and Anheuser
Busch Distributor Convention. Think's Websites and Cybercasts attract measurable
traffic, serve as a testing grounds for new content and presentation techniques,
attract and build visitor bases and help direct those visitors to clients'
Websites and enhance the Company's visibility. Client Websites, such as
Continental Airlines, Reebok, NEC and Anheuser Busch, feature content created
and maintained each month by Company. See "Case Studies."
Customers
The following is a list of customers of the Company that represented
$50,000 or more in revenues to the Company during the fiscal year ended June 30,
1996.
33
<PAGE>
<TABLE>
<S> <C> <C>
Consumer Goods Entertainment Technology
- -------------- ------------- ----------
Anheuser Busch Berkeley Systems Hewlett Packard
Avon Broadcast Music, Inc. (BMI) I-Link
Berlitz Crystal Dynamics AT&T
Bloomingdale's Disney Art Classics Sprint
Book of the Month Club Interplay Microsoft
Busch Entertainment Knowledge Adventure Mita
Coca-Cola Company MSNBC Motorola
Liz Claiborne NBA Properties NEC
Reebok Request Television Pioneer
Rockport Sega Samsung
Tambrands Sony Toshiba
TBS Superstation Western Digital
Turner New Media
Travel & Transportation
- ----------------------- Business to Business
Continental Airlines Financial --------------------
Chrysler Motors --------- Hearst
Fodors ING Barings RL Polk
Ford Motors Janus Funds Turner Network Sales
Bankers Trust W. R. Grace
Walsh America
Wentworth
</TABLE>
In the fiscal year ended June 30, 1996, Pioneer Electronics of America,
Inc. accounted for 15% of the Company's revenue. No other customer accounted
for more than 10% of the Company's revenue.
Case Studies
Reebok. The Company provides a broad range of marketing, branding and
corporate positioning services to Reebok International, Ltd. This relationship
began in March 1991 when the Company was retained to launch the Step Reebok
program, the first branded bench aerobic system. The client sought a complete,
integrated marketing program targeting retailers, health clubs and consumers,
for which the Company developed a multi-staged marketing solution, which
included: brand identity, advertising and a fitness home video. For his efforts
on behalf of Reebok Classics Shoes in 1992, the Company's Chief Executive
Officer, Scott A. Mednick, was named "Print Art Director of the Year for the
Western Region" by Adweek Magazine.
Upon the advent of the World Wide Web, the Company was retained to help
Reebok brand and position its new corporate campaign, "Planet Reebok", on-line.
The Company responded by designing and implementing PlanetReebok.com, one of the
first commercial Websites on the Internet.
In order to help maintain a high level of traffic and recognition for
PlanetReebok.com, the Company has provided live cybercasts for Reebok, has
hosted live "chats" with various Reebok-sponsored athletes and has developed
other content and marketing solutions. When the Company's ASAP Statistical
Analysis Program indicated that traffic to the Website was decreasing, the
Company redesigned and relaunched the
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<PAGE>
site, resulting in increased traffic and new interest. The Company has gone on
to expand the marketing of Reebok's message and products on the Internet,
including daily live updates from the 1996 Summer Olympics. The client
relationship has resulted in Reebok's presence on the Company's Metaverse.com
Website and the hosting of the PlanetReebok Website on the Company's Internet
servers.
Anheuser Busch. When Anheuser Busch Companies, Inc. ("Anheuser Busch")
chose the Company to develop a complete Internet entertainment presence, the
result was the Budweiser.com Website, (http://www.budweiser.com) a full featured
interactive entertainment Website introduced in November 1995. Budweiser.com has
been voted the number one corporate Website on the Internet by Interactive Week
Magazine. The Company's mission was to make the site more than just a
"billboard" on the Internet. The Website marked the introduction of the
Company's proprietary 3-D Browser interface, VINNI, which has been licensed
exclusively to Anheuser Busch on a month-to-month basis as part of its debut on-
line marketing campaign. The Company has supported the Budweiser.com Website
with custom-developed promotional efforts, including: a "Bud Bowl'96,"
sweepstakes conceived and managed by the Company; a live Cybercast from
Budweiser's national convention in New Orleans, Louisiana in 1996; and the "Net
the Gold" promotion, supporting Budweiser's sponsorship of the 1996 Olympics.
The client relationship has resulted in Budweiser's presence on the Company's
Metaverse.com Website, the hosting of the Anheuser Busch Website on the
Company's Internet servers and a contract to update the Anheuser Busch Website,
each of which represents a continuing source of recurring revenue. The Company
has recently developed a password-protected intranet solution enabling
distributors, resellers and corporate employees to access information regarding
a new corporate positioning campaign.
Based upon its work for Budweiser, the Company was also selected to
develop, maintain and host the http://www.4adventure.com Website for Sea World,
Busch Gardens and other theme parks owned by the Busch Entertainment
Corporation. This Website prompts a user to input words describing the users'
dream vacation, and responds by generating a Webpage that is constructed on the
basis of such input. In addition, the Website allows the user to create a
customized vacation based on the user's references and allows the user to book
vacation reservations on-line.
Continental Airlines. In order to provide a foundation to attract traffic
and eventually offer on-line ticket sales, the Company recently created a
Website and on-line campaign for Continental Airlines, Inc. ("Continental").
The Continental Airlines Website (http://www.flycontinental.com) includes a
custom navigation interface created by the Company in conjunction with
Continental, Electronic Data Systems, Inc. and Official Airline Guides, which
enables visitors to review schedules on-line. The Company is currently engaged
in the design of a custom interface to permit booking and receipt of airline
ticketing.
NEC. NEC USA, Inc. ("NEC") requested that the Company design and implement
an interactive Internet/intranet solution that incorporated three separate
divisions (each with a distinct look, feel and product category) into a single
on-line environment. The Company responded by creating http://www.nec.com,
featuring two on-line interactive databases, NEC Search and Comparabase. Each
of NEC Search and Comparabase were created by the Company and are licensed to
NEC USA, Inc, along with a complete toolset that enables NEC administrative
staff to update the databases without any specific Internet expertise. The
Website includes an on-line customer support section developed by the Company.
The client relationship has resulted in NEC's presence on the Company's
Metaverse.com Website, software licensing and a contract to update and provide
content for the NEC Website, as well as designing and cybercasting the
interactive portion of NEC's recent appearance at the Networld Interop
conference in Las Vegas.
35
<PAGE>
Sega. The Company began working with Sega of America, Inc. ("Sega") in
April 1991 to provide traditional marketing solutions for its hardware and
software products. The Company's initial assignments were to develop packaging
for the Game Gear portable game machine and the Menacer bazooka accessory to
Sega's primary game console, the Genesis. In the course of its relationship
with Sega, the Company has designed packaging for more than fifty individual
game titles, as well as themes, graphics and trade advertising promotion for
Sega's participation in the Consumer Electronics Show. In addition, the Company
developed the logo, hardware and peripheral packaging, point-of-sale, print
advertising and miscellaneous collateral materials utilized in the launch of
Sega Saturn, a new 32-bit gaming platform, in May 1995.
Janus. Janus Funds is one of the largest mutual fund companies in the
United States, managing over $32 billion in assets for its clients. Janus
selected the Company to develop and deploy a dynamically driven Web presence
which enables Janus customers to enter password protected areas, check out their
funds and portfolio information and monitor the net asset value of their
portfolios. The Website features database interface and full session based
tracking. In addition, the Company created two custom applications: a Java
navigational aid and JAB (the Janus Asset Builder), a Java-based calculation
applet.
Relationship with Omnicom
In August 1996, the Company entered into a strategic relationship with
Omnicom, the third largest advertising company in the world. Pursuant to the
terms of the Omnicom Agreement: (i) Omnicom purchased 1,408,000 shares of
Common Stock from the Company in exchange for $4,998,000; (ii) the Company
appointed Barry Wagner to represent Omnicom on the Company's Board of Directors;
(iii) Omnicom agreed not to increase its ownership interest in the Company
absent the approval of the Board of Directors; and (iv) Omnicom granted the
Company a right of first refusal to purchase the shares of Common Stock owned by
Omnicom.
The Company entered into the Omnicom Transaction to establish a strategic
relationship that could provide access to a substantial additional client base
and to additional advertising agent support systems, although there can be no
assurance that these results will occur. Since June 30, 1996, Omnicom and the
Company have engaged in the joint marketing of their services to several Omnicom
clients. There can be no assurance that such joint marketing will continue, nor
can there be any assurance with respect to the effect of such marketing on the
Company's operations.
Competition
The market for the Company's services is highly competitive and is
characterized by pressures to incorporate new capabilities and accelerate job
completion schedules. The Company faces competition from a number of sources.
These sources include national and regional new media marketing companies and
national and local advertising agencies, many of which have started to develop
or acquire interactive media capabilities. New boutiques that either provide
integrated or specialized services (e.g., corporate identity and packaging,
advertising services or Website design) and are technologically proficient, have
emerged and are competing with the Company. Many of the Company's competitors
or potential competitors have longer operating histories, longer client
relationships and significantly greater financial, management, technology,
development, sales, marketing and other resources than the Company. The
Company's ability to maintain its existing clients and generate new clients
depends to a significant degree on the quality of its services and its
reputation among its clients and potential clients, as compared with the quality
of services provided by and the reputations of the Company's competitors. In
the event that the Company loses clients to competitors
36
<PAGE>
because of dissatisfaction with the services performed or provided by the
Company, or the reputation of the Company is otherwise adversely impacted, the
business, financial condition and operating results of the Company could be
materially adversely affected.
There are relatively low barriers to entry into the Company's business.
The Company expects that it will face additional competition from new entrants
into the market in the future. There can be no assurance that existing or
future competitors will not develop or offer marketing communication services
and products that provide significant performance, price, creative,
technological or other advantages over those offered by the Company, which could
have a material adverse effect on the business, financial condition and
operating results of the Company.
The Company believes that the principal competitive factors in the market
for new media marketing services are creative content, quality of service,
breadth of services offered, technological and new media sophistication,
perceived value, responsiveness to clients' needs and timeliness in delivering
solutions. The Company believes that it generally competes favorably with
respect to each of these factors.
Server Hosting and Internet Connectivity
The Company currently operates servers and maintains Internet connectivity
from its offices in New York and Colorado. In New York, the Company's
connectivity is via redundant DS-3 100 MB\sec lines with connectivity to the MAE
East, MAE West and SWIPE, with all associated peering. Backup is available via
multiple redundant T-1 lines. The Company's serving in New York is accomplished
via symmetrical multiprocessing, multi-threaded Windows NT servers and Sun
Ultra 170E servers with uninterrupted power supply backup distributed primarily
through Cisco routers. In Colorado, the Company's connectivity is via T-1
lines. Servers in the Colorado facility consist of multiple Sun Ultra 170E with
uninterrupted power supply backup distributed primarily through Cisco routers.
Both facilities feature level 0 backup with off-site storage.
The Company intends to expand its server and connectivity infrastructure in
the future by adding servers and dedicated high bandwidth connectivity at each
of its other major offices. The Company believes that updating and expanding
its technically advanced network is important to maintaining its leadership
position. The Company intends to continue to invest in maintaining and
expanding its server and connectivity infrastructure.
Properties
The Company's executive and administrative offices are located in New York,
New York. The Company also maintains offices in Culver City, California;
Boulder, Colorado; Atlanta, Georgia; and Edgewater, New Jersey.
The New York facilities consist of approximately 8,700 square feet of space
located in an office building in midtown Manhattan (the "Midtown Space") and
approximately 600 square feet of space located in downtown Manhattan (the
"Downtown Space"). The Midtown Space is currently leased by the Company on a
month-to-month basis for approximately $6,600. The Downtown Space is currently
leased on a month-to-month basis for approximately $2,700. The Company intends
to consolidate its New York facilities into one space consisting of
approximately 10,000 square feet in midtown Manhattan and is currently
negotiating the terms of the lease therefor.
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<PAGE>
The California facility consists of approximately 11,000 square feet of
space located in a converted warehouse. Such space is currently leased by the
Company on a month-to-month basis for approximately $15,000 per month.
The Company's offices in Colorado, Georgia and New Jersey range in space
from 2500 square feet to 9,000 square feet. Each of these facilities is leased
with monthly rents ranging from $750 to $10,000.
The Company believes that its existing facilities are adequate to meet its
current operating needs and that suitable additional space will be available to
the Company on favorable terms should the Company require additional space to
accommodate future operations or expansion. Further, in the event that any one
of the foregoing leases was not renewed, the Company believes that it would be
able to obtain suitable alternative space on terms comparable to those currently
afforded to the Company.
Employees
At September 15, 1996, the Company employed 98 full-time employees,
including 12 persons in management, 17 creative directors, 35 production
personnel, 15 administrative persons, 10 marketing representatives and 9
technical professionals. The Company is not a party to any collective
bargaining agreement and the Company's employees are not represented by any
labor union. The Company considers its relationship with its employees to be
good. The Company's success depends in large part upon its ability to attract,
develop, motivate and retain highly skilled creative and technical employees, of
which there can be no assurance.
Legal Proceedings
The Company is not a party to any litigation that is expected to have a
material adverse effect on the Company's financial condition or results of
operations.
38
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ------------------------ --- ----------------------------------------------------
<S> <C> <C>
Scott Mednick........... 40 Chief Executive Officer and Chairman of the Board
Ronald Bloom............ 44 President, Chief Operating Officer and Director
Melvin Epstein.......... 50 Chief Financial Officer and Secretary
Adam Curry.............. 31 Chief Technology Officer and Director
David Hieb.............. 31 Vice President
James Grannan........... 33 Vice President
Susan Goodman........... 41 Vice President
James Carlisle.......... 49 Vice President
Frank DeLape............ 42 Director
Angel Martinez.......... 40 Director
Michael Ribero.......... 40 Director
Barry Wagner............ 56 Director
</TABLE>
Scott Mednick has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its inception in January 1996. Mr.
Mednick founded Scott A. Mednick & Associates, Inc. (known as "The Mednick
Group"), one of the Subsidiaries, primarily engaged in the provision of
strategic marketing and corporate and brand positioning, in 1985. Mr. Mednick
is the President and Creative Director of The Mednick Group. Prior to starting
The Mednick Group, Mr. Mednick was employed by Boyd Communications in Los
Angeles, California, most recently as Creative Director from 1982 to 1985. Mr.
Mednick holds a B.A. Degree from the Rhode Island School of Design.
Ronald Bloom has been a Director and the President and Chief Operating
Officer of the Company since June 1996. Previously, Mr. Bloom was Chief
Operating Officer and General Manager of On Ramp, one of the Subsidiaries,
primarily engaged in the provision of Internet and intranet systems and
services, from 1995 to 1996, and presently serves as its Vice President and
Secretary. Prior to joining On Ramp, Mr. Bloom founded and served as President
of MediaTime Advertising and Communications, Chicago, Illinois from 1979 to
1981; President of Prototype Computer Aided Design from 1980 to 1983; Vice
President and Creative Director of Jeffrey Nemetz and Associates Advertising,
Chicago, Illinois from 1983 to 1985; President of TMF Communications, Los
Angeles, California from 1986 to 1989; President of Ron Bloom Productions, a
production company and consulting firm founded by Mr. Bloom from 1989 to 1994.
Mr. Bloom holds a B.A. in Philosophy and a minor in Business Administration from
Georgia State University.
Melvin Epstein has been the Chief Financial Officer of the Company since
August 1996. From 1994 to August 1996, Mr. Epstein was Managing Director of TN
Services, a unit of True North Communications,
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<PAGE>
an advertising agency. Prior to joining TN Services, Mr. Epstein was the Chief
Financial Officer of Backer Spielvogel Bates, a subsidiary of Saatchi & Saatchi,
P.L.C., from 1987 to 1994. Mr. Epstein holds a B.S. in Accounting from Queen's
College.
Adam Curry has been a Director and the Chief Technical Officer of the
Company since June 1996. Mr. Curry founded and has been Chairman of the Board of
Directors of On Ramp since 1994 and its President since March 1996. Mr. Curry
hosted and produced the nationally broadcast radio program "CountDown" from 1983
to 1987. From 1987 to 1992, Mr. Curry served as an On-Air Personality for MTV
Networks in New York.
David Hieb has been Vice President of the Company since June 1996. Mr.
Hieb founded Internet One, one of the Subsidiaries, primarily engaged in the
provision of secure on-line systems and Internet tools training, in October of
1993. From July 1991 through September 1993, Mr. Hieb was Senior Engineer for
the Root Group, Inc. a UNIX and TCP/IP networking firm. From January 1990
through July 1991, Mr. Hieb was a Systems Engineer for the Computer Science
Department at the University of Colorado at Boulder. Mr. Hieb holds a B.S. in
Electrical and Computer Engineering from the University of Colorado at Boulder.
James Grannan has been Vice President of the Company since June 1996. Mr.
Grannan founded Creative Resources, one of the Subsidiaries, primarily engaged
in the provision of strategic marketing and corporate and brand positioning
services, in 1994. Mr. Grannan was Creative Manager for the Coca-Cola Company
from 1992 to 1994 and Promotional Packaging and Design Manager for the Coca-Cola
Company from 1988 to 1992. Prior to joining Coca-Cola, Mr. Grannan worked with
Adair-Greene, an advertising agency in Atlanta, Georgia from 1987 to 1988. Mr.
Grannan holds a B.A. Degree in Advertising Design from the Atlanta College of
Art.
Susan Goodman has been Vice President of the Company since June 1996. Ms.
Goodman founded the Goodman Group, one of the Subsidiaries, primarily engaged in
the provision of strategic marketing and corporate and brand positioning
services, in 1993 as a strategic marketing consultancy, specializing in direct
marketing and new media. Previously she was Director of Client Services at
Chiat/Day Direct Marketing from February 1992 through July 1992. She spent 10
years in merchandising in the apparel industry with companies such as IZOD and
Merona Sport (division of Oxford Industries). Ms. Goodman serves on the
Operating Committee of the Direct Marketing Association's Business to Business
Council. Ms. Goodman has a B.A. in history from Tufts University and received
her M.B.A. in Marketing, Finance and Strategic Planning from Northwestern
University's Kellogg School of Management.
James Carlisle has been Vice President of the Company since June 1996. Dr.
Carlisle founded NetCube Corporation, one of the Subsidiaries, primarily engaged
in the provision of database and information management and utilization
services, in 1978. Prior to that, Dr. Carlisle was co-founder, Vice President
and Chief Technical Officer of Office Systems Planning Corporation from 1975 to
1977. He was a Research Scientist at the Information Sciences Institute, the
first software development center funded by the Defense Advanced Research
Project Agency (DARPA), supporting the Advanced Research Project Agency (ARPA)-
Net from 1974 to 1977. Dr. Carlisle served simultaneously as an Associate
Professor on the faculty of the University of Southern California, Annenberg
School of Communications, where he co-founded the first doctoral program to
focus on Human Interaction with Computers, Teleconferencing, and Internet-
related technologies. Dr. Carlisle has been a research scientist at the Wharton
School from 1976 to 1977, a consultant at the RAND Corporation in 1970, and a
consultant for Lexis Corp. from 1969 to 1970. He
40
<PAGE>
received his Ph.D. and M.Phil. from Yale University's School of Organization and
Management and a B.S. in Engineering with Honors from Princeton University.
Frank DeLape became a Director of the Company when it was formed in January
1996. Mr. DeLape has served as President, Secretary, Treasurer and a director of
Oak Tree Capital, Inc., financial consulting firm, since its formation in
January 1996 and of Benchmark Equity Group, Inc., a financial consulting firm,
since its formation in April 1994. Oak Tree Capital, Inc. is the manager and a
member of Trident II, L.L.C., a stockholder of the Company. Mr. DeLape served as
President, Chief Executive Officer and Director of AquaNatural Company, a
provider of water purification, dispensing and marketing program, from its
inception in February 1992 until March 1994. Mr. DeLape served as President,
Chief Executive Officer and a director of Critical Industries, Inc. from 1990 to
1992.
Angel Martinez has been a Director of the Company since September 1996.
Since July 1994, Mr. Martinez has served as President and Chief Executive
Officer of the Rockport Company, Inc. a shoe manufacturer. Prior to joining
Rockport Company, Inc., Mr. Martinez served as Executive Vice President for
Global Marketing at Reebok International, Ltd. from February 1994 until July
1994. Mr. Martinez was President of the Fitness Division of Reebok
International, Ltd. from September 1992 to January 1994, prior to which, he
served as Vice President for Business Development. Mr. Martinez is also a
member of the Board of Advisors for the Reebok Human Rights Awards. Mr.
Martinez holds a B.A. from the University of California at Davis.
Michael Ribero has been a Director of the Company since September 1996.
Since September 1995, Mr. Ribero has served as Executive Vice President and
General Manager of Sega of America. Prior to joining Sega of America, Mr.
Ribero was Executive Vice President, Marketing and Strategic Planning of Hilton
Hotels Corporation from October 1994 to February 1995, the Senior Vice
President, Marketing and Strategic Planning from January to September 1994, and
the Senior Vice President, Marketing from June 1988 to December 1993. Mr.
Ribero holds a B.S. in Operations Research and Industrial Engineering from the
University of Florida.
Barry Wagner has been a Director of the Company since September 1996. Mr.
Wagner has been an employee of Omnicom since 1974, and currently serves as
Secretary and General Counsel of Omnicom. Mr. Wagner also serves as Secretary
and Chief Legal Officer of BBDO Worldwide Inc. and is Senior Vice President and
Chief Legal Officer of BBDO New York, both of which are part of Omnicom. Prior
to joining Omnicom, Mr. Wagner was an attorney with the National Broadcasting
Company and the Federal Reserve Board of New York. Mr. Wagner is a graduate of
Hamilton College and Harvard Law School.
All officers of the Company are elected to serve in such capacities until
the next annual meeting of the Board of Directors of the Company and until their
successors are duly elected and qualified.
Board Committees
Audit Committee. The Company's audit committee (the "Audit Committee") is
responsible for making recommendations to the Board of Directors concerning the
selection and engagement of the Company's independent certified public
accountants and for reviewing the scope of the annual audit, audit fees, and
results of the audit. The Audit Committee also reviews and discusses with
management and the Board of Directors such matters as accounting policies and
internal accounting controls, and procedures for preparation of financial
statements. Michael Ribero and Barry Wagner are members of the Audit Committee.
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<PAGE>
Compensation Committee. The Company's compensation committee (the
"Compensation Committee") approves the compensation for executive employees of
the Company. The Compensation Committee reviews and recommends to the Board of
Directors the compensation and benefits of all officers of the Company, reviews
general policy matters relating to compensation and benefits of employees of the
Company and administers the Company's 1996 Stock Option Plan. Michael Ribero
and Angel Martinez are members of the Compensation Committee.
Executive Compensation
The following table sets forth the compensation received by the Company's
Chief Executive Officer and four most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during the year ended June
30, 1996 ("Named Officers").
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------
Name and Other Annual All Other
Principal Position Salary Bonus Compensation($) Compensation($)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scott Mednick.............. $225,000 $ 11,376 $20,000 --
Chief Executive Officer
Ronald Bloom............... $106,250 $ 58,234 -- --
President
Adam Curry................. $125,000 2,684 -- --
Chief Technology Officer
Susan Goodman.............. $138,000 --- -- $130,000(1)
Vice President
James Carlisle............. $159,500 -- -- $ 7,200
Vice President
- -----------------------
</TABLE>
(1) Represents distributions to the noted executive as the former sole
stockholder of Goodman Group, previously a Subchapter S corporation.
Employment Agreements
The Company has entered into an employment agreement with each of Scott
Mednick, Ronald Bloom, Adam Curry and James Carlisle, each of which provides for
an initial term of three years, subject to automatic extension for a period of
two years in the absence of notice to the contrary at the option of the Company.
Pursuant to the respective terms of such agreements, Mr. Mednick is entitled to
receive an annual salary of $225,000 and each of Messrs. Bloom, Curry and
Carlisle is entitled to receive an annual salary of $195,000. Each of Messrs.
Mednick, Bloom, Curry and Carlisle is entitled to receive a bonus as determined
by the Board of Directors.
The Company has also entered into an employment agreement with each of
David Hieb and James Grannan, each of which provides for an initial term of one
year, subject to renewal for a period of one year at the discretion of the
Company. Pursuant to the terms of such agreements, each of Messrs. Hieb and
Grannan is entitled to receive an annual salary of $125,000 and bonuses as
determined by the Board of Directors.
The Company has also entered into an employment agreement with Susan
Goodman which provides for an initial term of three years. Pursuant to the
terms of the employment agreement, Ms. Goodman is entitled to receive an annual
salary of $195,000, a bonus of $30,000 within six months of execution of such
agreement and bonuses thereafter as determined by the Board of Directors.
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All of the foregoing employment agreements provide for termination by the
Company upon death or disability of the individual and may be terminated with
or without cause (as defined therein). Such agreements also provide for
severance payments upon termination without cause based upon a multiple of the
monthly salaries provided for therein (for up to 12 months following the number
of months otherwise remaining under such agreements). In addition, all of
the foregoing employment agreements contain non-competition and confidentiality
provisions that extend beyond the respective terms of such agreements for
periods of up to one year.
Director Compensation
Employee directors receive no compensation for acting as directors or
attending meetings of directors. Non-employee directors receive $1,000 per year
for each year such director serves on the Board of Directors, $2,500 per meeting
attended. In addition, all directors are eligible to receive options under the
Company's, Stock Option Plan. See "Management--Stock Option Plan." All
directors are entitled to reimbursement of reasonable expenses related to
attending meetings of the directors. Frank DeLape, a director of the Company,
is a principal and director of Benchmark, which received a $500,000
finder's fee and receives consulting fees of $7,000 per month from the Company.
See "Certain Transactions -- Consulting and Finder's Agreements."
Stock Option Plan
In July 1996, the Board of Directors adopted and the Company's stockholders
approved the 1996 Stock Option Plan (the "Stock Option Plan"). The Stock Option
Plan provides for the grant of options which qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as
amended, to officers and employees of the Company and options which do not so
qualify ("Non-Qualified Options") to officers, directors, employees and
consultants of the Company (including the Subsidiaries). A total of 1,800,000
shares of Common Stock is reserved for issuance under the Stock Option Plan
(which number is subject to adjustment in the event of the Company's declaration
of stock dividends, stock splits, reclassifications and the occurrence of other
similar events). Options to purchase 1,245,000 shares of Common Stock at an
exercise price per share of $5.00 were granted by the Company in September 1996.
No options were granted prior to June 30, 1996. The options granted will vest
in increments of one-third at the end of each year over a three-year period from
the date of grant. No options have been exercised to date.
Pursuant to its terms, the Stock Option Plan is to be administered by the
Board of Directors or a committee established by the Board of Directors (the
"Stock Option Committee"). The Board of Directors or such committee determines
the persons to whom options are granted, the number of shares of stock subject
to an option, the period during which options may be exercised and the exercise
price thereof.
The price at which each share of Common Stock covered by an option may be
purchased shall be determined by the Board of Directors or the Stock Option
Committee, provided that the option price for any Incentive Option shall not be
less than the "fair market value" of the shares of Common Stock at the time of
grant, and provided, however, if an Incentive Option to purchase shares of
Common Stock is granted to an optionee who owns more than ten percent (10%) of
the voting power of the capital stock of the Company, the minimum exercise price
of such option shall be not less than one hundred ten percent (110%) of the
"fair market value" of the shares of Common Stock on the date of grant
determined in accordance with the Stock Option Plan.
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Limitation on Liability; Indemnification of Directors and Officers
The Certificate of Incorporation limits the personal liability of directors
to the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law. Section 145 of the Delaware General Corporation Law provides
that a corporation's certificate of incorporation may limit the personal
liability of its directors for monetary damages for breach of their fiduciary
duties as directors except for liability: (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) arising under Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derived an
improper personal benefit.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
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CERTAIN TRANSACTIONS
Issuance of Founders' Stock
In January 1996, Scott A. Mednick, Ronald Bloom, Benchmark and Christopher
Efird, as the founding stockholders of the Company, acquired an aggregate of
3,257,260 shares of Common Stock in exchange for payment of an aggregate of $325
therefor.
The Reorganization
In connection with the Company's acquisition of Mednick Group pursuant to
the Reorganization in June 1996, the Company issued to Scott Mednick, as the
sole stockholder of Mednick Group, an aggregate of 312,126 shares of Common
Stock. Mr. Mednick is a founding stockholder, an officer and a director of the
Company. For information relating to the Reorganization, see "Recent
Developments -- The Reorganization."
Recent Financings
In March 1996, the Company obtained a loan in the aggregate principal
amount of $270,000 from three separate lenders, including Trident II, L.L.C.,
Frank M. DeLape and J.B. Manning. In exchange for extension of the loan, the
Company issued three 10% Notes, including one in the principal amount of
$225,000 to Trident II, L.L.C. and one in the principal amount of $20,000 to Mr.
DeLape. Mr. DeLape, a director and founder of the Company, is an officer,
director and principal of Benchmark and of Oak Tree Capital, Inc., which is the
manager and a member of Trident II, L.L.C. In August 1996, an aggregate of
$27,000 in principal amount of the foregoing 10% Notes was converted by the
holders thereof into an aggregate of 325,000 shares of Common Stock. In July
1996, Trident II, L.L.C. loaned the Company an additional $75,000 evidenced by a
separate non-convertible promissory note. Principal and interest outstanding
under the 10% Note and the $75,000 non-convertible promissory note were repaid
out of the proceeds of the Omnicom Transaction in August 1996, as more fully
described elsewhere herein. See "Principal Stockholders."
In April 1996, upon release of an escrow account established to facilitate
the following loan transaction, the Company loaned an aggregate of $1,000,000 to
On Ramp in connection with the redemption by On Ramp of 100 shares of its common
stock (which shares of common stock represented 66% of the issued and
outstanding capital stock of On Ramp). Such redemption was the result of an
agreement previously reached among the former stockholders of On Ramp arising
out of fundamental differences among such individuals relating to the operation
and business strategy of On Ramp. In addition, pursuant to the terms of a
certain loan agreement between the Company and On Ramp, the Company agreed to
make available to On Ramp an additional $600,000, of which $583,000 has been
borrowed by On Ramp as of the date hereof. Such loans are evidenced by
promissory notes executed on behalf of On Ramp in favor of the Company in the
principal amounts of $1,000,000 and $600,000, respectively (the "On Ramp
Notes"). Amounts outstanding under the On Ramp Notes accrue interest at the rate
of 12% per annum. Payment of principal and interest on the On Ramp Notes was due
on August 16, 1996, subject to a six-month cure period. Repayment of amounts
outstanding under the On Ramp Notes were secured by the pledge in favor of the
Company of 26 shares of common stock of On Ramp by Adam Curry (who, as a result
of the foregoing redemption, became the sole stockholder of On Ramp).
Subsequently, in connection with the Company's
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acquisition of On Ramp, the Company acquired all of the issued and outstanding
capital stock of On Ramp, including the shares of common stock subject to the On
Ramp Pledge Agreement.
In May 1996, pursuant to the terms of a certain loan agreement between
the Company and Internet One, the Company agreed to make available to Internet
One up to $70,000, of which $50,000 has been borrowed by Internet One as of the
date hereof. Such loan is evidenced by a promissory note executed by Internet
One in favor of the Company in the principal amount of $70,000 (the "Internet
One Note"). Amounts outstanding under the Internet One Note accrue interest at
the rate of 12% per annum. Payment of principal and interest on the Internet
One Note is due on September 30, 1996. Repayment of amounts outstanding under
the Internet One Note was secured by the pledge in favor of the Company (the
"Internet One Pledge Agreement") of 132,000 shares of common stock of Internet
One (which shares of common stock represent 33% of the issued and outstanding
capital stock of Internet One) by David R. Hieb. Subsequently, in connection
with the Company's acquisition of Internet One, the Company acquired all of the
outstanding shares of capital stock of Internet One, including the shares of
common stock subject to the Internet One Pledge Agreement.
Historically, Dr. Carlisle and his father, Dan Carlisle, have extended
credit to NetCube. In connection with the Company's acquisition of NetCube in
June 1996, Dr. Carlisle agreed to forgive an aggregate of approximately
$1,220,000 in debt owed to him by NetCube. In addition, the Company agreed to
issue three promissory notes providing for repayment of amounts owed to each of
Dr. Carlisle and Dan Carlisle. Each of such promissory notes accrues interest at
the rate of 8% per annum and is convertible into shares of Common Stock prior to
expiration thereof at the rate of $5.00 per share. The principal amount of the
promissory note issued to Dr. Carlisle is $132,000 and the principal amounts of
the two promissory notes issued to Dan Carlisle are $288,000 and $515,760,
respectively. The $132,000 promissory note issued to Dr. Carlisle and the
$288,000 promissory note issued to Dan Carlisle are payable prior to the
Offering; the $515,760 promissory note issued to Dan Carlisle is payable on
March 31, 1998 (or earlier, upon the Company's receipt of $3,000,000 from a
private offering of securities, the sale of 50% of the assets of the Company or
another public offering.)
Consulting and Finder's Agreements
In March 1996, the Company entered into a consulting agreement with
Benchmark (the "Consulting Agreement"), pursuant to which Benchmark agreed to
render to the Company for a period of two years certain management consulting
services, including among other things, rendering advice in the areas of
strategic planning, business strategy, acquisition planning and business
administration. In exchange therefor, the Company agreed to pay Benchmark a
lump sum payment of $35,000 plus a monthly fee of $7,000. In March 1996, the
Company also entered into a finder's agreement with Benchmark (the "Finder's
Agreement"), pursuant to which Benchmark agreed to introduce acquisition
candidates to the Company, on a non-exclusive basis, for a period of two years.
In August 1996, in consideration of the payment by the Company to Benchmark of
$500,000, representing payment of amounts earned in connection with the
introduction of certain of the Subsidiaries, the Finder's Agreement was
terminated. The Company used a portion of the proceeds of the Omnicom
Transaction to pay amounts owed by the Company to Benchmark under the Finder's
Agreement. Benchmark is a founding stockholder of the Company and Frank M.
DeLape, a director of Benchmark, is a director of the Company and an officer and
director of Oak Tree Capital, Inc., which is the manager and a member of Trident
II, L.L.C., a stockholder of the Company. See "Management" and "Principal
Stockholders."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of September 15, 1996
with respect to the beneficial ownership of the Company's Common Stock by: (i)
each of the Company's directors; (ii) each of the Named Officers; (iii) each
person or entity who is known to the Company to beneficially own 5% or more of
the outstanding Common Stock; and (iv) all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Percent Beneficially Owned
Name and Address Number of Shares --------------------------
of Beneficial Owner/(1)/ Beneficially Before After
Owned Offering Offering
- -------------------------------------- -------------------- ------------ --------------
<S> <C> <C> <C>
Frank M. DeLape....................... 1,511,287/(2)/ 23.6% 16.1%
16406 Brook Forest Drive
Houston, Texas 77059
Benchmark Equity Group................ 1,216,287/(3)/ 19.0 12.9
16815 Royal Crest Drive
Suite 160
Houston, Texas 77058
Ronald Bloom.......................... 1,360,648 21.3 14.5
45 West 36th Street
New York, New York 10036
Scott A. Mednick...................... 992,451 15.5 10.6
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
Adam Curry............................ 347,358/(4)/ 5.4 3.7
30 Glen Road
Verona, New Jersey 07044
James Carlisle........................ 292,773/(5)/ 4.6 3.1
45 Allison Road
Alpine, New Jersey 07620
Susan Goodman......................... 74,434/(6)/ 1.2 *
45 West 36th Street
New York, New York 10036
Omnicom Group, Inc.................... 1,408,000 22.0 15.0
437 Madison Avenue
New York, New York 10022
Angel Martinez........................ -- -- --
Michael Ribero........................ -- -- --
Barry Wagner.......................... -- -- --
All Directors and Executive Officers
as a Group (12 persons)........... 4,637,010 (7) 72.5% 49.3%
</TABLE>
__________________________
* Less than one percent.
(1) Unless otherwise noted, all of such shares of Common Stock listed above are
owned of record by each individual named as beneficial owner and such
individual has sole voting and dispositive power with respect to the shares
of Common Stock owned by each of them. Each person's percentage of
ownership is determined by assuming that any options or convertible
securities held by such person which are exercisable within 60 days from
the date hereof have been exercised or converted, as the case may be.
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(2) Includes 1,064,251 shares and 270,000 shares of Common Stock beneficially
owned by Benchmark and Trident II, L.L.C., respectively. Mr. DeLape, a
director of the Company, is an officer, director and principal of Benchmark
and of Oak Tree Capital, Inc., which is the manager and a member of Trident
II, L.L.C, and may be deemed to be beneficial owner of such shares. An
aggregate of 300,000 shares of Common Stock owned by Benchmark are subject
to sale by Benchmark, as the Selling Stockholder, upon the exercise of the
over-allotment option granted to the Underwriter. If the over-allotment
option is exercised in full, Mr. DeLape would beneficially own
approximately 12.7% of the outstanding Common Stock after the Offering.
Excludes 152,036 shares held by Christopher Efird, a principal of
Benchmark, and a former director of the Company.
(3) Excludes 270,000 shares of Common Stock owned by Trident II, L.L.C. and
25,000 shares of Common Stock owned by Frank DeLape.
(4) Represents shares of Common Stock issued in connection with the Company's
acquisition of On Ramp, which shares were issued in the name of Sachnoff &
Weaver, Ltd., as escrow agent, to be distributed to Mr. Curry and certain
former stockholders of On Ramp upon release of escrow.
(5) Excludes 100,000 shares of Common Stock issuable upon exercise of options
granted to the named stockholder under the 1996 Stock Option Plan.
(6) Excludes 55,000 shares of Common Stock issuable upon exercise of options
granted to the named stockholder under the 1996 Stock Option Plan.
(7) Excludes shares of Common Stock subject to options granted under the 1996
Stock Option Plan.
Escrow Shares
In connection with the Offering, certain holders of Common Stock have
agreed to place, on a pro rata basis, 1,500,000 shares into escrow pursuant to
an escrow agreement (the "Escrow Agreement") between such holders and
Continental Stock Transfer & Trust Company, as escrow agent. The Escrow Shares
are not transferable or assignable; however, the Escrow Shares may be voted by
the beneficial holders thereof.
The Escrow Shares will be released from escrow if, and only if, the
following conditions are met:
(a) the Company's net income before provision for income taxes and exclusive of
any extraordinary earnings (all as audited by the Company's independent
public accountants) (the "Minimum Pretax Income") amounts to at least $0.79
per share for any of the fiscal years ending June 30, 1997, 1998 or
1999;
(b) the Closing Price (as defined in the Escrow Agreement) of the Common Stock
averages in excess of $20.00 per share for 40 consecutive business days
during the 36-month period commencing on the date of this Prospectus;
(c) during the periods specified in (b) above, the Company is acquired by or
merged into another entity in a transaction in which the value of the per
share consideration received by the stockholders of the Company on the date
of such transaction or at any time during the period set forth in (b)
equals or exceeds the level set forth in (b) above.
The Minimum Pretax Income amounts set forth above shall: (i) be calculated
exclusively of any extraordinary earnings, including any charge to income
relating to the release of the Escrow Shares; and (ii) be increased
proportionately, with certain limitations, in the event additional shares of
Common Stock or securities convertible into, exchangeable for or exercisable
into Common Stock are issued after completion of the Offering. The Closing
Price amounts set forth above are subject to adjustment in the event of any
stock splits, reverse stock splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Share and including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
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Shares. If the applicable Minimum Pretax Income or Closing Price levels set
forth above have not been met by September 30, 1999, the Escrow Shares, as well
as any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The Company expects
that the release of the Escrow Shares to officers, directors, employees and
consultants of the Company will be deemed compensatory and, accordingly, will
result in a substantial charge to reportable earnings, which would equal the
fair market value of such shares on the date of release. Such charge could
substantially increase the loss or reduce or eliminate the Company's net income,
if any, for financial reporting purposes for the period during which such shares
and options are, or become probable of being, released from escrow. Although the
amount of compensation expense recognized by the Company will not affect the
Company's total stockholders' equity, it may have a negative effect on the
market price of the Company's securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 9 of Notes
to Financial Statements.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Underwriter and should not
be construed to imply or predict any future earnings by the Company or any
increase in the market price of its securities.
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DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law and the
provisions of the Company's Certificate of Incorporation and Bylaws and the
Underwriting Agreement between the Company and the Underwriter, copies of all of
which have been filed with the Commission as exhibits to the Registration
Statement of which this Prospectus forms a part.
Common Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 50,000,000 shares of Common Stock, $.0001 par value per share. As of
September 30, 1996, there were 6,400,000 shares of Common Stock outstanding held
by 20 holders of record. Each share of Common Stock entitles the holder thereof
to one vote on each matter submitted to the stockholders of the Company. The
holders of Common Stock are entitled to receive ratable dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of Company,
the holders of Common Stock are entitled to share ratable in all of the assets
of the Company available for distribution. The Common Stock has no preemptive,
subscription or conversion rights, or redemption or sinking fund provisions
applicable thereto. All outstanding shares of Common Stock are fully paid and
non-assessable. The Company has not paid any dividends on its Common Stock to
date.
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance of
up to 5,000,000 shares of Preferred Stock, $.0001 par value per share. None of
such Preferred Stock has been designated or issued. The Board of Directors is
authorized to issue shares of Preferred Stock from time to time in one or more
series and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and designate
any such series and to fix the number of shares and the relative conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences. If shares of Preferred Stock with
voting rights are issued, such issuance could affect the voting rights of the
holders of the Common Stock by increasing the number of outstanding shares
having voting rights, and by the creation of class or series voting rights.
Issuance of shares of Preferred Stock could, under certain circumstances, have
the effect of delaying or preventing a change in control of the Company and may
adversely affect the rights of holders of Common Stock. Also, the Preferred
Stock could have preferences over the Common Stock (and other series of
Preferred Stock) with respect to dividends and liquidation rights.
Anti-Takeover Effects of Provisions of the Certificate of Incorporation
The Certificate of Incorporation and Bylaws contain provisions that could
discourage potential takeover attempts and prevent stockholders from changing
the Company's management. The Bylaws provide that no proposal by a stockholder
shall be presented for vote at an annual meeting of stockholders unless such
stockholder shall, not later than the close of business of the last business day
of January and, with respect to a special meeting, not later than the close of
business on the fifth calendar day following the date on which notice of the
meeting is first given to stockholders, provide the Board of Directors or the
Secretary of the Company with written notice of intention to present a proposal
for action at the forthcoming meeting of stockholders, which notice shall
include the name and address of such stockholder, the number of voting
securities he or she holds of record and which he or she holds beneficially, the
text of the proposal to be
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<PAGE>
presented at the meeting and a statement in support of the proposal. Any
stockholder may make any other proposal at an annual meeting or special meeting
of stockholders and the same may be discussed and considered, but unless stated
in writing and filed with the Board of Directors or the Secretary prior to the
date set forth above, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place 60 days
or more thereafter.
Registration Rights
The Company has granted to the holders of the 10% Notes demand and
piggyback registration rights with respect to 325,000 shares of Common Stock
issued upon conversion of such notes and has granted to the holders of the 12%
Notes piggyback registration rights with respect to 324,990 shares of Common
Stock issued upon conversion of such notes. The former owners of Internet One,
Inc. have also been granted piggyback registration rights with respect to 25% of
to the shares of Common Stock issued to such owners in connection with the
Company's acquisition of Internet One. Pursuant to the terms of a certain
Employment Agreement between the Company and Scott A. Mednick, the Company has
agreed to file a registration statement relating to all of the Common Stock
owned by Mr. Mednick in the event that Mr. Mednick's employment is terminated
without cause. Additionally, pursuant to the terms of the Reorganization
Agreements relating to the Company's acquisition of Mednick Group and On Ramp,
the Company has agreed to file a registration statement under the Securities Act
relating to 25% percent of the shares of the Common Stock owned by each of Mr.
Mednick and Adam Curry. Each of the foregoing stockholders has entered into a
lock up agreement with the Underwriter, pursuant to which each such stockholder
has agreed not to exercise such registration rights and not to sell or transfer
any of their shares of Common Stock for periods of six and twelve months. The
holders of the Underwriter's Warrants will also have certain demand and
piggyback registration rights with respect to such warrants and the 300,000
shares of Common Stock underlying such warrants. Any exercise of the above
registration rights may hinder efforts by the Company to arrange future
financings of the Company and/or have an adverse effect on the market price of
the Company's shares. See "Underwriting."
Transfer Agent & Registrar
Continental Stock Transfer & Trust Company, New York, New York, is the
Transfer Agent and Registrar for the Company's securities. Its telephone number
is (212) 509-4000.
Business Combination Provisions
The Company has expressly elected to be subject to Section 203 of the
Delaware General Corporation Law regulating "business combinations" (defined to
include a broad range of transactions) between Delaware corporations and
"interested stockholders" (defined as persons who have acquired at least 15% of
a corporation's stock). Under the law, a corporation subject to Section 203 may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person became an interested stockholder
unless certain conditions are satisfied. Section 203 contains provisions
enabling a corporation to avoid the statute's restrictions.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
9,400,000 shares of Common Stock. Of these shares, the 3,000,000 shares of
Common Stock offered hereby will be freely transferable.
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<PAGE>
without restriction or further registration under the Securities Act, unless
purchased by affiliates of the Company as that term is defined in Rule 144 under
the Securities Act ("Rule 144") described below. The 6,400,000 shares of Common
Stock currently outstanding are "restricted securities" or owned by affiliates
within the meaning of Rule 144 and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. Such shares will become eligible for sale in the
public market pursuant to Rule 144 commencing February 1998.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell such
shares under Rule 144(k) without regard to the volume or other resale
requirements. The Commission has recently proposed an amendment to the holding
period requirements of Rule 144 to permit resales of restricted securities after
a one-year holding period rather than a two-year holding period, and to permit
unrestricted resales by non-affiliates pursuant to Rule 144(k) after a two-year
holding period rather than a three-year holding period. In the event such
proposal is adopted, the dates upon which the outstanding restricted securities
will become eligible for sale under Rule 144 will be accelerated.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 415,000 shares subject to outstanding vested stock options
may be sold pursuant to such rule at the end of this 90-day period, subject to
an agreement by all option holders not to sell or otherwise dispose of any
shares of Common Stock for a period of 12 months after the date of this
Prospectus without the Underwriter's prior written consent.
The Company has granted certain demand and piggyback registration rights
with respect to an aggregate of 1,781,385 shares of Common Stock. The
Underwriter also has demand and piggyback registration rights with respect to
the Common Stock underlying the Underwriter's Warrants. See "Description of
Securities -- Registration Rights" and "Underwriting."
Notwithstanding the above, the holders of all of the outstanding shares of
Common Stock (including shares issuable upon exercise of options) have agreed
not to sell or otherwise dispose of any shares of Common Stock without the
Underwriter's prior written consent for a period of 12 months after the date of
this Prospectus. In addition, 1,500,000 of such shares are Escrow Shares and
are subject to the restrictions on transfer set forth in the Escrow Agreement.
See "Principal and Selling Stockholders - Escrow Shares" and "Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale
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will have on the market price of such securities prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and the ability of the Company
to raise equity capital in the future.
UNDERWRITING
Commonwealth Associates, the Underwriter, has agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
3,000,000 shares of Common Stock offered hereby on a "firm commitment" basis, if
any are purchased. The shares are being offered by the Underwriter subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to approval of certain legal matters by counsel and to certain other
conditions.
The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock to the initial public at the public offering price set forth on
the cover page of this Prospectus and to certain dealers who are members of the
NASD, at such prices less concessions of not in excess of $____ per share, of
which a sum not in excess of $_____ per share may in turn be reallowed to other
dealers who are members of the NASD. After the commencement of the Offering, the
initial public offering price, the concession and the reallowance may be changed
by the Underwriter.
The Company and the Selling Stockholder have granted to the Underwriter an
option, exercisable during the 30-day period commencing on the date of this
Prospectus, to purchase from the Company at the initial public offering price,
less underwriting discounts, up to 450,000 additional shares for the purpose of
covering over-allotments, if any. If the over-allotment option is exercised, the
Selling Stockholder will sell the first 300,000 shares to be sold upon exercise
of the over-allotment option and the Company will sell up to the remaining
150,000 shares.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Underwriter's Warrants to purchase up to 300,000
shares of Common Stock. The Underwriter's Warrants will be exercisable during
the four-year period commencing one year after the date of this Prospectus at an
exercise price of $___ per share, subject to adjustment in certain events to
protect against dilution, and are not transferable for a period of one year
after the date of this Prospectus except to officers of the Underwriter or to
members of the selling group. The Company has agreed to register during the
four-year period commencing one year after the date of this Prospectus, on two
separate occasions, the securities issuable upon exercise thereof under the
Securities Act, the initial such registration to be at the Company's expense and
the second at the expense of the holders. The Underwriter's Warrants include a
provision permitting the holders to elect a cashless exercise. The Company has
also granted certain piggyback registration rights to holders of the
Underwriter's Warrants.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds derived from the sale of shares
offered hereby, including any shares purchased pursuant to the Underwriter's
over-allotment option, $35,000 of which has been paid to date. The Company has
also agreed to enter into a financial consulting agreement with the Underwriter
providing for an advisory fee of 3% of the gross proceeds derived from the sale
of shares offered hereby, including any shares purchased pursuant to the
Underwriter's over-allotment option.
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The Company and the Selling Stockholder have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
All of the Company's current stockholders, optionholders, officers and
directors have agreed not to sell, assign, transfer or otherwise dispose
publicly of any of their shares of Common Stock or exercise any registration
rights for periods of 6 or 12 months after the date of this Prospectus without
the prior written consent of the Underwriter.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the initial public offering price of the
shares offered hereby has been determined by negotiation between the Company and
the Underwriter and are not necessarily related to the Company's asset value,
net worth or other established criteria of value. Among the factors considered
in determining such prices and terms, in addition to prevailing market
conditions, include the history of and the prospects for the industry in which
the Company competes, the present state of the Company's development and its
future prospects, an assessment of the Company's management, the Company's
capital structure and demand for similar securities of comparable companies.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 5% of the total number of the shares offered
hereby.
The Underwriter acted as Placement Agent for a private placement in April
1996 for which it received a placement agent fee of $180,000 and a non-
accountable expense allowance of $37,500.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities being
offered hereby will be passed upon for the Company by De Martino Finkelstein
Rosen & Virga, Washington, D.C. Certain matters in connection with this Offering
will be passed upon for the Underwriter by Bachner, Tally, Polevoy & Misher,
LLP, New York, New York.
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EXPERTS
The Financial Statements of the Company and the Subsidiaries at June 30, 1996
and for each of the three years in the three-year period ended June 30, 1996
appearing in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, as indicated in their report appearing elsewhere
herein, and have been included herein in reliance upon such report, given upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission the Registration Statement relating
to the shares of Common Stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
such Common Stock, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any agreement or any other document referred to
are not necessarily complete, and in each instance, if such agreement or
document is filed as an exhibit, reference is made to the copy of such document
filed as an exhibit to the Registration Statement. The Registration Statement,
including exhibits and schedules thereto, may be inspected without charge at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1228, Seven World Trade Center, 13th
Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. In addition, the Commission maintains a Website on the Internet that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Website is http://www.sec.gov.
Following the Offering, the Company will be subject to the reporting
and other requirements of the Exchange Act and intends to furnish to its
Stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
55
<PAGE>
Think New Ideas, Inc.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Independent Certified Public Accountants' Report .......................F-2
Consolidated Balance Sheets ............................................F-4
Consolidated Statements of Operations ..................................F-5
Consolidated Statements of Shareholders' Equity (Deficit)...............F-6
Consolidated Statements of Cash Flows ..................................F-7
Notes to the Consolidated Financial Statements ............F-9 through F-19
</TABLE>
F-1
<PAGE>
Independent Certified Public Accountants' Report
[The following is the form of the opinion that BDO Seidman, LLP will be in a
position to issue upon completion of the grant of options, .496225157-for-
one reverse stock split, and contribution of shares into an escrow account
described in Note 8, restructuring of a related party note payable described
in Note 10, and the private placement transaction described in Note 12.]
To the Shareholders of Think New Ideas, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Think New
Ideas, Inc. and subsidiaries as of June 30, 1995 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficit) and
cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Think
New Ideas, Inc. and subsidiaries as of June 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
BDO Seidman, LLP
New York, New York
July 23, 1996, except for Notes 5, 8, 10
and 12, which are as of September ___, 1996
F-2
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Balance Sheets
___________________________
<TABLE>
<CAPTION>
June 30, 1995 1996
- -------------------------------------------------------------------------------
Assets (Notes 2 and 4)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 381,511 $ 429,596
Accounts receivable, net of allowance for
doubtful accounts of $45,000 and $186,000 1,528,393 2,394,732
Unbilled receivables 795,575 296,903
Due from shareholders 89,400 -
Prepaid expenses and other assets 15,622 60,914
Refundable income taxes (Note 6) 152,613 -
Deferred income taxes (Note 6) - 160,000
- -------------------------------------------------------------------------------
Total current assets 2,963,114 3,342,145
- -------------------------------------------------------------------------------
Property and equipment, net (Note 3) 608,401 699,031
Software development costs - 167,436
Deferred income taxes (Note 6) 115,000 79,000
Other assets 55,605 490,394
- -------------------------------------------------------------------------------
$3,742,120 $4,778,006
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Balance Sheets
___________________________
<TABLE>
<CAPTION>
June 30, 1995 1996
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity (Note 2)
Current Liabilities:
<S> <C> <C>
Note payable to bank (Note 4) $ - $ 70,000
Note payable to related party (Note 10) 430,000 -
Accounts payable 1,010,347 1,244,057
Accrued salaries and wages 36,053 349,158
Accrued expenses 190,873 306,949
Deferred revenue 425,984 452,959
Income taxes payable (Note 6) - 76,779
Deferred income taxes (Note 6) 240,000 -
Due to shareholders (Notes 2 and 10) 1,202,816 500,000
- --------------------------------------------------------------------------------
Total current liabilities 3,536,073 2,999,902
- --------------------------------------------------------------------------------
Convertible promissory notes (Notes 5 and 12) - 2,070,000
Note payable to related party (Note 10) - 788,000
- --------------------------------------------------------------------------------
Total liabilities 3,536,073 5,857,902
- --------------------------------------------------------------------------------
Commitments and Contingencies (Note 7)
Redeemable Common Stock (Note 8) - -
Shareholders' Equity (Deficit) (Notes 8 and 12):
Preferred stock, $.0001 par value;
shares authorized 1,000,000;
none issued and outstanding - -
Common stock, $.0001 par value; shares
authorized 30,000,000; 1,779,466 and
4,342,010 shares issued 178 434
Additional paid-in capital 161,707 -
Retained earnings (accumulated deficit) 44,162 (1,080,330)
- --------------------------------------------------------------------------------
Total shareholders' equity (deficit) 206,047 (1,079,896)
- --------------------------------------------------------------------------------
$3,742,120 $4,778,006
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Statements of Operations
_________________________________
<TABLE>
<CAPTION>
Year ended June 30, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues (Note 11) $8,485,505 $10,331,991 $12,146,348
Operating Expenses:
Direct salaries and related expenses 3,321,477 3,556,758 4,587,027
Other direct expenses 3,775,562 3,935,172 4,814,771
Selling, general and administrative
expenses 1,962,471 2,622,490 3,286,090
Merger expenses (Note 2) - - 981,341
- --------------------------------------------------------------------------------
Operating income (loss) (574,005) 217,571 (1,522,881)
Interest expense (82,778) (131,877) (417,589)
Other, net 8,119 77,340 145,817
- --------------------------------------------------------------------------------
Income (loss) before taxes on income (648,664) 163,034 (1,794,653)
Taxes on income (Note 6) 103,240 (233,821) (149,187)
- --------------------------------------------------------------------------------
Net loss $(545,424) $(70,787) $(1,943,840)
- --------------------------------------------------------------------------------
Pro forma amounts (unaudited):
Historical loss before taxes on income $(1,794,653)
Compensation adjustment (382,000)
Merger expense adjustment 981,341
- --------------------------------------------------------------------------------
Loss before taxes on income (1,195,312)
Taxes on income (Note 6) 404,000
- --------------------------------------------------------------------------------
Net loss $(791,312)
- --------------------------------------------------------------------------------
Loss per common share $(.18)
- --------------------------------------------------------------------------------
Supplemental loss per common share $(.14)
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity (Deficit)
For the Years Ended June 30, 1996, 1995 and 1994
________________________________________________
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------------ Paid-In (Accumulated
Shares Amount Capital Deficit)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1993 604,899 $ 60 $ 1,940 $929,059
Issuance of common stock 1,168,612 117 12,762 -
Capital contributions - - 15,000 -
Distributions to shareholders - - - (72,753)
Net loss for the year - - - (545,424)
- -------------------------------------------------------------------------------
Balance, June 30, 1994 1,773,511 177 29,702 310,882
Issuance of common stock 5,955 1 9,335 -
Capital contributions - - 122,670 -
Distributions to shareholders - - - (195,933)
Net loss for the year - - - (70,787)
- -------------------------------------------------------------------------------
Balance, June 30, 1995 1,779,466 178 161,707 44,162
Issuance of common stock 3,257,260 326 331 -
Capital contributions - - 150,000 -
Conversion of shareholder loans
and interest (Note 10) - - 1,685,075 -
Acquisition of common stock
(Note 8) (694,716) (70) (5,930) (994,000)
Distributions to shareholders - - (24,325) (153,510)
Capitalization of accumulated
deficit of subsidiaries upon
termination of
S-corporation elections - - (1,966,858) 1,966,858
Net loss for the year - - - (1,943,840)
- --------------------------------------------------------------------------------
Balance, June 30, 1996 4,342,010 $ 434 $ - $(1,080,330)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
______________________________________
<TABLE>
<CAPTION>
Increase (decrease) in cash and cash equivalents
Year ended June 30, 1994 1995 1996
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (545,424) $ (70,787) $(1,943,840)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation 419,230 275,555 262,181
Amortization - - 163,000
Deferred income taxes (309,000) (55,000) (364,000)
Bad debt expense 78,547 246,683 166,655
Changes in assets and liabilities:
Accounts receivable 45,118 (814,401) (1,032,994)
Unbilled receivables (37,444) (293,330) 498,672
Due from shareholders 7,681 (82,081) 89,400
Accounts payable 98,933 393,322 233,710
Accrued expenses 60,240 (4,355) 429,181
Deferred revenue - 425,984 26,975
Due to shareholders - - 500,000
Other assets and liabilities 28,410 25,980 21,339
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (153,709) 47,570 (949,721)
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Additions to software development costs - - (167,436)
Purchases of property and equipment (105,716) (382,192) (352,811)
- --------------------------------------------------------------------------------
Net cash used in investing activities (105,716) (382,192) (520,247)
- --------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
Think New Ideas, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
______________________________________
Year ended June 30, 1994 1995 1996
Cash Flows from Financing Activities:
[S] [C] [C] [C]
Proceeds from issuance of promissory notes - - 2,070,000
Deferred financing costs - - (217,500)
Increase in notes payable to related parties 464,310 516,864 840,259
Acquisition of common stock - - (1,000,000)
Deferred offering costs - - (217,528)
Borrowings on operating lines of credit - - 70,000
Principal repayments on long-term debt (49,365) (69,567) -
Issuance of common stock 12,879 9,336 657
Capital contributions 15,000 122,670 150,000
Distributions to shareholders (72,753) (195,933) (177,835)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 370,071 383,370 1,518,053
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 110,646 48,748 48,085
Cash and cash equivalents, beginning of year 222,117 332,763 381,511
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 332,763 $ 381,511 $ 429,596
- --------------------------------------------------------------------------------
Supplemental Cash Flow Information:
Cash paid during the year for:
Income taxes $ 74,000 $ 235,133 $ 139,967
Interest 7,647 7,823 8,091
- --------------------------------------------------------------------------------
Noncash financing activities:
Loans and accrued interest payable
to shareholders converted to
additional paid in capital $ - $ - $1,685,075
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
____________________________________
Note 1 - Nature of Business and Summary of Significant Accounting Policies
Nature of Business and Principles of Consolidation
The consolidated financial statements include the accounts of Think New Ideas,
Inc. ("Think" or the "Company") and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company was incorporated in January 1996. In June 1996, the Company
acquired the companies discussed in Note 2 in business combinations accounted
for using the pooling of interests method. Accordingly, the consolidated
financial statements give retroactive effect to the acquisitions.
The Company provides marketing and communications services to clients seeking to
market their products and services and convey messages and images to the public.
The Company provides traditional services, such as advertising copy, graphic
design and art work, and "new media" services. New media services include
developing Internet web sites and related analytical tools and Internet
training.
Cash and Cash Equivalents
For purposes of the consolidated balance sheets and statements of cash flows,
the Company considers all highly liquid investments having original maturities
of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
- --------------------------------------------------------------------------------
<S> <C>
Equipment 3 to 5
Furniture and fixtures 5 to 7
Leasehold improvements 5
- --------------------------------------------------------------------------------
</TABLE>
Software Development Costs
In accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," software development costs incurred by the
Company subsequent to establishing technological feasibility of the resulting
product or enhancement and until the product is available for general release to
customers are capitalized and carried at the lower of unamortized cost or net
realizable value. Net realizable value is determined based on estimates of
future revenues to be derived from the sale of the software product reduced by
costs of completing and disposing of that product. Amortization of the costs
capitalized is expected to begin in 1997 and will be based on current and
anticipated future revenues for each product or enhancement with an annual
minimum equal to straight-line amortization over the remaining estimated
economic life of the product or enhancement.
F-9
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
____________________________________
Revenue Recognition
Revenues from the design and development of Internet web sites and traditional
marketing services are recognized using the percentage of completion method
based on the ratio of costs incurred to total estimated costs. Unbilled
receivables represent costs incurred and anticipated profits earned on projects
in progress in excess of amounts billed, and are recorded as assets. Deferred
revenue includes amounts billed in excess of costs incurred and estimated
profits earned, and are recorded as liabilities. To the extent costs incurred
and anticipated costs to complete projects in progress exceed anticipated
billings, a loss is recognized for the excess.
Payments received for subsequent maintenance of internet web sites are deferred
and recognized over the period during which the maintenance is supplied.
Taxes on Income
Three of the Company's subsidiaries had elected S corporation status under
applicable provisions of the Internal Revenue Code and certain state statues
and, accordingly, were not subject to income taxes. The S corporation status of
these subsidiaries terminated on June 30, 1996 as a result of their acquisition
by the Company.
The Company and its other subsidiaries account for income taxes in accordance
with the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the recognition of deferred tax assets and liabilities for the
expected future income tax consequences of events that have been recognized in a
company's financial statements or tax return. Deferred income taxes reflect the
net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts for income tax
purposes using enacted tax rates in effect in the years in which the temporary
differences are expected to reverse.
Pro Forma Data (Unaudited)
Concurrent with the business combinations consummated on June 30, 1996, the
Company entered into employment agreements with certain of its officers (as
discussed further in Note 7). Pro forma adjustments for the year ended June 30,
1996 have been presented to exclude the costs of effecting the business
combination transactions and reflect these employment agreements as if they had
been in effect throughout 1996.
Pro forma 1996 taxes on income reflect a benefit for income taxes based on pro
forma loss before taxes as if the Company and all of its subsidiaries had been
taxed as C corporations throughout the year.
F-10
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
___________________________________________
Pro forma loss per common share is computed based on pro forma net loss and the
weighted average number of shares of common stock and common stock equivalents
outstanding (which excludes 1,500,000 shares held in escrow (see Note 8)), as
adjusted for the effects of applying Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83, using the treasury stock method. Pursuant to
SAB No. 83, common stock issued by the Company at prices less than the initial
public offering price during the twelve months preceding the initial filing of
the registration statement of which these financial statements form a part,
together with the number of shares of common stock subject to options and
convertible debt issued during such period having exercise or conversion prices
below the initial public offering price have been treated as outstanding for all
periods presented. As a result, 4,393,681 shares were used in the calculation.
Similarly, pro forma net loss used in the calculation was adjusted by
approximately $12,000, the related amount of interest expense on convertible
debt issued (see Note 5), net of related pro forma income taxes.
Supplemental pro forma loss per common share is computed by dividing
supplemental pro forma net loss (pro forma net loss adjusted as described in the
preceding paragraph, further adjusted by approximately $135,000, the amount of
interest expense on debt repaid with the proceeds of the August 1996 private
placement (see Note 12), net of related pro forma income taxes) by the weighted
average number of shares that would have been treated as outstanding (4,549,356)
had the portion of the proceeds from the shares sold in August 1996 to fund debt
repayments been used to repay debt on the dates it was issued, rather than for
the assumed purchase of treasury stock.
Historical loss per common share data are not considered meaningful and,
therefore, are not presented.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet as of June 30, 1996 for cash
equivalents, accounts receivable, and accounts and notes payable approximate
fair value because of the immediate or short-term maturity of these financial
instruments. The carrying amounts reported for the nonconvertible portions of
the convertible promissory notes approximate fair value. The fair values of the
convertible portions of the convertible promissory notes have been estimated
based on the estimated fair value of the common stock into which the notes are
convertible. Based on the price per share for which the Company's common stock
was recently sold in a private placement (Note 12), the estimated aggregate fair
value of the convertible portions of the convertible promissory notes
approximated $2,300,000 at June 30, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-11
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
___________________________________________
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and accounts and unbilled
receivables. Cash and cash equivalents consist of deposits and money market
funds placed with various high credit quality financial institutions.
Concentrations of credit risk with respect to receivables are limited due to the
geographically diverse customer base. The Company controls credit risk through
credit approvals, credit limits and monitoring procedures.
New Accounting Pronouncements
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" (SFAS No. 121), issued by the Financial
Accounting Standards Board (FASB) is effective for financial statements for
fiscal years beginning after December 15, 1995. The new standard establishes
new guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment and certain identifiable intangible assets and
goodwill, should be recognized and how impairment losses should be measured.
The Company does not expect adoption to have a material effect on its financial
position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), issued
by the FASB is effective for specific transactions entered into after December
15, 1995, while the disclosure requirements are effective for financial
statements for fiscal years beginning after December 15, 1995. The new standard
establishes a fair value method of accounting for stock-based compensation plans
and for transactions in which an entity acquires goods or services from
nonemployees in exchange for equity instruments. The Company does not expect
adoption to have a material effect on its financial position or results of
operations.
Note 2 - Business Acquisitions
In June 1996, the Company acquired all of the issued and outstanding shares of
common stock of the following entities in exchange for 1,084,750 shares of the
Company's common stock:
<TABLE>
<CAPTION>
Number of Shares
Entity/Date Operations Commenced Issued to Effect Acquisition
- -------------------------------- ----------------------------
<S> <C>
The Mednick Group ("Mednick")/October 1982 312,126
On Ramp, Inc. ("On Ramp")/February 1994 347,358
Creative Resources Agency, Inc. ("Creative Resources")/November 1994 5,955
The S.D. Goodman Group ("Goodman")/July 1993 74,434
Internet One, Inc. ("Internet One")/November 1993 52,104
NetCube, Inc. ("NetCube")/February 1978 292,773
</TABLE>
F-12
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
Mednick, Creative Resources and Goodman provide a wide variety of marketing-
related services. On Ramp, NetCube and Internet One are principally providers
of new media services. The acquisition of each of these companies has been
accounted for using the pooling of interests method of accounting, and
accordingly, the accompanying consolidated financial statements give retroactive
effect to the acquisitions, as if the companies had always operated as a single
entity. In connection with the acquisitions, approximately $981,000 of
acquisition costs and expenses were incurred, including $500,000 in finder's
fees owed to Benchmark Equity Group ("Benchmark"), a shareholder of the Company,
and have been charged to expense during 1996.
Separate results of operations for the combining entities for the three years in
the period ended June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Mednick $5,203,185 $ 5,046,035 $ 6,150,950
On Ramp 6,543 775,803 2,323,365
Creative Resources - 160,058 371,298
Goodman 113,160 674,967 561,203
Internet One 76,519 674,214 1,338,246
NetCube 3,086,098 3,000,914 1,401,286
Think - - -
- --------------------------------------------------------------------------------
Combined $8,485,505 $10,331,991 $12,146,348
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Year Ended June 30, 1994 1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income (Loss):
Mednick $ 72,781 $ (62,860) $ 263,428
On Ramp (26,465) (128,474) (279,104)
Creative Resources - 63,511 74,000
Goodman 61,312 179,159 133,010
Internet One 22,283 92,652 2,974
NetCube (675,335) (214,775) (1,032,583)
Think - - (1,105,565)
- --------------------------------------------------------------------------------
Combined $(545,424) $ (70,787) $(1,943,840)
</TABLE>
================================================================================
F-13
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
Note 3 - Property and Equipment
Property and equipment at June 30, consisted of the following:
<TABLE>
<CAPTION>
1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Equipment $1,955,931 $2,047,966
Furniture and fixtures 568,925 604,610
Leasehold improvements 360,025 365,551
- --------------------------------------------------------------------------------
2,884,881 3,018,127
Less accumulated depreciation
and amortization (2,276,480) (2,319,096)
- --------------------------------------------------------------------------------
Property and equipment, net $ 608,401 $ 699,031
</TABLE>
================================================================================
Note 4 - Lines of Credit
Certain of the Company's subsidiaries have lines of credit with banks having an
aggregate borrowing availability of $290,000. Interest rates at June 30, 1996
range from 1% over prime to 10.75%. At June 30, 1996, borrowings of $70,000
were outstanding at an interest rate of 9.5%. At June 30, 1995, there were no
outstanding borrowings. Borrowings under the lines of credit are secured by
substantially all of the assets and guaranteed by the former stockholders of the
respective subsidiaries. One of the lines requires all outstanding borrowings
to be repaid for a thirty day period during each six months and contains certain
other restrictive covenants.
Note 5 - Convertible Promissory Notes
In March 1996, the Company borrowed $270,000 pursuant to the terms of three
separate convertible promissory notes. Two of the notes, having original
principal balances of $225,000 and $20,000, are payable to an entity controlled
by a shareholder of the Company and to a shareholder, respectively. Each of the
notes bear interest at 10% and mature upon the earlier of September 30, 1996 or
the Company raising $2,000,000 through a debt or equity financing. At the option
of the note holders, up to an aggregate of $27,000 in principal may be converted
into 325,000 shares of the Company's common stock.
F-14
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
In April 1996, the Company raised $1,582,500, net of placement fees of $217,500,
through a private placement of 12% convertible promissory notes. The principal
balance, together with accrued interest, is due upon the earlier of April 30,
1997 or the Company raising $3,000,000 through a debt or equity financing. The
notes are secured by the pledge of all of the outstanding shares of common stock
of On Ramp. At the option of the note holders, up to an aggregate of $162,495 in
principal may be converted into 324,990 shares of the Company's common stock.
As discussed more fully in Note 12, subsequent to June 30, 1996 the convertible
promissory notes were converted into common stock or repaid with proceeds
obtained from the sale of the Company's common stock. Accordingly, the
convertible promissory notes have been classified as noncurrent liabilities at
June 30, 1996.
Note 6 - Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Proforma
1996
1994 1995 1996 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $174,250 $222,021 $382,735 $ -
State 31,510 66,800 130,452 -
- --------------------------------------------------------------------------------
205,760 288,821 513,187 -
- --------------------------------------------------------------------------------
Deferred:
Federal (263,000) (47,000) (311,000) (344,000)
State (46,000) (8,000) (53,000) (60,000)
- --------------------------------------------------------------------------------
(309,000) (55,000) (364,000) (404,000)
- --------------------------------------------------------------------------------
Taxes on income $(103,240) $233,821 $149,187 $(404,000)
================================================================================
</TABLE>
F-15
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
The difference between the federal statutory tax rate and the effective tax rate
resulted from the following:
<TABLE>
<CAPTION>
Proforma
1996
1994 1995 1996 (Unaudited)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal statutory tax rate (34.0)% 34.0% (34.0)% (34.0)%
Subsidiaries not subject to
income taxes 17.5 50.8 9.3 -
Merger expenses and other
permanent differences 3.7 17.5 20.1 2.8
State income taxes, net of
federal tax benefit 3.2 27.0 7.3 -
Change in valuation allowance - - 5.0 -
Other items, net (6.3) 14.1 0.6 (2.6)
- --------------------------------------------------------------------------------
Effective tax rate (15.9)% 143.4% 8.3% (33.8)%
================================================================================
</TABLE>
Temporary differences which gave rise to the deferred tax assets (liabilities)
consisted of the following at June 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current:
Accounts receivable $(132,000) $(127,000)
Allowance for doubtful accounts 18,000 52,000
Accounts payable 38,000 235,000
Tax method conversion deferral (164,000) -
- --------------------------------------------------------------------------------
Total current (240,000) 160,000
- --------------------------------------------------------------------------------
Noncurrent:
Property and equipment 115,000 79,000
Net operating loss carryforwards 80,000 170,000
- --------------------------------------------------------------------------------
Total noncurrent 195,000 249,000
- --------------------------------------------------------------------------------
Deferred tax asset valuation allowance (80,000) (170,000)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $(125,000) $239,000
================================================================================
</TABLE>
For tax purposes, the Company had available, at June 30, 1996, net operating
loss carryforwards of approximately $425,000 which expire through the year 2011.
F-16
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
Note 7 - Commitments and Contingencies
The Company leases office space and certain equipment under operating leases
which expire on various dates over the next fifteen years. Future minimum
rental commitments under existing leases as of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Year ended June 30, Amount
- --------------------------------------------------------------------------------
<S> <C>
1997 $ 217,000
1998 323,000
1999 315,000
2000 321,000
2001 326,000
Thereafter 1,964,000
- --------------------------------------------------------------------------------
$3,466,000
================================================================================
</TABLE>
Total rent expense under operating leases amounted to $407,914, $411,266 and
$662,340 for the years ended June 30, 1994, 1995 and 1996.
In March 1996, the Company entered into a two year consulting agreement with
Benchmark. Under the agreement, the Company is required to pay Benchmark
$35,000 at signing and a monthly fee of $7,000. During 1996, the Company paid
$56,000 to Benchmark in connection with the agreement.
The Company has entered into employment agreements with certain of its officers.
The agreements have terms of up to three years and include, among other things,
noncomplete agreements and salary and benefits continuation.
Note 8 - Shareholders' Equity
The Company has a stock option and appreciation rights plan (the "Plan") which
provides for the grant of options to purchase up to 1,800,000 shares of the
Company's common stock at exercise prices to be determined by the Board of
Directors. Subsequent to June 30, 1996, the Company granted options to certain
employees to acquire 1,245,000 shares at a per share option price of $5 (the
estimated fair value of the shares on the date of grant). The options become
exercisable in annual one-third increments beginning on the first anniversary of
the date of grant and expire after ten years.
F-17
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
In February 1995, On Ramp entered into an agreement with its three shareholders
which set forth certain rights and obligations of the shareholders with respect
to each other and with On Ramp regarding the purchase and disposition of the
outstanding shares of On Ramp. The agreement included, among other things,
provisions that required On Ramp to purchase shares of a decedent or terminated
shareholder. The estimated value of the redeemable On Ramp shares as of that
date was not significant; accordingly, no amount was assigned to them. In April
1996, two of the three shareholders terminated their employment and On Ramp
purchased their shares for $1,000,000.
In June 1996, the Company effected a 6.855-for-one stock split. In September
1996, the Company effected a .496-for-one reverse stock split. All applicable
share and per share data have been retroactively restated to reflect the stock
splits.
In July 1996, the Board of Directors increased the authorized shares of the
Company's preferred and common stock to 5,000,000 and 50,000,000, respectively.
Subsequent to June 30, 1996, the Company signed a letter of intent with an
underwriter to conduct a public offering of the Company's common stock. In
connection with the proposed offering, the Company's founding shareholders,
together with the shareholders who acquired shares in connection with the
business acquisitions discussed in Note 2, contributed, on a pro rata basis,
1,500,000 shares of the Company's common stock held by them into an escrow
account. The shares are to be released to the shareholders from the escrow
account upon the Company achieving certain net income or per share market price
targets. The value of the shares released, as determined by the market price of
the shares on the date of the release, will be recognized as compensation
expense in future periods.
Note 9 - Employee Retirement Plans
Certain of Think's subsidiaries sponsor defined contribution retirement plans
(the "Plans") which cover all employees meeting minimum service requirements.
The Plans qualify as deferred salary arrangements under Section 401(k) of the
Internal Revenue Code. The subsidiaries' contributions to the plans are based
on percentages of the employees' contributions. Employer contributions to the
Plans during the years ended June 30, 1994, 1995 and 1996 were approximately $0,
$7,000, and $37,000.
Note 10 - Related Party Transactions
At June 30, 1995 and 1996, NetCube owed $430,000 and $788,000 to the father of
its former sole shareholder. Pursuant to terms of the promissory note under
which the borrowings were made, advances (including accrued interest) are due on
demand, are unsecured, and bear interest at 10%. Interest expense incurred by
NetCube related to these advances totalled $31,000, $40,000 and $58,000 during
the years ended June 30, 1994, 1995 and 1996. Subsequent to June 30, 1996, the
Company repaid $288,000 of the note with proceeds obtained from the sale of the
Company's common stock (see Note 12) and amended the terms of the promissory
note whereby the maturity of the remaining unpaid note balance was extended
until March, 1998. Accordingly, the amount due under the note has been
classified as a noncurrent liability at June 30, 1996.
F-18
<PAGE>
Think New Ideas, Inc.
Notes to Consolidated Financial Statements
--------------------------------------------
At June 30, 1995, Internet One owed approximately $5,000 to its former
shareholder, which amount was repaid during the year ended June 30, 1996.
At June 30, 1995, NetCube owed approximately $976,000 to its former shareholder.
During 1996, the shareholder converted this balance and additional loans made
during 1996, including interest thereon, aggregating approximately $1,450,000 to
capital. Interest expense of $9,000, $9,000, and $16,000 was recorded in
connection with this loan in 1994, 1995 and 1996.
At June 30, 1995, On Ramp owed approximately $234,000 to its former shareholders
pursuant to terms of promissory notes. The amount outstanding, including
interest thereon, was converted to capital in 1996.
During fiscal 1994 and 1995, Mednick had sales to companies affiliated through
common ownership of $46,000 and $92,000. In fiscal 1995, a receivable of
$104,000 arising from these sales was charged off to expense.
On Ramp leases office space from an affiliate of its former shareholders. The
lease provides for monthly payments of approximately $16,000 through September
1996. Total expenses paid to this affiliate during the years ended June 30,
1995 and 1996 were $71,000 and $374,000.
Note 11 - Major Customer
During 1995 and 1996, the Company had sales to one customer which accounted for
approximately 16% and 15% of consolidated revenues.
Note 12 - Subsequent Events
Private Placement
In August 1996, the Company sold equity securities in a private placement. In
September 1996, the agreement pursuant to which the securities were sold was
amended. As a result, the Company issued an aggregate of 1,408,000 shares of
its common stock in exchange for net proceeds (after transaction costs of
approximately $50,000) of $4,998,000. The number of shares of common stock sold
is required to be increased if the Company has not successfully completed a
public offering of its common stock by January 31, 1997. Further increases will
be required if a public offering has not been completed by July 31, 1997.
Debt Conversions and Extinguishments
In September 1996, the holders of the convertible promissory notes discussed in
Note 5 converted such notes, aggregating $189,495, into 649,990 shares of common
stock. In addition, a portion of the proceeds of the private placement
discussed above was used to extinguish the remaining $1,880,505 of such notes
and $288,000 of a note payable to a related party, as discussed in Note 10.
F-19
<PAGE>
- --------------------------------------------------------------------------------
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company or any of the
Underwriter. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
any offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
the information set forth herein is correct as of any time subsequent to the
date hereof.
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary....................................... 3
Recent Developments...................................... 8
Risk Factors............................................. 9
Use of Proceeds.......................................... 18
Dividend Policy.......................................... 18
Capitalization........................................... 19
Dilution................................................. 20
Selected Financial Data.................................. 22
Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................................ 24
Business................................................. 29
Management............................................... 39
Certain Transactions..................................... 45
Principal and Selling Stockholders....................... 47
Description of Securities................................ 50
Shares Eligible for Future Sale.......................... 51
Underwriting............................................. 53
Legal Matters............................................ 54
Experts.................................................. 55
Additional Information................................... 55
Index to Financial Statements............................ F-1
Until ____________, 1996 (25 days after the date of the Prospectus), all
dealers affecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriter and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THINK New Ideas, Inc.
3,000,000 Shares of
Common Stock
-------------------
Prospectus
_________, 1996
-------------------
Commonwealth Associates
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses to be incurred by the Company in connection with
the issuance and distribution of the securities being registered pursuant to
this Registration Statement, other than under writing discounts and commissions,
are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 6,600
NASD Filing Fee 2,405
Blue Sky Fees and Expenses 30,000
Printing Expenses 100,000
Legal Fees and Expenses 200,000
Accountant's Fees and Expenses 100,000
Transfer Agent and Registrar's Fee and Expenses 20,000
Miscellaneous Expenses 65,995
Total: $525,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Underwriter has agreed to indemnify the Company, its directors and
each person who controls it within the meaning of Section 15 of the Securities
Act of 1933 with respect to any statement in or omission from the Registration
Statement or the Prospectus or any amendment or supplement thereto if such
statement or omission was made in reliance upon information furnished in writing
to the Company by the Underwriter specifically for or in connection with the
preparation of the Registration Statement, the Prospectus, or any such amendment
or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a director: (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) arising under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, vote of shareholders or otherwise.
Article Seven of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against any such
person in their official capacities if such person acted
II-1
<PAGE>
in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Item 15. Recent Sales of Unregistered Securities.
The Company was incorporated pursuant to the laws of the State of Delaware
on January 30, 1996 at which time 3,257,260 shares of Common Stock were issued
to the Company's founders in exchange for par value as follows: Benchmark:
1,064,251 shares of Common Stock; Ronald Bloom: 1,360,648 shares of Common
Stock; Scott A. Mednick: 680,325 shares of Common Stock; and Christopher Efird:
152,036 shares of Common Stock.
In March 1996, in exchange for the extension of a loan in the aggregate
principal amount of $270,000, the Company issued the 10% Notes to three lenders.
In August 1996, an aggregate of $27,000 in principal amount of the 10% Notes was
converted into 325,000 shares of Common Stock by the holders thereof and the
remaining principal (plus accrued interest) was repaid.
In April 1996, the Company commenced the private Offering of the 12% Notes.
Pursuant to such Offering, the Company issued an aggregate of $1,800,000 in
principal amount of 12% Notes to nine investors. The Company relied upon the
services of the Placement Agent with respect to the offer of 12% Notes in the
aggregate principal amount of $1,250,000, for which the Placement Agent received
a fee equal to 10% of the aggregate proceeds of the private Offering and a non-
accountable expense allowance equal to 3% of the aggregate proceeds received by
the Company from investors introduced by the Placement Agent. In August 1996,
an aggregate of $162,495 in principal amount of the 12% Notes was converted by
the holders of thereof into 324,990 shares of Common Stock and the remaining
principal (plus accrued interest) was repaid.
Pursuant to the terms of the Omnicom Agreement, in August 1996, the Company
offered and sold to Omnicom 1,408,000 shares of Common Stock in exchange for
proceeds of $4,998,000.
The Company believes that the transactions set forth above were exempt from
registration with the Commission pursuant to Section 4(2) of the Securities Act
as transactions by an issuer not involving any public Offering. Except as
disclosed above, no broker-dealer or underwriter was involved in the foregoing
transactions. All certificates representing such securities have been
appropriately legended.
Item 16. Exhibits.
Exhibit
Number Description of Document
- ------ -----------------------
1.1 Form of Underwriting Agreement by and among the Company and the
Underwriter.
1.2 Form of Underwriter's Warrant.
1.3 Form of Advisory Agreement with Commonwealth Associates.
1.4 Form of Letter of Transmittal and Custody Agreement.
1.5 Form of Selling Stockholders Irrevocable Power of Attorney.
3.1(a) Certificate of Incorporation of the Company.
3.1(b) Certificate of Amendment to Certificate of Incorporation of the
Company.
3.1(c) Certificate of Amendment to Certificate of Incorporation of the
Company.
II-2
<PAGE>
Exhibit
Number Description of Document
- ------- -----------------------
3.2 Amended and Restated Bylaws of the Company.
4.1 Specimen Common Stock Certificate of the Company.
4.2 Form of Non-Negotiable 10% Convertible Promissory Note.
4.3 Form of Series I Non-Negotiable 12% Convertible Promissory Note.
5.1* Opinion of De Martino Finkelstein Rosen & Virga, counsel for the
Company.
10.1 Form of Agreement and Plan of Reorganization by and among the
Company and each of the Subsidiaries.
10.2 Employment Agreement by and between the Company and Scott A.
Mednick.
10.3 Employment Agreement by and between the Company and Adam Curry.
10.4 Employment Agreement by and between the Company and Ronald Bloom.
10.5 Employment Agreement by and between the Company and David R. Hieb.
10.6 Employment Agreement by and between the Company and James Grannan.
10.7 Employment Agreement by and between the Company and Susan Goodman.
10.8 Employment Agreement by and between the Company and Dr. James
Carlisle.
10.9 Promissory Note, dated March 31, 1996, executed by On Ramp, Inc. in
favor of the Company in the principal amount of $1,000,000.
10.10 Loan Agreement, dated March 31, 1996, by and between On Ramp, Inc.
and the Company.
10.11 Promissory Note, dated March 31, 1996, executed by On Ramp, Inc. in
favor of the Company in the principal amount of $600,000.
10.12 Pledge Agreement, dated March 31, 1996, by and among On Ramp, Inc.
Adam Curry and the Company.
10.13 Loan Agreement, dated May 13, 1996, by and between the Company and
Internet One, Inc.
10.14 Promissory Note, dated May 13, 1996, executed by Internet One, Inc.
in favor of the Company in the principal amount of $70,000.
10.15 Pledge Agreement, dated May 13, 1996, by and among Internet One,
Inc., David R. Hieb and the Company.
10.16 1996 Stock Option Plan.
10.17(a) Consulting Agreement by and between the Company and Benchmark Equity
Group, Inc.
10.17(b) Amendment to Consulting Agreement dated August 9, 1996.
10.18(a) Stock Purchase Agreement between Omnicom Group Inc. and the Company
10.18(b) Form of Letter of Amendment to Omnicom Agreement.
10.19 Form of Escrow Agreement between the Company, Continental Stock
Transfer and Trust Company and certain stockholders of the Company.
10.20(a)* Letter Agreement by and among the Company, Dan Carlisle and James H.
Carlisle
10.20(b)* Promissory Note, dated ________, executed by the Company in favor of
James J. Carlisle in the principal amount of $132,000.
10.20(c)* Promissory Note, dated ________, executed by the Company in favor of
Dan Carlisle in the principal amount of $288,000.
10.20(d)* Promissory Note, dated ________, executed by the Company in favor of
Dan Carlisle in the principal amount of $515,760.
11 Loss per share calculations.
21.1 Subsidiaries of the Company.
23.1* Consent of De Martino Finkelstein Rosen & Virga (included in Exhibit
5.1).
23.2 Consent of BDO Seidman, LLP, independent certified public
accountants.
II-3
<PAGE>
24.1 Power of Attorney. (included on signature page in Registration
Statement)
27.1 Financial Data Schedule.
- --------------------
* To be filed by amendment.
Item 17. Undertakings
(a) Undertakings Relating to Indemnification and Acceleration of
------------------------------------------------------------
Effective Date. Insofar as indemnification for liabilities arising under the
- --------------
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions of this
Registration Statement, or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(b) Undertakings Relating to Rule 430A Under the Securities Act of 1933.
-------------------------------------------------------------------
The Company hereby understands that it will:
(1) For the purpose of determining any liability under the Securities
Act of 1933, treat the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 as part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and that Offering of such securities at that time shall
be deemed to be as the initial bona fide Offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on September 26, 1996.
THINK New Ideas, Inc.
By: /s/ Scott A. Mednick
--------------------
Scott A. Mednick, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Scott A.
Mednick, Ronald S. Bloom and Adam S. Curry as his true and lawful attorney-in-
fact and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement and to sign any registration statement filed
under Rule 462 and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the 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 might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ------------------------- ------------------------------- -----------------
/s/ Scott A. Mednick Chief Executive Officer and September 26, 1996
- ------------------------- Chairman of the Board of ------------
Scott A. Mednick Directors
/s/ Ronald S. Bloom President, Chief Operating September 26, 1996
- ------------------------- Officer, and Director ------------
Ronald S. Bloom
/s/ Adam S. Curry Chief Technology Officer and September 26, 1996
- ------------------------- Director ------------
Adam S. Curry
/s/ Melvin Epstein Chief Financial Officer September 26, 1996
- ------------------------- ------------
Melvin Epstein
/s/ Frank DeLape Director September 26, 1996
- ------------------------- ------------
Frank DeLape
Director , 1996
- ------------------------- ------------
Angel Martinez
II-5
<PAGE>
Director , 1996
- ------------------------- -----------
Michael Ribero
Director , 1996
- ------------------------- -----------
Barry J. Wagner
II-6
<PAGE>
Exhibit 1.1
<PAGE>
COMMONWEALTH ASSOCIATES
3,000,000 Shares
THINK NEW IDEAS, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
Commonwealth Associates
As Representative of the Several Underwriters
733 Third Avenue
New York, New York 10017
Think New Ideas, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the underwriters named in Schedule A (the "Underwriters") of
this Underwriting Agreement (the "Agreement"), for whom you are acting as
representative (the "Representative"), an aggregate of 3,000,000 shares (the
"Stock") of Common Stock, $.0001 par value (such class of stock being herein
called the "Common Stock"), of the Company. In addition, the Company and
certain stockholders of the Company named in Schedule B hereto (the "Selling
Stockholders" severally proposed to grant to the Underwriters (or, at its
option, the Representative, individually) the option referred to in Section 3(b)
hereof to purchase all or any part of an aggregate of 450,000 additional shares
of Common Stock, each Selling Stockholder selling not more than the number of
shares set forth opposite such Selling Stockholder's name in Schedule B hereto,
if and to the extent that you, as Representative, shall have determined to
exercise, on behalf of the Underwriters, the right to purchase such shares of
Common Stock. Unless the context otherwise indicates, the term "Stock" shall
include the 450,000 additional shares referred to above.
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Stock, and that you have been authorized by the
Underwriters to execute this agreement on their behalf. The Company confirms
the agreements made by it with respect to the purchase of the Stock by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, the Underwriters that:
(a) A registration statement (File No. 333-___) on Form SB-2 relating
to the public offering of the Stock, including a form of prospectus subject to
completion, copies
<PAGE>
of which have heretofore been delivered to you, has been prepared by the Company
in conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and has been
filed with the Commission under the Act and one or more amendments to such
registration statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act and as have been provided to and approved by the
Representative prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant
to said Rule 424(b), such term means the prospectus included in the Registration
Statement; except that if such registration statement or prospectus is amended
or such prospectus is supplemented, after the effective date of such
registration statement and prior to the Option Closing Date (as hereinafter
defined), the terms "Registration Statement" and "Prospectus" shall include such
registration statement and prospectus as so amended, and the term "Prospectus"
shall include the prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When the Registration Statement becomes
effective and at all times subsequent thereto up to and on the Closing Date (as
hereinafter defined) or the Option Closing Date, as the case may be, (i) the
Registration Statement and Prospectus will in all respects conform to the
requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriters under the heading
"Legal Matters" constitute the only information furnished in writing by or on
-2-
<PAGE>
behalf of the several Underwriters for inclusion in the Registration Statement
and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition. The Company has no subsidiaries other than those listed on
Schedule C attached hereto (the "Subsidiaries"). The Company does not own any
equity interest in any other corporation, joint venture, partnership or other
business entity, other than the Subsidiaries. The Company owns all of the
capital stock of each Subsidiary free and clear of all liens, securities
interest and encumbrances. Each Subsidiary is a corporation, duly organized,
validly existing and in good standing under the laws of the state of its
respective incorporation, with full power and authority, corporate and other, to
own or lease and operate its respective properties and to conduct its respective
business as described in the Registration Statement. Each Subsidiary is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions wherein such qualification is necessary and failure so to qualify
could result in a material adverse effect on the financial condition, results of
operations, business or properties of such Subsidiary.
(d) The authorized, issued and outstanding capital stock of the Company
as of June 30, 1996 is as set forth in the Prospectus under "Capitalization";
the shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and non-
assessable and have been issued in compliance with all federal and state
securities laws; except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Stock and the Common Stock to be issued upon exercise of the
common stock purchase warrants to be issued to the Representative (the
"Warrants") are duly authorized, and when issued and delivered pursuant to this
Agreement, will be duly authorized, validly issued, fully paid and non-
assessable and free of preemptive rights of any security holder of the Company.
Neither the filing of the Registration Statement nor the offering or sale of the
Stock as contemplated in this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the registration
of any shares of Common Stock, except as described in the Registration
Statement.
(f) This Agreement, the Warrants and the Advisory Agreement (to be
delivered to you in accordance with Section 4(o) and 4(r), respectively, hereof)
have been duly and validly authorized, executed and delivered by the Company.
The Company has full power and lawful authority to authorize, issue and sell the
Stock to be sold by it hereunder on the terms
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and conditions set forth herein, and no consent, approval, authorization or
other order of any governmental authority is required in connection with such
authorization, execution and delivery or with the authorization, issue and sale
of the Stock or the Warrants, except such as may be required under the Act or
state securities laws.
(g) Except as described in the Prospectus, neither the Company nor any
of its Subsidiaries is in violation, breach or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the respective properties or assets of the Company or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
may be bound or to which any of the respective properties or assets of the
Company or any of its Subsidiaries is subject, nor will such action result in
any violation of the provisions of the respective articles of incorporation or
the by-laws of the Company or any of its Subsidiaries, as amended, or any
statute or any order, rule or regulation applicable to the Company or any of its
Subsidiaries of any court or of any regulatory authority or other governmental
body having jurisdiction over the Company or any of its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the Company
and each of its Subsidiaries has good and marketable title to all respective
properties and assets described in the Prospectus as owned by the Company and
each of its Subsidiaries, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its respective business; all of the material leases and subleases
under which the Company or any of its Subsidiaries is the lessor or sublessor of
properties or assets or under which the Company or any of its Subsidiaries holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and, except as described in the Prospectus, the
Company and each of its Subsidiaries is not in default in any material respect
with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or any of its Subsidiaries as lessor, sublessor, lessee or sublessee
under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company or any of its Subsidiaries to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
and each of its Subsidiaries owns or leases all such properties described in the
Prospectus as are necessary to its respective operations as now conducted and,
except as otherwise stated in the Prospectus, as proposed to be conducted as set
forth in the Prospectus.
(i) BDO Seidman, LLP, who have given their reports on certain financial
statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
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(j) The financial statements, together with related notes, set forth in
the Prospectus or the Registration Statement present fairly the financial
position and results of operations and changes in cash flow of the Company and
each of its Subsidiaries on the basis stated in the Registration Statement, at
the respective dates and for the respective periods to which they apply. Said
statements and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved and the Rules and Regulations. The information set forth under
the captions "Dilution," "Capitalization" and "Selected Financial Data" in the
Prospectus fairly present, on the basis stated in the Prospectus, the
information included therein.
(k) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, neither the Company nor any of its
Subsidiaries has incurred any liabilities or obligations, direct or contingent,
not in the ordinary course of business, or entered into any transaction not in
the ordinary course of business, which is material to the respective businesses
of the Company or any of its Subsidiaries, and there has not been any change in
the capital stock of, or any incurrence of short-term or long-term debt by, the
Company or any of its Subsidiaries or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any of its Subsidiaries
or any adverse change or any development involving, so far as the Company can
now reasonably foresee a prospective adverse change in the respective conditions
(financial or other), net worths, results of operations, businesses, key
personnel or properties of the Company or any of its Subsidiaries which would be
material to the respective businesses or financial conditions of the Company or
any of its Subsidiaries and neither the Company nor any of its Subsidiaries has
become a party to, and neither the respective businesses nor the properties of
the Company or any of its Subsidiaries has become the subject of, any material
litigation whether or not in the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending or,
to the knowledge of the Company, threatened, any action, suit or proceeding to
which the Company or any of its Subsidiaries is a party before or by any court
or governmental agency or body, which might result in any material adverse
change in the respective conditions (financial or other), business prospects,
net worths, or properties of the Company or any of its Subsidiaries, nor are
there any actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race; and no
labor disputes involving the employees of the Company or any of its Subsidiaries
exist or are imminent which might be expected to adversely affect the conduct of
the respective businesses, properties or operations or the financial conditions
or results of operations of the Company or any of its Subsidiaries.
(m) Except as disclosed in the Prospectus, the Company and each of its
Subsidiaries has filed all necessary federal, state and foreign income and
franchise tax returns and has paid all taxes shown as due thereon; and there is
no tax deficiency which has been or to the knowledge of the Company might be
asserted against the Company or any of its Subsidiaries.
(n) The Company and each of its Subsidiaries has sufficient licenses,
permits and other governmental authorizations as are required for the conduct of
its respective business or the ownership of its properties as described in the
Prospectus and is in all material
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respects complying therewith and owns or possesses adequate rights to use all
material trademarks, service marks, trade-names, trademark registrations,
service mark registrations, copyrights and licenses necessary for the conduct of
such business and none of the foregoing are in dispute or are in conflict with
the right of any other person or entity. To the best knowledge of the Company,
none of the activities or business of the Company or any of its Subsidiaries are
in violation of, or cause the Company or any of its Subsidiaries to violate, any
law, rule, regulation or order of the United States, any state, county or
locality, or of any agency or body of the United States or of any state, county
or locality, the violation of which would have a material adverse impact upon
the respective conditions (financial or otherwise), businesses, properties,
prospective results of operations, or net worth of the Company or any of its
Subsidiaries.
(o) Neither the Company nor any of its Subsidiaries has directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's internal accounting controls and procedures are sufficient
to cause the Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other
taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Stock to the several Underwriters
hereunder will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(q) All contracts and other documents of the Company and each of its
Subsidiaries which are, under the Rules and Regulations, required to be filed as
exhibits to the Registration Statement have been so filed.
(r) Neither the Company nor any of its Subsidiaries has taken and will
not take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock.
(s) Neither the Company nor any of its Subsidiaries has entered into
any agreement pursuant to which any person is entitled, either directly or
indirectly, to compensation from the Company for services as a finder in
connection with the public offering referred to herein.
(t) Except as previously disclosed in writing by the Company to the
Representative, no officer, director or stockholder of the Company or any of its
Subsidiaries has any National Association of Securities Dealers Inc. (the
"NASD") affiliation.
(u) Neither the Company nor any of the Subsidiaries is and upon receipt
of the proceeds from the sale of the Stock will be, an "investment company"
within the
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meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(v) Neither the Company nor any of its Subsidiaries has distributed nor
will distribute prior to the First Closing Date any offering material in
connection with the offering and sale of the Stock other than the Prospectus,
the Registration Statement and the other materials permitted by the Act.
(w) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
(x) The Company has complied with all provisions of Section 517.075
Florida Statutes relating to doing business with the government of Cuba or with
any person or affiliate located in Cuba.
2. Representations and Warrants of the Selling Stockholders. Each of the
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Selling Stockholders represents and warrants to and agrees with, the
Underwriters that:
(a) This Agreement has been duly executed and delivered by or on behalf
of such Selling Stockholders.
(b) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
Continental Stock Transfer and Trust Company, as Custodian, relating to the
deposit of the Stock to be sold by such Selling Stockholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as such
Selling Stockholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement (the "Power of Attorney") will not contravene any provision of
applicable law, or any agreement or other instrument binding upon such Selling
Stockholder or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Stockholder, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by such Selling Stockholder of
its obligations under the Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required by the
securities or "blue sky" laws of the various states in connection with the offer
and sale of the Stock.
(c) Each Selling Stockholder has, and on the Closing Date and Option
Closing Date, if any, will have, valid title to the Stock to be sold by such
Selling Stockholder and the legal right and power, and all approval required by
law, to enter into this Agreement, the Custody Agreement and the Power of
Attorney and to sell, transfer and deliver the Stock to be sold by such Selling
Stockholder.
(d) The Stock to be sold by such Selling Stockholder pursuant to this
Agreement, has been duly authorized and is validly issued, fully paid and non-
assessable.
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<PAGE>
(e) The Custody Agreement and the Power of Attorney have been duly
executed and delivered by such Selling Stockholder and are valid and binding
agreements of such Selling Stockholder.
(f) Assuming the Underwriters acquire their interests in the Stock to
be sold by the Selling Stockholders in good faith and without notice of any
adverse claims, delivery of the Stock to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Stock free and clear of any
security interests, claims, liens, equities and other encumbrances.
(g) All information furnished by or on behalf of such Selling
Stockholder for use in the Registration Statement and Prospectus is, and on the
Closing Date and Option Closing Date, if any, will be, true, correct, and
complete, and does not, and on the Closing Date and Option Closing Date, if any,
will not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading.
3. Purchase, Delivery and Sale of the Stock.
----------------------------------------
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to issue and sell to the Underwriters, and each such Underwriter
agrees, severally and not jointly, to buy from the Company at $______ per share
of Stock, at the place and time hereinafter specified, the number of shares of
Stock set forth opposite the names of the Underwriters in Schedule A attached
hereto (the "First Stock") plus any additional shares of Stock which such
Underwriters may become obligated to purchase pursuant to the provisions of
Section 10 hereof. The First Stock shall consist of 3,000,000 shares of Stock to
be purchased from the Company.
Delivery of the First Stock against payment therefor shall take place
at the offices of Commonwealth Associates, 733 Third Avenue, New York, New York
10017 (or at such other place as may be designated by agreement between you and
the Company) at 10:00 a.m., New York time, on ___________ , 199_, or at such
later time and date as you may designate, such time and date of payment and
delivery for the First Stock being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company and each Selling Stockholder hereby grants, severally and
not jointly, an option to the several Underwriters (which may be exercised, at
its option, by the Representative, individually) to purchase all or any part of
an aggregate of an additional 450,000 shares of Stock (each Selling Stockholder
to sell to the several Underwriters up to the number of additional shares of
Stock set forth in Schedule B opposite the name of such Selling Stockholder), at
the same price per share of Stock, as the Underwriters shall pay for the First
Stock being sold pursuant to the provisions of subsection (a) of this Section 3
(such additional Stock being referred to herein as the "Option Stock"). This
option may be exercised within 45 days after the effective date of the
Registration Statement upon notice by the Representative to the Company and the
Custodian advising as to the amount of Option Stock as to which the option is
being exercised, the names and denominations
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<PAGE>
in which the certificates for such Option Stock are to be registered and the
time and date when such certificates are to be delivered. Such time and date
shall be determined by the Representative but shall not be earlier than four nor
later than ten full business days after the exercise of said option, nor in any
event prior to the First Closing Date, and such time and date is referred to
herein as the "Option Closing Date." Delivery of the Option Stock against
payment therefor shall take place at the offices of Commonwealth Associates, 733
Third Avenue, New York, New York 10017. The number of shares of Option Stock to
be purchased by each Underwriter, if any, shall bear the same percentage to the
total number of shares of Option Stock being purchased by the several
Underwriters pursuant to this subsection (b) as the number of shares of stock
such Underwriter is purchasing bears to the total number of the First Stock
being purchased pursuant to subsection (a) of this Section 3, as adjusted, in
each case by the Representative in such manner as the Representative may deem
appropriate. In the event that this option is exercised in part, the several
Underwriters shall first purchase all of the shares of Option Stock offered by
the Selling Stockholders before purchasing any Option Stock from the Company.
The option granted hereunder may be exercised only to cover overallotments in
the sale by the Underwriters of First Stock referred to in subsection (a) above.
In the event the Company declares or pays a dividend or distribution on its
Common Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Stock at the Option Closing Date.
(c) The Company will make the certificates for the Stock to be
purchased by the Underwriters hereunder available to you for checking at least
two full business days prior to the First Closing Date or the Option Closing
Date (which are collectively referred to herein as the "Closing Dates"). The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the Closing Dates. Time shall be of the
essence and delivery at the time and place specified in this Agreement is a
further condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Stock to be
purchased by the Underwriters hereunder will be delivered by the Company to you
for the accounts of the several Underwriters against payment of the respective
purchase prices therefor by the several Underwriters, by certified or bank
cashier's checks in New York Clearing House funds, payable to the order of the
Company.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the option to purchase from the Company and the Selling
Stockholders all or any portion of the Option Stock pursuant to the provisions
of subsection (b) above, payment for such stock shall be made to or upon the
order of the Company and the Custodian, on behalf of the Selling Stockholders,
respectively, by certified or bank cashier's checks payable in New York Clearing
House funds at the offices of Commonwealth Associates, at the time and date of
delivery of such Stock as required by the provisions of subsection (b) above,
against receipt of the certificates for such Stock by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request.
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It is understood that you, individually and not as Representative of
the several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 3 on behalf of any Underwriters whose
check or checks shall not have been received by the Representative at the time
of delivery of the Stock to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or underwriters
of any of its or their obligations hereunder. It is also understood that you
individually rather than all of the Underwriters may (but shall not be obligated
to) purchase the Option Stock referred to in subsection (b) of this Section 3,
but only to cover overallotments.
It is understood that the several Underwriters propose to offer the
Stock to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
4. Covenants of the Company. The Company covenants and agrees with the
------------------------
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file any amendment to the Registration
Statement or supplement to the Prospectus of which you shall not previously have
been advised and furnished with a copy or to which you or your counsel shall
have objected in writing or which is not in compliance with the Act and the
Rules and Regulations. At any time prior to the later of (A) the completion by
all of the Underwriters of the distribution of the Stock contemplated hereby
(but in no event more than nine months after the date on which the Registration
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective (the "Minimum Period"), the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Stock.
As soon as the Company is advised thereof, the Company will advise you,
and confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus or any
amended Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the Commission or any state
or regulatory body of any stop order or other order or threat thereof suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Stock for offering in any jurisdiction, or of the
institution of any proceedings for any of such purposes, and will use its best
efforts to prevent the issuance of any such order, and, if issued, to obtain as
soon as possible the lifting thereof.
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The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to the
use of such copies for the purposes permitted by the Act. The Company authorizes
the Underwriters and dealers to use the Prospectus in connection with the sale
of the Stock for such period as in the opinion of counsel to the several
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under this Act to be
delivered in connection with sales by an underwriter of any event of which the
Company has knowledge and which materially affects the Company or the securities
of the Company, or which in the opinion of counsel for the Company or counsel
for the Underwriters should be set forth in an amendment of the Registration
Statement or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Stock or in
case it shall be necessary to amend or supplement the Prospectus to comply with
law or with the Rules and Regulations, the Company will notify you promptly and
forthwith prepare and furnish to you copies of such amended Prospectus or of
such supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or supplemented,
will not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not misleading. The
preparation and furnishing of any such amendment or supplement to the
Registration Statement or amended Prospectus or supplement to be attached to the
Prospectus shall be without expense to the Underwriters, except that in case any
Underwriter is required, in connection with the sale of the Stock, to deliver a
Prospectus nine months or more after the effective date of the Registration
Statement, the Company will upon request of and at the expense of the
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the Underwriter with reasonable quantities of prospectuses complying
with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations thereunder in connection with the offering and issuance of the
Stock.
(b) The Company will use its best efforts to qualify to register the
Stock for sale under the securities or "blue sky" laws of such jurisdictions as
the Representative may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent to service
of process in any jurisdiction in any action other than one arising out of the
offering or sale of the Stock. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as the Underwriters may reasonably
request.
(c) If the sale of the Stock provided for herein is not consummated for
any reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the
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expenses itemized in Section 9, including the accountable expenses of the
Underwriters, including legal fees.
(d) The Company will use its best efforts to (i) cause a registration
statement under the Exchange Act to be declared effective concurrently with the
completion of this offering (and will notify the Representative in writing
immediately upon the effectiveness of such registration statement), and (ii) if
requested by the Representative, to obtain a listing on the Pacific Stock
Exchange, and to obtain and keep current a listing in the Standard & Poors or
Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company under either
Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its stockholders an annual report (including financial statements
audited by independent public accountants), in reasonable detail, and at its
expense, will furnish to you during the period ending five (5) years from the
date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all non-
confidential reports and financial statements furnished to or filed with the
Commission of any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto, and will
deliver to the several Underwriters such number of conformed copies of the
Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the several Underwriters may
reasonably request. The Company will deliver to or upon the order of the several
Underwriters, from time to time until the effective date of the Registration
Statement, as many copies of any Preliminary Prospectus filed with the
Commission prior to the effective date of the Registration Statement as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters on the effective date of the Registration Statement and thereafter
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
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(h) The Company will make generally available to its security holders
and deliver to you as soon as it is practicable to do so but in no event later
than 90 days after the end of twelve months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve consecutive months beginning after the effective date of the Registration
Statement, which shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the Stock
for the purposes set forth under "Use of Proceeds" in the Prospectus, and will
file such reports with the Commission with respect to the sale of the Stock and
the application of the proceeds therefrom as may be required pursuant to Rule
463 under the Act.
(j) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters, may be reasonably necessary or advisable in connection
with the distribution of the Stock, and will use its best efforts to cause the
same to become effective as promptly as possible.
(k) The Company will reserve and keep available that maximum number of
its authorized but unissued shares of Common Stock which are issuable upon
exercise of the Warrants outstanding from time to time.
(l) For a period of twelve months from the First Closing Date, no
officer, director or stockholder of the Company (the "Principal Stockholders")
will offer, sell or dispose of, directly or indirectly, any shares of Common
Stock except for the Note Stock (as defined herein) without the prior written
consent of the Representative. For a period of six months from the First Closing
Date, no Principal Stockholder will offer, sell or dispose of directly or
indirectly, any shares of Common Stock which were issued upon conversion of
certain promissory notes, as listed in Schedule D (the "Note Stock") without the
prior written consent of the Representative. In order to enforce this covenant,
the Company shall impose stop-transfer instructions with respect to the shares
of Common Stock and shares of Note Stock owned by the Principal Shareholders
until the end of each such period.
(m) Upon completion of this offering, the Company will make all filings
required, including registration under the Exchange Act, to obtain the listing
of its Common Stock on the Nasdaq National Market, and will effect and maintain
such listing for at least five (5) years from the date of this Agreement.
(n) The Company and each of the Principal Stockholders represents that
it or he has not taken and agree that it or he will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Stock or to facilitate the sale or resale of the Stock.
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<PAGE>
(o) On the Closing Date, and simultaneously with the delivery of the
Stock, the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, the Warrants. The Warrants will be
substantially in the form of the Representative's Stock Purchase Warrant filed
as an Exhibit to the Registration Statement.
(p) During the 18 month period commencing on the date of this Agreement
the Company will not, without the prior written consent of the Representative,
grant options to purchase shares of Common Stock at a price less than the
greater of (i) initial public offering price of the Stock or (ii) the fair
market value of the Common Stock on the date of grant. During the six month
period commencing on the date of this Agreement, the Company will not, without
the prior written consent of the Representative, grant options to any current
officer of the Company. During the three year period from the First Closing
Date, the Company will not, without the prior written consent of the
Representative offer or sell any of its Securities pursuant to Regulation S.
(q) Scott Mednick will be Chief Executive Officer of the Company on the
Closing Dates. The Company has obtained key person life insurance on the lives
of each of Scott Mednick and Ronald Bloom in an amount of not less than $2
million and will use its best efforts to maintain such insurance until the end
of the fifth anniversary of the First Closing Date or, if such individual's
employment is terminated prior to such date, to maintain such insurance on his
successor until the expiration of such period. For a period of thirteen months
from the First Closing Date, the compensation of the executive officers of the
Company shall not be increased from the compensation levels disclosed in the
Prospectus.
(r) On the Closing Date and simultaneously with the delivery of the
Stock the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, a financial advisory and consulting
agreement with you, in the form previously delivered to the Company by you (the
"Advisory Agreement") along with payment of the fee due thereunder, by certified
or bank cashier's checks, in New York Clearing House Funds, payable to the order
of the Representative.
(s) For a period of five (5) years from the Effective Date the Company
(i) at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders and
(ii) shall not change its accounting firm within the prior written consent of
the Chairman or the President of the Representative.
(t) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Representative or counsel to the Underwriters.
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<PAGE>
(u) The Company shall, for a period of six years after the date of this
Agreement, submit such reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
(v) The Company shall not grant registration rights to any person which
are exercisable prior to 13 months after the First Closing Date.
(w) For a period of three years after the Closing Date, the Company
shall cause the transfer agent for the Company's Common Stock, at its own
expense, to provide the Underwriter, if so requested, with copies of the
Company's daily transfer sheets.
(x) For a period of three years after the Closing Date, the Company
shall maintain BDO Seidman, LLP as the regularly engaged independent certified
public accounts to the Company, and shall not effect a change therefrom without
the prior written consent of the Representative; provided that no such consent
shall be necessary if the new independent certified public accountant to the
Company is a firm which is a member of the so-called "Big Six."
5. Conditions of Underwriters' Obligation. The obligations of the several
---------------------------------------
Underwriters to purchase and pay for the Stock which they have respectively
agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company and the Selling Stockholders herein, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you
shall have received notice thereof not later than 10:00 A.M., New York
time, on the day following the date of this Agreement, or at such later
time or on such later date as to which you may agree in writing; on or
prior to the Closing Dates no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that or a similar purpose shall have been instituted or shall be pending
or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission
for additional information shall have been complied with to the reasonable
satisfaction of Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters; and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened. If
required, the Prospectus shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the opinion,
addressed to the Underwriters, dated as of the First Closing Date, of
DeMartino,
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<PAGE>
Finkelstein, Rosen & Virga, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to do
business as a foreign corporation in New York and is in good standing
in each other jurisdiction in which the ownership or leasing of its
properties or conduct of its business requires such qualification;
(ii) each of the Subsidiaries have been duly incorporated and
are validly existing as a corporation in good standing under the laws
of their respective states of incorporation, as set forth on Schedule
C, with full corporate power and authority to own their properties and
conduct their businesses as described in the Registration Statement and
Prospectus and are duly qualified or licensed to do business as foreign
corporations and are in good standing in each other jurisdiction in
which the ownership or leasing of their properties or conduct of their
businesses requires such qualification;
(iii) to the best knowledge of such counsel, (a) the Company
and each of its Subsidiaries has obtained, or is in the process of
obtaining, all licenses, permits and other governmental authorizations
necessary to the conduct of its respective business as described in the
Prospectus, (b) such licenses, permits and other governmental
authorizations obtained are in full force and effect, and (c) the
Company and each of its Subsidiaries are in all material respects
complying therewith;
(iv) the authorized capitalization of the Company as of June
30, 1996 is as set forth under "Capitalization" in the Prospectus; all
shares of the Company's outstanding stock requiring authorization for
issuance by the Company's board of directors have been duly authorized,
validly issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company have not been issued in violation of the
preemptive rights of any stockholder and the stockholders of the
Company do not have any preemptive rights or other rights to subscribe
for or to purchase, nor are there any restrictions upon the voting or
transfer of any of the Stock; the Stock conforms to the description
thereof contained in the Prospectus; the Stock have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights and no personal liability will attach to the
ownership thereof; all prior sales by the Company of the
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<PAGE>
Company's securities have been made in compliance with or under an
exemption from registration under the Act and applicable state
securities laws and the stockholders of the Company have no recession
rights with respect to any outstanding securities of the Company; and
to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Stock as
contemplated by this Agreement gives rise to any registration rights or
other rights, other than those which have been waived or satisfied for
or relating to the registration of any shares of Common Stock;
(v) each of this Agreement, the Warrants and the Advisory
Agreement have been duly and validly authorized, executed and delivered
by the Company and assuming due execution by each other party hereto,
constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution may be
limited by applicable law);
(vi) the certificates evidencing the Stock are in due and
proper form; the Warrants will be exercisable for shares of Common
Stock of the Company in accordance with the terms of the Warrants and
at the prices therein provided for; at all times during the term of the
Warrants the shares of Common Stock of the Company issuable upon
exercise of the Warrants have been duly authorized and reserved for
issuance upon such exercise and such shares, when issued upon such
exercise in accordance with the terms of the Warrants and at the price
provided for, will be duly and validly issued, fully paid and non-
assessable;
(vii) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company or any of its
Subsidiaries is a party which could materially adversely affect the
respective businesses, properties, financial conditions or operations
of the Company or any of its Subsidiaries; or which question the
validity of the Common Stock of the Company, the Stock, this Agreement,
the Warrants or the Advisory Agreement, or of any action taken or to be
taken by the Company pursuant to this Agreement, the Warrants or the
Advisory Agreement, and no such proceedings are known to such counsel
to be contemplated against the Company or any of its Subsidiaries;
there are no governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
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<PAGE>
(viii) neither the Company nor any of its Subsidiaries is in
violation of or default under, nor will the execution and delivery of
this Agreement, the Warrants or the Advisory Agreement, and the
incurrence of the obligations herein or therein set forth and the
consummation of the transactions herein or therein contemplated, result
in a breach or violation of, or constitute a default under the
respective certificate or articles of incorporation or by-laws, in the
performance or observance of any material obligations, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or any of their respective
properties may be bound or in violation of any material order, rule,
regulation, writ, injunction, or decree of any government, governmental
instrumentality or court, domestic or foreign;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission; the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement or any amendment thereto at the
time it became effective or as of the Closing Dates contained any
untrue statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make statements therein, in light of the circumstances under which they
were made, not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and
other financial information and schedules contained therein, as to
which such counsel need express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents are accurate and fairly present the information
required to
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<PAGE>
be shown, and such counsel is familiar with all contracts and other
documents referred to in the Registration Statement and the Prospectus
and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts
or documents of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so summarized,
described or filed;
(xii) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery
of the Stock by the Company, in connection with the execution, delivery
and performance of this Agreement by the Company or in connection with
the taking of any action contemplated herein, or the issuance of the
Warrants or the Common Stock underlying the Warrants, other than
registrations or qualifications of the Stock under applicable state or
foreign securities or Blue Sky laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business", "Use of Proceeds", "Management", and "Description
of Common Stock" have been reviewed by such counsel and insofar as they
refer to descriptions of agreements, statements of law, descriptions of
statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects; and
(xiv) the Stock has been duly authorized for quotation on the
Nasdaq National Market.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Representative or counsel for the Underwriters
shall reasonably request. In rendering such opinion, such counsel may rely
upon certificates of any officer of the Company or public officials as to
matters of fact; and may rely as to all matters of law other than the law
of the United States or of the District of Columbia upon opinions of
counsel satisfactory to you, in which case the opinion shall state that
they have no reason to believe that you and they are not entitled to so
rely.
(c) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other
related matters shall be satisfactory to or approved by Bachner, Tally,
Polevoy & Misher LLP, counsel to the several Underwriters, and you shall
have received from such counsel a signed opinion, dated as of the First
Closing Date, together with copies thereof for each of the other
Underwriters, with respect to the validity of the issuance of the Stock,
the form of the Registration Statement and Prospectus (other than the
financial statements and other financial data contained therein), the
execution of
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<PAGE>
this Agreement and other related matters as you may reasonably require. The
Company shall have furnished to counsel for the several Underwriters such
documents as they may reasonably request for the purpose of enabling them
to render such opinion.
(d) You shall have received a letter prior to the effective date of
the Registration Statement and again on and as of the First Closing Date
from BDO Seidman, LLP, independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending at the
end of the month immediately preceding the effective date and results of
the comparable period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of the Closing Dates and the Company shall
have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date,
(ii) the Registration Statement and the Prospectus and any amendments or
supplements thereto shall contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations,
and in all material respects conform to the requirements thereof, and
neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, (iii) there shall have been,
since the respective dates as of which information is given, no material
adverse change, or any development involving a prospective material adverse
change in the respective businesses, properties or conditions (financial or
otherwise), results of operations, capital stock, long-term or short-term
debt or general affairs of the Company or any of its Subsidiaries from that
set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after
the effective date of the Registration Statement, and the neither Company
nor any of its Subsidiaries shall have incurred any material liabilities or
agreement not in the ordinary course of business other than as referred to
in the Registration Statement and Prospectus; and (iv) except as set forth
in the Prospectus, no action, suit or proceeding at law or in equity shall
be pending or threatened against the Company or any of its Subsidiaries
which would be required to be set forth in the Registration Statement, and
no proceedings shall be pending or threatened against the Company or any of
its Subsidiaries before or by any commission, board or administrative
agency in the United States or elsewhere, wherein an unfavorable decision,
ruling or finding would materially and adversely affect the respective
businesses, properties, conditions (financial or otherwise), results of
operations or general affairs of the Company or any of its Subsidiaries,
and (v) you shall have received, at the First Closing Date, a certificate
signed by each of the Chairman of the Board or the President and the
principal financial or
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<PAGE>
accounting officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this subsection (e).
(f) Upon exercise of the option provided for in Section 3(b) hereof,
the obligations of the several Underwriters (or, at its option, the
Representative, individually) to purchase and pay for the Option Stock
referred to therein will be subject (as of the date hereof and as of the
Option Closing Date) to the following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the
Commission, and any reasonable request on the part of the Commission
for additional information shall have been complied with to the
satisfaction of Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters.
(ii) At the Option Closing Date there shall have been
delivered to you as Representative the signed opinion of DeMartino,
Finkelstein, Rosen & Virga, counsel for the Company, dated as of the
Option Closing Date, in form and substance satisfactory to Bachner,
Tally, Polevoy & Misher LLP, counsel to the several Underwriters,
together with copies of such opinion for each of the other several
Underwriters, which opinion shall be substantially the same in scope
and substance as the opinion furnished to you at the First Closing Date
pursuant to Section 5(b), except that such opinion, where appropriate,
shall cover the Option Stock.
(iii) At the Option Closing Date there shall have been
delivered to you as Representative a signed opinion of DeMartino,
Finkelstein, Rosen & Virga, counsel for the Selling Stockholders, dated
the Option Closing Date, to the effect that:
(A) this Agreement has been duly executed and delivered
by or on behalf of each of the Selling Stockholders;
(B) to such counsel's knowledge, after due inquiry, the
execution and delivery by each Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under
this Agreement, the Custody Agreement and the Power of Attorney
of such Selling Stockholder will not contravene any provision of
laws of the United States or of New York, or, to the best of
such counsel's knowledge, any agreement or other instrument
binding upon such Selling Stockholder or, to the best of such
counsel's knowledge, any judgment, order or decree of any
governmental
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<PAGE>
body, agency or court having jurisdiction over such Selling
Stockholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement, the Custody Agreement or the
Power of Attorney of such Selling Stockholder, except such as
may be required by the securities or "blue sky" laws of the
various states in connection with offer and sale of the Stock;
(C) each of the Custody Agreement and the Power of
Attorney of each Selling Stockholder has been duly executed and
delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder;
(D) assuming the Underwriters acquire their interest
in the Stock to be sold by the Selling Stockholders in good
faith and without notice of any adverse claims, delivery of the
Stock to be sold by each Selling Stockholder pursuant to this
Agreement will pass title to such Stock free and clear of any
security interests, claims, liens, securities interest and other
encumbrances; and
(iii) At the Option Closing Date there shall have been
delivered to you a certificate of the Chairman of the Board or the
President and the principal financial or accounting officer of the
Company, dated the Option Closing Date, in form and substance
satisfactory to Bachner, Tally, Polevoy & Misher LLP, counsel to the
several Underwriters, substantially the same in scope and substance as
the certificate furnished to you at the First Closing Date pursuant to
Section 5(e).
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you
from BDO Seidman, LLP, dated the Option Closing Date and addressed to
the Underwriters confirming the information in their letter referred to
in Section 5(d) hereof and stating that nothing has come to their
attention during the period from the ending date of their review
referred to in said letter to a date not more than five business days
prior to the Option Closing Date, which would require any change in
said letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Stock shall
be satisfactory in form and substance to you, and you and Bachner,
Tally, Polevoy & Misher LLP, counsel to the several Underwriters, shall
have been furnished with all such documents, certificates, affidavits
and opinions as you may request in connection with this transaction in
order to evidence
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the accuracy and completeness of any of the representations, warranties
or statements of the Company and each of the Selling Stockholders or
their compliance with any of the covenants or conditions contained
herein.
(g) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal
or agent) in the Common Stock and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge
of the several Underwriters or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it
has no knowledge that any such action is in fact contemplated by the
Commission or the NASD. The Company shall advise the several Underwriters
of any NASD affiliation of any of its officers, directors, stockholders or
their affiliates.
If any of the conditions herein provided for in this Section shall not have
been fulfilled as of the date indicated, this Agreement and all obligations of
the several Underwriters under this Agreement may be cancelled at, or at any
time prior to, each Closing Date by the Representative. Any such cancellation
shall be without liability of the Underwriters to the Company or any of the
Selling Stockholders.
6. Conditions of the Obligations of the Company. The obligation of the
---------------------------------------------
Company to sell and deliver the Stock is subject to the following conditions:
(a) The Registration Statement shall have become effective not later
than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Representative may
agree to in writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under
the Act or any proceedings therefor initiated or threatened by the
Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company and the Selling Stockholders to sell and deliver the
Stock on exercise of the option provided for in Section 3(b) hereof shall be
affected.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation
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and all attorneys' fees), to which such Underwriter or such controlling person
may become subject, under the Act or otherwise, and will reimburse, as incurred,
such Underwriter and such controlling persons for any legal or other expenses
reasonably incurred in connection with investigating, defending against or
appearing as a third party witness in connection with any losses, claims,
damages or liabilities, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in (A) the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (B) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Stock under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or arise out of or are based upon the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus,
Prospectus, or any amendment or supplement thereto, or in any Blue Sky
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation of the Registration Statement or any such amendment or supplement
thereof or any such Blue Sky Application or any such preliminary Prospectus or
the Prospectus or any such amendment or supplement thereto. This indemnity will
be in addition to any liability which the Company may otherwise have.
(b) To the extent the over-allotment option is exercised and the
Selling Stockholders sell Stock hereunder, each such Selling Stockholder agrees,
severally and not jointly, to indemnify and hold harmless (i) the Company, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company with the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and (ii) each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any Preliminary Prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged untrue statement
or omission based upon information relating to any Underwriter furnished to the
Company in writing by or on behalf of such Underwriter through the
Representative expressly for use therein; provided, however, that with respect
-------- -------
to any amount due to an indemnified person under this Section 7, each Selling
Stockholder shall be liable only the extent of the net proceeds received by such
Selling Stockholder from the sale of such Selling Stockholder's Stock; provided
--------
further, however, that the indemnification provided by each Selling Stockholder
- ------- -------
to the Company shall only be with reference to information relating to such
Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in the Registration Statement, any Preliminary
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Prospectus, the Prospectus or any amendments or supplements thereto. The
Underwriters will make no claim hereunder of any Selling Stockholder until a
period of at last six months after the Underwriters have made a claim against
the Company hereunder and such claim remains unsatisfied or has been rejected.
(c) Each Underwriter severally, but not jointly, will indemnify and
hold harmless the Company, the Selling Stockholders, each of the Company's
directors, each nominee (if any) for director of the Company named in the
Prospectus, each of the Company's officers who have signed the Registration
Statement, and each person, if any, who controls the Company or any of the
Selling Stockholders within the meaning of the Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any of the Selling Stockholders or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (i) in reliance upon and in conformity with written
information furnished to the Company or any of the Selling Stockholders by you
or by any Underwriter through you specifically for use in the preparation
thereof and (ii) relates to the transactions effected by the Underwriters in
connection with the offer and sale of the Stock contemplated hereby. This
indemnity agreement will be in addition to any liability which the Underwriters
may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party;
-25-
<PAGE>
provided that if the indemnified party is an Underwriter or a person who
controls such Underwriter within the meaning of the Act, the fees and expenses
of such counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) the named parties to any such action (including any
impleaded parties) include both such Underwriter or such controlling person and
the indemnifying party and in the judgment of the Representative, it is
advisable for the Representative or such Underwriters or controlling persons to
be represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
such Underwriters and controlling persons, which firm shall be designated in
writing by you). No settlement of any action against an indemnified party shall
be made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
8. Contribution. In order to provide for just and equitable contribution
------------
under the Act in any case in which (i) any Underwriter makes claim for
indemnification pursuant to Section 7 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of ti me to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, and each
Selling Stockholder, in the aggregate, and any such Underwriter shall contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all reasonable
attorneys' fees) in either such case (after contribution from others) in such
proportions that all such Underwriters are responsible in the aggregate for that
portion of such losses, claims, damages or liabilities represented by the
percentage that the underwriting discount per share appearing on the cover page
of the Prospectus bears to the public offering price appearing thereon, and the
Company and the Selling Stockholders shall be responsible for the remaining
portion, provided, however, that no Selling Stockholder shall be required to
contribute an amount in excess of the amount of net proceeds from the sale of
such Selling Stockholder's Stock, and further provided that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company, the Selling Stockholders and the Underwriters and controlling persons,
in the aggregate, in connection with the statements or omissions which resulted
in such damages and other relevant equitable considerations shall also be
considered. The relative fault shall be determined by reference to, among other
things, whether in the case of an untrue statement of a material fact or the
omission to state a material fact, such statement or omission relates to
information supplied by the Company or the Selling Stockholders, or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company , the Selling Stockholders and the Underwriters agree that (a) it would
not be just and equitable if the respective obligations of the Company and the
Selling
-26-
<PAGE>
Stockholders and the Underwriters to contribute pursuant to this Section 8 were
to be determined by pro rata or per capita allocation of the aggregate damages
(even if the Underwriters and their respective controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the first sentence of this Section 8, (b) that the contribution of each
contributing Underwriter shall not be in excess of its proportionate share
(based on the ratio of the number of shares of Stock purchased by such
Underwriter to the number of shares of Stock purchased by all contributing
Underwriters) of the portion of such losses, claims, damages or liabilities for
which the Underwriters are responsible and (c) that no Selling Stockholder shall
be required to contribute an amount in excess of the amount of net proceeds from
the sale of such Selling Stockholder's Stock. No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this paragraph, the term "Underwriter" includes
any officer, director, or other person who controls an Underwriter within the
meaning of Section 15 of the Act and the words "Company" and "Selling
Stockholders" include any officer, director, or person who controls the Company
or any Selling Stockholder within the meaning of Section 15 of the Act. If the
full amount of the contribution specified in this paragraph is not permitted by
law, then any Underwriter and each person who controls any Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons, and the Selling Stockholders and their controlling persons
to the full extent permitted by law. The foregoing contribution agreement shall
in no way affect the contribution liabilities of any persons having liability
under Section 11 of the Act other than the Company, the Selling Stockholders and
the Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
9. Costs and Expenses.
------------------
(a) Each Selling Stockholder, severally and not jointly, agrees to
pay or cause to be paid (i) all taxes, if any, on the transfer and sale of the
Stock being sold by such Selling Stockholder and (ii) such Selling Stockholder's
pro rata share (determined by dividing the number of shares of Stock sold by
- --- ----
such Selling Stockholder by the total number of shares of Stock sold by the
Company and the Selling Stockholders in the aggregate) of all costs and expenses
incident to the performance of the obligations of the Selling Stockholders and
the Company under this Agreement, and the fees, disbursements and expenses of
counsel for the Selling Stockholders; provided, however, that the Selling
Stockholders shall not be liable for the aforementioned expenses to the extent
such expenses are paid by the Company.
(b) Whether or not this Agreement becomes effective or the sale of
the Stock to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company; provided
however that the Selling Stockholders shall not be liable for the aforementioned
expenses to the extent such expenses are paid by the Company and of the
Company's accountants; the costs of investigative reports regarding the Company,
its principal stockholders and/or its officers and directors and each of its
Subsidiaries; the costs and
-27-
<PAGE>
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented, the fee of the NASD in connection with
the filing required by the NASD relating to the offering of the Stock
contemplated hereby; all expenses, including reasonable fees and disbursements
of counsel to the Underwriters, in connection with the qualification of the
Stock under the state securities or blue sky laws which the Representative shall
designate; the cost of printing and furnishing to the several Underwriters
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, this Agreement, the Agreement Among Underwriters, Selling Agreement,
Underwriters' Questionnaire, Underwriters' Power of Attorney and the Blue Sky
Memorandum, any fees relating to the listing of the Common Stock on the Nasdaq
National Market or other securities exchange, the cost of printing the
certificates representing the Stock, the fees of the transfer agent, the cost of
publication of at least three "tombstones" of the offering (at least one of
which shall be in a national business newspaper and one of which shall be in a
major New York newspaper and the cost of preparing at least four hard cover
"bound volumes" relating to the offering for individuals designated by the
Underwriter. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all cost and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 4(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the
First Closing Date pay to Commonwealth Associates in its individual rather than
representative capacity, a non-accountable expense allowance of $________ of
which $35,000 has been paid. In the event the overallotment option is exercised,
the Company shall pay to Commonwealth Associates at the Option Closing Date an
additional amount equal to 3% of the gross proceeds from the sale of Stock by
the Company on exercise of the overallotment option. In the event the
transactions contemplated hereby are not consummated by reason of any action by
the Representative (except if such prevention is based upon a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled) the Company shall be liable for the
accountable expenses of the Underwriters, including legal fees. In the event the
transactions contemplated hereby are not consummated by reason of any action of
the Company or because of a breach by the Company of any covenant,
representation or warranty herein, the Company shall be liable for the
accountable expenses of the Underwriters, including legal fees.
(c) No person is entitled either directly or indirectly to
compensation from the Company, from the Representative or from any other person
for services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless the Representative and the other
Underwriters, against any losses, claims, damages or liabilities, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees), to
which the Company, the Representative or such other Underwriter or person may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it
-28-
<PAGE>
is entitled to a finder's fee in connection with the proposed offering by reason
of such person's or entity's influence or prior contact with the indemnifying
party.
10. Substitution of Underwriters. If any Underwriters shall for any reason
----------------------------
not permitted hereunder cancel their obligations to purchase the First Stock
hereunder, or shall fail to take up and pay for the number of First Stock set
forth opposite their respective names in Schedule A hereto upon tender of such
First Stock in accordance with the terms hereof, then:
(a) If the aggregate number of shares of First Stock which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of First Stock, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the First Stock which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the agreed
number of First Stock with respect to which such default or defaults occurs is
more than 10% of the total number of First Stock, the remaining Underwriters
shall have the right to take up and pay for (in such proportion as may be agreed
upon among them) the First Stock which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the First Closing Date, take up and pay for the First Stock which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the First Stock shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the First Stock may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the First Stock which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the First Stock of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representative shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of First Stock to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the First Stock agreed to be
purchased by the defaulting Underwriters or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such First Stock as aforesaid, then this
Agreement shall terminate.
-29-
<PAGE>
If, following exercise of the option provided in Section 3(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Stock at the Option Closing Date, or shall
fail to take up and pay for the number of Option Stock, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Stock in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Stock of the
defaulting Underwriters in the manner provided in Section 10(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Stock, the Underwriters shall be entitled to purchase the number
of Option Stock for which there is no default or, at their election, the option
shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company, provided that the provisions of this Section 10 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.
11. Effective Date. The Agreement shall become effective upon its
--------------
execution except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time on the first full business day following the effective
date of the Registration Statement, or at such earlier time after the effective
date of the Registration Statement as you in your discretion shall first
commence the initial public offering by the Underwriters of any of the Stock.
The time of the initial public offering shall mean the time of release by you of
the first newspaper advertisement with respect to the Stock, or the time when
the Stock is first generally offered by you to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by you at any time
before it becomes effective as provided above, except that Sections 4(c), 7, 8,
9, 14, 15, 16 and 17 shall remain in effect notwithstanding such termination.
12. Termination.
-----------
(a) This Agreement, except for Sections 4(c), 7, 8, 9, 13, 14, 15,
16 and 17 hereof, may be terminated at any time prior to the First Closing Date,
and the option referred to in Section 3(b) hereof, if exercised, may be
cancelled at any time prior to the Option Closing Date, by you if in your
judgment it is impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Stock agreed to be purchased hereunder by
reason of (i) the Company having sustained a material loss, whether or not
insured, by reason of fire, earthquake, flood, accident or other calamity, or
from any labor dispute or court or government action, order or decree; (ii)
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq SmallCap Market or the Nasdaq National Market having been
suspended or limited; (iii) material governmental restrictions having been
imposed on trading in securities generally (not in force and effect on the date
hereof); (iv) a banking moratorium having been declared by federal or New York
state authorities; (v) an outbreak of international hostilities or other
national or international calamity or crisis or change in economic or political
conditions having occurred; (vi) a pending or threatened legal or governmental
proceeding or action relating generally to either of the Company's or any of its
Subsidiaries
-30-
<PAGE>
businesses, or a notification having been received by the Company or any of its
Subsidiaries of the threat of any such proceeding or action, which could
materially adversely affect the Company or any of its Subsidiaries; (vii) except
as contemplated by the Prospectus, the Company or any of its Subsidiaries are
merged or consolidated into or all or substantially all of the capital stock or
assets of the Company or any of its Subsidiaries are acquired by another company
or group or there exists a binding legal commitment for the foregoing or any
other material change of ownership or control occurs; (viii) the passage by the
Congress of the United States or by any state legislative body, or federal or
state agency or other authority of any act, measure, rule or regulation, or the
adoption of any orders, rules or regulations by any governmental body or any
authoritative accounting institute or board, or any governmental executive,
which is reasonably believed likely by the Representative to have a material
impact on the respective businesses, financial conditions or financial
statements of the Company or any of its Subsidiaries or the market for the
securities offered pursuant to the Prospectus; (ix) any adverse change in the
financial or securities markets beyond normal market fluctuations, having
occurred since the date of this Agreement, or (x) any material adverse change
having occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the respective earnings, businesses,
prospects or general conditions of the Company or any of its Subsidiaries,
financial or otherwise, whether or not arising in the ordinary course of
business.
(b) If you elect to prevent this Agreement from becoming effective
or to terminate this Agreement as provided in this Section 12 or in Section 11,
the Company shall be promptly notified by you, by telephone or telegram,
confirmed by letter.
13. Warrants. At or before the First Closing Date, the Company will sell
--------
to Commonwealth Associates (for its own account and not as Representative of the
several Underwriters), or its designees for a consideration of $300, and upon
the terms and conditions set forth in the form of Warrant annexed as an exhibit
to the Registration Statement, Warrants to purchase an aggregate of $300,000
shares of Common Stock of the Company. In the event of conflict in the terms of
this Agreement and the Warrants, the language of the Warrants shall control.
14. Representations, Warranties and Agreements to Survive Delivery. The
--------------------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company or its Principal Stockholders and the Selling
Stockholders where appropriate, and the Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of the Underwriters, the Company or any
of its officers or directors or any controlling person or any Selling
Stockholder and will survive delivery of and payment of the Stock and the
termination of this Agreement.
15. Notice. Any communications specifically required hereunder to be in
------
writing, if sent to the Underwriters, will be mailed, delivered or telegraphed
and confirmed to them at Commonwealth Associates, 733 Third Avenue, New York,
New York 10017 with a copy sent to Bachner, Tally, Polevoy & Misher LLP, 380
Madison Avenue, New York, New York 10017, or if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it
-31-
<PAGE>
at 45 West 36th Street, New York, New York 10018, with a copy sent to DeMartino,
Finkelstein, Rosen & Virga, 1818 N Street, N.W., Washington D.C. 20036.
16. Parties in Interest. The Agreement herein set forth is made solely
-------------------
for the benefit of the several Underwriters, the Company and, to the extent
expressed, the Principal Stockholders, the Selling Stockholders any person
controlling the Company or any of the several Underwriters or the Selling
Stockholders, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such purchaser, from any of the several Underwriters of the Stock.
All of the obligations of the Underwriters hereunder are several and not joint.
17. Applicable Law. This Agreement will be governed by, and construed in
--------------
accordance with, the laws of the State of New York applicable to agreements made
and to be entirely performed within New York.
-32-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company, the Selling Stockholders and the several
Underwriters in accordance with its terms.
Very truly yours,
THINK NEW IDEAS, INC.
By:
---------------------------------------
Scott Mednick, Chairman and Chief
Executive Officer
The Selling Stockholders named in Schedule B
hereto, acting generally
By:
---------------------------------------
Attorney-in-fact
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
COMMONWEALTH ASSOCIATES
By:
---------------------------------------
For itself and as Representative Robert Beuret, Vice Chairman
of the several Underwriters
By:
---------------------------------------
Basil Aschuitto, Chief Operating Officer
We hereby agree to be bound by the provisions of 3(k),(l), and (n) and 13
hereof.
- ------------------------------------
- ------------------------------------
- ------------------------------------
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<PAGE>
SCHEDULE A
Name of Underwriter Number of shares of Stock to be Purchased
- ------------------- -----------------------------------------
Commonwealth Associates
Total:
--------
========
<PAGE>
SCHEDULE B
Number of shares
of Option Stock
Selling Stockholders To be Sold
- -------------------- ----------------
Total:
--------
========
<PAGE>
SCHEDULE C
State of
Subsidiary Incorporation
------------------- -----------------
Scott Mednick & Associates, Inc. California
On Ramp, Inc. New York
Internet One, Inc. Colorado
Creative Resources Agency, Inc. Georgia
S.D. Goodman Group, Inc. New York
NetCube Corporation (NJ) New Jersey
NetCube Corporation (DE) Delaware
<PAGE>
SCHEDULE D
Number of shares
Principal Stockholders of Note Stock
- ---------------------- ----------------
<PAGE>
Exhibit 1.2
<PAGE>
********************************************************************************
STOCK PURCHASE WARRANT
To Purchase Common Stock of
THINK NEW IDEAS, INC.
********************************************************************************
<PAGE>
Void after 5:00 p.m. New York Time, on __________, 200_.
Warrant to Purchase 300,000 Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
THINK NEW IDEAS, INC.
This is to Certify That, FOR VALUE RECEIVED, Commonwealth Associates,
or assigns ("Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from Think New Ideas, Inc., a Delaware corporation ("Company"),
300,000 fully paid, validly issued and nonassessable shares of Common Stock, par
value $.0001 per share, of the Company ("Common Stock") at a price of $______
per share at any time or from time to time during the period from ____________,
199_ to ________________, 200_, but not later than 5:00 p.m. New York City Time,
on ______________, 200_. The number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Common Stock may be adjusted from time to time as hereinafter set forth. The
shares of Common Stock deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Shares" and the
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price".
This Warrant, together with warrants of like tenor, constituting in the
aggregate warrants (the "Warrants") to purchase 300,000 shares of Common Stock,
was originally issued pursuant to an underwriting agreement between the Company
and Commonwealth Associates ("Commonwealth"), in connection with a public
offering through Commonwealth of 3,000,000 shares of Common Stock, in
consideration of $300 received for the Warrants.
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part at any time
or from time to time on or after ______________, 199_ and until ___________,
200__ (the "Exercise Period"), subject to the provisions of Section (j)(2)
hereof; provided, however, that (i) if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day, and (ii) in the event of
any merger, consolidation or sale of substantially all the assets of the Company
as an entirety, resulting in any distribution to the Company's stockholders,
prior to _____________ 200_, the Holder shall have the right to exercise this
Warrant commencing at such time through ________, 200_ into the kind and amount
of shares of stock and other securities and property (including cash) receivable
by a holder of the number of shares of Common Stock into which this Warrant
might have been exercisable immediately prior thereto. This Warrant may be
exercised by presentation and surrender hereof to the Company
<PAGE>
at its principal office, or at the office of its stock transfer agent, if any,
with the Purchase Form annexed hereto duly executed and accompanied by payment
of the Exercise Price for the number of Warrant Shares specified in such form.
As soon as practicable after each such exercise of the warrants, but not later
than seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
(2) At any time during the Exercise Period, the Holder may, at
its option, exchange this Warrant, in whole or in part (a "Warrant Exchange"),
into the number of Warrant Shares determined in accordance with this Section
(a)(2), by surrendering this Warrant at the principal office of the Company or
at the office of its stock transfer agent, accompanied by a notice stating such
Holder's intent to effect such exchange, the number of Warrant Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any
Warrant Exchange, this Warrant shall represent the right to subscribe for and
acquire the number of Warrant Shares (rounded to the next highest integer) equal
to (i) the number of Warrant Shares specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to
the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price by (B) the current market value of a share of Common
Stock. Current market value shall have the meaning set forth Section (c) below,
except that for purposes hereof, the date of exercise, as used in such Section
(c), shall mean the Exchange Date.
(b) RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
-2-
<PAGE>
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market, the current
market value shall be the last reported sale price of the Common Stock
on such exchange or market on the last business day prior to the date
of exercise of this Warrant or if no such sale is made on such day,
the average closing bid and asked prices for such day on such exchange
or market; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, but is traded on the Nasdaq SmallCap Market, the
current Market Value shall be the average of the closing bid and asked
prices for such day on such market and if the Common Stock is not so
traded, the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the
exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in
such reasonable manner as may be prescribed by the Board of Directors
of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. This Warrant is not transferable (other than by
will or pursuant to the laws of descent and distribution and except as provided
under Subsection (a)(1)(ii) hereof) and may not be assigned or hypothecated for
a period of one year from ___________, 199_, except to and among the officers of
Commonwealth, any member of the selling group, or to and among the officers of
any member of the selling group. Upon surrender of this Warrant to the Company
at its principal office or at the office of its stock transfer agent, if any,
with the Assignment Form annexed hereto duly executed and funds sufficient to
pay any transfer tax, the Company shall, without charge, execute and deliver a
new Warrant in the name of the assignee named in such instrument of assignment
and this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new
-3-
<PAGE>
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect at the time of the
record date for such dividend or distribution or of the effective date
of such subdivision, combination or reclassification shall be adjusted
so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to
such action, and the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such action. Such
adjustment shall be made successively whenever any event listed above
shall occur.
(2) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsection (1) above, the number of
Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Shares initially issuable
upon exercise of this Warrant by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the Exercise
Price, as adjusted.
(3) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments
which by reason of this Subsection (3) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment required to be made hereunder. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest one-
hundredth of a share, as the case may be. Anything in this Section (f)
to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section (f), as it shall determine,
in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common
-4-
<PAGE>
Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly but no later than 10 days after any request
for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Shares issuable upon
exercise of each Warrant, and, if requested, information describing
the transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer
agent, if any. In the event the Company does not provide the Holder
with such notice and information within 10 days of a request by the
Holder, then notwithstanding the provisions of this Section (f), the
Exercise Price shall be immediately adjusted to equal the lowest
Offering Price, Subscription Price or Conversion Price, as applicable,
since the date of this Warrant, and the number of shares issuable upon
exercise of this Warrant shall be adjusted accordingly. The Company
may retain a firm of independent certified public accountants selected
by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Section (f),
and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
(5) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of this Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common
Stock contained in Subsections (1) to (3), inclusive above.
(6) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all
-5-
<PAGE>
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
-6-
<PAGE>
(j) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company shall advise the Holder of this Warrant or of
the Warrant Shares or any then holder of Warrants or Warrant Shares
(such persons being collectively referred to herein as "holders") by
written notice at least four weeks prior to the filing of any post-
effective amendment to the Company's Registration Statement No. 333-
______ on Form SB-2 ("Registration Statement"), declared effective by
the Securities and Exchange Commission on __________ or of any new
registration statement or post-effective amendment thereto under the
Securities Act of 1933 (the "Act") covering securities of the Company
and will for a period of six years, commencing one year from the
effective date of the Registration Statement, upon the request of any
such holder, include in any such post-effective amendment or
registration statement such information as may be required to permit a
public offering of the Warrants or the Warrant Shares. The Company
shall supply prospectuses and other documents as the Holder may
request in order to facilitate the public sale or other disposition of
the Warrants or Warrant Shares, qualify the Warrants and the Warrant
Shares for sale in such states as any such holder designates and do
any and all other acts and things which may be necessary or desirable
to enable such Holders to consummate the public sale or other
disposition of the Warrants or Warrant Shares, and furnish
indemnification in the manner as set forth in Subsection (3)(C) of
this Section (j). Such holders shall furnish information and
indemnification as set forth in Subsection (3)(C) of this Section (j),
except that the maximum amount which may be recovered from the Holder
shall be limited to the amount of proceeds received by the Holder from
the sale of the Warrants or Warrant Shares.
(2) If any majority holder (as defined in Subsection (4) of this
Section (j) below) shall give notice to the Company at any time during
the four year period commencing one year from the effective date of
the Registration Statement to the effect that such holder contemplates
(i) the transfer of all or any part of his or its Warrants and/or
Warrant Shares, or (ii) the exercise and/or conversion of all or any
part of his or its Warrants and the transfer of all or any part of the
Warrants and/or Warrant Shares under such circumstances that a public
offering (within the meaning of the Act) of Warrants and/or Warrant
Shares will be involved, and desires to register under the Act, the
Warrants and/or the Warrant Shares, then the Company shall, within two
weeks after rece ipt of such notice, file a post-effective amendment
to the Registration Statement or a new registration statement on Form
S-1 or such other form as the holder requests, pursuant to the Act, to
the end that the Warrants and/or Warrant Shares may be sold under the
Act as promptly as practicable thereafter and the Company will use its
best efforts to cause such registration to become effective and
continue to be effective (current) (including the taking of such steps
as are necessary to obtain the removal of any stop order) until the
holder has advised that all of the Warrants and/or Warrant Shares have
been sold; provided that such holder shall furnish the Company with
appropriate
-7-
<PAGE>
information (relating to the intentions of such holders) in connection
therewith as the Company shall reasonably request in writing. In the
event the registration statement is not declared effective under the
Act prior to 200_, then at the holder's request, the Company shall
purchase the Warrants from the holders for a per share price equal to
the fair market value of the Common Stock less the per share Exercise
Price. The holder may, at its option, request the registration of the
Warrants and/or Warrant Shares in a registration statement made by the
Company as contemplated by Subsection (1) of this Section (j) or in
connection with a request made pursuant to Subsection (2) of this
Section (j) prior to the acquisition of the Warrant Shares upon
exercise of the Warrants and even though the holder has not given
notice of exercise of the Warrants. If the Company determines to
include securities to be sold by it in any registration statement
originally requested pursuant to this Subsection (2) of this Section
(j), such registration shall instead be deemed to have been a
registration under Subsection (1) of this Section (j) and not under
Subsection (2) of this Subsection (j). The holder may thereafter at
its option, exercise the Warrants at any time or from time to time
subsequent to the effectiveness under the Act of the registration
statement in which the Warrant Shares were included.
(3) The following provision of this Section (j) shall also be
applicable:
(A) Within ten days after receiving any such notice
pursuant to Subsection (2) of this Section (j), the Company shall
give notice to the other holders of Warrants and Warrant Shares,
advising that the Company is proceeding with such post-effective
amendment or registration statement and offering to include
therein Warrants and/or Warrant Shares of such other holders,
provided that they shall furnish the Company with such
appropriate information (relating to the intentions of such
holders) in connection therewith as the Company shall reasonably
request in writing. Following the effective date of such post-
effective amendment or registration, the Company shall upon the
request of any owner of Warrants and/or Warrant Shares forthwith
supply such a number of prospectuses meeting the requirements of
the Act, as shall be requested by such owner to permit such
holder to make a public offering of all Warrants and/or Warrant
Shares from time to time offered or sold to such holder, provided
that such holder shall from time to time furnish the Company with
such appropriate information (relating to the intentions of such
holder) in connection therewith as the Company shall request in
writing. The Company shall also use its best efforts to qualify
the Warrant Shares for sale in such states as such majority
holder shall designate.
(B) The Company shall bear the entire cost and expense of
any registration of securities initiated by it under Subsection
(1) of this
-8-
<PAGE>
Section (j) notwithstanding that Warrants and/or Warrant Shares
subject to this Warrant may be included in any such registration.
The Company shall also comply with one request for registrat ion
made by the majority holder pursuant to Subsection (2) of this
Section (j) at its own expense and without charge to any holder
of any Warrants and/or Warrant Shares; and the Company shall
comply with one additional request made by the majority holder
pursuant to Subsection (2) of this Section (j) (and not deemed to
be pursuant to Subsection (1) of this Section (j)) at the sole
expense of such majority holder. Any holder whose Warrants and/
or Warrant Shares are included in any such registration statement
pursuant to this Section (j) shall, however, bear the fees of his
own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Warrant
Shares sold by him pursuant thereto.
(C) The Company shall indemnify and hold harmless each such
holder and each underwriter, within the meaning of the Act, who
may purchase from or sell for any such holder any Warrants and/or
Warrant Shares from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any post-effective amendment thereto or any
registration statement under the Act or any prospectus included
therein required to be filed or furnished by reason of this
Section (j) or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused
by any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished or
required to be furnished in writing to the Company by such holder
or underwriter expressly for use therein, which indemnification
shall include each person, if any, who controls any such
underwriter within the meaning of such Act provided, however,
that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final
prospectus or said amendment or supplement in reliance upon and
in conformity with written information furnished by such Holder
or any other Holder, specifically for use in the preparation
thereof.
(D) Neither the giving of any notice by any such majority
holder nor the making of any request for prospectuses shall
impose any upon such majority holder or owner making such request
any obligation to sell any Warrants and/or Warrant Shares, or
exercise any Warrants.
-9-
<PAGE>
(4) The term "majority holder" as used in this Section (j) shall
include any owner or combination of owners of Warrants or Warrant
Shares in any combination if the holdings of the aggregate amount of:
(i) the Warrants held by him or among them, plus
(ii) the Warrants which he or they would be holding if the
Warrants for the Warrant Shares owned by him or among them had
not been exercised,
would constitute a majority of the Warrants originally issued.
The Company's agreements with respect to Warrants or Warrant Shares in
this Section (j) shall continue in effect regardless of the exercise and
surrender of this Warrant.
THINK NEW IDEAS, INC.
By:
-----------------------------------
Scott Mednick, Chairman and Chief
Executive Officer
[SEAL]
Dated: , 199
------------- -
Attest:
- --------------------------------
Secretary
-10-
<PAGE>
PURCHASE FORM
-------------
Dated , 19
------------ --
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of _______ in payment of the actual exercise price thereof.
________________
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name
-----------------------------------
(Please typewrite or print in block letters)
Address
--------------------------------
Signature
------------------------------
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ______________ hereby sells, assigns and transfers
unto
Name
----------------------------------------
(Please typewrite or print in block letters)
Address
-------------------------------------
the right to purchase Common Stock represented by this Warrant to the extent of
______ shares as to which such right is exercisable and does hereby irrevocably
constitute and appoint ___________ as attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Date , 19
------------- --
Signature
----------------------------
<PAGE>
Exhibit 1.3
September __, 1996
Think New Ideas, Inc.
45 West 36th Street
New York, NY 10018
Attn: Scott Mednick
Chairman, and
Chief Executive Officer
Dear Mr. Mednick:
This will confirm the arrangements, terms and conditions pursuant to which
Commonwealth Associates (the "Consultant"), has been retained to serve as a
financial consultant and advisor to Think New Ideas, Inc., a Delaware
corporation (the "Company"), on a non-exclusive basis for services rendered in
association with the Company's initial public offering and terminating on the
closing of the Company's initial public offering (the "Closing"). The
undersigned hereby agrees to the following terms and conditions:
1. Duties of Consultant: Consultant shall, at the request of the Company,
--------------------
upon reasonable notice, provide such financial consulting services and advise
pertaining to the Company's business affairs as the Company may from time to
time reasonably request.
The services described in this Section 1 shall be rendered by
Consultant without any direct supervision by the Company at such time and place
and in such manner (whether by conference, telephone, letter or otherwise) as
Consultant may determine.
2. Compensation: As compensation for consultant's services hereunder, the
------------
Company shall pay Consultant Four Hundred and Fifty Thousand Dollars ($450,000)
with payment due at the Closing.
3. Additional Compensation in Certain Circumstances: In additional to the
------------------------------------------------
financial consulting services described in Section 1 above, Consultant may bring
the Company in contact with persons, whether individuals or entities that may be
suitable candidates for providing the Company with, or may lead the Company to
other individuals or entities that may provide the Company with, debt or equity
financing or that may be suitable candidates, or may lead the Company to such
suitable candidates, to purchase substantially all of the stock or assets of the
Company, sell all or substantially all of such candidate's stock or otherwise
transfer control of, or a material interest in, such candidate to the Company,
merge with the Company, or enter into a joint venture, strategic alliance or
other transaction with the Company (a "Transaction"). If the Company enters
into an agreement with any persons or their affiliates, or with any persons
introduced to the Company by any such persons or their affiliates during the
term of this Agreement or within six months of the expiration of the term of
this Agreement, pursuant to which the Company enters into a Transaction, the
Company will pay to Consultant, upon the
<PAGE>
closing of the Transaction, an amount mutually agreeable to both the Company and
Consultant which should be such amount as is generally customary for the type of
Transaction.
4. Available Time: Consultant shall make available such time as it, in
--------------
its sole discretion, shall deem appropriate for the performance of its
obligations under this Agreement and may in certain circumstances be entitled to
additional compensation in connection therewith.
5. Relationship: Nothing herein shall constitute Consultant as an
------------
employee or agent of the Company, except to such extent as might hereinafter be
agreed upon for a particular purpose. Except as might hereinafter be expressly
agreed, Consultant shall not have the authority to obligate or commit the
Company in any manner whatsoever.
6. Indemnification: Since Consultant will be acting on behalf of the
---------------
Company, the Company agrees to the indemnification provisions attached to this
Agreement as Annex A and incorporated herein in their entirety.
7. Confidentiality: Except in the course of the performance of its duties
---------------
hereunder, Consultant agrees that it shall not disclose any trade secrets, know-
how, or other proprietary information not in the public domain leaned as a
result of this Agreement unless and until such information becomes generally
known.
8. Assignment and Termination: This Agreement shall not be assignable by
--------------------------
any party except to successors to all or substantially all of the business of
either party for any reason whatsoever without the prior written consent of the
other party, which consent may not be arbitrarily withheld by the party whose
consent is required.
9. Governing Law: This Agreement shall be deemed to be a contract made
-------------
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said State.
Very truly yours,
By:
---------------------------------
Robert Beuret, Vice Chairman
Confirmed and Agreed to this
__ day of September, 1996
THINK NEW IDEAS, INC.
By:
--------------------------------
Scott Mednick, Chairman and
-2-
<PAGE>
Chief Executive Officer
-3-
<PAGE>
ANNEX A
Indemnification Provisions
--------------------------
In connection with the engagement of Commonwealth Associates ("Consultant")
by Think New Ideas, Inc. (the "Company") pursuant to that certain Agreement
dated as of September __, 1996, the Company hereby agrees as follows:
1. In connection with or arising out of or relating to the engagement of
Consultant under the Agreement, or any actions taken or omitted, services
performed or matters contemplated by or in connection with the Agreement, the
Company agrees to reimburse Consultant, its affiliates and their respective
directors, officers, employees, agents and controlling persons (each an
"Indemnified Party") promptly upon demand for expenses (including fees and
expenses of legal counsel) as they are incurred in connection with the
investigation of, preparation for or defense of any pending or threatened claim,
or any litigation, proceeding or other action in respect thereof. The Company
also agrees (in connection with the foregoing) to indemnify and hold harmless
each Indemnified Party from and against any and all losses, claims, damages and
liabilities, joint or several, to which any Indemnified Party may become
subject, including any amount paid in settlement of any litigation or other
action (commenced or threatened), to which the Company shall have consented in
writing (such consent not to be unreasonably withheld), whether or not any
Indemnified Party is a party and whether or not liability resulted; provided,
however, that the Company shall not be liable pursuant to this sentence in
respect of any loss, claim, damage or liability to the extent that a court
having competent jurisdiction shall have determined by final judgment (not
subject to further appeal) that such loss, claim, damage or liability resulted
primarily and directly from the willful misfeasance or gross negligence of such
Indemnified Party.
2. An Indemnified Party shall have the right to retain separate legal
counsel of its own choice to conduct the defense and all related matters in
connection with any such litigation, proceeding or other action. The Company
shall pay the fees and expenses of such legal counsel, and such legal counsel
shall to the fullest extent consistent with its professional responsibilities
cooperate with the Company and any legal counsel designated by the Company. The
Company agrees to consult in advance with Consultant with respect to the terms
of any proposed waiver, release or settlement of any claim, liability,
proceeding or other action against the Company to which an Indemnified Party may
also be subject, and to use its best efforts to afford Consultant and/or any
such Indemnified Party the opportunity to join in such waiver, release or
settlement.
3. In the event that the Indemnity provided for in paragraphs 1 and 2
hereof is unavailable or insufficient to hold any Indemnified Party harmless,
then the Company shall contribute to amounts paid or payable by an Indemnified
Party in respect of such Indemnified Party's losses, claims, damages and
liabilities as to which the indemnity provided for in paragraphs 1 and 2 hereof
is unavailable or insufficient (i) in such proportion as appropriately reflects
the
<PAGE>
relative benefits received by the Company, on the one hand, and Consultant, on
the other hand, in connection with the matters as to which such losses, claims,
damages or liabilities relate, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as appropriately
reflects not only the relative benefits referred to in clause (i) but also the
relative fault of the Company, on the one hand, and Consultant, on the other
hand, as well as any other equitable consideration. The amounts paid or payable
by a party in respect of losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees and expenses incurred
in defending any litigation, proceeding or other action or claim.
Notwithstanding the provisions hereof, Consultant's share of the liability
hereunder shall not be in excess of the amount of fees actually received by
Consultant under the Agreement (excluding any amounts received as reimbursement
of expenses incurred by Consultant).
4. It is understood and agreed that, in connection with Consultant's
engagement by the Company, Consultant may also be engaged to act for the Company
in one or more additional capacities, and that the terms of any such additional
engagement may be embodied in one or more separate written agreements. These
Indemnification Provisions shall apply to the engagement under the Agreement and
to any such additional engagement and any modification of such additional
engagement; provided, however, that in the event that the Company engages
Consultant to provide additional services (other than as indicated in the
Agreement), such further engagement may be subject to separate indemnification
and contribution provisions as may be mutually agreed upon.
5. These Indemnification Provisions shall remain in full force and effect
whether or not any of the transactions contemplated by the Agreement are
consummated and shall survive the expiration to the period of the Agreement, and
shall in addition to any liability that the Company might otherwise have to any
Indemnified Party under the Agreement or otherwise.
Very truly yours,
THINK NEW IDEAS, INC.
By:
-----------------------------------------
Scott Mednick, Chairman and
Chief Executive Officer
-2-
<PAGE>
Exhibit 1.4
<PAGE>
THINK NEW IDEAS, INC.
Public Offering
Letter of Transmittal and Custody Agreement
-------------------------------------------
Continental Stock Transfer
and Trust Company
Two Broadway
New York, N.Y. 10004
Ladies and Gentlemen:
There are delivered to you herewith certificates representing the number
of shares of Common Stock, par value $.0001 per share ("Common Stock"), of Think
New Ideas, Inc., a Delaware corporation (the "Company") as set forth at the end
of this letter on the page entitled "CERTIFICATES DEPOSITED." Each stock
certificate so delivered is accompanied by a duly executed assignment form duly
endorsed for transfer and are in negotiable form bearing the signature of the
undersigned guaranteed by a commercial bank or trust company having an office or
a correspondent in New York City, New York or by a member firm of the New York,
American or Pacific Stock Exchange. The stock certificates are to be held by you
as Custodian for the account of the undersigned and are to be disposed of by you
in accordance with this Letter of Transmittal and Custody Agreement (the
"Custody Agreement").
If the undersigned is acting as a fiduciary, officer, partner or agent,
------------------------------------------------------------------------
the undersigned has also delivered certified copies of the appropriate
- ----------------------------------------------------------------------
instruments pursuant to which the undersigned is authorized to act hereunder.
- ----------------------------------------------------------------------------
The undersigned agrees to deliver to the Attorneys (as herein defined) or
to you such additional documentation as the Attorneys, or any of them, or the
Company or the Representatives (as herein defined) or you or any of their
respective counsel may request to effectuate or confirm compliance with any of
the provisions hereof or of the Underwriting Agreement (as herein defined), all
of the foregoing to be in form and substance satisfactory in all respects to the
Attorneys and you or such counsel.
Concurrently with the execution and delivery of this Custody Agreement, the
undersigned has executed a power of attorney (the "Power of Attorney") to Scott
Mednick and Ronald Bloom (individually, an "Attorney" and collectively, the
"Attorneys"), authorizing the Attorneys, each with full power and authority to
act alone, including full power of substitution, subject to the terms and
conditions of the Power of Attorney, to sell from the number of securities
represented by the certificates deposited with you hereunder that number of
securities that are indicated on page 8 hereof and Attachment A to the Power of
Attorney and are to be sold pursuant to the Underwriting Agreement (the
"Securities"), and for that purpose to enter into and
<PAGE>
perform an underwriting agreement (the "Underwriting Agreement") among the
Company, certain securityholders of the Company including the undersigned (the
"Selling Securityholders"), and Commonwealth Associates, as representative (the
"Representative") of the underwriters named in Schedule A thereto (the
"Underwriters"). All items not otherwise defined herein shall have the same
meaning as in the Underwriting Agreement.
You are authorized and directed to hold the certificates deposited with
you hereunder in your custody, and on the Option Closing Date or such other date
specified in the Underwriting Agreement you shall (i) take all necessary action
to cause the Securities to be sold and transferred on the books of the Company
into such names as the Representatives, on behalf of the several Underwriters,
shall have instructed you and to surrender the certificates representing the
shares of Common Stock to you, as transfer agent for the Common Stock, in
exchange for new certificates for shares of Common Stock registered in such
names and in such denominations as the Representatives shall have instructed
you; (ii) deliver such new certificates to the Representatives, for the accounts
of the several Underwriters, against payment for such Securities at the purchase
price per share as determined in accordance with the Underwriting Agreement, and
give receipt for such payment; (iii) deposit the same to your account as
Custodian, and draw upon such account to pay such expenses, if any (the
"Expenses"), as you may be instructed to pay by the Attorneys, or any of them
and any stock transfer taxes chargeable to the undersigned ("Transfer Taxes");
and (iv) when instructed by an Attorney to do so, you are to transmit to the
undersigned, within 24 hours of such instruction to you, the balance, if any, of
the amount received by you as payment for the Securities after deducting the
Expenses and Transfer Taxes, if any. Such balance is to be paid in the manner
requested by the undersigned at the end of this Custody Agreement or in such
manner as you, in accordance with the terms hereof, shall deem appropriate. With
such remittance you shall also return to the undersigned new certificates
representing the number of shares of Common Stock, if any, represented by the
number of certificates deposited which are in excess of the number of Securities
sold by the undersigned to the Underwriters.
If the Underwriting Agreement shall not have been entered into prior to
__________, 1997, then, upon the written request of the undersigned to you
(accompanied by written notice of termination of the Power of Attorney addressed
to each of the Attorneys, in your care) on or after that date, you are to return
to the undersigned all the shares of Common Stock deposited with you hereunder,
together with any stock powers delivered herewith.
Under the terms of the Power of Attorney, the authority conferred thereby
is granted, made and conferred subject to and in consideration of the interests
of the Underwriters, the Company and the Selling Securityholders and, prior to
__________, 1997, is irrevocable and not subject to termination by the
undersigned or by operation of law, whether by the death, incapacity,
termination, dissolution or liquidation of the undersigned or otherwise, and the
obligations of the undersigned pursuant to the Underwriting Agreement are
similarly not subject to termination and shall remain in full force and effect
until such date and, to the extent provided therein, after such date.
Accordingly, the certificates deposited with you hereunder and this Custody
Agreement and your authority hereunder are subject to the interests of the
several
-2-
<PAGE>
Underwriters, the Company and the other Selling Securityholders, and this
Custody Agreement and your authority hereunder are irrevocable and are not
subject to termination by the undersigned or by operation of law, whether by the
death or incapacity of the undersigned, the termination of any trust or estate,
the death or incapacity of one or more trustees, guardians, executors or
administrators under such trust or estate, the dissolution or liquidation of any
corporation or partnership or the occurrence of any other event. If the
undersigned should die or become incapacitated, if any trust or estate should be
terminated, if any corporation or partnership should be dissolved or liquidated,
or if any other such event should occur before the delivery of the Securities to
be sold by the undersigned under the Underwriting Agreement, certificates for
such Securities shall be delivered by you on behalf of the undersigned in
accordance with the terms and conditions of the Underwriting Agreement and this
Custody Agreement, and action taken by you pursuant to this Custody Agreement
shall be as valid as if such death or incapacity, termination, dissolution,
liquidation or other event had not occurred, regardless of whether or not you or
the Attorneys, or either of them, shall have received notice of such death,
incapacity, termination, dissolution, liquidation or other event. Ralph
DeMartino of DeMartino, Finkelstein, Rosen & Virga, legal counsel to the
Company, has authority to instruct you on irregularities or discrepancies in
letters of transmittal, discrepancies in the form of Securities and accompanying
documents.
Until payment of the purchase price for the Securities has been made to
you by or for the account of the several Underwriters, the undersigned shall
remain the owner of the Securities, and shall have the right to vote the
Securities, represented by the certificates deposited with you hereunder and to
receive all dividends and distributions thereon.
You shall be entitled to act and rely upon any statement, request, notice
or instructions respecting this Custody Agreement given to you on behalf of the
undersigned, if the same shall have been made or given to you by the
undersigned, or by the Attorneys, or any of them; provided, however, that you
-------- -------
shall not be entitled to act on any statement or notice to you with respect to
the Option Closing Date under the Underwriting Agreement, or with respect to the
non-effectiveness or termination of the Underwriting Agreement, or advising that
the Underwriting Agreement has not been executed and delivered, unless such
statement or notice shall have been confirmed in writing to you by the
Representatives.
In taking any action requested or directed by the Representatives under
the terms of this Custody Agreement, you will be entitled to rely upon a writing
signed by an authorized employee of Commonwealth Associates.
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificate(s) deposited with you hereunder,
and the proceeds from the sale of all or a portion of the securities represented
thereby in accordance with the provisions of this Custody Agreement, and the
undersigned agrees to indemnify and hold you harmless with respect to anything
done by you in good faith in accordance with the foregoing instructions.
-3-
<PAGE>
The undersigned represents and warrants that:
(a) The Underwriting Agreement has been duly executed and
delivered by or on behalf of such Selling Securityholder.
(b) The execution and delivery by such Selling Securityholder of,
and the performance by such Selling Securityholder of its obligations
under, this Custody Agreement, the Underwriting Agreement and the Power
of Attorney will not contravene any provision of applicable law, or any
agreement or other instrument binding upon such Selling Securityholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over such Selling Securityholder, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by such
Selling Securityholder of its obligations under this Custody Agreement or
the Underwriting Agreement or Power of Attorney of such Selling
Securityholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of
the Securities.
(c) Each such Selling Securityholder has, and on the Closing Date
and Option Closing Date, if any, will have, valid title to the shares of
Common Stock to be sold by such Selling Securityholder and the legal
right and power, and all approval required by law, to enter into this
Agreement, the Custody Agreement and the Power of Attorney and to sell,
transfer and deliver the shares of Common Stock to be sold by such
Selling Securityholder.
(d) The shares of Common Stock to be sold by such Selling
Securityholder pursuant to this Agreement have been duly authorized and
are validly issued, fully paid and non-assessable.
(e) This Custody Agreement and the Power of Attorney have been
duly executed and delivered by such Selling Securityholder and are valid
and binding agreements of such Selling Securityholder.
(f) Assuming the underwriters acquire their interests in the
Securities in good faith and without notice of any adverse claims,
delivery of the Securities to be sold by such Selling Securityholder
pursuant to the Underwriting Agreement will pass title to such Securities
free and clear of any security interests, claims, liens, equities and
other encumbrances.
(g) All information furnished by or on behalf of such Selling
Securityholder for use in the Registration Statement and Prospectus is,
and on the Closing Date and Option Closing Date, if any, will be, true,
correct, and complete, and does not, and on the Closing Date and Option
Closing Date, if any, will not, contain any untrue statement of a
material fact or omit to state any material fact necessary to make such
information not misleading.
-4-
<PAGE>
The foregoing representations, warranties and agreements, as well as
those contained in the Power of Attorney and those contained in the Underwriting
Agreement, are made for the benefit of, and may be relied upon by, the other
Selling Securityholders, the Attorneys, the Company, Bachner, Tally, Polevoy &
Misher LLP, the Underwriters and their representatives, agents and counsel,
DeMartino, Finkelstein, Rosen & Virga, and the Custodian.
The Custody Agreement shall be governed by the laws of the State of New
York.
Please acknowledge your acceptance hereof as Custodian, and receipt of
the certificate(s) deposited with you hereunder, by executing and returning the
enclosed copy hereof to the undersigned in care of _________________.
Dated: _________, 1996
Print Name(s) and Address: Very truly yours,
- ----------------------------- ---------------------------- *
- -----------------------------
- ----------------------------- ---------------------------- *
Signature(s)
Taxpayer I.D. #:
-------------
Telephone Number:
( )
- -----------------------------
- -----------------------------
* To be signed in exactly the same manner as the securities are registered.
-------
-5-
<PAGE>
Instruction: If you are an individual and are married, please have your spouse
- -----------
complete this form:
SPOUSAL CONSENT
---------------
I am the spouse of _______________________. On behalf of myself, my heirs
and legatees, I hereby join in and consent to the terms of the foregoing Custody
Agreement and agree to the sale of the shares of Common Stock of Think New
Ideas, Inc., registered in the name of my spouse or otherwise registered, which
my spouse proposes to sell pursuant to the Underwriting Agreement (as defined
therein).
Dated: _____ __, 1996
-----------------------------
(Signature of Spouse)
<PAGE>
Instruction: Complete each column as to certificates to be deposited with the
- -----------
Custodian.
CERTIFICATES DEPOSITED
----------------------
Number of Shares Maximum Number of
of Common Stock Shares of Common
Stock Cert. Represented by Each Stock To Be Sold
No. Certificate from Certificate *
- ----------- ------------------- -----------------
TOTAL: ___________________ _______________________
* If no indication is made as to the certificates from which securities to
be sold shall be allocated, then selection will be made at the Custodian's
discretion. The Attorneys-in-Fact do not have the power to sell a greater number
of securities than is listed in this column, although they may sell a lesser
number.
<PAGE>
Instruction: Indicate how you wish to receive payment for the Securities sold
- -----------
to the Underwriters. Please note that if you are selling securities held by a
corporation or other association or in the name of a trust, payment will be made
only to the corporation or other association or trust. A wire transfer can be
made only to an account standing in exactly the same name as the person or
entity, including trusts, corporations or other associations, holding the
securities being sold.
MANNER OF PAYMENT
-----------------
I request that payment of the net proceeds from the sale of the Securities
to be sold by me pursuant to the Underwriting Agreement be made in the following
manner (CHECK ONE):
(____) CHECK made payable to:
- ---------------------------------------
to be sent to the following address:
- ---------------------------------------
- ---------------------------------------
phone (____)
---------------------------
Please send by (check one):
(____) First Class Mail
(____) Federal Express
Federal Express Account Number:
-----------------------
(____) WIRE TRANSFER to the following account:
Account No.
------------------------------
Bank
-------------------------------------
(Name)
---------------------------------
(Address)
ABA No.
-----------------------------------
phone ( )
---- --------------------------
(____) OTHER (please specify):
------------------------------------------
------------------------------------------
<PAGE>
CUSTODIAN'S ACKNOWLEDGEMENT AND RECEIPT
Continental Stock Transfer and Trust Company, as Custodian, acknowledges
acceptance of the duties of the Custodian under the foregoing Custody Agreement
and receipt of the certificates referred to therein.
Dated: _____ __, 1996
-------------------------
By
-----------------------
Its
----------------------
DO NOT DETACH FROM CUSTODY AGREEMENT
------------------------------------
<PAGE>
Exhibit 1.5
<PAGE>
Selling Stockholder's Irrevocable Power of Attorney
---------------------------------------------------
Ladies and Gentlemen:
The undersigned, Think New Ideas, Inc. (the "Company") and certain other
holders of the Company's Common Stock (as herein defined) (such holders and the
undersigned being hereinafter sometimes collectively referred to as the "Selling
Stockholders"), propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Commonwealth Associates ("Commonwealth"), as
representative (the "Representative") of the underwriters named in Schedule A
thereto (the "Underwriters"). The Selling Stockholders propose to sell certain
authorized and issued shares of the common stock, par value $.0001 per share, of
the Company (the "Common Stock") owned by them to the Underwriters pursuant to
the Underwriting Agreement if and to the extent the Representative, on behalf of
the Underwriters, determines to exercise their over-allotment option pursuant to
Section 3 of the Underwriting Agreement. All items not otherwise defined herein
shall have the same meaning as in the Underwriting Agreement. The undersigned
hereby irrevocably constitutes and appoints Scott Mednick and Ronald Bloom, each
with full power and authority to act alone in any matter hereunder and with full
power of substitution, the true and lawful attorneys-in-fact (the "Attorneys")
of the undersigned with full power in the name of, for and on behalf of, the
undersigned with respect to all matters arising in connection with the sale of
Common Stock by the undersigned including, but not limited to, the power and
authority to take any and all of the following actions:
(1) To sell and deliver to the several Underwriters up to the number
of shares of Common Stock as set forth in Attachment A hereto (such total
number of shares as is finally determined by the Attorneys and set forth
opposite the name of the undersigned in Schedule B to the Underwriting
Agreement are hereinafter referred to as the "Securities"), such Securities
to be represented by certificates deposited by the undersigned pursuant to
the Letter of Transmittal and Custody Agreement (the "Custody Agreement")
between the undersigned and Continental Stock Transfer and Trust Company,
as Custodian (the "Custodian"), at a purchase price per share to be paid by
the Underwriters as the Attorneys, or any one of them, in their sole
discretion shall determine, but at the same price per share at which the
Company and all other Selling Stockholders sell Common Stock to the
Underwriters and on such other terms as are determined by the Attorneys;
(2) For the purpose of effecting such sale, to execute, deliver and
perform the Underwriting Agreement and in conjunction with the
Representatives and a committee of the Board of Directors of the Company to
determine the public offering price and the purchase price per share of
Common Stock to be paid by the Underwriters as determined by the Attorneys
(subject to paragraph (1) above) and the other terms of sale in accordance
with the Underwriting Agreement (including the provisions for exercise of
the Underwriters' over-allotment option), with full power
<PAGE>
to make such amendments to the Underwriting Agreement as the Attorneys in
their sole discretion may deem advisable;
(3) (a) To give such orders and instructions to the Custodian as the
Attorneys may determine with respect to (i) the transfer on the books of
the Company of the Securities to be sold by the undersigned to the
Underwriters in order to effect such sale (including the names in which new
certificates for the Securities are to be issued and the denominations
thereof), (ii) the delivery to or for the account of the Underwriters of
the certificates for the Securities against receipt by the Custodian or its
agent of the purchase price to be paid therefor, (iii) the payment, out of
the proceeds (net of underwriting discounts) from the sale of the
Securities by the undersigned to the Underwriters, of any expense incurred
in accordance with paragraph (5) which is not payable by the Company, and
(iv) the return to the undersigned of new certificates representing the
number of shares of Common Stock, if any, represented by certificates
deposited with the Custodian which are in excess of the number of shares of
Common Stock sold by the undersigned to the Underwriters; and (b) to amend
the Custody Agreement and the Underwriting Agreement and any related
documents in such manner as the Attorneys may determine to be in the best
interests of the undersigned;
(4) On behalf of the undersigned, to make the representations and
warranties and enter into the agreements contained in the Underwriting
Agreement (including, without limitation, the restriction on sales or other
dispositions of shares of Common Stock and securities convertible into or
exercisable or exchangeable for shares of Common Stock by the undersigned);
(5) To incur any necessary or appropriate expense in connection with
the sale of the Securities;
(6) To approve on behalf of the undersigned any amendments to the
Registration Statement or the Prospectus;
(7) To retain legal counsel to represent the undersigned in
connection with any and all matters referred to herein (which counsel may,
but need not be, counsel for the Company);
(8) To make, execute, acknowledge and deliver all such other
contracts, stock powers, orders, receipts, notices, instructions,
certificates, letters and other writings, including, without limitation,
requests for the acceleration of the effectiveness of the Registration
Statement, and other communications to the Securities and Exchange
Commission (the "Commission"), and amendments to the Underwriting
Agreement, and in general to do all things and to take all actions which
the Attorneys, in their sole discretion, may consider necessary or proper
in connection with or to carry out the
-2-
<PAGE>
aforesaid sale of Securities to the Underwriters and the public offering
thereof, as fully as could the undersigned if personally present and
acting;
(9) To make, acknowledge, verify and file on behalf of the
undersigned applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners
or officers administering state securities laws;
(10) If necessary, to endorse (in blank or otherwise) on behalf of
the undersigned the certificate or certificates representing the
Securities, or a stock power or powers attached to such certificate or
certificates;
(11) To sell a number of shares of Common Stock fewer than that set
forth in the Custody Agreement pursuant to the Underwriting Agreement; and
(12) To sign such other underwriting documents and agreements as
necessary to consummate this transaction.
Each of the Attorneys is hereby empowered to determine in his or her sole
discretion the time or times when, purpose for and manner in which any power
herein conferred upon him or her shall be exercised, and the conditions,
provisions or covenants of any instrument or document which may be executed by
him or her pursuant hereto. The undersigned acknowledges that Scott Mednick and
Ronald Bloom are officers or directors of the Company.
The undersigned has reviewed the preliminary copy of the Underwriting
Agreement dated ______, 1996 and understands the obligations and agreements of
the undersigned set forth therein. All representations and warranties of the
-----------------------------------------
Selling Stockholders in Section 2 of the Underwriting Agreement are, with
- -------------------------------------------------------------------------
respect to the undersigned, and will be at the Closing Date and Option Closing
- ------------------------------------------------------------------------------
Date, if any, as determined in accordance with the Underwriting Agreement, true
- -------------------------------------------------------------------------------
and correct and will, as provided in the Underwriting Agreement, survive the
- ----------------------------------------------------------------------------
termination of the Underwriting Agreement and the delivery of and payment for
- -----------------------------------------------------------------------------
the Securities.
- --------------
Upon the execution and delivery of the Underwriting Agreement by the
Attorneys on behalf of the Selling Stockholders, the undersigned agrees to be
bound by and to perform each and every covenant and agreement therein of the
undersigned as a Selling Stockholder (including, without limitation, the
indemnification and contribution arrangements set forth in the Underwriting
Agreement).
The undersigned agrees, if so requested in writing, to provide an opinion
of counsel, addressed to DeMartino, Finkelstein, Rosen & Virga, which opinion
shall expressly permit reliance thereon by DeMartino, Finkelstein, Rosen &
Virga, setting forth such matters as DeMartino, Finkelstein, Rosen & Virga may
reasonably request in rendering its opinion pursuant to the Underwriting
Agreement.
-3-
<PAGE>
This Power of Attorney and all authority conferred hereby are granted and
conferred subject to and in consideration of the interests of the several
Underwriters, the Company and the other Selling Stockholders who may become
parties to the Underwriting Agreement, and for the purposes of completing the
transactions contemplated by the Underwriting Agreement and this Power of
Attorney.
This Power of Attorney is an agency coupled with an interest and all
authority conferred hereby shall be irrevocable, and shall not be terminated by
--------------------
any act of the undersigned or by operation of law, whether by the death or
incapacity of the undersigned (or either or any of them) or by the occurrence of
any other event or events (including, without limiting the foregoing, the
termination of any trust or estate for which the undersigned is acting as a
fiduciary or fiduciaries or the dissolution or liquidation of any corporation or
partnership). If after the execution hereof the undersigned (or either or any
of them) should die or become incapacitated, or if any trust or estate should be
terminated, or if any corporation or partnership should be dissolved or
liquidated, or if any other such event or events shall occur, before the
completion of the transactions contemplated by the Underwriting Agreement and
this Power of Attorney, certificates representing the Securities shall be
delivered by or on behalf of the undersigned in accordance with the terms and
conditions of the Underwriting Agreement and of the Custody Agreement executed
by the undersigned, and actions taken by the Attorneys or any one of them,
hereunder shall be as valid as if such death, incapacity, termination,
dissolution, liquidation or other event or events had not occurred, regardless
of whether or not the Custodian, Attorneys, Underwriters or any one of them,
shall have received notice of such death, incapacity, termination, dissolution,
liquidation or other event.
Notwithstanding any of the foregoing provisions, if all of the transactions
contemplated by the Underwriting Agreement and this Power of Attorney are not
completed prior to __________, 1997, then from and after such date, the
undersigned shall have the power, upon written notice to the Attorneys, to
terminate this Power of Attorney subject, however, to all lawful action done or
performed pursuant hereto prior to the receipt of actual notice.
The undersigned hereby represents, warrants and agrees with the Company,
Bachner, Tally, Polevoy & Misher LLP, the Underwriters listed in the
Underwriting Agreement, DeMartino, Finkelstein, Rosen & Virga and the other
Selling Stockholders that:
(a) The Underwriting Agreement has been duly executed and delivered
by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Power of Attorney, the Underwriting Agreement and the Custody Agreement,
will not contravene any provision of applicable law, or any agreement or
other instrument binding upon such Selling Stockholder or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance
-4-
<PAGE>
by such Selling Stockholder of its obligations under this Power of
Attorney, the Underwriting Agreement and the Custody Agreement, of such
Selling Stockholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Securities.
(c) Each such Selling Stockholder has, and on the Closing Date and
Option Closing Date, if any, will have, valid title to the shares of Common
Stock to be sold by such Selling Stockholder and the legal right and power,
and all approval required by law, to enter into this Agreement, the Custody
Agreement and the Power of Attorney and to sell, transfer and deliver the
shares of Common Stock to be sold by such Selling Stockholder.
(d) The shares of Common Stock to be sold by such Selling Stockholder
pursuant to this Agreement have been duly authorized and are validly
issued, fully paid and non-assessable.
(e) The Custody Agreement and this Power of Attorney, have been duly
executed and delivered by such Selling Stockholder and are valid and
binding agreements of such Selling Stockholder.
(f) Assuming the Underwriters acquire their interests in the
Securities in good faith and without notice of any adverse claims, delivery
of the Securities to be sold by such Selling Stockholder pursuant to the
Underwriting Agreement will pass title to such Securities free and clear of
any security interests, claims, liens, equities and other encumbrances.
(g) All information furnished by or on behalf of such Selling
Stockholder for use in the Registration Statement and Prospectus is, and on
the Closing Date and Option Closing Date, if any, will be, true, correct,
and complete, and does not, and on the Closing Date and Option Closing
Date, if any, will not, contain any untrue misstatement of a material fact
or omit to state any material fact necessary to make such information not
misleading.
(h) Certificates in negotiable form for all Securities to be sold by
such Selling Stockholder under the Underwriting Agreement have been placed
in custody with the Custodian for the purpose of effecting delivery under
the Underwriting Agreement.
(i) Except as noted by such Selling Stockholder in Attachment B
hereto or in a Questionnaire (the "NASD Questionnaire") previously
delivered by such Selling Stockholder to counsel for the Underwriters, the
Selling Stockholder is not affiliated with or a person associated with a
member of the National Association of Securities Dealers, Inc.
The Attorneys, and any of them, shall be entitled to act and rely upon any
representation, warranty, agreement, statement, request, notice or instructions
respecting this Power of Attorney given by the undersigned, not only as to the
authorization, validity and effectiveness thereof, but also as to the truth and
acceptability of any information therein contained; provided, however, that any
-5-
<PAGE>
statement or notice to the Attorneys with respect to the date of delivery under
the Underwriting Agreement or with respect to the non-effectiveness or
termination of the Underwriting Agreement, or advice that the Underwriting
Agreement has not been executed and delivered, shall have been confirmed in
writing to the Attorneys by the Representatives. In acting hereunder, the
Attorneys may also rely on the representations, warranties and agreements of the
undersigned made in the Underwriting Agreement executed by the Attorneys on
behalf of the undersigned and in the Custody Agreement executed by the
undersigned.
The foregoing representations, warranties and agreements, as well as those
contained in the Underwriting Agreement, are made for the benefit of, and may be
relied upon by, the other Selling Stockholders, the Attorneys, the Company,
Bachner, Tally, Polevoy & Misher LLP, the Underwriters, DeMartino, Finkelstein,
Rosen & Virga and the Custodian and their representatives, agents and counsel.
It is understood that the Attorneys assume no responsibility or liability
to any person other than to deal with the certificates for shares of Common
Stock deposited with the Custodian pursuant to the Custody Agreement and the
proceeds from the sale of shares of Common Stock represented thereby in
accordance with the provisions hereof. The Attorneys (in such a capacity) make
no representations with respect to and shall have no responsibility for the
Registration Statement or the Prospectus nor, except as herein expressly
provided, for any aspect of the offering of Common Stock, and the Attorneys
shall not be liable for any error of judgment or for any act done or omitted or
for any mistake of fact or law except for the Attorneys' own gross negligence or
bad faith. The undersigned agrees to indemnify the Attorneys for and to hold
the Attorneys, jointly and severally, free from and harmless against any and all
loss, claim, damage, liability or expense incurred by or on behalf of the
Attorneys, or any of them, arising out of or in connection with acting as
Attorneys under this Power of Attorney, as well as the cost and expense of
defending against any claim of liability hereunder, and not due to the
Attorneys' own gross negligence or bad faith. The undersigned agrees that the
Attorneys may consult with counsel of their choice (which may but need not be
counsel for the Company) and the Attorneys shall have full and complete
authorization and protection for any action taken or suffered by the Attorneys,
or any of them hereunder, in good faith and in accordance with the opinion of
such counsel.
It is understood that the Attorneys shall serve entirely without
compensation.
-6-
<PAGE>
This Power of Attorney shall be governed by the laws of the State of New
York.
Witness the due execution of the foregoing Power of Attorney as of the date
written below.
DATED: _______, 1996
Print Name and Address Very truly yours,
of Selling Stockholder(s)
and Name and Title of *
Person signing as Agent or ---------------------------
Fiduciary:
*
- ----------------------------- ---------------------------
Signature(s)
- -----------------------------
- -----------------------------
- -----------------------------
- -----------------------------
Telephone:
-----------------
Telex (non-U.S. shareholder):
- -----------------------------
- -----------------------------
* To be signed in exactly the same manner as the shares are
registered.
-7-
<PAGE>
Attachment A
MAXIMUM NUMBER OF SHARES TO BE SOLD
Stockholder(s) Name(s) __________________________ __________________________
Instruction: Complete each column as to certificates to be deposited with the
Custodian.
Number of Shares Maximum Number of
of Common Stock Shares of Common
Stock Represented by Stock To Be Sold
Cert. No. Each Certificate From Certificate
- --------- ---------------- ----------------
TOTAL:
------------------- ---------------------
* If no indication is made as to the certificates from which securities
to be sold shall be allocated, then selection will be made at the Custodian's
discretion. The Attorneys-in-Fact do not have the power to sell a greater
number of securities than is listed in this column, although they may sell a
lesser number.
DO NOT DETACH FROM POWER OF ATTORNEY
<PAGE>
Attachment B
STATE OF AFFILIATION WITH
NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC. MEMBER
I, Selling Stockholder, am an affiliate of or a person associated with a
member of the National Association of Securities Dealers, Inc. as briefly
described below or in the NASD Questionnaire:
<PAGE>
ACKNOWLEDGEMENT FOR INDIVIDUAL
State of )
------------------------ ) ss.
County of )
------------------------
On this the ___ day of ______________, 1996 before me, _________________
_____________, the undersigned Notary Public, personally appeared
__________________________.
___
/__/ personally known to me
___
/__/ proved to me on the basis of satisfactory evidence to
be the person(s) whose name(s)_______________________
subscribed to the within instrument, and acknowledged
that ___________________ executed it.
WITNESS my hand and official seal.
_________________________________
Notary's Signature
<PAGE>
Exhibit 3.1 (a)
<PAGE>
THINK NEW IDEAS, INC.
CERTIFICATE OF INCORPORATION
----------------------------
FIRST: Name. The name of the Corporation is:
----
Think New Ideas, Inc.
SECOND: Registered Office and Registered Agent. The address of the
--------------------------------------
Corporation's registered office in the State of Delaware is 1013 Centre Road,
Wilmington, Delaware 19805-1297, located in New Castle County. The name of the
registered agent of the Corporation at such address is CSC Networks-Prentice
Hall Legal and Financial Services.
THIRD: Purpose. The nature of the business or purposes to be conducted
-------
or promoted is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
FOURTH: Capitalization. The total number of shares of stock of all
--------------
classes which the corporation shall have authority to issue is sixteen million
(16,000,000). The total number of shares of common stock which the Corporation
is authorized to issue is of fifteen million (15,000,000), $.0001 par value per
share. The total number of shares of preferred stock which the Corporation is
authorized to issue is one million (1,000,000), $.0001 par value per share.
The voting powers, designations, preferences and relative, participating,
optional or other rights, if any, and the qualifications, limitations or
restrictions, if any, of the preferred stock, in one or more series, shall be
fixed by one or more resolutions providing for the issue of such stock adopted
by the Corporation's board of directors, in accordance with the provisions of
Section 151 of the General Corporation Law of Delaware and the board of
directors is expressly vested with authority to adopt one or more such
resolutions.
FIFTH: Incorporator. The name and mailing address of the incorporator
------------
is:
Patricia A. Lloyd
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
The powers of the incorporator will terminate upon filing of this Certificate of
Incorporation.
SIXTH: Directors. (a) The number of directors of the Corporation shall
---------
be set forth in the by-laws of the Corporation, which number may be increased or
decreased pursuant to the by-laws of the Corporation. The Board of Directors is
authorized to make, alter or repeal the by-laws of the Corporation. The name of
the director who shall act until the first meeting or until his successor(s)
is/are duly elected and qualified is Scott Mednick.
<PAGE>
(b) At the first annual meeting of stockholders, the directors shall be
classified, in respect solely to the time for which they shall severally hold
office, by dividing them into three (3) classes, each such class to be as nearly
as possible equal in number of directors to each other class. The first term of
office of directors of the first class shall expire at the first annual meeting
after their election, and thereafter such terms shall expire on each three (3)
year anniversary of such date; the term of office of the directors of the second
class shall expire on the one (1) year anniversary of the first annual meeting
after their election, and thereafter such terms shall expire on each three (3)
year anniversary of such one (1) year anniversary; and the term of office of the
directors of the third class shall expire on the two (2) year anniversary of the
first annual meeting after their election, and thereafter such terms shall
expire on each three (3) year anniversary of such two (2) year anniversary. At
each succeeding annual meeting, the stockholders shall elect directors for a
full term or the remainder thereof, as the case may be, to succeed those whose
terms have expired. Each director shall hold office for the term for which
elected and until his successor shall be elected and shall qualify.
(c) Any director, any class of directors or the entire board of directors
may be removed from office by stockholder vote at any time, without assigning
any cause, but only if the holders of not less than two-thirds (2/3) of the
outstanding shares of capital stock of the Corporation entitled to vote upon
election of directors, voting together as a single class, shall vote in favor of
such removal.
SEVENTH: Liability of Directors. No director of the Corporation shall be
----------------------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director; provided, however, that the
foregoing clause shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of Delaware, or (iv) for any transaction from which
the director derived an improper personal benefit.
EIGHTH: Duration. The duration of the Corporation shall be perpetual.
--------
NINTH: Election Regarding Section 203. The Corporation expressly
------------------------------
elects to be governed by Section 203 of the General Corporation Law of Delaware,
regarding business combinations with interested stockholders.
TENTH: Stockholder Action by Consent. Stockholders may take such action
-----------------------------
by consent, in lieu of action taken at an annual or special meeting of
stockholders, as may be allowed under the General Corporation Law of Delaware,
provided however, that seventy-five percent (75%) or more of the shares of each
class and series, if any, of capital stock issued and outstanding and entitled
to vote on such matter consents in writing to such action in the manner set
forth under the General Corporation Law of Delaware, as such law is amended from
time to time.
ELEVENTH: Indemnification. The Corporation, by action of its board of
---------------
directors, shall indemnify any person who was or is a director, officer, agent
and/or employee to the fullest extent allowed by the General Corporation Law of
Delaware.
<PAGE>
TWELFTH: Amendments. Any amendment of this Certificate of Incorporation
----------
shall be made and effected only in the manner set forth herein. The board of
directors shall adopt a resolution, by affirmative vote of at least two-thirds
(2/3) of the directors then in office, at a meeting called for that purpose,
setting forth the proposed amendment, declaring its advisability, and either
calling a special meeting of the stockholders entitled to vote in respect
thereof for the consideration of such amendment or directing that the proposed
amendment be considered at the next annual meeting of stockholders. In order to
be adopted, each proposed amendment to this Certificate of Incorporation must be
approved by the affirmative vote of a majority of the outstanding shares of each
class and series, if any, entitled to vote thereon.
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make this certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this 30th day of January, 1996.
/s/ Patricia A. Lloyd
---------------------
Patricia A. Lloyd
<PAGE>
Exhibit 3.1 (b)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THINK NEW IDEAS, INC.
We, the undesigned President and Secretary of Think New Ideas, Inc. do
hereby certify as follows:
1. The name of the corporation (hereinafter called the "Corporation") is:
Think New Ideas, Inc.
2. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on January 30, 1996 (the "Certificate of
Incorporation") and is hereby amended by striking the first paragraph of Article
Fourth thereof and by substituting in lieu of said paragraph the following new
paragraph:
"FOURTH: Capitalization. The total number of shares of stock of all
--------------
classes which the corporation shall have authority to issue is thirty-one
million (31,000,000). The total number of shares of common stock which the
Corporation is authorized to issue is of thirty million (30,000,000), $.0001 par
vale per share. The total number of shares of preferred stock which the
Corporation is authorized to issue is one million (1,000,000), $.0001 par value
per share."
3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of Certificate of
Incorporation to be signed by its President and Secretary on June 19, 1996.
Attest:
/s/ Karla Villarreal /s/ Frank M. DeLape
- -------------------------------- --------------------------------------
Karla Villarreal, Secretary Frank M. DeLape, President
[SEAL]
<PAGE>
Exhibit 3.1 (c)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THINK NEW IDEAS, INC.
We, the undersigned Chief Executive Officer and Secretary of Think New
Ideas, Inc. do hereby certify as follows:
1. The name of the corporation (hereinafter called the "Corporation") is:
Think New Ideas, Inc.
2. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on January 30, 1996 (the "Certificate of
Incorporation"), was amended by the filing of a Certificate of Amendment with
the Secretary of State of Delaware on June 20, 1996, and is hereby further
amended by:
(a) striking the first paragraph of Article Fourth thereof and by
substituting in lieu of said paragraph the following new paragraph:
"FOURTH: Capitalization. The total number of shares of stock of all
--------------
classes which the Corporation shall have authority to issue is fifty-five
million (55,000,000). The total number of shares of common stock which the
Corporation is authorized to issue is fifty million (50,000,000), $.0001 par
value per share. The total number of shares of preferred stock which the
Corporation is authorized to issue is five million (5,000,000), $.0001 par value
per share."
(b) striking sub-paragraphs (b) and (c) of Article Sixth thereof and
removing the reference to subparagraph "(a)" appearing in the first line of
Article Sixth.
3. The amendment of the Certificate of Incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of Certificate of
Incorporation to be signed by its Chief Executive Officer and Secretary on
July 25, 1996.
Attest:
/s/ Richard Frankel /s/ Scott A. Mednick
- ---------------------------- -----------------------------------------
Richard Frankel, Secretary Scott A. Mednick, Chief Executive Officer
[SEAL]
<PAGE>
Exhibit 3.2
<PAGE>
THINK NEW IDEAS, INC.
(a Delaware corporation)
Amended and Restated
Bylaws
(as amended and restated as of September 20, 1996)
<PAGE>
THINK NEW IDEAS, INC.
Amended and Restated
Bylaws
Article I: Stockholders
Section 1.1. Annual Meeting. There shall be an annual meeting of the
stockholders of Think New Ideas, Inc. (the "Corporation") on the second Tuesday
in May of each year at 10:00 a.m. local time, or at such other date or time as
shall be designated from time to time by the board of directors of the
Corporation (the "Board of Directors") and stated in the notice of the meeting,
for the election of directors and for the transaction of such other business as
may come before the meeting.
Section 1.2. Special Meetings. A special meeting of the stockholders of
the Corporation may be called at any time by: (i) the written resolution or
other request of a majority of the members of the Board of Directors; (ii) the
chairman of the Board of Directors; (iii) the President; (iv) any executive vice
president; and (v) the written request of the holders of at least twenty-five
percent (25%) of the shares of capital stock of the Corporation entitled to vote
at such meeting on the matter(s) that are the subject of the proposed meeting,
provided, however, that any such written request of stockholders shall specify
the purpose or purposes for which such meeting shall be called and shall comply
with the provisions of Section 1.9.
Section 1.3. Notice of Meetings. Written notice of each meeting of
stockholders, whether annual or special, stating the date, hour and place
thereof, shall be served either personally or by mail, not less than ten nor
more than sixty (60) days before the meeting, upon each stockholder of record
entitled to vote at such meeting and upon any other stockholder to whom the
giving of notice of such a meeting may be required by law. Notice of a special
meeting shall also state the purpose or purposes for which the meeting is called
and shall indicate that such notice is being issued by or at the direction of
the Board of Directors. If, at any meeting, action is proposed to be taken that
would, if taken, entitle stockholders to receive payment for their stock
pursuant to the General Corporation Law of the State of Delaware, the notice of
such meeting shall include a statement of that purpose and to that effect. If
mailed, notice shall be deemed to be delivered when deposited in the United
States mail or with any private express mail service, postage or delivery fee
prepaid, and shall be directed to each such stockholder at its address as it
appears on the records of the Corporation, unless such stockholder shall have
previously filed with the secretary of the Corporation a written request that
notices intended for such stockholder be mailed to some other address, in which
case, it shall be mailed to the address designated in such request.
Section 1.4. Place of Meeting. The Board of Directors may designate any
place, either in the State of Delaware or outside the State of Delaware, as the
place a stockholder meeting shall be held for any annual meeting or any special
meeting called by the Board of Directors. If no designation is made, the place
of such meeting shall be the principal office of the Corporation.
<PAGE>
Bylaws of Think New Ideas, Inc.
(as amended and restated as of September 20, 1996)
Page 2
Section 1.5. Fixing Date of Record.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date which: (i) shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors; and (ii) shall not be less than ten nor more than sixty
(60) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of such meeting; provided however, that the Board of Directors may
-------- -------
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting (to the extent that
such action by written consent is permitted by law, the Certificate of
Incorporation and these Bylaws), the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which date shall not
be more than ten (10) days after the date upon which the resolution fixing the
record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
any officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the Board
of Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action
(c) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date which: (i) shall not
precede the date upon which the resolution fixing the record date is adopted;
and (ii) shall be not more than sixty (60) days prior to such action. If no
record date is fixed by the Board of Directors, the record date for determining
stockholders for any such purpose shall be
<PAGE>
Bylaws of Think New Ideas, Inc.
(as amended and restated as of September 20, 1996)
Page 3
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
Section 1.6. Inspectors. At each meeting of the stockholders, the polls
shall be opened and closed, the proxies and ballots shall be received and be
taken in charge, and all questions touching the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided by
one or more inspectors. Such inspectors shall be appointed by the Board of
Directors before or at such meeting or, if no such appointment shall have been
made, then by the presiding corporate officer at the meeting. If, for any
reason, any of the inspectors previously appointed shall fail to attend the
meeting or shall refuse or be unable to serve, inspectors in place of any
inspectors so failing to attend or refusing or being unable to serve shall be
appointed in like manner.
Section 1.7. Quorum.
(a) At any meeting of the stockholders, the holders of one-third of the
outstanding shares of each class and series, if any, of the capital stock of the
Corporation present in person or represented by proxy, shall constitute a quorum
of the stockholders for all purposes, unless the representation of a larger
number shall be required by law, in which case, the representation of the number
so required shall constitute a quorum.
(b) If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend in person or by proxy at the time and place fixed in
accordance with these Bylaws for an annual or special meeting, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
the requisite holders of the amount of stock necessary to constitute a quorum
shall attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally notified.
Section 1.8. Business. The chairman, if any, of the Board of Directors,
the president of the Corporation or, in his absence the vice-chairman, if any,
of the Board of Directors or an executive vice-president of the Corporation, in
the order named, shall call meetings of the stockholders to order and shall act
as the chairman of such meeting; provided however, that the Board of Directors
-------- -------
or the executive committee, if any, may appoint any stockholder to act as the
chairman of any meeting in the absence of the chairman of the Board of
Directors. The secretary of the Corporation shall act as secretary at all
meetings of the stockholders, but in the absence of the secretary at any meeting
of the stockholders, the presiding corporate officer may appoint any person to
act as the secretary of the meeting.
<PAGE>
Bylaws of Think New Ideas, Inc.
(as amended and restated as of September 20, 1996)
Page 4
Section 1.9. Stockholder Proposals.
(a) No proposal by a stockholder shall be presented for vote at an annual
meeting of stockholders unless such stockholder shall, not later than the close
of business on the last business day of the month of January, provide the Board
of Directors or the secretary of the Corporation with written notice of its
intention to present a proposal for action at the forthcoming meeting of
stockholders. No proposal by a stockholder shall be presented for vote at a
special meeting of stockholders unless such stockholder shall, not later than
the close of business on the fifth calendar day following the date on which
notice of such meeting is first given to stockholders, provide the Board of
Directors or the secretary of the Corporation with written notice of its
intention to present a proposal for action at the forthcoming special meeting of
stockholders. Any such notice shall be given by personal delivery or shall be
sent via first class certified mail, return receipt requested, postage prepaid
and shall include the name and address of such stockholder, the number of voting
securities that such stockholder holds of record and a statement that such
stockholder holds beneficially (or if such stockholder of record does not own
such shares beneficially, including the executed consent and authorization of
the beneficial stockholder), the text of the proposal to be presented for vote
at the meeting and a statement in support of the proposal.
(b) Any stockholder who was a stockholder of record on the applicable
record date may make any other proposal at an annual or special meeting of
stockholders and the same may be discussed and considered; provided however,
-------- -------
that unless stated in writing and filed with the Board of Directors or the
secretary prior to the date set forth hereinabove, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the stockholders
taking place sixty (60) days or more thereafter, at a time, place and date to be
determined by the Board of Directors. This provision shall not prevent the
consideration and approval or disapproval at an annual meeting of reports of
officers, directors, and committees, but in connection with such reports, no new
business proposed by a stockholder, qua stockholder, shall be acted upon at such
---
annual meeting unless stated and filed as herein provided.
(c) Notwithstanding any other provision of these Bylaws, the Corporation
shall be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 or 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder; nor shall the Corporation be required to include any stockholder
proposal not required to be included in its proxy materials to stockholders in
accordance with any such section, rule or regulation.
Section 1.10. Voting; Proxies. At all meetings of stockholders, a
stockholder entitled to vote may vote either in person or by proxy executed in
writing by the stockholder or by his
<PAGE>
Bylaws of Think New Ideas, Inc.
(as amended and restated as of September 20, 1996)
Page 5
duly authorized attorney-in-fact. Such proxy shall be filed with the secretary
of the Corporation at or before the meeting. No proxy shall be valid after three
years from the date of its execution, unless otherwise provided in the proxy.
Section 1.11. Voting by Ballot. The votes for directors, and upon the
demand of any stockholder or when required by law, the votes upon any question
before the meeting, shall be by ballot.
Section 1.12. Voting Lists. The corporate officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares of stock registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to such meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city in which such meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where such meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present.
Section 1.13. Voting of Stock of Certain Holders.
(a) Shares of capital stock of the Corporation standing in the name of
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Bylaws of such corporation may prescribe, or in the absence of such
provision, as the board of directors of such corporation may determine.
(b) Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor ward or an incompetent person may be voted by such
person's administrator, executor, court-appointed guardian or conservator,
either in person or by proxy, without a transfer of such stock into the name of
such administrator, executor, court-appointed guardian or conservator. Shares
of capital stock of the Corporation standing in the name of a trustee may be
voted by such trustee, either in person or by proxy.
(c) Shares of capital stock of the Corporation standing in the name of a
receiver may be voted by such receiver, either in person or by proxy, and stock
held by or under the control of a receiver may be voted by such receiver without
the transfer thereof into his name if authority to do so is contained in any
appropriate order of the court by which such receiver was appointed.
<PAGE>
Bylaws of Think New Ideas, Inc.
(as amended and restated as of September 20, 1996)
Page 6
(d) A stockholder whose stock is pledged shall be entitled to vote such
stock, either in person or by proxy, until the stock has been transferred into
the name of the pledgee; thereafter, the pledgee shall be entitled to vote,
either in person or by proxy, the stock so transferred.
(e) Shares of its own capital stock belonging to the Corporation shall not
be voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares of capital stock at any given
time; however, shares of the Corporation's own capital stock held by it in a
fiduciary capacity may be voted and shall be counted in determining the total
number of shares of outstanding capital stock at any given time.
Section 1.14. Stockholder Action by Consent. Stockholders may take such
action by consent, in lieu of action taken at an annual or special meeting of
stockholders, as may be allowed under the General Corporation Law of Delaware,
provided however, that seventy-five percent (75%) or more of the shares of each
class and series, if any, of capital stock issued and outstanding and entitled
to vote on such matter consents in writing to such action in the manner set
forth under the General Corporation Law of Delaware, as such law is amended from
time to time, the Certificate of Incorporation and these Bylaws.
Article II: Board of Directors
Section 2.1. Number and Term of Office. The business and the property of
the Corporation shall be managed and controlled by the Board of Directors. The
Board of Directors shall consist of no fewer than three directors (two if there
are two stockholders and one if there is one stockholder) and no more than
twelve directors. Within the limits above specified, the number of directors
shall be determined by the Board of Directors pursuant to a resolution adopted
by a majority of the directors then in office. Each director shall hold office
for the term for which elected and until his or her successor shall be elected
and shall qualify. Directors need not be stockholders.
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expire on each three (3) year anniversary of such two (2) year anniversary. At
each succeeding annual meeting, the stockholders shall elect directors for a
full term or the remainder thereof, as the case may be, to succeed those whose
terms have expired. Each director shall hold office for the term for which
elected and until his successor shall be elected and shall qualify.
Section 2.2. Removal. Any director, any class of directors or the entire
Board of Directors may be removed from office by stockholder vote at any time,
without assigning any cause, but only if the holders of not less than two-thirds
(2/3) of the outstanding shares of capital stock of the Corporation entitled to
vote upon the election of directors, voting together as a single class, shall
vote in favor of such removal.
Section 2.3. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
only by the affirmative vote of a majority of the remaining directors then in
office, although the same may represent less than a quorum; except that
vacancies resulting from removal from office by a vote of the stockholders may
be filled by the stockholders at the same meeting at which such removal occurs;
provided however, that the holders of not less than two-thirds (2/3) of the
- -------- -------
outstanding shares of capital stock of the Corporation entitled to vote upon the
election of directors, voting together as a single class, shall vote for each
replacement director. All directors elected to fill vacancies shall hold office
for a term expiring at the time at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of an incumbent director. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. If, at any time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the Board of Directors (as constituted immediately prior to
any applicable increase), the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent of the total number of
the shares of capital stock at the time outstanding, taken together as a class,
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Section 2.4. Place of Meetings, etc. The Board of Directors may hold its
meetings, and may have an office and keep the books of the Corporation (except
as otherwise may be provided by law), in such place or places in the State of
Delaware or outside of the State of Delaware, as the Board of Directors may
determine from time to time. Any director may participate telephonically in any
meeting of the Board of Directors and such participation shall be considered to
be the same as his physical presence thereat.
Section 2.5. Regular Meetings. Regular meetings of the Board of Directors
shall be held on the day of the annual meeting of stockholders after the
adjournment thereof and at such
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other times and places as the Board of Directors may fix. No notice shall be
required for any such regular meeting of the Board of Directors.
Section 2.6. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the chairman of the Board of
Directors, the president of the Corporation, an executive vice-president of the
Corporation or two-thirds (2/3) of the directors then in office. The secretary
of the Corporation shall give notice of each special meeting, stating the date,
hour and place thereof, by delivering the same personally, by telegraph, by
facsimile or by overnight courier, at least forty-eight (48) hours before such
meeting, to each director; however, such notice may be waived by any director.
If sent by overnight courier, notice shall be deemed to be delivered when
deposited with any nationally recognized overnight delivery service, delivery
fee prepaid. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting. At any meeting at which every
director shall be present, even though without any notice, any business may be
transacted.
Section 2.7. Quorum; Actions by Board. A majority of the total number of
directors then in office shall constitute a quorum for the transaction of
business; however, if at any meeting of the Board of Directors there be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time. At any meeting of the Board of Directors at which a quorum is
present, action may be taken by the affirmative vote of at least a majority of
the members of the Board of Directors in attendance at such meeting, unless
otherwise set forth herein.
Section 2.8. Business. Business shall be transacted at meetings of the
Board of Directors in such order as the Board of Directors may determine. At
all meetings of the Board of Directors, the chairman, if any, of the Board of
Directors, the president of the Corporation, or in his absence the vice-
chairman, if any, of the Board of Directors, or an executive vice-president of
the Corporation (if a member of the Board of Directors), in the order named,
shall preside.
Section 2.9. Contracts. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of the Corporation's directors or officers
have a financial interest or are directors or officers, shall be void or
voidable solely for this reason or solely because such director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes such contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(a) The material facts relating to such officer's or director's
relationship or interest and relating to the contract or transaction are
disclosed or are known to the Board of Directors or committee thereof, and the
Board of Directors or committee thereof in good faith authorizes
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the contract or transaction by the affirmative vote of a majority of the
disinterested directors, although the disinterested directors may represent less
than a quorum; or
(b) The material facts relating to such officer's or director's
relationship or interest and relating to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or
(c) The contract or transaction is fair with respect to the Corporation as
of the time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the stockholders.
For purposes of the foregoing provisions, interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee thereof which authorizes such a contract or
transaction.
Section 2.10. Compensation of Directors. Each director of the Corporation
who is not a salaried officer or employee of the Corporation or of a subsidiary
of the Corporation shall receive such allowances for serving as a director and
such fees for attendance at meetings of the Board of Directors, the executive
committee or any other committee appointed by the Board of Directors as the
Board of Directors may from time to time determine.
Section 2.11. Election of Officers and Committees. At the first regular
meeting of the Board of Directors in each year (at which a quorum shall be
present) held next after the annual meeting of stockholders, the Board of
Directors shall elect the principal officers of the Corporation and members of
the executive committee, if any, to be elected by the Board of Directors under
the provisions of Article III and Article IV of these Bylaws. The Board of
Directors may designate such other committees with such power and authority (to
the extent permitted by law, the Corporation's Certificate of Incorporation, as
in effect, and these Bylaws), as may be provided by resolution of the Board of
Directors.
Section 2.12. Nomination. Subject to the rights of holders of any class or
series of stock having a preference over the common stock of the Corporation as
to dividends or upon liquidation, nominations for the election of directors may
be made by the Board of Directors or by any stockholder entitled to vote in the
election of directors generally. However, any stockholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intention to make such nomination or nominations has been given, either by
personal delivery or by United States first class certified mail, postage
prepaid, return receipt requested and to the secretary of the Corporation not
later than: (a) with respect to an election to be held at an annual meeting of
stockholders, the close of business on the last day of the month of January;
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and (b) with respect to an election to be held at a special meeting of
stockholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth: (i) the name and address of the
stockholder who intends to make the nomination and of the person or persons to
be nominated; (ii) a representation that the stockholder is a holder of record
of capital stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (iii) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (iv) such other information
regarding each such nominee as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated by the
Board of Directors; and (v) the consent of each such nominee to serve as a
director of the Corporation if so elected. The presiding corporate officer at
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 2.13. Action by Written Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of Directors
or such committee, as the case may be, consent thereto in writing and such
writing is filed with the minutes of the proceedings of the Board of Directors
or the committee.
Section 2.14. Participation by Conference Telephone. Members of the Board
of Directors or any committee thereof may participate in a regular or special
meeting of the Board of Directors or committee thereof by means of conference
telephone or similar communications equipment by means of which all persons
participating in such meeting can hear one another and such participation shall
constitute presence in person at such meeting.
Article III: Committees
Section 3.1. Number and Term of Office. The Board of Directors may, at any
meeting, by majority vote of the Board of Directors, elect from the directors
one or more committees, which may include an executive committee. The chief
executive officer (if any) and the president, if directors, shall be members of
any executive committee. A committee shall consist of such number of members as
may be fixed from time to time by resolution of the Board of Directors. Unless
otherwise ordered by the Board of Directors, each elected member of the
executive committee shall continue to be a member thereof until the expiration
of his term of office as a director.
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Section 3.2. Powers. Any committee of the Board of Directors may exercise
all or any of the powers of the Board of Directors as shall be delegated in a
resolution of the board except that no committee shall have the power or
authority of the Board of Directors in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, amending the
Bylaws of the Corporation, declaring a dividend, authorizing the issuance of
stock or adopting a certificate of ownership and merger.
Section 3.3. Meetings. Regular meetings of the committees may be held
without notice at such times and places as the committees may fix from time to
time by resolution. Special meetings of the committees may be called by any
member thereof upon delivery of not less than forty-eight (48) hours notice,
given in person, by overnight courier, by telegraph or by facsimile, stating the
place, date and hour of the meeting, but such notice may be waived by any member
of the committee. If sent by overnight courier, notice shall be deemed to be
delivered when deposited with any nationally recognized overnight delivery
service, delivery fee prepaid. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting. At any
meeting at which every member of the committee shall be present, in person or by
telephone, even though without any notice, any business may be transacted.
Section 3.4. Presiding Officer. At all meetings of any committee the
chairman of the committee, who shall be designated by the Board of Directors
from among the members of the committee, shall preside, and the Board of
Directors shall designate a member of such committee to preside in the absence
of the chairman thereof. The Board of Directors may also similarly elect from
its members one or more alternate members of the committee to serve at the
meetings of such committee in the absence or disqualification of any regular
member or members, and, in case more than one alternate is elected, shall
designate at the time of election the priorities as between them.
Section 3.5. Vacancies. The Board of Directors, by the affirmative vote
of a majority of the members of the Board of Directors then in office, shall
fill vacancies in any committee by election from the directors.
Section 3.6. Rules of Procedure; Quorum. All action by any committee
shall be reported to the Board of Directors at the next succeeding meeting of
the Board of Directors after such action has been taken and shall be subject to
revision or alteration by the Board of Directors; provided however, that no
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rights or acts of third parties shall be affected by any such revision or
alteration. Each committee shall fix its own rules of procedure, and shall meet
where and as provided by such rules or by resolution of the Board of Directors,
but in every case the presence of a majority of the total number of members of
the committee shall be necessary to constitute a quorum. In every case, the
affirmative vote of a majority of all of the
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Page 12
members of the committee present at the meeting shall be necessary for the
adoption of any resolution.
Article IV: Officers
Section 4.1. Number and Term of Office.
(a) The officers of the Corporation shall be a president, a chief executive
officer, one or more executive vice-presidents, a secretary, a treasurer, and
such other officers as may be elected or appointed from time to time by the
Board of Directors, including such additional vice-presidents with such
designations, if any, as may be determined by the Board of Directors and such
assistant secretaries and assistant treasurers as may be determined by the Board
of Directors. In addition, the Board of Directors may elect a chairman thereof
and may also elect a vice-chairman as officers of the Corporation (each of whom
shall be a director). Any two or more offices may be held by the same person,
except that the offices of president and secretary may not be held by the same
person. In its discretion, the Board of Directors may leave unfilled any office
except those of president, treasurer and secretary.
(b) The officers of the Corporation shall be elected or appointed annually
by the Board of Directors at the first meeting of the Board of Directors held
after each annual meeting of stockholders. Each officer shall hold office until
his or her successor shall have been duly elected or appointed, until his or her
death or until he or she shall resign or shall have been removed by the Board of
Directors.
(c) Each of the salaried officers of the Corporation shall devote his
entire time, skill and energy to the business of the Corporation, unless the
contrary is expressly consented to by the Board of Directors or the executive
committee, if any.
Section 4.2. Vacancies. Vacancies or new offices may be filled at any
time by the affirmative vote of a majority of the members of the Board of
Directors.
Section 4.3. Removal. Any officer may be removed by the Board of
Directors whenever, in its judgment, the best interests of the Corporation would
be served thereby.
Section 4.4. The Chairman of the Board of Directors. The chairman, if
any, of the Board of Directors shall preside at all meetings of stockholders and
of the Board of Directors and shall have such other authority and perform such
other duties as are prescribed by law, by these Bylaws and by the Board of
Directors. The Board of Directors may designate the chairman thereof as chief
executive officer, in which case he shall have such authority and
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Page 13
perform such duties as are prescribed by these Bylaws and the Board of Directors
for the chief executive officer.
Section 4.5. The Vice-Chairman of the Board of Directors. The vice-
chairman, if any, of the Board of Directors shall have such authority and
perform such other duties as are prescribed by these Bylaws and by the Board of
Directors. In the absence or inability to act of the chairman of the Board of
Directors and of the president of the Corporation, the vice-chairman shall
preside at the meetings of the stockholders and of the Board of Directors and
shall have and exercise all of the powers and duties of the chairman of the
Board of Directors. The Board of Directors may designate the vice-chairman as
chief executive officer, in which case he shall have such authority and perform
such duties as are prescribed by these Bylaws and the Board of Directors for the
chief executive officer.
Section 4.6. The President. The president of the Corporation shall have
such authority and perform such duties as are prescribed by law, by these
Bylaws, by the Board of Directors and by the chief executive officer (if the
president is not the chief executive officer). If there is no chairman of the
Board of Directors, or in the chairman's absence or the chairman's inability to
act as the chairman of the Board of Directors, the president shall preside at
all meetings of stockholders and of the Board of Directors. Unless the Board of
Directors designates the chairman of the Board of Directors or the vice-chairman
as chief executive officer, the president shall be the chief executive officer,
in which case he shall have such authority and perform such duties as are
prescribed by these Bylaws and the Board of Directors for the chief executive
officer.
Section 4.7. The Chief Executive Officer. Unless the Board of Directors
designates the chairman of the Board of Directors or the vice-chairman as chief
executive officer, the president shall be the chief executive officer of the
Corporation. Subject to the supervision and direction of the Board of
Directors, the chief executive officer of the Corporation shall have general
supervision of the business, property and affairs of the Corporation, including
the power to appoint and discharge agents and employees, and the powers vested
in him or her by the Board of Directors, by law or by these Bylaws or which
usually attach or pertain to such office.
Section 4.8. The Executive Vice-Presidents. In the absence of the
chairman of the Board of Directors, if any, the president of the Corporation,
and in the event of the inability or refusal of the president of the Corporation
to act, the vice-chairman, if any, of the Board of Directors, or in the event of
the inability or refusal of either of them to act, the executive vice-president
of the Corporation (or in the event there is more than one executive vice-
president of the Corporation, the executive vice-presidents thereof in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the chairman of the Board of Directors, of
the president of the Corporation and of the vice-chairman of the Board of
Directors, and when so acting, shall have all the powers of and be subject to
all
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the restrictions upon the chairman of the Board of Directors, the president
of the Corporation and the vice-chairman of the Corporation. Any executive vice-
president of the Corporation may sign, with the secretary of the Corporation or
an authorized assistant secretary, certificates for stock of the Corporation and
shall perform such other duties as from time to time may be assigned to him or
her by the chairman of the Board of Directors, the president of the Corporation,
the vice-chairman of the Board of Directors, the Board of Directors or these
Bylaws.
Section 4.9. The Vice-Presidents. The vice-presidents of the Corporation,
if any, shall perform such duties as may be assigned to them from time to time
by the chairman of the Board of Directors, the president, the vice-chairman, the
executive vice-president, the Board of Directors, or these Bylaws.
Section 4.10. The Treasurer. Subject to the direction of the chief
executive officer of the Corporation and the Board of Directors, the treasurer
of the Corporation shall: (a) have charge and custody of all the funds and
securities of the Corporation; (b) when necessary or proper, endorse for
collection or cause to be endorsed on behalf of the Corporation, checks, notes
and other obligations, and cause the deposit of the same to the credit of the
Corporation in such bank or banks or depositary as the Board of Directors may
designate or as the Board of Directors by resolution may authorize; (c) sign all
receipts and vouchers for payments made to the Corporation other than routine
receipts and vouchers, the signing of which he or she may delegate; (d) sign all
checks made by the Corporation (provided however, that the Board of Directors
-------- -------
may authorize and prescribe by resolution the manner in which checks drawn on
banks or depositaries shall be signed, including the use of facsimile
signatures, and the manner in which officers, agents or employees shall be
authorized to sign); (e) unless otherwise provided by resolution of the Board of
Directors, sign with an officer-director all bills of exchange and promissory
notes of the Corporation; (f) sign with the president or an executive vice-
president all certificates representing shares of the capital stock; (g)
whenever required by the Board of Directors, render a statement of his or her
cash account; (h) enter regularly full and accurate account of the Corporation
in books of the Corporation to be kept by the treasurer for that purpose; (i)
exhibit, at all reasonable times, his or her books and accounts to any director
of the Corporation upon application at the treasurer's office during regular
business hours; and (j) perform all acts incident to the position of treasurer.
If required by the Board of Directors, the treasurer of the Corporation shall
give a bond for the faithful discharge of his or her duties in such sum as the
Board of Directors may require.
Section 4.11. The Secretary. The secretary of the Corporation shall: (a)
keep the minutes of all meetings of the Board of Directors, the minutes of all
meetings of the stockholders and (unless otherwise directed by the Board of
Directors) the minutes of all committees, in books provided for that purpose;
(b) attend to the giving and serving of all notices of the Corporation; (c) sign
with an officer-director or any other duly authorized person, in the name
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of the Corporation, all contracts authorized by the Board of Directors or by the
executive committee, and, when so ordered by the Board of Directors or the
executive committee, affix the seal of the Corporation thereto; (d) have charge
of the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors or the executive committee may direct, all
of which shall, at all reasonable times, be open to the examination of any
director, upon application at the secretary's office during regular business
hours; and (e) in general, perform all of the duties incident to the office of
the secretary, subject to the control of the chief executive officer and the
Board of Directors.
Section 4.12. The Assistant Treasurers and Assistant Secretaries. The
assistant treasurers of the Corporation shall respectively, if required by the
Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors may determine. The
assistant secretaries of the Corporation as thereunto authorized by the Board of
Directors may sign with the chairman of the Board of Directors, the president of
the Corporation, the vice-chairman of the Board of Directors or an executive
vice-president of the Corporation, certificates for stock of the Corporation,
the issue of which shall have been authorized by a resolution of the Board of
Directors. The assistant treasurers and assistant secretaries, in general, shall
perform such duties as shall be assigned to them by the treasurer or the
secretary, respectively, or chief executive officer, the Board of Directors, or
these Bylaws.
Section 4.13. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he or she is also a director of
the Corporation.
Section 4.14. Voting Upon Stocks. Unless otherwise ordered by the Board
of Directors or by the executive committee, any officer-director or any person
or persons appointed in writing by any of them, shall have full power and
authority on behalf of the Corporation to attend, to act and to vote at any
meetings of stockholders of any Corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock, and which, as the
owner thereof, the Corporation might have possessed and exercised if present.
The Board of Directors may confer like powers upon any other person or persons.
Article V: Contracts and Loans
Section 5.1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
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Page 16
Section 5.2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
Article VI: Certificates for Stock and Their Transfer
Section 6.1. Certificates for Stock. Certificates representing shares of
capital stock of the Corporation shall be in such form as may be determined by
the Board of Directors. Such certificates shall be signed by the chairman of the
Board of Directors, the president of the Corporation, the vice-chairman of the
Board of Directors or an executive vice-president of the Corporation and by the
secretary or an authorized assistant secretary and shall be sealed with the seal
of the Corporation. The seal may be a facsimile. If a stock certificate is
countersigned: (i) by a transfer agent other than the Corporation or its
employee; or (ii) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be a facsimile. In the event that any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent, or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. All certificates for capital stock
shall be consecutively numbered or otherwise identified. The name of the person
to whom the shares of capital stock represented thereby are issued, with the
number of shares of capital stock and date of issue, shall be entered on the
books of the Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled and no new certificates shall be issued until the
former certificate for a like number of shares of capital stock shall have been
surrendered and canceled, except that, in the event of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the Board of Directors may prescribe.
Section 6.2. Transfers of Stock. Transfers of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the Corporation, and on
surrender for cancellation of the certificate for such capital stock. The
person in whose name capital stock stands on the books of the Corporation shall
be deemed to be the owner thereof for all purposes as regards the Corporation.
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Article VII: Fiscal Year
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall end on
the 30th day of June in each year unless otherwise determined by resolution
of the Board of Directors.
Article VIII: Seal
Section 8.1. Seal. The Board of Directors shall approve a corporate seal
which shall be in the form of a circle and shall have inscribed thereon the name
of the Corporation.
Article IX: Waiver of Notice
Section 9.1. Waiver of Notice. Whenever any notice is required to be
given under the provisions of these Bylaws or under the provisions of the
Certificate of Incorporation or under the provisions of the General Corporation
Law of the State of Delaware, waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance of
any person at a meeting for which any notice is required to be given under the
provisions of these Bylaws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware shall constitute a waiver of notice of
such meeting except when the person attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any businesses
because the meeting is not lawfully called or convened.
Article X: Amendments
Section 10.1. Amendments. These Bylaws may be altered, amended or
repealed and new Bylaws may be adopted at any meeting of the Board of Directors
by the affirmative vote of at least a majority of the members of the Board of
Directors or by the affirmative vote of the holders of at least two-thirds (2/3)
of the outstanding shares of each class and series, if any, of capital stock of
the Corporation entitled to vote in the election of directors cast at a meeting
of the stockholders called for that purpose.
Article XI: Indemnification and Advancement of Costs
Section 11.1. Indemnification and Advancement of Costs. The Corporation
shall indemnify its officers, directors, employees and agents to the fullest
extent permitted by the Certificate of Incorporation consistent with General
Corporation Law of the State of Delaware,
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as amended from time to time; and the Corporation may advance costs incurred by
officers, directors, employees and agents of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise, in their
defenses of any civil, criminal, administrative or investigative action or
proceeding asserted against one or more of them by reason of the fact of his,
her, or their serving or having served in such capacity or capacities at the
request of the Corporation and in advance of a final disposition of such action,
suit or proceeding to the fullest extent permitted by the Certificate of
Incorporation consistent with the General Corporation Law of the State of
Delaware, as amended from time to time, provided that the terms and conditions
of such advancement of costs is approved by the Board of Directors. Nothing
herein is intended to limit the Corporation's authority to indemnify its
officers, directors, employees and agents or to advance funds in connection
therewith, under the General Corporation Law of the State of Delaware, as
amended from time to time.
<PAGE>
Exhibit 4.1
<PAGE>
See Legend On Reverse Of Certificate
INCORPORATED UNDER THE LAWS
OF DELAWARE
_-1 000
THINK NEW IDEAS, INC.
AUTHORIZED CAPITAL STOCK: 50,000,000 Shares of Common Stock, par value $.0001;
5,000,000 Shares of Preferred Stock, par value $.0001.
[Name]
[Number in Words]
of Common Stock, par value $.0001 per Share
[Month]
--
- ---------------------------- ----------------------------
Secretary President
<PAGE>
Exhibit 4.2
<PAGE>
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAS
BEEN ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT AND SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 10% PROMISSORY NOTE
----------------------------------
$ Culver City, California
-------------
, 1996
- ----------
FOR VALUE RECEIVED, the undersigned, Think New Ideas, Inc., a Delaware
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
________________ (the "Payee") at _________________________________________, or
at such other place as the holder hereof may from time to time designate in
writing, the principal sum of ___________________ ($___________) in one
installment due upon the earlier of: (i) December 31, 1996 or such later date
as extended by the Payee as set forth below (the "Maturity Date"); or (ii) the
Maker's receipt of proceeds of at least Two Hundred Fifty Thousand Dollars
($250,000) from one or more equity or debt offerings conducted by the Maker (the
"Accelerated Maturity Date"), together with interest from and after the date
hereof at the rate of ten percent (10%) per annum computed on the unpaid
principal balance. Interest shall be paid by Maker to the Payee on the Maturity
Date or the Accelerated Maturity Date, as applicable. By acceptance of this
Non-Negotiable 10% Promissory Note (the "Note"), the Payee represents, warrants,
covenants and agrees that it will abide by and be bound by its terms.
12. Prepayment and Notices. The unpaid principal balance outstanding under
----------------------
this Note may be prepaid in part or in full by the Maker without penalty, upon
thirty (30) days notice to the Payee stating the repayment amount and repayment
date (the "Repayment Date"). The Maker must provide notice five business days
prior to an Accelerated Maturity Date to the Payee.
13. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
14. Notices. Any notice required by the provisions of this Note to be given
-------
hereunder shall be in writing and may be delivered by personal service,
facsimile transmission or by registered or certified mail, return receipt
requested, with postage thereon fully prepaid or overnight delivery courier.
All such communications shall be addressed as applicable: (i) to the Payee of
record at its address appearing on the books of the Maker; or (ii) to the Maker
at 8522 National Boulevard, Suite 101, Culver City, California 90232. Service
of any such communication made only by mail shall be deemed complete on the date
of actual delivery as shown by the addressee's registry or certification receipt
or at the expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time.
<PAGE>
15. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an "Event
of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee to the Maker of such failure; (ii)
the violation by the Maker of any covenant or agreement contained in this Note
and the continuance of such violation for a period of thirty (30) days after
written notice from the Payee to the Maker of such failure; (iii) any change in
control of the Maker which the Board of Directors of the Maker deems to be
hostile or unfriendly; (iv) the assignment for the benefit of creditors by the
Maker; (v) the application for the appointment of a receiver or liquidator for
the Maker or for property of the Maker; (vi) the filing of a petition in
bankruptcy by or against the Maker; (vii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $50,000; (viii) a default by
the Maker with respect to any other indebtedness due to the Payee; (ix) the
making or sending of a notice of an intended bulk sale by the Maker; or (x) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of
Default which remains uncured as set forth herein and the placement of this Note
in the hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of fifteen percent (15%) per annum
computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver shall
be evidenced by written notice or other document specifying the Event or Events
of Default being waived and shall be binding on all existing or subsequent
Payees under this Note.
16. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Delaware without regard to the conflicts of law principles
thereof.
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this convertible promissory note and affixed its
corporate seal as of this ___ day of _______, 1996.
ATTEST: THINK NEW IDEAS, INC.
By:
------------------------------------------
Scott A. Mednick, Chief Executive Officer
By:
----------------------------------
Karla Villarreal, Secretary
2
<PAGE>
Exhibit 4.3
3
<PAGE>
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE BEEN
THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAVE BEEN (OR WILL BE, WITH
RESPECT TO THE SECURITIES ISSUABLE UPON CONVERSION HEREOF) ISSUED IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED
UNDER SUCH SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
SERIES I NON-NEGOTIABLE 12% CONVERTIBLE PROMISSORY NOTE
-------------------------------------------------------
$ Houston, Texas
-------------
April , 1996
---
FOR VALUE RECEIVED, the undersigned, Think New Ideas, Inc., a Delaware
corporation (hereinafter referred to as the "Maker"), hereby promises to pay to
_____________ (the "Payee") at ______________________________________________,
or at such other place as the holder hereof may from time to time designate in
writing, the principal sum of _______________________________ Dollars
($________) in one installment due upon the earlier of: (i) April 30, 1997 or
such later date as extended by the Payee as set forth below (the "Maturity
Date"); or (ii) the Maker's receipt of proceeds of at least Three Million
Dollars ($3,000,000) from one or more public or private equity or debt offerings
conducted by the Maker (the "Accelerated Maturity Date"), together with interest
from and after the date hereof at the rate of twelve percent (12%) per annum
computed on the unpaid principal balance. Interest shall be paid by Maker to the
Payee on the Maturity Date or the Accelerated Maturity Date, as applicable. This
Series I Non-Negotiable 12% Convertible Promissory Note (the "Note") is issued
in conjunction with the Company's issuance of several other Series I Non-
Negotiable 12% Convertible Promissory Notes. By acceptance of this Note, the
Payee represents, warrants, covenants and agrees that he, she or it will abide
by and be bound by its terms.
17. Prepayment and Notices. The unpaid principal balance outstanding under
----------------------
this Note may be prepaid in part or in full by the Maker without penalty, upon
thirty (30) days notice to the Payee stating the repayment amount and repayment
date (the "Repayment Date"). The Maker must provide notice five business days
prior to an Accelerated Maturity Date to the Payee.
18. Collateral. Repayment of amounts outstanding and/or owing hereunder is
----------
collateralized by the pledge of shares of common stock (the "Collateral") of On
Ramp, Inc., a New York corporation, pursuant to the terms of a certain pledge
agreement dated as of the date hereof, by and among the Maker, the Payee and
certain other holders of Series I Non-Negotiable 12% Convertible Promissory
Notes.
19. Conversion.
----------
(a) Up to $______ of the unpaid principal amount of this Note shall be
convertible at the option of the Payee (the "Conversion Right") upon the earlier
of: (i) 30 days after the date of effectiveness of a registration statement
relating to the Company's initial public offering; or (ii) six months from the
date hereof, but prior to the close of business on the Maturity Date or the
Accelerated
<PAGE>
Maturity Date, as applicable, in the manner and on the terms hereinafter set
forth, into _______ shares of common stock, par value $.0001 per share (the
"Common Stock") of the Maker (the "Conversion Price"), subject to adjustment
pursuant to Section 5 hereof.
(b) The Payee may, at its option and upon notice given no later than March
31, 1997, elect to extend the Maturity Date to a date after April 30, 1997, but
in no case may such extended date be later than December 31, 1997, provided that
this Note has not previously been prepaid or converted.
(c) Notwithstanding any other provision of this Note to the contrary, upon
receipt of notice of the Maker's intent to prepay part or all of the principal
amount hereunder or of an Accelerated Maturity Date, the Payee may elect to
exercise the Conversion Right and convert pursuant to Section 3(a) hereof a
portion (as set forth in subsection (a) hereof) of the amount of unpaid
principal which the Maker intends to prepay, up to the close of business on the
last business day before the stated Repayment Date.
(d) Notwithstanding any other provision hereof, the Conversion Right may
not be exercised at any time during which a registration statement under the
Securities Act of 1933 is filed but not effective.
20. Conversion Procedure. The Conversion Right may be exercised by the Payee
--------------------
by the surrender of this Note (along with the conversion form attached hereto,
duly executed) to the Maker at the principal office of the Maker. Risk of loss
prior to surrender of this Note shall be borne by the Payee. Consequently, hand
delivery with written acknowledgement of receipt by the Maker or registered or
certified mail, return receipt requested, is the preferred mode of delivery.
Conversion shall be deemed to have been effected on the date when such delivery
of the conversion notice is actually made or, if earlier, at the expiration of
five calendar days after being sent to the Maker by the Payee by registered or
certified mail, return receipt requested, with postage thereon fully prepaid
(the "Conversion Date"). As promptly as practicable thereafter, the Maker shall
issue and deliver to the Payee: (a) a new note representing the difference
between principal amount of this Note and the principal amount hereof which has
been converted pursuant hereto; and (b) certificates representing the number of
shares of Common Stock to which the Payee is entitled. The Maker shall not be
obligated to issue certificates representing shares of Common Stock in the name
of any party other than the Payee. The person or entity in whose name the
certificates representing the shares of Common Stock issuable upon conversion
hereof shall be deemed to have become a holder of record on the next succeeding
day on which the transfer books are open, but the Conversion Price shall be that
in effect on the Conversion Date. The Maker covenants that all securities which
may be issued upon exercise of the Conversion Right will, upon issuance, be
fully paid and nonassessable and free of all taxes, liens and charges caused or
created by the Maker with respect to the issuance thereof.
21. Adjustments. The number and kind of securities which may be received upon
-----------
the exercise of the Conversion Right and the Conversion Price shall be subject
to adjustment from time to time upon the happening of certain events, as
follows:
(a) Stock Splits and Combinations. If the Maker shall at any time or from
-----------------------------
time to time after the date hereof effect a subdivision of its outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased, and conversely,
2
<PAGE>
if the Maker shall at any time or from time to time after the date hereof
combine its outstanding shares of Common Stock, the Conversion Price then in
effect immediately before such combination shall be proportionately increased.
Any adjustment under this section shall become effective upon the close of
business on the date the subdivision or combination becomes effective.
(b) Certain Dividends and Distributions. In the event that the Maker shall
-----------------------------------
at any time or from time to time after the date hereof make or issue, or fix a
record date for the determination of holders of shares of Common Stock entitled
to receive, a dividend or other distribution payable in additional shares of
Common Stock, then and in each such event, the Conversion Price then in effect
shall be decreased as of the time of such issuance or, in the event that such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(ii) the denominator of which shall be the sum of the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date and the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, that if such record date shall have been fixed and such
- -------- -------
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter such Conversion Price shall
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.
(c) Other Dividends and Distributions. In the event that the Maker at any
---------------------------------
time or from time to time after the date hereof shall make or issue, or fix a
record date for the determination of holders of shares of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the Maker
other than shares of Common Stock, then and in each such event provisions shall
be made so that the holder of this Note shall receive, upon conversion of this
Note, in addition to the number of shares of Common Stock receivable thereupon,
the amount of securities of the Maker which such holder would have received had
its Note been converted into shares of Common Stock on the date of such event
and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period) receivable by the holder as
aforesaid during such period, giving application to all adjustments called for
during such period under this section with respect to the rights of the holder
of the Note.
(d) Reclassification, Exchange or Substitution. If the shares of Common
------------------------------------------
Stock issuable upon the conversion of this Note shall be changed into the same
or different number of shares of any class or classes of capital stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for in
subsection (e) below), then and in each such event, the holder of this Note
shall have the right thereafter to convert this Note into the kind and amount of
shares of capital stock and other securities and property receivable upon such
reorganization, reclassification or other change, as the holder of the number of
shares of Common Stock into which this
3
<PAGE>
Note might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(e) Reorganization, Merger, Consolidation or Sale of Assets. If, at any
-------------------------------------------------------
time or from time to time, there shall be a capital reorganization of the shares
of Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this section) or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties and assets to any other person or
entity, then as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of this Note shall thereafter be
entitled to receive upon conversion of this Note, the number of shares of
capital stock or other securities or property of the Maker, or of the successor
corporation resulting from such merger or consolidation or sale, to which the
holder of shares of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger, consolidation, or sale. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this section with respect to the rights of the holder of this Note after the
reorganization, merger, consolidation or sale to the end that the provisions of
this section (including adjustment of the Conversion Price then in effect and
the number of shares of Common Stock receivable upon conversion of this Note)
shall be applicable after that event as nearly equivalent hereto as may be
practicable.
(f) Minimum Adjustment. Notwithstanding anything to the contrary set forth
------------------
herein, no adjustment of the Conversion Price shall be made in an amount equal
to less than one cent ($.01), but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next subsequent
adjustment which together with any adjustments so carried forward shall amount
to one cent ($.01) or more.
(g) Certificate of Adjustment. Upon the occurrence of each adjustment or
-------------------------
readjustment of the applicable Conversion Price pursuant to this section, the
Maker shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and prepare and furnish to the holder of this Note a
certificate, signed by the Chairman of the Board, the President or the Chief
Financial Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(h) Notices of Record Date. If and in the event that:
----------------------
(i) the Maker shall set a record date for the purpose of entitling
the holders of shares of Common Stock to receive a dividend, or any other
distribution, payable otherwise than in cash;
(ii) the Maker shall set a record date for the purpose of entitling
the holders of shares of Common Stock to subscribe for or purchase any shares of
any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the Maker,
reclassification of the shares of capital stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Maker with or into another corporation, or sale
of all or substantially all of the assets of the Maker; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation, or winding up of the Maker;
4
<PAGE>
then, and in any such case, the Maker shall cause to be mailed to the holder of
record of this Note, at least thirty (30) days prior to the dates hereinafter
specified, a notice stating the date: (A) which has been set as the record date
for the purpose of such dividend, distribution, or rights; or (B) on which such
reclassification, reorganization, consolidation, merger, sale, dissolution,
liquidation or winding up is to take place and the record date as of which the
holder of record shall be entitled to exchange this Note for securities or other
property deliverable upon such reclassification, reorganization, consolidation,
merger, sale, dissolution, liquidation or winding up.
(i) Exceptions. The Maker proposes to acquire all or substantially all of
----------
the outstanding stock of four separate corporations in exchange for the issuance
of securities of the Maker (the "Acquisitions") and to conduct an underwritten
public offering of its securities contemporaneously therewith (the "Public
Offering"). Notwithstanding anything to the contrary set forth elsewhere
herein, the provisions hereof relating to adjustments shall not be operative and
no adjustment which otherwise may have been required pursuant hereto shall be
made as a result of the issuance of securities by the Company in connection with
or related in any way to the Acquisitions or the Public Offering.
22. Reservation. The Maker covenants that, during the period within which the
-----------
Conversion Right may be exercised, the Maker will at all times have authorized
and reserved for the purpose of issuance upon exercise of the Conversion Right,
a sufficient number of shares of Common Stock (or other securities subject to
the Conversion Right) to provide for the exercise of the Conversion Right in
full.
23. Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of this Note. In lieu of any fractional shares of Common Stock
to which the Payee would otherwise be entitled, the Maker shall pay an amount
equal to the product of such fraction multiplied by the fair value of one share
of Common Stock on the Conversion Date, as determined in good faith by the Board
of Directors of the Maker.
24. Registration Rights. The Maker hereby covenants and agrees as follows:
-------------------
(a) Definitions. For purposes of this section:
-----------
(i) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration of effectiveness of such registration
statement or other document by the Securities and Exchange Commission (the
"SEC").
(ii) The term "Registrable Securities" means: (A) the shares of
Common Stock issued or issuable upon conversion of this Note; or (B) any other
securities of the Maker issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, in exchange for or in replacement of the shares of
Common Stock referenced in subsection (A) immediately above, excluding in all
cases, however, any Registrable Securities sold to the public pursuant to a
registration or an exemption from registration.
(iii) The number of shares of "Registrable Securities then outstanding"
shall be the number of securities outstanding which are Registrable Securities.
5
<PAGE>
(iv) The term "Holder" as used hereinafter in this section means any
person or entity owning of record Registrable Securities.
(b) Piggy-Back Registration Rights. In the event that (but without any
------------------------------
obligation to do so) the Maker proposes to register any of its securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration on Form S-4, Form S-8 or any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Maker shall promptly give each Holder written notice of such
registration (the "Piggy-Back Notice"); provided, however, that the Maker shall
-------- -------
have no obligation to so notify Holders with respect to any registration
subsequent to the first of such registrations to occur after the issuance of
this Note and shall have no obligation if the managing underwriter of the
subject proposed offering expresses its objection thereto to the Maker. Upon
the written request of each Holder given within twenty (20) days after receipt
of such Piggy-Back Notice from the Maker, the Maker shall, subject to the
provisions of Section 8(g) below, cause to be included in the registration
statement filed by the Maker under the Securities Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
--------
however, that the Maker shall have no such obligation if the managing
- -------
underwriter of the subject proposed offering has expressed its objection to the
same to the Maker. To the extent that a Holder is offered the opportunity under
this section to include all of its Registrable Securities in a registration
statement, such Holder will be deemed to have exercised its sole piggy-back
registration right provided by this section.
(c) Obligations of the Maker. Whenever required under this section to file
------------------------
a registration statement to effect the registration of any Registrable
Securities, the Maker shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of at least fifty percent (50%) of the Registrable Securities registered
thereunder, keep such registration statement effective for at least four (4)
months.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus included therein as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(iii) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be reasonably requested by the Holders for the
distribution of the securities covered by the registration statement, provided
that the Maker shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction.
6
<PAGE>
(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms generally
satisfactory to the managing underwriter of such offering.
(vi) Notify the Holders promptly after the Maker shall have received
notice thereof, of the time when the registration statement becomes effective or
any supplement to any prospectus forming a part of the registration statement
has been filed.
(vii) Notify the Holders of any stop order suspending the effectiveness
of the registration statement and use its reasonable best efforts to remove such
stop order.
(d) Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Maker to take any action pursuant hereto that any Holder
seeking to include any of its Registrable Securities in a registration statement
filed by the Maker pursuant hereto shall furnish to the Maker such information
regarding itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities. In that connection, each such
Holder shall be required to represent to the Maker that all such information
which is given is both complete and accurate in all material respects. Each of
such Holders shall deliver to the Maker a statement in writing from the
beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
(e) Definition of Expenses.
----------------------
(i) "Registration Expenses" shall mean all expenses incurred by the
---------------------
Maker in complying with Sections 8(b) and 8(c) hereof, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Maker, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Maker which shall be
paid in any event by the Maker).
(ii) "Selling Expenses" shall mean all underwriting discounts,
----------------
selling commissions and underwriters' expense allowance applicable to the sale
and all fees and disbursements of any special counsel (other than the Maker's
regular counsel) for any Holder.
(f) Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance herewith, shall be
borne by the Maker, and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of Registrable
Securities so registered; provided, however, that the Maker shall not be
-------- -------
required to pay any Registration Expenses if, as a result of the withdrawal of a
request for registration by Initiating Holders, the registration statement does
not become effective. In the case of such withdrawal and the failure of the
Holders to agree so to forfeit, the Holders shall bear such Registration
Expenses pro rata on the basis of the number of Registrable Securities so
included in the registration request.
(g) Underwriting Requirements. All Holders proposing to distribute their
-------------------------
securities through an underwriting pursuant hereto shall (together with the
Maker and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Maker.
Notwithstanding any other provision of this section, at the request of the
managing underwriter, the Holder shall delay the sale of
7
<PAGE>
Registrable Securities which such Holder has requested be registered under this
section for the ninety (90) day period commencing with the effective date of the
registration statement. Notwithstanding anything to the contrary herein, no such
delay shall be required with respect to securities offered by holders of
securities who have requested the Maker to register such securities pursuant to
a mandatory registration obligation of the Maker if other security holders of
the Maker who have not made requests pursuant to such an obligation are not
subject to a similar delay. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the Maker
and the underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(h) Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this section.
(i) Indemnification. In the event that any Registrable Securities are
---------------
included in a registration statement pursuant hereto:
(i) To the extent permitted by law, the Maker will indemnify and hold
harmless each Holder, the officers, directors and partners of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person
or entity, if any, that controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (A) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or (C) any violation or alleged violation by the Maker
of the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and the Maker will reimburse each such Holder, officer, director
or partner, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Maker (which consent shall not
be unreasonably withheld), nor shall the Maker be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
and further provided, however, that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the definitive prospectus, such
indemnity agreement shall not inure to the benefit of the underwriter (or the
benefit of any person or entity that controls such underwriter), if a copy of
the definitive prospectus was not sent or given to such person or entity with or
prior to the confirmation of the sale of such securities to such person or
entity.
8
<PAGE>
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Maker, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Maker within the meaning of the Securities Act or the Exchange Act,
any underwriter (within the meaning of the Securities Act) for the Maker, any
person who (or entity that) controls such underwriter, and any other Holder
selling securities in such registration statement or any of its directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Maker or any such
director, officer, controlling person (or entity), or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Maker or any
such director, officer, controlling person (or entity), underwriter or
controlling person (or entity), other Holder, officer, director or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld.
(iii) Promptly after receipt by an indemnified party under this section
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this section, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this section,
but the omission so to notify the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
section.
(j) Reports Under Securities Exchange Act of 1934. With a view toward
---------------------------------------------
making available to Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Maker to the public without
registration, the Maker agrees to:
(i) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144, at all times;
(ii) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Maker under the Securities Act and
the Exchange Act; and
9
<PAGE>
(iii) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request such information as may be reasonably
requested in order to allow any Holder to avail himself of any rule or
regulation of the SEC which permits the selling of any such securities without
registration.
(k) Termination of the Maker's Obligations.
--------------------------------------
(i) The Maker shall have no obligation pursuant to Section 8(c) with
respect to any request made by any Holder after the second anniversary of the
Maturity Date.
(ii) Notwithstanding any provision hereof to the contrary, the Maker
shall not be required to effect any registration under the Securities Act or
under any state securities laws on behalf of any Holder or Holders if, in the
opinion of counsel for the Maker, the offering or transfer by such Holder or
Holders in the manner proposed (including, without limitation, the number of
shares proposed to be offered or transferred and the method of offering or
transfer) is exempt from the registration requirements of the Securities Act and
the securities laws of applicable states.
(l) Lock Ups. The Payee (and any subsequent Holder) by acceptance hereof,
--------
hereby acknowledges that it is the Maker's intention to conduct the Public
Offering, which offering is contemplated to be underwritten; the Payee (and any
subsequent Holder) by acceptance hereof hereby agrees: (i) that its rights to
request registration pursuant to the provisions hereof shall be subject to the
approval of the underwriter of the Public Offering (the "Underwriter"); and (ii)
the Payee (and any subsequent Holder) shall agree to refrain from exercising
such rights or transferring any of the Registrable Securities for a period of up
to thirteen months should the Underwriter so request in writing.
8. Miscellaneous.
-------------
(a) Restricted Securities. By acceptance hereof, the Payee understands and
---------------------
agrees that this Note and the shares of Common Stock issuable upon conversion
hereof are "restricted securities" under the federal securities laws inasmuch as
they are being acquired from the Maker in a transaction not involving a public
offering and have not been the subject of registration under the Securities Act
and that under such laws and applicable regulations such securities may be
resold in the absence of registration under the Securities Act only in certain
limited circumstances. The Payee hereby represents that it is familiar with
Rule 144 promulgated under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
(b) Further Limitations on Disposition. This Note may not be negotiated,
----------------------------------
assigned or transferred by Payee. The Payee further agrees not to make any
disposition of all or any portion of this Note (or of the securities issuable
upon conversion hereof) unless and until:
(i) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement;
(ii) such disposition is made in accordance with Rule 144 under the
Securities Act; or
10
<PAGE>
(iii) the Payee shall have notified the Maker of the proposed
disposition and shall have furnished the Maker with a detailed statement of the
circumstances surrounding the proposed disposition, and the Payee shall have
furnished the Maker with an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to the Maker, that such disposition will not require
registration under the Securities Act and will be in compliance with applicable
state securities laws.
(c) Legends. It is understood that this Note and each certificate
-------
evidencing shares of Common Stock issuable upon conversion hereof (or evidencing
any other securities issued with respect thereto pursuant to any stock split,
stock dividend, merger or other form of reorganization or recapitalization)
shall bear the legends (in addition to any legends which may be required in the
opinion of the Maker's counsel by the securities laws of the state where the
Payee is located) set forth on the first page of this Note.
9. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
10. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of this
--------------------
Note to be given to the holder hereof shall be in writing and may be delivered
by personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires a
--------------------
notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed by
the Payee of this Note or other holder giving such notice or request (or, in the
case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed by each Holder of a Note
whose Note has been counted in constituting the requisite percentage of Notes
required to give such notice or make such request).
11. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an "Event
of Default") hereunder: (i) the failure to pay when due any principal or
interest hereunder and the continuance of such failure for a period of thirty
(30) days after written notice from the Payee to the Maker of such
11
<PAGE>
failure; (ii) the violation by the Maker of any covenant or agreement contained
in this Note and the continuance of such violation for a period of thirty (30)
days after written notice from the Payee to the Maker of such failure; (iii) any
change in control of the Maker which the Board of Directors of the Maker deems
to be hostile or unfriendly; (iv) the assignment for the benefit of creditors by
the Maker; (v) the application for the appointment of a receiver or liquidator
for the Maker or for property of the Maker; (vi) the filing of a petition in
bankruptcy by or against the Maker; (vii) the issuance of an attachment or the
entry of a judgment against the Maker in excess of $50,000; (viii) a default by
the Maker with respect to any other indebtedness due to the Payee; (ix) the
making or sending of a notice of an intended bulk sale by the Maker; or (x) the
termination of existence, dissolution or insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
which remains uncured as set forth herein and the placement of this Note in the
hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of fifteen percent (15%) per annum
computed on the unpaid principal balance.
(b) The Payee may waive any Event of Default hereunder. Such waiver shall
be evidenced by written notice or other document specifying the Event or Events
of Default being waived and shall be binding on all existing or subsequent
Payees under this Note.
(c) Notwithstanding anything else to the contrary set forth herein, upon
the occurrence of an Event of Default, including but not limited to the failure
to pay when due any principal or interest hereunder, the Maker shall have six
(6) months from the date of the occurrence of each such Event of Default to cure
such default, during which time, the Payee may not take any action against the
Maker with respect to the Collateral, collection of amounts due and owing
hereunder or enforcement of the provisions hereof.
12. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Delaware without regard to the conflicts of law principles
thereof.
IN WITNESS WHEREOF, Maker, by its appropriate officers thereunto duly
authorized, has executed this Series I Non-Negotiable 12% Convertible Promissory
Note and affixed its corporate seal as of this _____ day of April, 1996.
THINK NEW IDEAS, INC.
EXHIBIT
By:
---------------------------------
Frank M. DeLape, President
ATTEST:
EXHIBIT
12
<PAGE>
By:
----------------------------------------
Karla Y. Villarreal, Secretary
13
<PAGE>
CONVERSION FORM
The undersigned hereby elects to convert the following principal amount of
the attached Series I Non-Negotiable 12% Convertible Promissory Note (the
"Note") (not to exceed $__________) into shares of common stock, par value
$.0001 per share, of Think New Ideas, Inc.
State such amount: Dollars ($ ).
----------------------------- -----------
Date: Signature:
---------------------
------------------------------------------------
(Sign exactly as your name appears on the Note)
<PAGE>
Exhibit 10.1
<PAGE>
Exhibit 10.1
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
By and Among
THINK NEW IDEAS, INC.,
---------------------------
and
------------------
June __, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
TO
AGREEMENT AND PLAN OF REORGANIZATION
ARTICLE/SECTION/SUBJECT PAGE
- ----------------------- ----
INTRODUCTION AND RECITALS................................................... 1
ARTICLE I
EXCHANGE OF STOCK
1.1 Exchange of Stock...................................................... 2
ARTICLE II
CLOSING
2.1 Date and Time of Closing............................................... 2
ARTICLE III
REPRESENTATIONS AND WARRANTIES
<TABLE>
<C> <S> <C>
3.1 Representations and Warranties of the Company and the Stockholder..... 2
(a) Authorization.................................................... 2
(b) Organization; Subsidiaries....................................... 3
(c) Capitalization................................................... 3
(d) Financial Statements............................................. 4
(e) Owned Real Property.............................................. 4
(f) Leased Real Property; Tenancies.................................. 4
(g) Title............................................................ 4
(h) Fixed Assets; Condition of Assets................................ 5
(i) Intellectual Property............................................ 6
(j) Accounts Receivable.............................................. 7
(l) Absence of Undisclosed Liabilities............................... 8
(m) Absence of Certain Changes or Events............................. 8
(n) Agreements....................................................... 9
(o) Non-Contravention; Consents...................................... 10
(p) Employee Benefit Plans........................................... 11
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION/SUBJECT PAGE
- ----------------------- ----
<C> <S> <C>
(q) Labor Relations.................................................. 11
(r) Insurance........................................................ 11
(s) Tax Matters...................................................... 11
(t) Compliance with Applicable Law................................... 13
(u) Litigation....................................................... 13
(v) Permits.......................................................... 13
(w) Unlawful Payments................................................ 14
(x) Warranties....................................................... 14
(y) Officers, Directors and Employees................................ 14
(z) Loans to or from Affiliates...................................... 14
(aa) Clients, Vendors, Suppliers and Service Providers................ 15
(bb) Books and Records................................................ 15
(cc) Bank Accounts.................................................... 15
(dd) Investment Purpose............................................... 15
(ee) Agreements with Affiliates....................................... 15
(ff) Accuracy of Information Furnished................................ 15
3.2 Representations and Warranties of Think................................ 16
(a) Authorization.................................................... 16
(b) Organization..................................................... 16
(c) Capitalization................................................... 16
(d) Non-Contravention; Consents...................................... 17
(e) Litigation....................................................... 17
(f) Accuracy of Information Furnished................................ 17
(g) Compliance with Applicable Law................................... 18
3.3 Survival of Representations and Warranties............................. 18
</TABLE>
ARTICLE IV
COVENANTS
<TABLE>
<C> <S> <C>
4.1 Covenants of the Company and the Stockholder........................... 18
(a) Notification..................................................... 18
(b) Additional Financial Statements.................................. 19
(c) Additional Summaries of Accounts and Notes Receivable............ 19
(d) Additional Summaries of Accounts Payable......................... 19
(e) Conduct of Business; Certain Covenants........................... 19
(f) Proposals; Other Offers.......................................... 22
(g) Best Efforts and Cooperation; Further Assurances................. 22
(h) Access to Additional Agreements and Information.................. 23
4.2 Covenants of Think..................................................... 23
(a) Notice of Defaults............................................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION/SUBJECT PAGE
- ----------------------- ----
<C> <S> <C>
(b) Third Party Consents............................................. 23
(c) Best Efforts and Cooperation; Further Assurances................. 23
(d) Access to Additional Information and Agreements.................. 24
(e) Confidentiality.................................................. 24
4.3 Governmental Filings and Consents...................................... 24
4.4 Publicity.............................................................. 24
4.5 Right to Investigate................................................... 24
(a) Obligation of the Company and the Stockholder.................... 24
(b) Effectiveness of Representations Notwithstanding Investigation... 25
</TABLE>
ARTICLE V
CONDITIONS
<TABLE>
<C> <S> <C>
5.1 Conditions to Obligations of Think..................................... 25
(a) No Material Adverse Change....................................... 25
(b) Copies of Resolutions............................................ 25
(c) Opinion of Company's and Stockholder's Counsel................... 26
(d) Accuracy of Representations and Warranties;
Performance of Covenants......................................... 26
(e) Delivery of Officers' Certificates............................... 26
(f) Delivery of Stock Certificates................................... 26
(g) Consents and Waivers............................................. 26
(h) Litigation....................................................... 26
(i) Employment Agreement of Stockholder.............................. 27
(j) Delivery of Documents and Other Information...................... 27
5.2 Conditions to Obligations of the Company and the Stockholder........... 27
(a) Copies of Resolutions............................................ 27
(b) Opinion of Counsel to Think...................................... 27
(c) Accuracy of Representations and Warranties;
Performance of Covenants......................................... 27
(d) Delivery of Officers' Certificates............................... 27
(e) Stock Certificates............................................... 28
(f) Consents and Waivers............................................. 28
(g) Litigation....................................................... 28
(h) Employment Agreements of Stockholder............................. 28
</TABLE>
ARTICLE VI
INDEMNIFICATION AND CLAIMS
<TABLE>
<C> <S> <C>
6.1 Indemnification by the Company and the Stockholder..................... 28
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE/SECTION/SUBJECT PAGE
- ----------------------- ----
<C> <S> <C>
6.2 Claims Against Think................................................... 29
6.3 Right of Offset........................................................ 29
6.4 Indemnification by Think............................................... 30
6.5 Claims Against the Stockholder......................................... 30
6.6 Right of Offset........................................................ 31
</TABLE>
ARTICLE VII
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
<TABLE>
<C> <S> <C>
7.1 Termination by Mutual Agreement........................................ 31
7.2 Termination for Failure to Close....................................... 31
7.3 Termination by Operation of Law........................................ 31
7.4 Termination for Failure to Perform Covenants or Conditions............. 31
7.5 Effect of Termination or Default; Remedies............................. 32
7.6 Remedies; Specific Performance......................................... 32
</TABLE>
ARTICLE VIII
MISCELLANEOUS
<TABLE>
<C> <S> <C>
8.1 Fees and Expenses...................................................... 32
8.2 Modification, Amendments and Waiver.................................... 33
8.3 Assignment............................................................. 33
8.4 Burden and Benefit..................................................... 33
8.5 Brokers................................................................ 33
8.6 Entire Agreement....................................................... 33
8.7 Governing Law.......................................................... 34
8.8 Notices................................................................ 34
8.9 Counterparts........................................................... 35
8.10 Rights Cumulative...................................................... 35
8.11 Severability of Provisions............................................. 35
8.12 Headings............................................................... 35
8.14 Registration Rights.................................................... 35
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
TO
AGREEMENT AND PLAN OF REORGANIZATION
EXHIBITS:
Exhibit 5.1(c): Form of Opinion of Counsel to Company and Stockholder
Exhibit 5.1(i): Form of Stockholder Employment Agreement
Exhibit 5.2(b): Form of Opinion of Counsel to Think
SCHEDULES:
Schedule 3.1(b): Organization
Schedule 3.1(f): Leased Real Property; Tenancies
Schedule 3.1(i): Intellectual Property
Schedule 3.1(j): Accounts Receivable
Schedule 3.1(k): Accounts Payable
Schedule 3.1(m): Certain Changes or Events
Schedule 3.1(n): Agreements
Schedule 3.1(o): Non-Contravention; Consents
Schedule 3.1(p): Employee Benefit Plans
Schedule 3.1(q): Labor Relations
Schedule 3.1(r): Insurance
Schedule 3.1(x): Warranties
Schedule 3.1(y): Officers, Directors and Employees
Schedule 3.1(z): Loans to or from Affiliates
Schedule 3.1(aa): Clients, Vendors, Suppliers and Service Providers
Schedule 3.1(cc): Bank Accounts
v
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
as of this _____ day of June 1996, by and among Think New Ideas, Inc., a
Delaware corporation ("Think"), __________________________, a Pennsylvania
corporation (the "Company"), and __________________ (the "Stockholder").
WITNESSETH:
WHEREAS, the authorized capital stock of Think consists of 30,000,000
shares of common stock (the "Think Stock"), and 1,000,000 shares of preferred
stock, par value $.0001 per share (the "Preferred Stock"), of which 6,564,080
shares of Think Stock and no shares of Preferred Stock are issued and
outstanding as of the date hereof;
WHEREAS, the authorized capital stock of the Company consists of __________
shares of common stock, no par value (the "Company Stock"), of which __________
shares of Company Stock are issued and outstanding as of the date hereof;
WHEREAS, the Stockholder owns _____ shares of Company Stock, representing
one hundred percent (100%) of the issued and outstanding shares of capital stock
of the Company;
WHEREAS, it is the desire of Think to acquire from the Stockholder all of
the Stockholder's right, title and interest in and to all of the issued and
outstanding shares of capital stock of the Company pursuant to the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the Stockholder, as the sole stockholder of the Company, desires
to transfer and convey to Think all right, title and interest in and to the
issued and outstanding shares of capital stock of the Company pursuant to the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the parties intend that the transactions described herein be
accounted for as a pooling of interest pursuant to Accounting Board Principles
No. 16 and qualify as a reorganization pursuant to Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1
<PAGE>
ARTICLE I
EXCHANGE OF STOCK
1.1 Exchange of Stock. Upon the terms and subject to the conditions set
-----------------
forth in this Agreement, the Company and the Stockholder hereby agree that on
the Closing Date (as hereinafter defined in Section ), the Stockholder shall
transfer and convey to Think and Think hereby agrees to acquire from the
Stockholder, all of the Stockholder's right, title and interest in and to all of
the issued and outstanding shares of Company Stock. The Stockholder hereby
further agrees, upon the terms and subject to the conditions set forth herein,
to transfer and deliver to Think at the Closing (as hereinafter defined in
Section ) certificates, properly endorsed in blank or accompanied by a properly
executed stock power, representing all of the issued and outstanding shares of
Company Stock. In exchange for the Stockholder's transfer and conveyance of all
of the issued and outstanding shares of Company Stock to Think, Think hereby
agrees that on the Closing Date (as hereinafter defined in Section 2.1), Think
shall issue and deliver to the Stockholder 220,000 shares of Think Stock.
ARTICLE II
CLOSING
2.1 Date and Time of Closing. Subject to satisfaction of the conditions
------------------------
set forth in this Agreement and compliance with the other provisions hereof, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place on June 28, 1996 at 10:00 a.m. (eastern daylight savings time) at the
law offices of De Martino Finkelstein Rosen & Virga, 1818 N Street, N.W.,
Washington D.C. 20036, or at such other place and time thereafter as shall be
mutually agreeable to the parties hereto, but in no event later than June 30,
1996, unless otherwise extended by mutual agreement of the parties hereto (the
"Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company and the Stockholder.
-----------------------------------------------------------------
The Company and the Stockholder represent and warrant to Think as follows:
(a) Authorization. The execution, delivery and performance of this
-------------
Agreement and consummation of the transactions contemplated hereby have been
duly authorized, adopted and approved by the board of directors of the Company
and by the Stockholder. The Company has taken all necessary corporate action
and has all the necessary corporate power to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the officers of the Company on its behalf,
and
2
<PAGE>
assuming that this Agreement is the valid and binding obligation of Think, is
the valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The Stockholder represents and
warrants that such Stockholder has the ability to consummate the transactions
contemplated hereby, that this Agreement has been duly executed and validly
delivered by her and that this Agreement is the valid and binding obligation of
the Stockholder, enforceable against such Stockholder in accordance with its
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect, or by legal or equitable principles, relating to or limiting creditors'
rights generally and except that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(b) Organization; Subsidiaries. The Company is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has the corporate power and authority
to own and lease its properties and assets and to carry on its business as it is
now being conducted and is duly qualified to do business as a foreign
corporation in each jurisdiction where it owns or leases real property or
conducts business, except where the failure to be so qualified would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of the Company. Set forth on Schedule
3.1(b) hereto is a true and correct list of each jurisdiction in which the
Company is qualified to do business. The Company does not own any shares of
capital stock or other interest in any corporation, partnership, association or
other entity.
(c) Capitalization. The number of authorized, issued and outstanding
--------------
shares of capital stock of the Company as of the date hereof is as set forth
above in the recitals to this Agreement. The outstanding shares of Company
Stock have been duly authorized, validly issued and are fully paid and non-
assessable. The Stockholder hereby represents and warrants that such
Stockholder is the sole legal and beneficial owner of the number of shares of
Company Stock as set forth in the recitals to this Agreement, which shares, in
the aggregate, represent all of the issued and outstanding shares of capital
stock of the Company. The Stockholder hereby represents and warrants that the
issued and outstanding shares of Company Stock owned by such Stockholder are
owned free of preemptive rights and free and clear of all adverse claims, liens,
mortgages, charges, security interests, encumbrances and other restrictions or
limitations of any kind whatsoever, other than restrictions inherent in the
exemptions from securities registration or qualification requirements under
which the Company Stock was issued to the Stockholder. The Company has not
issued any shares of capital stock which could give rise to claims for violation
of any federal or state securities laws (including any rules or regulations
promulgated thereunder) or the securities laws of any other jurisdiction
(including any rules or regulations promulgated thereunder). As of the date
hereof, there are no options, warrants, calls,
3
<PAGE>
convertible securities or commitments of any kind whatsoever relating to the
shares of the Company Stock subject hereto or any of the unissued shares of
capital stock of the Company, and there are no voting trusts, voting agreements,
stockholder agreements or other agreements or understandings of any kind
whatsoever which relate to the voting of the capital stock of the Company.
(d) Financial Statements. The Company has heretofore delivered to
--------------------
Think: (i) an unaudited interim balance sheet of the Company as at May 31, 1996
and unaudited interim statements of operations and retained earnings and cash
flows for the period ended May 31, 1996; and (ii) an unqualified audited balance
sheet of the Company as at February 29, 1996, 1995 and 1994 (the "Balance
Sheets") and the related unqualified audited statements of operations and
retained earnings and cash flows for the years ended February 29, 1996, 1995,
1994, 1993 and 1992 (all of the foregoing, including the notes thereto, may
collectively be referred to hereinafter as the "Financial Statements")
accompanied by the corresponding relevant opinions and reports of the Company's
independent auditors as of the same dates and for the same periods. The
Financial Statements present fairly, in all material respects, the financial
position of the Company as of the respective dates indicated and the results of
operations and cash flows of the Company for the respective periods indicated in
conformity with generally accepted accounting principles applied on a consistent
basis.
(e) Owned Real Property. The Company does not own (of record or
-------------------
beneficially), nor does it have any interest in, any real property other than
the leased real property set forth below. Except for such leased real property
and any easements or rights-of-way for the benefit of the Company which are
appurtenant thereto, the Company does not own any real property.
(f) Leased Real Property; Tenancies. The Company has delivered to
-------------------------------
Think true, correct and complete copies of each all leases and subleases (the
"Real Property Leases") with respect to real property leased by the Company as
lessee and used in the conduct of its business or otherwise (the "Leased Real
Property"). Except as set forth on Schedule 3.1(f), the Company is not required
pursuant to the provisions of any of the Real Property Leases or otherwise to
obtain the consent of any lessor with respect to the Leased Real Property prior
to or in connection with consummation of the transactions contemplated hereby
and the Company is not in default under nor, to the best knowledge of the
Company and the Stockholder, is any third party in default under any of the Real
Property Leases. There are no subleases or subtenancies for any part of the
Leased Real Property that shall remain in effect after the Closing Date and, to
the best knowledge of the Company and the Stockholder, there is no third party
which has any right to purchase, use or otherwise possess all or any part of the
Leased Real Property.
(g) Title. The Company: (i) holds a valid and enforceable leasehold
-----
interest in the Leased Real Property; and (ii) owns good and marketable title to
all of the assets and properties reflected on the February 29, 1996 Balance
Sheet or purchased by the Company after the date thereof (other than supplies
consumed or assets or properties sold in the ordinary course
4
<PAGE>
of business subsequent to the date thereof). To the best knowledge of the
Company and the Stockholder, the Real Property Leases are leased free of all
adverse claims, liens, mortgages, charges, security interests, encumbrances and
other restrictions or limitations of any kind whatsoever, except: (A) as stated
in the Financial Statements; (B) for liens for taxes or assessments not yet due
and payable or which are being contested by the Company in good faith; (C) for
minor liens imposed by law for sums not yet due or which are being contested by
the Company in good faith; and (D) for imperfections of title, adverse claims,
charges, restrictions, limitations, encumbrances, liens or security interests
that are minor and which do not detract from the value of the Leased Real
Property subject thereto or which do not impair the operations of the Company or
affect the present use of the Leased Real Property. To the best knowledge of
the Company and the Stockholder, there is no condemnation or eminent domain
proceeding pending or threatened against the Leased Real Property (or any part
thereof). The Company has not made any commitments or received any notice, oral
or written, from any public authority or other entity with respect to the taking
or use of the Leased Real Property (or any part thereof), whether temporarily or
permanently, for easements, rights-of-way or other public or quasi-public
purposes or for any other purpose whatsoever nor, to the best knowledge of the
Company and the Stockholder, is there any proceeding pending or threatened which
could adversely affect the zoning classification relating to such property or
its use by the Company as of the date hereof. The assets reflected on the
February 29, 1996 Balance Sheet and those purchased by the Company after the
date thereof are owned free of all adverse claims, liens, mortgages, charges,
security interests, encumbrances and other restrictions or limitations of any
kind whatsoever, except: (A) as stated in the Financial Statements; (B) for
liens for taxes or assessments not yet due and payable or which are being
contested by the Company in good faith; (C) for minor liens imposed by law for
sums not yet due or which are being contested by the Company in good faith; and
(D) for imperfections of title, adverse claims, charges, restrictions,
limitations, encumbrances, liens or security interests that are minor and which
do not detract in any material respect from the value of any of the assets
subject thereto or which do not impair the operations of the Company in any
material respect or affect the present use of the assets in any material
respect. The Company has not made any commitments or received any notice, oral
or written, from any public authority or other entity with respect to the taking
or use of any of the Company's assets, whether temporarily or permanently, for
any purpose whatsoever, nor is there any proceeding pending or, to the best
knowledge of the Stockholder, threatened which could adversely affect any asset
owned or used by the Company as of the date hereof.
(h) Fixed Assets; Condition of Assets. To the best knowledge of each
---------------------------------
of the Company and the Stockholder, the Real Property Leases and all other
documents and agreements pursuant to which the Company has obtained the right to
use or occupy any real property, personal property or assets, are valid and
enforceable in all respects in accordance with their respective terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
To the best knowledge of the Company and the Stockholder, all
5
<PAGE>
permits and authorizations related to the location or operation of the business
of the Company are in good standing and are valid and enforceable in all
respects in accordance with their respective terms. To the best knowledge of
the Company and the Stockholder, there is not, under any of the foregoing
instruments, documents or agreements, any existing material default, nor is
there any event which, with notice or lapse of time or both, would constitute a
default, which could have a material adverse effect on the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of the
Company or materially adversely affect its use of the Leased Real Property or
the title to its assets. To the best knowledge of each of the Company and
Stockholder, the Company is not in violation of and has complied with all
applicable zoning, building or other codes, statutes, regulations, ordinances,
notices and orders of any governmental authority with respect to the occupancy,
use, maintenance, condition, operation and improvement of the Leased Real
Property or assets, except where the failure to comply would not have a material
adverse effect on the business, operations, earnings, prospects, assets or
condition (financial or otherwise) of the Company. To the best knowledge of
each of the Company and the Stockholder, the Company's use of any improvements
for the purposes for which any of the Leased Real Property or assets are being
used as of the date hereof does not violate any such code, statute, regulation,
ordinance, notice or order. To the best knowledge of each of the Company and
Stockholder, the Company possesses all licenses, certificates of occupancy,
permits and authorizations required to be obtained by the Company with respect
to the Company's operation and maintenance of the Leased Real Property or assets
for all uses for which such property is or assets are operated or used by the
Company as of the date hereof, except where the failure to do so would not have
a material adverse effect on the business, operations, earnings, prospects,
assets or condition (financial or otherwise) of the Company. All of the
property or assets owned or leased by the Company is in good operating condition
and repair, subject to normal wear and use and each is usable in a manner
consistent with current use by the Company.
(i) Intellectual Property.
---------------------
(i) Schedule 3.1(i) hereto sets forth a true, correct and
complete list (including where applicable, the date of registration and the
serial or registration number) of all registered and unregistered trademarks,
service marks and trade names (including any applications for the same), trade
secrets, registered and unregistered copyrights, and computer programs and
software (whether or not protected by patent, copyright or otherwise) which are
owned by, licensed by, used in or are material to the business of the Company
(the "Intellectual Property"). With respect to each of the foregoing items,
there is listed on Schedule 3.1(i) hereto the following: (A) the extent of the
Company's interest therein; (B) each agreement and all other documents
evidencing the Company's interest therein; (C) the extent of the interest of any
third party therein; and (D) each agreement and all other documents evidencing
the interest of any third party therein.
(ii) Except as set forth on Schedule 3.1(i) hereto, the
Company's right, title or interest in the Intellectual Property is free and
clear of adverse claims, liens, mortgages,
6
<PAGE>
charges, security interests and encumbrances or other restrictions or
limitations of any kind whatsoever.
(iii) To the best knowledge of the Company, the Company has not
committed any acts of unfair competition or directly, indirectly, contributorily
or by inducement, infringed upon any patent, trademark, service mark, trade
name, copyright, computer program or software, or any other intellectual
property, nor, to the best knowledge of the Company, has the Company
misappropriated any of the foregoing from any other person or entity or received
from any other person or entity any notice, charge, claim or other assertion
with respect thereto.
(iv) The Company has not sent or otherwise communicated to any
other person or entity any notice, charge, claim or other assertion of, nor has
the Company any knowledge of, any present, impending or threatened infringement
upon any of the Intellectual Property by any other person or entity, or
misappropriation of any of the foregoing by any other person or entity, or any
commission of acts of unfair competition by any other person or entity.
(j) Accounts Receivable. The Company has delivered the Balance Sheets
-------------------
which accurately, correctly and completely reflect the aggregate amount of
Accounts Receivable at the respective dates thereof. All of the Accounts
Receivable are valid, arose out of bona fide transactions in the ordinary course
of business, and are the valid and binding obligations of and are enforceable
against the respective account debtors thereunder, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect. The Accounts Receivable have:
(i) been collected; (ii) are collectible in the ordinary course of business; or
(ii) have been adequately reserved for in accordance with generally accepted
accounting principles consistently applied. There is no contest, claim or right
of set-off contained in any written agreement with any account debtor relating
to the amount or validity of any Account Receivable. Since February 29, 1996,
to the best knowledge of the Company and the Stockholder, there has been no
event that could materially increase the ratio of uncollectible Accounts
Receivable ("Uncollectible Receivables") to the Accounts Receivable or cause the
Company's reserve, if any, for Uncollectible Receivables to be inadequate.
(k) Accounts Payable. The Company has delivered the Balance Sheets
----------------
which accurately, correctly and completely reflect the aggregate amount of
Accounts Payable at the respective dates thereof. There have been no material
changes in the Accounts Payable since such date other than those incurred in the
ordinary course of the conduct of the Business consistent with past practices.
All of the Accounts Payable are current (within 30 days), arose out of bona fide
transactions in the ordinary course of business, and are the valid and binding
obligations of and are enforceable against the Company, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect.
(l) Absence of Undisclosed Liabilities. Other than as set forth on
----------------------------------
the Balance Sheets, the Company has not had and does not have any indebtedness,
loss or liability of any
7
<PAGE>
nature whatsoever (other than those incurred in the ordinary course of
business), whether accrued, absolute, contingent or otherwise and whether due or
become due, which is material to the assets, business or operations of the
Company.
(m) Absence of Certain Changes or Events. Except as set forth on
------------------------------------
Schedule 3.1(m) and except as expressly set forth in this Agreement, the Company
has not, since February 29, 1996:
(i) issued, sold, granted or contracted to issue, sell or grant
any of its stock, notes, bonds, other securities or any option to purchase any
of the same;
(ii) amended its certificate of incorporation or bylaws;
(iii) made any capital expenditures or commitments for the
acquisition or construction of any property, plant or equipment other than in
the ordinary course of business of the Company;
(iv) entered into any material transaction in any way
inconsistent with the past practices of its business or conducted its business
in any manner inconsistent with its past practices;
(v) incurred any damage, destruction or any other loss to any of
its property or assets in an aggregate amount exceeding Fifty Thousand Dollars
($50,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount exceeding Fifty
Thousand Dollars ($50,000) and, neither the Company nor the Stockholder has
become aware of any intention on the part of any client, dealer or supplier to
discontinue its current relationship with the Company, the loss or
discontinuance of which, alone or in the aggregate, could have a material
adverse effect on the Company's business, assets, operations, earnings,
prospects or condition (financial or otherwise);
(vii) modified, amended or altered any contractual arrangement
with any client, dealer or supplier, the modification, amendment or alteration
of which, alone or in the aggregate, could have a material adverse effect on the
Company's business, assets, operations, earnings, prospects or conditions
(financial or otherwise);
(viii) incurred any material liability or obligation (absolute
or contingent) or made any material expenditure other than in the ordinary
course of business of the Company;
(ix) experienced any material adverse change in the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
the Company or experienced or have knowledge of any event which could have a
material adverse effect on the business, assets, operations, earnings, or
condition (financial or otherwise) of the Company;
8
<PAGE>
(x) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of the Company;
(xi) redeemed, repurchased, or otherwise acquired any of its
capital stock or securities convertible into or exchangeable for its capital
stock or entered into any agreement with respect to any of the foregoing;
(xii) granted, conveyed, transferred, assigned or made any sale
of Accounts Receivable or any accrual of liabilities outside of the ordinary
course of its business;
(xiii) granted, conveyed, transferred, assigned or made any
sale of any material interest in the Intellectual Property;
(xiv) purchased, disposed of or contracted to purchase or
dispose of, or granted or received an option or any other right to purchase or
sell, any of its property or assets, except in the ordinary course of business;
(xv) increased the rate of compensation payable or to become
payable to the officers or employees of the Company, or increased the amounts
paid or payable to such officers or employees under any bonus, insurance,
pension or other benefit plan, or made any arrangements therefor with or for any
of said officers or employees except for increases consistent with the Company's
ordinary course of business or increases resulting from the application of
existing formulas under existing plans, agreements or policies relating to
employee compensation;
(xvi) adopted or amended any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension, retirement, deferred
compensation or other plan, agreement, trust, fund or arrangement for the
benefit of its employees, except as otherwise required or permitted herein; or
(xvii) changed any material accounting principle, procedure or
practice followed by the Company or changed the method of applying such
principle, procedure or practice.
(n) Agreements. The Company has heretofore delivered to Think true,
----------
correct and complete copies of all contracts, agreements and other instruments
material to the business or operation of the Company, including without
limitation, those to which the Company is a party and those by which any of its
property or assets are bound. Other than the materials heretofore delivered to
Think, there is no contract or agreement to which the Company or the Stockholder
is a party or which affects the assets, liabilities or outstanding securities of
the Company, which is material to the business or operation of the Company.
None of the foregoing agreements limit the freedom of the Company to compete in
any line of business or with any person or other entity in any geographic region
within or outside of the United States of America.
9
<PAGE>
Neither the Company, the Stockholder, nor any third party, to the best
knowledge of the Company and the Stockholder, is in material default and no
event has occurred which, with notice or lapse of time or both, could cause or
become a material default by the Company, the Stockholder or any third party, to
the best knowledge of the Company and the Stockholder, under any contract,
agreement, document or instrument to which the Company or the Stockholder is a
party which is material to the business or operations of the Company. Each
contract, agreement, document or instrument to which the Company or the
Stockholder is a party which is material to the business or operations of the
Company is enforceable, in accordance with its terms, against all other parties
thereto, except as such enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect, or by legal or equitable principles, relating to or limiting creditors'
rights generally and except that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(o) Non-Contravention; Consents. Neither the execution and delivery
---------------------------
of this Agreement by each of the Company and the Stockholder, nor consummation
of the transactions contemplated hereby, does or will: (i) violate or conflict
with any provision of the articles of incorporation or bylaws of the Company;
(ii) violate or, with the passage of time, result in the violation of any
provision of, or result in the acceleration of or entitle any party to
accelerate any obligation under, or result in the creation or imposition of any
lien, charge, pledge, security interest or other encumbrance upon any of the
property or assets, which are material to the business or operation of the
Company, pursuant to any provision of any mortgage, lien, lease, agreement,
permit, indenture, license, instrument, law, order, arbitration award, judgment
or decree to which the Company is a party or by which it or any of such property
or assets are bound, the effect of which violation, acceleration, creation or
imposition could have a material adverse effect on the business, assets,
operations, earnings, prospects (financial or otherwise) of the Company; (iii)
violate or conflict with any other restriction of any kind whatsoever to which
the Company or the Stockholder is subject or by which any of their properties or
assets may be bound, the effect of any of which violation or conflict could have
a material adverse effect on the business, assets, operations, earnings,
prospects (financial or otherwise) of the Company; or (iv) constitute an event
permitting termination by a third party of any agreement to which either the
Company or the Stockholder is a party or is subject, which termination could
have a materially adverse effect on the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of the Company. To the best
knowledge of the Company and the Stockholder, no consent, authorization, order
or approval of, or filing or registration with, any governmental commission,
board or other regulatory body is required in connection with the execution,
delivery and performance of the terms of this Agreement and consummation of the
transactions contemplated hereby by the Company or the Stockholder.
(p) Employee Benefit Plans. Schedule 3.1(p) sets forth a true,
----------------------
correct and complete list of all "employee benefit plans" as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (the "Benefit Plans") covering the employees of the Company
(the "Employees"). Each Benefit Plan is in compliance
10
<PAGE>
in all material respects with all applicable provisions of law, including ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"). There are no
pending or, to the knowledge of the Company and the Stockholder, threatened
claims against any Benefit Plan (except for claims for benefits payable in the
normal operation of the Benefit Plans) that could give rise to any material
liability to the Company. All material reports, notices and returns required to
be filed with any governmental agency or provided to any person or entity with
respect to the Benefit Plans have been timely filed. The Company has never had
and does not now have any Benefit Plan that is an employee pension plan (as
defined in Section 3(2) of ERISA) nor does the Company contribute to any
multiemployer pension or multiemployer welfare benefit plan (within the meaning
of Section 3(37) of ERISA).
(q) Labor Relations. There are no agreements with or pending
---------------
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of the Company and no such
petition has been pending at any time during the two years prior to the date
hereof. To the best knowledge of the Company and the Stockholder, there has not
been any organizing effort by any union or other group seeking to represent any
employees of the Company as its exclusive bargaining agent at any time during
the two years prior to the date hereof. There are no labor strikes, work
stoppages or other labor disputes now pending or, to the best knowledge of the
Company and the Stockholder, threatened against the Company, nor has there been
any such labor strike, work stoppage or other labor dispute or grievance at any
time during the two years prior to the date hereof. Neither the Company nor the
Stockholder has any knowledge that any executive, key employee or any group of
employees of the Company has any plans to terminate his/her employment with the
Company.
(r) Insurance. The Company has heretofore delivered to Think true,
---------
correct and complete list of all insurance policies or binders of insurance or
programs of self-insurance which relate to the business of the Company. The
coverage under each such policy and binder is in full force and effect. Neither
the Company nor the Stockholder has any knowledge of nor has the Company or the
Stockholder received any notice of cancellation, termination, nonrenewal or
disallowance of any claim thereunder or with respect thereto. Neither the
Company nor the Stockholder has any knowledge of any facts or the occurrence of
any events which could form the basis of any claim against the Company relating
to its business, assets, properties or operations which could increase the
insurance premiums payable by the Company under such policy or binder in excess
of normal increases consistent with industry practices.
(s) Tax Matters. The Company is not a member of an affiliated group,
-----------
within the meaning of Section 1504 of the Code (an "Affiliated Group"). The
Company has filed when due and will file if and when due prior to the Closing
Date (after giving effect to any extensions granted by the requisite legal or
regulatory authority) all returns, reports, elections, estimates, declarations,
schedules, forms and other documents ("Tax Returns") relating to taxes required
to be filed by the Code or by any applicable federal, state, county, municipal,
local, foreign or other laws, including, without limitation, consolidated,
combined or unitary returns, for any taxable period ending prior to or on the
Closing Date (the "Pre-Closing Tax Period"). The taxable year of the Company
for federal and state income and business tax purposes currently
11
<PAGE>
ends on February 28 of each year. All taxes shown on any Tax Return required to
be filed with respect to the Company for any Pre-Closing Tax Period have been,
or will have been, paid or accrued prior to the Closing. The Company has
heretofore delivered to Think all Tax Returns filed on its behalf for the fiscal
years ended __________, 1995, __________, 1994, __________, 1993, __________,
1992 and __________, 1991. The Company has fully accrued on its books all taxes
for any periods which are not yet due. No tax liens have been filed, and no
material claims have been or are being asserted or proposed, against the Company
with respect to any taxes. No Tax Returns of the Company have been audited in
the past five years by any taxing authority, no deficiencies or claims have been
proposed, assessed or claimed (including interest and penalties) against the
Company which have not been paid or accrued, and the Company has not waived or
extended any statute of limitations with respect to the assessment of any taxes,
which waiver or extension has not yet expired by its terms. There are no suits,
actions, proceedings, claims or investigations now pending against the Company
with respect to any taxes. The Company has withheld or collected from each
payment made to each of its employees, consultants, contractors and other payees
the amount of all taxes (including, but not limited to, federal income taxes,
state and local income and wage taxes, payroll taxes, workers' compensation and
unemployment taxes) required to be withheld or collected therefrom for all Pre-
Closing Tax Periods and the Company has timely paid or accrued and reported the
same in respect of its employees, consultants, contractors and other payees to
the proper tax receiving offices. The Company does not have any liability for
any taxes of any nature whatsoever other than as shown on the February 29, 1996
Balance Sheet (except for liabilities for taxes accruing after the date of such
balance sheet in the ordinary course of business) and neither the Stockholder
nor the Company is aware of any basis for any additional liabilities for taxes
for any Pre-Closing Tax Period. The reserve for accrued but unpaid taxes for
the period ending __________, 1995 includes adequate provision for all taxes
which have been assessed or which will be due and payable by the Company for all
Pre-Closing Tax Periods. The Company does not file any state or local tax
returns on a unitary or combined basis with any other member of an Affiliated
Group. To the extent that the Stockholder may incur tax liability in connection
with the transactions contemplated hereby, the Stockholder, and not the Company,
will be responsible for fulfilling any obligations or liabilities with respect
thereto. Notwithstanding the foregoing, however, the Stockholder shall not be
responsible for fulfilling any obligation or liability with respect to tax
liability incurred in connection with or resulting from an election or action
taken by Think on or after the Closing Date.
The term "taxes" or "tax" as used in this section or referred to elsewhere
in this Agreement shall mean all taxes, charges, fees, levies, penalties, or
other assessments, including without limitation, income, capital gain, profit,
gross receipts, ad valorem, excise, property, payroll, withholding, employment,
severance, social security, workers' compensation, occupation, premium, customs
duties, windfall profits, sales, use, and franchise taxes, imposed by the United
States, or any state, county, local or foreign government or any subdivision or
agency thereof, and including any interest, penalties, or additions attributable
thereto.
(t) Compliance with Applicable Law. To the best knowledge of the
------------------------------
Company and the Stockholder, the Company has been and is in compliance with all
foreign, federal, state
12
<PAGE>
and local laws, statutes, ordinances, rules and regulations, except where the
failure to comply with which would not materially adversely affect the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
the Company or which would subject any officer or director of the Company to
civil or criminal penalties or imprisonment. To the best knowledge of each of
the Company and Stockholder, the Company has complied with the rules and
regulations of all governmental agencies having authority over its business or
its operations, including without limitation, agencies concerned with intra-
state and interstate commerce, occupational safety and employment practices,
except where the failure to comply would not have a material adverse effect on
the business, operations, earnings, prospects, assets or condition (financial or
otherwise) of the Company. Neither the Company nor the Stockholder has any
knowledge of or received any notice of violation of any such rule or regulation
during the two years prior to the date hereof which could result in any
liability of the Company for penalties or damages or which could subject the
Company to any injunction or government writ, order or decree. To the best
knowledge of each of the Company and the Stockholder, there are no facts, events
or conditions that could interfere with, prevent continued compliance with or
give rise to any liability under any foreign, federal, state or local
governmental laws, statutes, ordinances or regulations applicable to the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company, except where the failure to do so would not have a
material adverse effect on the business, operations, earnings, prospects, assets
or condition (financial or otherwise) of the Company.
(u) Litigation. There is no action, suit, proceeding or investigation
----------
pending or, to the best knowledge of the Company and the Stockholder,
threatened, which could restrict the Company or the Stockholder's ability to
perform his respective obligations hereunder or could have a material adverse
effect on the business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company. To the best knowledge of the Company
and the Stockholder, there are no grounds for or facts, events or circumstances
which could form the basis of any such action that could cause or result in any
such action, suit, proceeding or investigation or which is probable of
assertion. Neither the Company nor the Stockholder is in default in respect of
any judgment, order, writ, injunction or decree of any court or any federal,
state, local or other governmental agency, authority, body, board, bureau,
commission, department or instrumentality which could have a material adverse
effect on the business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company.
(v) Permits. The Company holds all permits, licenses, orders and
-------
approvals of all federal, state or local governmental or regulatory authorities,
agencies or bodies required for the conduct and operation of the Company's
business as currently conducted, except where the failure to do so would not
have a material adverse effect on the business, operations, earnings, prospects,
assets or condition (financial or otherwise) of the Company. All such permits,
licenses, orders, and approvals are in full force and effect and no suspension,
termination or revocation of any of the foregoing is, to the best knowledge of
the Company and the Stockholder, threatened. None of such permits, licenses,
orders or approvals will be materially adversely affected by consummation of the
transactions contemplated by this Agreement. To the best knowledge of each of
the Company and Stockholder, the Company has
13
<PAGE>
complied with the rules and regulations of all governmental or other regulatory
agencies, authorities, bodies, boards, bureaus, commissions, departments or
instrumentalities which regulate, supervise or are in any manner concerned with
import and export licenses, occupational safety and employment practices
relating to the Company's business, except where the failure to do so would not
have a material adverse effect on the business, operations, earnings, prospects,
assets or condition (financial or otherwise) of the Company. The Company has no
knowledge of nor has it received any notice of violation of any of such rules or
regulations during the two years prior to the date hereof which would result in
any liability of the Company for penalties or damages or which would subject the
Company to any injunction or governmental writ, order or decree.
(w) Unlawful Payments. Neither the Company, the Stockholder, nor to
-----------------
the best knowledge of the Company and the Stockholder, any officer, director,
employee, agent or representative of the Company (other than the Stockholder
acting in his/her capacity as any of the foregoing) has made, directly or
indirectly, any bribe or kickback, illegal political contribution, payment from
corporate funds which was incorrectly recorded on the books and records of the
Company, unlawful payment from corporate funds to governmental or municipal
officials in their individual capacities for the purpose of affecting their
action or the actions of the jurisdiction which they represent to obtain
favorable treatment in securing business or licenses or to obtain special
concessions of any kind whatsoever, or illegal payment from corporate funds to
obtain or retain any business.
(x) Warranties. The Company has made adequate provision and has
----------
adequately reserved for any warranty made by the Company (express or implied by
law or otherwise) with respect to the products or services sold, distributed or
licensed to its clients or clients.
(y) Officers, Directors and Employees. Set forth on Schedule 3.1(z)
---------------------------------
hereto is a true, correct and complete list of all of the officers, directors
and employees of the Company as of the date hereof, including their respective
names, titles, salaries and bonuses for the last five years. There are no
employment agreements between the Company and any of the foregoing officers,
directors and employees of the Company in effect as of the date hereof.
(z) Loans to or from Affiliates. There exist no outstanding loans by
---------------------------
the Company to any current or former officer, director, employee, consultant or
stockholder of the Company or any affiliate of any of the foregoing. There are
no outstanding loans to the Company by any current or former officer, director,
employee, consultant or stockholder of the Company.
(aa) Clients, Vendors, Suppliers and Service Providers. Set forth on
-------------------------------------------------
Schedule 3.1(aa) hereto is a true, correct and complete list of the clients,
vendors, suppliers and service providers of the Company. Since February 29,
1996, there has not been any material adverse change in the business
relationship of the Company with any of the persons or entities listed on
Schedule 3.1(aa).
14
<PAGE>
(bb) Books and Records.
-----------------
(i) The books of account and other financial records of the
Company are complete and correct and have been maintained in accordance with
good business practices.
(ii) All material corporate action of the Company's board of
directors (including any committees) and stockholders of the Company since the
date of the Company's incorporation has been authorized, approved and/or
ratified in the minute books of the Company.
(cc) Bank Accounts. Set forth on Schedule 3.1(cc) is a true,
-------------
correct and complete list of the names of each bank, savings and loan, or other
financial institution, at which the Company maintains any account (including any
cash contribution or similar accounts) and the names of all persons authorized
to draw thereon or who have access thereto. Schedule 3.1(cc) includes a true,
correct and complete list of each credit or loan facility established and/or
maintained by or on behalf of the Company and includes the amounts available to
the Company under each such facility, the outstanding principal balance
thereunder as of the date hereof, the interest rate applicable thereto and the
maturity date thereof.
(dd) Investment Purpose. The Stockholder represents that such
------------------
Stockholder is acquiring the shares of Think Stock issuable to her pursuant
hereto solely for her own account for investment purposes only and not with a
view toward resale or distribution thereof other than pursuant to an effective
registration statement or applicable exemption from the registration
requirements of the Securities Act. The Stockholder understands that such
shares of Think Stock will be issued in reliance upon an exemption from the
registration requirements of the Securities Act and that subsequent sale or
transfer of such securities is prohibited absent registration or exemption from
the provisions of the Securities Act. The Stockholder hereby agrees that he
will not sell, assign, transfer, pledge or otherwise convey any of the shares of
the Think Stock issuable to her pursuant hereto, except in compliance with the
provisions of the Securities Act and in accordance with any transfer
restrictions or similar terms set forth on the certificates representing such
securities or otherwise set forth herein.
(ee) Agreements with Affiliates. The Company is not a party to any
--------------------------
instrument, license, lease or other agreement, written or oral, with any
officer, director or stockholder of the Company.
(ff) Accuracy of Information Furnished. The Company and the
---------------------------------
Stockholder represent that no statement by the Company or the Stockholder set
forth herein or in the exhibits or the schedules hereto, and no statement set
forth in any certificate or other instrument or document required to be
delivered by or on behalf of the Company or the Stockholder pursuant hereto or
in connection with the consummation of the transactions contemplated hereby,
contained, contains or will contain any untrue statement of a material fact, or
omits, omitted or will omit to state any material fact which is necessary to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
15
<PAGE>
3.2 Representations and Warranties of Think. Think represents and
---------------------------------------
warrants to the Company and the Stockholder as follows:
(a) Authorization. The execution, delivery and performance of this
-------------
Agreement and consummation of the transactions contemplated hereby have been
duly authorized, adopted and approved by the board of directors of Think. Think
has taken all necessary corporate action and has all of the necessary corporate
power to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the officers of Think on behalf of Think and, assuming that this
Agreement is the valid and binding obligation of the Company and the
Stockholder, is the valid and binding obligation of Think, enforceable against
it in accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(b) Organization. Think is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Think
has the corporate power and authority to own and lease its properties and
assets, and to carry on its business as it is now being conducted. Think is
duly qualified to do business as a foreign corporation in each jurisdiction
where it owns or leases real property or conducts business, except where the
failure to be so qualified would not have a material adverse effect on the
business, operations, earnings, prospects, assets or condition (financial or
otherwise) of Think.
(c) Capitalization. The number of authorized, issued and out-
--------------
standing shares of capital stock of Think as of the date hereof is as set forth
above in the recitals to this Agreement. The outstanding shares of Think Stock
have been duly authorized and validly issued and are fully paid and
nonassessable. As of the date hereof, the number of shares of capital stock
which Think is currently authorized to issue is adequate to permit Think to
fulfill its obligations hereunder with respect to issuance of the shares of
Think Stock to the Stockholder pursuant hereto. On the Closing Date, the shares
of Think Stock issuable to the Stockholder pursuant to Subsection 1.1(a) will be
duly authorized, validly issued, fully paid and nonassessable. Think has not
issued any shares of capital stock which could give rise to claims for violation
of any federal or state securities laws (including any rules or regulations
promulgated thereunder) or the securities laws of any other jurisdiction
(including any rules or regulations promulgated thereunder). As of the date
hereof, there are no options, warrants, calls, convertible securities or
commitments of any kind whatsoever relating to the shares of Think Stock subject
hereto.
(d) Non-Contravention; Consents. Neither the execution and
---------------------------
delivery of this Agreement, nor consummation of the transactions contemplated
hereby, does or will: (i) violate or conflict with any provision of the
certificate of incorporation or bylaws of Think; (ii) violate or conflict with
any material provision of any mortgage, lien, lease, agreement, permit,
16
<PAGE>
indenture, license, instrument, law, order, arbitration award, judgment or
decree to which Think is a party or by which it or the property or assets which
are material to its business or operation are bound, the effect of any of which
violation would have a material adverse effect on the business, assets,
operations, earnings, prospects (financial or otherwise) of the Company; (iii)
violate or conflict with any other restriction to which Think is subject or by
which any of the property or assets which are material to the business or
operation of Think may be bound, the effect of any of which violation or
conflict would have a material adverse effect on the business, assets,
operations, earnings, prospects (financial or otherwise) of the Company; or (iv)
constitute an event permitting termination of any agreement to which Think is
subject by any other party thereto, if in any such circumstance such termination
could have a materially adverse on the ability of Think to fulfill its
respective obligations hereunder. Other than as provided herein, no consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body is required in
connection with the execution, delivery and performance of the terms of this
Agreement by Think and consummation by Think of any of the transactions
contemplated hereby.
(e) Litigation. There is no action, suit, proceeding or investi-
----------
gation pending against or related to Think to the best knowledge of Think, nor
has Think been threatened with any such action, suit, proceeding or
investigation, which would restrict the ability of either to perform its
respective obligations hereunder or which would have a material adverse effect
on the business, assets, operations, earnings, prospects or condition (financial
or otherwise) of Think. To the best knowledge of Think, there are no grounds for
or facts, events or circumstances which would form the basis of any such action
that would cause or result in any such action, suit, proceeding or investigation
or which is probable of assertion. Think is not in default in respect of any
judgment, order, writ, injunction or decree of any court or any federal, state,
local or other governmental agency, authority, body, board, bureau, commission,
department or instrumentality which could have a material adverse effect on the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Think.
(f) Accuracy of Information Furnished. No statement by Think set
---------------------------------
forth herein or in the exhibits or the schedules hereto, and no statement set
forth in any certificate or other instrument or document required to be
delivered by or on behalf of Think pursuant hereto or in connection with
consummation of the transactions contemplated hereby, contained, contains or
will contain any untrue statement of a material fact, or omitted, omits or will
omit to state any material fact which is necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
(g) Compliance with Applicable Law. Think has been and is in
------------------------------
compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules and regulations (including without limitation the Securities
Act and the Securities Exchange Act of 1934, as amended) as of the date hereof,
the failure to comply with which could materially adversely affect the business,
assets, operations, earnings, prospects or condition (financial or otherwise) of
Think or which would subject any officer or director of Think to civil or
criminal penalties or imprisonment. Think has complied with the rules and
regulations of all governmental
17
<PAGE>
agencies having authority over its business or its operations, including without
limitation, agencies concerned with intra-state and interstate commerce,
occupational safety, environmental protection and employment practices, except
where the failure to comply would not have a material adverse effect on the
business, operations, earnings, prospects, assets or condition (financial or
otherwise) of Think. Think has no knowledge of and has not received any notice
of violation of any such rule or regulation during the two years prior to the
date hereof which could result in any liability of Think for penalties or
damages or which could subject it to any injunction or government writ, order or
decree. To the best knowledge of Think, there are no facts, events or
conditions that could interfere with, prevent continued compliance with or give
rise to any liability under any foreign, federal, state or local governmental
laws, statutes, ordinances or regulations applicable to the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of Think,
except where the failure to do so would not have a material adverse effect on
the business, operations, earnings, prospects, assets or condition (financial or
otherwise) of Think.
3.3 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties set forth in Sections 3.1 and 3.2 hereof shall survive until the
close of business on the second anniversary of the Closing Date, provided that,
notice or demand with respect to any alleged breach thereof is given as required
pursuant to Article VI hereof; and further provided that, with respect to claims
for damages arising out of any misrepresentation or breach of warranty made by
the Company and the Stockholder relating to taxes, notice shall have been given
on or before the close of business on the sixtieth day following the later to
occur of: (i) the expiration date of the statute of limitations applicable to
any indemnified federal, state or local tax liability; and (ii) the final
determination of any such tax liability, including the final administrative
and/or judicial determination thereof.
ARTICLE IV
COVENANTS
4.1 Covenants of the Company and the Stockholder.
--------------------------------------------
(a) Notification. Each of the Company and the Stockholder shall
------------
give prompt notice to Think of: (i) any notice or other communication received
by the Company or the Stockholder prior to the Closing Date relating to a
material default or an event which, with notice or lapse of time or both would
become a material default under this Agreement or under any other material
contract, agreement or instrument to which the Company is a party, by which it
or any of its properties or assets are bound or to which it or any of its
properties or assets are subject; (ii) any event which, with notice or lapse of
time or both, would cause any warranty or representation of the Company or the
Stockholder under this Agreement to be inaccurate, untrue, incomplete or
misleading in any respect; (iii) any notice or other communication from any
third party alleging that the consent of such third party was, is or may be
required in connection with the transactions contemplated by this Agreement; and
(iv) any material adverse
18
<PAGE>
change in the business, assets, operations, earnings, prospects or condition
(financial or otherwise) of the Company.
(b) Additional Financial Statements. Upon request, prior to and
-------------------------------
through the Closing Date, the Company shall furnish to Think within fifteen (15)
calendar days after the end of each calendar month, an unaudited monthly balance
sheet and statements of operations and retained earnings for the Company for
each month ending after February 29, 1996.
(c) Additional Summaries of Accounts and Notes Receivable. Upon
-----------------------------------------------------
request, prior to and through the Closing Date, the Company shall deliver to
Think, within fifteen (15) calendar days after the end of each calendar month, a
summary of all Accounts Receivable (including a complete aging in such form as
may be requested by Think) as of the end of each such calendar month for each
month ending after February 29, 1996.
(d) Additional Summaries of Accounts Payable. Upon request, prior
----------------------------------------
to and through the Closing Date, the Company shall deliver to Think, within
fifteen (15) calendar days after the end of each calendar month, a summary of
all Accounts Payable as of the end of each such calendar month for each month
ending after February 29, 1996.
(e) Conduct of Business; Certain Covenants. Prior to and through
--------------------------------------
the Closing Date, the Company shall conduct and operate its business and will
not, without prior written consent of Think, which consent shall not be
unreasonably withheld, take any action other than in accordance with the
ordinary and usual course of business. The Company will use its best efforts to
preserve intact its business, operation, organization and relationships with its
employees, independent contractors, agents, suppliers, clients and others having
business dealings with it. Prior to and through the Closing Date, without the
prior written consent of Think, which consent shall not be unreasonably
withheld, the Company shall not, and the Stockholder shall not permit the
Company to:
(i) amend its articles of incorporation or bylaws;
(ii) issue or otherwise grant or enter into any agreement
relating to the issuance or grant of any stock options, warrants or other rights
calling for or permitting the issue, transfer, sale or delivery of its capital
stock;
(iii) pay or declare any cash dividend or other dividend or
distribution with respect to its capital stock;
(iv) issue, transfer, sell or deliver any shares of its
capital stock or any securities convertible into or exchangeable for, with or
without additional consideration, such capital stock;
19
<PAGE>
(v) redeem, purchase or otherwise acquire for any
consideration any outstanding shares of its capital stock or any securities
convertible into or exchangeable for, with or without additional consideration,
such capital stock;
(vi) incur any indebtedness for borrowed money, except in
the ordinary course of business or pursuant to existing agreements which the
Company or the Stockholder have previously disclosed or made available to Think;
(vii) permit the occurrence or continuance of any material
default under any material agreement to which the Company is a party;
(viii) make any acquisition of the capital stock or all or
substantially all of the assets of any entity;
(ix) merge or consolidate with any corporation or enter into
any joint venture arrangement with any third party;
(x) enter into any employment or similar contract with or
increase the compensation payable to any officer or employee of the Company,
except in the ordinary course of business of the Company and in a manner
consistent with the Company's past practices;
(xi) alter, amend or otherwise modify any material term or
provision of any material contract or agreement with any of its clients,
suppliers or vendors;
(xii) adopt, amend or modify in any material respect or
terminate any Benefit Plan, severance plan or collective bargaining agreement or
make awards or distributions under any Benefit Plan or severance plan except in
a manner consistent with the Company's past practices or as otherwise
contemplated herein;
(xiii) sell, enter into any contract to sell or grant any
option to purchase, any of its assets other than in the ordinary course of
business;
(xiv) create, assume or permit to exist any lien, pledge,
security interest, encumbrance or mortgage of any kind whatsoever on any of its
properties or assets other than:
(A) liens existing on the date hereof which the
Company or the Stockholder previously disclosed to Think or which are otherwise
permitted hereby;
(B) any mortgage, pledge, lien or other security
interest in or upon any property or asset hereafter acquired by the Company in
the ordinary course of business, which mortgage, pledge, lien or other security
interest is entered into contemporaneously with such acquisition to secure or
provide for the payment of any part of the purchase price therefor, or the
assumption by the Company of any mortgage, pledge, lien or other security
interest in or upon any property or asset hereafter acquired by the Company
which
20
<PAGE>
mortgage, pledge, lien or other security interest existed at the time of such
acquisition; provided that, each such mortgage, pledge, lien or other security
interest shall not extend to or cover any property or asset of the Company other
than such property or asset hereafter acquired;
(C) any mortgage, pledge, lien or other security
interest created for the sole purpose of renewing or refunding any mortgage,
pledge, lien or other security interest allowed under clause (B) above; provided
that, the principal amount of indebtedness secured thereby shall not exceed the
principal amount of indebtedness so secured at the time of such renewal or
refunding and that such renewed or refunded mortgage, pledge, lien or other
security interest shall not extend the mortgage, pledge, lien or other security
interest renewed or refunded to any additional property or asset;
(D) the pledge by the Company of any property or
asset as security required by law or governmental regulation as a condition to
the transaction of any business or the exercise of any privilege, license or
right;
(E) a banker's lien or right of offset on funds of
the Company deposited with a lender or holder in the ordinary course of business
in favor of any lender of funds or holder of the Company's commercial paper in
the ordinary course of business;
(F) liens for taxes, assessments and governmental
charges or levies imposed upon the Company or upon its income or profit, or upon
any of its property or assets if the same shall not at the time be due or are
being contested in good faith in appropriate proceedings; and
(G) liens imposed by law, such as those of carriers,
warehousemen and mechanics, for sums not yet due or are being contested in good
faith in appropriate proceedings.
(xv) except in the ordinary course of business, enter into
any contract, including but not limited to assignments, licenses, transfers of
exclusive rights, "work for hire" agreements, special commissions, employment
contracts, purchase orders, sales orders, mortgages and security agreements,
which:
(A) contain a grant or other transfer, whether
present, retroactive, prospective or contingent, by the Company of any rights in
any Intellectual Property;
(B) contain a promise made by or to the Company to
pay any consideration, lump sum, royalty or other payment with respect to the
acquisition, practice or use of any rights in any Intellectual Property;
(xvi) except in the ordinary course of business or arising
out of or relating to this Agreement, initiate any legal proceedings involving
the Company, including suits and administrative proceedings in the United States
or any foreign country;
21
<PAGE>
(xvii) file with any federal, state or local governmental
agency or regulatory body, any cancellation, reduction, modification, change or
amendment of or addition to any schedule of tariffs currently on file with such
agency or regulatory body, or file with such governmental agency or regulatory
body any schedule of tariffs for services which are not covered by the tariff
schedules on file therewith as of the date hereof; or
(xviii) take any action that would cause any representation
or warranty contained herein to be inaccurate, untrue, incomplete or misleading.
(f) Proposals; Other Offers. Prior to the Closing Date, neither
-----------------------
the Company nor the Stockholder shall, directly or indirectly (whether through
an employee, a representative, an agent or otherwise) solicit or encourage any
inquiries or proposals, engage in negotiations for or consent to or enter into
any agreement providing for the acquisition of the capital stock or all or any
part of the assets (except in the ordinary course of business) or the business
of the Company. The Company shall promptly notify Think upon its receipt or
other knowledge of any such request, inquiry or proposal. Neither the Company
nor the Stockholder shall, directly or indirectly (whether through an employee,
a representative, an agent or otherwise) disclose any nonpublic information
relating to the Company or afford access to any of the books, records or other
properties of the Company to any person or entity that is considering, has
considered or is making any such acquisition inquiry or proposal.
(g) Best Efforts and Cooperation; Further Assurances. Prior to the
------------------------------------------------
Closing Date, with the cooperation of Think where appropriate, the Company
shall:
(i) timely comply with all filing requirements which
federal, state or local law may impose on the Company with respect to the
transactions contemplated by this Agreement;
(ii) use its diligent efforts to take all actions necessary
to be taken, make any filing and obtain any consent, authorization or approval
of or exemption by any governmental authority, regulatory agency or any other
third party (including, without limitation, any landlord or lessor of the
Company and any party to whom notification is required to be delivered or from
whom any form of consent is required) which is required to be filed or obtained
by the Company in connection with the transactions contemplated by this
Agreement;
(iii) make full and timely payment of all fees and annuities
and take all other action appropriate to maintain in full force and effect any
and all patent, trademark and service mark registrations and applications for
registration as set forth in Schedule 3.1(i) or otherwise owned by controlled by
the Company.
(h) Access to Additional Agreements and Information. Prior to the
-----------------------------------------------
Closing Date, the Company shall deliver to Think at Think's request any and all
agreements, contracts, documents and other instruments material to the business
or operation of the Company, including, without limitation, those to which the
Company is a party and those by which any of
22
<PAGE>
its property or assets are bound and including without limitation, any and all
materials relating to the Intellectual Property referred to in Subsection
3.1(i), the agreements set forth in Subsection 3.1(o), the consents and waivers
referred to in Subsection 3.1(p), the Benefit Plans set forth in Subsection
3.1(q), the insurance materials referred to in Subsection 3.1(s), the Tax
Returns set forth in Subsection 3.1(t), the licenses and permits referred to in
Subsection 3.1(w), any documents relating to the loans referred to in Subsection
3.1(bb), the invoices, purchase orders or other similar documents pertaining to
the Company's clients, vendors, suppliers and service providers set forth in
Subsection 3.1(cc), and any materials relating to the Company's bank accounts
and credit facilities referred to in Subsection 3.1(ee).
4.2 Covenants of Think.
------------------
(a) Notice of Defaults. Think shall give prompt notice to the
------------------
Company and the Stockholder of: (i) any notice or other communication received
by Think prior to the Closing Date relating to a default hereunder or event
which, with notice or lapse of time or both, would become a default hereunder or
under any material contract, agreement or instrument to which Think is a party,
by which it or any of its properties or assets are bound or to which it or any
of its properties or assets are subject which would prevent the consummation of
the transactions contemplated hereby; (ii) any event which, with notice or lapse
of time or both, would cause any representation or warranty of Think under this
Agreement to be inaccurate or misleading in any respect; (iii) any notice or
other communication by any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement; and (iv) any adverse change in the business, assets, operations,
earnings, prospects or conditions (financial or otherwise) of Think.
(b) Third Party Consents. Think shall use its best efforts to
--------------------
obtain any consent, authorization or approval of, or exemption by, any
governmental authority or agency or other third party required to be obtained or
made by it in connection with this Agreement or the consummation of the
transactions contemplated hereby.
(c) Best Efforts and Cooperation; Further Assurances. Prior to the
------------------------------------------------
Closing Date, with the cooperation of the Company and the Stockholder where
appropriate, Think shall:
(i) timely comply with all filing requirements which
federal, state or local law may impose on Think with respect to the transactions
contemplated by this Agreement;
(ii) use its diligent efforts to take all actions necessary
to be taken, make any filing and obtain any consent, authorization or approval
of or exemption by any governmental authority, regulatory agency or any other
third party which is required to be filed or obtained by Think in connection
with the transactions contemplated by this Agreement; and
(iii) not take any action that would cause any representation
or warranty contained herein to be inaccurate, untrue, incomplete or misleading.
23
<PAGE>
(d) Access to Additional Information and Agreements. Prior to the
-----------------------------------------------
Closing Date, Think shall make available or otherwise deliver to the Company or
the Stockholder, upon its or her request, any and all agreements, contracts,
documents or other information material to its business or operations.
(e) Confidentiality. Prior to the Closing Date, or at all times
---------------
hereafter in the event that the transactions contemplated hereby are not
consummated or this Agreement is otherwise terminated, Think shall, except as
may be otherwise required by applicable law, hold confidential all information
obtained in connection with the transactions contemplated by this Agreement with
respect to the Company. In the event that this Agreement is terminated, Think
shall return to the Company all of such information as shall be in documentary
or other tangible form, including all copies thereof.
4.3 Governmental Filings and Consents. The Company, the Stockholder and
---------------------------------
Think shall cooperate with one another in filing any necessary applications,
reports or other documents with any federal or state agencies, authorities or
bodies having jurisdiction with respect to the business of the Company or the
transactions contemplated by this Agreement, and in seeking any necessary
approval, consultation or prompt favorable action of, with or by any of such
agencies, authorities or bodies.
4.4 Publicity. The Company, the Stockholder and Think will consult with
---------
each other party hereto prior to making, releasing or otherwise disseminating
any public announcements with respect to the transactions contemplated by this
Agreement. Any public announcements permitted hereunder shall be made only at
such time and in such manner as the Company and the Stockholder (collectively
acting as one) and Think shall mutually agree, except that any party hereto
shall be free to make such public announcements as it shall reasonably deem
necessary to comply with federal or state laws, provided that such announcement
is simultaneously delivered to the other parties hereto.
4.5 Right to Investigate.
--------------------
(a) Obligation of the Company and the Stockholder. The Company
---------------------------------------------
shall afford to the officers and authorized representatives and agents of Think,
during what are currently the regular business hours of the Company and upon
prior notice, free and full access to any office, warehouse, plant, property,
inventory, accounts, books and records of the Company such as to afford Think
the full opportunity to make such investigations as it shall desire or deem
appropriate with respect to the affairs of the Company. The officers of the
Company shall furnish Think with such additional financial and operating data
and other information relating to the assets, property, business and operation
of the Company as Think shall from time to time request.
(b) Effectiveness of Representations Notwithstanding Investigation.
--------------------------------------------------------------
Notwithstanding any party's undertaking or conduct of any investigation pursuant
hereto, or any party's failure to so investigate, the representations,
warranties and agreements of each of the
24
<PAGE>
parties hereto shall be operative and effective and shall survive the Closing
Date to the extent previously set forth in Section 3.3. In the event that a
party hereto becomes aware or knows prior to the Closing that a representation
or warranty made herein by another party hereto is untrue, such party shall
express such knowledge by written notice thereof to the party rendering such
representation or warranty on or prior to the Closing Date. Knowledge on the
part of Think on or prior to the Closing that a representation or warranty of
the Company or the Stockholder is untrue or knowledge on the part of the Company
or the Stockholder on or prior to the Closing Date that a representation or
warranty of Think is untrue, shall render that specific representation or
warranty inoperative and ineffective and such other party shall not have any
liability in respect thereof pursuant to Article VI hereof; provided that, such
knowledge is expressed by written notice thereof to the party rendering such
representation or warranty on or prior to the Closing Date.
ARTICLE V
CONDITIONS
5.1 Conditions to Obligations of Think. The obligation of Think to
----------------------------------
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions, which may be waived in whole or
in part by Think to the extent permitted by applicable law:
(a) No Material Adverse Change. Since February 29, 1996 no
--------------------------
material adverse change in the business, assets, operations, earnings, prospects
or condition (financial or otherwise) of the Company, and no event which would
materially and adversely affect the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of the Company shall have
occurred.
(b) Copies of Resolutions. At the Closing, the Company shall have
---------------------
furnished Think with certified copies of resolutions duly adopted by the board
of directors of the Company and the Stockholder authorizing the execution,
delivery and performance of the terms of this Agreement and all other necessary
or proper corporate action to enable the Company to comply with the terms of
this Agreement.
(c) Opinion of Company's and Stockholder's Counsel. The Company
----------------------------------------------
and the Stockholder shall have furnished Think, at the Closing, with an opinion
of ________________________ counsel to the Company and the Stockholder, dated as
of the Closing Date, substantially in the form attached hereto as Exhibit
5.1(c).
(d) Accuracy of Representations and Warranties; Performance of
----------------------------------------------------------
Covenants. Each of the representations and warranties of the Company and the
- ---------
Stockholder set forth in this Agreement was true, correct and complete in all
material respects when made and shall also be true, correct and complete in all
material respects at and as of the Closing Date, with the same
25
<PAGE>
force and effect as if made at and as of the Closing Date. The Company and the
Stockholder shall have performed and complied in all material respects with all
agreements and covenants required by this Agreement to be performed by the
Company and the Stockholder at or prior to the Closing Date.
(e) Delivery of Officers' Certificates. The Company and the
----------------------------------
Stockholder shall have delivered to Think certificates, dated the Closing Date,
and signed by the Stockholder, as President of the Company (with respect to the
Company), and by the Stockholder individually (as the sole stockholder of the
Company), representing and affirming that: (i) the representations and
warranties made by each of the Company and the Stockholder were and are true,
correct and complete as required by Subsection 5.1(d) above and the conditions
set forth in this Section have been satisfied. The Company shall also have
delivered a certificate signed by the Secretary of the Company with respect to
the authority and incumbency of the officers of the Company executing this
Agreement and any documents required to be executed or delivered in connection
therewith.
(f) Delivery of Stock Certificates. At the Closing, the Stock-
------------------------------
holder shall have delivered to Think certificates representing all of the issued
and outstanding capital stock of the Company, which certificates shall be
properly endorsed in blank or shall be accompanied by a properly executed stock
power.
(g) Consents and Waivers. On or prior to the Closing Date, any and
--------------------
all necessary consents, authorizations, orders or approvals described in
Subsection 3.1(o) above shall have been obtained, except as the same shall have
been waived by Think.
(h) Litigation. On the Closing Date, there shall be no effective
----------
injunction, writ or preliminary restraining order or any order of any kind
whatsoever with respect to the Company or the Stockholder issued by a court or
governmental agency (or other governmental or regulatory authority) of competent
jurisdiction restraining or prohibiting the consummation of the transactions
contemplated hereby or making consummation thereof unduly burdensome to the
Company or the Stockholder. On the Closing Date and immediately prior to
consummation of the transactions contemplated by this Agreement, no proceeding
or lawsuit shall have been commenced, be pending or have been threatened by any
governmental or regulatory agency or authority or any other person with respect
to the transactions contemplated by this Agreement.
(i) Employment Agreement of Stockholder. The Stockholder shall
-----------------------------------
have entered into an employment agreement substantially in the form attached
hereto as Exhibit 5.1(i), dated as of the Closing Date, having an initial term
of three years (with an automatic renewal term of two years) and providing for
such Stockholder's employment with Think. Such agreement shall contain a non-
compete provision having a term of at least five years.
26
<PAGE>
(j) Delivery of Documents and Other Information. Prior to the
-------------------------------------------
Closing Date, the Company shall have delivered to Think all of the agreements,
contracts, documents and other instruments required to be delivered pursuant to
the provisions of this Agreement.
5.2 Conditions to Obligations of the Company and the Stockholder. The
------------------------------------------------------------
obligations of the Company and the Stockholder to consummate the transactions
contemplated by this Agreement are subject to the fulfillment of each of the
following conditions, which may be waived in whole or in part by the Company
and/or the Stockholder to the extent permitted by law:
(a) Copies of Resolutions. At the Closing, Think shall have
---------------------
furnished the Company with certified copies of resolutions duly adopted by the
respective boards of directors of Think authorizing the execution, delivery and
performance of the terms of this Agreement and all other necessary or proper
corporate action to enable Think to comply with the terms of this Agreement.
(b) Opinion of Counsel to Think. Think shall have furnished the
---------------------------
Company and the Stockholder, at the Closing, with an opinion of De Martino
Finkelstein Rosen & Virga, counsel to Think, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 5.2(b).
(c) Accuracy of Representations and Warranties; Performance of
----------------------------------------------------------
Covenants. Each of the representations and warranties of Think was true, correct
- ---------
and complete in all material respects when made and shall also be true, correct
and complete in all material respects at and as of the Closing Date, with the
same force and effect as if made at and as of the Closing Date. Think shall
have performed and complied with in all material respects all agreements and
covenants required by this Agreement to be performed by Think at or prior to the
Closing Date.
(d) Delivery of Officers' Certificates. Think shall have deli-
----------------------------------
vered to the Company and the Stockholder certificates, dated the Closing Date
and signed by the President of Think, affirming that: (i) the representations
and warranties of Think as set forth in Section 3.2 of this Agreement and
referred to in Subsection 5.2(c) above were and are true, correct and complete
as required by Subsection 5.2(c) above; and (ii) the conditions set forth in
this Section have been satisfied. Think shall also have delivered a certificate
signed by the Secretary of Think with respect to the authority and incumbency of
the officers of Think executing this Agreement and any documents required to be
executed or delivered in connection therewith.
(e) Stock Certificates. At the Closing, Think shall have issued
------------------
and delivered to the Stockholder certificates representing the shares of Think
Stock issuable pursuant hereto, which certificates shall be in the name of the
Stockholder.
(f) Consents and Waivers. On or prior to the Closing Date, any and
--------------------
all necessary consents, authorizations, orders or approvals described in
Subsection 3.2(d) above
27
<PAGE>
shall have been obtained, except as the same shall have been waived by the
Company and the Stockholder.
(g) Litigation. On the Closing Date, there shall be no effective
----------
injunction, writ or preliminary restraining order or any order of any kind
whatsoever with respect to Think issued by a court or governmental agency (or
other governmental or regulatory authority) of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
herein or making the consummation thereof unduly burdensome to Think. On the
Closing Date and immediately prior to consummation of the transactions
contemplated by this Agreement, no proceeding or lawsuit shall have been
commenced, be pending or have been threatened or by any governmental or
regulatory agency or authority or any other person with respect to the
transactions contemplated by this Agreement.
(h) Employment Agreement of Stockholder. Think shall have entered
-----------------------------------
into an employment agreement with the Stockholder as set forth in Subsection
5.1(j), dated as of the Closing Date, having the initial term set forth herein
and providing for such Stockholder's employment with Think.
ARTICLE VI
INDEMNIFICATION AND CLAIMS
6.1 Indemnification by the Company and the Stockholder.
--------------------------------------------------
(a) Subject to Section 6.1(b) hereof, the Company and the
Stockholder hereby agree to indemnify and hold harmless Think against and in
respect of all damages, claims, losses and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) reasonably incurred by
Think (all such amounts may hereinafter be referred to as the "Damages") arising
out of: (i) any misrepresentation or breach of any warranty made by the Company
or the Stockholder pursuant to the provisions of this Agreement or in any
statement, certificate or other document furnished by the Company or the
Stockholder pursuant to this Agreement; and (ii) the nonperformance or breach of
any covenant, agreement or obligation of the Company or the Stockholder
contained in this Agreement which has not been waived by Think. The Stockholder
shall have no right to seek contribution from the Company in the event that the
Stockholder is required to make any payments hereunder.
(b) The Company and the Stockholder shall be obligated to indemnify
Think pursuant to this Section 6.1 with respect to claims for Damages as to
which Think shall have given written notice to the Company and the Stockholder
on or before the close of business on the sixtieth day following the second
anniversary of the Closing Date. The Company and the Stockholder shall be
obligated to indemnify Think with respect to claims for Damages arising out of
any misrepresentation or breach of warranty made by the Company or the
Stockholder relating to Subsection 3.1(s) as to which Think shall have given
notice on or before the close
28
<PAGE>
of business on the sixtieth day following the later of: (i) the expiration date
of the statute of limitations applicable to any indemnified federal, state,
foreign or local tax liability; or (ii) the final determination of any such tax
liability, including the final administrative and/or judicial determination
thereof.
(c) Notwithstanding the indemnification provided pursuant to
Subsection 6.1(a) and 6.1(b) above, no amount shall be payable in indemnifi-
cation hereunder or under any other provision of this Agreement unless the
aggregate amount of such Damages in respect of which the Company or the Stock-
holder would be liable, but for operation and application of the provisions of
this Section , exceeds on a cumulative basis Fifty Thousand Dollars ($50,000)
and then only to the extent of such excess.
(d) In any case where the Company or the Stockholder has
indemnified Think for any Damages and Think recovers from a third party all or
any part of the amount so indemnified by the Company or the Stockholder, Think
shall promptly reimburse to the Company or the Stockholder, as the case may be,
the amount so recovered.
6.2 Claims Against Think. With respect to claims or demands by third
--------------------
parties, whenever Think shall have received notice that such a claim or demand
has been asserted or threatened which, if valid, would be subject to
indemnification under Section 6.1 hereof, Think shall as soon as reasonably
possible and in any event within thirty (30) days of receipt of such notice,
notify the Company and the Stockholder of such claim or demand and of all
relevant facts within its knowledge which relate thereto. The Company and/or
the Stockholder shall then have the right at their own expense to undertake the
defense of any such claims or demands utilizing counsel selected by the Company
or the Stockholder, as the case may be, and approved by Think, which approval
shall not be unreasonably withheld. In the event that the Company or the
Stockholder should fail to give notice of the intention to undertake the defense
of any such claim or demand within sixty (60) days after receiving notice that
it has been asserted or threatened, Think shall have the right to defend,
satisfy and discharge the same by payment, compromise or otherwise and shall
give written notice of any such payment, compromise or settlement to the Company
and the Stockholder.
6.3 Right of Offset. In the event that the Company or the Stockholder may
---------------
be required to pay monies in indemnification to Think pursuant to any
indemnification provision of this Agreement, Think shall have the right to
offset any amounts which are owed to it in indemnification by the Company or the
Stockholder against any amounts which are payable by Think to the Company or the
Stockholder, as the case may be, provided however, that nothing set forth in
-------- -------
this section shall relieve Think of its obligations hereunder. Notwithstanding
the foregoing, the right of offset shall not apply to amounts which may be owed
by Think to the Stockholder pursuant to any employment agreement between Think
and the Stockholder.
29
<PAGE>
6.4 Indemnification by Think.
------------------------
(a) Subject to Section 6.4(b) hereof, Think hereby agrees to
indemnify and hold harmless the Stockholder against and in respect of all
damages, claims, losses and expenses (including without limitation, reasonable
attorneys' fees and disbursements) reasonably incurred by the Stockholder with
respect thereto (all such amounts may hereinafter be referred to as "Stockholder
Damages") arising out of: (i) any misrepresentation or breach of any warranty
made by Think pursuant to the provisions of this Agreement or in any statement,
certificate or other document furnished by Think pursuant to this Agreement; and
(ii) the nonperformance or breach of any covenant, agreement or obligation of
Think which has not been waived by the Stockholder.
(b) Subject to Section 3.3 hereof, Think shall be obligated to
indemnify the Stockholder pursuant to this Section 6.4 only with respect to
claims for Stockholder Damages as to which the Stockholder shall have given
written notice to Think on or before the close of business on the sixtieth day
following the second anniversary of the Closing Date.
(c) Notwithstanding the indemnification provided pursuant to
Subsection 6.4(a) above, no amount shall be payable in indemnification hereunder
or under any other provision of this Agreement unless the aggregate amount of
Stockholder Damages in respect of which Think would be liable, but for operation
and application of the provisions of this subsection, exceeds on a cumulative
basis Fifty Thousand Dollars ($50,000) and then only to the extent of such
excess.
(d) In any case where Think has indemnified the Stockholder for any
Stockholder Damages and the Stockholder recovers from a third party all or any
part of the amount so indemnified by Think, the Stockholder shall promptly
reimburse to Think the amount so recovered.
6.5 Claims Against the Stockholder. With respect to claims or demands by
------------------------------
third parties, whenever the Stockholder shall have received notice that such a
claim or demand has been asserted or threatened, which, if valid, would be
subject to indemnification under Section 6.4 hereof, the Stockholder shall as
soon as reasonably possible and in any event within thirty (30) days of receipt
of such notice, notify Think of such claim or demand and of all relevant facts
within its knowledge which relate thereto. Think shall have the right at their
own expense to undertake the defense of any such claim or demand utilizing
counsel selected by Think and approved by the Stockholder. In the event that
Think should fail to give notice of its intention to undertake the defense of
any such claim or demand within sixty (60) days after receiving notice that it
has been asserted or threatened, the Stockholder shall have the right to defend,
satisfy and discharge the same by payment, compromise or otherwise and shall
give written notice of any such payment, compromise or settlement to Think.
6.6 Right of Offset. In the event that Think may be required to pay
---------------
monies in indemnification to the Company and/or the Stockholder pursuant to any
indemnification
30
<PAGE>
provision of this Agreement, the Company and/or the Stockholder shall have the
right to offset any amounts which are owed to either party in indemnification by
Think against any amounts which are payable by either the Company and/or the
Stockholder to Think, as the case may be; provided, however, that nothing set
-------- -------
forth in this section shall relieve either the Company and/or the Stockholder of
either's obligations hereunder.
ARTICLE VII
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
7.1 Termination by Mutual Agreement. This Agreement may be terminated at
-------------------------------
any time prior to the Closing by unanimous consent of the parties hereto,
provided that such consent to terminate is manifested in writing and is signed
by each of the parties hereto.
7.2 Termination for Failure to Close. This Agreement may be terminated by
--------------------------------
any of the parties hereto if the Closing shall not have occurred by June 30,
1996, provided that, the right to terminate this Agreement pursuant to this
section shall not be available to any party whose failure to fulfill any of its
obligations hereunder has been the cause of or resulted in the failure to
consummate the transactions contemplated hereby by the foregoing date.
7.3 Termination by Operation of Law. This Agreement may be terminated by
-------------------------------
any of the parties hereto if, in the reasonable opinion of counsel to the
respective parties hereto, there shall be any statute, rule or regulation that
renders consummation of the transactions contemplated hereby illegal or
otherwise prohibited, or a court of competent jurisdiction or any government (or
governmental authority) shall have issued an order, decree or ruling, or has
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of such transactions and such order, decree, ruling or other action
shall have become final and nonappealable.
7.4 Termination for Failure to Perform Covenants or Conditions. This
----------------------------------------------------------
Agreement may be terminated prior to the Closing Date:
(a) by Think if: (i) any of the representations and warranties made
in this Agreement by the Company or the Stockholder shall not be true and
correct, when made or at any time prior to consummation of the transactions
contemplated hereby as if made at and as of such time; (ii) any of the
conditions set forth in Section hereof have not been fulfilled or waived by the
Closing Date; (iii) the Company or the Stockholder shall have failed to observe
or perform any of their respective obligations under this Agreement; or (iv) as
otherwise set forth herein; or
(b) by the Company or the Stockholder if: (i) any of the
representations and warranties of Think shall not be true and correct when made
or at any time prior to consummation of the transactions contemplated hereby as
if made at and as of such time; (ii) any
31
<PAGE>
of the conditions set forth in Section hereof have not been fulfilled by the
Closing Date; (iii) Think shall have failed to observe or perform any of its
respective material obligations under this Agreement; or (iv) as otherwise set
forth herein.
7.5 Effect of Termination or Default; Remedies. In the event of
------------------------------------------
termination of this Agreement as set forth above, this Agreement shall forthwith
become void and there shall be no liability on the part of any Non-Defaulting
Party (as defined below). The foregoing shall not relieve any Defaulting Party
from liability for damages actually incurred as a result of such party's breach
of any term or provision of this Agreement.
7.6 Remedies; Specific Performance. In the event that any party shall
------------------------------
fail or refuse to consummate the transactions contemplated by this Agreement
(except pursuant to Sections 7.1, 7.2 or 7.3 above) or if any default under or
breach of any representation, warranty, covenant or condition of this Agreement
on the part of any party (the "Defaulting Party") shall have occurred that
results in the failure to consummate the transactions contemplated hereby, then
in addition to the other remedies provided herein, the non-defaulting party (the
"Non-Defaulting Party") shall be entitled to seek and obtain money damages from
the Defaulting Party and/or may seek to obtain an order of temporary or
permanent injunctive relief or specific performance thereof against the
Defaulting Party from a court of competent jurisdiction, provided that, the Non-
Defaulting party seeking any injunctive relief or specific performance such
protection must file its request with such court within forty-five (45) days
after it becomes aware of the Defaulting Party's failure, refusal, default or
breach and further provided, that in no event shall a Defaulting Party be liable
for special, incidental or consequential damages. In addition, the Non-
Defaulting Party shall be entitled to obtain from the Defaulting Party court
costs and attorneys' fees incurred in connection with or in pursuit of enforcing
the rights and remedies provided hereunder.
ARTICLE VIII
MISCELLANEOUS
8.1 Fees and Expenses. The Stockholder and the Company shall respectively
-----------------
pay her own and the Company's expenses and Think shall pay its own expenses
incident to negotiation, execution, delivery and performance of the terms of
this Agreement and the consummation of the transactions contemplated hereby.
8.2 Modification, Amendments and Waiver. The parties hereto may amend,
-----------------------------------
modify or otherwise waive any provision of this Agreement by unanimous consent,
provided that such consent and any amendment, modification or waiver is in
writing and is signed by each of the parties hereto.
8.3 Assignment. None of the Company, the Stockholder or Think shall have
----------
the authority to assign its respective rights or obligations under this
Agreement without the prior
32
<PAGE>
written consent of the other parties hereto, except that Think may assign all or
any portion of its respective rights hereunder without the prior written consent
of the Company or the Stockholder to any affiliate of Think (including any
wholly-owned subsidiary), and the Company and the Stockholder shall execute such
documents as are necessary in order to effectuate such assignments.
8.4 Burden and Benefit. This Agreement shall be binding upon and, to the
------------------
extent permitted in this Agreement, shall inure to the benefit of the parties
and their respective successors and assigns. In the event of a default by the
Company or the Stockholder of any of their respective obligations hereunder, the
sole and exclusive recourse and remedy of Think shall be against the Company and
the Stockholder, as the case may be, and any of the Company's or the
Stockholder's assets; under no circumstances shall any officer or director of
the Company be liable in law or equity for any obligations of the Company or the
Stockholder hereunder. In the event of a default by Think of any of its
respective obligations hereunder, the sole and exclusive recourse and remedy of
the Stockholder and the Company shall respectively be against Think and its
assets; under no circumstances shall any officer, director, stockholder or
affiliate of Think be liable in law or equity for any obligations of Think
hereunder.
8.5 Brokers. The Company and the Stockholder represent and warrant to
-------
Think that there are no brokers or finders entitled to any brokerage or finder's
fee or other commission or fee based upon arrangements made by or on behalf of
the Company or the Stockholder or any other person in connection with this
Agreement or any of the transactions contemplated hereby. In consideration of
services performed in connection with the transactions contemplated hereby,
Think has agreed to pay (and has agreed to assume all responsibility to pay) a
finders fee to Benchmark Equity Group, Inc. which shall be the sole obligation
of Think. Think represents and warrants to the Company and the Stockholder that
no other broker or finder is entitled to any brokerage or finder's fee or other
commission or fee based upon arrangements made by or on behalf of Think in
connection with this Agreement or any of the transactions contemplated hereby,
other than fees or commissions for which Think shall be solely responsible.
8.6 Entire Agreement. This Agreement and the exhibits, lists and other
----------------
documents referred to herein contain the entire agreement among the parties
hereto with respect to the transactions contemplated hereby and supersede all
prior agreements with respect thereto, whether written or oral.
8.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, without regard, however, to
such jurisdiction's principles of conflicts of laws.
8.8 Notices. Any notice, request, instruction or other document to be
-------
given hereunder by any party hereto shall be in writing and delivered
personally, by facsimile transmission or telex, or sent by commercial overnight
delivery service or registered or certified mail (return receipt requested),
postage prepaid, addressed as follows:
33
<PAGE>
If to the Company
or the Stockholder: ___________________________
___________________________
___________________________
Attn: ____________________
Facsimile: (610) 372-5107
E-Mail:
with a copy to:
Attn:
Facsimile:
E-Mail: __________
If to the Think: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
Attn: Scott A. Mednick
Facsimile: (310) 842-8444
E-Mail: [email protected]
with a copy to: DeMartino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. DeMartino, Esq.
Facsimile: (202) 659-1280
E-Mail: [email protected]
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If sent as aforesaid, the date any such notice
shall be deemed to have been delivered on the date of transmission of a
facsimile or telex, the day after delivery to a commercial overnight delivery
service, or five days after delivery into a United States Postal facility.
8.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
8.10 Rights Cumulative. All rights, powers and privileges conferred
-----------------
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other party
shall not constitute a waiver of any party's right to demand exact compliance
with any of the terms or provisions hereof.
34
<PAGE>
8.11 Severability of Provisions. The provisions of this Agreement shall be
--------------------------
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
8.12 Headings. The headings set forth in the articles and sections of this
--------
Agreement and in the exhibits and the schedules to this Agreement are inserted
for convenience of reference only and shall not be deemed to constitute a part
hereof.
8.13 Knowledge Standard. When used in this Agreement, the phrase "to the
------------------
best knowledge of," "knowledge of," "known to" or similar phrases shall mean the
actual knowledge of: (i) with respect to Think, the officers and directors of
Think; (ii) with respect to the Company, the officers and directors of the
Company; and (iii) with respect to the Stockholder, __________________.
* * * * *
35
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
ATTEST: THINK NEW IDEAS, INC.
By:
- ------------------------------------ -------------------------------
Scott A. Mednick,
Chief Executive Officer
ATTEST:
---------------------------
By:
- ------------------------------------ -------------------------------
-------------------------------
WITNESS: THE STOCKHOLDER
By:
- ------------------------------------ -------------------------------
-------------------------------
36
<PAGE>
Exhibit 10.2
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June, 1996 between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and Scott A. Mednick, an individual resident of Los Angeles,
California (the "Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
13. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment"). Nothing set forth herein shall
be construed to give the Company the right to require the Employee to relocate
or be based in any place other than the greater Los Angeles, California
metropolitan area.
14. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date and shall be automatically extended for a two (2) year period (the "Renewal
Period") unless written notice to the contrary is given by the Company to the
Employee not less than one (1) month prior to expiration of the initial three
(3) year term of the Period of Employment. Thereafter, the Period of Employment
may be extended for successive one (1) year periods at the option of the Company
upon delivery of written notice by the Company to the Employee, subject to
acceptance by the Employee, not less than one (1) month prior to the expiration
of the Period of Employment, as previously extended. The phrase "Period of
Employment" as used herein shall, unless otherwise indicated: (a) specifically
include any extensions permitted hereunder or provided herein, except as
otherwise noted; and (b) be deemed to have terminated as of the date of any
notice provided to the Employee pursuant to Section 9 hereof, notwithstanding
the Company's obligation to pay the Employee pursuant to Subsections 9(b) and
9(c) hereof.
15. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as the most senior executive officer and
the most senior member of the board of directors of the Company as set forth in
the bylaws of the Company (the "Bylaws") with the responsibilities reasonably
prescribed for such position by the board of directors of the Company (the
"Board of Directors") in accordance with the Bylaws; and
<PAGE>
(b) the Employee shall devote substantially all of his time to the business
and affairs of the Company except for vacations, illness or incapacity, as
hereinafter set forth. Notwithstanding the preceding sentence, nothing in this
Agreement shall preclude the Employee from devoting reasonable amounts of time:
(i) for serving as a director, officer or member of a committee of
any organization or entity involving no conflict of interest with the Company;
or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that he shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for his own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder.
The Employee represents and warrants that he is not party to any agreement,
oral or written, which restricts in any way: (a) his ability to perform his
obligations hereunder; or (b) his right to compete with a previous employer or
such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
Weeks of Vacation Full Years of Service
----------------- ----------------------------
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
16. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
2
<PAGE>
(a) Compensation. The Company shall pay the Employee compensation equal to
------------
at least Two Hundred Twenty-Five Thousand Dollars ($225,000) per annum at a rate
of Eighteen Thousand Seven Hundred Fifty Dollars ($18,750) per month (such
monthly amount as the same may be increased from time to time by virtue of the
adjustments set forth hereinbelow shall be defined as the "Monthly
Compensation"). Such salary shall be payable in accordance with the customary
payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation hereunder
------------------------------
shall be subject to customary withholding tax and other employment taxes as may
be required with respect to compensation paid by an employer/corporation to an
employee.
17. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) pay the Employee $800 per month as an
automobile allowance and, in addition thereto, reimburse the Employee for all
reasonable expenses related to maintenance of such an automobile including, but
not limited to, ordinary and necessary repairs, registration, insurance and
fuel.
18. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, if any, for similar employees, which insurance benefits must
provide for disbursement thereunder of an amount equal to no less than 60% of
the Employee's then current compensation as set forth in Section 4(a) hereof.
19. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Sections 4 and 5 which has accrued up to
the date of death.
20. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance (all in
accordance with the policies of the Company) and professional dues and
association memberships. Except as specifically set forth herein, the terms of,
and participation by the Employee in, any deferred compensation plan or program
shall be determined by the Board of Directors in its sole discretion.
21. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
3
<PAGE>
(a) By the Company, in the event of the employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Employee; (ii)
prolonged or repeated absence from duty without the consent of the Company (for
reasons other than the Employee's health or incapacity); (iii) habitual engaging
in any activity which is competitive with the business of the Company; and (iv)
habitual and willful misconduct on the part of the Employee relating to the
performance of his duties hereunder. The Employee shall be deemed to have a
"Disability" for purposes of this Agreement if he is unable to perform, by
reason of physical or mental incapacity, a material portion of his duties or
obligations under this Agreement for a period of one hundred twenty (120)
consecutive days in any 365-day period. The Board of Directors shall determine
whether and when the Disability of the Employee has occurred and such
determination shall not be arbitrary or unreasonable. The Company shall by
written notice to the Employee given within thirty (30) days after discovery of
the occurrence of an event or circumstance which constitutes "Just Cause,"
specify the event or circumstance giving rise to the Company's exercise of its
right hereunder and, with respect to Just Cause arising under Section 9(a)(i),
the Employee's employment hereunder shall be deemed terminated as of the date of
such notice; with respect to Just Cause arising under Section 9(a)(ii), the
Company shall provide the Employee with thirty (30) days written notice of such
violation and the Employee shall be given reasonable opportunity during such
thirty (30) day period to cure the subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event the Company shall, as liquidated damages or severance pay, or both,
pay the Employee an amount equal to the Employee's then Monthly Compensation (as
defined in Section 4(a) hereof) multiplied by the sum of the number of months
remaining during the Period of Employment plus twelve (12) months (the
"Termination Formula"); provided however, that in the event that the Employee is
-------- -------
terminated hereunder during the first three (3) year period of the Period of
Employment (exclusive of the Renewal Period), the "number of months remaining"
for application of the Termination Formula shall be construed to mean the number
of months remaining during such initial three (3) year period plus twelve (12)
months, exclusive of the two (2) year Renewal Period (as defined in Section 2
hereof); or
(c) By the Employee: (i) upon any material violation of any material
provision of this Agreement by the Company, which violation remains unremedied
for a period of thirty (30) days after written notice of the same is delivered
to the Company by the Employee; (ii) upon any material change in the nature of
the Company's business, without the Employee's prior consent; and (iii) upon any
material change in the responsibilities of the Employee, without the Employee's
prior consent, provided that in such event, the Company shall, as liquidated
-------- ----
damages or severance pay, or both, pay to the Employee an amount equal to the
Employee's Monthly Compensation multiplied by the Termination Formula; provided
--------
however, that in the event that the Employee is terminated hereunder during the
- -------
first three (3) year period of the Period of Employment (exclusive of the
Renewal Period), the "number of months remaining" for application of the
Termination Formula shall be construed to mean the number of months remaining
during such initial three (3) year period plus twelve (12) months, exclusive of
the two (2) year Renewal Period (as defined in Section 2 hereof).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income
4
<PAGE>
or compensation received by the Employee from sources other than the Company
during such Severance Period. In addition, the Company shall not be entitled to
withhold or otherwise offset any amounts payable to the Employee under
Subsections 9(b) or 9(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination hereof until such time as court of competent jurisdiction or
other appropriate governing body has rendered judgment or otherwise made a
determination with respect to whether such violation has occurred.
In the event that this Agreement is terminated pursuant to Sections 9(b) or
9(c), the Employee shall be entitled to continue to participate, at the
Company's expense, in any health insurance plan of the Company then in place for
such period as the Employee is entitled to receive severance payment hereunder.
In the event that such insurance policy does not provide for the Employee's
confirmed coverage thereunder as a result of termination hereof, the Company
will provide other comparable health insurance to the Employee, at the Company's
expense.
22. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America directly or
indirectly, individually or as a member of any partnership or joint venture, or
as an officer, director, stockholder, employee or agent of any other person,
firm, corporation, business organization or other entity, participate in, engage
in, solicit or have any financial or other interest in any activity or any
business or other enterprise in any field which at the time of termination is
competitive with the business or is in substantially the same business as the
Company or any affiliate, subsidiary or division thereof (unless the Board of
Directors shall have authorized such activity and the Company shall have
consented thereto in writing), as an individual or as a member of any
partnership or joint venture, or as an officer, director, stockholder, investor,
employee or agent of any other person, firm, corporation, business organization
or other entity; provided, however, that nothing contained herein shall be
-------- -------
construed to prevent the employee from investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers of the Company, either as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity; and
(c) the Employee is aware that the Company is entering or may enter into
other employment agreements similar to this Agreement with other employees
similarly situated to the Employee and that it is important to the Company to
maintain consistency among the employment agreements between it and those
similarly situated employees. The Employee has therefore consented to the
inclusion of this section at the request of the Company for the express purpose
of such consistency. Notwithstanding the foregoing, the Employee is familiar
with the provisions of California Business and Professions Code Section 16600 et
seq., and the Company acknowledges that the Employee is of the belief that by
reason of the operation of such statutes, some or all of the provisions of
Section 10 may be unenforceable under California law against the Employee
following termination of his employment with the Company.
5
<PAGE>
23. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies.
By reason of his being an employee of the Company, in the course of his
employment, the Employee has or shall have access to, and has obtained or shall
obtain, specialized knowledge, trade secrets and confidential information such
as that described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Employee hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods,
apparatus, designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
relating to any of the foregoing and, as to copyrightable material, to obtain
copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company,
6
<PAGE>
its affiliates, subsidiaries and divisions thereof, whether made by him or
otherwise coming into his possession. Upon termination of his employment or upon
the demand of the Company, at any time, the Employee shall deliver the same to
the Company within twenty-four (24) hours of such termination or demand.
24. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
25. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope, or for any
other reason, the parties hereto agree that such court may reform the terms
and/or scope of such covenants so that the same are reasonable and, as reformed,
shall be enforceable.
26. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching party
shall also be entitled to seek a decree of specific performance against the
breaching party, or such other relief by way of restraining order, injunction or
otherwise as may be appropriate to ensure compliance with this Agreement. The
remedies provided by this section are non-exclusive and the pursuit of such
remedies shall not in any way limit any other remedy available to the parties
with respect to this Agreement, including, without limitation, any remedy
available at law or equity with respect to any anticipatory or threatened breach
of the provisions hereof. In the event of any litigation or other proceeding
between the Company and the Employee with respect to the subject matter of this
Agreement and the enforcement of the rights hereunder, the losing party shall
reimburse the prevailing party for all of his/its reasonable costs and expenses,
as well as any forum fees, relating to such litigation or other proceeding,
including, without limitation, his/its reasonable attorneys' fees and expenses,
provided that such litigation or proceeding results in a final settlement
requiring payment to the prevailing party; or final judgement.
27. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
7
<PAGE>
28. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Employee and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
29. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
30. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
31. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
32. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
8
<PAGE>
(b) To the Employee: Mr. Scott Mednick
7972 Mulholland Drive
Los Angeles, California 90046
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Walter Finestone & Richter
11601 Wilshire Boulevard, Suite 1900
Los Angeles, California 90025
Attn: Jeffrey Richter, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
33. Assignability. This Agreement shall not be assignable by the Employee, but
-------------
shall be binding upon and shall inure to the benefit of his heirs, executors,
administrators and legal representatives. This Agreement shall be assignable by
the Company to any affiliate, subsidiary or division thereof and to any
successor in interest.
34. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
35. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
36. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
37. Vesting; Registration. Upon termination of this Agreement pursuant to
---------------------
Sections 9(b) or 9(c) or upon the Company's notice of nonrenewal pursuant to
Section 2: (i) any and all options, warrants, rights or other securities which
are exercisable into shares of common stock of the Company granted to the
Employee prior to such expiration shall vest and become immediately exercisable
(subject to applicable law); and (ii) the Company shall as soon as practicable
thereafter, at its sole expense, and upon the written request of the Employee,
file a registration statement relating to all of the common stock of the Company
owned by the Employee, and take all other actions required under (or incident to
compliance with) federal and state securities laws, rules and regulations to
enable the Employee to sell such shares of Common Stock.
9
<PAGE>
38. Indemnification. To the fullest extent allowed, and in the manner
---------------
provided, by Delaware law, the Company shall indemnify the Employee and hold the
Employee harmless from and against any claims arising out of the Employee's
performance of his services hereunder as permitted by the Articles of
Incorporation of the Company.
* * * *
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By: /s/ Frank M. DeLape
---------------------------------
Frank M. DeLape, President
THE EMPLOYEE
By: /s/ Scott A. Mednick
---------------------------------
Scott A. Mednick
11
<PAGE>
Exhibit 10.3
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June, 1996 between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and Adam Curry, an individual resident of Verona, New Jersey (the
"Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment").
2. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date and shall be automatically extended for a two (2) year period (the "Renewal
Period") unless written notice to the contrary is given by the Company to the
Employee not less than one (1) month prior to expiration of the initial three
(3) year term of the Period of Employment. Thereafter, the Period of Employment
may be extended for successive one (1) year periods at the option of the Company
upon delivery of written notice by the Company to the Employee, subject to
acceptance by the Employee, not less than one (1) month prior to the expiration
of the Period of Employment, as previously extended. The phrase "Period of
Employment" as used herein shall, unless otherwise indicated: (a) specifically
include any extensions permitted hereunder or provided herein, except as
otherwise noted; and (b) be deemed to have terminated as of the date of any
notice provided to the Employee or the Company, as applicable, pursuant to
Section 9 hereof, notwithstanding the Company's obligation to pay the Employee
pursuant to Subsections 9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as a vice president and the chief
technology officer of the Company as set forth in the bylaws of the Company (the
"Bylaws") with the responsibilities reasonably prescribed for such position by
the board of directors of the Company (the "Board of Directors") in accordance
with the Bylaws; and
(b) the Employee shall devote substantially all of his time to the
business and affairs of the Company except for vacations, illness or incapacity,
as hereinafter set forth. Notwithstanding the
1
<PAGE>
preceding sentence, nothing in this Agreement shall preclude the Employee from
devoting reasonable amounts of time:
(i) for serving as a director, officer or member of a committee of
any organization or entity involving no conflict of interest with the Company;
or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that he shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for his own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder.
The Employee represents and warrants that he is not party to any agreement,
oral or written, which restricts in any way: (a) his ability to perform his
obligations hereunder; or (b) his right to compete with a previous employer or
such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
4. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee compensation equal
------------
to at least One Hundred Ninety-Five Thousand Dollars ($195,000) per annum at a
rate of Sixteen Thousand Two
2
<PAGE>
Hundred Fifty Dollars ($16,250) per month (such monthly amount as the same may
be increased from time to time by virtue of the adjustments set forth
hereinbelow shall be defined as the "Monthly Compensation"). Such salary shall
be payable in accordance with the customary payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation here-
------------------------------
under shall be subject to customary withholding tax and other employment taxes
as may be required with respect to compensation paid by an employer/corporation
to an employee.
5. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) pay the Employee $600 per month as an
automobile allowance, which amount shall include all expenses related to
maintenance of such an automobile and necessary repairs, registration, insurance
and fuel.
6. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, for similar employees, which insurance benefits must provide for
disbursement thereunder of an amount no less than 60% of the Employee's then
current compensation as set forth in Section 4(a) hereof.
7. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Sections 4 and 5 which has accrued up to
the date of death.
8. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance (all in
accordance with the policies of the Company) and professional dues and
association memberships. Except as specifically set forth herein, the terms of,
and participation by the Employee in, any deferred compensation plan or program
shall be determined by the Board of Directors in its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime
3
<PAGE>
involving a felonious act or acts, including dishonesty, fraud or moral
turpitude by the Employee; and (ii) "cause" as the same is construed for
employment purposes under the laws of the State of Delaware. The Employee shall
be deemed to have a "Disability" for purposes of this Agreement if he is unable
to perform, by reason of physical or mental incapacity, a material portion of
his duties or obligations under this Agreement for a period of one hundred
twenty (120) consecutive days in any 365-day period. A majority vote of the
Board of Directors (or such vote as is then prescribed by the Company's then
effective Bylaws or by applicable law) shall determine whether and when the
Disability of the Employee has occurred or when the Employee shall be subject to
a Just Cause determination and such determination shall not be arbitrary or
unreasonable. The Company shall by written notice to the Employee given within
thirty (30) days after discovery of the occurrence of an event or circumstance
which constitutes "Just Cause," specify the event or circumstance giving rise to
the Company's exercise of its right hereunder and, with respect to Just Cause
arising under Section 9(a)(i), the Employee's employment hereunder shall be
deemed terminated as of the date of such notice; with respect to Just Cause
arising under Section 9(a)(ii), the Company shall provide the Employee with
thirty (30) days written notice of such violation and the Employee shall be
given reasonable opportunity during such thirty (30) day period to cure the
subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event the Company shall, as liquidated damages or severance pay, or both,
pay the Employee an amount equal to the Employee's then Monthly Compensation (as
defined in Section 4(a) hereof) multiplied by the sum of the number of months
remaining during the Period of Employment plus twelve (12) months (the
"Termination Formula"); provided however, that in the event that the Employee is
-------- -------
terminated hereunder during the first three (3) year period of the Period of
Employment (exclusive of the Renewal Period), the "number of months remaining"
for application of the Termination Formula shall be construed to mean the number
of months remaining during such initial three (3) year period plus twelve (12)
months, exclusive of the two (2) year Renewal Period (as defined in Section 2
hereof); or
(c) By the Employee: (i) upon any material violation of any material
provision of this Agreement by the Company, which violation remains unremedied
for a period of thirty (30) days after written notice of the same is delivered
to the Company by the Employee; (ii) upon any material change in the nature of
the Company's business, without the Employee's prior consent; and (iii) upon any
material change in the responsibilities of the Employee, without the Employee's
prior consent, provided that in such event, the Company shall, as liquidated
-------- ----
damages or severance pay, or both, pay to the Employee an amount equal to the
Employee's Monthly Compensation multiplied by the Termination Formula; provided
--------
however, that in the event that the Employee is terminated hereunder during the
- -------
first three (3) year period of the Period of Employment (exclusive of the
Renewal Period), the "number of months remaining" for application of the
Termination Formula shall be construed to mean the number of months remaining
during such initial three (3) year period plus twelve (12) months, exclusive of
the two (2) year Renewal Period (as defined in Section 2 hereof).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by
4
<PAGE>
the Employee of any of the obligations which are imposed under this Agreement
and survive termination hereof until such time as court of competent
jurisdiction or other appropriate governing body has rendered judgment or
otherwise made a determination with respect to whether such violation has
occurred.
In the event that this Agreement is terminated pursuant to Sections 9(b) or
9(c), the Employee shall be entitled to continue to participate, at the
Company's expense, in any health insurance plan of the Company then in place for
such period as the Employee is entitled to receive severance payments hereunder.
10. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America directly or
indirectly, individually or as a member of any partnership or joint venture, or
as an officer, director, stockholder, employee or agent of any other person,
firm, corporation, business organization or other entity, participate in, engage
in, solicit or have any financial or other interest in any activity or any
business or other enterprise in any field which at the time of termination is
competitive with the business or is in substantially the same business as the
Company or any affiliate, subsidiary or division thereof (unless the Board of
Directors shall have authorized such activity and the Company shall have
consented thereto in writing), as an individual or as a member of any
partnership or joint venture, or as an officer, director, stockholder, investor,
employee or agent of any other person, firm, corporation, business organization
or other entity; provided, however, that nothing contained herein shall be
-------- -------
construed to prevent the employee from investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers in connection with the business of
the Company, either as an individual or as a member of any partnership or joint
venture, or as an officer, director, stockholder, investor, employee or agent of
any other person, firm, corporation, business organization or other entity.
11. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies. By
reason of his being an employee of the Company, in the course of his employment,
the Employee has or shall have access to, and has obtained or shall obtain,
specialized knowledge, trade secrets and confidential information such as that
described herein
5
<PAGE>
about the business and operation of the Company, its affiliates, subsidiaries
and divisions thereof. Therefore, the Employee hereby agrees as follows,
recognizing and acknowledging that the Company is relying on the following in
entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or
to any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods, apparatus,
designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
relating to any of the foregoing and, as to copyrightable material, to obtain
copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by him or otherwise coming into
his possession. Upon termination of his employment or upon the demand of the
Company, at any time, the Employee shall deliver the same to the Company within
twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope,
6
<PAGE>
or for any other reason, the parties hereto agree that such court may reform the
terms and/or scope of such covenants so that the same are reasonable and, as
reformed, shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching party
shall also be entitled to seek a decree of specific performance against the
breaching party, or such other relief by way of restraining order, injunction or
otherwise as may be appropriate to ensure compliance with this Agreement. The
remedies provided by this section are non-exclusive and the pursuit of such
remedies shall not in any way limit any other remedy available to the parties
with respect to this Agreement, including, without limitation, any remedy
available at law or equity with respect to any anticipatory or threatened breach
of the provisions hereof.
15. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Employee and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
7
<PAGE>
18. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
19. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: Mr. Adam Curry
c/o On Ramp, Inc.
11 West 42nd Street
28th Floor
New York, New York 10036
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
Attn: Lance Rodgers, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
8
<PAGE>
21. Assignability. This Agreement shall not be assignable by the Employee, but
-------------
shall be binding upon and shall inure to the benefit of his heirs, executors,
administrators and legal representatives. This Agreement shall be assignable by
the Company to any affiliate, subsidiary or division thereof and to any
successor in interest.
22. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
23. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
25. Vesting. Upon termination of this Agreement pursuant to Sections 9(b) or
-------
9(c), any and all options, rights or other securities which are exercisable into
shares of common stock of the Company granted to the Employee prior to such
expiration shall vest and become immediately exercisable to the extent permitted
by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By:
------------------------------------------
Scott Mednick, Chief Executive Officer
THE EMPLOYEE
By:
-----------------------------------------
Adam Curry
9
<PAGE>
Exhibit 10.4
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
30th day of June, 1996 between Think New Ideas, Inc., a Delaware corporation
(the "Company"), and Ronald Bloom, an individual resident of New York, New York
(the "Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
26. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment").
27. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date and shall be automatically extended for a two (2) year period (the "Renewal
Period") unless written notice to the contrary is given by the Company to the
Employee not less than one (1) month prior to expiration of the initial three
(3) year term of the Period of Employment. Thereafter, the Period of Employment
may be extended for successive one (1) year periods at the option of the Company
upon delivery of written notice by the Company to the Employee, subject to
acceptance by the Employee, not less than one (1) month prior to the expiration
of the Period of Employment, as previously extended. The phrase "Period of
Employment" as used herein shall, unless otherwise indicated: (a) specifically
include any extensions permitted hereunder or provided herein, except as
otherwise noted; and (b) be deemed to have terminated as of the date of any
notice provided to the Employee or the Company, as applicable, pursuant to
Section 9 hereof, notwithstanding the Company's obligation to pay the Employee
pursuant to Subsections 9(b) and 9(c) hereof.
28. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as the president and chief operating
officer of the Company as set forth in the bylaws of the Company (the "Bylaws")
with the responsibilities reasonably prescribed for such position by the board
of directors of the Company (the "Board of Directors") in accordance with the
Bylaws; and
(b) the Employee shall devote substantially all of his time to the
business and affairs of the Company except for vacations, illness or incapacity,
as hereinafter set forth. Notwithstanding the
1
<PAGE>
preceding sentence, nothing in this Agreement shall preclude the Employee from
devoting reasonable amounts of time:
(i) for serving as a director, officer or member of a committee of
any organization or entity involving no conflict of interest with the Company;
or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that he shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for his own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder.
The Employee represents and warrants that he is not party to any
agreement, oral or written, which restricts in any way: (a) his ability to
perform his obligations hereunder; or (b) his right to compete with a previous
employer or such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
29. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee compensation
------------
equal to at least One Hundred Ninety-Five Thousand Dollars ($195,000) per annum
at a rate of Sixteen Thousand Two
2
<PAGE>
Hundred Fifty Dollars ($16,250) per month (such monthly amount as the same may
be increased from time to time by virtue of the adjustments set forth
hereinbelow shall be defined as the "Monthly Compensation"). Such salary shall
be payable in accordance with the customary payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if,
-------------------
in the sole judgment of the Board of Directors, the earnings of the Company or
the services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation here-
------------------------------
under shall be subject to customary withholding tax and other employment taxes
as may be required with respect to compensation paid by an employer/corporation
to an employee.
30. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) pay the Employee $600 per month as an
automobile allowance, which amount shall include all expenses related to
maintenance of such an automobile and repairs, registration, insurance and fuel.
31. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, for similar employees, which insurance benefits must provide for
disbursement thereunder of an amount equal to no less than 60% of the Employee's
then current compensation as set forth in Section 4(a) hereof.
32. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Sections 4 and 5 which has accrued up to
the date of death.
33. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance (all in
accordance with the policies of the Company) and professional dues and
association memberships. Except as specifically set forth herein, the terms of,
and participation by the Employee in, any deferred compensation plan or program
shall be determined by the Board of Directors in its sole discretion.
34. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or Disability
or for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Employee; and
3
<PAGE>
(ii) "cause" as the same is construed for employment purposes under the laws of
the State of Delaware. The Employee shall be deemed to have a "Disability" for
purposes of this Agreement if he is unable to perform, by reason of physical or
mental incapacity, a material portion of his duties or obligations under this
Agreement for a period of one hundred twenty (120) consecutive days in any 365-
day period. A majority vote of the Board of Directors (or such vote as is then
prescribed by the Company's then effective Bylaws or by applicable law) shall
determine whether and when the Disability of the Employee has occurred or when
the Employee shall be subject to a Just Cause determination and such
determination shall not be arbitrary or unreasonable. The Company shall by
written notice to the Employee given within thirty (30) days after discovery of
the occurrence of an event or circumstance which constitutes "Just Cause,"
specify the event or circumstance giving rise to the Company's exercise of its
right hereunder and, with respect to Just Cause arising under Section 9(a)(i),
the Employee's employment hereunder shall be deemed terminated as of the date of
such notice; with respect to Just Cause arising under Section 9(a)(ii), the
Company shall provide the Employee with thirty (30) days written notice of such
violation and the Employee shall be given reasonable opportunity during such
thirty (30) day period to cure the subject violation;
(b) By the Company, in its sole and absolute discretion, provided that
in such event the Company shall, as liquidated damages or severance pay, or
both, pay the Employee an amount equal to the Employee's then Monthly
Compensation (as defined in Section 4(a) hereof) multiplied by the sum of the
number of months remaining during the Period of Employment plus twelve (12)
months (the "Termination Formula"); provided however, that in the event that the
-------- -------
Employee is terminated hereunder during the first three (3) year period of the
Period of Employment (exclusive of the Renewal Period), the "number of months
remaining" for application of the Termination Formula shall be construed to mean
the number of months remaining during such initial three (3) year period plus
twelve (12) months, exclusive of the two (2) year Renewal Period (as defined in
Section 2 hereof); or
(c) By the Employee: (i) upon any material violation of any material
provision of this Agreement by the Company, which violation remains unremedied
for a period of thirty (30) days after written notice of the same is delivered
to the Company by the Employee; (ii) upon any material change in the nature of
the Company's business, without the Employee's prior consent; and (iii) upon any
material change in the responsibilities of the Employee, without the Employee's
prior consent, provided that in such event, the Company shall, as liquidated
-------- ----
damages or severance pay, or both, pay to the Employee an amount equal to the
Employee's Monthly Compensation multiplied by the Termination Formula; provided
--------
however, that in the event that the Employee is terminated hereunder during the
- -------
first three (3) year period of the Period of Employment (exclusive of the
Renewal Period), the "number of months remaining" for application of the
Termination Formula shall be construed to mean the number of months remaining
during such initial three (3) year period plus twelve (12) months, exclusive of
the two (2) year Renewal Period (as defined in Section 2 hereof).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination
4
<PAGE>
hereof until such time as court of competent jurisdiction or other appropriate
governing body has rendered judgment or otherwise made a determination with
respect to whether such violation has occurred.
In the event that this Agreement is terminated pursuant to Sections 9(b)
and 9(c), the Employee shall be entitled to continue to participate, at the
Company's expense, in any health insurance plan of the Company then in place for
such period as the Employee is entitled to receive severance payments hereunder.
35. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America, directly or
indirectly, individually or as a member of any partnership or joint venture, or
as an officer, director, stockholder, employee or agent of any other person,
firm, corporation, business organization or other entity, participate in, engage
in, solicit or have any financial or other interest in any activity or any
business or other enterprise in any field which at the time of termination is
competitive with the business or is in substantially the same business as the
Company or any affiliate, subsidiary or division thereof (unless the Board of
Directors shall have authorized such activity and the Company shall have
consented thereto in writing), as an individual or as a member of any
partnership or joint venture, or as an officer, director, stockholder, investor,
employee or agent of any other person, firm, corporation, business organization
or other entity; provided, however, that nothing contained herein shall be
-------- -------
construed to prevent the employee from investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers in connection with the business of
the Company, either as an individual or as a member of any partnership or joint
venture, or as an officer, director, stockholder, investor, employee or agent of
any other person, firm, corporation, business organization or other entity.
36. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies. By
reason of his being an employee of the Company, in the course of his employment,
the Employee has or shall have access to, and has obtained or shall obtain,
specialized knowledge, trade secrets and confidential information such as that
described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof.
5
<PAGE>
Therefore, the Employee hereby agrees as follows, recognizing and acknowledging
that the Company is relying on the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or
to any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods, apparatus,
designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
relating to any of the foregoing and, as to copyrightable material, to obtain
copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by him or otherwise coming into
his possession. Upon termination of his employment or upon the demand of the
Company, at any time, the Employee shall deliver the same to the Company within
twenty-four (24) hours of such termination or demand.
37. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
38. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope,
6
<PAGE>
or for any other reason, the parties hereto agree that such court may reform the
terms and/or scope of such covenants so that the same are reasonable and, as
reformed, shall be enforceable.
39. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching party
shall also be entitled to seek a decree of specific performance against the
breaching party, or such other relief by way of restraining order, injunction or
otherwise as may be appropriate to ensure compliance with this Agreement. The
remedies provided by this section are non-exclusive and the pursuit of such
remedies shall not in any way limit any other remedy available to the parties
with respect to this Agreement, including, without limitation, any remedy
available at law or equity with respect to any anticipatory or threatened breach
of the provisions hereof.
40. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
41. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Employee and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
42. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
7
<PAGE>
43. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
44. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
45. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: Mr. Ronald Bloom
c/o On Ramp, Inc.
11 West 42nd Street
28th Floor
New York, New York 10036
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
Attn: Lance Rodgers, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
8
<PAGE>
46. Assignability. This Agreement shall not be assignable by the Employee,
-------------
but shall be binding upon and shall inure to the benefit of his heirs,
executors, administrators and legal representatives. This Agreement shall be
assignable by the Company to any affiliate, subsidiary or division thereof and
to any successor in interest.
47. Governing Law. This Agreement shall be governed by and construed under
-------------
the laws of the State of Delaware, without regard to the principles of conflicts
of laws thereof.
48. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
49. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
50. Vesting. Upon termination of this Agreement pursuant to Sections 9(b) or
-------
9(c), any and all options, rights or other securities which are exercisable into
shares of common stock of the Company granted to the Employee prior to such
expiration shall vest and become immediately exercisable to the extent permitted
by applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By:
--------------------------------------------
Scott A. Mednick, Chief Executive Officer
THE EMPLOYEE
By:
--------------------------------------------
Ronald Bloom
9
<PAGE>
Exhibit 10.5
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June 1996, between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and David Hieb an individual resident of Boulder, Colorado (the
"Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment"). Nothing set forth herein shall
be construed to give the Company the right to require the Employee to relocate
or be based in any place other than the greater Boulder or Denver, Colorado
areas.
2. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date. Thereafter, the Period of Employment may be extended for successive one
(1) year periods at the option of the Company upon delivery of written notice by
the Company to the Employee, subject to acceptance by the Employee, not less
than one (1) month prior to the expiration of the Period of Employment, as
previously extended. The phrase "Period of Employment" as used herein shall:
(a) specifically include any extensions permitted hereunder or provided herein;
and (b) be deemed to have terminated as of the date of any notice provided to
the Employee pursuant to Section 9 hereof, notwithstanding the Company's
obligation to pay Monthly Compensation to the Employee pursuant to Subsections
9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as a vice president of the Company as
set forth in the bylaws of the Company (the "Bylaws") with the responsibilities
reasonably prescribed for such position by the board of directors of the Company
(the "Board of Directors") in accordance with the Bylaws and shall report to
the Chief Executive Officer, the President and the Board of Directors; and
(b) the Employee shall devote substantially all of his time to the business
and affairs of the Company except for vacations, illness or incapacity, as
hereinafter set forth. Notwithstanding the preceding sentence, nothing in this
Agreement shall preclude the Employee from devoting reasonable amounts of time:
<PAGE>
(i) for serving as a director, officer or member of a committee of any
organization or entity involving no conflict of interest with the Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that, while employed by the Company, he shall not, directly or
indirectly, individually or as a member of any partnership or joint venture, or
as an officer, director, stockholder, employee or agent of any other person,
firm, corporation, business organization or other entity, engage in any trade or
business activity or pursuit for his own account or for, or on behalf of, any
other person, firm, corporation, business organization or other entity,
irrespective of whether the same competes, conflicts or interferes with that of
the Company or the performance of the Employee's obligations hereunder;
provided, however, that nothing contained herein shall be construed to prevent
- -------- -------
the Employee from: (x) investing in the stock of any corporation, which does
not compete with the Company, which is listed on a national securities exchange
or traded in the over-the-counter market if the Employee does not and will not
as a result of such investment own more than five percent (5%) of the stock of
such corporation ("Permitted Investments"); or (y) engaging in personal business
ventures to which the Employee devotes time outside of the time required to be
devoted to the business of the Company hereunder. The Employee represents and
warrants that he is not party to any agreement, oral or written, which restricts
in any way: (a) his ability to perform his obligations hereunder; or (b) his
right to compete with a previous employer or such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
provided, however, that no employee of the Company shall be entitled to take
- -------- -------
more than two weeks consecutively of vacation time at any one time.
4. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee compensation equal to
------------
at least One Hundred Twenty-Five Thousand Dollars ($125,000) per annum at a rate
of Ten Thousand Four Hundred Sixteen Dollars and Sixty-Seven Cents ($10,416.67)
per month (such monthly amount as the same may be increased from time to time by
virtue of the adjustments set forth hereinbelow shall be defined as
2
<PAGE>
the "Monthly Compensation"). Such salary shall be payable in accordance with the
customary payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus. The criteria for consideration of
eligibility for such bonus shall be the same relied upon by the Company for
other executive officers of similar or like positions as the Employee.
(c) Withholding and Employment Tax. Payment of all compensation hereunder
------------------------------
shall be subject to customary withholding tax and other employment taxes as may
be required with respect to compensation paid by an employer/corporation to an
employee.
5. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) reimburse the Employee $600 per month
as an automobile allowance, which amount shall include all expenses related to
maintenance of such an automobile and necessary repairs, registration, insurance
and fuel.
6. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, if any, for similar employees.
7. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Section 4 which has accrued up to the date
of death.
8. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance, all in
accordance with the policies of the Company. Except as specifically set forth
herein, the terms of, and participation by the Employee in, any deferred
compensation plan or program shall be determined by the Board of Directors in
its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Employee; and
(ii) "cause" as the same is construed for employment purposes under the laws of
the State of Delaware. The Employee shall be deemed to have a "Disability" for
purposes of this Agreement if he is unable
3
<PAGE>
to perform, by reason of physical or mental incapacity, a material portion of
his duties or obligations under this Agreement for a period of ninety (90)
consecutive days in any 365-day period. The Board of Directors shall determine
whether and when the Disability of the Employee has occurred and such
determination shall not be arbitrary or unreasonable. The Company shall by
written notice to the Employee given within thirty (30) days after discovery of
the occurrence of an event or circumstance which constitutes "Just Cause,"
specify the event or circumstance giving rise to the Company's exercise of its
right hereunder and, with respect to Just Cause arising under Section 9(a)(i),
the Employee's employment hereunder shall be deemed terminated as of the date of
such notice; with respect to Just Cause arising under Section 9(a)(ii), the
Company shall provide the Employee with thirty (30) days written notice of such
violation and the Employee shall be given reasonable opportunity during such
thirty (30) day period to cure the subject violation;
(b) By the Company, in its sole and absolute discretion, provided that, in
-------- ----
the event that the Company terminates the employee under this Section 9(b)
during: (i) the first year of the Period of Employment; (ii) the second year of
the Period of Employment; or (iii) the third year of the Period of Employment,
the Company shall, as liquidated damages or severance pay, or both, pay the
Employee an amount equal to the Employee's then Monthly Compensation (as defined
in Section 4(a) hereof) multiplied by: (x) twelve (12); (y) nine (9); or (z) six
(6), respectively; or
(c) By the Employee, upon any material violation of any material provision
of this Agreement by the Company, which violation remains unremedied for a
period of thirty (30) days after written notice of the same is delivered to the
Company by the Employee, provided that, in the event that such breach occurs
-------- ----
during: (i) the first year of the Period of Employment; (ii) the second year of
the Period of Employment; or (iii) the third year of the Period of Employment,
the Company shall, as liquidated damages or severance pay, or both, pay to the
Employee an amount equal to the Employee's Monthly Compensation multiplied by:
(x) twelve (12); (y) nine (9); or (z) six (6) respectively.
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination hereof until such time as court of competent jurisdiction or
other appropriate governing body has rendered judgment or otherwise made a
determination with respect to whether such violation has occurred.
10. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America or in any other place
or venue where the Company or any affiliate, subsidiary or division thereof now
conducts or operates, or may conduct or operate its business in the future but
prior to the date of termination hereunder, directly or indirectly, individually
or as a member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity,
4
<PAGE>
participate in, engage in, solicit or have any financial or other interest in
any activity or any business or other enterprise in the field of advertising,
marketing, interactive Internet solutions or in any other field which is or may
be reasonably expected to become competitive with the current or contemplated
business of the Company or any affiliate, subsidiary or division thereof (unless
the Board of Directors shall have authorized such activity and the Company shall
have consented thereto in writing), as an individual or as a member of any
partnership or joint venture, or as an officer, director, stockholder,
investor, employee or agent of any other person, firm, corporation, business
organization or other entity; provided, however, that nothing contained
-------- -------
herein shall be construed to prevent the employee from investing in Permitted
Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers of the Company, either as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity.
Notwithstanding the foregoing, in the event that this Agreement is
terminated pursuant to Subsections 9(b) or 9(c) above, the provisions of this
Section 10 shall apply for so long as the Company is obligated to make payments
to the Employee under Subsections 9(b) or 9(c), as the case may be.
11. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies.
By reason of his being an employee of the Company, in the course of his
employment, the Employee has or shall have access to, and has obtained or shall
obtain, specialized knowledge, trade secrets and confidential information such
as that described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Employee hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods, apparatus,
designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the
5
<PAGE>
business, operations or affairs of the Company or any affiliate, subsidiary or
division thereof. Whether during the Period of Employment or thereafter, the
Employee shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be required of the
Employee to permit the Company or any person or entity designated by the Company
to file, enforce and prosecute the patent applications relating to any of the
foregoing and, as to copyrightable material, to obtain copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by him or otherwise coming into
his possession. Upon termination of his employment or upon the demand of the
Company, at any time, the Employee shall deliver the same to the Company within
twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope, or for any
other reason, the parties hereto agree that such court may reform the terms
and/or scope of such covenants so that the same are reasonable and, as reformed,
shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching
6
<PAGE>
party shall also be entitled to seek a decree of specific performance against
the breaching party, or such other relief by way of restraining order,
injunction or otherwise as may be appropriate to ensure compliance with this
Agreement. The remedies provided by this section are non-exclusive and the
pursuit of such remedies shall not in any way limit any other remedy available
to the parties with respect to this Agreement, including, without limitation,
any remedy available at law or equity with respect to any anticipatory or
threatened breach of the provisions hereof. In the event of any litigation or
other proceeding between the Company and the Employee with respect to the
subject matter of this Agreement and the enforcement of the rights hereunder,
the losing party shall reimburse the prevailing party for all of his/its
reasonable costs and expenses, as well as any forum fees, relating to such
litigation or other proceeding, including, without limitation, his/its
reasonable attorneys' fees and expenses, provided that such litigation or
proceeding results in a final settlement requiring payment to the prevailing
party; or final judgement.
15. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall be
assignable, inure to the benefit of, be assumed by, and be binding upon such
resulting or surviving transferee corporation or such partnership or joint
venture, and the term "Company," as used in this Agreement, shall mean such
corporation, partnership or joint venture, or other entity and this Agreement
shall continue in full force and effect and shall entitle the Employee and his
heirs, beneficiaries and representatives to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had such combination, consolidation, merger, transfer of assets or
formation of such partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
18. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the
7
<PAGE>
foregoing, the remaining provisions hereof shall remain enforceable to the
fullest extent permitted by law.
19. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: Mr. David Hieb
c/o Internet One, Inc.
1113 Spruce Street
Suite 500
Boulder, Colorado 80302
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Chrisman, Bynum & Johnson
1900 15th Street
Boulder, Colorado 80302
Attn: Christopher Hazlitt, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. Except as otherwise set forth herein, this Agreement shall
-------------
not be assignable by either party hereto, but shall be binding upon and shall
inure to the benefit of the heirs, executors, administrators and legal
representatives of each such party.
22. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof. With respect to matters
8
<PAGE>
hereunder that result in litigation, any dispute arising hereunder shall be
litigated in the courts (federal or state, as applicable) in the State of
Colorado; provided, however, that in no event may any law other than that of the
-------- -------
State of Delaware be applicable to resolution of the issues hereunder.
23. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
25. Indemnification. The Company shall indemnify the Employee and hold the
---------------
Employee harmless from and against any claims arising out of the Employee's
performance of his service hereunder as permitted by the Articles of
Incorporation of the Company in accordance with Delaware law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By: /s/ Scott Mednick
--------------------------------------
Scott Mednick, Chief Executive Officer
THE EMPLOYEE
By: /s/ David R. Hieb
--------------------------------------
David R. Hieb
9
<PAGE>
Exhibit 10.6
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June 1996, between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and James Grannan, an individual resident of Atlanta, Georgia (the
"Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment").
2. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the first anniversary of the Effective
Date. Thereafter, the Period of Employment may be extended for successive one
(1) year periods at the option of the Company upon delivery of written notice by
the Company to the Employee, subject to acceptance by the Employee, not less
than one (1) month prior to the expiration of the Period of Employment, as
previously extended. The phrase "Period of Employment" as used herein shall,
unless otherwise indicated: (a) specifically include any extensions permitted
hereunder or provided herein, except as otherwise noted; and (b) be deemed to
have terminated as of the date of any notice provided to the Employee pursuant
to Section 9 hereof, notwithstanding the Company's obligation to pay the
Employee pursuant to Subsections 9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as a vice president of the Company as
set forth in the bylaws of the Company (the "Bylaws") with the responsibilities
reasonably prescribed for such position by the board of directors of the Company
(the "Board of Directors") in accordance with the Bylaws; and
(b) the Employee shall devote substantially all of his time to the business
and affairs of the Company except for vacations, illness or incapacity, as
hereinafter set forth. Notwithstanding the preceding sentence, nothing in this
Agreement shall preclude the Employee from devoting reasonable amounts of time:
<PAGE>
(i) for serving as a director, officer or member of a committee of any
organization or entity involving no conflict of interest with the Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that he shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for his own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder. The Employee represents and warrants
that he is not party to any agreement, oral or written, which restricts in any
way: (a) his ability to perform his obligations hereunder; or (b) his right to
compete with a previous employer or such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
provided, however, that no employee of the Company shall be entitled to take
- -------- -------
more than two weeks consecutively of vacation time at any one time.
4. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee compensation equal to
------------
at least One Hundred Twenty-Five Thousand Dollars ($125,000) per annum at a rate
of Ten Thousand Four Hundred Sixteen Dollars and Sixty-Seven Cents ($10,416.67)
per month (such monthly amount as the same may be increased from time to time by
virtue of the adjustments set forth hereinbelow shall be defined as
2
<PAGE>
the "Monthly Compensation"). Such salary shall be payable in accordance with
the customary payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation hereunder
------------------------------
shall be subject to customary withholding tax and other employment taxes as may
be required with respect to compensation paid by an employer/corporation to an
employee.
5. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) pay the Employee $600 per month as an
automobile allowance, which amount shall include all expenses related to
maintenance of such an automobile and necessary repairs, registration, insurance
and fuel.
6. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, if any, for similar employees.
7. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Section 4 which has accrued up to the date
of death.
8. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance, all in
accordance with the policies of the Company. Except as specifically set forth
herein, the terms of, and participation by the Employee in, any deferred
compensation plan or program shall be determined by the Board of Directors in
its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Employee; and (ii)
"cause" as the same is construed for employment purposes under the laws of the
State of Delaware. The Employee shall be deemed to have a "Disability" for
purposes of this Agreement if he is unable to perform, by reason of physical or
mental incapacity, a material portion of his duties or obligations
3
<PAGE>
under this Agreement for a period of thirty (30) consecutive days in any 365-day
period. The Board of Directors shall determine whether and when the Disability
of the Employee has occurred and such determination shall not be arbitrary or
unreasonable. The Company shall by written notice to the Employee given within
thirty (30) days after discovery of the occurrence of an event or circumstance
which constitutes "Just Cause," specify the event or circumstance giving rise to
the Company's exercise of its right hereunder and, with respect to Just Cause
arising under Section 9(a)(i), the Employee's employment hereunder shall be
deemed terminated as of the date of such notice; with respect to Just Cause
arising under Section 9(a)(ii), the Company shall provide the Employee with
thirty (30) days written notice of such violation and the Employee shall be
given reasonable opportunity during such thirty (30) day period to cure the
subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event the Company shall, as liquidated damages or severance pay, or both,
pay the Employee an amount equal to the Employee's then Monthly Compensation (as
defined in Section 4(a) hereof) multiplied by three (3); or
(c) By the Employee, upon any material violation of any material provision
of this Agreement by the Company, which violation remains unremedied for a
period of thirty (30) days after written notice of the same is delivered to the
Company by the Employee, provided that in such event, the Company shall, as
-------- ----
liquidated damages or severance pay, or both, pay to the Employee an amount
equal to the Employee's Monthly Compensation multiplied by three (3).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination hereof until such time as court of competent jurisdiction or
other appropriate governing body has rendered judgment or otherwise made a
determination with respect to whether such violation has occurred.
10. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America or in any other place
or venue where the Company or any affiliate, subsidiary or division thereof now
conducts or operates, or may conduct or operate its business in the future but
prior to the date of termination hereunder, directly or indirectly, individually
or as a member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, participate in, engage in, solicit or have any
financial or other interest in any activity or any business or other enterprise
in the field of advertising, marketing, interactive Internet solutions or in any
other field which is or may be reasonably expected to become competitive with
the current or contemplated business of the Company or any affiliate, subsidiary
or division thereof (unless the Board of Directors shall have authorized such
activity and the Company shall have consented thereto in writing), as an
4
<PAGE>
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the employee from
investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers of the Company, either as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity.
11. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies.
By reason of his being an employee of the Company, in the course of his
employment, the Employee has or shall have access to, and has obtained or shall
obtain, specialized knowledge, trade secrets and confidential information such
as that described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Employee hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods,
apparatus, designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
relating to any of the foregoing and, as to copyrightable material, to obtain
copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by
5
<PAGE>
law, keep secret and retain in strict confidence, and shall not use, disclose to
others, or publish any information, other than information which is in the
public domain or becomes publicly available through no wrongful act on the part
of the Employee, which information shall be deemed not to be confidential
information, relating to the business, operation or other affairs of the
Company, its affiliates, subsidiaries and divisions thereof, including but not
limited to confidential information concerning the design and marketing
practices, pricing practices, costs, profit margins, products, methods,
guidelines, procedures, engineering designs and standards, design
specifications, analytical techniques, technical information, customer, client,
vendor or supplier information, employee information, and any and all other
confidential information acquired by him in the course of his past or future
services for the Company or any affiliate, subsidiary or division thereof. The
Employee shall hold as the Company's property all notes, memoranda, books,
records, papers, letters, formulas and other data and all copies thereof and
therefrom in any way relating to the business, operation or other affairs of the
Company, its affiliates, subsidiaries and divisions thereof, whether made by him
or otherwise coming into his possession. Upon termination of his employment or
upon the demand of the Company, at any time, the Employee shall deliver the same
to the Company within twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope, or for any
other reason, the parties hereto agree that such court may reform the terms
and/or scope of such covenants so that the same are reasonable and, as reformed,
shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching party
shall also be entitled to seek a decree of specific performance against the
breaching party, or such other relief by way of restraining order, injunction or
otherwise as may be appropriate to ensure compliance with this Agreement. The
remedies provided by this section are non-exclusive and the pursuit of such
remedies shall not in any way limit any other remedy available to the parties
with respect to this Agreement, including, without limitation, any remedy
available at law or equity with respect to any anticipatory or threatened breach
of the provisions hereof.
15. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure
6
<PAGE>
provision of Section 14 above and the Company shall be entitled to seek
immediate injunctive relief and a decree of specific performance against the
Employee. Such remedy is non-exclusive and shall be in addition to any other
remedy to which the Company or any affiliate, subsidiary or division thereof may
be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Employee and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
18. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
19. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
7
<PAGE>
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: Mr. James Grannan
c/o Creative Resources Agency, Inc.
3110.5 Roswell Road, N.W.
Atlanta, Georgia 30305
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the Employee, but
-------------
shall be binding upon and shall inure to the benefit of his heirs, executors,
administrators and legal representatives. This Agreement shall be assignable by
the Company to any affiliate, subsidiary or division thereof and to any
successor in interest.
22. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
23. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By: /s/ Scott Mednick
--------------------------------------
Scott Mednick, Chief Executive Officer
THE EMPLOYEE
By: /s/ James Grannan
--------------------------------------
James Grannan
9
<PAGE>
Exhibit 10.7
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June, 1996 between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and Susan D. Goodman, residing at 225 West 86th Street, Apt. 915,
New York, New York 10024 (the "Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment"). Nothing set forth herein shall
be construed to give the Company the right to require the Employee to relocate
or be based in any place other than the greater New York City metropolitan area.
2. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date. Thereafter, the Period of Employment may be extended for successive one
(1) year periods at the option of the Company upon delivery of written notice by
the Company to the Employee, subject to acceptance by the Employee, not less
than one (1) month prior to the expiration of the Period of Employment, as
previously extended. The phrase "Period of Employment" as used herein shall,
unless otherwise indicated: (a) specifically include any extensions permitted
hereunder or provided herein, except as otherwise noted; and (b) be deemed to
have terminated as of the date of any notice provided to the Employee pursuant
to Section 9 hereof, notwithstanding the Company's obligation to pay the
Employee pursuant to Subsections 9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Employment:
-----------------
(a) the Employee shall be employed as an executive vice president of the
Company as set forth in the bylaws of the Company (the "Bylaws") with the
responsibilities reasonably prescribed for such position by the board of
directors of the Company (the "Board of Directors") in accordance with the
Bylaws and president of The S.D. Goodman Group, Inc.; and
(b) the Employee shall devote substantially all of her time to the business
and affairs of the Company except for vacations, illness or incapacity, as
hereinafter set forth. Notwithstanding the preceding sentence, nothing in this
Agreement shall preclude the Employee from devoting reasonable amounts of time:
<PAGE>
(i) for serving as a director, officer or member of a committee of any
organization or entity involving no conflict of interest with the Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of her duties hereunder. In consideration of such employment, the
Employee agrees that she shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for her own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder. The Employee represents and warrants
that she is not party to any agreement, oral or written, which restricts in any
way: (a) her ability to perform her obligations hereunder; or (b) her right to
compete with a previous employer or such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
provided, however, that no employee of the Company shall be entitled to take
- -------- -------
more than two weeks consecutively of vacation time at any one time. It is
hereby acknowledged that the Employee has been credited as of the date hereof
with having been employed for nine full years, such that she shall be entitled
upon execution hereof to four weeks vacation.
4. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
(a) Compensation. The Company shall pay the Employee compensation equal to
------------
at least One Hundred Ninety-Five Thousand Dollars ($195,000) per annum at a rate
of Sixteen Thousand Two Hundred Fifty Dollars ($16,250) per month (such monthly
amount as the same may be increased from
2
<PAGE>
time to time by virtue of the adjustments set forth hereinbelow shall be defined
as the "Monthly Compensation"). Such salary shall be payable in accordance with
the customary payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus. The Company shall pay to the
Employee a bonus of $30,000 within 6 months of execution hereof, provided that
this Agreement has not been previously terminated pursuant to Section 9(a).
(c) Withholding and Employment Tax. Payment of all compensation hereunder
------------------------------
shall be subject to customary withholding tax and other employment taxes as may
be required with respect to compensation paid by an employer/corporation to an
employee.
5. Business Expenses. The Company shall pay or reimburse the Employee for all
-----------------
reasonable travel or other expenses incurred by the Employee in connection with
the performance of her duties under this Agreement, provided that the same are
previously authorized by the Company, in accordance with such procedures as the
Company may from time to time establish for employees and as required to
preserve any deductions for federal income taxation purposes to which the
Company may be entitled. The Company shall also pay the Employee $600 per month
as an automobile allowance, which shall include all expenses related to
maintenance of such automobile and necessary repairs, registration, insurance
and fuel.
6. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, if any, for similar employees.
7. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Sections 4 and 5 which has accrued up to
the date of death.
8. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the Company
at the senior executive level, if any, to the extent that her position, tenure,
salary, age, health and other qualifications make her eligible to participate,
subject to the rules and regulations applicable thereto. Such additional
benefits shall include, but not be limited to, paid sick leave and individual
health insurance (all in accordance with the policies of the Company) and
professional dues and association memberships. Except as specifically set forth
herein, the terms of, and participation by the Employee in, any deferred
compensation plan or program shall be determined by the Board of Directors in
its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the Employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime
3
<PAGE>
involving a felonious act or acts, including dishonesty, fraud or moral
turpitude by the Employee; and (ii) "cause" as the same is construed for
employment purposes under the laws of the State of Delaware. The Employee shall
be deemed to have a "Disability" for purposes of this Agreement if she is unable
to perform, by reason of physical or mental incapacity, a material portion of
her duties (exclusive of twelve (12) weeks of maternity leave) or obligations
under this Agreement for a period of one hundred twenty (120) consecutive days
in any 365-day period. The Board of Directors shall determine whether and when
the Disability of the Employee has occurred and such determination shall not be
arbitrary or unreasonable. The Company shall by written notice to the Employee
given within thirty (30) days after discovery of the occurrence of an event or
circumstance which constitutes "Just Cause," specify the event or circumstance
giving rise to the Company's exercise of its right hereunder and, with respect
to Just Cause arising under Section 9(a)(i), the Employee's employment hereunder
shall be deemed terminated as of the date of such notice; with respect to Just
Cause arising under Section 9(a)(ii), the Company shall provide the Employee
with thirty (30) days written notice of such violation and the Employee shall be
given reasonable opportunity during such thirty (30) day period to cure the
subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event that the Company: (i) terminates the Employee hereunder during the
first year of the period of Employment, the Company shall, as liquidated damages
or severance pay, or both, pay the Employee an amount equal to the Employee's
then Monthly Compensation (as defined in Section 4(a) hereof) multiplied by the
sum of the number of months remaining during the Period of Employment (the
"Termination Formula"); and (ii) in the event that the Company terminates the
Employee hereunder after the first year of the Period of Employment, the Company
shall, as liquidated damages or severance pay, or both, pay the Employee an
amount equal to the Employee's then Monthly Compensation (as defined in Section
4(a) hereof) multiplied by twelve (12) months; provided however, that in the
-------- -------
event that the Employee is terminated hereunder during the first three (3) year
period of the Period of Employment (exclusive of the Renewal Period), the
"number of months remaining" for application of the Termination Formula shall be
construed to mean the number of months remaining during such initial three (3)
year period, exclusive of any renewal period (as set forth in Section 2 hereof);
or
(c) By the Employee, upon any material violation of any material provision
of this Agreement by the Company, which violation remains unremedied for a
period of thirty (30) days after written notice of the same is delivered to the
Company by the Employee, provided that in such event, the Company shall, as
-------- ----
liquidated damages or severance pay, or both, pay to the Employee an amount
equal to the Employee's Monthly Compensation multiplied by the Termination
Formula; provided however, that in the event that the Employee is terminated
-------- -------
hereunder during the initial three (3) year period of the Period of Employment,
the "number of months remaining" for application of the Termination Formula
shall be construed to mean the number of months remaining during such initial
three (3) year period, exclusive of any renewal period (as set forth in Section
2 hereof).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by
4
<PAGE>
the Employee of any of the obligations which are imposed under this Agreement
and survive termination hereof until such time as court of competent
jurisdiction or other appropriate governing body has rendered judgment or
otherwise made a determination with respect to whether such violation has
occurred.
10. Non-Competition. Subject to Section 10(c) below, during the Period of
---------------
Employment and for six (6) months thereafter:
(a) the Employee shall not, anywhere in North America or in any other place
or venue where the Company or any affiliate, subsidiary or division thereof now
conducts or operates, or may conduct or operate its business in the future but
prior to the date of termination hereunder, directly or indirectly, individually
or as a member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, participate in, engage in, solicit or have any
financial or other interest in any activity or any business or other enterprise
in the field of advertising, marketing, interactive Internet solutions or in any
other field which is or may be reasonably expected to become competitive with
the current or contemplated business of the Company or any affiliate, subsidiary
or division thereof (unless the Board of Directors shall have authorized such
activity and the Company shall have consented thereto in writing), as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the employee from
investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate her employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers of the Company, either as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity; and
(c) notwithstanding Subsections 10(a) and 10(b) above, upon expiration of
the Period of Employment (including any renewal period and assuming that this
Agreement has not been earlier terminated, in which case Subsections 10(a) and
10(b) shall apply) the Employee shall not be subject to the restrictions set
forth in Subsections 10(a) or 10(b), but, for a six (6) month period after
expiration of the Period of Employment, the Employee shall not contact or
solicit any clients or customers of the Company, either as an individual or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, investor, employee or agent of any other person, firm corporation,
business organization or other entity.
11. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and good
will of the Company is derived from the specialized knowledge, trade secrets,
and confidential information generated from experience through the activities
undertaken by the Company, its affiliates, subsidiaries and divisions thereof.
The disclosure of any of such information and the knowledge thereof on the part
of competitors would be beneficial to such competitors and detrimental to the
Company, its affiliates,
5
<PAGE>
subsidiaries and divisions thereof, as would the disclosure of information about
the marketing practices, pricing practices, costs, profit margins, design
specifications, analytical techniques, concepts, ideas, process developments
(whether or not patentable), customer and client agreements, vendor and supplier
agreements and similar items or technologies. By reason of her being an employee
of the Company, in the course of her employment, the Employee has or shall have
access to, and has obtained or shall obtain, specialized knowledge, trade
secrets and confidential information such as that described herein about the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof. Therefore, the Employee hereby agrees as follows, recognizing
and acknowledging that the Company is relying on the following in entering into
this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, during or before the term hereof (commencing with the date of the
Employee's employment with the Company) which: (i) relate to methods,
apparatus, designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
relating to any of the foregoing and, as to copyrightable material, to obtain
copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee or is
common knowledge in the industry in which the Company conducts business, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by her in
the course of her past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by her or otherwise coming into
her possession. Upon termination of her employment or upon the demand of the
Company, at any time, the Employee shall deliver the same to the Company within
twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the
6
<PAGE>
territory to which such restrictions apply, are necessary and fundamental to the
protection of the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope, or for any
other reason, the parties hereto agree that such court may reform the terms
and/or scope of such covenants so that the same are reasonable and, as reformed,
shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which the Company may not have any adequate remedy at law.
Therefore, if, on the thirty-first (31st) day after receipt of such notice, the
breaching party shall have failed to cure such breach, the non-breaching party
shall also be entitled to seek a decree of specific performance against the
breaching party, or such other relief by way of restraining order, injunction or
otherwise as may be appropriate to ensure compliance with this Agreement. The
remedies provided by this section are non-exclusive and the pursuit of such
remedies shall not in any way limit any other remedy available to the parties
with respect to this Agreement, including, without limitation, any remedy
available at law or equity with respect to any anticipatory or threatened breach
of the provisions hereof. In the event of any litigation or other proceeding
between the Company and the Employee with respect to the subject matter of this
Agreement and the enforcement of the rights hereunder, the losing party shall
reimburse the prevailing party for all of her/its reasonable costs and expenses,
as well as any forum fees, relating to such litigation or other proceeding,
including, without limitation, her/its reasonable attorneys' fees and expenses,
provided that such litigation or proceeding results in a final settlement
requiring payment to the prevailing party or final judgement.
15. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets
to, or entering into a partnership or joint venture with, another corporation or
other entity, or effecting any other kind of corporate combination, provided
that, the corporation resulting from or surviving such combination,
consolidation or merger, or to which such assets are transferred, or such
partnership or joint venture assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a consolidation, merger,
transfer of assets or formation of such partnership or joint venture, this
Agreement shall inure to the benefit of, be assumed by, and be binding upon such
resulting or
7
<PAGE>
surviving transferee corporation or such partnership or joint venture, and the
term "Company," as used in this Agreement, shall mean such corporation,
partnership or joint venture, or other entity and this Agreement shall continue
in full force and effect and shall entitle the Employee and her heirs,
beneficiaries and representatives to exactly the same compensation, benefits,
perquisites, payments and other rights as would have been their entitlement had
such combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
18. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
19. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: Ms. Susan Goodman
225 West 86th Street
Apt. 915
New York, New York 10024
8
<PAGE>
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Frankfurt Garbus Klein & Selz, P.C.
488 Madison Avenue
New York, New York 10022
Attn: Gavin McElroy, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the Employee, but
-------------
shall be binding upon and shall inure to the benefit of her heirs, executors,
administrators and legal representatives. This Agreement shall be assignable by
the Company to any affiliate, subsidiary or division thereof and to any
successor in interest.
22. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
23. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By: /s/ Scott Mednick
--------------------------------------
Scott Mednick, Chief Executive Officer
THE EMPLOYEE
By: /s/ Susan D. Goodman
-------------------------------------
Susan D. Goodman
10
<PAGE>
Exhibit 10.8
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th
day of June, 1996, between Think New Ideas, Inc., a Delaware corporation (the
"Company"), and James Carlisle, Ph.D., an individual resident of Alpine, New
Jersey (the "Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer of
employment with the Company upon the terms and subject to the conditions set
forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment. The Company hereby agrees to employ the Employee and the
----------
Employee hereby agrees to be employed by the Company upon the terms and subject
to the conditions set forth herein for the period of employment as set forth in
Section 2 hereof (the "Period of Employment").
2. Term; Period of Employment. Subject to extension or termination as
--------------------------
hereinafter provided, the Period of Employment hereunder shall be from the date
hereof (the "Effective Date") through the third anniversary of the Effective
Date and shall be automatically extended for a two (2) year period (the "Renewal
Period") unless written notice to the contrary is given by the Company to the
Employee not less than one (1) month prior to expiration of the initial three
(3) year term of the Period of Employment. Thereafter, the Period of Employment
may be extended for successive one (1) year periods at the option of the Company
upon delivery of written notice by the Company to the Employee, subject to
acceptance by the Employee, not less than one (1) month prior to the expiration
of the Period of Employment, as previously extended. The phrase "Period of
Employment" as used herein shall, unless otherwise indicated: (a) specifically
include any extensions permitted hereunder or provided herein, except as
otherwise noted; and (b) be deemed to have terminated as of the date of any
notice provided to the Employee pursuant to Section 9 hereof, notwithstanding
the Company's obligation to pay the Employee pursuant to Subsections 9(b) and
9(c) hereof.
3. Office and Duties; Location. During the Period of Employment:
---------------------------
(a) the Employee shall be employed as a vice president of the Company as
set forth in the bylaws of the Company (the "Bylaws") with the responsibilities
reasonably prescribed for such position by the board of directors of the Company
(the "Board of Directors") in accordance with the Bylaws and president, chief
executive officer and a director of each of NetCube Corporation, a Delaware
corporation and NetCube Corporation, a New Jersey corporation and the Employee's
place of employment shall be in the northeastern New Jersey area; and
(b) the Employee shall devote substantially all of his working time to the
business and affairs of the Company except for vacations, illness or incapacity,
as hereinafter set forth. Notwithstanding
<PAGE>
the preceding sentence, nothing in this Agreement shall preclude the Employee
from devoting reasonable amounts of time:
(i) for serving as a director, officer or member of a committee of any
organization or entity involving no conflict of interest with the Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance by
- -------- -------
the Employee of his duties hereunder. In consideration of such employment, the
Employee agrees that he shall not, directly or indirectly, individually or as a
member of any partnership or joint venture, or as an officer, director,
stockholder, employee or agent of any other person, firm, corporation, business
organization or other entity, engage in any trade or business activity or
pursuit for his own account or for, or on behalf of, any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Employee's obligations hereunder; provided, however, that
-------- -------
nothing contained herein shall be construed to prevent the Employee from: (x)
investing in the stock of any corporation, which does not compete with the
Company, which is listed on a national securities exchange or traded in the
over-the-counter market if the Employee does not and will not as a result of
such investment own more than five percent (5%) of the stock of such corporation
("Permitted Investments"); or (y) engaging in personal business ventures to
which the Employee devotes time outside of the time required to be devoted to
the business of the Company hereunder.
The Employee represents and warrants that he is not party to any agreement,
oral or written, which restricts in any way: (a) his ability to perform his
obligations hereunder; or (b) his right to compete with a previous employer or
such employer's business.
(c) the Employee shall be entitled to vacation time based upon the
cumulative number of years the Employee is or has been employed by the Company
(deemed for this purpose to include a predecessor, successor, subsidiary or
other affiliate of the Company) as follows:
<TABLE>
<CAPTION>
Weeks of Vacation Full Years of Service
----------------- ------------------------------
<S> <C>
Two (2) One (1) through Six (6)
Three (3) Seven (7) through Nine (9)
Four (4) Ten (10) through Fourteen (14)
Five (5) Fifteen (15) and Beyond
</TABLE>
provided, however, that no employee of the Company shall be entitled to take
- -------- -------
more than two weeks consecutively of vacation time at any one time.
4. Compensation and Benefits. In exchange for the services rendered by the
-------------------------
Employee pursuant hereto in any capacity during the Period of Employment,
including without limitation, services as an officer, director, or member of any
committee of the Company or any affiliate, subsidiary or division thereof, the
Employee shall be compensated as follows:
2
<PAGE>
(a) Compensation. The Company shall pay the Employee compensation equal to
------------
at least One Hundred Ninety-Five Thousand Dollars ($195,000) per annum at a rate
of Sixteen Thousand Two Hundred Fifty Dollars ($16,250) per month (such monthly
amount as the same may be increased from time to time by virtue of the
adjustments set forth hereinbelow shall be defined as the "Monthly
Compensation"). Such salary shall be payable in accordance with the customary
payroll practices of the Company.
(b) Profitability Bonus. The Company may pay the Employee a bonus if, in
-------------------
the sole judgment of the Board of Directors, the earnings of the Company or the
services of the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation hereunder
------------------------------
shall be subject to customary withholding tax and other employment taxes as may
be required with respect to compensation paid by an employer/corporation to an
employee.
5. Business Expenses. The Company shall: (a) pay or reimburse the Employee
-----------------
for all reasonable travel or other expenses incurred by the Employee in
connection with the performance of his duties under this Agreement, provided
that the same are previously authorized by the Company, in accordance with such
procedures as the Company may from time to time establish for employees and as
required to preserve any deductions for federal income taxation purposes to
which the Company may be entitled; and (b) pay the Employee $600 per month as an
automobile allowance, which amount shall include all expenses related to
maintenance of such an automobile and repairs, registration, insurance and fuel.
6. Disability. The Company shall provide the Employee with substantially the
----------
same disability insurance benefits as those, if any, currently being provided by
the Company, if any, for similar employees.
7. Death. The Company shall provide the Employee with substantially the same
-----
life insurance benefits as those currently being provided by the Company for
similar employees. In the event of the Employee's death, the obligation of the
Company to make payments pursuant to Section 4 hereof shall cease as of the date
of such Employee's death and the Company shall pay to the estate of the Employee
any amount due to the Employee under Sections 4 and 5 which has accrued up to
the date of death.
8. Other Benefits. The Employee shall be entitled to participate in fringe
--------------
benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and individual health insurance, all in
accordance with the policies of the Company. Except as specifically set forth
herein, the terms of, and participation by the Employee in, any deferred
compensation plan or program shall be determined by the Board of Directors in
its sole discretion.
9. Termination of Employment. Notwithstanding any other provision of this
-------------------------
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the employee's death or Disability or
for "Just Cause." "Just Cause" shall be defined to be limited to: (i) the
Employee's indictment or conviction of a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Employee;
3
<PAGE>
(ii) prolonged or repeated absence from duty without the consent of the Company
(for reasons other than the Employee's health or incapacity); (iii) habitual
neglect of the Employee's duties as an employee of the Company; (iv) habitual
engaging in any activity which is in conflict with or adverse to the business
interests of the Company; and (v) habitual and willful misconduct on the part of
the Employee relating to the performance of his duties hereunder or otherwise
injurious to the Company. The Employee shall be deemed to have a "Disability"
for purposes of this Agreement if he is unable to perform, by reason of physical
or mental incapacity, a material portion of his duties or obligations under this
Agreement for a period of one hundred twenty (120) consecutive days in any 365-
day period. The Board of Directors shall determine whether and when the
Disability of the Employee has occurred and such determination shall not be
arbitrary or unreasonable. The Company shall by written notice to the Employee
given within thirty (30) days after discovery of the occurrence of an event or
circumstance which constitutes "Just Cause," specify the event or circumstance
giving rise to the Company's exercise of its right hereunder and, with respect
to Just Cause arising under Section 9(a)(i), the Employee's employment hereunder
shall be deemed terminated as of the date of such notice; with respect to Just
Cause arising under Section 9(a)(ii), 9(a)(iii), 9(a)(iv) or 9(a)(v), the
Company shall provide the Employee with thirty (30) days written notice of such
violation and the Employee shall be given reasonable opportunity during such
thirty (30) day period to cure the subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event the Company shall, as liquidated damages or severance pay, or both,
pay the Employee an amount equal to the Employee's then Monthly Compensation (as
defined in Section 4(a) hereof) multiplied by twelve (12); or
(c) By the Employee, upon any material violation of any material provision
of this Agreement by the Company, which violation remains unremedied for a
period of thirty (30) days after written notice of the same is delivered to the
Company by the Employee, provided that in such event, the Company shall, as
-------- ----
liquidated damages or severance pay, or both, pay to the Employee an amount
equal to the Employee's Monthly Compensation multiplied by twelve (12).
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 9(b) or 9(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 9(b) or 9(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination hereof until such time as court of competent jurisdiction or
other appropriate governing body has rendered judgment or otherwise made a
determination with respect to whether such violation has occurred.
10. Non-Competition. Notwithstanding any earlier termination, during the
---------------
Period of Employment and for one (1) year thereafter:
(a) the Employee shall not, anywhere in North America or in any other place
or venue where the Company or any affiliate, subsidiary or division thereof now
conducts or operates, or may conduct or operate its business in the future but
prior to the date of termination hereunder, directly or indirectly,
4
<PAGE>
individually or as a member of any partnership or joint venture, or as an
officer, director, stockholder, employee or agent of any other person, firm,
corporation, business organization or other entity, participate in, engage in,
solicit or have any financial or other interest in any activity or any business
or other enterprise in the field of advertising, marketing, interactive Internet
solutions or in any other field which is or may be reasonably expected to become
competitive with the current or contemplated business of the Company or any
affiliate, subsidiary or division thereof (unless the Board of Directors shall
have authorized such activity and the Company shall have consented thereto in
writing), as an individual or as a member of any partnership or joint venture,
or as an officer, director, stockholder, investor, employee or agent of any
other person, firm, corporation, business organization or other entity;
provided, however, that nothing contained herein shall be construed to prevent
- -------- -------
the employee from investing in Permitted Investments; and
(b) the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his employment or otherwise leave the Company's employ or
hire any such employee (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing); or (ii)
contact or solicit any clients or customers of the Company, either as an
individual or as a member of any partnership or joint venture, or as an officer,
director, stockholder, investor, employee or agent of any other person, firm,
corporation, business organization or other entity, provided, however, that in
-------- -------
the event that this Agreement is terminated pursuant to Subsections 9(b) or 9(c)
above (subject to any applicable cure period), the provisions of this Section 10
shall not be applicable.
11. Confidential Information. The parties hereto recognize that it is
------------------------
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions thereof to preserve the specialized knowledge, trade
secrets, and confidential information of the foregoing concerning the field of
advertising, marketing and interactive Internet solutions. The strength and
good will of the Company is derived from the specialized knowledge, trade
secrets, and confidential information generated from experience through the
activities undertaken by the Company, its affiliates, subsidiaries and divisions
thereof. The disclosure of any of such information and the knowledge thereof on
the part of competitors would be beneficial to such competitors and detrimental
to the Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies.
By reason of his being an employee of the Company, in the course of his
employment, the Employee has or shall have access to, and has obtained or shall
obtain, specialized knowledge, trade secrets and confidential information such
as that described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Employee hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the Company, or to
any person or entity designated by the Company, any and all right, title and
interest of the Employee in and to all creations, designs, inventions, ideas,
disclosures and improvements, whether patented or unpatented, and copyrightable
material, made or conceived by the Employee solely or jointly, in whole or in
part, in connection with performance of his duties hereunder and subject to
Section 10 hereof, during or before the term hereof (commencing with the date of
the Employee's employment with the Company) which: (i) relate to methods,
apparatus, designs, products, processes or devices created, promoted,
5
<PAGE>
marketed, distributed, sold, leased, used, developed, relied upon or otherwise
provided by the Company or any affiliate, subsidiary or division thereof; or
(ii) otherwise relate to or pertain to the business, operations or affairs of
the Company or any affiliate, subsidiary or division thereof. Whether during the
Period of Employment or thereafter, the Employee shall execute and deliver to
the Company such formal transfers and assignments and such other papers and
documents as may be required of the Employee to permit the Company or any person
or entity designated by the Company to file, enforce and prosecute the patent
applications relating to any of the foregoing and, as to copyrightable material,
to obtain copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Employment and for a period of one (1) year thereafter, the Employee shall,
except as otherwise required by or compelled by law, keep secret and retain in
strict confidence, and shall not use, disclose to others, or publish any
information, other than information which is in the public domain or becomes
publicly available through no wrongful act on the part of the Employee, which
information shall be deemed not to be confidential information, relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, including but not limited to confidential
information concerning the design and marketing practices, pricing practices,
costs, profit margins, products, methods, guidelines, procedures, engineering
designs and standards, design specifications, analytical techniques, technical
information, customer, client, vendor or supplier information, employee
information, and any and all other confidential information acquired by him in
the course of his past or future services for the Company or any affiliate,
subsidiary or division thereof. The Employee shall hold as the Company's
property all notes, memoranda, books, records, papers, letters, formulas and
other data and all copies thereof and therefrom in any way relating to the
business, operation or other affairs of the Company, its affiliates,
subsidiaries and divisions thereof, whether made by him or otherwise coming into
his possession. Upon termination of his employment or upon the demand of the
Company, at any time, the Employee shall deliver the same to the Company within
twenty-four (24) hours of such termination or demand.
12. Reasonableness of Restrictions. The Employee hereby agrees that the
------------------------------
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of competent
---------------------------------
jurisdiction determines that the non-compete or the confidentiality provisions
hereof are unreasonably broad or otherwise unenforceable because of the length
of their respective terms or the breadth of their territorial scope, or for any
other reason, the parties hereto agree that such court may reform the terms
and/or scope of such covenants so that the same are reasonable and, as reformed,
shall be enforceable.
14. Remedies. Subject to Section 15 below, in the event of a breach of any of
--------
the provisions of this Agreement, the non-breaching party shall provide written
notice of such breach to the breaching party. The breaching party shall have
thirty (30) days after receipt of such notice in which to cure its breach. If,
on the thirty-first (31st) day after receipt of such notice, the breaching party
shall have failed to cure such breach, the non-breaching party thereafter shall
be entitled to seek damages. It is acknowledged that this Agreement is of a
unique nature and of extraordinary value and of such a character that a breach
hereof by the Employee shall result in irreparable damage and injury to the
Company for which
6
<PAGE>
the Company may not have any adequate remedy at law. Therefore, if, on the
thirty-first (31st) day after receipt of such notice, the breaching party shall
have failed to cure such breach, the non-breaching party shall also be entitled
to seek a decree of specific performance against the breaching party, or such
other relief by way of restraining order, injunction or otherwise as may be
appropriate to ensure compliance with this Agreement. The remedies provided by
this section are non-exclusive and the pursuit of such remedies shall not in any
way limit any other remedy available to the parties with respect to this
Agreement, including, without limitation, any remedy available at law or equity
with respect to any anticipatory or threatened breach of the provisions hereof.
15. Certain Provisions; Specific Performance. In the event of a breach by the
----------------------------------------
Employee of the non-competition or confidentiality provisions hereof, such
breach shall not be subject to the cure provision of Section 14 above and the
Company shall be entitled to seek immediate injunctive relief and a decree of
specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
-------------------------------------
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall be
assignable to, inure to the benefit of, be assumed by, and be binding upon such
resulting or surviving transferee corporation or such partnership or joint
venture, and the term "Company," as used in this Agreement, shall mean such
corporation, partnership or joint venture, or other entity and this Agreement
shall continue in full force and effect and shall entitle the Employee and his
heirs, beneficiaries and representatives to exactly the same compensation,
benefits, perquisites, payments and other rights as would have been their
entitlement had such combination, consolidation, merger, transfer of assets or
formation of such partnership or joint venture not occurred.
17. Survival. Sections 10 through 15 shall survive the termination for any
--------
reason of this Agreement (whether such termination is by the Company, by the
Employee, upon the expiration of this Agreement by its terms or otherwise);
provided, however, that in the event that the Company ceases to exist and
- -------- -------
neither an affiliate, subsidiary or division thereof has assumed, at its option,
the obligations of the Company hereunder, the Employee shall no longer be bound
by the Non-Competition provision set forth in Section 10 hereof.
18. Severability. The provisions of this Agreement shall be considered
------------
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
7
<PAGE>
19. Entire Agreement; Amendment. This Agreement contains the entire agreement
---------------------------
between the Company and the Employee with respect to the subject matter hereof
and thereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if physically
delivered, delivered by express mail or other expedited service or upon receipt
if mailed, postage prepaid, via first class mail as follows:
(a) To the Company: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232
Attention: President
(b) To the Employee: James Carlisle, Ph.D.
c/o NetCube, Inc.
115 River Road
Edgewater, New Jersey 07020
(c) With an additional copy
by like means to: De Martino Finkelstein Rosen & Virga
1818 N Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Ralph V. De Martino, Esq.
and
Offices of Brian W. Pusch
Penthouse Suite
29 W. 57th Street
New York, New York 10019-3406
Attn: Brian W. Pusch, Esq.
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the Employee, but
-------------
shall be binding upon and shall inure to the benefit of his heirs, executors,
administrators and legal representatives. This Agreement shall not be
assignable by the Company except as provided in Section 16 and shall be binding
upon and inure to the benefit of the Company's successors.
22. Governing Law. This Agreement shall be governed by and construed under the
-------------
laws of the State of Delaware, without regard to the principles of conflicts of
laws thereof.
8
<PAGE>
23. Waiver and Further Agreement. Any waiver of any breach of any terms or
----------------------------
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are for
---------------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
* * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THINK NEW IDEAS, INC., the Company
By:
-----------------------------------------
Scott A. Mednick, Chief Executive Officer
THE EMPLOYEE
By:
-----------------------------------------
James Carlisle, Ph.D.
9
<PAGE>
Exhibit 10.9
<PAGE>
THIS NOTE HAS NOT BEEN THE SUBJECT OF REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND THE SAME HAS
BEEN ISSUED IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT AND SUCH LAWS. THIS NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT AS PERMITTED UNDER SUCH SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
NON-NEGOTIABLE 12% PROMISSORY NOTE
----------------------------------
$1,000,000 New York, New York
March 31, 1996
FOR VALUE RECEIVED, the undersigned, On Ramp, Inc., a New York corporation
(hereinafter referred to as the "Maker"), hereby promises to pay to Think New
Ideas, Inc., a Delaware corporation (the "Payee") at 16815 Royal Crest Drive,
Suite 160, Houston, Texas 77058, or at such other place as the holder hereof may
from time to time designate in writing, the principal sum of One Million Dollars
($1,000,000) in one installment due April 30, 1997 or such later date as
extended by the Payee as set forth below (the "Maturity Date"), together with
interest from and after the date hereof at the rate of twelve percent (12%) per
annum computed on the unpaid principal balance. Interest shall be paid by Maker
to the Payee on the Maturity Date. By acceptance of this Non-Negotiable 12%
Promissory Note (the "Note"), the Payee represents, warrants, covenants and
agrees that he, she or it will abide by and be bound by its terms.
25. Prepayment and Notices. The unpaid principal balance outstanding under
----------------------
this Note may be prepaid in part or in full by the Maker without penalty, upon
thirty (30) days notice to the Payee stating the repayment amount and repayment
date (the "Repayment Date").
26. Collateral. Repayment of amounts outstanding and/or owing hereunder is
----------
collateralized by the pledge of twenty-six shares of Common Stock of the Maker,
which shares represent fifty-two percent (52%) of the issued and outstanding
common stock of the Maker (the "Collateral") pursuant to the terms of a certain
pledge agreement, dated as of the date hereof, by and among the Maker, the Payee
and Adam Curry, the beneficial owner and owner of record of the Collateral,
which agreement shall remain in effect until terminated pursuant to its terms.
27. Restricted Securities. By acceptance hereof, the Payee understands and
---------------------
agrees that this Note is a "restricted security" under the federal securities
laws inasmuch as it is being acquired from the Maker in a transaction not
involving a public offering and have not been the subject of registration under
the Securities Act and that under such laws and applicable regulations such
security may be resold in the absence of registration under the Securities Act
only in certain limited circumstances. The Payee hereby represents that it is
familiar with Rule 144 promulgated under the Securities Act, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
28. Presentment. Except as set forth herein, Maker waives presentment, demand
-----------
and presentation for payment, notice of nonpayment and dishonor, protest and
notice of protest and expressly agrees that this Note or any payment hereunder
may be extended from time to time by the Payee without in any way affecting the
liability of Maker.
<PAGE>
29. Notices.
-------
(a) Notices to the Payee. Any notice required by the provisions of this Note
--------------------
to be given to the holder hereof shall be in writing and may be delivered by
personal service, facsimile transmission or by registered or certified mail,
return receipt requested, with postage thereon fully prepaid or overnight
delivery courier. All such communications shall be addressed to the Payee of
record at its address appearing on the books of the Maker. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing, whichever
is earlier in time.
(b) Notices to the Maker. Whenever any provision of this Note requires a
--------------------
notice to be given or a request to be made to the Maker by the Payee or the
holder of any other security of the Maker obtained in connection with a
recapitalization, merger, dividend or other event affecting this Note, then and
in each such case, any such notice or request shall be in writing and shall be
sent by registered or certified mail, return receipt requested with postage
thereon fully prepaid to the Maker at its principal place of business.
No notice given or request made hereunder shall be valid unless signed by the
Payee of this Note or other holder giving such notice or request (or, in the
case of a notice or request by Holders of a specified percent in aggregate
principal amount of outstanding Notes, unless signed by each Holder of a Note
whose Note has been counted in constituting the requisite percentage of Notes
required to give such notice or make such request).
30. Events of Default.
-----------------
(a) Each of the following shall constitute an event of default (an "Event of
Default") hereunder: (i) the failure to pay when due any principal or interest
hereunder and the continuance of such failure for a period of thirty (30) days
after written notice from the Payee to the Maker of such failure; (ii) the
violation by the Maker of any covenant or agreement contained in this Note and
the continuance of such violation for a period of thirty (30) days after written
notice from the Payee to the Maker of such failure; (iii) any change in control
of the Maker which is not previously approved by the written consent of the
Payee; (iv) the assignment for the benefit of creditors by the Maker; (v) the
application for the appointment of a receiver or liquidator for the Maker or the
property of the Maker; (vi) the filing of a petition in bankruptcy by or against
the Maker; (vii) the issuance of an attachment or the entry of a judgment
against the Maker in excess of $50,000; (viii) a default by the Maker with
respect to any other indebtedness due to the Payee; (ix) the making or sending
of a notice of intended bulk sale by the Maker; or (x) the termination of
existence, dissolution or any other insolvency of the Maker. Upon the
occurrence of any of the foregoing Events of Default, this Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of
Default which remains uncured as set forth herein and the placement of this Note
in the hands of an attorney for collection, the Maker agrees to pay reasonable
collection costs and expenses, including reasonable attorneys' fees and interest
from the date of the default at the rate of fifteen percent (15%) per annum
computed on the unpaid principal balance.
2
<PAGE>
(b) The Payee may waive any Event of Default hereunder. Such waiver shall be
evidenced by written notice or other document specifying the Event or Events of
Default being waived and shall be binding on all existing or subsequent Payees
under this Note.
31. Cure Period. Notwithstanding anything else to the contrary set forth
-----------
herein, upon the occurrence of an Event of Default, including but not limited to
the failure to pay when due any principal or interest hereunder, the Maker shall
have six (6) months from the date of the occurrence of such Event of Default to
cure such default, during which time, the Payee may not take any action with
respect to the Collateral, collection of amounts due and owing hereunder or
enforcement of the provisions hereof.
32. Construction; Governing Law. The validity and construction of this Note
---------------------------
and all matters pertaining hereto are to be determined in accordance with the
laws of the State of Delaware without regard to the conflicts of law principles
thereof.
IN WITNESS WHEREOF, the Maker has executed this Non-Negotiable 12% Promissory
Note as of this 31st day of March, 1996.
ON RAMP, INC.
By: /s/ Adam Curry
------------------------------------
Adam Curry, President
3
<PAGE>
Exhibit 10.10
<PAGE>
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 31st day of
March, 1996 by and between On Ramp, Inc., a New York corporation (the
"Borrower") and Think New Ideas, Inc., a Delaware corporation (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that Lender make a loan to Borrower of
$600,000, the proceeds of which shall be used for general corporate purposes;
and
WHEREAS, Lender has agreed to make such a loan available to Borrower upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
SECTION 1. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following meanings:
1.1 "Accounts" means accounts, general intangibles, chattel paper,
instruments and documents, whether now owned or hereafter acquired by the
Borrower.
1.2 "Account Debtor" means any Person who is or who may become obligated
to Borrower under or on account of an Account.
1.3 "Advance" means any amount paid by Lender to the Borrower and debited
to an Advance Account pursuant to the terms of Section 2.1 hereof, or otherwise.
1.4 "Advance Account" means an account on the books of Lender in which:
(i) each Advance by Lender shall be debited thereto by recording
therein on the date of such advance a debit entry in the amount of such Advance;
and
(ii) each payment made to Lender for credit to the Advance Account
shall be credited thereto by recording therein on the date paid to Lender a
credit entry in the amount of such payment.
1.5 "Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with Borrower or a Subsidiary; (ii) which beneficially owns or holds 5%
or more of any class of the outstanding voting stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of Borrower or a
Subsidiary; or (iii) 5% or more of any class of the outstanding voting stock (or
in the case of a Person which is not a corporation, 5% or more of the equity
interest of which is beneficially owned or held by Borrower or Subsidiary). The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting stock, by contract or otherwise.
1.6 "Agreement" shall include this Loan Agreement as amended, modified or
supplemented from time to time by agreement in writing signed by the Borrower
and Lender.
<PAGE>
1.7 "Authorized Officer" shall mean Adam Curry or such other person
designated in writing to the Lender, who is authorized to obtain Advances or
otherwise act on behalf of the Borrower hereunder.
1.8 "Business Day" means a day upon which banks are open for the
transaction of business of the nature required by this Agreement, in New York.
1.9 "Lender Expenditures" means with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets which
are not, in accordance with Generally Accepted Accounting Principles, treated as
expense items for such Person in the year made or incurred or as a prepaid
expense applicable to a future year or years.
1.10 "Closing Date" means the date first set forth above.
1.11 "Collateral" shall have the meaning ascribed to "Pledged Stock" as
set forth in the Pledge Agreement (as defined below).
1.12 "Committed Amount" means the principal amount of $600,000 which
Lender has agreed to lend to Borrower as evidenced by the Note.
1.13 "Consistent Basis" means that the accounting principles observed in
the current period are comparable in all material respects to those applied in
the preceding period, in accordance with Generally Accepted Accounting
Principles.
1.14 "Current Assets" means cash and all other assets or resources of
Borrower and its subsidiaries which are expected to be realized in cash, sold in
the ordinary course of business, or consummated within one year, all determined
in accordance with Generally Accepted Accounting Principles.
1.15 "Current Liabilities" means the amount of all Liabilities of Borrower
and its Subsidiaries which by their terms are payable within one year (including
all indebtedness payable on demand or maturing not more than one year from the
date of computation and the current portion of Indebtedness having a maturity
date in excess of one year and all lease obligations payable within one year)
all determined in accordance with Generally Accepted Accounting Principles.
1.16 "Debit Balance" means an amount equal to the excess, if any of all
debit entries over all credit entries.
1.17 "Default" or "Event of Default" means the occurrence of all of any of
the events specified in Section 8 and/or set forth in the Note (as defined
below).
1.18 "Fiscal Year" means the twelve-month period (or shorter period in the
case of the first fiscal year) ending on December 31.
1.19 "Generally Accepted Accounting Principles" means those principles of
accounting set forth in Opinions of the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants or which have other
substantial authoritative support generally followed by public
2
<PAGE>
accountants and are applicable in the circumstances of the date of a report, as
such principles are from time to time supplemented and amended.
1.20 "Indebtedness" means with respect to any Person, all indebtedness of
such Person for borrowed money, all indebtedness of such Person for the
acquisition of property other than purchases of products and merchandise in the
ordinary course of business, indebtedness secured by a lien, pledge or other
encumbrance on the property of such Person whether or not such indebtedness is
assumed, all liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business); all guarantees of
Indebtedness of any other Person by such Person (including any agreement,
contingent or otherwise, to purchase any obligation representing such
Indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term minority interest in the common stock
of subsidiaries, reserves for deferred income taxes and investment creditors,
other deferred credits and reserves, and deferred compensation obligations.
1.21 "Liabilities" mean all liabilities, obligations and indebtedness of
any and every kind and nature (including, without limitation, lease obligations
and interest, charges, expenses, attorneys' fees and other sums) chargeable to
the Borrower and future advances made to or for the benefit of the Borrower,
whether arising under this Agreement, or arising under the Note or arising under
any of the Loan Documents of the Borrower form any other source, whether
heretofore, now or hereafter owing, arising, due or payable from Borrower to the
Lender and however evidenced, credited, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed, or otherwise, including
obligation of performance.
1.22 "Loan" means the principal amount of $600,000 which Lender has agreed
to lend Borrower.
1.23 "Note" means the Note in the original aggregate principal amount of
$600,000,substantially in the form of Exhibit 1 attached hereto, the proceeds of
which are to be used to for general corporate purposes.
1.24 "Loan Documents" means this Agreement, the Note, the Pledge Agreement
and all documents, instruments, certificates, reports and all other written
matters whether heretofore, now, or hereafter executed by or on behalf of the
Borrower and/or delivered to Lender in connection herewith.
1.25 "Net Income" shall have the meaning and be determined in accordance
with Generally Accepted Accounting Principles, reported on a Consistent Basis.
1.26 "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association,
joint venture or a government or agency or political subdivision thereof, but
shall exclude each and every Subsidiary.
1.27 "Pledge Agreement" means the pledge agreement of even date herewith
by and among Lender, Borrower and Adam Curry pursuant to which Mr. Curry has
agreed to secure the $600,000
3
<PAGE>
indebtedness evidenced by the Note and an additional $1,000,000 indebtedness
evidence by a separate promissory note of even date herewith executed by
Borrower in favor of Lender (the "Ancillary Note").
1.28 "Subsidiary" means any corporation of which at least a majority of
the outstanding securities having ordinary voting powers for the election of
directors are at the time owned by Borrower and/or Subsidiary of the Borrower.
1.29 "Tangible Net Worth" means the consolidated net worth of Borrower, at
the time of determination, as determined in accordance with Generally Accepted
Accounting Principles, less:
(i) goodwill;
(ii) any writeup in the value ascribed to any asset set forth on
Borrower's balance sheet resulting from a revaluation thereof; and
(iii) accounts receivable or notes receivable from officers,
directors and Affiliates of the Borrower.
1.30 "Termination Date" means April 30, 1997, unless sooner terminated by
the occurrence and continuance beyond expiration of any cure period of an Event
of Default (as hereinafter defined).
1.31 All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles.
1.32 All of the terms defined in this Agreement shall have such defined
meanings when used in the other Loan Documents and any certificates, reports or
other documents or instruments issued under or delivered pursuant to this
Agreement unless the context shall require otherwise.
SECTION 2. Loan.
----
2.1 Committed Amount. Subject to the terms and conditions of this
----------------
Agreement, Lender agrees to loan to the Borrower up to $600,000 pursuant to the
terms of the Note upon the execution of this Loan Agreement. The Borrower shall
make each request to borrow funds hereunder to the Lender in writing; the Lender
shall thereafter provide such funds (via check or wire transfer) to the Borrower
within five business days of receipt by the Lender of such written request;
provided that the Borrower is not in default of any of the provisions of this
Agreement, the Note, the Ancillary Note or any other Loan Documents. Upon any
borrowings hereunder, Lender shall record as a debit on its books any amount so
borrowed; upon any repayments, Lender shall record as a credit on its books any
amount so repaid. Nothing set forth herein shall prohibit the Borrower from
making prepayments without penalty at any time and from time to time.
2.2 Payments of Interest and Principal. Interest on the average daily
----------------------------------
Debit Balance shall accrue at the rate of twelve percent (12%) per annum. The
Borrower shall pay to Lender on the Termination Date, the entire amount of the
Debit Balance, together with accrued interest thereon and any fees then owed.
Interest on the Note shall be computed and payable in the manner set forth in
Section 9.1 hereof.
4
<PAGE>
2.3 Use of Proceeds. The proceeds evidenced by the Note shall be used by
---------------
the Borrower for general working capital purposes.
2.4 Pledge Agreement. Contemporaneous with the execution of this
----------------
Agreement, Borrower shall execute the Pledge Agreement.
SECTION 3. All Advances to Constitute One Loan. All loans by Lender to
-----------------------------------
Borrower under this Agreement and the Note shall constitute one obligation of
the Borrower. Borrower recognizes and agrees that it maintains a single loan
facility with Lender and that Borrower is liable to Lender for all Liabilities
hereunder, regardless of whether such Liabilities arise as a result of Advances
to such Borrower.
SECTION 4. Representations and Warranties. In order to induce Lender to
------------------------------
enter into this Agreement and to make the Loan available, Borrower represents
and warrants to Lender (which representations and warranties shall survive the
delivery of the documents mentioned herein, the extension of the Advances
contemplated hereby and the termination of this Agreement) as follows:
4.1 Organization. Each of Borrower and every Subsidiary (if any) is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its respective incorporation, has the power to own its
respective properties and to carry on their respective businesses as now being
conducted and is duly qualified to do business in every jurisdiction in the
United States of America for which the failure to so qualify will have a
material impact on the Borrower's business.
4.2 Power and Authority. Borrower is duly authorized under all applicable
-------------------
provisions of law to execute, deliver and perform this Agreement, the Note, the
Pledge Agreement, and the other Loan Documents to which it is a party, and all
other action on the part of such Borrower required for the lawful execution,
delivery and performance thereof have been duly taken; and this Agreement, the
Note and each of the other Loan Documents, upon the due execution and delivery
thereof, will be valid and enforceable instruments, obligations or agreements of
such Borrower, in accordance with their respective terms, except as to
enforcement of creditors rights generally. Neither the execution of this
Agreement, the Note or the other Loan Documents, nor the fulfillment of or
compliance with their provisions and terms, will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a violation of
or default under: (a) to the best knowledge of the Borrower, any applicable
law, regulation, order, writ or decree; or (b) any agreement or instrument to
which such Borrower is a party, or create any lien, charge or encumbrance upon
any of the property or assets of any of them pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
are bound except those in favor of Lender expressly created hereunder.
4.3 Litigation. There are no pending or threatened actions or proceedings
----------
before any court, any state or federal regulatory body, or any self-regulatory
organization arbitrator or governmental or administrative body or agency which
may materially adversely affect the properties, business or condition, financial
or otherwise, of the Borrower or in any way materially affect or call into
question the power and authority of the Borrower to enter into or perform this
Agreement and the Note.
4.4 Taxes. Except as previously disclosed to the Lender, Borrower has
-----
filed all income tax returns (if any) required to be filed by it and all taxes
due thereon have been paid, and no controversy
5
<PAGE>
in respect of additional income taxes, state or federal, of Borrower is pending,
or to the knowledge of Borrower, threatened.
4.5 Agreements or Restrictions Affecting the Borrower. The Borrower is
-------------------------------------------------
not a party to or otherwise bound by any contract or agreement or subject to any
restrictions which adversely affects the business, properties, or condition,
financial or otherwise, of the Borrower or restricts the Borrower's ability to
enter into the Loan Documents or the Borrower's ability to effect the
transactions contemplated therein and herein.
4.6 Governmental Approval. No approval of any federal, state or local
---------------------
governmental authorities is necessary to carry out the terms of this Agreement,
the Note, or the other Loan Documents, and no consents or approvals are required
in the making or performance of this Agreement, the Note or the other Loan
Documents.
4.7 No Untrue Statements. None of this Agreement, the Note or the other
--------------------
Loan Documents nor any other agreements, reports, schedules, certificates or
instruments heretofore or simultaneously with the execution of this Agreement
delivered to Lender, contains any misrepresentation or untrue statement of fact
or omits to state any material fact necessary to make any of such agreements,
reports, schedules, certificates or instruments not misleading.
4.8 Regulation T. No part of the proceeds of the Loan made pursuant to
------------
this Agreement will be or have been used to purchase or carry or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of any regulation of the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying
any such margin stocks. If requested by Lender, the Borrower will furnish to
Lender, in connection with the loans hereunder, a statement in conformance with
the requirements of Federal Reserve Form U-1 referred to in said regulations.
In addition, no part of the proceeds of the loans hereunder will be used for the
purchase of commodity future contracts (or margins therefor for short sales).
SECTION 5. Conditions Precedent to Making Loans.
------------------------------------
Lender shall not be obligated to make any Advances until all of the
following conditions have been satisfied by proper evidence, execution and/or
delivery to Lender of the following items, all in form, and substance reasonably
satisfactory to Lender:
(a) The Note;
(b) This Agreement; and
(c) The Pledge Agreement.
(d) Resolutions of the Board of Directors and/or the stockholder of
Borrower, certified by the Secretary of the Borrower as of the Closing Date,
approving or otherwise ratifying the transactions contemplated by this
Agreement, and approving the form of this Agreement, the Note and the Pledge
Agreement and authorizing execution, delivery, and performance thereof.
6
<PAGE>
(e) Specimen signatures of the officer of the Borrower executing this
Agreement and the Note and the officer authorized to borrow under the Note,
certified by the Secretary of the Borrower.
(f) Copies of the Article of Incorporation of the Borrower, certified
by the Secretary of State of Borrower's corporation's state of incorporation and
further certified by the Secretary of Borrower not to have been altered or
amended since certification by the Secretary of State.
(g) A copy of the Bylaws of the Borrower, certified by the Secretary of
Borrower to be true and correct copy as currently in effect.
(h) Such other instruments, documents or items as Lender may reasonably
request.
(i) No Event of Default shall have occurred and be continuing beyond
any applicable cure period under the Note or the Ancillary Note.
SECTION 6. Affirmative Covenants. Borrower covenants that, so long as any
---------------------
portion of the Liabilities remains unpaid and unless the Lender otherwise
consents in writing, it will and, where applicable, will cause each Subsidiary:
6.1 Financial Reports and Other Data.
--------------------------------
(a) As soon as practicable and in any event within forty-five (45)
days after the end of each fiscal quarter deliver or cause to be delivered to
Lender consolidated and consolidating balance sheets of Borrower as at the last
day of such quarter and related consolidated and consolidating statements of
income and retained earnings and changes in financial condition for such quarter
and cumulative year-to-year date balance sheet and income statement data for
Borrower setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal quarter, all in reasonable detail
and satisfactory in scope to the Lender, and certified by an Authorized Officer
of Borrower to have been prepared in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis, subject to changes
resulting from normal, recurring year-end adjustments.
(b) As soon as practicable and in any event within sixty (60) days
after the end of each Fiscal Year deliver or cause to be delivered to Lender
consolidated and consolidating balance sheets of Borrower and its Subsidiaries
as at the end of such Fiscal Year, and related statements of income and retained
earnings and changes in financial position comparative form corresponding
figures from the preceding annual audit, all in reasonable detail and
satisfactory in scope to Lender and audited by and containing (as to the
consolidated financial statements) an unqualified opinion of independent
certified public accountants acceptable to Lender.
(c) Borrower agrees to provide Lender with a copy of any filing made
with a federal or state agency or self-regulatory organization promptly after
the filing thereof.
(d) Together with each delivery of those items required by clauses (a)
and (b) above, Borrower shall deliver to Lender a certificate of the Authorized
Officer setting forth: (i) that to the best of his knowledge, the Borrower has
kept, observed, performed and fulfilled each and every agreement binding on it
contained in this Agreement and the other Loan Documents, and is not at the time
in
7
<PAGE>
default of the keeping, observance, performance of fulfillment of any of the
terms, provisions and conditions hereof; and (ii) that no Event of Default has
occurred, or specifying all such Events of Defaults of which they may have
knowledge;
(e) Together with each delivery of the financial statements required by
clause (b) above, Borrower shall deliver to Lender letters of representation
signed by the most senior officer of Borrower indicating and confirming that
Borrower is not in breach of the covenants set forth in Section 6.11 and
Sections 7.2, 7.3, and 7.6 hereof;
(f) With reasonable promptness, deliver to Lender a copy of all reports
and management letters, if any, delivered to Borrower by its independent
certified public accountants; and
(g) With reasonable promptness, deliver such additional financial or
other data as Lender may reasonably request. Lender is hereby authorized to
deliver a copy of any financial statements or any other information relating to
the business operations or financial condition of Borrower which may be
furnished to it or come to its attention pursuant to this Agreement or
otherwise, to any regulatory body or agency having jurisdiction over Lender or
to any person which shall have the right or obligation to succeed to all or any
part of Lender's interest in the Note.
6.2 Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
---------------
assessments and other governmental charges which may lawfully be levied or
assessed upon the income or profits of the Borrower, or upon any property, real,
personal or mixed, belonging to the Borrower, or upon any part thereof, and also
any lawful claims for labor, material and supplies which if unpaid, might become
a lien or charge against any such property; provided, however, Borrower shall
not be required to pay any such tax, assessment, charge, levy or claim so long
as the validity thereof shall be actively contested in good faith by property
proceedings; but provided further that any such tax, assessment, charge, levy or
claim shall be paid or bonded in a manner satisfactory to Lender forthwith upon
the commencement of proceedings to foreclose any lien securing the same.
6.3 Business and Existence. Do or cause to be done all things necessary
----------------------
to preserve and to keep in full force and effect any licenses necessary to the
business of each of the Borrower and its Subsidiaries, its corporate existence
and rights of its franchises, trade names, trademarks, and permits which are
reasonably necessary for the continuance of its business; and continue to engage
principally in the business currently operated by Borrower and its Subsidiaries.
6.4 True Books. Keep true books of record and account in which full, true
----------
and correct entries will be made of all of its dealings and transactions, and
set aside on its books such reserves as may be required by Generally Accepted
Accounting Principles with respect to all taxes, assessments, charges, levies
and claims referred to in Section 6.2 hereof, and with respect to its business
in general, and include such reserves in interim as well as year-end financial
statements.
6.5 Pay Indebtedness to Lender and Perform Other Covenants. (a) Make full
------------------------------------------------------
and timely payment of the principal of and interest on the Note, the Ancillary
Note and all other indebtedness of the Borrower to Lender, whether now existing
or hereafter arising, including the payment of fees; and (b) Duly comply with
all terms and covenants contained in this Agreement and all other instruments
and documents given to Lender pursuant to this Agreement.
8
<PAGE>
6.6 Right of Inspection. Permit any person designated by Lender, at
-------------------
Lender's expense, to visit and inspect any of the properties, books and
financial reports of Borrower and its Subsidiaries, all at such reasonable times
and as often as Lender may reasonable request.
6.7 Observance of Laws. Conform to and duly observe all laws, regulations
------------------
and other valid requirements of any regulatory authority with respect to the
conduct of its business.
6.8 Borrower's Knowledge of Default. Upon an officer or director of the
-------------------------------
Borrower obtaining knowledge of, or threat of, an Event of Default hereunder or
under any other obligation of the Borrower, cause such officer to promptly, no
more than five (5) days, deliver to Lender notice thereof specifying the nature
thereof, the period of existence thereof, and what action the Borrower proposes
to take with respect thereto.
6.9 Notice of Proceedings. Upon an officer or director of the Borrower
---------------------
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Borrower, or any material attachment, levy,
execution or other process being instituted against any assets of the Borrower,
cause such officer to promptly, no more than five (5) days, give Lender written
notice of such litigation, dispute, proceeding, levy, execution or other
process.
6.10 Further Assurances. At its cost and expense, Borrower hereby
------------------
expressly agrees to execute any additional documents necessary in order to
correct, amend, modify or take any other action necessary in order to effect the
transactions contemplated by the Loan Documents. In the event that Borrower
fails to execute and deliver any such documents within seven (7) days after
Lender requests same, Borrower hereby expressly grants to Lender in irrevocable
power of attorney, to execute, deliver and file any such documents in the name
of Borrower. The foregoing irrevocable power of attorney shall be deemed to be
irrevocable and coupled with an interest.
6.11 Continued Service by Current Officers. Cause Adam Curry and Ronald
-------------------------------------
Bloom to remain active in the day-to-day operations of the Borrower.
SECTION 7. Negative Covenants. Borrower covenants and agrees that, so
------------------
long as any portion of the Liabilities remains unpaid and unless the Lender
otherwise gives its prior written consent, it will not and, where applicable,
will not cause any Subsidiary, directly or indirectly, to:
7.1 Mortgages, Liens, Etc. Incur, create, assume or permit to exist,
----------------------
other than in the ordinary course of business, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind, including liens arising under
conditional sales or other title retention agreements upon any of assets or
properties of any character, without the prior written consent of Lender, which
consent will not be unreasonably withheld.
7.2 Capital Expenditures. Make or become committed to make, directly or
--------------------
indirectly, until the Termination Date, capital expenditures (including, without
limitation, capitalized leases) amounting to in excess of $75,000 in the
aggregate, without the prior written consent of Lender, which consent will not
be unreasonably withheld; provided however, that in the event that the Borrower
-------- -------
has borrowed and owes the Lender the maximum amount available to the Borrower
hereunder, the foregoing capital expenditure amount may not exceed $25,000.
9
<PAGE>
7.3 Loans and Investments. Other than in the ordinary course of business,
---------------------
lend or advance money, credit or property to any Person, or invest in (by
capital contribution or otherwise), or purchase or repurchase the stock or
indebtedness or assets or properties of any Person, or agree to do any of the
foregoing, without the prior written consent of Lender, which consent will not
be unreasonably withheld.
7.4 Guaranties. Guarantee, assume, endorse or otherwise become or remain
----------
liable in connection with the obligations (including accounts payable) of any
other Person, other than the endorsement of negotiable instruments in the
ordinary course of business for deposit or collection, without the prior written
consent of Lender, which consent will not unreasonably withheld.
7.5 Sale of Assets, Dissolution, Etc. Except with respect to inter-
---------------------------------
corporate transfers by and between Borrower and its Subsidiaries (if any) and
other than in connection with the acquisition of the Borrower by the Lender (or
its Subsidiary), transfer, sell, assign, lease or otherwise dispose of any of
its properties or assets (or allow any Subsidiary to transfer, sell, assign,
lease or otherwise any of its assets or properties), other than in the ordinary
course of business, or any assets or properties necessary or desirable for the
proper conduct of its business, or transfer, sell, assign or otherwise dispose
of any of its notes, Accounts, or contract rights to any Person, or change the
nature of its business, wind-up, liquidate or dissolve, or agree to any of the
foregoing, without the prior written consent of Lender, which consent will not
unreasonably withheld.
7.6 Acquisition of Assets. Other than in the ordinary course of business,
---------------------
permit the purchase, acquisition or lease of assets of any Person or Persons,
without the prior written consent of Lender, which consent will not unreasonably
withheld.
7.7 No Further Issuance of Securities. Borrower hereby expressly agrees
---------------------------------
not to (other than in connection with the acquisition of the Borrower by the
Lender (or its Subsidiary)) create, issue or permit the issuance of any
additional securities of Borrower or of any of its Subsidiaries (if any), or any
rights, options or warrants to acquire any such securities, without the prior
written consent of the Lender, which consent will not be unreasonably withheld.
SECTION 8. Events of Default.
-----------------
8.1 Defaults. Each of the following shall constitute an event of default
--------
(an "Event of Default") hereunder: (i) the failure to pay when due any
principal or interest hereunder and the continuance of such failure for a period
of thirty (30) days after written notice from the Lender to the Borrower of such
failure; (ii) the violation by the Borrower of any covenant or agreement
contained in this Agreement, the Note or the Ancillary Note and the continuance
of such violation for a period of thirty (30) days after written notice from the
Lender to the Borrower of such failure; (iii) any change in control of the
Borrower which is not previously approved by the written consent of the Lender;
(iv) the assignment for the benefit of creditors by the Borrower; (v) the
application for the appointment of a receiver or liquidator for the Borrower or
the property of the Borrower; (vi) the filing of a petition in bankruptcy by or
against the Borrower; (vii) the issuance of an attachment or the entry of a
judgment against the Borrower in excess of $50,000; (viii) a default by the
Borrower with respect to any other indebtedness due to the Lender; (ix) the
making or sending of a notice of intended bulk sale by the Borrower; or (x) the
termination of existence, dissolution or any other insolvency of the Borrower.
Upon the occurrence of any of the foregoing Events of Default, the Note shall be
considered to be in
10
<PAGE>
default and the entire unpaid principal sum hereof, together with accrued
interest, shall at the option of the holder hereof become immediately due and
payable in full. Upon the occurrence of an Event of Default and the placement of
the Note or this Agreement in the hands of an attorney for collection, the
Borrower agrees to pay reasonable collection costs and expenses, including
reasonable attorneys' fees and interest from the date of the default at the rate
of fifteen percent (15%) per annum computed on the unpaid principal balance.
8.2 Waiver of Default. The Lender may waive any Event of Default
-----------------
hereunder. Such waiver shall be evidenced by written notice or other document
specifying the Event or Events of Default being waived and shall be binding on
any subsequent Lenders under the Note.
8.3 Cure Period. Notwithstanding anything else to the contrary set forth
-----------
herein, upon the occurrence of an Event of Default, including but not limited to
the failure to pay when due any principal or interest hereunder, the Borrower
shall have six (6) months from the date of the occurrence of such Event of
Default to cure such default, during which time, the Lender may not take any
action with respect to the Collateral, collection of amounts due and owing
hereunder or enforcement of the provisions hereof.
SECTION 9. Miscellaneous.
-------------
9.1 Computation of Interest and Payment and Prepayment of Principal.
---------------------------------------------------------------
Interest on the Note shall be computed on the basis of a year of 365 days. If
any principal amount under the Note becomes due and payable on other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and interest on such principal shall be payable at the then
applicable rate during such extension period.
9.2 Waiver of Default. Lender may, by written notice to the Borrower, at
-----------------
time and from time to time, waive any default in the performance or observance
of any condition, covenant or other term hereof or any Event of Default which
shall have occurred hereunder and its consequences. Any such waiver shall be
for such period and subject to such conditions as shall be specified in any such
notice. In the case of any such waiver, the Borrower and Lender shall be
restored to their former position and rights hereunder and the other Loan
Documents, and any Event of Default so waived shall be deemed to be cured and
not continuing; but no such waiver shall extent to any subsequent or other Event
of Default, or impair any right consequent thereon.
9.3 Amendments and Waivers. Lender and the Borrower may, subject to the
----------------------
provisions of this section, from time to time, enter into written agreements
supplemental hereto for the purpose of adding any provisions to this Agreement
or the other Loan Documents of changing in any manner the rights of Lender or of
the Borrower hereunder and Lender may execute and deliver to the Borrower a
written instrument waiving any of the requirements of this Agreement. Any such
written supplemental agreement or waiver shall be binding upon the Borrower and
Lender.
9.4 Notices. All notices, requests and demands to or upon the respective
-------
parties hereto under this Agreement and all other Loan Documents shall be deemed
to have been given or made when deposited in the mail, postage prepaid by
registered or certified mail, return receipt requested, addressed as follows or
to such other address as may be hereafter designated in writing by the
respective parties.
11
<PAGE>
The Borrower: On Ramp, Inc.
11 West 42nd Street, 28th Floor
New York, New York 10036
The Lender: Think New Ideas, Inc.
16815 Royal Crest Drive, Suite 160
Houston, Texas 77058
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.
9.5 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein and in the other Loan Documents provided are cumulative and not
exclusive of any rights or remedies provided by law.
9.6 Survival of Agreements. All agreements, representations and
----------------------
warranties made herein shall survive the execution of this Agreement, the
delivery of the Note and the making and renewal loans hereunder and the
termination of this Agreement.
9.7 Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to its conflicts of law doctrine. Each of
the parties hereto irrevocably consents to the jurisdiction of the federal and
state courts located in the State of Delaware.
9.8 Enforceability of Agreement. Should any one or more of the provisions
---------------------------
of this Agreement be determined to be illegal or unenforceable as to one or more
of the parties, all other provisions nevertheless shall remain effective and
binding on the parties hereto, up to the full amount permitted by law.
9.9 Usury Savings Clause. Notwithstanding any other provision herein, the
--------------------
aggregate interest rate charged under the Note, including all charges or fees in
connection therewith deemed in the nature of interest exceeds the maximum legal
rate, then Lender shall have the right to make such adjustments as are necessary
to reduce the aggregate interest rate to the maximum legal rate. The Borrower
waives any right to prior notice of such adjustment and further agree that such
adjustment may be made by Lender subsequent to notification from the Borrower
that the aggregate interest charged exceeds the maximum legal rate.
9.10 Execution of Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
9.11 Stamp or Other Taxes. The Borrower agrees to pay any and all
--------------------
documentary, intangible stamp or excise taxes now or hereafter payable in
respect to this Agreement and the other Loan Documents or any modification
thereof, and shall hold Lender harmless with respect thereto. The
12
<PAGE>
Borrower further agrees that Lender may deduct from any account of the Borrower
the amount of any such documentary or intangible stamp or tax payable, the
decision of Lender as to the amount thereof to be conclusive, absent manifest
error.
9.12 Waiver of Trial by Jury. The Borrower hereby waives any right to a
-----------------------
trial by jury in any action brought by Lender whether under this Agreement or
any of the other Loan Documents to enforce any claims or right arising hereunder
or thereunder.
9.13 Assignability. This Agreement shall inure to the benefit and be
-------------
binding upon the parties hereto and their respective successors and assigns.
This Agreement shall not be assignable, in whole or in part, by the Borrower,
without the prior written consent of the Lender. This Agreement may be assigned
or transferred, in whole or in part by Lender upon written notice to the
Borrower.
IN WITNESS WHEREOF, the Borrower and Lender have caused this Agreement to
be duly executed by their duly authorized officers, all as of the day and year
first above written.
WITNESS: ON RAMP, INC.
By: /s/ Adam Curry
- ------------------------- -----------------------------
Adam Curry, President
WITNESS: THINK NEW IDEAS, INC.
By: /s/ Frank M. DeLape
- ------------------------- -----------------------------
Frank M. DeLape, President
13
<PAGE>
Exhibit 10.11
<PAGE>
NOTE
----
$600,000 New York, New York
As of March 31, 1996
FOR VALUE RECEIVED, On Ramp, Inc., a New York corporation (herein
referred to as the "Borrower") promises to pay to the order of Think New Ideas,
Inc. ("Lender") on the Termination Date, as defined in that certain loan
agreement between the parties of even date herewith, as the same may be from
time to time amended or supplemented (the "Loan Agreement") or at such earlier
time as may be provided or required pursuant to the Loan Agreement, at 16815
Royal Crest Drive, Suite 160, Houston, Texas 77058, in lawful currency of the
United States of America, the principal amount of Six Hundred Thousand Dollars
($600,000). Borrower further promises to pay interest to Lender at the above
address, in like currency, from the date hereof on the entire unpaid principal
amount owing hereunder from time to time until the entire unpaid principal
amount hereof is paid in full, at a rate per annum equal to twelve percent
(12%). Interest shall be computed on the basis of a 365-day year and shall be
calculated for the actual number of days elapsed. Interest shall be payable on
the Termination Date.
Notwithstanding the foregoing, Borrower shall be liable for payment to
Lender only for such principal amount of the Committed Amount (as defined in the
Loan Agreement) as is outstanding, together with interest at the rate per annum
as aforesaid on the principal amount outstanding from the date of advance.
If any payment under this note becomes due and payable on a Saturday,
Sunday or legal holiday under the laws of the State of Delaware, the maturity
thereof shall be extended to the next succeeding Business Day (as defined in the
Loan Agreement) and interest thereon shall be payable at said rate of interest
during such extension.
This note is the "Note" referred to in the Loan Agreement and Borrower
is entitled to the benefits thereof, and this note may be prepaid in whole or in
part as provided therein. The provisions of the Loan Agreement are hereby
incorporated herein by reference.
Any payments made pursuant to this note shall be applied first toward
any fees and costs due, then toward interest and then toward principal.
Borrower hereby waives any demands and notices of protest and any and
all demands and notices in connection with the delivery, acceptance,
performance, default and endorsement of this note arising on, out of, under or
by reason of this note.
Upon the occurrence and continuance (beyond expiration of any
applicable cure period) of any one or more of the Events of Default as specified
and defined in the Loan Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid under this
note may be declared to be immediately due and payable as provided in the Loan
Agreement. From and after the occurrence and continuance as set forth above of
any Event of Default, this note shall bear interest at the maximum rate
permitted by law.
<PAGE>
In the event that all monies owed hereunder are not paid when due,
Borrower agrees that he shall be liable for all of Lenders reasonable costs and
expenses incurred in connection with enforcing Lender's rights under this note
to the extent not prohibited by law, including but not limited to reasonable
attorneys' fees and disbursements.
The note is negotiable and shall be governed by the laws of the State
of Delaware.
ON RAMP, INC.
By: /s/ Adam Curry
---------------------------
Adam Curry, President
Date:________________________
2
<PAGE>
Exhibit 10.12
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement") is entered into as of
this 31st day of March, 1996, by and among On Ramp, Inc., a New York corporation
("On Ramp"), Adam Curry (the "Pledgor") and Think New Ideas, Inc., a Delaware
corporation having its executive office at 8522 National Boulevard, Suite 101,
Culver City, California 90232 (the "Pledgee").
WITNESSETH:
WHEREAS, the Pledgor is a stockholder of and owns 50 shares of common
stock of On Ramp, which shares of common stock currently represent thirty three
and one-third percent (33%) of the issued and outstanding capital stock of On
Ramp (the "On Ramp Stock");
WHEREAS, On Ramp has borrowed One Million Dollars ($1,000,000) from
Pledgee (the "Loan") evidenced by a promissory note, dated as of the date
hereof, executed in favor of the Pledgee (the "Promissory Note"); and
WHEREAS, the Pledgee has extended the Loan to On Ramp upon the
condition that On Ramp use the proceeds of the Loan for the sole purpose of
redeeming 100 shares of On Ramp Stock, representing all of the remaining sixty-
six and two-thirds percent (66%) of the issued and outstanding shares of On
Ramp Stock, from the two holders thereof (the "On Ramp Stockholders");
WHEREAS, upon redemption by On Ramp of the On Ramp Stock owned by the
On Ramp Stockholders, the Pledgor will own one hundred percent (100%) of the
issued and outstanding On Ramp Stock;
WHEREAS, the Pledgee has agreed, pursuant to the terms of a loan
agreement, to make available to On Ramp an additional $600,000 (the "Line of
Credit") evidenced by a promissory note, dated as of the date hereof, executed
in favor of the Pledgee providing for the advance of funds to On Ramp up to
$600,000 (the "Line of Credit Note") and a loan agreement (the "Loan Agreement")
(collectively, the Line of Credit Note, the Loan Agreement and any ancillary
documents may be referred to hereinafter as the "Line of Credit Documents");
WHEREAS, in connection with extension of the Loan and the Line of
Credit to On Ramp and execution of the Promissory Note and the Line of Credit
Note by On Ramp, the Pledgor has agreed to pledge to the Pledgee twenty-six
shares of On Ramp Stock, which shares represent fifty-two percent (52%) of the
On Ramp Stock issued and outstanding after the redemption described above to
secure repayment of the principal amount and interest under the Promissory Note
and the Line of Credit Note.
NOW THEREFORE, in consideration of the foregoing, and the premises and
mutual covenants, conditions and agreements set forth herein, twenty dollars
($20) and other good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, the Pledgor hereby agrees with the Pledgee, for
the benefit of Pledgee, as follows:
SECTION 1. Definition of Pledged Stock. The term "Pledged Stock" as
---------------------------
used herein shall mean and include fifty-two percent (52%) of the issued and
outstanding shares of capital stock of On Ramp, and also, any shares, stock,
certificates, options or rights issued by On Ramp in substitution of or in
exchange for any of such shares, and any and all proceeds thereof, now or
hereafter owned or acquired
<PAGE>
by the Pledgor. Each of On Ramp and the Pledgor respectively agrees that after
the date hereof, neither On Ramp or the Pledgor (as a stockholder, director or
officer of On Ramp or otherwise) will authorize the issuance of or cause to be
issued any equity securities or other instruments convertible into or
exercisable to acquire any equity securities of On Ramp. Other capitalized terms
used herein but not otherwise defined shall have the respective meanings
attributed to them in the Promissory Note.
SECTION 2. Pledge of Stock. As collateral security for the due
---------------
payment and performance of On Ramp's obligations under the Promissory Note (the
"Obligations"):
2.1 The Pledgor hereby pledges, assigns, hypothecates, delivers and
sets over unto the Pledgee, for the benefit of the Pledgee all of the Pledged
Stock, and the Pledgor hereby grants to the Pledgee, for the benefit of Pledgee,
a first security interest in all of such Pledged Stock (including any and all
proceeds thereof and substitutions therefor as set forth in Section 1 above).
2.2 In the event that the Pledgor shall become entitled to receive or
shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any issuance of additional shares of Pledged Stock, or any reclassification,
increase or reduction of capital), option or rights, whether in substitution of
or in exchange for any shares of Pledged Stock or otherwise, the Pledgor shall
accept any such instruments as the Pledgee's agent, shall promptly notify the
Pledgee of the Pledgor's receipt thereof, shall hold them in trust for the
Pledgee, and (simultaneously with the return by the Pledgee to the Pledgor of
any Pledged Stock being substituted or exchanged) shall deliver them forthwith
to the Pledgee in the exact form received, with appropriate stock powers duly
executed in blank, to be held by the Pledgee, subject to the terms hereof, as
further collateral security for performance of the Obligations.
2.3 So long as no event of default (as set forth in the Promissory
Note and the Line of Credit Note) shall have occurred and be continuing, the
Pledgor shall be entitled to exercise any and all voting rights and powers
relating or pertaining to the Pledged Stock or any part thereof for any purpose
not inconsistent with the terms of the Promissory Note, the Line of Credit Note
(and the loan agreement relating thereto) or this Pledge Agreement.
2.4 Subject to the provisions of applicable law, upon the occurrence
and continuance of such an event of default (which remains uncured upon
expiration of any cure period set forth in the Promissory Note or the Line of
Credit Documents):
(i) any and all dividends received by the Pledgor with respect to
the Pledged Stock shall be held in trust for the Pledgee and shall be delivered
forthwith to the Pledgee in the exact form received, together with any necessary
endorsements, to be applied by the Pledgee, subject to the terms hereof, in
reduction of the Obligations; and
(ii) any or all shares of the Pledged Stock held by the Pledgee
pursuant hereto may, at the option of the Pledgee or its nominee, be registered
in the name of the Pledgee or its nominee, and the Pledgee or its nominee may
thereafter, without further notice, exercise all voting and corporate rights at
any meeting of any corporation issuing any of the shares included in the Pledged
Stock and may exercise any and all rights of conversion exchange, subscription
or any other rights, privileges or options pertaining to any shares of the
Pledged Stock as if it were the absolute owner thereof, including
2
<PAGE>
without limitation, the right to receive dividends payable thereon (which
dividends, if cash, shall be applied in reduction of the Obligations), and the
right to exchange, at its discretion, any and all of the Pledged Stock upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
any corporation issuing any of such shares or upon the exercise by any such
issuer of any right, privilege or option pertaining to any shares of the Pledged
Stock, and in connection therewith, to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or other
designated agency.
2.5 In the event of the occurrence and continuation of any event of
default under the Promissory Note or the Line of Credit Documents (which event
of default remains uncured upon expiration of any cure period set forth in the
Promissory Note or the Line of Credit Documents), the Pledgee may, subject to
the terms of the Uniform Commercial Code (the "UCC") and any other applicable
law, as the same may from time to time be in effect, forthwith collect, receive,
appropriate and realize upon the Pledged Stock, or any part thereof, and/or may
forthwith sell, assign, grant an option or options to purchase, contract to sell
or otherwise dispose of and deliver said Pledged Stock, or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or at any of the Pledgee's offices or elsewhere at such prices
and on such terms as may be commercially reasonable. The Pledgor recognizes
that by reason of certain prohibitions contained in the federal securities laws
and applicable state or foreign securities laws, the Pledgee may resort to one
or more private sales of the Pledge Stock or one or more public sales to a
restricted group of purchasers who will be obliged to agree, among other things,
to acquire such securities for its own account for investment and not with a
view toward the distribution or resale thereof. The Pledgor acknowledges and
agrees that any such sale may result in prices and terms less favorable to the
seller than if such sale were a registered offering under applicable securities
laws and, notwithstanding such circumstances, agrees that any such sale shall be
deemed to have been made in a commercially reasonable manner. The Pledgee shall
be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the federal securities laws or under
applicable state securities laws, even if such issuer would agree to do so.
Upon the consummation of any private or public sale, the Pledgee shall have the
right to deliver, assign, and transfer to the purchaser thereof the Pledged
Stock so sold. Each purchaser at any such sale shall hold such securities
absolutely free from any claim or right of the Pledgor of any kind whatsoever,
and the Pledgor hereby waives (to the extent permitted by law) all rights of
redemption, stay and/or appraisal which he has or may at any time in the future
have, under any rule of law or statute now existing or hereafter enacted. The
Pledgee shall give the Pledgor notice of the Pledgee's intention to make any
such sale to the extent required hereunder or by the UCC. Such notice, in case
of sale at a broker's board or on a securities exchange, shall state the board
or exchange on which such sale is to be made and the day on which the Pledged
Stock, or that portion thereof being so sold, will first be offered for sale. At
any such sale, the Pledged Stock may be sold in one lot as an entirety or in
separate parcels, as the Pledgee may determine. The Pledgee shall not be
obligated to make any such sale pursuant to any such notice if the Pledgee shall
determine not to do so, notwithstanding the fact that notice of sale of the
Pledged Stock may have been given. The Pledgee may without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale and such sale may be made at any time or place to which the same may be so
adjourned. In the case of any sale of all or any part of the Pledged Stock on
credit or for future delivery, the Pledged Stock so sold may be retained by the
Pledgee until the selling price is paid by the purchaser thereof, but the
Pledgee shall not incur any liability in the case
3
<PAGE>
of the failure of such purchaser to take up and pay for the Pledged Stock so
sold and, in case of any such failure, such Pledged Stock may again be sold upon
like notice. The Pledgee may also, at its discretion, proceed by a suit or suits
at law or in equity to foreclose upon its securing interest and sell the Pledged
Stock, or any portion thereof, under a judgment or decree of a court or courts
of competent jurisdiction. If any consent, approval or authorization of any
state, municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Pledged Stock or
any part thereof, the Pledgor shall execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use the Pledgor's best efforts to
secure the same.
2.6 The proceeds of any collection, recovery, receipt, appropriation,
realization or sale as aforesaid shall be applied as follows: (i) first, to the
reasonable costs and expenses incurred in connection with or incidental to the
sale or assignment of any and all of the Pledged Stock, (ii) second, to the
satisfaction of the Obligations, and (iii) third, to the Pledgor to the extent
there exists a surplus of proceeds.
2.7 The Pledgee shall give ten (10) days notice of the time and place
of any public sale or of the time after which a private sale may take place and
such notice shall be deemed to be reasonable notification.
SECTION 3. Representations and Warranties of the Pledgor. The Pledgor
---------------------------------------------
hereby represents and warrants that:
3.1 The Pledged Stock is owned directly, beneficially and of record
by such Pledgor in the amount set forth in the recitals hereto.
3.2 On Ramp has obtained the unqualified and unconditional right to
acquire all of the On Ramp Stock owned by the On Ramp Stockholders, subject only
to payment therefor by On Ramp with the proceeds of the Loan.
3.3 The shares of the Pledged Stock owned by the Pledgor and the On
Ramp Stockholders equal in the aggregate all of the issued and outstanding
shares of capital stock of On Ramp.
3.4 All of the shares of the Pledged Stock owned by the Pledgor have
been duly and validly issued, are fully paid and non-assessable and are owned by
the Pledgor free of pre-emptive rights and free and clear of all adverse claims,
liens, mortgages, charges, security interests, encumbrances and other
restrictions whatsoever, except for the security interest granted to the Pledgee
hereunder.
3.5 Upon delivery of the Pledged Stock to the Pledgee or an agent for
the Pledgee, this Pledge Agreement creates and grants a valid first lien on and
perfected security interest in all of the shares of Pledged Stock (including the
proceeds thereof), subject to no prior claim, lien, mortgage, charge, security
interest, encumbrance, other restriction or to any agreement purporting to grant
to any third party a security interest in the property or assets of the Pledgor
which would include the Pledged Stock.
4
<PAGE>
3.6 The pledge of the Pledged Stock is effective and rightful, the
certificates representing the Pledged Stock are genuine and have not been
materially altered, and the Pledgor knows of no fact which might impair the
validity of the pledge of the Pledged Stock by him hereunder.
SECTION 4. Covenants of Pledgor. The Pledgor hereby covenants that:
--------------------
4.1 So long as the Obligations shall be outstanding and unpaid, in
whole or in part, the Pledgor will not sell, otherwise dispose of or convey any
interest in any shares of the Pledged Stock or any interest therein, nor will
the Pledgor create, incur or permit to exist any adverse claim, lien, mortgage,
charge, security interest, encumbrance or restriction whatsoever, except for the
security or other interest granted or conveyed to the Pledgee hereunder or
pursuant to the express written agreement of the Pledgee. The previous sentence
notwithstanding, this covenant by Pledgor shall not apply to the conveyance of
the Pledgor's interest in the shares of Pledged Stock to the Pledgee or its
designated affiliate in connection with the contemplated acquisition of On Ramp
by the Pledgee or its designated affiliate, nor shall the proceeds from such
conveyance be deemed proceeds for the purposes of the definition of Pledged
Stock set forth in Section 1 above (the "Permitted Transfer"). This Pledge
Agreement shall terminate contemporaneous with the Permitted Transfer.
4.2 The Pledgor will defend the Pledgee's right, title and security
interest in and to the Pledged Stock against the claims of any person, firm,
corporation or other entity.
4.3 The Pledgor shall at any time and from time to time upon the
written request of the Pledgee, execute and deliver such further documents as
the Pledgee may reasonably request in order to effectuate the purpose of and
transactions contemplated by this Pledge Agreement, including without
limitation, delivering to the Pledgee on the date hereof or at any time
hereafter executed blank stock powers with respect of the Pledged Stock.
4.4 Any stockholders agreement or other agreement purporting to
prohibit or restrict the transfer of the Pledged Stock to which the Pledgor or
On Ramp was a party has been terminated and the Pledgor shall not enter into any
such agreement after the date hereof.
SECTION 5. Miscellaneous. The parties hereto further agree that:
-------------
5.1 Except for the use of reasonable care in the custody and
preservation of collateral in its possession, the Pledgee shall have no duty as
to the collection of any collateral in its possession and shall have no duty or
liability to preserve rights against prior parties pertaining thereto, and shall
be relieved of all responsibilities for the Pledged Stock upon surrendering the
same to the Pledgor or in accordance with the Pledgor's instructions.
5.2 No course of dealing between or among any of On Ramp, the Pledgor
and the Pledgee, nor any failure to exercise, nor any delay in exercising, on
the part of the Pledgee, any right, power or privilege hereunder or under the
Promissory Note or the Line of Credit Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
5
<PAGE>
5.3 The rights and remedies herein provided, and provided in the
Promissory Note and the Line of Credit Documents and in all other agreements,
instruments and documents delivered pursuant hereto, are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law,
including without limitation, the rights and remedies of a secured party under
the UCC.
5.4 It shall not be necessary for the Pledgee (and the Pledgor hereby
waives any rights which the Pledgor may have to require the Pledgee), in order
to exercise its rights hereunder, first to: (i) enforce the Pledgee's rights
against any security which shall ever have been given to secure the Obligations,
(ii) enforce the Pledgee's rights against any guarantors of the Obligations,
(iii) exhaust any remedies available to the Pledgee against any security which
shall ever have been given to secure the Obligations, or (iv) resort to any
other means of obtaining payment of the Obligations. The Pledgee shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Obligations.
5.5 The Pledgor hereby waives notice of: (i) acceptance of this
Pledge Agreement, (ii) any amendment, extension for any period of rearrangement
of the Obligations or of any other instrument or document pertaining to all or
any part of the Obligations; (iii) sale or foreclosure (or posting or
advertising for sale or foreclosure) of any collateral for the Obligations after
any cure period set forth in the Promissory Note or the Line of Credit Documents
has expired; (iv) protest, proof of non-payment or default; or (v) any other
action at any time taken or omitted by the Pledgee, and, generally, all demands
and notices of every kind in connection with this Pledge Agreement or any
documents or agreements evidencing, securing or relating to any of the
Obligations.
SECTION 6. Notice. All notices and other communications deliverable
------
pursuant to this Pledge Agreement shall be in writing and mailed (express, next
day or two-day service), sent by registered or certified mail (return receipt
requested) or hand delivered as follows:
If to On Ramp: Adam Curry, President
On Ramp, Inc.
c/o 30 Glenn Road
Verona, New Jersey 07044
Facsimile: (201) 857-9612
If to the Pledgor: Adam Curry
30 Glenn Road
Verona, New Jersey 07044
Facsimile: (201) 857-9612
If to the Pledgee: Frank M. DeLape, President
Think New Ideas, Inc.
c/o 16815 Royal Crest Drive, Suite 160
Houston, Texas 77058
Facsimile: (713) 488-5353
or as to each party to such other address as shall be designated by such party
in a written notice complying with the terms of this section. All such notices
and other communications shall be deemed
6
<PAGE>
to have been delivered when received as evidenced by a return receipt or such
other written evidence or receipt of delivery as regularly provided by the mail,
delivery or courier service entrusted with delivery of such notice.
SECTION 7. Binding Effect. This Agreement shall inure to the benefit
--------------
of, and be binding upon the successors, heirs and assigns of the parties hereto.
SECTION 8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof.
SECTION 9. Severability. The provisions of this Pledge Agreement
------------
shall be considered severable in the event that any of such provisions are held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable. Such invalid, void or otherwise unenforceable provisions shall
be automatically replaced by other provisions which are valid and enforceable
and which are as similar as possible in term and intent to those provisions
deemed to be invalid, void or otherwise unenforceable. Notwithstanding the
foregoing, the remaining provisions hereof shall remain enforceable to the
fullest extent permitted by law.
7
<PAGE>
SECTION 10. Surrender and Termination. Upon fulfillment and
-------------------------
satisfaction of the Obligations or upon the Permitted Transfer, this Pledge
Agreement will be deemed to have been terminated and be of no further force and
effect.
SECTION 11. Amendments, Etc. No amendment or waiver of any provision
----------------
of this Pledge Agreement nor consent to any departure herefrom by the parties
hereto shall in any event be effective unless the same shall be in writing and
signed by the parties hereto and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 12. Headings of No Effect. Section headings set forth herein
---------------------
are for convenience of reference only and shall in no way affect the
interpretation of this Pledge Agreement.
SECTION 13. Counterparts. This Pledge Agreement may be executed in
------------
two or more counterparts, each of which shall be an original, but all of which
shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered or
have caused the execution and delivery of this Pledge Agreement as of the date
first above written.
ON RAMP, INC.
By: /s/ Adam Curry
------------------------------
Adam Curry, President
THE PLEDGOR:
/s/ Adam Curry
------------------------------------
Adam Curry
THE PLEDGEE:
THINK NEW IDEAS, INC.
By: /s/ Frank M. DeLape
------------------------------
Frank M. DeLape, President
8
<PAGE>
Exhibit 10.13
<PAGE>
LOAN AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this 13th day of
May, 1996 by and between Internet One, Inc., a Colorado corporation (the
"Borrower") and Think New Ideas, Inc., a Delaware corporation (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that Lender make a loan to Borrower of
$70,000, the proceeds of which shall be used for general corporate purposes; and
WHEREAS, Lender has agreed to make such a loan available to Borrower upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
SECTION 1. Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following meanings:
1.1 "Accounts" means accounts, general intangibles, chattel paper,
instruments and documents, whether now owned or hereafter acquired by the
Borrower.
1.2 "Account Debtor" means any Person who is or who may become obligated
to Borrower under or on account of an Account.
1.3 "Advance" means any amount paid by Lender to the Borrower and debited
to an Advance Account pursuant to the terms of Section 2.1 hereof, or otherwise.
1.4 "Advance Account" means an account on the books of Lender in which:
(i) each Advance by Lender shall be debited thereto by recording
therein on the date of such advance a debit entry in the amount of such Advance;
and
(ii) each payment made to Lender for credit to the Advance Account
shall be credited thereto by recording therein on the date paid to Lender a
credit entry in the amount of such payment.
1.5 "Affiliate" means a Person (i) which directly or indirectly through
one or more intermediaries controls, or is controlled by, or is under common
control with Borrower or a Subsidiary; (ii) which beneficially owns or holds 5%
or more of any class of the outstanding voting stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of Borrower or a
Subsidiary; or (iii) 5% or more of any class of the outstanding voting stock (or
in the case of a Person which is not a corporation, 5% or more of the equity
interest of which is beneficially owned or held by Borrower or Subsidiary). The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting stock, by contract or otherwise.
1.6 "Agreement" shall include this Loan Agreement as amended, modified or
supplemented from time to time by agreement in writing signed by the Borrower
and Lender.
<PAGE>
1.7 "Authorized Officer" shall mean David R. Hieb or such other person
designated in writing to the Lender, who is authorized to obtain Advances or
otherwise act on behalf of the Borrower hereunder.
1.8 "Business Day" means a day upon which banks are open for the
transaction of business of the nature required by this Agreement in Delaware.
1.9 "Lender Expenditures" means with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets which
are not, in accordance with Generally Accepted Accounting Principles, treated as
expense items for such Person in the year made or incurred or as a prepaid
expense applicable to a future year or years.
1.10 "Closing Date" means the date first set forth above.
1.11 "Collateral" shall have the meaning ascribed to "Pledged Stock" as set
forth in the Pledge Agreement (as defined below).
1.12 "Committed Amount" means the principal amount of $70,000 which Lender
has agreed to lend to Borrower as evidenced by the Note.
1.13 "Consistent Basis" means that the accounting principles observed in
the current period are comparable in all material respects to those applied in
the preceding period, in accordance with Generally Accepted Accounting
Principles.
1.14 "Current Assets" means cash and all other assets or resources of
Borrower and its subsidiaries which are expected to be realized in cash, sold in
the ordinary course of business, or consummated within one year, all determined
in accordance with Generally Accepted Accounting Principles.
1.15 "Current Liabilities" means the amount of all Liabilities of Borrower
and its Subsidiaries which by their terms are payable within one year (including
all indebtedness payable on demand or maturing not more than one year from the
date of computation and the current portion of Indebtedness having a maturity
date in excess of one year and all lease obligations payable within one year)
all determined in accordance with Generally Accepted Accounting Principles.
1.16 "Debit Balance" means an amount equal to the excess, if any of all
debit entries over all credit entries.
1.17 "Default" or "Event of Default" means the occurrence of all of any of
the events specified in Section 8 and/or set forth in the Note (as defined
below).
1.18 "Fiscal Year" means the twelve-month period (or shorter period in the
case of the first fiscal year) ending on February 28 (or February 29, in a year
in which February has 29 days).
1.19 "Generally Accepted Accounting Principles" means those principles of
accounting set forth in Opinions of the Financial Accounting Standards Board or
the American Institute of Certified
2
<PAGE>
Public Accountants or which have other substantial authoritative support
generally followed by public accountants and are applicable in the circumstances
of the date of a report, as such principles are from time to time supplemented
and amended.
1.20 "Indebtedness" means with respect to any Person, all indebtedness of
such Person for borrowed money, all indebtedness of such Person for the
acquisition of property other than purchases of products and merchandise in the
ordinary course of business, indebtedness secured by a lien, pledge or other
encumbrance on the property of such Person whether or not such indebtedness is
assumed, all liability of such Person by way of endorsements (other than for
collection or deposit in the ordinary course of business); all guarantees of
Indebtedness of any other Person by such Person (including any agreement,
contingent or otherwise, to purchase any obligation representing such
Indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term minority interest in the common stock
of subsidiaries, reserves for deferred income taxes and investment creditors,
other deferred credits and reserves, and deferred compensation obligations.
1.21 "Liabilities" mean all liabilities, obligations and indebtedness of
any and every kind and nature (including, without limitation, lease obligations
and interest, charges, expenses, attorneys' fees and other sums) chargeable to
the Borrower and future advances made to or for the benefit of the Borrower,
whether arising under this Agreement, or arising under the Note or arising under
any of the Loan Documents of the Borrower form any other source, whether
heretofore, now or hereafter owing, arising, due or payable from Borrower to the
Lender and however evidenced, credited, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed, or otherwise, including
obligation of performance.
1.22 "Loan" means the principal amount of $70,000 which Lender has agreed
to lend Borrower.
1.23 "Note" means the Note in the original aggregate principal amount of
$70,000, substantially in the form of Exhibit 1 attached hereto, the proceeds of
which are to be used to for general corporate purposes.
1.24 "Loan Documents" means this Agreement, the Note, the Pledge Agreement
and all documents, instruments, certificates, reports and all other written
matters whether heretofore, now, or hereafter executed by or on behalf of the
Borrower and/or delivered to Lender in connection herewith.
1.25 "Net Income" shall have the meaning and be determined in accordance
with Generally Accepted Accounting Principles, reported on a Consistent Basis.
1.26 "Person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated organization, association,
joint venture or a government or agency or political subdivision thereof, but
shall exclude each and every Subsidiary.
3
<PAGE>
1.27 "Pledge Agreement" means the pledge agreement of even date herewith by
and among Lender, Borrower and David R. Hieb pursuant to which Mr. Hieb has
agreed to secure the $70,000 indebtedness evidenced by the Note by the pledge of
the Pledged Stock (as defined in the Pledge Agreement).
1.28 "Subsidiary" means any corporation of which at least a majority of the
outstanding securities having ordinary voting powers for the election of
directors are at the time owned by Borrower and/or Subsidiary of the Borrower.
1.29 "Tangible Net Worth" means the consolidated net worth of Borrower, at
the time of determination, as determined in accordance with Generally Accepted
Accounting Principles, less:
(i) goodwill;
(ii) any writeup in the value ascribed to any asset set forth on
Borrower's balance sheet resulting from a revaluation thereof; and
(iii) accounts receivable or notes receivable from officers,
directors and Affiliates of the Borrower.
1.30 "Termination Date" means September 30, 1996, unless sooner terminated
by the occurrence and continuance beyond expiration of any cure period of an
Event of Default (as hereinafter defined).
1.31 All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles.
1.32 All of the terms defined in this Agreement shall have such defined
meanings when used in the other Loan Documents and any certificates, reports or
other documents or instruments issued under or delivered pursuant to this
Agreement unless the context shall require otherwise.
SECTION 2. Loan.
----
2.1 Committed Amount. Subject to the terms and conditions of this
----------------
Agreement, Lender agrees to loan to the Borrower up to $70,000 pursuant to the
terms of the Note upon the execution of this Loan Agreement. The Borrower shall
make each request to borrow funds hereunder to the Lender in writing; the Lender
shall thereafter provide such funds (via check or wire transfer) to the Borrower
within five business days of receipt by the Lender of such written request;
provided that the Borrower is not in default of any of the provisions of this
Agreement, the Note or any other Loan Documents. Upon any borrowings hereunder,
Lender shall record as a debit on its books any amount so borrowed; upon any
repayments, Lender shall record as a credit on its books any amount so repaid.
Nothing set forth herein shall prohibit the Borrower from making prepayments
without penalty at any time and from time to time.
2.2 Payments of Interest and Principal. Interest on the average daily
----------------------------------
Debit Balance shall accrue at the rate of twelve percent (12%) per annum. The
Borrower shall pay to Lender on the
4
<PAGE>
Termination Date, the entire amount of the Debit Balance, together with accrued
interest thereon and any fees then owed. Interest on the Note shall be computed
and payable in the manner set forth in Section 9.1 hereof.
2.3 Use of Proceeds. The proceeds evidenced by the Note shall be used by
---------------
the Borrower for general working capital purposes.
2.4 Pledge Agreement. Contemporaneous with the execution of this
----------------
Agreement, Borrower shall execute the Pledge Agreement.
SECTION 3. All Advances to Constitute One Loan. All loans by Lender to
-----------------------------------
Borrower under this Agreement and the Note shall constitute one obligation of
the Borrower. Borrower recognizes and agrees that it maintains a single loan
facility with Lender and that Borrower is liable to Lender for all Liabilities
hereunder, regardless of whether such Liabilities arise as a result of Advances
to such Borrower.
SECTION 4. Representations and Warranties. In order to induce Lender to
------------------------------
enter into this Agreement and to make the Loan available, Borrower represents
and warrants to Lender (which representations and warranties shall survive the
delivery of the documents mentioned herein, the extension of the Advances
contemplated hereby and the termination of this Agreement) as follows:
4.1 Organization. Each of Borrower and every Subsidiary (if any) is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the state of its respective incorporation, has the power to own its
respective properties and to carry on their respective businesses as now being
conducted and is duly qualified to do business in every jurisdiction in the
United States of America for which the failure to so qualify will have a
material impact on the Borrower's business.
4.2 Power and Authority. Borrower is duly authorized under all applicable
-------------------
provisions of law to execute, deliver and perform this Agreement, the Note, the
Pledge Agreement, and the other Loan Documents to which it is a party, and all
other action on the part of such Borrower required for the lawful execution,
delivery and performance thereof have been duly taken; and this Agreement, the
Note and each of the other Loan Documents, upon the due execution and delivery
thereof, will be valid and enforceable instruments, obligations or agreements of
such Borrower, in accordance with their respective terms, except as to
enforcement of creditors rights generally. Neither the execution of this
Agreement, the Note or the other Loan Documents, nor the fulfillment of or
compliance with their provisions and terms, will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a violation of
or default under: (a) any applicable law, regulation, order, writ or decree; or
(b) any agreement or instrument to which such Borrower is a party, or create any
lien, charge or encumbrance upon any of the property or assets of any of them
pursuant to the terms of any agreement or instrument to which any of them is a
party or by which any of them are bound except those in favor of Lender
expressly created hereunder.
4.3 Litigation. There are no pending or threatened actions or proceedings
----------
before any court, any state or federal regulatory body, or any self-regulatory
organization arbitrator or governmental or administrative body or agency which
may materially adversely affect the properties, business or
5
<PAGE>
condition, financial or otherwise, of the Borrower or in any way materially
affect or call into question the power and authority of the Borrower to enter
into or perform this Agreement and the Note.
4.4 Taxes. Borrower has filed all income tax returns (if any) required to
-----
be filed by it and all taxes due thereon have been paid, and no controversy in
respect of additional income taxes, state or federal, of Borrower is pending or
threatened.
4.5 Agreements or Restrictions Affecting the Borrower. The Borrower is
-------------------------------------------------
not a party to or otherwise bound by any contract or agreement or subject to any
restrictions which adversely affects the business, properties, or condition,
financial or otherwise, of the Borrower or restricts the Borrower's ability to
enter into the Loan Documents or the Borrower's ability to effect the
transactions contemplated therein and herein.
4.6 Governmental Approval. No approval of any federal, state or local
---------------------
governmental authorities is necessary to carry out the terms of this Agreement,
the Note or the other Loan Documents, and no consents or approvals are required
in the making or performance of this Agreement, the Note or the other Loan
Documents.
4.7 No Untrue Statements. None of this Agreement, the Note or the other
--------------------
Loan Documents nor any other agreements, reports, schedules, certificates or
instruments heretofore or simultaneously with the execution of this Agreement
delivered to Lender, contains any misrepresentation or untrue statement of fact
or omits to state any material fact necessary to make any of such agreements,
reports, schedules, certificates or instruments not misleading.
4.8 Regulation T. No part of the proceeds of the Loan made pursuant to
------------
this Agreement will be or have been used to purchase or carry or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of any regulation of the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying
any such margin stocks. If requested by Lender, the Borrower will furnish to
Lender, in connection with the loans hereunder, a statement in conformance with
the requirements of Federal Reserve Form U-1 referred to in said regulations.
In addition, no part of the proceeds of the loans hereunder will be used for the
purchase of commodity future contracts (or margins therefor for short sales).
SECTION 5. Conditions Precedent to Making Loans.
------------------------------------
Lender shall not be obligated to make any Advances until all of the
following conditions have been satisfied by proper evidence, execution and/or
delivery to Lender of the following items, all in form, and substance reasonably
satisfactory to Lender:
(a) The Note;
(b) This Agreement;
(c) The Pledge Agreement;
6
<PAGE>
(d) Resolutions of the Board of Directors and/or the stockholder of
Borrower, certified by the Secretary of the Borrower as of the Closing Date,
approving or otherwise ratifying the transactions contemplated by this
Agreement, and approving the form of this Agreement, the Note and the Pledge
Agreement and authorizing execution, delivery, and performance thereof;
(e) Specimen signatures of the officer of the Borrower executing this
Agreement and the Note and the officer authorized to borrow under the Note,
certified by the Secretary of the Borrower;
(f) Copies of the Article of Incorporation of the Borrower, certified
by the Secretary of State of Borrower's corporation's state of incorporation and
further certified by the Secretary of Borrower not to have been altered or
amended since certification by the Secretary of State;
(g) A copy of the Bylaws of the Borrower, certified by the Secretary
of Borrower to be true and correct copy as currently in effect;
(h) Such other instruments, documents or items as Lender may
reasonably request; and
(i) No Event of Default shall have occurred and be continuing under
the Note.
SECTION 6. Affirmative Covenants. Borrower covenants that, so long as any
---------------------
portion of the Liabilities remains unpaid and unless the Lender otherwise
consents in writing, it will and, where applicable, will cause each Subsidiary:
6.1 Financial Reports and Other Data.
--------------------------------
(a) As soon as practicable and in any event within forty-five (45)
days after the end of each fiscal quarter deliver or cause to be delivered to
Lender consolidated and consolidating balance sheets of Borrower as at the last
day of such quarter and related consolidated and consolidating statements of
income and retained earnings and changes in financial condition for such quarter
and cumulative year-to-year date balance sheet and income statement data for
Borrower setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal quarter, all in reasonable detail
and satisfactory in scope to the Lender, and certified by an Authorized Officer
of Borrower to have been prepared in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis, subject to changes
resulting from normal, recurring year-end adjustments.
(b) As soon as practicable and in any event within sixty (60) days
after the end of each Fiscal Year deliver or cause to be delivered to Lender
consolidated and consolidating balance sheets of Borrower and its Subsidiaries
as at the end of such Fiscal Year, and related statements of income and retained
earnings and changes in financial position comparative form corresponding
figures from the preceding annual audit, all in reasonable detail and
satisfactory in scope to Lender and audited by and containing (as to the
consolidated financial statements) an unqualified opinion of independent
certified public accountants acceptable to Lender.
7
<PAGE>
(c) Borrower agrees to provide Lender with a copy of any filing made
with a federal or state agency or self-regulatory organization promptly after
the filing thereof.
(d) Together with each delivery of those items required by clauses (a)
and (b) above, Borrower shall deliver to Lender a certificate of the Authorized
Officer setting forth: (i) that to the best of his knowledge, the Borrower has
kept, observed, performed and fulfilled each and every agreement binding on it
contained in this Agreement and the other Loan Documents, and is not at the time
in default of the keeping, observance, performance of fulfillment of any of the
terms, provisions and conditions hereof; and (ii) that no Event of Default has
occurred, or specifying all such Events of Defaults of which they may have
knowledge;
(e) Together with each delivery of the financial statements required
by clause (b) above, Borrower shall deliver to Lender letters of representation
signed by the most senior officer of Borrower indicating and confirming that
Borrower is not in breach of the covenants set forth in Section 6.11 and
Sections 7.2, 7.3, and 7.6 hereof;
(f) With reasonable promptness, deliver to Lender a copy of all
reports and management letters, if any, delivered to Borrower by its independent
certified public accountants; and
(g) With reasonable promptness, deliver such additional financial or
other data as Lender may reasonably request. Lender is hereby authorized to
deliver a copy of any financial statements or any other information relating to
the business operations or financial condition of Borrower which may be
furnished to it or come to its attention pursuant to this Agreement or
otherwise, to any regulatory body or agency having jurisdiction over Lender or
to any person which shall have the right or obligation to succeed to all or any
part of Lender's interest in the Note.
6.2 Taxes and Liens. Promptly pay, or cause to be paid, all taxes,
---------------
assessments and other governmental charges which may lawfully be levied or
assessed upon the income or profits of the Borrower, or upon any property, real,
personal or mixed, belonging to the Borrower, or upon any part thereof, and also
any lawful claims for labor, material and supplies which if unpaid, might become
a lien or charge against any such property; provided, however, Borrower shall
not be required to pay any such tax, assessment, charge, levy or claim so long
as the validity thereof shall be actively contested in good faith by property
proceedings; but provided further that any such tax, assessment, charge, levy or
claim shall be paid or bonded in a manner satisfactory to Lender forthwith upon
the commencement of proceedings to foreclose any lien securing the same.
6.3 Business and Existence. Do or cause to be done all things necessary
----------------------
to preserve and to keep in full force and effect any licenses necessary to the
business of each of the Borrower and its Subsidiaries, its corporate existence
and rights of its franchises, trade names, trademarks, and permits which are
reasonably necessary for the continuance of its business; and continue to engage
principally in the business currently operated by Borrower and its Subsidiaries.
6.4 True Books. Keep true books of record and account in which full, true
----------
and correct entries will be made of all of its dealings and transactions, and
set aside on its books such reserves as may be required by Generally Accepted
Accounting Principles with respect to all taxes, assessments,
8
<PAGE>
charges, levies and claims referred to in Section 6.2 hereof, and with respect
to its business in general, and include such reserves in interim as well as
year-end financial statements.
6.5 Pay Indebtedness to Lender and Perform Other Covenants. (a) Make full
------------------------------------------------------
and timely payment of the principal of and interest on the Note, the Ancillary
Note and all other indebtedness of the Borrower to Lender, whether now existing
or hereafter arising, including the payment of fees; and (b) Duly comply with
all terms and covenants contained in this Agreement and all other instruments
and documents given to Lender pursuant to this Agreement.
6.6 Right of Inspection. Permit any person designated by Lender, at
-------------------
Lender's expense, to visit and inspect any of the properties, books and
financial reports of Borrower and its Subsidiaries, all at such reasonable times
and as often as Lender may reasonable request.
6.7 Observance of Laws. Conform to and duly observe all laws, regulations
------------------
and other valid requirements of any regulatory authority with respect to the
conduct of its business.
6.8 Borrower's Knowledge of Default. Upon an officer or director of the
-------------------------------
Borrower obtaining knowledge of or threat of an Event of Default hereunder or
under any other obligation of the Borrower, cause such officer to promptly, no
more than five (5) days, deliver to Lender notice thereof specifying the nature
thereof, the period of existence thereof, and what action the Borrower proposes
to take with respect thereto.
6.9 Notice of Proceedings. Upon an officer or director of the Borrower
---------------------
obtaining knowledge of any material litigation, dispute or proceedings being
instituted or threatened against the Borrower, or any material attachment, levy,
execution or other process being instituted against any assets of the Borrower,
cause such officer to promptly, no more than five (5) days, give Lender written
notice of such litigation, dispute, proceeding, levy, execution or other
process.
6.10 Further Assurances. At its cost and expense, Borrower hereby
------------------
expressly agrees to execute any additional documents necessary in order to
correct, amend, modify or take any other action necessary in order to effect the
transactions contemplated by the Loan Documents. In the event that Borrower
fails to execute and deliver any such documents within seven (7) days after
Lender requests same, Borrower hereby expressly grants to Lender in irrevocable
power of attorney, to execute, deliver and file any such documents in the name
of Borrower. The foregoing irrevocable power of attorney shall be deemed to be
irrevocable and coupled with an interest.
6.11 Continued Service by Current Officers. Cause the members of current
-------------------------------------
management to remain active in the day-to-day operations of the Borrower, unless
the Lender otherwise consents in writing to a change in management.
SECTION 7. Negative Covenants. Borrower covenants and agrees that, so
------------------
long as any portion of the Liabilities remains unpaid and unless the Lender
otherwise gives its prior written consent, it will not and, where applicable,
will not cause any Subsidiary, directly or indirectly, to:
7.1 Mortgages, Liens, Etc. Incur, create, assume or permit to exist,
----------------------
other than in the ordinary course of business, any mortgage, pledge, security
interest, encumbrance, lien or charge of
9
<PAGE>
any kind, including liens arising under conditional sales or other title
retention agreements upon any of assets or properties of any character, without
the prior written consent of Lender, which consent will not be unreasonably
withheld.
7.2 Capital Expenditures. Make or become committed to make, directly or
--------------------
indirectly, until the Termination Date, capital expenditures (including, without
limitation, capitalized leases) amounting to in excess of $20,000 in the
aggregate, without the prior written consent of Lender, which consent will not
be unreasonably withheld; provided however, that in the event that the Borrower
-------- -------
has borrowed and owes the Lender the maximum amount available to the Borrower
hereunder, the foregoing capital expenditure amount may not exceed $10,000.
7.3 Loans and Investments. Other than in the ordinary course of business,
---------------------
lend or advance money, credit or property to any Person, or invest in (by
capital contribution or otherwise), or purchase or repurchase the stock or
indebtedness or assets or properties of any Person, or agree to do any of the
foregoing, without the prior written consent of Lender, which consent will not
be unreasonably withheld.
7.4 Guaranties. Guarantee, assume, endorse or otherwise become or remain
----------
liable in connection with the obligations (including accounts payable) of any
other Person, other than the endorsement of negotiable instruments in the
ordinary course of business for deposit or collection, without the prior written
consent of Lender, which consent will not unreasonably withheld.
7.5 Sale of Assets, Dissolution, Etc. Except with respect to inter-
---------------------------------
corporate transfers by and between Borrower and its Subsidiaries (if any) and
other than in connection with the acquisition of the Borrower by the Lender (or
its Subsidiary), transfer, sell, assign, lease or otherwise dispose of any of
its properties or assets (or allow any Subsidiary to transfer, sell, assign,
lease or otherwise any of its assets or properties), other than in the ordinary
course of business, or any assets or properties necessary or desirable for the
proper conduct of its business, or transfer, sell, assign or otherwise dispose
of any of its notes, Accounts, or contract rights to any Person, or change the
nature of its business, wind-up, liquidate or dissolve, or agree to any of the
foregoing, without the prior written consent of Lender, which consent will not
unreasonably withheld.
7.6 Acquisition of Assets. Other than in the ordinary course of business,
---------------------
permit the purchase, acquisition or lease of assets of any Person or Persons,
without the prior written consent of Lender, which consent will not unreasonably
withheld.
7.7 No Further Issuance of Securities. Borrower hereby expressly agrees
---------------------------------
not to (other than in connection with the acquisition of the Borrower by the
Lender (or its Subsidiary)) create, issue or permit the issuance of any
additional securities of Borrower or of any of its Subsidiaries (if any), or any
rights, options or warrants to acquire any such securities, without the prior
written consent of the Lender, which consent will not be unreasonably withheld.
10
<PAGE>
SECTION 8. Events of Default.
-----------------
8.1 Defaults. Each of the following shall constitute an event of default
--------
(an "Event of Default") hereunder: (i) the failure to pay when due any
principal or interest hereunder and the continuance of such failure for a period
of thirty (30) days after written notice from the Lender to the Borrower of such
failure; (ii) the violation by the Borrower of any covenant or agreement
contained in this Agreement, the Note or the Ancillary Note and the continuance
of such violation for a period of thirty (30) days after written notice from the
Lender to the Borrower of such failure; (iii) any change in control of the
Borrower which is not previously approved by the written consent of the Lender;
(iv) the assignment for the benefit of creditors by the Borrower; (v) the
application for the appointment of a receiver or liquidator for the Borrower or
the property of the Borrower; (vi) the filing of a petition in bankruptcy by or
against the Borrower; (vii) the issuance of an attachment or the entry of a
judgment against the Borrower in excess of $50,000; (viii) a default by the
Borrower with respect to any other indebtedness due to the Lender; (ix) the
making or sending of a notice of intended bulk sale by the Borrower; or (x) the
termination of existence, dissolution or any other insolvency of the Borrower.
Upon the occurrence of any of the foregoing Events of Default, the Note shall be
considered to be in default and the entire unpaid principal sum hereof, together
with accrued interest, shall at the option of the holder hereof become
immediately due and payable in full. Upon the occurrence of an Event of Default
and the placement of the Note or this Agreement in the hands of an attorney for
collection, the Borrower agrees to pay reasonable collection costs and expenses,
including reasonable attorneys' fees and interest from the date of the default
at the rate of fifteen percent (15%) per annum computed on the unpaid principal
balance.
8.2 Waiver of Default. The Lender may waive any Event of Default
-----------------
hereunder. Such waiver shall be evidenced by written notice or other document
specifying the Event or Events of Default being waived and shall be binding on
any subsequent Lenders under the Note.
SECTION 9. Miscellaneous.
-------------
9.1 Computation of Interest and Payment and Prepayment of Principal.
---------------------------------------------------------------
Interest on the Note shall be computed on the basis of a year of 365 days. If
any principal amount under the Note becomes due and payable on other than a
Business Day, the maturity thereof shall be extended to the next succeeding
Business Day and interest on such principal shall be payable at the then
applicable rate during such extension period.
9.2 Waiver of Default. Lender may, by written notice to the Borrower, at
-----------------
time and from time to time, waive any default in the performance or observance
of any condition, covenant or other term hereof or any Event of Default which
shall have occurred hereunder and its consequences. Any such waiver shall be
for such period and subject to such conditions as shall be specified in any such
notice. In the case of any such waiver, the Borrower and Lender shall be
restored to their former position and rights hereunder and the other Loan
Documents, and any Event of Default so waived shall be deemed to be cured and
not continuing; but no such waiver shall extent to any subsequent or other Event
of Default, or impair any right consequent thereon.
9.3 Amendments and Waivers. Lender and the Borrower may, subject to the
----------------------
provisions of this section, from time to time, enter into written agreements
supplemental hereto for the purpose of
11
<PAGE>
adding any provisions to this Agreement or the other Loan Documents of changing
in any manner the rights of Lender or of the Borrower hereunder and Lender may
execute and deliver to the Borrower a written instrument waiving any of the
requirements of this Agreement. Any such written supplemental agreement or
waiver shall be binding upon the Borrower and Lender.
9.4 Notices. All notices, requests and demands to or upon the respective
-------
parties hereto under this Agreement and all other Loan Documents shall be deemed
to have been given or made when deposited in the mail, postage prepaid by
registered or certified mail, return receipt requested, addressed as follows or
to such other address as may be hereafter designated in writing by the
respective parties.
The Borrower: Internet One, Inc.
1113 Spruce Street, Suite 500
Boulder, Colorado 80301
Attention: David R. Hieb
The Lender: Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
Attention: Scott A. Mednick
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.
9.5 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein and in the other Loan Documents provided are cumulative and not
exclusive of any rights or remedies provided by law.
9.6 Survival of Agreements. All agreements, representations and
----------------------
warranties made herein shall survive the execution of this Agreement, the
delivery of the Note and the making and renewal loans hereunder and the
termination of this Agreement.
9.7 Governing Law. This Agreement and the legal relations among the
-------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to its conflicts of law doctrine. Each of
the parties hereto irrevocably consents to the jurisdiction of the federal and
state courts located in the State of Delaware.
9.8 Enforceability of Agreement. Should any one or more of the provisions
---------------------------
of this Agreement be determined to be illegal or unenforceable as to one or more
of the parties, all other provisions nevertheless shall remain effective and
binding on the parties hereto, up to the full amount permitted by law.
9.9 Usury Savings Clause. Notwithstanding any other provision herein, the
--------------------
aggregate interest rate charged under the Note, including all charges or fees in
connection therewith deemed in the nature
12
<PAGE>
of interest exceeds the maximum legal rate, then Lender shall have the right to
make such adjustments as are necessary to reduce the aggregate interest rate to
the maximum legal rate. The Borrower waives any right to prior notice of such
adjustment and further agree that such adjustment may be made by Lender
subsequent to notification from the Borrower that the aggregate interest charged
exceeds the maximum legal rate.
9.10 Execution of Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
9.11 Stamp or Other Taxes. The Borrower agrees to pay any and all
--------------------
documentary, intangible stamp or excise taxes now or hereafter payable in
respect to this Agreement and the other Loan Documents or any modification
thereof, and shall hold Lender harmless with respect thereto. The Borrower
further agrees that Lender may deduct from any account of the Borrower the
amount of any such documentary or intangible stamp or tax payable, the decision
of Lender as to the amount thereof to be conclusive, absent manifest error.
9.12 Waiver of Trial by Jury. The Borrower hereby waives any right to a
-----------------------
trial by jury in any action brought by Lender whether under this Agreement or
any of the other Loan Documents to enforce any claims or right arising hereunder
or thereunder.
9.13 Assignability. This Agreement shall inure to the benefit and be
-------------
binding upon the parties hereto and their respective successors and assigns.
This Agreement shall not be assignable, in whole or in part, by the Borrower,
without the prior written consent of the Lender. This Agreement may be assigned
or transferred, in whole or in part, by Lender upon written notice to the
Borrower.
* * * * *
13
<PAGE>
IN WITNESS WHEREOF, the Borrower and Lender have caused this Agreement to
be duly executed by their duly authorized officers, all as of the day and year
first above written.
WITNESS: INTERNET ONE, INC.
- ----------------------------------- By: /s/ David R. Hieb
--------------------------------
David R. Hieb, President
WITNESS: THINK NEW IDEAS, INC.
- ----------------------------------- By: /s/ Scott A. Mednick
--------------------------------
Scott A. Mednick, Chief Executive
Officer
14
<PAGE>
Exhibit 10.14
<PAGE>
NOTE
----
$70,000 New York, New York
As of May 13, 1996
FOR VALUE RECEIVED, Internet One, Inc., a Colorado corporation (herein
referred to as the "Borrower") promises to pay to the order of Think New Ideas,
Inc. ("Lender") on the Termination Date, as defined in that certain loan
agreement between the parties of even date herewith, as the same may be from
time to time amended or supplemented (the "Loan Agreement") or at such earlier
time as may be provided or required pursuant to the Loan Agreement, at 8522
National Boulevard, Suite 101, Culver City, California 90232-2481, in lawful
currency of the United States of America, the principal amount of Seventy
Thousand Dollars ($70,000). Borrower further promises to pay interest to Lender
at the above address, in like currency, from the date hereof on the entire
unpaid principal amount owing hereunder from time to time until the entire
unpaid principal amount hereof is paid in full, at a rate per annum equal to
twelve percent (12%). Interest shall be computed on the basis of a 365-day year
and shall be calculated for the actual number of days elapsed. Interest shall
be payable on the Termination Date.
Notwithstanding the foregoing, Borrower shall be liable for payment to
Lender only for such principal amount of the Committed Amount (as defined in the
Loan Agreement) as is outstanding, together with interest at the rate per annum
as aforesaid on the principal amount outstanding from the date of advance.
If any payment under this note becomes due and payable on a Saturday,
Sunday or legal holiday under the laws of the State of Delaware, the maturity
thereof shall be extended to the next succeeding Business Day (as defined in the
Loan Agreement) and interest thereon shall be payable at said rate of interest
during such extension.
This note is the "Note" referred to in the Loan Agreement and Borrower
is entitled to the benefits thereof, and this note may be prepaid in whole or in
part as provided therein. The provisions of the Loan Agreement are hereby
incorporated herein by reference.
Any payments made pursuant to this note shall be applied first toward
any fees and costs due, then toward interest and then toward principal.
Borrower hereby waives any demands and notices of protest and any and
all demands and notices in connection with the delivery, acceptance,
performance, default and endorsement of this note arising on, out of, under or
by reason of this note.
Upon the occurrence and continuance (beyond expiration of any
applicable cure period) of any one or more of the Events of Default as specified
and defined in the Loan Agreement, or in any other document or instrument
delivered in connection therewith, all amounts then remaining unpaid under this
note may be declared to be immediately due and payable as provided in the Loan
Agreement. From
1
<PAGE>
and after the occurrence and continuance as set forth above of any Event of
Default, this note shall bear interest at the maximum rate permitted by law.
In the event that all monies owed hereunder are not paid when due,
Borrower agrees that he shall be liable for all of Lenders reasonable costs and
expenses incurred in connection with enforcing Lender's rights under this note
to the extent not prohibited by law, including but not limited to reasonable
attorneys' fees and disbursements.
This note is not assignable by the Borrower without the prior written
consent of the Lender. This note is negotiable and shall be governed by the
laws of the State of Delaware.
INTERNET ONE, INC.
Date: By: /s/ David R. Hieb
--------------------------- -------------------------------
David R. Hieb, President
2
<PAGE>
Exhibit 10.15
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement") is entered into as of this
13th day of May, 1996, by and among Internet One, Inc., a Colorado corporation
("Internet One"), David R. Hieb (the "Pledgor") and Think New Ideas, Inc., a
Delaware corporation having its executive office at 8522 National Boulevard,
Suite 101, Culver City, California 90232 (the "Pledgee").
WITNESSETH:
WHEREAS, the Pledgor is a stockholder of and owns 400,000 shares of common
stock of Internet One, which shares of common stock currently represent one
hundred percent (100%) of the issued and outstanding capital stock of Internet
One (the "Internet One Stock");
WHEREAS, the Pledgee has agreed to make available to Internet One $70,000
(the "Line of Credit") evidenced by a promissory note, dated as of the date
hereof, executed in favor of the Pledgee providing for the advance of funds to
Internet One up to $70,000 (the "Line of Credit Note") and a loan agreement (the
"Loan Agreement") (collectively, the Line of Credit Note, the Loan Agreement and
any ancillary documents may be referred to hereinafter as the "Line of Credit
Documents"); and
WHEREAS, in connection with extension of the Line of Credit to Internet One
and execution of the Line of Credit Note by Internet One, the Pledgor has agreed
to pledge to the Pledgee thirty-three percent (33%) of its shares of Internet
One Stock to secure repayment of the principal amount and interest under the
Line of Credit Note.
NOW THEREFORE, in consideration of the foregoing, and the premises and
mutual covenants, conditions and agreements set forth herein, twenty dollars
($20) and other good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, the Pledgor hereby agrees with the Pledgee, for
the benefit of Pledgee, as follows:
SECTION 1. Definition of Pledged Stock. The term "Pledged Stock" as used
---------------------------
herein shall mean and include thirty-three percent (33%) of the issued and
outstanding shares of capital stock of Internet One, and also, any shares,
stock, certificates, options or rights issued by Internet One in substitution of
or in exchange for any of such shares, and any and all proceeds thereof, now or
hereafter owned or acquired by the Pledgor. Each of Internet One and the
Pledgor respectively agrees that after the date hereof, neither Internet One nor
the Pledgor (as a stockholder, director or officer of Internet One or otherwise)
will authorize the issuance of or cause to be issued any equity securities or
other instruments convertible into or exercisable to acquire any equity
securities of Internet One. Other capitalized terms used herein but not
otherwise defined shall have the respective meanings attributed to them in the
Line of Credit Note.
SECTION 2. Pledge of Stock. As collateral security for the due payment
---------------
and performance of Internet One's obligations under the Line of Credit Note (the
"Obligations"):
2.1 The Pledgor hereby pledges, assigns, hypothecates, delivers and sets
over unto the Pledgee, for the benefit of the Pledgee all of the Pledged Stock,
and the Pledgor hereby grants to the Pledgee, for the benefit of Pledgee, a
first security interest in all of such Pledged Stock (including any and all
proceeds thereof and substitutions therefor as set forth in Section 1 above).
<PAGE>
2.2 In the event that the Pledgor shall become entitled to receive or
shall receive any stock certificate (including, without limitation, any
certificate representing a stock dividend or a distribution in connection with
any issuance of additional shares of Pledged Stock, or any reclassification,
increase or reduction of capital), option or rights, whether in substitution of
or in exchange for any shares of Pledged Stock or otherwise, the Pledgor shall
accept any such instruments as the Pledgee's agent, shall promptly notify the
Pledgee of the Pledgor's receipt thereof, shall hold them in trust for the
Pledgee, and (simultaneously with the return by the Pledgee to the Pledgor of
any Pledged Stock being substituted or exchanged) shall deliver them forthwith
to the Pledgee in the exact form received, with appropriate stock powers duly
executed in blank, to be held by the Pledgee, subject to the terms hereof, as
further collateral security for performance of the Obligations.
2.3 So long as no event of default (as set forth in the Line of Credit
Note) shall have occurred and be continuing, the Pledgor shall be entitled to
exercise any and all voting rights and powers relating or pertaining to the
Pledged Stock or any part thereof for any purpose not inconsistent with the
terms of the Line of Credit Note (and the Loan Agreement) or this Pledge
Agreement.
2.4 Subject to the provisions of applicable law, upon the occurrence and
continuance of such an event of default:
(i) any and all dividends received by the Pledgor with respect to the
Pledged Stock shall be held in trust for the Pledgee and shall be delivered
forthwith to the Pledgee in the exact form received, together with any necessary
endorsements, to be applied by the Pledgee, subject to the terms hereof, in
reduction of the Obligations; and
(ii) any or all shares of the Pledged Stock held by the Pledgee
pursuant hereto may, at the option of the Pledgee or its nominee, be registered
in the name of the Pledgee or its nominee, and the Pledgee or its nominee may
thereafter, without further notice, exercise all voting and corporate rights at
any meeting of any corporation issuing any of the shares included in the Pledged
Stock and may exercise any and all rights of conversion exchange, subscription
or any other rights, privileges or options pertaining to any shares of the
Pledged Stock as if it were the absolute owner thereof, including without
limitation, the right to receive dividends payable thereon (which dividends, if
cash, shall be applied in reduction of the Obligations), and the right to
exchange, at its discretion, any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other readjustment of any
corporation issuing any of such shares or upon the exercise by any such issuer
of any right, privilege or option pertaining to any shares of the Pledged Stock,
and in connection therewith, to deposit and deliver any and all of the Pledged
Stock with any committee, depositary, transfer agent, registrar or other
designated agency.
2.5 In the event of the occurrence and continuation of any event of
default under the Line of Credit Documents, the Pledgee may, subject to the
terms of the Uniform Commercial Code (the "UCC") and any other applicable law,
as the same may from time to time be in effect, forthwith collect, receive,
appropriate and realize upon the Pledged Stock, or any part thereof, and/or may
forthwith sell, assign, grant an option or options to purchase, contract to sell
or otherwise dispose of and deliver said Pledged Stock, or any part thereof, in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or at any of the Pledgee's offices or elsewhere at such prices
and on such terms as may be commercially reasonable. The Pledgor recognizes
that by reason of certain
2
<PAGE>
prohibitions contained in the federal securities laws and applicable state or
foreign securities laws, the Pledgee may resort to one or more private sales of
the Pledge Stock or one or more public sales to a restricted group of purchasers
who will be obliged to agree, among other things, to acquire such securities for
its own account for investment and not with a view toward the distribution or
resale thereof. The Pledgor acknowledges and agrees that any such sale may
result in prices and terms less favorable to the seller than if such sale were a
registered offering under applicable securities laws and, notwithstanding such
circumstances, agrees that any such sale shall be deemed to have been made in a
commercially reasonable manner. The Pledgee shall be under no obligation to
delay a sale of any of the Pledged Stock for the period of time necessary to
permit the issuer of such securities to register such securities for public sale
under the federal securities laws or under applicable state securities laws,
even if such issuer would agree to do so. Upon the consummation of any private
or public sale, the Pledgee shall have the right to deliver, assign, and
transfer to the purchaser thereof the Pledged Stock so sold. Each purchaser at
any such sale shall hold such securities absolutely free from any claim or right
of the Pledgor of any kind whatsoever, and the Pledgor hereby waives (to the
extent permitted by law) all rights of redemption, stay and/or appraisal which
he has or may at any time in the future have, under any rule of law or statute
now existing or hereafter enacted. The Pledgee shall give the Pledgor notice of
the Pledgee's intention to make any such sale to the extent required hereunder
or by the UCC. Such notice, in case of sale at a broker's board or on a
securities exchange, shall state the board or exchange on which such sale is to
be made and the day on which the Pledged Stock, or that portion thereof being so
sold, will first be offered for sale. At any such sale, the Pledged Stock may be
sold in one lot as an entirety or in separate parcels, as the Pledgee may
determine. The Pledgee shall not be obligated to make any such sale pursuant to
any such notice if the Pledgee shall determine not to do so, notwithstanding the
fact that notice of sale of the Pledged Stock may have been given. The Pledgee
may without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for the sale and such sale may be made at any time or place to which the
same may be so adjourned. In the case of any sale of all or any part of the
Pledged Stock on credit or for future delivery, the Pledged Stock so sold may be
retained by the Pledgee until the selling price is paid by the purchaser
thereof, but the Pledgee shall not incur any liability in the case of the
failure of such purchaser to take up and pay for the Pledged Stock so sold and,
in case of any such failure, such Pledged Stock may again be sold upon like
notice. The Pledgee may also, at its discretion, proceed by a suit or suits at
law or in equity to foreclose upon its securing interest and sell the Pledged
Stock, or any portion thereof, under a judgment or decree of a court or courts
of competent jurisdiction. If any consent, approval or authorization of any
state, municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or other disposition of the Pledged Stock or
any part thereof, the Pledgor shall execute all such applications and other
instruments as may be required in connection with securing any such consent,
approval or authorization, and will otherwise use the Pledgor's best efforts to
secure the same.
2.6 The proceeds of any collection, recovery, receipt, appropriation,
realization or sale as aforesaid shall be applied as follows: (i) first, to the
reasonable costs and expenses incurred in connection with or incidental to the
sale or assignment of any and all of the Pledged Stock, (ii) second, to the
satisfaction of the Obligations, and (iii) third, to the Pledgor to the extent
there exists a surplus of proceeds.
3
<PAGE>
2.7 The Pledgee shall give ten (10) days notice of the time and place of
any public sale or of the time after which a private sale may take place and
such notice shall be deemed to be reasonable notification.
SECTION 3. Representations and Warranties of the Pledgor. The Pledgor
---------------------------------------------
hereby represents and warrants that:
3.1 The Pledged Stock is owned directly, beneficially and of record by
such Pledgor in the amount set forth in the recitals hereto.
3.2 The shares of the Pledged Stock owned by the Pledgor equals in the
aggregate thirty-three percent (33%) of the issued and outstanding shares of
capital stock of Internet One.
3.3 All of the shares of the Pledged Stock owned by the Pledgor have been
duly and validly issued, are fully paid and non-assessable and are owned by the
Pledgor free of pre-emptive rights and free and clear of all adverse claims,
liens, mortgages, charges, security interests, encumbrances and other
restrictions whatsoever, except for the security interest granted to the Pledgee
hereunder.
3.4 Upon delivery of the Pledged Stock to the Pledgee or an agent for the
Pledgee, this Pledge Agreement creates and grants a valid first lien on and
perfected security interest in all of the shares of Pledged Stock (including the
proceeds thereof), subject to no prior claim, lien, mortgage, charge, security
interest, encumbrance, other restriction or to any agreement purporting to grant
to any third party a security interest in the property or assets of the Pledgor
which would include the Pledged Stock.
3.5 The pledge of the Pledged Stock is effective and rightful, the
certificates representing the Pledged Stock are genuine and have not been
materially altered, and the Pledgor knows of no fact which might impair the
validity of the pledge of the Pledged Stock by him hereunder.
SECTION 4. Covenants of Pledgor. The Pledgor hereby covenants that:
--------------------
4.1 So long as the Obligations shall be outstanding and unpaid, in whole
or in part, the Pledgor will not sell, otherwise dispose of or convey any
interest in any shares of the Pledged Stock or any interest therein, nor will
the Pledgor create, incur or permit to exist any adverse claim, lien, mortgage,
charge, security interest, encumbrance or restriction whatsoever, except for the
security or other interest granted or conveyed to the Pledgee hereunder or
pursuant to the express written agreement of the Pledgee. The previous sentence
notwithstanding, this covenant by Pledgor shall not apply to the conveyance of
the Pledgor's interest in the shares of Pledged Stock to the Pledgee or its
designated affiliate in connection with the contemplated acquisition of Internet
One by the Pledgee or its designated affiliate, nor shall the proceeds from such
conveyance be deemed proceeds for the purposes of the definition of Pledged
Stock set forth in Section 1 above.
4.2 The Pledgor will defend the Pledgee's right, title and security
interest in and to the Pledged Stock against the claims of any person, firm,
corporation or other entity.
4
<PAGE>
4.3 The Pledgor shall at any time and from time to time upon the written
request of the Pledgee, execute and deliver such further documents as the
Pledgee may reasonably request in order to effectuate the purpose of and
transactions contemplated by this Pledge Agreement, including without
limitation, delivering to the Pledgee on the date hereof or at any time
hereafter executed blank stock powers with respect of the Pledged Stock.
4.4 There exists no stockholders agreement or other agreement which would
prohibit or restrict the transfer of the Pledged Stock and the Pledgor shall not
enter into any such agreement after the date hereof.
SECTION 5. Miscellaneous. The parties hereto further agree that:
-------------
5.1 Except for the use of reasonable care in the custody and preservation
of collateral in its possession, the Pledgee shall have no duty as to the
collection of any collateral in its possession and shall have no duty or
liability to preserve rights against prior parties pertaining thereto, and shall
be relieved of all responsibilities for the Pledged Stock upon surrendering the
same to the Pledgor or in accordance with the Pledgor's instructions.
5.2 No course of dealing between or among any of Internet One, the Pledgor
and the Pledgee, nor any failure to exercise, nor any delay in exercising, on
the part of the Pledgee, any right, power or privilege hereunder or under the
Line of Credit Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
5.3 The rights and remedies herein provided, and provided in the Line of
Credit Documents and in all other agreements, instruments and documents
delivered pursuant hereto,are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law, including without
limitation, the rights and remedies of a secured party under the UCC.
5.4 It shall not be necessary for the Pledgee (and the Pledgor hereby
waives any rights which the Pledgor may have to require the Pledgee), in order
to exercise its rights hereunder, first to: (i) enforce the Pledgee's rights
against any security which shall ever have been given to secure the Obligations,
(ii) enforce the Pledgee's rights against any guarantors of the Obligations,
(iii) exhaust any remedies available to the Pledgee against any security which
shall ever have been given to secure the Obligations, or (iv) resort to any
other means of obtaining payment of the Obligations. The Pledgee shall not be
required to mitigate damages or take any other action to reduce, collect or
enforce the Obligations.
5.5 The Pledgor hereby waives notice of: (i) acceptance of this Pledge
Agreement, (ii) any amendment, extension for any period of rearrangement of the
Obligations or of any other instrument or document pertaining to all or any part
of the Obligations; (iii) sale or foreclosure (or posting or advertising for
sale or foreclosure) of any collateral for the Obligations; (iv) protest, proof
of non-payment or default; or (v) any other action at any time taken or omitted
by the Pledgee, and, generally, all demands and notices of every kind in
connection with this Pledge Agreement or any documents or agreements evidencing,
securing or relating to any of the Obligations.
5
<PAGE>
SECTION 6. Notice. All notices and other communications deliverable
------
pursuant to this Pledge Agreement shall be in writing and mailed (express, next
day or two-day service), sent by registered or certified mail (return receipt
requested) or hand delivered as follows:
If to Internet One: David R. Hieb, President
Internet One, Inc.
1113 Spruce Street, Suite 500
Boulder, Colorado 80302
Facsimile: (303) 440-4264
If to the Pledgor: David R. Hieb
5888 Orchard Creek
Boulder, Colorado 80301
Facsimile: (303) 440-4264
If to the Pledgee: Scott A. Mednick, Chief Executive Officer
Think New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
Facsimile: (310) 842-8069
or as to each party to such other address as shall be designated by such party
in a written notice complying with the terms of this section. All such notices
and other communications shall be deemed to have been delivered when received as
evidenced by a return receipt or such other written evidence or receipt of
delivery as regularly provided by the mail, delivery or courier service
entrusted with delivery of such notice.
SECTION 7. Binding Effect. This Agreement shall inure to the benefit of,
--------------
and be binding upon the successors, heirs and assigns of the parties hereto.
SECTION 8. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of laws thereof.
SECTION 9. Severability. The provisions of this Pledge Agreement shall be
------------
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
SECTION 10. Surrender and Termination. Upon fulfillment and satisfaction
-------------------------
of the Obligations, this Pledge Agreement will be deemed to have been terminated
and be of no further force and effect.
6
<PAGE>
SECTION 11. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Pledge Agreement nor consent to any departure herefrom by the parties
hereto shall in any event be effective unless the same shall be in writing and
signed by the parties hereto and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 12. Headings of No Effect. Section headings set forth herein are
---------------------
for convenience of reference only and shall in no way affect the interpretation
of this Pledge Agreement.
SECTION 13. Counterparts. This Pledge Agreement may be executed in two or
------------
more counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
* * * * *
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered or have
caused the execution and delivery of this Pledge Agreement as of the date first
above written.
INTERNET ONE, INC.
By: /s/ David R. Hieb
-------------------------------
David R. Hieb, President
THE PLEDGOR:
/s/ David R. Hieb
----------------------------------
David R. Hieb
THE PLEDGEE:
THINK NEW IDEAS, INC.
By: /s/ Scott A. Mednick
-------------------------------
Scott A. Mednick, Chief Executive Officer
8
<PAGE>
Exhibit 10.16
<PAGE>
Exhibit 10.16
- --------------------------------------------------------------------------------
Think New Ideas, Inc.
Amended and Restated
1996 Stock Option Plan
- --------------------------------------------------------------------------------
<PAGE>
THINK NEW IDEAS, INC.
1996 STOCK OPTION
ARTICLE I
---------
ESTABLISHMENT AND PURPOSE
-------------------------
Section 1.1. Think New Ideas, Inc., a Delaware corporation (the "Company"),
hereby establishes a stock option to be named Think New Ideas, Inc. 1996 Stock
Option (the "Plan").
Section 1.2. The purpose of this Plan is to induce persons who are
officers, directors, employees and consultants of the Company (or any of its
subsidiaries) who are in a position to contribute materially to the Company's
prosperity to remain with the Company, to offer said persons incentives and
rewards in recognition of their contributions to the Company's progress, and to
encourage said persons to continue to promote the best interests of the Company.
This Plan provides for the grant of options to purchase shares of common stock
of the Company, par value $.001 per share (the "Common Stock") which qualify as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), to persons who are employees, as
well as options which do not so qualify ("Non-Qualified Options") to be issued
to persons, including those who are not employees. Incentive Options and Non-
Qualified Options may be collectively referred to hereinafter as the "Options"
as the context may require. Persons granted Options hereunder may be referred
to hereinafter as the "Optionees."
Section 1.3. All Options granted on or after the date that this Plan has
been approved and adopted by the Company's board of directors (the "Board of
Directors") shall be governed by the terms and conditions of this Plan unless
the terms of any such Option specifically indicate that it is not to be so
governed.
Section 1.4. Any Option granted hereunder which is intended to qualify as
an Incentive Option which, for any reason whatsoever, fails to so qualify, shall
be deemed to be a Non-Qualified Option granted hereunder.
ARTICLE II
----------
ADMINISTRATION
--------------
Section 2.1. All determinations hereunder concerning the selection of
persons eligible to receive awards under this Plan and determinations with
respect to the timing, pricing and amount of an award hereunder (other than
pursuant to a non-discretionary formula hereinafter set forth, shall be made by
an administrator (the "Administrator"). The Administrator shall be either: (a)
the Board of Directors, or (b) in the discretion of the Board of Directors, a
committee of not less than two members of the Board of Directors (the
"Committee"), each of whom is a "Non-Employee" Director as such term is defined
in Rule 16b-3 (as such rule may be amended from time to time, "Rule 16b-3")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
the event this Plan is administered by the Committee, the Committee shall select
one of its members to serve as the chairman thereof and shall hold its meetings
at such times and places as it may
<PAGE>
determine. In such case, a majority of the total number of members of the
Committee shall be necessary to constitute a quorum; and (i) the affirmative act
of a majority of the members present at any meeting at which a quorum is
present, or (ii) the approval in writing by a majority of the members of the
Committee, shall be necessary to constitute action by the Committee.
Section 2.2. The provisions hereof relating to Incentive Options are
intended to comply in every respect with Section 422 of the Code ("Section 422")
and the regulations promulgated thereunder. In the event that any future
statute or regulation shall modify Section 422, this Plan shall be deemed to
incorporate by reference such modification. Any agreement relating to the grant
of any Incentive Option hereunder, which Option is outstanding and unexercised
at the time that any modifying statute or regulation becomes effective, shall
also be deemed to incorporate by reference such modification and no notice of
such modification need be given to the Optionee. Any agreement relating to an
Incentive Option granted hereunder shall provide that the Optionee hold the
stock received upon exercise of such Incentive Option for a minimum of two years
from the date of grant of the Incentive Option and one year from the date of
exercise of such Incentive Option, absent the written approval, consent or
waiver of the Administrator.
Section 2.3. If any provision of this Plan is determined to disqualify the
shares of Common Stock purchasable upon exercise of an Incentive Option granted
hereunder from the special tax treatment provided by Section 422, such provision
shall be deemed to incorporate by reference the modification required to qualify
such shares of Common Stock for said tax treatment.
Section 2.4. The Company shall grant Options hereunder in accordance with
determinations made by the Administrator pursuant to the provisions hereof. All
Options granted pursuant hereto shall be clearly identified as Incentive Options
or Non-Qualified Options. The Administrator may from time to time adopt (and
thereafter amend or rescind) such rules and regulations for carrying out this
Plan and take such action in the administration of this Plan, not inconsistent
with the provisions hereof, as it shall deem proper. The Board of Directors or,
subject to the supervision of the Board of Directors, the Committee, as the
Administrator, shall have plenary discretion, subject to the express provisions
of this Plan, to determine which officers, directors, employees and consultants
shall be granted Options, the number of shares subject to each Option, the time
or times when an Option may be exercised (whether in whole or in installments),
the terms and provisions of the respective agreements relating to the grant of
Options (which need not be identical), including such terms and provisions which
may be amended from time to time as shall be required, in the judgment of the
Administrator, to conform to any change in any law or regulation applicable
hereto, and to make all other determinations deemed necessary or advisable for
the administration of this Plan. The interpretation and construction of any
provision of this Plan by the Administrator (unless otherwise determined by the
Board of Directors) shall be final, conclusive and binding upon all persons.
2
<PAGE>
Section 2.5. No member of the Administrator shall be liable for any action
or determination made in good faith with respect to administration of this Plan
or the Options granted hereunder. Members of the Board of Directors and/or the
Committee, as the Administrator, shall be indemnified by the Company, pursuant
to the Company's bylaws, for any expenses, judgments or other costs incurred as
a result of a lawsuit filed against such member claiming any rights or remedies
arising out of such member's participation in the administration of this Plan.
ARTICLE III
-----------
TOTAL NUMBER OF SHARES TO BE OPTIONED
-------------------------------------
Section 3.1. There shall be reserved for issuance or transfer upon
exercise of the Options granted from time to time hereunder an aggregate of
1,800,000 shares of Common Stock (subject to adjustment as provided in Article
VIII hereof). The shares of Common Stock issued upon exercise of any Option
granted hereunder may be shares of Common Stock previously issued and reacquired
by the Company at any time or authorized but unissued shares of Common Stock, as
the Board of Directors from time to time may determine.
Section 3.2. In the event that any Options outstanding under this Plan for
any reason expire or are terminated without having been exercised in full, the
unpurchased shares of Common Stock subject to such Option and any such
surrendered shares of Common Stock may again be available for transfer
hereunder.
Section 3.3. No Options shall be granted pursuant hereto to any Optionee
after the tenth anniversary of the earlier of: (a) the date that this Plan is
adopted by the Board of Directors, or (b) the date that this Plan is approved by
the stockholders of the Company.
3
<PAGE>
ARTICLE IV
----------
ELIGIBILITY
-----------
Section 4.1. Non-Qualified Options may be granted hereunder to officers,
directors, employees and consultants of the Company (or any of its subsidiaries)
selected by the Administrator, and Incentive Options may be granted hereunder
only to employees (including officers and directors who are employees) of the
Company (or any of its subsidiaries) selected by the Administrator. For
purposes of determining who is an employee with respect to eligibility for
Incentive Options, the provisions of Section 422 of the Code shall govern. The
Administrator may determine (in its sole discretion) that any person who would
otherwise be eligible to be granted Options shall, nonetheless, be ineligible to
receive any award under this Plan.
Section 4.2. Except as set forth in Section 2.5, the Administrator shall
(in its discretion) determine the persons to be granted Options, the time or
times at which Options shall be granted, the number of shares of Common Stock
subject to each Option, the terms of a vesting or forfeiture schedule, if any,
the type of Option issued, the period during which such Options may be
exercised, the manner in which Options may be exercised and all other terms and
conditions of the Options; provided, however, no Option shall be granted which
-------- -------
has terms or conditions inconsistent with those stated in Articles V and VI
hereof. Relevant factors in making such determinations may include the value of
the services rendered by the respective Optionee, his or her present and
potential contributions to the Company, and such other factors which are deemed
relevant by the Administrator in accomplishing the purpose of this Plan.
ARTICLE V
---------
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
Section 5.1. Each Option granted under this Plan shall be evidenced by a
stock option certificate and agreement (the "Option Agreement") in a form
consistent with this Plan, provided that the following terms and conditions
shall apply:
(a) The price at which each share of Common Stock covered by an Option may
be purchased shall be set forth in the Option Agreement and shall be determined
by the Administrator, provided that the option price for any Incentive Option
shall not be less than the "fair market value" of the shares of Common Stock at
the time of grant determined. Notwithstanding the foregoing, if an Incentive
Option to purchase shares of Common Stock is granted hereunder to an Optionee
who, on the date of the grant, directly or indirectly owns more than ten percent
(10%) of the voting power of all classes of capital stock of the Company (or its
parent or subsidiary), not including the shares of Common Stock obtainable upon
exercise of the Option, the minimum exercise price of such Option shall be not
less than one hundred ten percent (110%) of the "fair market value" of the
shares of Common Stock on the date of grant determined in accordance with
Section 5.1(b) below.
4
<PAGE>
(b) The "fair market value" shall be determined by the Administrator, which
determination shall be binding upon the Company and its officers, directors,
employees and consultants. The determination of the "fair market value" shall
be based upon the following: (i) if the Common Stock is not listed and traded
upon a recognized securities exchange and there is no report of stock prices
with respect to the Common Stock published by a recognized stock quotation
service, on the basis of the recent purchases and sales of the Common Stock in
arms-length transactions; (ii) if the Common Stock is not then listed and traded
upon a recognized securities exchange or quoted on the NASDAQ National Market
System, and there are reports of stock prices by a recognized quotation service,
upon the basis of the last reported sale or transaction price of the Common
Stock on the date of grant as reported by a recognized quotation service, or, if
there is no last reported sale or transaction price on that day, then upon the
basis of the mean of the last reported closing bid and closing asked prices for
the Common Stock on that day or on the date nearest preceding that day; or (iii)
if the Common Stock shall then be listed and traded upon a recognized securities
exchange or quoted on the NASDAQ National Market System, upon the basis of the
last reported sale or transaction price at which shares of Common Stock were
traded on such recognized securities exchange on the date of grant or, if the
Common Stock was not traded on such date, upon the basis of the last reported
sale or transaction price on the date nearest preceding that date. The
Administrator shall also consider such other factors relating to the "fair
market value" of the Common Stock as it shall deem appropriate.
(c) For the purpose of determining whether an Optionee owns more than ten
percent (10%) of the voting power of all classes of stock of the Company, an
Optionee shall be considered to own those shares of stock which are owned
directly or indirectly through brothers and sisters (including half-blooded
siblings), spouse, ancestors and lineal descendants; and proportionately as a
shareholder of a corporation, a partner of a partnership, and/or a beneficiary
of a trust or an estate that owns shares of capital stock of the Company.
(d) Notwithstanding any other provision hereof, in accordance with the
provisions of Section 422(d) of the Code, to the extent that the aggregate "fair
market value" (determined at the time the Option is granted) of the shares of
Common Stock with respect to which Incentive Options (without reference to this
provision) are exercisable for the first time by any individual in any calendar
year under any and all stock option plans of the Company (and its subsidiary
corporations and its parent, if any) exceeds $100,000, such Options shall be
treated as Non-Qualified Options.
(e) An Optionee may, in the Administrator's discretion, be granted more
than one Incentive Option or Non-Qualified Option during the duration of this
Plan, and may be issued a combination of Non-Qualified Options and Incentive
Options; provided, however, that non-employees are not eligible to receive
-------- -------
Incentive Options.
(f) The duration of any Option shall be within the sole discretion of the
Administrator; provided, however, that any Incentive Option granted to a ten
-------- -------
percent (10%) or less stockholder or any Non-Qualified Option shall, by its
terms, be exercised within ten years
5
<PAGE>
after the date the Option is granted and any Incentive Option granted to a
greater than ten percent (10%) stockholder shall, by its terms, be exercised
within five years after the date the Option is granted.
(g) An Option shall not be transferable by the Optionee other than by will,
or by the laws of descent and distribution. An Option may be exercised during
the Optionee's lifetime only by the Optionee.
(h) At least six months shall elapse from the date on which an Option is
granted to an officer, director, or beneficial owner of more than ten percent
(10%) of the outstanding shares of Common Stock of the Company under this Plan
by the Administrator to the date on which any share of Common Stock underlying
such Option is sold, unless the Administrator otherwise consents in writing.
ARTICLE VI
----------
EMPLOYMENT OR SERVICE OF OPTIONEE
---------------------------------
Section 6.1. If the employment or service of an Optionee is terminated for
cause, the option rights of such Optionee, both accrued and future, under any
then outstanding Non-Qualified or Incentive Option shall terminate immediately,
subject to the provisions of any employment agreement between the Company (or
any subsidiary) and an Optionee which, by its terms, provides otherwise. In the
event that an employee who is an Optionee hereunder has entered into an
employment agreement with the Company (or a subsidiary), "cause" shall have the
meaning attributed thereto in such employment agreement; otherwise, "cause"
shall mean incompetence in the performance of duties, disloyalty, dishonesty,
theft, embezzlement, unauthorized disclosure of patents, processes or trade
secrets of the Company, individually or as an employee, partner, associate,
officer or director of any organization. The determination of the existence and
the proof of "cause" shall be made by the Administrator and, subject to the
review of any determination made by the Administrator, such determination shall
be binding on the Optionee and the Company.
Section 6.2. Subject to the provisions of any employment agreement between
the Company (or a subsidiary) and an Optionee, if the employment or service of
an Optionee is terminated by either the Optionee or the Company for any reason
other than cause, death, or for disability (as defined in Section 22(e)(3) of
the Code or pursuant to the terms of such an employment agreement), the option
rights of such Optionee under any then outstanding Non-Qualified or Incentive
Option shall, subject to the provisions of Section 5.1(h) hereof, be exercisable
by such Optionee at any time prior to the expiration of the Option or within
three months after the date of such termination, whichever period of time is
shorter, but only to the extent of the accrued right to exercise an Option at
the date of such termination.
Section 6.3. Subject to the provisions of any employment agreement between
the Company (or a subsidiary) and an Optionee, in the case of an Optionee who
becomes disabled
6
<PAGE>
(as defined by Section 22(e)(3) of the Code or pursuant to the terms of such an
employment agreement), the option rights of such Optionee under any then
outstanding Non-Qualified or Incentive Option shall, subject to the provisions
of Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to
the expiration of the Option or within one year after the date of termination of
employment or service due to disability, whichever period of time is shorter,
but only to the extent of the accrued right to exercise an Option at the date of
such termination.
Section 6.4. In the event of the death of an Optionee, the option rights
of such Optionee under any then outstanding Non-Qualified or Incentive Option
shall be exercisable by the person or persons to whom these rights pass by will
or by the laws of descent and distribution, at any time prior to the expiration
of the Option or within three years after the date of death, whichever period of
time is shorter, but only to the extent of the accrued right to exercise an
Option at the date of death. If a person or estate acquires the right to
exercise a Non-Qualified or Incentive Option by bequest or inheritance, the
Administrator may require reasonable evidence as to the ownership of such
Option, and may require such consents and releases of taxing authorities as the
Administrator may deem advisable.
Section 6.5. The Administrator may also provide that an employee must be
continuously employed by the Company for such period of time as the
Administrator, in its discretion, deems advisable before the right to exercise
any portion of an Option granted to such employee will accrue, and may also set
such other targets, restrictions or other terms relating to the employment of
the Optionee which targets, restrictions, or terms must be fulfilled or complied
with, as the case may be, prior to the exercise of any portion of an Option
granted to any employee.
Section 6.6. Options granted hereunder shall not be affected by any change
of duties or position, so long as the Optionee continues in the service of the
Company.
Section 6.7. Nothing contained in this Plan or in any Option granted
pursuant hereto shall confer upon any Optionee any right with respect to
continuance of employment or service by the Company nor interfere in any way
with the right of the Company to terminate the Optionee's employment or service
or change the Optionee's compensation at any time.
ARTICLE VII
-----------
PURCHASE OF SHARES
------------------
Section 7.1. Except as provided in this Article VII, an Option shall be
exercised by tender to the Company of the full exercise price of the shares of
Common Stock with respect to which an Option is exercised and written notice of
the exercise. The right to purchase shares of Common Stock shall be cumulative
so that, once the right to purchase any shares of Common Stock has accrued, such
shares or any part thereof may be purchased at any time thereafter until the
expiration or termination of the Option. A partial exercise of an Option shall
not affect the right of the Optionee to subsequently exercise his or her Option
from time to time, in accordance
7
<PAGE>
with this Plan, as to the remaining number of shares of Common Stock subject to
the Option. The purchase price payable upon exercise of an Option shall be in
United States dollars and shall be payable in cash or by certified bank check.
Notwithstanding the foregoing, in lieu of cash, an Optionee may, with the
approval of the Administrator, exercise his or her Option by tendering to the
Company shares of Common Stock owned by him or her having an aggregate fair
market value at least equal to the aggregate purchase price. The "fair market
value" of any shares of Common Stock so surrendered shall be determined by the
Administrator in accordance with Section 5.1(b) hereof.
Section 7.2. Except as provided in Article VI above, an Option may not be
exercised unless the holder thereof is an officer, director, employee, or
consultant of the Company at the time of exercise.
Section 7.3. No Optionee, or Optionee's executor, administrator, legatee,
or distributee or other permitted transferee, shall be deemed to be a holder of
any shares of Common Stock subject to an Option for any purpose whatsoever
unless and until such Option has been exercised and a stock certificate or
certificates for the shares of Common Stock purchased by the Optionee are issued
to the Optionee in accordance with the terms of this Plan. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date that any such stock certificate is issued, except as provided
in Article VIII hereof.
Section 7.4. If: (i) the listing, registration or qualification of the
Options issued hereunder or of any securities issuable upon exercise of such
Options (the "Subject Securities") upon any securities exchange or quotation
system or under federal or state law is necessary as a condition of or in
connection with the issuance or exercise of the Options; or (ii) the consent or
approval of any governmental regulatory body is necessary as a condition of or
in connection with the issuance or exercise of the Options, the Company shall
not be obligated to deliver the certificates representing the Subject Securities
or to accept or to recognize an Option exercise unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained. The Company will take reasonable action to so list, register, or
qualify the Options and the Subject Securities, or effect or obtain such consent
or approval, so as to allow for issuance and/or exercise.
Section 7.5. An Optionee may be required to represent to the Company as a
condition of his or her exercise of Options issued under this Plan that: (i)
the Subject Securities acquired upon exercise of his or her Option are being
acquired by him or her for investment purposes only and not with a view to
distribution or resale, unless counsel for the Company is then of the view that
such a representation is not necessary and is not required under the Securities
Act of 1933, as amended (the "Securities Act"), or any other applicable statute,
law, regulation or rule; and (ii) that the Optionee shall make no exercise or
disposition of an Option or of the Subject Securities in contravention of the
Securities Act, the Exchange Act of 1934, or the rules and regulations
thereunder. Optionees may also be required to provide (as a condition precedent
to exercise of an Option) such documentation as may be
8
<PAGE>
reasonably requested by the Company to assure compliance with applicable law and
the terms and conditions of this Plan and the subject Option.
Section 7.6. An Option may be exercised by tender to the Administrator of
a written notice of exercise together with advice of the delivery of an order to
a broker to sell part or all of the shares of Common Stock subject to such
exercise notice and an irrevocable order to such broker to deliver to the
Company (or its transfer agent) sufficient proceeds from the sale of such shares
to pay the exercise price and any withholding taxes. All documentation and
procedures to be followed in connection with such a "cashless exercise" shall be
approved in advance by the Administrator.
ARTICLE VIII
------------
CHANGE IN NUMBER OF OUTSTANDING SHARES OF
-----------------------------------------
STOCK, ADJUSTMENTS, REORGANIZATIONS, ETC.
-----------------------------------------
Section 8.1. In the event that the outstanding shares of Common Stock of
the Company are hereafter increased or decreased or changed into or exchanged
for a different number of shares or kind of shares or other securities of the
Company or of another corporation by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split, combination of
shares, or a dividend payable in capital stock, appropriate adjustment shall be
made by the Administrator in the number and kind of shares for the purchase of
which Options may be granted under this Plan, including the maximum number that
may be granted to any one person. In addition, the Administrator shall make
appropriate adjustments in the number and kind of shares as to which outstanding
Options, or portions thereof then unexercised, shall be exercisable, to the end
that the Optionee's proportionate interest shall be maintained as before the
occurrence to the unexercised portion of the Option and with a corresponding
adjustment in the option price per share. Any such adjustment made by the
Administrator shall be conclusive.
Section 8.2. The grant of an Option hereunder shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
Section 8.3. Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company as a result of which the
outstanding securities of the class then subject to Options hereunder are
changed into or exchanged for cash or property or securities not of the
Company's issue, or upon a sale of substantially all the property of the Company
to an association, person, party, corporation, partnership, or control group as
that term is construed for purposes of the Exchange Act, this Plan shall
terminate, and all Options theretofore granted hereunder shall terminate, unless
provision be made in writing in connection with such transaction for the
continuance of this Plan and/or for the assumption of Options theretofore
granted, or the substitution for such Options of options covering the stock of a
successor employer corporation, or a parent or a subsidiary thereof, with
appropriate
9
<PAGE>
adjustments as to the number and kind of shares and prices, in which event this
Plan and options theretofore granted shall continue in the manner and under the
terms so provided. If this Plan and unexercised Options shall terminate pursuant
to the foregoing sentence, all persons owning any unexercised portions of
Options then outstanding shall have the right, at such time prior to the
consummation of the transaction causing such termination as the Company shall
designate, to exercise the unexercised portions of their Options, including the
portions thereof which would, but for this Section 8.3 not yet be exercisable.
ARTICLE IX
----------
DURATION, AMENDMENT AND TERMINATION
-----------------------------------
Section 9.1. The Board of Directors may at any time terminate this Plan or
make such amendments hereto as it shall deem advisable and in the best interests
of the Company, without action on the part of the stockholders of the Company
unless such approval is required pursuant to Section 422 of the Code or the
regulations thereunder; provided, however, that no such termination or amendment
-------- -------
shall, without the consent of the individual to whom any Option shall
theretofore have been granted, affect or impair the rights of such individual
under such Option; and provided, further, that unless the holders of a majority
-------- -------
of each of the classes of the Company's outstanding capital stock entitled to
vote thereon shall have first approved thereof, no amendment of this Plan shall
be made whereby: (a) the total number of shares of Common Stock which may be
optioned under this Plan to all individuals, or any of them, shall be increased,
except by operation of the adjustment provisions of Article VIII hereof; (b) the
authority to administer this Plan by the Administrator shall be withdrawn; (c)
the maximum term of the Options shall be extended; (d) the minimum purchase
price of Incentive Options shall be decreased; (e) the price to Optionees to
whom Options have been granted shall be changed; or (f) the class of individuals
eligible to participate in this Plan is modified. Pursuant to (S)422(b) of the
Code, no Incentive Option may be granted pursuant to this Plan after ten years
from the date this Plan is adopted or the date this Plan is approved by the
stockholders of the Company, whichever is earlier.
ARTICLE X
---------
RESTRICTIONS
------------
Section 10.1. Any Options and shares of Common Stock issued pursuant hereto
shall be subject to such restrictions on transfer and limitations as shall, in
the opinion of the Administrator, be necessary or advisable to assure compliance
with the laws, rules and regulations of the United States government or any
state or jurisdiction thereof. In addition, the Administrator may in any Option
Agreement impose such other restrictions upon the disposition or exercise of an
Option or upon the sale or other disposition of the shares of Common Stock
deliverable upon exercise thereof as the Administrator may, in its sole
discretion, determine. By accepting the grant of an Option or SAR pursuant
hereto, each Optionee shall agree to any such restrictions.
10
<PAGE>
Section 10.2. Any certificate evidencing shares of Common Stock issued
pursuant to exercise of an Option shall bear such legends and statements as the
Administrator, the Board of Directors or counsel to the Company shall deem
advisable to assure compliance with the laws, rules and regulations of the
United States government or any state or jurisdiction thereof. No certificate
evidencing shares of Common Stock shall be delivered pursuant to exercise of the
Options granted under this Plan until the Company has obtained such consents or
approvals from such regulatory bodies of the United States government or any
state or jurisdiction thereof as the Administrator, the Board of Directors or
counsel to the Company deems necessary or advisable.
ARTICLE XI
----------
FINANCIAL ASSISTANCE
--------------------
Section 11.1. The Company is vested with the authority hereunder to assist
any employee to whom an Option is granted hereunder (including any officer or
director of the Company or any of its subsidiaries who is also an employee) in
the payment of the purchase price payable upon exercise of such Option, by
lending the amount of such purchase price to such employee on such terms and at
such rates of interest and upon such security (or unsecured) as shall have been
authorized by or under authority of the Board of Directors. Any such assistance
shall comply with the requirements of Regulation G promulgated by the Board of
the Federal Reserve System, as amended from time to time, and any other
applicable law, rule or regulation.
ARTICLE XII
-----------
APPLICATION OF FUNDS
--------------------
Section 12.1. The proceeds received by the Company from the issuance and
sale of Common Stock upon exercise of Options granted pursuant to this Plan are
to be added to the general funds of the Company and used for its corporate
purposes as determined by the Board of Directors.
ARTICLE XIII
------------
EFFECTIVENESS OF PLAN
---------------------
Section 13.1. This Plan shall become effective upon adoption by the Board
of Directors, and Options may be issued hereunder from and after that date
subject to the provisions of Section 3.3 above. This Plan must be approved by
the Company's stockholders in accordance with the applicable provisions
(relating to the issuance of stock or options) of the Company's governing
documents and state law or, if no such approval is prescribed therein, by the
affirmative vote of the holders of a majority of the votes cast at a duly held
stockholders meeting at which a quorum representing a majority of all the
Company's outstanding voting stock is present and voting (in person or by proxy)
or, without regard to any required time period for
11
<PAGE>
approval, by any other method permitted by Section 422 of the Code and the
regulations thereunder. If such stockholder approval is not obtained within one
year of the adoption of this Plan by the Board of Directors or within such other
time period required under Section 422 of the Code and the regulations
thereunder, this Plan shall remain in force, provided however, that all Options
issued and issuable hereunder shall automatically be deemed to be Non-Qualified
Options.
IN WITNESS WHEREOF, pursuant to the approval of this Plan by the Board of
Directors, this Plan is executed and adopted the 8th day of July, 1996.
THINK NEW IDEAS, INC.
[CORPORATE SEAL]
By: /s/ Scott A. Mednick
-----------------------------
Scott A. Mednick, Chief Executive Officer
ATTEST:
By: /s/ Melvin Epstein
-----------------------------
Melvin Epstein, Secretary
12
<PAGE>
Exhibit 10.17 (a)
<PAGE>
CONSULTING AGREEMENT
BY AND BETWEEN
BENCHMARK EQUITY GROUP, INC.
AND
THINK NEW IDEAS, INC.
THIS AGREEMENT (the "Agreement") is entered into as of this 28th day of
March, 1996, by and between Benchmark Equity Group, Inc., a Delaware corporation
with principal offices at 16815 Royal Crest Drive, Suite 160, Houston, Texas
77058 (the "Consultant") and Think New Ideas, Inc., a Delaware corporation with
principal offices at 8522 National Boulevard, Suite 101, Culver City, California
90232 (the "Corporation").
WHEREAS, the Consultant has developed expertise in providing strategic
business advice and consulting services, including finding and assessing
acquisition candidates and sources of acquisition financing; and
WHEREAS, the Corporation desires to engage the services of the Consultant
and the Consultant desires to provide services to the Corporation as set forth
below, upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and for such other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Engagement. Effective upon execution hereof, the Corporation hereby
engages the Consultant to render to it for a period of two (2) years from the
date hereof (the "Term") the services described herein. The Term hereof may be
extended or renewed upon the written agreement of the Corporation and the
Consultant prior to expiration of the Term hereof upon such terms as the parties
hereto may negotiate at the time of such extension or renewal.
2. Services. For the Term of this Agreement, the Consultant shall render
to the Corporation management consulting advice in the areas of strategic
planning, business strategy, acquisition planning, administration and such other
related management services as shall reasonably be requested by the board of
directors of the Corporation in connection with the operation of the business of
the Corporation. Notwithstanding the foregoing, the Consultant shall not be
required to devote more than five hours per week to the performance of services
hereunder.
3. Compensation. In consideration for the performance of the services
described above, upon execution hereof, the Corporation shall pay to the
Consultant $35,000 in cash. Thereafter, the Corporation shall pay to the
Consultant a monthly fee of $7,000, payable upon the first day of each
successive calendar month. In addition, the Corporation shall issue to the
Consultant a warrant (the "Warrant") exercisable to purchase an aggregate of up
to four hundred thousand (400,000) shares of its common stock, par value $.0001
per share (the "Common Stock") at an exercise price of $2.50 per share. Such
warrant shall be exercisable over a period of five years from the date of
issuance thereof in increments of 80,000 shares of Common Stock per year;
provided however, that: (a) at such time as the price per share (or the closing
- -------- -------
bid price per share, as applicable) of Common Stock shall equal or exceed
$10.49 as quoted on a national or regional exchange or on the Nasdaq National
Market/(R)/, the Nasdaq SmallCap Market/(SM)/ or the OTC Electronic Bulletin
Board (the "Market Price"), the Warrant
<PAGE>
shall immediately thereafter become exercisable to purchase up to an aggregate
of one hundred thousand (100,000) shares of Common Stock; and (b) at such time
as the Market Price shall equal or exceed $15.74 per share, the warrant shall
immediately thereafter become exercisable to purchase the remaining one hundred
thousand (100,000) shares of Common Stock.
4. Registration Rights. In the event that (but without any obligation to
do so) the Corporation proposes to register any of its securities under the
Securities Act of 1933 (the "Act") in connection with the public offering of
such securities solely for cash (other than a registration on Form S-4, Form S-8
or any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
shares of Common Stock issuable upon exercise of the Warrant), the Corporation
shall promptly give the Consultant written notice of such registration (the
"Piggy-Back Notice"); provided, however, that the Corporation shall have no
-------- -------
obligation to so notify the Consultant with respect to any registration
subsequent to the first of such registrations to occur after the issuance of the
Warrant and shall have no obligation if the managing underwriter of the subject
proposed offering expresses its objection thereto to the Corporation. Upon the
written request of the Consultant given within twenty (20) days after receipt of
such Piggy-Back Notice from the Corporation, the Corporation shall cause to be
included in the registration statement filed by the Corporation under the Act
all of the shares of Common Stock that the Consultant has requested to be
registered; provided, however, that the Corporation shall have no such
-------- -------
obligation if the managing underwriter of the subject proposed offering has
expressed its objection to the same to the Corporation. To the extent that the
Consultant is offered the opportunity hereunder to include all of the shares of
Common Stock issuable upon exercise of the Warrant in a registration statement,
the Consultant will be deemed to have exercised its sole registration right
provided hereby.
Whenever required hereunder to file a registration statement to effect the
registration of any of the Common Stock, the Corporation shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such securities and
use its best efforts to cause such registration statement to become
effective, and, upon the request of the Consultant, keep such
registration statement effective for at least four (4) months.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus included therein as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Consultant such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably
request in order to facilitate the disposition of such securities.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under the securities laws of such
jurisdictions as shall be reasonably requested by the Consultant for
the distribution of the securities covered by the registration
statement, provided that the Corporation shall not be required in
connection therewith or
2
<PAGE>
as a condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdiction.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering.
(f) Notify the Consultant promptly after the Corporation shall have
received notice thereof, of the time when the registration statement
becomes effective or any supplement to any prospectus forming a part
of the registration statement has been filed.
(g) Notify the Consultant of any stop order suspending the effectiveness
of the registration statement and use its reasonable best efforts to
remove such stop order.
It shall be a condition precedent to the obligations of the Corporation to
take any action pursuant hereto that the Consultant shall furnish to the
Corporation such information regarding itself, the securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of its securities. In that connection, the Consultant
shall be required to represent to the Corporation that all such information
which is given is both complete and accurate in all material respects. The
Consultant shall deliver to the Corporation a statement in writing from any
beneficial owners of such securities that such beneficial owners bona fide
intend to sell, transfer or otherwise dispose of such securities.
All expenses incurred by the Corporation in complying herewith, including
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Corporation, blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration (the "Registration Expenses") incurred in connection with any
registration, qualification or compliance herewith, shall be borne by the
Corporation, and all underwriting discounts, selling commissions and
underwriters' expense allowance applicable to the sale and all fees and
disbursements of any special counsel for the Consultant ("Selling Expenses")
shall be borne by the Consultant; provided, however, that the Corporation shall
-------- -------
not be required to pay any Registration Expenses if, as a result of the
withdrawal of a request for registration by the Consultant, the registration
statement does not become effective. In the case of such withdrawal and the
failure of the Consultant to agree to forfeit, the Consultant shall bear such
Registration Expenses.
The Consultant shall not have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this section.
The Corporation shall have no obligation pursuant hereto with respect to
any request made by the Consultant after the second anniversary of the date of
issuance of the Warrant.
Notwithstanding any provision hereof to the contrary, the Corporation shall
not be required to effect any registration under the Act or under any state
securities laws on behalf of the Consultant if, in the opinion of counsel for
the Corporation, the offering or transfer by the Consultant in the manner
proposed (including, without limitation, the number of shares proposed to be
offered or transferred and
3
<PAGE>
the method of offering or transfer) is exempt from the registration requirements
of the Act and the securities laws of applicable states.
The Consultant by acceptance hereof, hereby acknowledges that it is the
Corporation's intention to conduct an initial public offering, which offering is
contemplated to be underwritten. The Consultant by acceptance hereof hereby
agrees: (i) that its right to request registration pursuant to the provisions
hereof shall be subject to the approval of the underwriter of such initial
public offering (the "Underwriter"); and (ii) the Consultant shall agree to
refrain from exercising such right or transferring the Warrant and/or the shares
of Common Stock for a period of up to six months should the Underwriter so
request in writing.
5. Certain Restrictions. The Consultant understands that:
(a) Neither the Warrant nor the shares of Common Stock issuable upon
exercise thereof has previously been the subject of registration under
the Act or any applicable state securities laws;
(b) In the absence of availability of an exemption from the registration
requirements of the Act, the Consultant may not sell or otherwise
transfer the Warrant or the shares of Common Stock issuable upon
exercise thereof unless such securities are subject to an effective
registration statement under the Act and any applicable state
securities laws;
(c) In the event that the Warrant or any shares of Common Stock issuable
upon exercise thereof are issued at a time during which a registration
statement relating to such issuance is not effective, the offer and
sale of such securities are subject to an effective registration
statement under the Act, a legend will be placed on any certificate or
certificates evidencing the same indicating that such securities have
not been registered under the Act and setting forth the restrictions
on transferability and sale of such securities; and
(d) The Corporation will place stop transfer instructions against the
certificate or certificates evidencing the foregoing securities to
restrict the transfer thereof.
6. Representations and Warranties. The Consultant hereby represents and
warrants to the Corporation that:
(a) The Consultant will not sell the securities issued to the Consultant
pursuant hereto without compliance with the Act and any applicable
state securities laws;
(b) The Consultant has received and carefully read certain business
information about the Corporation provided to it by the Corporation
and written or verbal responses to all questions the Consultant has
submitted to the Corporation regarding its acquisition of the
securities described herein, all of which the Consultant acknowledges
have been provided to the Consultant. Such information may be referred
to hereinafter as the "Corporate Materials." Other than the Corporate
Materials, the Consultant has not been furnished with any other
materials or literature relating to the acquisition of the securities
described
4
<PAGE>
herein. The Consultant has been given the opportunity to ask
questions of and to receive answers from the Corporation concerning
the terms and conditions of the acquisition of the securities
described herein and the Corporate Materials, and to obtain such
additional written information necessary to verify the accuracy of
same as the Consultant desires in order to evaluate the acquisition of
and investment in the securities described herein. The Consultant
acknowledges and confirms that the written and/or verbal responses
provided to the Consultant by the Corporation in response to the
Consultant's questions are not contrary to or inconsistent with, nor
do they conflict with the information set forth in the Corporate
Materials. The Consultant further acknowledges that it understands the
information contained in the Corporate Materials and the Consultant
has had the opportunity to discuss any questions regarding the
Corporate Materials with its counsel or other advisor. The only
information upon which the Consultant has relied is that which is set
forth in the Corporate Materials;
(c) The Consultant understands that no federal or state agency or other
authority: (i) has made any finding or determination regarding the
fairness of the transactions described herein, (ii) has made any
recommendation or endorsement of the transactions described herein, or
(iii) has passed in any way upon this agreement or the Corporate
Materials;
(d) The Consultant: (i) is acquiring the securities described herein
solely for its own account for investment purposes only and not with a
view toward resale or distribution thereof, either in whole or in
part; and (ii) has no contract, undertaking, agreement or other
arrangement, in existence or contemplated, to sell, pledge, assign or
otherwise transfer the securities to any other person;
(e) The Consultant has adequate means of providing for its current needs
and contingencies and has no need for liquidity in the investment in
the securities described herein. The Consultant has read, is familiar
with and understands Rule 501 of Regulation D and represents that he
is an "accredited investor" as defined in Rule 501(a) of Regulation D
under the Act. The Consultant has no reason to anticipate any material
change in its financial condition for the foreseeable future;
(f) The Consultant is aware that the acquisition of the securities
described herein is a speculative investment involving a high degree
of risk and that there is no guarantee that the Consultant will
realize any gain from its acquisition of or investment in such
securities;
(g) The Consultant is financially able to bear the economic risk of an
investment in the securities described herein, including the ability
to hold such securities indefinitely and to afford a complete loss of
an investment in such securities;
(h) The Consultant's overall commitment to investments which are not
readily marketable is not disproportionate to the Consultant's net
worth, and the Consultant's investment in the securities described
herein will not cause such overall commitment to become excessive; and
5
<PAGE>
(i) The Consultant has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of the acquisition of and an investment in the securities described
herein.
The Corporation hereby represents and warrants to the Consultant that:
(a) The execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby have been duly
authorized, adopted and approved by the board of directors of the
Corporation. The Corporation has taken all necessary corporate action
and has all the necessary corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by an
authorized officer of the Corporation on its behalf and is the valid
and binding obligation of the Corporation, enforceable against the
Corporation in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect, or by
legal or equitable principles, relating to or limiting creditors'
rights generally and except that the remedy of specific performance
and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought;
(b) The Corporation is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The
Corporation has the corporate power and authority to own and lease its
properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business as a foreign
corporation in each jurisdiction where it owns or leases real property
or conducts business, except where the failure to be so qualified
would not have a material adverse effect on the business, operations
or condition (financial or otherwise) of the Corporation;
(c) The Corporation is authorized to issue an aggregate of 15,000,000
shares of Common Stock and 1,000,000 shares of preferred stock. All
outstanding shares of the Corporation's capital stock have been duly
authorized, validly issued and are fully paid and non-assessable. The
shares of Common Stock to be issued upon exercise of the Warrant,
assuming payment therefor in accordance with the provisions thereof
and will be upon issuance, free of preemptive rights and free and
clear of all adverse claims, liens, mortgages, charges, security
interests, encumbrances and other restrictions or limitations of any
kind whatsoever. The Corporation has not issued any shares of capital
stock which could give rise to claims for violation of any federal or
state securities laws (including any rules or regulations promulgated
thereunder) or the securities laws of any other jurisdiction
(including any rules or regulations promulgated thereunder).
(d) There is no contract or agreement to which the Corporation is a party
or by which it or its assets are bound which prohibits the Corporation
from executing and delivering this Agreement or performing its
obligations as set forth hereunder;
6
<PAGE>
(e) Neither the execution and delivery of this Agreement by the
Corporation, nor consummation of the transactions contemplated hereby,
does or will: (i) violate or conflict with any provision of the
certificate of incorporation or bylaws of the Corporation; (ii)
violate or, with the passage of time, result in the violation of any
provision of, or result in the acceleration of or entitle any party to
accelerate any obligation under, or result in the creation or
imposition of any lien, charge, pledge, security interest or other
encumbrance upon any of the property or assets of the Corporation,
pursuant to any provision of any mortgage, lien, lease, agreement,
permit, indenture, license, instrument, law, order, arbitration award,
judgment or decree to which the Corporation is a party or by which it
or any of such property or assets are bound; (iii) violate or conflict
with any other restriction of any kind whatsoever to which the
Corporation is subject, or by which its properties or assets may be
bound; or (iv) violate or constitute a breach under any provision of
any agreement to which the Corporation is a party or is subject. No
consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other
regulatory body is required in connection with the execution, delivery
and performance of the terms of this Agreement and consummation of the
transactions contemplated hereby by the Corporation; and
(f) There is no action, suit, proceeding or investigation pending or
threatened which could restrict the Corporation's ability to perform
its obligations hereunder. There are no grounds for or facts, events
or circumstances which could form the basis of any such action that
could cause or result in any such action, suit, proceeding or
investigation or which is probable of assertion. The Corporation is
not in default in respect of any judgment, order, writ, injunction or
decree of any court or any federal, state, local or other governmental
agency, authority, body, board, bureau, commission, department or
instrumentality, which default would in any way affect, impair or
compromise the Corporation's ability to consummate the transactions
contemplated hereby or would otherwise compromise in any way the
validity or legality of this Agreement or the transactions
contemplated hereby.
7. Confidential Information. By reason of performance under this
Agreement, the Consultant may have access to and may obtain specialized
knowledge, trade secrets and confidential information about the business and
operation of the Corporation, its subsidiaries and divisions thereof.
Therefore, the Consultant hereby agrees that he shall keep secret and retain in
confidence and shall not use, disclose to others, or publish, other than in
connection with the performance of services hereunder and in accordance
herewith, any information relating to the business, operation or other affairs
of the Corporation, its subsidiaries and divisions thereof, which information is
acquired in the course of providing services for the Corporation. To the extent
that any of such information may be deemed from time to time to be "material
non-public information" as construed under the Exchange Act of 1934, the
Consultant hereby agrees not to purchase or sell (or offer to purchase or sell)
any of the Corporation's securities while in possession of information which may
be so deemed to be "material non-public information."
7
<PAGE>
8. Indemnification. The Consultant and the Corporation hereby agree as
follows:
(a) The Corporation hereby agrees to indemnify and hold harmless the
Consultant against and in respect of all damages, claims, losses and
expenses (including, without limitation, attorneys' fees and
disbursements) reasonably incurred (all such amounts may hereinafter
be referred to as the "Damages") by the Consultant arising out of: (i)
any misrepresentation or breach of any warranty made by the
Corporation pursuant to the provisions of this Agreement or in any
statement, certificate or other document furnished by the Corporation
pursuant to this Agreement, and (ii) the nonperformance or breach of
any covenant, agreement or obligation of the Corporation contained in
this Agreement which has not been waived by the Consultant;
(b) The Corporation shall be obligated to indemnify the Consultant with
respect to claims for Damages as to which the Consultant shall have
given written notice to the Corporation on or before the close of
business on the sixtieth day following the second anniversary hereof;
(c) In any case where the Corporation has indemnified the Consultant for
any Damages and the Consultant recovers from third parties all or any
part of the amount so indemnified by the Corporation, the Consultant
shall promptly pay over to the Corporation the amount so recovered;
(d) With respect to claims or demands by third parties, whenever the
Consultant shall have received notice that such a claim or demand has
been asserted or threatened which, if valid, would be subject to
indemnification hereunder, the Consultant shall as soon as reasonably
possible and in any event within thirty (30) days of receipt of such
notice, notify the Corporation of such claim or demand and of all
relevant facts within its knowledge which relate thereto. The
Corporation shall then have the right at its own expense to undertake
the defense of any such claims or demands utilizing counsel selected
by the Corporation and approved by the Consultant, which approval
shall not be unreasonably withheld. In the event that the Corporation
should fail to give notice of the intention to undertake the defense
of any such claim or demand within thirty (30) days after receiving
notice that it has been asserted or threatened, the Consultant shall
have the right to satisfy and discharge the same by payment,
compromise or otherwise and shall give written notice of any such
payment, compromise or settlement to the Corporation;
(e) The Consultant hereby agrees to indemnify and hold harmless the
Corporation against and in respect of all Damages reasonably incurred
by the Corporation arising out of: (i) any misrepresentation or breach
of any warranty made by the Consultant pursuant to the provisions of
this Agreement, and (ii) the nonperformance or breach of any covenant,
agreement or obligation of the Consultant which has not been waived by
the Corporation;
(f) The Consultant shall be obligated to indemnify the Corporation for
Damages as to which the Corporation shall have given written notice to
the Consultant on or before the close of business on the sixtieth day
following the second anniversary hereof;
8
<PAGE>
(g) In any case where the Consultant has indemnified the Corporation for
any Damages and the Corporation recovers from third parties all or any
part of the amount so indemnified by the Consultant, the Corporation
shall promptly pay over to the Consultant the amount so recovered;
(h) With respect to claims or demands by third parties, whenever the
Corporation shall have received notice that such a claim or demand has
been asserted or threatened, which, if valid, would be subject to
indemnification hereunder, the Corporation shall as soon as reasonably
possible and in any event within thirty (30) days of receipt of such
notice, notify the Consultant of such claim or demand and of all
relevant facts within its knowledge which relate thereto. The
Consultant shall have the right at its expense to undertake the
defense of any such claim or demand utilizing counsel selected by the
Consultant and approved by the Corporation, which approval shall not
be unreasonably withheld. In the event that the Consultant should fail
to give notice of its intention to undertake the defense of any such
claim or demand within thirty (30) days after receiving notice that it
has been asserted or threatened, the Corporation shall have the right
to satisfy and discharge the same by payment, compromise or otherwise
and shall give written notice of any such payment, compromise or
settlement to the Consultant; and
(i) Without limiting any of the foregoing, the Corporation shall indemnify
and hold harmless the Consultant against any losses, claims, damages
or liabilities to which such Consultant becomes subject under federal
or state securities or blue sky laws, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) are based upon
any untrue statement of a material fact contained in a registration
statement filed pursuant hereto, a final prospectus contained in such
registration statement, or an amendment or supplement thereto, or are
based upon the omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
The Corporation shall reimburse the Consultant for any legal or any
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Corporation shall not be liable
-------- -------
in any case to the extent that any loss, claim, damage or liability
arises out of, is based upon or is derived from any untrue statement
or omission made in such registration statement, final prospectus or
any amendment or supplement thereto, in reliance upon and in
conformity with information furnished in writing to the Corporation by
or on behalf of the Consultant for use in preparation thereof.
9. Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws thereof and shall inure to the benefit of and be
binding upon the Consultant and the Corporation and their respective legal
successors and assigns.
10. Arbitration. The Corporation represents, warrants, covenants and
agrees that any controversy or claim brought in any capacity by the Corporation
against the Consultant or any members, officers, directors, agents, affiliates,
associates, employees or controlling persons of the Consultant shall be settled
by expedited arbitration under the Federal Arbitration Act in accordance with
the commercial arbitration rules of the American Arbitration Association ("AAA")
and judgment upon the award
9
<PAGE>
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Any controversy or claim brought by the Consultant against the
Corporation or its securityholders, officers, directors, agents, affiliates,
associates, employees or controlling persons shall be settled by arbitration
under the Federal Arbitration Act in accordance with the commercial arbitration
rules of the AAA and judgment rendered by the arbitrators may be entered in any
court having jurisdiction thereof. In arbitration proceedings under this
section, the parties shall be entitled to any and all remedies that would be
available in the absence of this section and the arbitrators, in rendering their
decision, shall follow the substantive laws of the State of Delaware. The
arbitration of any dispute pursuant to this paragraph shall be held in the State
of Delaware.
Notwithstanding the foregoing, in order to preserve the status quo pending
the resolution by arbitration of a claim seeking relief of an injunctive or
equitable nature, any party, upon submitting a matter to arbitration as required
by this section, may simultaneously or thereafter seek a temporary restraining
order or preliminary injunction from a court of competent jurisdiction pending
the outcome of the arbitration. This section is intended to benefit the members,
managers, agents, affiliates, associates and employees of the Consultant, each
of whom shall be deemed to be a third party beneficiary of this section, and
each of whom may enforce this section to the full extent that the Consultant
could do so if a controversy or claim were brought against it.
11. No Continuing Waiver. The waiver by any party of any provision or
breach of this Agreement shall not operate as or be construed to be a waiver of
any other provision hereof or of any other breach of any provision hereof.
12. Notice. Any and all notices from either party to the other which may
be specified by, or otherwise deemed necessary or incident to this Agreement
shall, in the absence of hand delivery with return receipt requested, be deemed
duly given when mailed if the same shall be sent to the address of the party set
out on the first page of this Agreement by registered or certified mail, return
receipt requested, or express delivery (e.g., Federal Express).
13. Severability of Provisions. The provisions of this Agreement shall be
considered severable in the event that any of such provisions are held by a
court of competent jurisdiction to be invalid, void or otherwise unenforceable.
Such invalid, void or otherwise unenforceable provisions shall be automatically
replaced by other provisions which are valid and enforceable and which are as
similar as possible in term and intent to those provisions deemed to be invalid,
void or otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
14. Assignability. This Agreement shall not be assignable without the
prior written consent of the non-assigning party or parties hereto and shall be
binding upon and inure to the benefit of any heirs, executors, legal
representatives or successors or permitted assigns of the parties hereto.
15. Entire Agreement; Amendment. This Agreement contains the entire
agreement among the Corporation and the Consultant with respect to the subject
matter hereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing executed by or on behalf of the party against whom enforcement of any
10
<PAGE>
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
16. Headings. The paragraph headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of the provisions of this Agreement.
17. Survival. Sections 6, 7, 8, 9, 11, 12 and 13 shall survive the
termination for any reason of this Agreement (whether such termination is by the
Corporation, upon the expiration of this Agreement by its terms or otherwise).
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as set forth below and have
caused their respective corporate seals to be hereunder affixed as of the date
first above written.
THINK NEW IDEAS, INC.
By: /s/ Scott A. Mednick
--------------------------------------------
Scott A. Mednick, Chief Executive Officer
BENCHMARK EQUITY GROUP, INC.
By: /s/ Frank M. DeLape
--------------------------------------------
Frank M. DeLape, President
11
<PAGE>
Exhibit 10.17 (b)
<PAGE>
BENCHMARK EQUITY GROUP, INC.
16815 ROYAL CREST DRIVE
SUITE 160
HOUSTON, TEXAS 77508
August 9, 1996
Scott A. Mednick, Chairman and
Chief Executive Officer
THINK New Ideas, Inc.
8522 National Boulevard, Suite 101
Culver City, California 90232-2481
Re: Amendment to Consulting Agreement (3/28/96)
-------------------------------------------
Dear Scott:
Reference is hereby made to that certain consulting agreement dated as of
March 28, 1996 (the "Consulting Agreement") between Benchmark Equity Group, Inc.
("Benchmark") and THINK New Ideas, Inc. (the "Corporation"). This letter is
intended to confirm that, notwithstanding anything else to the contrary set
forth in the Consulting Agreement, Benchmark and the Corporation hereby agree
that the reference in Section 3 of the Consulting Agreement to the Warrants (as
defined therein) shall be deleted therefrom and no Warrants shall be deliverable
thereunder. Except as otherwise expressly modified hereby or required to
effectuate the modification set forth herein, the Consulting Agreement shall
remain unchanged and shall continue in full force an effect pursuant to the
terms thereof.
This letter agreement contains the entire agreement between Benchmark and
the Corporation with respect to the modification which is the subject hereof.
This letter agreement may not be amended, changed, modified or discharged, nor
may any provision hereof be waived, except by an instrument in writing executed
by or on behalf of the party against whom enforcement of any amendment, waiver,
change, modification or discharge is sought. No course of conduct or dealing
shall be construed to modify, amend or otherwise affect any of the provisions
hereof. Please confirm that the Corporation is in agreement with the foregoing,
and that the foregoing is in accordance with your understanding by signing and
returning this letter, which shall thereupon constitute a binding agreement.
Agreed to and accepted as of this
9th day of August, 1996: Very truly yours,
THINK NEW IDEAS, INC. BENCHMARK EQUITY GROUP, INC.
By: /s/ Scott A. Mednick By: /s/ Frank M. DeLape
------------------------------- --------------------------------
Scott A. Mednick Frank M. DeLape, President
Chief Executive Officer
<PAGE>
Exhibit 10.18(a)
<PAGE>
- --------------------------------------------------------------------------------
STOCK PURCHASE AND OPTION AGREEMENT
by and between
OMNICOM GROUP INC.
and
THINK NEW IDEAS INC.
- -------------------------------------------------------------------------------
Dated August 16, 1996
<PAGE>
STOCK PURCHASE AND OPTION AGREEMENT
-----------------------------------
STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement") dated August 16,
1996 by and between OMNICOM GROUP INC., a New York corporation (the
"Purchaser");and THINK NEW IDEAS INC., a Delaware corporation (the "Company").
WITNESSETH:
----------
WHEREAS, the Company desire to sell, and the Purchaser desires to
purchase, shares of the common stock, par value $0.0001 per share (the "Common
Stock") of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
ARTICLE I
---------
SALE OF COMMON STOCK
--------------------
Section 1.1 Sale of Common Stock. Subject to the terms and conditions
--------------------
herein stated, the Company hereby sells, assigns, transfers and delivers to the
Purchaser, and Purchaser hereby purchases from the Company, 714,000 shares of
Common Stock, subject to adjustment as provided in Section 2.1 below (the
"Purchased Stock").
ARTICLE II
----------
PURCHASE PRICE AND CLOSING
--------------------------
Section 2.1 Purchase Price.
--------------
2.1.1 Closing Price. In full consideration for the purchase by the
-------------
Purchaser of the Purchased Stock, the purchase price per share of Common Stock
shall be $7 (the "Closing Price"), subject to adjustment as provided below.
2.1.2 Adjustments. Notwithstanding the provisions of Section 2.1.1.
-----------
above,
(i) In the event that there shall not have occurred
prior to February 28, 1997 the closing of a firm commitment underwritten public
offering (an "Offering") pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act") covering the
offer and sale of
1
<PAGE>
Common Stock for the account of the Company to the public, the purchase
price per share of Common Stock shall be reduced to $6 per share; and
(ii) In the event that there shall not have occurred prior
to August 31, 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer and
sale of Common stock for the account of the Company to the public, the
purchase price per share of Common Stock shall be reduced to $4 per
share.
The Company shall not refund to the Purchaser any portion of the Closing Price
paid by the Purchaser in the event of any such reduction in the purchase price
per share of Common Stock. Rather, upon a reduction due under Section 2.1
(a)(i), the Company shall, on February 28, 1997, issue to the Purchaser a
certificate or certificates representing an additional 119,000 shares of Common
Stock; and upon a reduction due under Section 2.1(a)(ii), the Company shall, on
August 31, 1997, issue to the Purchaser a certificate or certificates
representing an additional 416,500 shares of Common Stock.
2.1.3 Recapitalization. If the Company shall change its issued Common
----------------
Stock into an increased number of shares of Common Stock through a stock
dividend or split-up of shares, or into a decreased number of shares through a
combination of shares, then immediately after the record date for such change,
the number of shares of Purchased Stock (as such number may have been adjusted
pursuant to Section 2.1.2 above) shall be increased proportionately in the case
of such stock dividend or split-up, or decreased proportionately in the case of
such combination, and the purchase price of each such share of Common Stock
shall be adjusted appropriately
Section 2.2 Payment of the Purchase Price. Payment of the Purchase
-----------------------------
Price is being made in cash by the Purchaser to the Company by direct wire
transfer to the account of the Company as set forth on Exhibit A, as the Company
may otherwise direct.
Section 2.3 Closing. The Closing under this Agreement (the "Closing")
-------
is taking place simultaneously with the execution and delivery of this
Agreement, at the offices of Davis & Gilbert, 1740 Broadway, New York, New York
10019. Such date is herein referred to as the "Closing Date".
ARTICLE III
-----------
REPRESENTATIONS OF THE COMPANY
------------------------------
Section 3.1 Execution and Validity of Agreement. The Company has the
-----------------------------------
full power and authority to enter into this Agreement and to perform its
obligations hereunder. The
2
<PAGE>
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated hereby have been duly authorized by
all required action on behalf of the Company and its stockholders. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Purchaser, constitute
legal, valid and binding obligations of the Company enforceable against it in
accordance with its terms.
Section 3.2 Existence and Good Standing. The Company is duly organized
---------------------------
and validly existing under the laws of the State of Delaware, with the full
corporate power and authority to own its property and to carry on its business
all as and in the places where such properties are now owned or operated or such
business is now being conducted. The Company is duly qualified, licensed or
admitted to do business and is in good standing in those jurisdictions set forth
on Schedule 3.2, which are the only jurisdictions in which the ownership, use or
leasing of its assets and properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for those
jurisdictions in which a failure by the Company to be qualified, licensed or
admitted and in good standing can in the aggregate be corrected without material
cost or expense by the Company.
Section 3.3 Capital Stock: Subsidiaries and Investments
-------------------------------------------
3.3.1 Capital Stock. The Company has an authorized capitalization
-------------
consisting of 50,000,000 shares of Common Stock, of which 8,750,080 shares are
issued and outstanding, and no shares are held in the treasury of the Company;
and 5,000,000 shares of preferred stocks par value $0.0001 per share, none of
which are issued and outstanding. All such issued and outstanding shares have
been duly authorized and validly issued and are fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of stockholders.
No other class of capital stock of the Company is authorized or outstanding.
Except as set forth on Schedule 3.3.1, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, rights of exchange,
plans or other agreements of any character providing for the purchase, issuance
or sale of any shares of the capital stock of the Company.
3.3.2 Purchased Stock. All shares of Purchased Stock issued at the
---------------
Closing have been duly and validly authorized and issued, and are fully paid and
non-assessable shares of common stock of the Company, free of preemptive rights.
All additional shares of Purchased Stock which may be issued pursuant to the
provisions of Section 2.1 have been duly and validly authorized for issuance
and, when issued and delivered by the Company pursuant to Section 2.1, will be
validly issued, fully paid and non-assessable and free of preemptive rights.
3.3.3 Subsidiaries and Investments. Schedule 3.3.3 contains a true and
----------------------------
complete list of all of the Company's subsidiaries (individually a "Subsidiary"
and collectively the "Subsidiaries"), together with the jurisdiction of
organization and capitalization of each such Subsidiary; except as set forth on
Schedule 3.3.3, the Company does not own any capital stock
3
<PAGE>
or other equity or ownership or proprietary interest in any corporation,
partnership, association, trust, joint venture or other entity. Except as set
forth on Schedule 3.3.3, the Company owns of record and beneficially all of the
issued and outstanding shares of each Subsidiary, free and clear of all options,
claims, liens, pledges and restrictions of any kind and nature whatsoever. Each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with the full
corporate power and authority to own its property and to carry on its business
all as and in the places where such properties are now owned or operated or such
business is now being conducted. No Subsidiary is qualified to carry on business
in any jurisdiction other than the jurisdiction of incorporation, and neither
the character nor location of the properties owned or leased by any Subsidiary,
nor the nature of the business conducted by any Subsidiary, requires such
qualification in any jurisdiction. All of the outstanding shares of each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable. There are no outstanding options, warrants, rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase issuance or sale of any shares of the
capital stock of any Subsidiary.
Section 3.4 Financial Statements and No Material Changes. Schedule 3.4
--------------------------------------------
sets forth an unaudited consolidated balance sheet of the Company and its
subsidiaries as at June 30, 1996 (the "Balance Sheet") and the related unaudited
consolidated statements of operations, shareholders' equity (deficit) and cash
flow for the fiscal year then ended. Such financial statements, including the
footnotes thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently followed except as set forth on
Schedule 3.4.1. The Balance Sheet fairly presents the consolidated financial
condition of the Company and its Subsidiaries at the date thereof and fairly
presents all claims against and all debts and liabilities of the Company and its
Subsidiaries, fixed or contingent, as at the date thereof, required to be shown
thereon under GAAP, and the related statements of income, retained earnings and
cash flow fairly present the consolidated results of operations of the Company
and its Subsidiaries, retained earnings and the cash flow for the period
indicated. Since June 30, 1996 (the "Balance Sheet Date"), there has been no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations of the
Company and its Subsidiaries, taken as a whole.
Section 3.5 Books and Records. All accounts, books, ledgers and
-----------------
official and other records material to the business of the Company and its
Subsidiaries maintained by or on behalf of the Company and its Subsidiaries of
whatsoever kind have been properly and accurately kept and completed in all
material respects, and there are no material inaccuracies or discrepancies of
any kind contained or reflected therein. Neither the Company nor any Subsidiary
has any of its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent on or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under its exclusive ownership and possession.
4
<PAGE>
Section 3.6 Tangible Personal Property: Encumbrances. The Company and
----------------------------------------
each Subsidiary has good and valid title to, or enforceable leasehold interests
in or valid rights under contract to use all the properties and assets owned or
used by it (personal, tangible and intangible), including, without limitation
(a) all the properties and assets reflected in the Balance Sheet, and (b) all
the properties and assets purchased or otherwise contracted for by the Company
since the Balance Sheet Date (except for properties and assets reflected in the
Balance Sheet or acquired or otherwise contracted for since the Balance Sheet
Date that have been sold or otherwise disposed of in the ordinary course of
business), in each case free and clear of all mortgages, liens, security
interests, encumbrances, claims, charges and restrictions of any kind or
character (collectively, "Liens"), except for Liens set forth on Schedule 3.6.
The property, plant and equipment owned or otherwise contracted for by the
Company and the Subsidiaries are in a state of good maintenance and repair
(ordinary wear and tear excepted) and is adequate and suitable in all material
respects for the purposes for which they are presently being used.
Section 3.7 Real Property.
-------------
3.7.1 Owned Real Property. Neither the Company nor any Subsidiary owns
-------------------
a freehold interest in any real property or any option or right of first refusal
or first offer to acquire real property.
3.7.2 Leased Real Property. Schedule 3.7.2 contains an accurate and
--------------------
complete list of all real property leases to which the Company or any Subsidiary
is a party (as lessee, lessor, sublessee or sublessor), including, without
limitation, leases which the Company or any Subsidiary has subleased or assigned
to a third party and as to which it remains liable. Each real property lease set
forth on Schedule 3.7.2 (or required to be set forth on Schedule 3.7.2) is
valid, binding and in full force and effect all rents and additional rents and
other sums, expenses and charges due on each such lease have been paid; and the
lessee has been in peaceable possession since the commencement of its original
possession under such lease and no waiver, indulgence or postponement of the
lessee's obligations thereunder has been granted by the lessor. Except as set
forth in Schedule 3.7.2, there exists no default or event of default by the
Company or any Subsidiary or to the best knowledge, information and belief of
the Company, by any other party to such real property lease, or occurrence,
condition or act (including the purchase of the Common Stock hereunder) which,
with the giving of notice, the lapse of time or the happening of any further
event or condition, would become a default or event of default by the Company or
any Subsidiary under such real property lease, and there are no outstanding
claims of breach or indemnification or notice of default or termination of any
real property lease. The real property leased by the Company and any
Subsidiaries are, in all material respects, in a state of good maintenance and
repair and is, in all material respects, adequate and suitable for the purposes
for which it is presently being used, and to the best knowledge, information and
belief of the Company, there are no material repair or restoration works likely
to be required in connection with any of the leased real properties. Except as
set forth on Schedule 3.7.2, the Company and each Subsidiary is in physical
possession and actual
5
<PAGE>
and exclusive occupation of the whole of each of its leased properties. No real
property lease is subject or subordinate to any superior lease or mortgage
except as set forth on Schedule 3.7.2. Neither the Company nor any Subsidiary
owes any brokerage commission with respect to any such real property leases.
Section 3.8 Contracts. Schedule 3.8 hereto contains an accurate and
---------
complete list of the following agreements to which the Company or any Subsidiary
is a party: (a) all Plans (as such term is defined in Section 3.19), (b) any
personal property lease with a fixed annual rental of $25,000 or more, (c) any
contract relating to capital expenditures which involve payments of $25,000 or
more in any single or related transaction, (d) any loan or advance to, or
investment in, any other Person (as defined in Section 10.3) in an amount
exceeding $10,000 or any contract relating to the making of any such loan,
advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any other Person in an amount
exceeding $10,000 (other than the endorsement of negotiable instruments for
collection in the ordinary course of business), (f) any management service,
employment, consulting or any other similar type of contract, agreement or
document relating to services to be provided to the Company or any Subsidiary
which is not cancelable by the Company or such Subsidiary without penalty or
other financial obligation within 30 days, (g) any contract limiting its freedom
to engage in any line of business or to compete with any other Person, including
agreements limiting its ability to take on competitive accounts after the
termination thereof or limiting the ability of its affiliates to take on
competitive accounts during the term thereof, but excluding standard exclusivity
requirements in agreements with clients entered into in the ordinary course of
business, (h) any contract (not covered by another subsection of this Section
3.8) which involves $25,000 or more over the unexpired term thereof and is not
cancelable by the Company or a Subsidiary without penalty or other financial
obligation within 30 days, (i) any collective bargaining agreement, (j) any
contract with any of its officers or directors (including indemnification
agreements), (k) any secrecy or confidentiality agreement (other than standard
confidentiality agreements in computer software license agreements or agreements
with clients entered into in the ordinary course of business), (l) any licensing
or franchise agreement (other than license agreements for "off-the-shelf" third
party computer software not included within the Company's or the Subsidiaries'
products or services),(m) any agreement with a client which generates annual
revenues of $50,000 or more and (n) any joint venture agreement involving a
sharing of profits not covered by (a) through (m) above; provided, however, that
estimates or purchase orders given in the ordinary course of business relating
to the execution of projects, do not have to be set forth on Schedule 3.8. Each
contract set forth on Schedule 3.8 (or required to be set forth on Schedule 3.8)
is in full force and effect, and there exists no default or event of default by
the Company or any Subsidiary or to the best knowledge, information and belief
of the Company, by any other party, or occurrence, condition, or act (including
the purchase of the Common Stock hereunder) which, with the giving of notice,
the lapse of time or the happening of any other event or condition, would become
a default or event of default thereunder by the Company or any Subsidiary. There
are no outstanding claims of breach or indemnification or notice of default or
termination of any
6
<PAGE>
such contracts which have been asserted, or to the best knowledge, information
and belief of the Company, which may be asserted after the date hereof.
Section 3.9 Non-Contravention: Approvals and Consents.
-----------------------------------------
3.9.1 Non-Contravention. The execution, delivery and performance by
-----------------
the Company of its obligations hereunder and the consummation of the
transactions contemplated hereby, will not (a)violate, conflict with or result
in the breach of any provision of the charter documents or by-laws of the
Company, or (b) result in the violation by the Company of any statute, law,
rule, regulation or ordinance (collectively, "Laws"), or any judgment, decree,
order, writ, permit or license (collectively, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision (a "Governmental or Regulatory Authority"),
applicable to the Company or any of its assets or properties, except as would
not reasonably be expected to have a "Material Adverse Effect" (as defined
below), or (c) if the consents and notices set forth in Schedule 3.9.2 are
obtained or given, conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default under, or (except as
set forth in Schedule 3.9.2) require the Company to obtain any consent, approval
or action of, make any filing with or give any notice to, or result in or give
to any Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of the Company, under any of the
terms, conditions or provisions of any note, bond, mortgage, security agreement,
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (collectively, "Instruments") to
which the Company or any of its assets or properties is bound. For purposes of
this Agreement, "Material Adverse Effect" shall mean any material and adverse
effect on the financial condition, results of operations, assets, properties or
business of the Company and the Subsidiaries or the Purchaser, as applicable.
3.9.2 Approvals and Consents. Except as disclosed on Schedule 3.9.2,
----------------------
no consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Instrument to which the Company
or any Subsidiary is a party or their respective assets or properties are bound,
for the execution and delivery of this Agreement by the Company, the performance
by the Company of its obligations hereunder or the consummation of the
transactions contemplated hereby.
Section 3.10 Litigation. Except as set forth on Schedule 3.10, there
----------
is no action, suit, proceeding at law or in equity by any Person, or any
arbitration or any administrative or other proceeding by or before (or to the
best knowledge, information and belief of the Company, any investigation by) any
governmental or other instrumentality or agency, pending or, to the best
7
<PAGE>
knowledge, information and belief of the Company, threatened, against the
Company or any Subsidiary with respect to this Agreement or the transactions
contemplated hereby, or against or affecting the Company or any Subsidiary or
their respective properties or rights; and to he best knowledge, information
and belief of the Company, no acts, facts, circumstances, events or conditions
occurred or exist which are a basis for any such action, proceeding or
investigation. Neither the Company nor any Subsidiary is subject to any
judgment, order or decree entered in any lawsuit or proceeding.
Section 3.11 Taxes. The Company and each of its Subsidiaries have
-----
timely filed, or caused to be filed, taking into account any valid extensions of
due dates, completely and accurately, all federal, state, local and foreign tax
or information returns (including estimated tax returns) required under the
statutes, rules or regulations of such jurisdictions to be filed by the Company
and each Subsidiary with respect to income, franchise, capital stock, employees'
income withholding, back-up withholding, withholding on payments to foreign
persons, social security, unemployment, disability, real property, personal
property, sales, use, excise, transfer and other taxes (including interest,
penalties or additions to tax in respect of the foregoing) whether disputed or
not (all of the foregoing collectively referred to as "Taxes"). All Taxes shown
on said returns to be due and all additional assessments received prior to he
Balance Sheet Date have been paid or are being contested in good faith, in which
case such contested assessments are set forth on Schedule 3.11. The amount set
up as an accrual for Taxes on the Balance Sheet is sufficient for the payment of
all unpaid Taxes of the Company and each Subsidiary, whether or not disputed,
for all periods ended on and prior to the Balance Sheet Date. Since the Balance
Sheet Date, neither the Company nor any Subsidiary has incurred any liabilities
for Taxes other than in the ordinary course of business. The Company has
delivered to the Purchaser correct and complete copies of all federal and state
income tax returns filed with respect to the Company and each Subsidiary for all
taxable periods beginning on or after January 1, 1992. None of the federal,
state or local tax returns of the Company or any Subsidiary has ever been
audited by the Internal Revenue Service or any other governmental authority. No
examination of any return of the Company or any Subsidiary is currently in
progress, and neither the Company nor any Subsidiary has received notice of any
proposed audit or examination. No deficiency in the payment of Taxes by the
Company or any Subsidiary for any period has been asserted in writing by any
taxing authority and remains unsettled at the date of this Agreement. Neither
the Company nor any Subsidiary has made any agreement, waiver or other
arrangement providing for an extension of time with respect to the assessment or
collection of any tax against it or filed a consent with the Internal Revenue
Service pursuant to Section 341 (f)(2) of the Internal Revenue Code of 1986, as
amended (the "Code") or with any other governmental agency to any similar effect
or made an election under Section 338 of the Code. Neither the Company nor any
Subsidiary has been a member of an affiliated group filing consolidated federal
income tax returns (other than the group of which the Company is the common
parent) nor have any of them been included in any combined, consolidated or
unitary state or local income tax return. Neither the Company nor any Subsidiary
is a party to any tax allocation or tax sharing agreement nor do any of them
have any contractual obligation to indemnify any other person with respect to
Taxes. Neither the
8
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Company nor any Subsidiary will be required as a result of a change in
accounting method for any period ending on or before the Closing Date to include
any adjustment under (S)481 of the Code (or any similar provision of state,
local or foreign income tax law) in income for any period ending after the
Closing Date. Each of the Subsidiaries listed on Schedule 3.11 elected to be
taxed as and "S corporation" within the meaning of Section 1361 of the Code for
federal purposes and for the purposes of the respective states listed on such
Schedule. Such elections remained in full force and effect for the periods
specified in Schedule 3.11.
Section 3.12 Liabilities. Except as set forth in the Balance Sheet or
-----------
referred to in the footnotes thereto, the Company and the Subsidiaries so not
have any outstanding claims, liabilities or indebtedness of any nature
whatsoever (collectively in this Section 3.12, "Liabilities"), whether accrued,
absolute or contingent, determined or undetermined, asserted or unasserted, and
whether due or to become due, other than (i) Liabilities specifically disclosed
in any Schedule hereto; (ii) Liabilities under contracts, purchase orders and
other agreements, arrangements and commitments of the type required to be
disclosed by the Company on any Schedule and so disclosed or which because of
the dollar amount or other qualifications are not required to be listed on such
Schedule; (iii) Liabilities incurred in the ordinary course of business and
consistent with past practice since the Balance Sheet Date not involving
borrowings by the Company or any Subsidiary and (iv) liabilities which are fully
covered by insurance maintained by the Company or any Subsidiary. Schedule 3.8
sets forth a list of all current arrangements of the Company and the
Subsidiaries for borrowed money and all outstanding balances as of the date
hereof. Neither the Company nor any Subsidiary is in default in respect of the
terms or conditions of any borrowings.
Section 3.13 Insurance. The Company and the Subsidiaries maintain insurance
---------
of types and in amounts customary for business in similar situations. Neither
the Company nor any Subsidiary has received any notice of cancellation or
non-renewal of any such policy or binder. Except as set forth on Schedule 3.13,
within the last two years neither the Company nor any Subsidiary has filed for
any claims exceeding $25,000 against any of its insurance policies, exclusive of
automobile policies.
Section 3.14 Intellectual Properties. Schedule 3.14 hereto contain an
-----------------------
accurate and complete list of all Intellectual Property (as defined below) owned
by the Company and the Subsidiaries and all agreements under which any Person
has granted a license under any Intellectual Property to the Company or any
Subsidiary (other than license agreements for "off the shelf" third party
computer software not included within their products or services). The Company
and the Subsidiaries have all right, title and interest in, a valid and binding
license to use, or have the requisite permission and authority to use all
Intellectual Property used in the conduct of their business. Except as set forth
on Schedule 3.14, no claim or infringement or misappropriation of Intellectual
Property is or has been pending or, to the best knowledge, information and
belief of the Company, threatened against the Company or any Subsidiary and, to
the best knowledge, information and belief of the Company, neither the Company
nor any Subsidiary is infringing or misappropriating any Intellectual Property
of any Person. Neither
9
<PAGE>
the Company nor any Subsidiary has expressly granted any license, franchise or
permit in effect on the date hereof to any Person to use any of the trade names
or any of the trademarks owned by it. The term "Intellectual Property" means
patents and patent rights, trademarks and trademark rights, service marks and
service mark rights, service names and service name rights, copyright and
copyright rights, trade secrets and trade secret rights, rights of privacy and
publicity and other proprietary intellectual property and personal rights and
all pending and all pending applications for and registrations of any of the
foregoing.
Section 3.15 Compliance with Laws: Licenses and Permits.
------------------------------------------
3.15.1 Compliance. The Company and the Subsidiaries are, and their
----------
respective businesses have been conducted, in compliance with all applicable
Laws and Orders, except in each case where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect, including without
limitation, (a) all Laws and Orders promulgated by the Federal Trade Commission
or any other Governmental or Regulatory Authority; (b) all environmental
Laws and Orders; and (c) all Laws and Orders relating to labor, civil rights,
and occupational safety and health laws, worker's compensation, employment and
wages, hours and vacations, or pay equity. Neither the Company nor any
Subsidiary has been charged with, or, to the best information, knowledge and
belief of the Company threatened with or under any investigation with respect
to, any charge concerning any violation of any Laws or Orders.
3.15.2 Licenses. The Company and the Subsidiaries have all licenses and
--------
permits and other governmental certificates, authorizations and approvals
(collectively "Licenses") required by a Governmental or Regulatory Authority for
the operation of their respective businesses and the use of their respective
properties as presently operated or used, except where the failure to have such
Licenses would not reasonably be expected to have a Material Adverse Effect. All
of the Licenses are in full force and effect and no action or claim is pending,
nor to the best knowledge, information and belief of the Company is threatened,
to revoke or terminate any of such Licenses or declare any such License invalid
in any material respect.
Section 3.16 Client Relations. Schedule 3.16 sets forth for the Company
----------------
and the Subsidiaries (a) the clients as at June 30, 1996 and that had generated
fees to the Company and the Subsidiaries in excess of $50,000 for the fiscal
year then ended, together with the commissions and fees from each client and
from all clients (in the aggregate) for the fiscal year ended June 30, 1996 and
(b) the clients projected to be the twenty largest clients (measured by
commissions and fees) based on the Company's current 1997 profit plan for the
fiscal year ending June 30, 1997, together with the estimated commissions and
fees for each such client and all clients (in the aggregate) for such fiscal
year. The Company does not warrant that the projected revenues set forth on
Schedule 3.16 will prove to be accurate; provided, however, it does represent
that they were made in good faith and upon a reasonable basis. Except as set
forth in Schedule 3.16, no client of the Company (a) has advised the Company in
writing that it is terminating or considering terminating the handling of its
business by the Company or any Subsidiary, as a whole or in respect of any
particular project or service
10
<PAGE>
or (b) is planning to reduce its future spending with the Company or the
applicable Subsidiary in any material manner, and to the best knowledge,
information and belief of the Company (without making any inquiry of any
clients), no client has orally advised the Company of any of the foregoing
events.
Section 3.17 Accounts Receivable; Work-in-Process: Accounts Payable. The
------------------------------------------------------
amount of all work-in-process, accounts receivable, unbilled invoices (including
without limitation unbilled invoices for services and out-of-pocket expenses)
and other debts due or recorded in the records and books of account of the
Company and the Subsidiaries as being due to the Company or any Subsidiary and
reflected on the Balance Sheet will be good and collectible in full (less the
amount of any provision, reserve or similar adjustment therefor reflected on the
Balance Sheet). There has been no material change since the Balance Sheet Date
in the amount of the work-in-process, accounts receivable or other debts due to
the Company or any Subsidiary or the reserves with respect thereto, or accounts
payable of the Company and the Subsidiaries, in each case other than in the
ordinary course of business.
Section 3.18 Employment Relations. (a) Neither the Company nor any
--------------------
Subsidiary is engaged in any unfair labor practice; (b) no unfair labor practice
complaint against the Company or any Subsidiary is pending before any
Governmental or Regulatory Authority; (c) there is no organized labor strike,
dispute, slowdown or stoppage actually pending or to the best knowledge,
information and belief of the Company threatened against or involving the
Company or any Subsidiary; (d) there are no labor unions representing or, to the
best knowledge, information and belief of the Company, attempting to represent
the employees of the Company or any Subsidiary; (e) no claim or grievance nor
any arbitration proceeding arising out of or under any collective bargaining
agreement is pending and to the best knowledge, information and belief of the
Company, no such claim or grievance has been threatened; (f) no collective
bargaining agreement is currently being negotiated by the Company or any
Subsidiary; and (g) neither the Company nor any Subsidiary has experienced any
work stoppage or similar organized labor dispute during the last three years.
There is no legal action, suit, proceeding or claim pending or, to the best
knowledge, information and belief of the Company, threatened between the Company
or any Subsidiary and any of their respective employees, former employees,
agents, former agents, job applicants or any association or group of any of
their employees, except as set forth on Schedule 3.10.
Section 3.19 Employee Benefit Matter.
-----------------------
3.19.1 List of Plans. Schedule 3.8 to this Agreement lists all employee
-------------
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all termination,
severance or other contracts or agreements, whether formal or informal,
whether or not set forth in writing, whether covering one person or more than
one
11
<PAGE>
person, and whether or not subject to any of the provisions of ERISA, which are
maintained, contributed to or sponsored by the Company and the Subsidiaries for
the benefit of any employee (each item so listed on Schedule 3.8 being referred
to herein individually, as a "Plan" and collectively, as the "Plans"). The
Company has delivered to the Purchaser a complete and accurate copy (where
applicable) of (i) each written Plan and descriptions of any unwritten Plan
(including all amendments thereto whether or not such amendments are currently
effective), (ii) each summary plan description and summary of material
modifications relating to a Plan, (iii) each trust agreement or other funding
arrangement with respect to each Plan, including insurance contracts, (iv) the
most recently filed IRS 5500 relating to each Plan and (v) the most recently
received IRS determination letter for each Plan and (vi) the most recently
prepared actuarial reports and the three most recently prepared financial
statements, if applicable, in connection with each Plan. Except as set forth on
Schedule 3.19.1, neither the Company nor any Subsidiary has made any commitment,
whether legally enforceable or not, (i) to create or cause to exist any other
employee benefit plan, program or arrangement or (ii) to modify, change or
terminate any Plan.
3.19.2 Severance. Except as set forth on Schedule 3.19.2, none of the
---------
Plans, or any employment agreement or other contract to which the Company or any
Subsidiary is a party or bound, provides for the payment of or obligates the
Company or any Subsidiary to pay separation, severance, termination or similar-
type benefits to any Person or obligates the Company or any Subsidiary to pay
separation, severance, termination or similar-type benefits solely as a result
of any transaction contemplated by this Agreement or as a result of a "change in
control," within the meaning of such term under section 280G of the Code.
3.19.3 Multi-Employer Plans. Neither the Company, any Subsidiary, nor any
--------------------
ERISA Affiliate (as herein defined) has maintained, contributed to or
participated in a multi-employer plan (within the meaning of Section 3(37) or
4001(a)(3) of ERISA or a multiple employer plan subject to Section 4063 and 4064
of ERISA) nor has any obligations or liabilities, including withdrawal or
successor liabilities, regarding any such plan. As used herein, the term "ERISA
Affiliate" means any Person that, together with the Company or any Subsidiary,
is considered a "single employer" pursuant to Section 4001(b) of ERISA.
3.19.4 Welfare Benefit Plans. Schedule 3.8 sets forth a complete and
---------------------
accurate list of each Plan which provides or promises retiree medical,
disability or life insurance benefits to any current or former employee, officer
or director of the Company or any Subsidiary. Except as set forth on Schedule
3.19.4, the Company or a Subsidiary has expressly reserved the right, in all
Plan documents relating to welfare benefits provided to employees, former
employees, officers, directors and other participants and beneficiaries, to
amend, modify or terminate at any time the Plans which provide for welfare
benefits.
3.19.5 Administrative Compliance. Each Plan is now and has been operated
-------------------------
in all material respects in accordance with the requirements of all applicable
law, including, without limitation, ERISA and the Code, and the regulations and
authorities published
12
<PAGE>
thereunder. The Company and the Subsidiaries performed all material obligations
required to be performed by them under, are not in any respect in default under
or in violation of, and the Company has no knowledge of any default or violation
by any party to, and Plan. Except as set forth on Schedule 3.10, no legal
action, suit, audit, investigation or claim is pending or to the best knowledge,
information and belief of the Company threatened, with respect to any Plan
(other than claims for benefits in the ordinary course) and; to the best
knowledge, information and belief of the Company, and except as set forth on
Schedule 3.19.5, no fact, event or condition exists that would be reasonably
likely to provide a legal basis for any such action, suit, audit, investigation
or claim. All reports, disclosures, notices and filings with respect to such
Plans required to be made to employees, participants, beneficiaries, alternate
payees and government agencies have been timely made or an extension has been
timely obtained.
3.19.6 Tax Qualification. Except as set forth on Schedule 3.19.6, each
-----------------
Plan which is intended to be qualified under Section 401(a) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and each trust established in connection with any Plan which is intended to be
exempt from federal income taxation under section 501(a) of the Code has
received a determination letter from the IRS that it is so exempt, and to the
best knowledge, information and belief of the Company, no fact or event has
occurred or condition exists since the date of such determination letter from
the IRS which would be reasonably likely to adversely affect the qualified
status of any such Plan or the exempt status of any such trust.
3.19.7 Funding Excise Taxes. Except as set forth on Schedule 3.19.7,
--------------------
there has been no prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) with respect to any Plan subject to ERISA.
Neither the Company nor any Subsidiary has incurred any liability for any excise
tax arising under Sections 4971, 4972, 4975, 4976, 4977, 4978, 4978B, 4979, 4980
or 4980B of the Code or any civil penalty arising under Sections 502(i) or
502(1) of ERISA, and, to the best knowledge, information and belief of the
Company, no fact, event or condition exists which could give rise to any such
liability. Neither the Company, any Subsidiary nor any ERISA Affiliate has
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation ("PBGC"), or contributions to a Plan, in either case arising in the
ordinary course), including, without limitation, any liability in connection
with the termination of any employee benefit plan subject to Title IV of ERISA
(a "Title IV Plan"); and, to the best knowledge, information and belief of the
Company no fact, event or condition exists which could give rise to any such
liability. None of the assets of the Company, any Subsidiary or any ERISA
Affiliate is the subject of any Lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code; neither the Company, any Subsidiary nor any ERISA
Affiliate has been required to post any security under Section 307 of ERISA or
Section 401(a) (29) of the Code; and to the best knowledge, information and
belief of the Company, no fact or event exists which could give rise to any such
Lien or requirement to post any such security.
13
<PAGE>
3.19.8 Tax Deductions. All contributions, premiums or payments required
--------------
to be made, paid or accrued with respect to any Plan have been made, paid or
accrued on or before their due dates, including extensions thereof. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any government entity and to the
best knowledge, information and belief of the Company, no fact or event exists
which could give rise to any such challenge or disallowance.
Section 3.20 Interests in Customers, Suppliers, Etc. Except as set forth
---------------------------------------
on Schedule 3.20, to best knowledge, information and belief of the Company
(without making any special inquiry of the Related Group, as hereinafter
defined), no officer, director, or employee of the Company or any Subsidiary,
any parent, brother, sister, child or spouse of any such officer, director or
employee (collectively, the "Related Group"), or any entity controlled by anyone
in the Related Group:
(i) owns, directly or indirectly, any interest in (excepting
less than 1% stock holdings for investment purposes in securities
of publicly held and traded companies), or received payments from,
or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor,
lessee, supplier, distributor, sales agent, customer or client of
the Company or any Subsidiary;
(ii) owns, directly or indirectly (other than through the
ownership of stock or other securities of the Company), in whole or
in part, any tangible or intangible property (including but not
limited to Intellectual Property) that the Company or any
Subsidiary uses in the conduct of business; or
(iii) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company or any Subsidiary,
except as set forth on Schedule 3.20 or for claims in the ordinary
course of business such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof.
Section 3.21 Compensation of Employees. Schedule 3.21 is an accurate and
-------------------------
complete list showing (a) the names and positions of all employees and exclusive
consultants who are currently being compensated by the Company or any Subsidiary
at an annualized rate of $50,000 or more, together with a statement of the
current annual salary, the bonus compensation paid or payable with respect to
fiscal year 1996, and the material fringe benefits of such employees and
exclusive consultants not generally available to all employees of the Company or
the Subsidiaries, (b) all bonus compensation paid or payable (whether by
agreement, custom or understanding) to any employee of the Company or any
Subsidiary not listed in clause (a) above for services rendered during
calendar year 1996, and (c) the names of all retired employees, if any, of the
Company or any Subsidiary who are receiving or entitled to
14
<PAGE>
receive any healthcare of life insurance benefits or any payments from the
Company or any Subsidiary not covered by any pension plan to which the Company
or any Subsidiary is a party, their ages and current unfunded pension rate if
any. Except as set forth on Schedule 3.21, neither the Company nor any
Subsidiary has, because of past practices or previous commitments with respect
to its employees, established any rights on the part of any of its employees to
additional compensation with respect to any period after the Closing Date (other
than wage increases in the ordinary course of business). The present severance
and vacation policy of the Company and the Subsidiaries are set forth on
Schedule 3.21.
Section 3.22 No Changes Since the Balance Sheet Date. Since the
---------------------------------------
Balance Sheet Date except as specifically stated on Schedule 3.22 neither the
Company nor any Subsidiary has (i) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise), except in the
ordinary course of business and legal and accounting fees incurred in connection
with the Company's proposed public offering, (ii) permitted any of its assets to
be subjected to any lien, (iii) sold, transferred or otherwise disposed of any
assets except in the ordinary course of business, (iv) made any capital
expenditure or commitment therefor which individually or in the aggregate
exceeded $75,000, (v) declared or paid any dividends or made any distributions
on any shares of its capital, or redeemed, purchased or otherwise acquired any
shares of its capital stock or any option, warrant or other right to purchase or
acquire any such shares, (vi) made any bonus or profit sharing distribution
other than bonuses earned and accrued for calendar year 1995, (vii) increased or
prepaid its indebtedness for borrowed money, except current borrowings under
credit lines listed on Schedule 3.8 from banks in the ordinary course of
business or made any loan to any Person, (viii) written down the value of any
work-in-process, or written off as uncollectible any notes or accounts
receivable, except write-downs and write-offs in the ordinary course of
business, none of which individually or in the aggregate, is material to it (ix)
except as set forth on Schedule 3.21, granted any increase in the rate of wages,
salaries, bonuses or other remuneration of any employee who, whether as a result
of such increase or prior thereto, receives aggregate compensation from the
Company or any Subsidiary at an annual rate of $50,000 or more, or except in the
ordinary course of business to any other employees, (x) canceled or waived any
claims or rights of material value, (xi) made any change in any method of
accounting procedures, (xii) otherwise conducted its business or entered into
any transaction, except in the usual and ordinary manner and in the ordinary
course of its business, (xiii) amended or terminated any agreement which is
material to its business, (xiv) renewed, extended or modified any lease of real
property or except in the ordinary course of business any lease of personal
property, (xv) adopted, amended or terminated any Plan or (xvi) agreed, whether
or not in writing, to do any of the foregoing.
Section 3.23 Corporate Controls. Neither the Company, any Subsidiary,
------------------
nor, to the best knowledge, information and belief of the Company, any officer,
authorized agent, employee or any other Person while acting on behalf of the
Company or any Subsidiary, has, directly or indirectly: used any corporate fund
for unlawful contributions, gifts, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or
15
<PAGE>
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on its books or records; made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment, or other payment of a
similar or comparable nature, to any Person, private or public, regardless of
form, whether in money, property, or services, to obtain favorable treatment in
securing business or to obtain special concessions, or to pay for favorable
treatment for business secured or for special concessions already obtained, and
neither the Company nor any Subsidiary has participated in any illegal boycott
or other similar illegal practices affecting any of its actual or potential
customers.
Section 3.24 Brokers. No broker, finder, agent or similar intermediary
-------
has acted on behalf of the Company or any Subsidiary in connection with this
Agreement or the transactions contemplated hereby, and no brokerage commissions,
finder's fees or similar fees or commissions are payable by the Company or any
Subsidiary in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 3.25 Copies of Documents. The Company has caused to be made
-------------------
available for inspection and copying by the Purchaser and its advisers, true,
complete and correct copies of all documents referred to in this Article III or
in any Schedule. Summaries of all material oral contracts contained in Schedule
3.8 are complete and accurate in all material respects.
Section 3.26 Disclosure. None of this Agreement (including the
----------
Schedules hereto) contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein order to make the
statements herein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
----------
REPRESENTATIONS OF THE PURCHASER
--------------------------------
The Purchaser represents, warrants and agrees to and with the Company as
follows:
Section 4.1 Existence and Good Standing. The Purchaser is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, with full corporate power and authority to own its
property and to carry on its business all as and in the places where such
properties are now owned or operated or such business is now being conducted.
Section 4.2 Execution and Validity of Agreement. The Purchaser has the
-----------------------------------
full corporate power and authority to make, execute, deliver and perform this
Agreement and the transactions contemplated hereby. The execution and delivery
of this Agreement by the Purchaser and the consummation of the transactions
contemplated hereby have been duly
16
<PAGE>
authorized by all required corporate action on behalf of the Purchaser and this
Agreement has been duly and validly executed and delivered by the Purchaser and
assuming due authorization, execution and delivery by the Company constitutes a
legal, valid and binding obligation of it, enforceable against the Purchaser in
accordance with its terms.
Section 4.3 Non-Contravention: Approvals and Consents.
-----------------------------------------
4.3.1 Non-Contravention. The execution, delivery and performance by the
-----------------
Purchaser of its obligations hereunder and the consummation of the transactions
contemplated hereby, will not (a) violate, conflict with or result in the breach
of any provision of the charter documents or by-laws of the Purchaser, or (b)
result in the violation by the Purchaser of any Laws or Orders of any
Governmental or Regulatory Authority, applicable to the Purchaser or any of its
assets or properties, except as would not reasonably be expected to have a
Material Adverse Effect, or (c) conflict with, result in a violation or breach
of, constitute (with or without notice or lapse of time or both) a default
under, or require the Purchaser to obtain any consent, approval or action of,
make any filing with or give any notice to, or result in or give to any Person
any right of payment or reimbursement, termination, cancellation, modification
or acceleration of, or result in the creation or imposition of any Lien upon any
of the assets or properties of the Purchaser, under any of the terms, conditions
or provisions of any Instruments to which the Purchaser is a party or by which
the Purchaser or any of its assets or properties are bound.
4.3.2 Approvals and Consents. No consent, approval or action of, filing
----------------------
with or notice to any Governmental or Regulatory Authority or other public or
private third party is necessary or required under any of the terms, conditions
or provisions of any Law or Order of any Governmental or Regulatory Authority or
any Instrument to which the Purchaser is a party or by which the purchaser or
any of its assets or properties is bound for the execution and delivery of this
Agreement by the Purchaser, the performance by the Purchaser of its obligations
hereunder or the consummation of the transactions contemplated hereby.
Section 4.4 Brokers. No broker, finder, agent or similar intermediary has
-------
acted on behalf of the Purchaser or its affiliates in connection with this
Agreement or the transactions contemplated hereby, and no brokerage commissions,
finders' fees or similar fees or commissions are payable by the Purchaser or its
affiliates in connection therewith based on any agreement, arrangement or
understanding with any of them.
Section 4.5 Investment Intent. The Purchaser is acquiring the Purchased
-----------------
Stock for its own account, for investment and not with a view to the sale or
distribution thereof, nor with any present intention of distributing or selling
the same, and the Purchaser agrees that it shall not sell any shares of Common
Stock in violation of the Securities Act or the rules and regulations thereunder
then applicable. The Purchaser understands and agrees that the certificates
representing the shares of Common Stock acquired hereunder shall bear a legend
on
17
<PAGE>
the face thereof restricting transfer except in compliance with the Securities
Act and any applicable state securities laws.
ARTICLE V
---------
ACTIONS AT CLOSING BY THE COMPANY
---------------------------------
Simultaneously herewith:
Section 5.1 Required Approvals, Notices and Consents. The Company shall
----------------------------------------
have obtained or given, at no expense to the Purchaser and there shall not have
been withdrawn or modified any notices, consents, approvals or other actions
listed on Schedule 3.9.2 hereof (including without limitation, obtaining all
consents, approvals and/or waivers required under the contracts listed on
Schedule 3.8 in order to permit the consummation of the transactions
contemplated by this Agreement without causing or resulting in a default, event
of default, acceleration event or termination event under any of such documents
and without entitling any party to any of such documents and without entitling
any party to any of such documents to exercise any other right or remedy adverse
to the interests of the Purchaser or the Company thereunder). Each such consent
or approval shall be in form reasonably satisfactory to counsel for the
Purchaser.
Section 5.2 Shareholder Agreement. The shareholders of the Company have
---------------------
executed and delivered a Shareholders Agreement, in the form of Exhibit B
hereto.
Section 5.3 Certified Resolutions. The Company is delivering to the
---------------------
Purchaser a copy of the resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and the
transactions and other agreements contemplated hereby, certified to by the
Secretary of the Company.
Section 5.4 Accountants Letter. BDO Seidman LLP, independent certified
------------------
public accountants, shall have delivered a letter to the Purchaser as to the
status of their audit review of the Company's financial statements as at and for
the period ended June 30, 1996.
Section 5.5 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement and all documents incident
thereto were reasonably satisfactory in form and substance to the Purchaser and
its counsel, and the Purchaser received copies of all such documents and other
evidences as it or its counsel may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
18
<PAGE>
Section 5.6 Opinion of Counsel. The Purchaser shall have received the
------------------
opinion of De Martino Finkelstein Rosen & Virga, special counsel to the Company,
dated the Closing Date, substantially in the form and to the effect of Exhibit C
hereto.
ARTICLE VI
----------
ACTIONS AT CLOSING BY THE PURCHASER
-----------------------------------
Simultaneously herewith:
Section 6.1 Proceedings. All proceedings to be taken in connection with
-----------
the transactions contemplated by this Agreement, and all documents incident
thereto were reasonably satisfactory in form and substance to the Company and
its counsel and the Company received copies of all such documents and other
evidences as it or its counsel may reasonably request in order to establish the
consummation of such transaction and the taking of all proceedings in connection
therewith.
ARTICLE VII
-----------
OPTION STOCK
------------
Section 7.1 Grant of Option. The Company hereby grants to the Purchaser
---------------
the option (the "Option") to purchase additional shares of Common Stock of the
Company (the "Option Stock") in amounts calculated, and for a purchase price
determined, in accordance with Sections 7.2 and 7.3 hereof. The Option may be
exercised in whole or in part by written notice or notices given by the
Purchaser to the Company at any time prior to August 31, 1998 (each such notice,
an "Option Notice"). Each Option Notice shall specify the number of shares of
Common Stock as to which the Option is then being exercised.
Section 7.2 Purchase Price of Option Stock. The purchase price per share
------------------------------
of Option Stock (the "Option Price") shall be determined as follows:
(i) The base Option Price shall be $8 per share of Option
Stock;
(ii) In the event that there shall not have occurred prior to
February 28, 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer
and sale of Common Stock for the account of the Company to the
public, the Option Price shall be $6 per share of Option Stock; and
19
<PAGE>
(iii) In the event that there shall not have occurred prior
to August 31 1997 the closing of an Offering pursuant to an effective
registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company to the public, the
Option Price shall be $4 per share of Option Stock.
In the event that the Purchaser shall have exercised the Option in whole or in
part prior to either such specified date, then in the event of a reduction due
under Section 7.2(ii) and/or Section 7.2(iii), the Company shall not refund to
the Purchaser any portion of the purchase price theretofore paid by the
Purchaser. Rather, the Company shall issue to the Purchaser additional shares of
Common Stock on the applicable dates to reflect the applicable reduction.
Section 7.3 Number of Shares of Option Stock.
--------------------------------
The number of shares of Common Stock constituting the Option Stock
shall be calculated as follows:
(i) The base number of shares constituting the Option Stock
shall be 850,000;
(ii) In the event the Option Price is reduced pursuant to
Section 7.2(ii) above, the number of shares of Common Stock
constituting the Option Stock shall be 1,133,333; and
(iii) In the event the Option Price is reduced pursuant to
Section 7.2(iii) above, the number of shares of Common Stock
constituting the Option Stock shall be 1,700,000.
Section 7.4 Other Adjustments to Option Price and Option Stock. If the
--------------------------------------------------
Company shall change its issued Common Stock into an increased number of shares
of Common Stock through a stock dividend or split-up of shares, or into a
decreased number of shares through a combination of shares, then immediately
after the record date for such change, the number of shares of Common Stock then
subject to the Option shall be increased proportionately in the case of such
stock dividend or split-up, or decreased proportionately in the case of such
combination, and the purchase price of each such share of Common Stock shall be
adjusted appropriately.
Section 7.5 Representations and Warranties of the Company relating to the
-------------------------------------------------------------
Option Stock. The Company hereby represents, warrants, and agrees to and with
- ------------
the Purchaser as follows:
(a) The shares of Common Stock constituting the Option Stock have
been
20
<PAGE>
duly and validly authorized for issuance and, when issued and delivered by the
Company against payment therefor, will be validly issued and fully paid and
non-assessable and free of preemptive rights.
(b) The Company shall at all times during the term of the Option
reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of this Agreement, shall pay all
original issue taxes, if any, with respect to the issuance of shares of Common
Stock pursuant hereto and all other fees and expenses necessarily incurred by
the Company in connection therewith, and shall, from time to time, use its best
efforts to comply with all laws and regulations which, in the opinion of
counsel to the Purchaser, shall be applicable thereto.
Section 7.6 Closing of Purchase of Option Stock. A Closing for purchase
-----------------------------------
and sale of Option Stock under the provisions of this Article VII shall be held
at the offices of the Company within 30 days after the delivery of the related
Option Notice. At each such Closing, the Purchaser shall pay the applicable
purchase price, based upon the applicable Option Price and the number of shares
of Option Stock as to which the Option is then being exercised, by wire transfer
to the account of the Company as set forth on Exhibit A, or as the Company may
otherwise direct; and the Company shall issue and deliver to the Purchaser a
certificate or certificates representing the shares of Common Stock being
purchased.
ARTICLE VIII
------------
OTHER AGREEMENTS
----------------
Section 8.1 Standstill. The Purchaser hereby undertakes and agrees that
from the date hereof through August 31,1998, it shall not without the approval
of the Company's Board of Directors purchase any shares of capital stock of the
Company other than pursuant to this Agreement and the Shareholders agreement
attached as Exhibit B hereto.
21
<PAGE>
ARTICLE IX
----------
SURVIVAL; INDEMNITY
-------------------
Section 9.1 Survival. Notwithstanding any right of any party hereto
--------
fully to investigate the affairs of any other party, and notwithstanding any
knowledge of facts determined or determinable pursuant to such investigation or
right of investigation, each party hereto shall have the right to rely fully
upon the representations, warranties, covenants and agreements of the other
parties contained in this Agreement and the Schedules, if any, furnished by any
other party pursuant to this Agreement, or in any certificate delivered at the
Closing by any other party. Subject to the limitations set forth in Section 9.5,
the respective representations, warranties, covenants and agreements of the
Company and the Purchaser contained in this Agreement shall survive the Closing.
Section 9.2 Obligation of the Company to Indemnify. Subject to the
--------------------------------------
limitations contained in Section 9.5 the Company hereby agrees to indemnify the
Purchaser and its affiliates (individually a "Purchaser Indemnified Party" and
collectively, the "Purchaser Indemnified Parties") against, and to protect, save
and keep harmless the Purchaser Indemnified Parties from, and to assume
liability for, payments of all liabilities (including liabilities for Taxes),
obligations, losses, damages, penalties, claims, actions, suits, judgments,
settlements, out-of-pocket costs, expenses and disbursements (including
reasonable costs of investigation, and reasonable attorneys', accountants' and
expert witnesses' fees) of whatever kind and nature to the extent not covered by
insurance which the applicable Indemnified Parties (as defined below) will be
entitled to obtain the benefits of (collectively, "Losses"), that may be imposed
on or incurred by any Purchaser Indemnified Party or the Company (collectively,
the "Group") as a consequence of or in connection with (i) any inaccuracy or
breach of any representation or warranty contained in Article III hereof, or
(ii) any inaccuracy or breach of any representation or warranty contained in
Article VII hereof, or (iii) any breach of or failure by the Company to comply
with or perform any agreement or covenant by the Company contained in this
Agreement. The term "Losses" as used herein is not limited to matters asserted
by third parties against the Group but includes Losses incurred or sustained by
the Group in the absence of third party claims.
Section 9.3 Obligation of the Purchaser to Indemnify. Subject to the
----------------------------------------
limitations set forth in Section 9.5 hereof, the Purchaser hereby agrees to
indemnify the Company (collectively, the Purchaser Indemnified Parties and the
Company are referred to as the "Indemnified Parties") against, and to protect,
save and keep harmless the Company from and to assume liability for any and all
Losses that may be imposed on or incurred by the Company as a consequence of or
in connection with (i) any inaccuracy or breach of any representation or
warranty contained in Article IV hereof or (ii) any breach of or failure by the
Purchaser to comply with or perform any agreement or covenant by the Purchaser
contained in this Agreement.
22
<PAGE>
Section 9.4 Indemnification Procedures.
--------------------------
9.4.1 Notice of Asserted Liability. The Indemnified Party shall
----------------------------
promptly give notice (the "Claims Notice") to the party or parties required to
pay any amount in respect of Losses under Section 9.2 or 9.3 (collectively, the
"Indemnifying Party"), of any demand, claim or circumstances which in good faith
it believes gives rise, or with the lapse of time would or might give rise to a
claim or the commencement (or threatened commencement) of any action, proceeding
or investigation that may result in any Losses (an "Asserted Liability") without
regard to the limitations on indemnification set forth in Section 9.5 below. The
Claims Notice shall describe the Asserted Liability in reasonable detail, shall
indicate the amount (estimated, if necessary, and to the extent feasible) of the
Losses that have been or may by suffered by an Indemnified Party.
9.4.2 Defense of Asserted Liability. The Indemnifying Party may elect
-----------------------------
to compromise, settle or defend, at its own expense and by its own counsel (such
counsel to be reasonably satisfactory to the Indemnified Party), any Asserted
Liability. If the Indemnifying Party elects to compromise, settle or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnified Party in writing of its
intent to do so and the Indemnified Party shall cooperate, at the request and
expense of the Indemnifying Party, in the settlement or compromise of, or
defense against, such Asserted Liability. If the Indemnifying Party elects not
to compromise, settle or defend the Asserted Liability, or fails to notify the
Indemnified Party of its election as herein provided, the Indemnified Party may
pay, compromise, settle or defend such Asserted Liability at the expense of the
Indemnifying Party and the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to such third party claim.
Notwithstanding the foregoing, the Indemnifying Party may not settle or
compromise any claim without the prior written consent of the Indemnified Party,
if such settlement or compromise does not include an unconditional release from
all liability without future obligation or prohibition on the part of the
Indemnified Party. If an Indemnified Party objects to a bona fide offer of
settlement which provides solely for a monetary payment and includes an
unconditional release from all liability without future obligation or
prohibition on the part of the Indemnified Party, which the Indemnifying Party
wishes to accept, the Indemnified Party may continue to pursue such matter, free
of any participation by the Indemnifying Party, at the expense of the
Indemnified Party. In such event, the obligation of the Indemnifying Party shall
be limited to the amount of the offer of settlement which the Indemnified Party
refused to accept plus the costs and expenses of the Indemnified Party incurred
prior to the date the Indemnifying Party notified the Indemnified Party of the
offer of settlement. The Indemnified Party shall have the right to employ its
own counsel in any case with respect to an Asserted Liability, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (a) the employment of such counsel shall have been authorized in writing
by the Indemnifying Party in connection with the defense of such action, (b)
such Indemnifying Party shall not have, as provided above, promptly employed
counsel reasonably satisfactory to such Indemnified Party to take charge of the
defense of such action, or (c) such Indemnified Party shall have
23
<PAGE>
reasonably concluded that there may be one or more legal defenses available to
it which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees and expenses
shall be borne by the Indemnifying Party and the Indemnifying Party shall not
have the right to direct the defense of such action on behalf of the Indemnified
Party in respect of such different or additional defenses. If the Indemnifying
Party chooses to defend any claim, the Indemnified Party shall make available to
the Indemnifying Party any books, records or other documents within its control
that are necessary or appropriate for such defense. The parties hereto agree to
cooperate fully with one another in the defense, compromise or settlement of any
Asserted Liability.
9.4.3 Control by Purchaser. All decisions and determinations to be
made by the Purchaser and/or a Purchaser Indemnified Party under Article IX
shall be made by the Purchaser in the name of and on behalf of the Purchaser or
such other Purchaser Indemnified Party and all such decisions and determinations
shall be binding upon the parties hereto and such Purchaser Indemnified Party.
Section 9.5 Limitations on Indemnification.
------------------------------
9.5.1 Termination of Indemnification Obligations of the Company under
---------------------------------------------------------------
Section 9.2(i). The obligation of the Company to indemnify under clause (i) of
- --------------
Section 9.2 hereof shall terminate on the earlier of (x) the closing of the
Company's first firm commitment underwritten public offering pursuant to an
effective registration statement filed under the Securities Act covering the
offering and sale of capital stock for the account of the Company to the public;
and (y) June 30, 1999 except (i) as to matters as to which the Purchaser
Indemnified Party has made a claim for indemnification or given a Claims Notice
under Section 9.4 hereof on or prior to such date and, (ii) with respect to any
claim for Losses pertaining to a misrepresentation or a breach of representation
or warranty under Section 3.11 or any other Section of Article III of this
Agreement relating to Taxes, and (iii) with respect to any claim for Losses
pertaining to a misrepresentation or a breach of representation and warranty
under Section 3.4 or Section 3.26 hereof. The obligation to indemnify referred
to in:
(a) the preceding clause (i) shall survive the expiration of
such period until such claims are finally resolved and any obligations with
respect thereto are fully satisfied; and
(b) the preceding clause (ii) shall terminate 60 days after the
expiration of the relevant federal, state or local statute of limitations,
except as to matters as to which any Indemnified Party has made a claim for
indemnification or given a Claims Notice under Section 9.4 on or prior to such
date, in which case the right to indemnification with respect thereto shall
survive the expiration of any such period until such claim is finally resolved
and any obligations with respect thereto are fully satisfied and
(c) the preceding clause (iii) shall terminate on June 30, 1999,
except as to matters as to which the Purchaser Indemnified Party has made a
claim for indemnification or
24
<PAGE>
given a Claims Notice under Section 9.4 hereof on or prior to such date, as to
which the obligation to indemnify shall survive the expiration of such period
until such claims are finally resolved and any obligations with respect thereto
are fully satisfied.
9.5.2 Termination of Indemnification Obligations of the Company under
---------------------------------------------------------------
Section 9.2(ii) The obligation of the Company to indemnify under clause (ii) of
- ---------------
Section 9.2 hereof shall terminate on the third anniversary of the respective
Closing(s) of the purchase and sale of Option Stock, except in each case as to
matters as to which the Purchaser Indemnified Party has made a claim for
indemnification or given a Claims Notice under Section 9.4 hereof on or prior to
such date, as to which the obligation to indemnify shall survive the expiration
of such period until such claims are finally resolved and any obligations with
respect thereto are fully satisfied.
9.5.3 Termination of Indemnification Obligations of the Purchaser. The
-----------------------------------------------------------
obligation of the Purchaser to indemnify under clause (i) of Section 9.3 hereof
shall terminate on June 30, 1999 except as to matters as to which the Company
has made a claim for indemnification or given a Claims Notice under Section 9.4
hereof on or prior to such date, in which case the right to indemnification with
respect thereto shall survive until the related claim for indemnification has
been finally resolved and any obligations with respect thereto are fully
satisfied.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 10.1 Expenses. The parties hereto shall pay all of their own
--------
expenses relating to the transactions contemplated by this Agreement, including,
without limitation, the fees and expenses of their respective counsel and
financial advisers.
Section 10.2 Governing Law. The interpretation and construction of
-------------
this Agreement, and all matters relating hereto, shall be governed by the laws
of the State of New York without reference to its conflict of laws provisions.
Section 10.3 "Person" Defined. "Person" shall mean and include an
----------------
individual, a Company, a joint venture, a corporation, a trust, an
unincorporated organization and a government or other department or agency
thereof.
Section 10.4 "Knowledge" Defined. Where any representation and
-------------------
warranty contained in this Agreement is expressly specified by reference to the
best knowledge, information and belief of the Company, such term shall be
limited to the actual knowledge of the executive officers of the Company and
unless otherwise stated, such knowledge that would have been discovered by all
such persons after reasonable inquiry.
25
<PAGE>
Section 10.5 "Affiliate" Defined. As used in this Agreement, an
-------------------
"affiliate" of any Person, shall mean any Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such Person.
Section 10.6 Captions. The Article and Section captions used herein
--------
are for reference purposes only, and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 10.7 Publicity. Subject to the provisions of the next
---------
sentence, no party to this Agreement shall issue any press release or other
public document or make any public statement relating to this Agreement or the
matters contained herein without obtaining the prior approval relating to this
Agreement or the matters contained herein without obtaining the prior approval
of the Purchaser and the Company. Notwithstanding the foregoing, the foregoing
provision shall not apply to the extent that the Purchaser or the Company is
required to make any announcement relating to or arising out of this Agreement
by virtue of the federal securities laws of the United States or the rules
and regulations promulgated thereunder or other rules of the New York Stock
Exchange or the National Association of Securities Dealers, or any announcement
by the Company or the Purchaser pursuant to applicable law or regulations.
Section 10.8 Notices. Unless otherwise provided herein, any notice,
-------
request, instruction or other document to be given hereunder by any party to any
other party shall be in writing and shall be deemed to have been given (a) upon
personal delivery, if delivered by hand, (b) three days after the date of
deposit in the mails, postage prepaid, if mailed by certified or registered
mail, or (c) the next business day if sent by facsimile transmission (if receipt
is electronically confirmed) or by a prepaid overnight courier service, and in
each case at the respective addresses or numbers set forth below or such other
address or number as such party may have fixed by notice:
If to the Purchaser, addressed to:
Diversified Agency Services Group
Division of Omnicom Group, Inc.
437 Madison Avenue
New York, New York 10022
Attention: Chief Financial Officer
Fax: (212) 415-3530
with a copy to:
--------------
Davis & Gilbert
1740 Broadway
New York, New York 10019
Attention: Michael D. Ditzian, Esq.
Fax: (212) 468-4888
26
<PAGE>
If to the Company to its address set forth on Exhibit A:
with a copy to:
--------------
De Martino Finkelstein Rosen & Virga
Suite 400
1818 N Street, N.W.
Washington D.C. 20036-2492
Attention: Ralph V. De Martino, Esq.
Fax: (202) 659-1290
Section 10.9 Parties in Interest. This Agreement may not be transferred,
-------------------
assigned, pledged or hypothecated by any party hereto, other than by operation
of law, except that the Purchaser may assign or transfer the Purchased Stock
and/or Option to any company within its group of companies whose capital stock
is wholly owned, directly or indirectly, by it. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
Section 10.10 Severability. In the event any provision of this Agreement
------------
is found to be void and unenforceable by a court of competent jurisdiction, the
remaining provisions of this Agreement shall nevertheless be binding upon the
parties with the same effect as though the void or unenforceable part had been
severed and deleted.
Section 10.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which taken together shall constitute one instrument.
Section 10.12 Entire Agreement. This Agreement, including the other
----------------
documents referred to herein and the Exhibits and Schedules hereto which form a
part hereof, contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and therein. This agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
Section 10.13 Amendments. This Agreement may not be amended, supplemented
----------
or modified orally, but only by an agreement in writing signed by the Purchaser
and the Company.
Section 10.14 Third Party Beneficiaries. Each party hereto intends that
-------------------------
this Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the parties hereto and their respective
successors and assigns as permitted under Section 10.9.
Section 10.15 Jurisdiction. Any judicial proceeding brought against any
------------
of the parties to this Agreement on any dispute arising out of this Agreement or
any matter related hereto shall be brought in the courts of the State of New
York or in the United States District Court for the
27
<PAGE>
Southern District of New York, and, by execution and delivery of this Agreement,
each of the parties to this Agreement accepts for itself or himself the process
in any action or proceeding by the mailing of copies of such process to such
party at its address as set forth in Section 10.8, and irrevocably agrees to be
bound by any judgement rendered thereby in connection with this Agreement. Each
party hereto irrevocably waives to the fullest extent permitted by law any
objection that it or he may now or hereafter have to the laying of the venue of
any judicial proceeding brought in such courts and any claim that any such
judicial proceeding has been brought in an inconvenient forum. The foregoing
consent to jurisdiction shall not constitute general consent to service of
process in the State of New York for any purpose except as provided above and
shall not be deemed to confer rights on any person other than the respective
parties to this Agreement. EACH PARTY HERETO WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING UNDER THIS AGREEMENT.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on the
day and year first above written.
THINK NEW IDEAS INC.
By: /s/ Ron Bloom
----------------------------------
Name: Ron Bloom
Title: COO
OMNICOM GROUP INC.
By:
----------------------------------
Name:
Title:
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, on the
day and year first above written.
THINK NEW IDEAS INC.
By:
----------------------------------
Name:
Title:
OMNICOM GROUP INC.
By: /s/ Barry J. Wagner
----------------------------------
Name: Barry Wagner
Title: Secretary
<PAGE>
Exhibit 10.18(b)
<PAGE>
THINK New Ideas, Inc.
45 West 36th Street
New York, New York 10018
September 23, 1996
Mr. Dale Adams
Chief Financial Officer
Omnicom Group Inc.
437 Madison Avenue
New York, New York 10022
Re: Amendment to Purchase Agreement (dated 8/16/96)
-----------------------------------------------
Dear Dale:
Reference is hereby made to that certain Stock Purchase and Option
Agreement dated as of August 16, 1996 (the "Purchase Agreement") between THINK
New Ideas, Inc. (the "Corporation") and Omnicom Group Inc. ("Omnicom"). This
letter is intended to confirm that, notwithstanding anything else to the
contrary set forth in the Purchase Agreement, the Corporation and Omnicom hereby
have agreed that in consideration of the issuance to Omnicom of 2,123,422
additional shares of Common Stock, par value $.0001 (the "Common Stock") by the
Corporation, the Purchase Agreement shall be amended such that Article VII of
the Stock Purchase Agreement relating to the Option (as defined therein) shall
be deleted therefrom in its entirety, all references elsewhere in the Purchase
Agreement to the Option shall be of no force or effect whatsoever and no shares
of Common Stock shall be deliverable thereunder. Except as otherwise expressly
modified hereby or require to effectuate the modification set forth herein, the
Purchase Agreement shall remain unchanged and shall continue in full force and
effect pursuant to the terms thereof.
It is expressly understood that the number of additional shares of
Common Stock issuable as consideration hereunder contemplates the effects of the
Corporation's proposed .496225157 for one reverse stock split which will give
Omnicom ownership of 22% of the Corporation's outstanding shares of Common
Stock. It is further understood that the Corporation my effect additional
reverse stock splits and that nothing set forth herein or in the Purchase
Agreement shall be construed to prohibit, restrict or otherwise limit the
Corporation's ability to effect such transactions.
In connection with execution hereof, the Corporation and Omnicom have
agreed that continuing effectiveness of this letter agreement and the amendments
and modifications referred to herein are conditioned upon the Corporation's
consummation of an underwritten public offering of no more than 3,000,000
shares of Common Stock(plus any overallotment option and convertible securities
issued to the underwriters thereof in connection therewith) for gross
<PAGE>
Mr. Dale Adams
September 23, 1996
Page 2
proceeds of no less than $15,000,000 (exclusive of any overallotment option and
convertible securities issued to the underwriters thereof in connection
therewith).
This letter agreement contains the entire agreement between the Corporation
and Omnicom with respect to the modification which is the subject hereof. This
letter agreement may not be amended, changed, modified or discharged, nor may
any provision hereof be waived, except by an instrument in writing executed by
or on behalf of the party against whom enforcement of any amendment, waiver,
change, modification or discharge is sought. No course of conduct or dealing
shall be construed to modify, amend or otherwise affect any of the provisions
hereof. Please confirm that Omnicom is in agreement with the foregoing, and that
the foregoing is in accordance with your understanding by signing and returning
this letter, which shall thereupon constitute a binding agreement.
Agreed to and accepted as of this
23rd day of September, 1996:
OMNICOM GROUP INC. THINK NEW IDEAS, INC.
By: By:
--------------------------- ---------------------------------------
Melvin Epstein, Chief Financial Officer
Its:
--------------------
<PAGE>
Exhibit 10.19
<PAGE>
Exhibit 10.19
ESCROW AGREEMENT
----------------
AGREEMENT, dated as of the th day of ________, 1996, by and among
Continental Stock Transfer & Trust Company, a New York corporation (hereinafter
referred to as the "Escrow Agent"), THINK New Ideas, Inc., a Delaware
corporation (the "Company"), and the stockholders of the Company who have
executed this agreement (hereinafter collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public
Offering") of shares of its Common Stock, par value $.0001 per share (the
"Common Stock") through Commonwealth Associates as underwriter (the
"Underwriter") pursuant to a Registration Statement on Form SB-2 to be filed
with the Securities and Exchange Commission (the "Registration Statement"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an
aggregate of 1,500,000 shares of Common Stock, $.0001 par value, upon the terms
and conditions set forth herein.
In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint Continental Stock
Transfer & Trust Company as Escrow Agent and agree that the Stockholders will,
prior to the filing of the Registration Statement (as hereinafter defined)
relating to the Public Offering deliver to the Escrow Agent to hold in
accordance with the provisions hereof, certificates representing an aggregate of
1,500,000 shares of Common Stock owned of record by the Stockholders in the
respective amounts set forth on Exhibit A hereto (the "Escrow Shares"), together
with stock
<PAGE>
powers executed in blank. The Escrow Agent, by its execution and delivery of
this Agreement hereby acknowledges receipt of the Escrow Shares and accepts its
appointment as Escrow Agent to hold the Escrow Shares in escrow, upon the terms,
provisions and conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares in accordance with the terms hereof (the
"Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of
the money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split, merger, recapitalization, dissolution, or total
or partial liquidation of the Company, such property to be held and distributed
as herein provided and hereinafter referred to collectively as the "Escrow
Property."
4. (a) The Escrow Shares are subject to release to the Stockholders
only in the event the conditions set forth herein are met. The Escrow Agent,
upon notice to such effect from the Company as provided in paragraph 5 hereof,
shall deliver the Escrow Shares, together with stock powers executed in blank,
and the Escrow Property deposited in escrow with respect to such Escrow Shares,
to the respective Stockholders, if, and only if, one of the following conditions
is met:
-2-
<PAGE>
(i) the Company's net income before provision for income taxes (the
"Minimum Pre-Tax Income") equals or exceeds $0.79 per share
for any of the fiscal years ending June 30, 1997, 1998 or 1999;
or
(ii) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $20 per share for any 40
consecutive business days during the period commencing on the
Effective Date and ending 36 months from the Effective Date;
or
(iii) the Company is acquired by or merged into another entity in a
transaction in which stockholders of the Company receive per
share consideration at least equal to the level set forth in
(ii) above.
The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $20 per share for any 40
consecutive business days during the period commencing on the
thirteenth month after the Effective Date and ending twenty-four
months from the Effective Date; or
The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $25 per share for any 40
consecutive business days during the period commencing on the
twenty-fifth month after the Effective Date and ending thirty-
six months from the Effective Date.
(b) As used in this Section 4, the term "Closing Price" shall be subject
to adjustments in the event of any stock dividend, stock distribution, stock
split or other similar event and shall mean:
(1) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the closing
sales price of the Common Stock as reported by such exchange or
market, or on a consolidated tape reflecting transactions on
such exchange or market; or
(2) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the Common
Stock is quoted on the Nasdaq SmallCap Market, the closing bid
price of the Common Stock as quoted on the Nasdaq SmallCap
Market; or
(3) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the Common
Stock is not
-3-
<PAGE>
quoted on the Nasdaq SmallCap Market, the closing bid for the
Common Stock as reported by the National Quotation Bureau, Inc.
("NQB") or at least two market makers in the Common Stock if
quotations are not available from NQB but are available from
market makers.
(c) The determination of Minimum Pre-Tax Income shall be (i) calculated
exclusive of any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provisions of
this paragraph 4); and (ii) determined by the Company's independent public
accountants.
(d) Minimum Pre-Tax Income shall be calculated assuming conversion and/or
exercise of all outstanding equity securities of the Company convertible into or
exchangeable for Common Stock, whether or not convertible or exchangeable at the
time of computation (and after adjustment for any stock dividends, stock splits
or similar events).
-4-
<PAGE>
(e) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares in accordance with the
provisions of this Paragraph 4 on or prior to September 30, 1999, the Escrow
Agent shall deliver the certificates representing all or the remaining Escrow
Shares, together with stock powers executed in blank, and any related Escrow
Property to the Company to be placed in the Company's treasury for cancellation
thereof as a contribution to capital. After such date, the Stockholders shall
have no further rights as a stockholder of the Company with respect to any of
the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or
conditions specified in Paragraph 4 hereof, the Company shall promptly give
appropriate notice to the Escrow Agent, the Underwriter (and if the transfer
agent of the Company's Common Stock is different from the Escrow Agent, such
transfer agent) and present such documentation as is reasonably required by the
Escrow Agent to evidence the satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as
follows:
(a) The Escrow Agent is not and shall not be deemed to be a
trustee for any party for any purpose and is merely acting as a depository and
in a ministerial capacity hereunder with the limited duties herein prescribed.
-5-
<PAGE>
(b) The Escrow Agent does not have and shall not be deemed to
have any responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Shares or any related Escrow Property other
than faithfully to carry out the obligations undertaken in this Agreement and to
follow the directions in such instruction or notice provided in accordance with
the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to be liable
for any action taken or omitted by it in good faith and may rely upon, and act
in accordance with, the advice of its counsel without liability on its part for
any action taken or omitted in accordance with such advice. In any event, its
liability hereunder shall be limited to liability for gross negligence, willful
misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in
accordance with any certificate, instruction, notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and to have
been signed by the proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's reasonable
fees and to reimburse it for its reasonable expenses including attorney's fees
incurred in connection with duties hereunder and (ii) to save harmless,
indemnify and defend the Escrow Agent for, from and against any loss, damage,
liability, judgment, cost and expense whatsoever, including counsel fees,
suffered or incurred by it by reason of, or on account of, any misrepresentation
made to it or its status or activities as Escrow Agent under this Agreement
except for any loss, damage, liability, judgment, cost or expense resulting from
gross negligence, willful misconduct or bad faith on the part of the Escrow
Agent. The obligation of the Escrow Agent to deliver the Escrow Shares to either
the Stockholders or the Company shall be subject to the prior satisfaction upon
-6-
<PAGE>
demand from the Escrow Agent, of the Company's obligations to so save harmless,
indemnify and defend the Escrow Agent and to reimburse the Escrow Agent or
otherwise pay its fees and expenses hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Stockholders and indemnified
to the Escrow Agent's satisfaction against the cost and expense of such defense
by the party requesting such defense. If any such legal proceeding is
instituted against it, the Escrow Agent agrees promptly to given notice of such
proceeding to the Stockholders and the Company. The Escrow Agent shall not be
required to institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or
otherwise, be deemed to have waived any right or remedy it may have either under
this Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by the Escrow Agent, and only to
the extent expressly therein set forth. A waiver by the Escrow Agent under the
term of this Agreement shall not be construed as a bar to, or waiver of, the
same or any other such right or remedy which it would otherwise have on any
other occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30
days written notice thereof to the Stockholders and the Company. Within 20 days
after receipt of such notice, the Stockholders and the Company shall furnish to
the Escrow Agent written instructions for the release of the Escrow Shares and
any related Escrow Property (if such shares and property, if any, have not yet
been released pursuant to Paragraph 4 hereof) to a substitute Escrow Agent which
(whether designated by written instructions from the Stockholders and the
-7-
<PAGE>
Company jointly or in the absence thereof by instructions from a court of
competent jurisdiction to the Escrow Agent) shall be a bank or trust company
organized and doing business under the laws of the United States or any state
thereof. Such substitute Escrow Agent shall thereafter hold any Escrow Shares
and any related Escrow Property received by it pursuant to the terms of this
Agreement and otherwise act hereunder as if it were the Escrow Agent originally
named herein. The Escrow Agent's duties and responsibilities hereunder shall
terminate upon the release of all shares then held in escrow according to such
written instruction or upon such delivery as herein provided. This Agreement
shall not otherwise be assignable by the Escrow Agent without the prior written
consent of the Company.
7. The Stockholders shall have the sole power to vote the Escrow
Shares and any securities deposited in escrow under this Agreement while they
are being held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to family members of
the Stockholders or to any trust for the benefit of the Stockholders, provided
that such transferees agree to be bound by the provisions of this Agreement.
(b) The Stockholders will take any action necessary or
appropriate, including the execution of any further documents or agreements, in
order to effectuate the transfer of the Escrow Shares to the Company if required
pursuant to the provisions of this Agreement.
-8-
<PAGE>
9. Each of the certificates representing the Escrow Shares will bear
legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge,
assignment, encumbrance or other disposition of the shares
evidenced by this certificate are restricted by and are subject to
all of the terms, conditions and provisions of a certain Escrow
Agreement entered into among Commonwealth Associates, THINK New
Ideas, Inc. and its Stockholders, dated as of _________, 199_, a
copy of which may be obtained from the Secretary of THINK New
Ideas, Inc. No transfer, sale or other disposition of these shares
may be made unless specific conditions of such agreement are
satisfied.
(b) "The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended. No transfer, sale or
other disposition of these shares may be made unless a
registration statement with respect to these shares has become
effective under said act, or the Company is furnished with an
opinion of counsel satisfactory in form and substance to it that
such registration is not required."
Upon execution of this Agreement, the Company shall direct the
transfer agent for the Company to place stop transfer orders with respect to the
Escrow Shares and to maintain such orders in effect until the transfer agent and
the Underwriter shall have received written notice from the Company as provided
in Paragraph 5.
10. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, fax or registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below, or at such
other address as any of them may designate by notice to each of the others:
(i) If to the Company, to:
THINK New Ideas, Inc.
45 West 36th Street
New York, New York 10018
-9-
<PAGE>
(ii) If to the Stockholders to their respective addresses as set
forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
Continental Stock Transfer & Trust Company
Two Broadway
New York, New York 10004
(iv) If to the Underwriter, to:
Commonwealth Associates
733 Third
New York, New York 10017
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given
hereunder by the Escrow Agent shall be effective and deemed received upon
personal delivery or transmission by fax or, if mailed, five (5) calendar days
after mailing by the Escrow Agent.
A copy of all communications sent to the Company, the Stockholders or
the Escrow Agent shall be sent by ordinary mail to DeMartino, Finkelstein, Rosen
& Virga, 1818 N. Street, N.W. Washington, D.C. 20036, Attention: Ralph
DeMartino. A copy of all communications sent to the Underwriter shall be sent
by ordinary mail to Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue,
New York, NY 10017, Attention: Sheldon Misher, Esq.
11. Except as set forth in paragraph 12 hereof, this Agreement may
not be modified, altered or amended in any material respect or cancelled or
terminated except with the prior consent of the holders of all of the
outstanding shares of Common Stock of the Company.
12. In the event that the Public Offering is not consummated within
twenty-five (25) days of the Effective Date of the Registration Statement, this
Agreement shall terminate and
-10-
<PAGE>
be of no further force and effect and the Escrow Agent, upon written notice from
both the Company and the Underwriter in accordance with paragraph 10 hereof of
such termination, will return the Escrow Shares and any Escrow Property in
respect thereof to the Stockholders.
13. This Agreement shall be governed by and construed in accordance
with the laws of New York and shall be binding upon and inure to the benefit of
all parties hereto and their respective successors in interest and assigns.
14. This Agreement may be executed in several counterparts, which
taken together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers on the day and year first above
written.
THINK New Ideas, Inc.
By:
----------------------
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:
----------------------
STOCKHOLDERS:
- -------------------------
- -------------------------
-11-
<PAGE>
EXHIBIT A
---------
STOCKHOLDERS' LIST
Name and Address Stock
of Stockholder (1) Certificate No. Number of Escrow Shares
-------------------- --------------- -----------------------
-12-
<PAGE>
Exhibit 11
<PAGE>
Exhibit 11
Think New Ideas, Inc.
Loss Per Share Calculations
Year Ended June 30, 1996
<TABLE>
<CAPTION>
Pro Forma Loss Per Share
- ------------------------
<S> <C>
Pro forma net loss $(791,312)
Interest on convertible debt issued with conversion rates below the
IPO price during the period beginning one year prior to the initial
filing of the registration statement, net of pro forma income tax
effect 11,678
---------
Pro forma net loss used in the calculation $(779,634)
---------
Weighted average number of shares outstanding 2,293,265
Adjustments for "cheap" shares -
Effect of shares issued during 1996 1,066,000
Shares issuable pursuant to convertible debt issued in March 1996 325,000
Shares issuable pursuant to convertible debt issued in April 1996 324,990
Shares issued in August 1996 private placement 1,408,000
Repurchases assumed, using the treasury stock method (1,023,574)
-----------
Shares used in the calculation 4,393,681
----------
Pro forma loss per share $ (.18)
------
Supplemental Pro forma Loss Per Share
- -------------------------------------
Pro forma net loss used in pro forma loss per share calculation $(779,634)
Interest on debt extinguished using a portion of proceeds obtained
through the private placement of shares, net of pro forma income
tax effect 134,527
---------
Supplemental pro forma net loss used in the calculation $(645,107)
---------
Shares used in pro forma loss per share calculation 4,393,681
Increase in weighted average number of shares outstanding if the
proceeds from the shares sold to fund debt extinguishment had
been used to repay debt on the date such debt was issued, rather
than for the assumed purchase of treasury stock 155,675
---------
Shares used in the calculation 4,549,356
---------
Supplemental pro forma loss per share $ (.14)
------
</TABLE>
Note - The amounts of fully diluted pro forma loss per share and supplemental
pro forma loss per share would not differ from the amounts shown above
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Date of Inception State of
Subsidiary of Subsidiary Incorporation
- ---------- ----------------- -------------
Scott Mednick & Associates, Inc. October 1982 California
On Ramp, Inc. February 1994 New York
NetCube Corporation (New Jersey) February 1978 New Jersey
NetCube Corporation (Delaware) May 1986 Delaware
The S.D. Goodman Group, Inc. July 1993 New York
Creative Resources Agency, Inc. November 1994 Georgia
Internet One, Inc. November 1993 Colorado
<PAGE>
Exhibit 23.2
<PAGE>
Consent of Independent
Certified Public Accountants
Think New Ideas, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 23, 1996, except for Notes
5,8,10 and 12, which are as of September __, 1996, relating to the consolidated
financial statements of Think New Ideas, Inc., which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO Seidman, LLP
New York, New York
September 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THINK NEW IDEAS, INC. AS OF JUNE 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 429,596
<SECURITIES> 0
<RECEIVABLES> 2,394,732
<ALLOWANCES> (186,000)
<INVENTORY> 0
<CURRENT-ASSETS> 3,342,145
<PP&E> 3,018,127
<DEPRECIATION> (2,319,096)
<TOTAL-ASSETS> 4,778,006
<CURRENT-LIABILITIES> 2,999,902
<BONDS> 2,858,000
0
0
<COMMON> 434
<OTHER-SE> (1,080,330)
<TOTAL-LIABILITY-AND-EQUITY> 4,778,006
<SALES> 12,146,348
<TOTAL-REVENUES> 12,146,348
<CGS> 8,100,861
<TOTAL-COSTS> 8,100,861
<OTHER-EXPENSES> 3,954,959
<LOSS-PROVISION> 166,655
<INTEREST-EXPENSE> (417,589)
<INCOME-PRETAX> (1,794,653)
<INCOME-TAX> (149,187)
<INCOME-CONTINUING> (1,943,840)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,943,840)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
