<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 5, 1996
REGISTRATION NO. 333-05051
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE LEAP GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7311 36-4079500
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
22 WEST HUBBARD STREET, CHICAGO, ILLINOIS 60610, (312) 494-0300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
R. STEVEN LUTTERBACH
CHIEF EXECUTIVE OFFICER
THE LEAP GROUP, INC.
22 WEST HUBBARD STREET, CHICAGO, ILLINOIS 60610, (312) 494-0300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MATTHEW S. BROWN, ESQ. PHILIP E. RUBEN, ESQ. LINDA DERENZO, ESQ.
KATTEN MUCHIN & ZAVIS KWIATT, SILVERMAN & RUBEN, LTD. TESTA, HURWITZ &
525 WEST MONROE STREET 500 CENTRAL AVENUE THIBEAULT, LLP
CHICAGO, ILLINOIS 60661 NORTHFIELD, ILLINOIS 60093 125 HIGH STREET BOSTON,
(312) 902-5200 (847) 441-7676 MASSACHUSETTS 02110
(617) 248-7000
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 check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If 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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE LEAP GROUP, INC.
----------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 LOCATION IN PROSPECTUS
----------------------------------- ----------------------
<S> <C>
1. Forepart of the Registration Forepart; Outside Front Cover Page;
Statement and Outside Front Inside Cover Page; Cross Reference Sheet
Cover Page of Prospectus........
2. Inside Front and Outside Back Inside Front Cover Page; Additional
Cover Pages of Prospectus....... Information; Outside Back Cover Page
3. Summary Information, Risk Outside Front Cover Page; Prospectus
Factors and Ratio of Earnings to Summary; Risk Factors
Fixed Charges...................
4. Use of Proceeds................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Outside Front Cover Page; Underwriting
Price...........................
6. Dilution........................ Risk Factors; Dilution
7. Selling Security Holders........ Principal and Selling Stockholders
8. Plan of Distribution............ Outside Front Cover Page; Underwriting
9. Description of Securities to be Description of Capital Stock
Registered......................
10. Interests of Named Experts and Not Applicable
Counsel.........................
11. Information with Respect to the Outside Front Cover Page; Prospectus
Registrant...................... Summary; The Company; Risk Factors;
Dividend Policy; Dilution; Capitalization;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Consolidated Financial Statements
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities...... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE 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 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 July 5, 1996
3,500,000 SHARES
THE LEAP GROUP, INC. LOGO
COMMON STOCK
-----------
All of the 3,500,000 shares being offered hereby are being sold by The Leap
Group, Inc. (the "Company"). Up to 525,000 additional shares may be sold by
certain of the Company's stockholders (the "Selling Stockholders") in
the event that the Underwriters exercise their over-allotment option.
The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling
Stockholders."
-----------
Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering
price will be between $ and $ per share. See "Underwriting"
for information relating to the factors to be considered in
determining the initial public offering price.
-----------
Application has been made to include the Common Stock on the Nasdaq National
Market under the symbol "LEAP."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES 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 REPRESENTA-
TION 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) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company, estimated at $750,000.
(3) The Selling Stockholders have granted the several Underwriters a 30-day
option to purchase up to an additional 525,000 shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total price to public, underwriting discounts and commissions and
proceeds to Selling Stockholders will be $ , $ and $ , respectively.
The proceeds to the Company will not change from the amount set forth. See
"Underwriting."
-----------
The Common Stock is being offered by the Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected
that delivery of the shares will be made in New York on or about , 1996.
-----------
DEAN WITTER REYNOLDS INC. DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
<PAGE>
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, including "Risk Factors," and
consolidated financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus assumes that the Underwriters' over-allotment option described
in "Underwriting" is not exercised. Financial data pertaining to periods prior
to March 11, 1996 reflect the consolidated financial data of The Leap
Partnership, Inc. ("Leap Partnership"), Lilypad Services, Inc. ("Lilypad") and
Tadpole Productions, Inc. ("Tadpole"), which became wholly-owned subsidiaries
of The Leap Group, Inc. on such date. Unless the context otherwise requires,
"Company" or "Leap" shall mean The Leap Group, Inc. and its subsidiaries.
References herein to "fiscal 1996," "fiscal 1995" and "fiscal 1994" refer,
respectively, to the twelve months ended January 31, 1996, the twelve months
ended January 31, 1995 and the period from inception (September 20, 1993) to
January 31, 1994.
THE COMPANY
Leap is a strategic and creative communications company that develops and
implements integrated brand marketing campaigns using traditional and new media
primarily for market leading clients. Traditional marketing services provided
by Leap include television, print, radio and outdoor advertising, promotions,
direct mail and package and logo design; and its new media services include
digital interactive applications such as World Wide Web sites, CD-ROMs and
interactive presentations. The Company's marketing and communications services
combine comprehensive strategic brand marketing skills, award-winning creative
talent, and the production capabilities of world class full service advertising
agencies with the technological expertise to exploit new interactive and other
digital media. Leap's mission is to build brand equity for its clients. Leap
focuses on establishing long-term marketing partnerships with marquee clients
of national and international scope that position the Company as the steward
for major brands with correspondingly significant advertising budgets.
The Company believes that certain core strengths have been, and will continue
to be, integral to Leap's strategy. These strengths include superior creative
talent, a focus on and an expertise in strategic brand positioning, a "flat"
organizational structure built around cross-functional work teams that maximize
accessibility and responsiveness to clients, and expertise in the application
of new marketing communications technology integrated with a wide range of
traditional services. Leap believes that these strengths enable the Company to
create integrated marketing communications campaigns that fulfill its clients'
marketing goals on a timely and cost-effective basis.
The Company targets Fortune 500 clients who are national and global industry
leaders. Since its founding in late 1993, Leap has successfully competed for
and managed large national accounts for prestigious clients such as Nike, Inc.
("Nike") and Miller Brewing Company ("Miller"). The Company's past and current
projects include (i) serving as agency of record for Niketown and Nike Factory
Stores, Tommy Armour Golf Company ("Tommy Armour") and U.S. Robotics, Inc.,
("U.S. Robotics"), (ii) World Wide Web site development for Nike, Tommy Armour
and the Chicago Tribune Company, (iii) strategic brand positioning for
Niketown, R.J. Reynolds Tobacco Co. ("R.J. Reynolds"), Pizza Hut, Inc., and
YES! Entertainment and (iv) the January 1995 Super Bowl campaign for Miller. In
December 1995, Leap voluntarily resigned the Miller account in order to pursue
other assignments. See "--Summary Consolidated Financial and Other Data."
3
<PAGE>
Leap's present and prospective clients currently advertise primarily on
national mass circulation media such as network television, network radio and
nationally circulating newspapers and magazines. According to McCann-Erickson
Worldwide, a leading advertising agency that regularly publishes such
information, total U.S. spending on such media amounted to approximately $40
billion in 1995. Leap believes that large advertisers increasingly are looking
for ways to improve the effectiveness of their advertising without increasing
advertising expenditures, and to better measure results from advertising. As a
result, advertisers are beginning to shift away from relying primarily on
traditional one-way "broad cast" media, such as broadcast television, to media
that enable advertisers to "narrow cast" or customize marketing messages to a
well-defined audience. Recent developments in digital technology have led to
the emergence of new media communications vehicles such as the World Wide Web,
the Internet, CD-ROMs and interactive presentations. Now, such new media not
only permit real time one-to-one communications links with consumers, but allow
consumers, as a consequence of the interactive process, to shape the
advertising messages that they receive and become more engaged by the messages.
A Forrester Research report dated June 1995 estimated that the market for
advertising on the Internet will reach $74 million in 1996 and will exceed $2.0
billion by the year 2000.
The Company was incorporated in Delaware in March 1996 as a holding company
for Leap Partnership, Lilypad and Tadpole. Leap Partnership was incorporated in
Illinois in September 1993. Lilypad and Tadpole were incorporated in Illinois
in September 1995.
The Company's principal executive offices are located at 22 West Hubbard
Street, Chicago, Illinois 60610, and its telephone number is (312) 494-0300.
The Company's World Wide Web site address is: http://www.leapnet.com.
Information contained in the Company's Web site shall not be deemed to be a
part of this Prospectus.
THE OFFERING
Common Stock Offered by the Company..... 3,500,000 shares
Common Stock to be Outstanding after
the Offering............................ 13,100,000 shares(1)
Use of Proceeds......................... For working capital and other general
corporate purposes and for repayment
of indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.................................. LEAP
- --------
(1) Excludes (i) 2,319,000 shares of Common Stock issuable upon exercise of
options outstanding as of June 30, 1996 (options to purchase 1,581,333 of
such shares are currently exercisable), (ii) 60,000 shares of Common Stock
issuable upon exercise of options to be granted on the effective date of
the Registration Statement of which this Prospectus is a part, all of which
will become exercisable on the date of grant, and (iii) 2,625,000 shares of
Common Stock reserved for issuance upon exercise of options that may be
granted in the future under the Company's stock option and stock purchase
plans. See "Capitalization" and "Management--Stock Option Plans."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The summary consolidated financial and other data should be read in
conjunction with the audited financial statements, including the notes thereto,
appearing elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Results for interim
periods are not necessarily indicative of results to be expected during the
remainder of the fiscal year or for any future period. The following data are
presented in thousands, except per share amounts and the number of Creative
Partners.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JANUARY 31, ENDED APRIL 30,
------------------------- ---------------
1994(1) 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $ 373 $ 4,679 $ 8,210 $ 3,150 $ 2,037
Operating income/(loss)............ (123) (1,390) 1,356 565 (151)
Net income/(loss).................. (76) (1,065) 700 306 (184)
Net income/(loss) per share(2)..... $ $ $ $ $
Shares used in per share
computation(2)....................
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 15 $
Working capital........................................ (1,281)
Total assets........................................... 2,523
Long-term debt......................................... 432
Total stockholders' equity/(deficit)................... (624)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JANUARY 31, ENDED APRIL 30,
------------------------- ----------------
1994(1) 1995 1996 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED):
Revenues, excluding Miller(4).... $ 373 $ 1,700 $ 2,758 $ 52 $ 2,037
Retainer and fee revenues(5)..... $ 0 $ 560 $ 1,642 $ 0 $ 848
Retainer and fee revenues as a
percentage of total
revenues(5)..................... 0.0% 12.0% 20.0% 0.0% 41.6%
Number of Creative Partners at
end of period(6)................ 15 27 38 29 56
</TABLE>
- --------
(1) The Company's initial operating business, Leap Partnership, was formed
September 20, 1993, and had no operations prior to November 1993.
(2) Calculated on the basis described in Note 2 of Notes to the Company's
Consolidated Financial Statements.
(3) As adjusted to give effect to the offering (at an assumed initial public
offering price of $ per share, after deduction of underwriting
discounts, commissions and estimated offering expenses payable by the
Company) and the application by the Company of the net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
(4) In December 1995, the Company voluntarily resigned the Miller account in
order to pursue other assignments. The information provided presents
revenues as if Miller had been excluded throughout each of the periods
presented. See "Business--Leap's Clients."
(5) Retainer and fee revenues represent revenues derived from fixed fee
arrangements with clients, not specific to particular projects, which
typically contemplate monthly payments over specified service periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
(6) All of Leap's employees share the same title--"Creative Partner." See
"Business--Leap's Core Strengths--Talent and Creative Distinction."
5
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors, in
addition to the other information contained in this Prospectus, in evaluating
an investment in the shares of Common Stock offered hereby. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this
Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT
The Company has a limited operating history. The Company began operations in
November 1993 and experienced operating losses during fiscal 1994 and fiscal
1995. Although the Company had operating income of approximately $1,356,000 in
fiscal 1996, it had an operating loss of approximately $151,000 for the
quarter ended April 30, 1996, and as of April 30, 1996, the Company had an
accumulated deficit of approximately $625,000. There can be no assurance that
the Company will achieve or sustain profitability in the future. Future
operating results will depend on many factors, including demand for the
Company's services, the Company's ability to maintain its client relationships
and obtain assignments from new clients, the Company's success in attracting
and retaining qualified personnel, the level of competition and the Company's
ability to respond to competitive developments. There can be no assurance that
the Company will be successful in addressing the risks presented by such
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
DEPENDENCE ON KEY CLIENTS AND PROJECTS
An important part of the Company's strategy is to develop in-depth, long-
term relationships with a select group of clients in a variety of industries.
Consistent with such strategy, a large portion of the Company's revenues has
been and is expected to continue to be concentrated among a relatively small
number of major clients. For the fiscal year ended January 31, 1996, Miller
accounted for approximately 66% of the Company's revenues and the Company's
three largest clients (including Miller) accounted for approximately 85% of
such revenues. In December 1995, the Company voluntarily resigned the Miller
account in order to pursue other assignments. For the quarter ended April 30,
1996, Cincinnati Bell Telephone, Nike and Tommy Armour accounted for
approximately 33%, 30% and 19%, respectively, of the Company's revenues. Since
Leap is often retained by its clients on a project-by-project basis, there can
be no assurance that any significant client in any prior period will be a
source of significant revenues in any future period.
While the Company typically enters into written agreements with its clients,
it at times performs services prior to the execution of such agreements, and
written contracts are typically terminable by either party on short notice,
often 90 days and in certain instances less. The Company considers its
relationships with existing clients to be good. However, the loss of any one
or more of the Company's significant clients, the deterioration of the
Company's relationship with any of these clients or a decline in the clients'
businesses could have a material adverse effect on the Company's business,
financial condition or results of operations. Due to the nature of the
advertising business, any of the Company's clients could at any time in the
future, and for any reason, reduce its marketing budget, engage another entity
or take in-house all or part of the business performed by the Company. There
can be no assurance that the Company will perform any future work for any of
its existing clients. See "Business--Leap's Clients" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POTENTIAL ADVERSE EFFECT OF FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY OF
BUSINESS
The Company's operating results are subject to variations in any given year,
and from quarter to quarter, as the Company's business reflects, to a large
degree, the advertising expenditures of its clients. Factors that may cause
operating results to fluctuate include the timing of the completion or
cancellation of a major project, an increase or reduction in the scope of
services to be performed for a client, the addition or loss of a major client,
the relative mix of higher and lower margin projects, changes in pricing
strategies, capital expenditures and other costs relating to the expansion of
operations, the hiring or loss of personnel, the opening or closing of
offices, and other factors that may be outside the Company's control. As a
result of the foregoing and other factors, the Company anticipates that it may
experience material fluctuations in operating results on a quarterly basis,
which may contribute to volatility in the price of the Common Stock. Depending
6
<PAGE>
upon its client mix at any time, the Company could experience seasonality in
its business. Such seasonality could arise from the timing of product
introductions and business cycles of the Company's clients and could be
material to the Company's results of operations. Such cycles vary from client
to client, and the overall impact on the Company's results of operations
cannot be predicted. In addition, the advertising industry as a whole exhibits
seasonality. Typically, advertising expenditures are highest in the fourth
calendar quarter and lowest in the first calendar quarter, particularly in
January. Although the Company has too limited an operating history to exhibit
any discernible seasonal trend, as the Company matures, its business and
results of operations could be affected by the overall seasonality of the
industry. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts and
abilities of its senior management, including R. Steven Lutterbach, Frederick
Smith, Joseph A. Sciarrotta, George Gier and Thomas R. Sharbaugh, and other
key creative, technical, financial and strategic marketing personnel. Although
the Company has entered into three-year employment agreements with Messrs.
Lutterbach, Smith, Gier, Sciarrotta and Sharbaugh, there can be no assurance
that any of such persons will not voluntarily terminate his employment with
the Company. See "Management--Employment Agreements." Competition for highly
qualified personnel is intense, and the loss of any executive officer, senior
manager or other key employee could have a material adverse effect upon the
Company's business, operating results and financial condition. Although the
Company maintains key man life insurance policies in the amount of $1,250,000
on each of Messrs. Lutterbach, Smith, Sciarrotta and Gier, there can be no
assurance that such policies would adequately compensate for the loss of such
individuals.
If one or more of the Company's key employees resigns from the Company to
join a competitor or to form a competing company, the loss of such personnel
and any resulting loss of existing or potential clients to any such competitor
could have a material adverse effect on the Company's business, financial
condition and operating results. Each member of Leap's management and its
other significant employees have executed confidentiality and non-solicitation
agreements that restrict such persons from misappropriating confidential
information during such person's term of employment and thereafter and from
soliciting the Company's clients, prospects or employees for two years
following termination of employment. Notwithstanding such agreements, in the
event of the loss of any such personnel there can be no assurance that the
Company would be able to prevent the unauthorized disclosure or use of its
technical knowledge, practices, procedures or client lists.
The Company also believes that its future success will depend in large part
upon its ability to attract and retain additional highly skilled creative,
technical and marketing personnel. Competition for such personnel, especially
creative and technical talent, is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel.
Failure to attract and retain key personnel could have a material adverse
effect upon the Company's business, operating results and financial condition.
See "Business--Leap's Core Strengths--Talent and Creative Distinction."
POTENTIAL ADVERSE EFFECT OF INABILITY TO MANAGE GROWTH; RISKS ASSOCIATED WITH
ACQUISITIONS
The Company has experienced since its inception and may continue to
experience significant growth of its business which places demands on the
Company's management, employees, operations and physical resources. The
Company's senior management has limited experience in managing a public
company. The Company's strategy contemplates further growth of its business.
To manage such growth, the Company will be required to continue to improve its
operating systems, attract and retain superior advertising and new media
talent, and expand the Company's facilities. If the Company is unable to
effectively manage growth, the Company's business, operating results or
financial condition could be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
In addition, a principal component of Leap's growth strategy involves the
strategic hiring of talent or the acquisition of businesses in fields related
to or complementary to those of Leap. The success of this strategy depends not
only upon the Company's ability to identify and hire people or acquire
businesses on a cost-
7
<PAGE>
effective basis, but also upon its ability to integrate acquisitions
effectively, to retain and motivate key personnel, and to retain the clients
of acquired firms. There can be no assurance that the Company will be able to
identify, acquire or integrate new operations. In general, there can be no
assurance that the Company will be able to manage acquisitions successfully,
and any inability to do so would have a material adverse effect on the
Company's business, financial condition and operating results. There also can
be no assurance that the Company will be able to sustain the rates of growth
in revenues or personnel that it has experienced in the past. See "Business--
Leap's Strategy--Pursue Acquisitions and Alliances."
UNPROVEN MARKET ACCEPTANCE OF THE COMPANY'S APPROACH
Using an unusual organizational structure built around cross-functional work
teams, the Company provides integrated brand marketing campaigns for its
clients using traditional and new media. The Company believes that both its
structure and its expertise in new media distinguish it from the traditional
agency approach. There can be no assurance that potential clients of the
Company, many of whom have long-standing relationships with traditional
advertising agencies, will be willing to embrace the Company's approach.
Moreover, to compete successfully against specialized service providers in new
media and other areas, the Company believes that its products and services in
each discipline will need to be competitive with the services offered by the
firms that specialize in each discipline. There can be no assurance that the
Company will be successful in providing competitive solutions to its clients.
Failure to do so could result in the loss of existing clients or the inability
to attract and retain new clients, either of which developments could have a
material adverse effect on the Company's business, financial condition and
operating results.
UNCERTAINTIES RELATING TO DEVELOPING MARKET FOR NEW MEDIA; NEW ENTRANTS;
UNPROVEN ACCEPTANCE OF THE COMPANY'S NEW MEDIA SOLUTIONS AND STRATEGY TO
DEVELOP PROPRIETARY MATERIAL
The Company's future growth depends in part upon its ability to increase the
amount of revenue it derives from providing marketing and advertising
solutions to its customers through new media, which the Company defines as
media that deliver content to end users in digital form, including the World
Wide Web, the Internet, proprietary online services, CD-ROMs and interactive
presentations. The new media advertising market has only recently begun to
develop, is rapidly evolving and is characterized by an increasing number of
market entrants who have introduced or developed products and services for
communication and commerce through new media. Demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty. There can be no assurance that commerce and communication through
new media will continue to grow or that targeted demographic groups will be
reachable through new media. The use of new media in marketing and
advertising, particularly by those individuals and enterprises that have
historically relied upon traditional means of marketing and advertising,
generally requires the acceptance of a new way of conducting business and
exchanging information. In particular, enterprises that have already invested
substantial resources in other means of conducting commerce and exchanging
information may be particularly reluctant or slow to adopt a new strategy that
may make their existing resources and infrastructure less useful. See
"Business--Industry Background."
The Company has a strategy to develop, own and maintain proprietary program
material that can be licensed by the Company with the goal of providing, over
time, a recurring revenue stream. The Company has not generated any revenues
from this strategy and no assurance can be given that the Company will be able
to negotiate such arrangements with clients or that any such arrangements will
generate revenues sufficient to offset the costs incurred by the Company in
developing such proprietary materials. See "Business--Leap's Strategy--Develop
Proprietary Program Material."
HIGHLY COMPETITIVE ENVIRONMENT; LOW BARRIERS TO ENTRY
The markets for the Company's services are highly competitive and the
Company faces competition from a number of sources. These sources include
national and regional advertising agencies as well as specialized and
integrated marketing communications firms. In addition, with respect to new
media, many advertising agencies have started to either internally develop or
acquire new media capabilities. New boutiques that provide either integrated
or specialized services (e.g., corporate identity and packaging, advertising
services or World Wide Web site design) and are technologically proficient,
especially in the new media arena, have
8
<PAGE>
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, technological,
development, sales, marketing and other resources than the Company. In
addition, the Company's ability to maintain its existing clients and obtain
assignments from 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. To the extent the Company loses clients to the
Company's competitors because of dissatisfaction with the Company's services
or the Company's reputation is adversely impacted for any other reason, the
Company's business, financial condition and operating results could be
materially adversely affected.
There are relatively low barriers to entry into the Company's business, and
the Company expects that it will face additional competition from new entrants
into the market in the future. The Company has no significant proprietary
technology that would preclude or inhibit competitors from entering the
Company's markets. There can be no assurance that existing or future
competitors will not develop or offer 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
Company's business, financial condition and operating results. See "Business--
Competition."
UNCERTAIN ADOPTION OF THE INTERNET AS A MEDIUM OF COMMERCE AND COMMUNICATIONS;
DEPENDENCE ON THE INTERNET; UNCERTAINTIES REGARDING THE INTERNET
The Company's ability to derive revenues from new media solutions will
depend in part upon a robust industry and the infrastructure for providing
Internet access and carrying Internet traffic. The Internet may not prove to
be a viable commercial marketplace because of inadequate development of the
necessary infrastructure, such as a reliable network backbone or timely
development of complementary products, such as high-speed modems. Because
global commerce and online exchange of information on the Internet and other
similar open wide area networks are new and evolving, it is difficult to
predict with any assurance whether the Internet will prove to be and remain a
viable commercial marketplace. Moreover, 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 addition, the applicability to the Internet of
existing laws governing issues such as property ownership, libel and personal
privacy is uncertain. The Federal Trade Commission and Congress have expressed
interest in regulating advertising on the Internet, and although no material
regulation has yet occurred, it may in the future, and could have an adverse
impact on the Company's business. There can be no assurance that the Internet
will become a viable commercial marketplace or that targeted demographic
groups will be reachable through the Internet. If the necessary infrastructure
or complementary products are not developed, or if the Internet does not
become a viable commercial marketplace, the Company's business, operating
results and financial condition could be materially adversely affected. See
"Business--Industry Background."
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's revenues and results of operations will be subject to
fluctuations based upon the general economic conditions in the United States.
If there were to be a general economic downturn or a recession in the United
States, then the Company expects that business enterprises, including its
clients and potential clients, would substantially and immediately reduce
their advertising and marketing budgets. In the event of such an economic
downturn, there can be no assurance that the Company's business, operating
results and financial condition would not be materially and adversely
affected.
POTENTIAL ADVERSE EFFECT OF CONFLICTS OF INTEREST
Conflicts of interest are inherent in certain segments of the marketing
communications industry, particularly in advertising. The Company has in the
past and will in the future be unable to pursue potential advertising and
other opportunities because such opportunities would require the Company to
provide services to direct competitors of existing Company clients. In
addition, the Company risks alienating or straining relationships with
existing clients each time the Company agrees to provide services to even
indirect competitors of existing Company clients.
9
<PAGE>
UNCERTAINTIES REGARDING INTELLECTUAL PROPERTY RIGHTS
A majority of the Company's current agreements with its clients contain
provisions that grant to the client intellectual property rights to the
Company's work product created during the course of the Company's assignment
(except to the extent that such work product is not accepted by the client),
and agreements with future clients may contain similar provisions. Other
existing agreements are, and future agreements may be, silent as to the
ownership of such rights. To the extent that the ownership of such
intellectual property rights is expressly granted to the client or is
ambiguous, the Company's ability to reuse or resell such rights will or may be
limited.
POTENTIAL ADVERSE EFFECT OF LITIGATION
The Company is a defendant in pending litigation involving claims by the
Spin Doctors (a recording and performing group) arising from a television
commercial created by the Company. The plaintiff is seeking substantial
damages and, if successful, the damages could be material and in excess of any
available insurance coverage. See "Business--Legal Proceedings" and Note 6 of
Notes to the Company's Consolidated Financial Statements.
CONTROL BY CERTAIN STOCKHOLDERS; POTENTIAL ADVERSE EFFECT OF ANTI-TAKEOVER
PROVISIONS
Upon completion of the offering, and assuming the exercise of currently
exercisable options, the Company's officers and directors and their respective
affiliates will beneficially own approximately 74.9 percent (approximately
71.3 percent if the over-allotment option is exercised in full) of the
Company's outstanding Common Stock. Although no voting agreements or similar
arrangements among such stockholders will exist upon completion of the
offering, if such stockholders were to act in concert in the future, they
would effectively be able to elect all of the directors of the Company,
approve or disapprove certain matters requiring stockholder approval and
otherwise control the management and affairs of the Company, including the
sale of all or substantially all of the Company's assets. Such concentration
of control of the Company may also have the effect of delaying, deferring or
preventing a third-party from acquiring a majority of the outstanding voting
stock of the Company, may discourage bids for the Company's Common Stock at a
premium over the market price and may adversely affect the market price of and
other rights of the holders of Common Stock. The Company's Amended and
Restated Certificate of Incorporation (the "Restated Certificate") and Amended
and Restated Bylaws (the "Bylaws") contain provisions that (i) limit a
stockholder's ability to nominate directors or act by written consent, (ii)
provide for a staggered board of directors and (iii) allow the Company's Board
of Directors, without obtaining stockholder approval, to issue shares of
preferred stock having rights that could adversely affect the voting power and
economic rights of holders of the Common Stock. Also, Section 203 of the
Delaware General Corporation Law restricts certain business combinations with
any "interested stockholder" as defined by such statute. Any of the foregoing
factors may delay, defer or prevent a change in control of the Company. See
"Management," "Principal and Selling Stockholders" and "Description of Capital
Stock."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. In addition, any such sale or perception
could make it more difficult for the Company to sell equity securities or
equity related securities in the future at a time and price that the Company
deems appropriate. Upon consummation of the offering, the Company will have a
total of 13,100,000 shares of Common Stock outstanding, of which the 3,500,000
shares offered hereby will be eligible for immediate sale in the public market
without restriction, unless they are held by "affiliates" of the Company
within the meaning of Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 9,600,000 shares will be "restricted"
securities within the meaning of Rule 144 under the Securities Act. The
Company, its officers and directors and its stockholders (who in the aggregate
will hold all of the restricted securities upon completion of the offering)
have agreed with the Underwriters that they will not directly or indirectly
offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of, without the prior written consent of Dean Witter Reynolds Inc.
("Dean Witter"), any shares of Common Stock or any other equity security of
the Company, or any securities convertible into or exercisable or exchangeable
for, or warrants, options or rights to purchase or acquire,
10
<PAGE>
Common Stock or any other equity security of the Company, or enter into any
agreements to do any of the foregoing, for a period of 180 days from the
effective date of the Registration Statement of which this Prospectus forms a
part. Upon expiration of such 180 day period (or earlier upon the consent of
Dean Witter), all of the currently outstanding restricted shares will be
eligible for sale under Rule 144, subject to volume and other limitations of
the Rule. Dean Witter may, in its sole discretion, and at any time without
notice, release all or any portion of the shares subject to the lock-up
agreements.
In addition, the Company intends to file a registration statement under the
Securities Act no earlier than 90 days after the offering, covering an
aggregate of 5,004,000 shares of Common Stock reserved for issuance under the
Company's stock option and stock purchase plans. As of June 30, 1996, there
are stock options for 2,319,000 shares outstanding, of which 1,581,333 are
currently exercisable. Options to purchase 60,000 shares of Common Stock will
be granted on the effective date of the Registration Statement of which this
Prospectus is a part and will become exercisable on the date of grant. The
holders of 1,478,333 of the options exercisable upon consummation of the
offering will be subject to the lock-up agreements described above. No
prediction can be made as to the effect, if any, that future sales of shares,
or the availability of shares for future sales, will have on the market price
of the Common Stock from time to time or the Company's ability to raise
capital through an offering of its equity securities. See "Management--Stock
Option Plans," "Description of Capital Stock," "Shares Eligible for Future
Sale" and "Underwriting."
NO PRIOR MARKET FOR THE SHARES; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop upon
completion of the offering or, if it does develop, that such market will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiation among the Company and the representatives of the
Underwriters and may not be indicative of the market price of the Common Stock
after the offering. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price.
The market price for the Common Stock may be significantly affected by
factors such as the announcement of new products or services by the Company or
its competitors, technological innovation by the Company or its competitors,
quarterly variations in the Company's operating results or the operating
results of the Company's competitors, changes in earnings estimates by
analysts or reported results that may vary from such estimates. In addition,
the stock market has experienced significant price fluctuations that have
particularly affected the market prices of equity securities of many high
technology and emerging growth companies and that often have been unrelated to
the operating performance of such companies. These broad market fluctuations
may materially and adversely affect the market price of the Company's Common
Stock. Following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted
against such a company and its officers and directors. Any such litigation
against the Company could result in substantial costs and a diversion of
management's attention and resources, which would have a material adverse
effect on the Company's business, operating results and financial condition.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price of the Common Stock offered hereby is
substantially higher than the net tangible book value per share of the
currently outstanding Common Stock. Therefore, purchasers of Common Stock in
the offering will incur immediate and substantial dilution of approximately
$ in the net tangible book value per share of Common Stock at an assumed
initial public offering price of $ per share. See "Dilution."
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company has not designated any specific uses for the net proceeds from
the sale by the Company of the Common Stock offered hereby, other than the use
of approximately $2.3 million for the payment of certain outstanding debt. The
Company intends to use the net proceeds primarily for working capital and
other general corporate purposes, including possible acquisitions.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. See "Use of Proceeds."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
3,500,000 shares of Common Stock offered by the Company hereby (at an assumed
initial public offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses) are estimated to be
$ million.
The Company intends to use approximately $1,256,000 of the net proceeds to
retire all indebtedness outstanding under the Company's existing bank loan
facilities, approximately $595,000 to repay a loan secured by a mortgage on
the Company's office building, and approximately $400,000 to repay a loan to
the Company from Mr. Lutterbach. Borrowings under the bank loan facilities
bear interest at 1% above the lender's prime rate (9.25% at June 30, 1996),
and the loan from Mr. Lutterbach bears interest at the rate of prime plus 1
1/2% per annum (9.75% at June 30, 1996). Borrowings under the lines of credit
and the loans from Mr. Lutterbach were utilized by the Company to finance the
Company's working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The Company intends to use the remaining net proceeds of the offering,
approximately $ million, for working capital or other general corporate
purposes, including possible acquisitions. The Company actively seeks out and
evaluates potential acquisitions of businesses, talent, products or
technologies that are complementary to the Company's business; however, it
currently has no understandings, commitments or agreements with respect to any
such transactions. In addition, the Company may use a portion of the proceeds
to expand or acquire new facilities for its business.
Management will have significant flexibility in applying the net proceeds of
the offering. Pending use of the net proceeds for the foregoing purposes, the
Company intends to invest the net proceeds in short-term, investment grade
interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate paying cash dividends in the foreseeable future, but
intends to retain future earnings, if any, for reinvestment in the future
operation and expansion of the Company's business and related development
activities. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon the Company's
financial condition, results of operations, capital requirements and such
other factors as the Board of Directors deems relevant, as well as the terms
of any financing arrangements.
12
<PAGE>
DILUTION
As of April 30, 1996, the Company had a net tangible book value deficit of
$623,970 or $ per share of Common Stock. Net tangible book value per share
is determined by dividing the net tangible worth of the Company (tangible
assets less total liabilities) by the total number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of the shares of
Common Stock offered hereby at an assumed initial offering price of $ per
share (after deducting underwriting discounts, commissions and estimated
offering expenses payable by the Company in connection therewith) and the
application of the net proceeds therefrom, the net tangible book value of the
Company as of April 30, 1996, as adjusted, would have been $ or $ per
share. This represents an immediate increase in net tangible book value of $
per share to the existing stockholders and an immediate dilution of $ per
share to new investors purchasing shares at the assumed initial public
offering price. The following table illustrates the per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................
Net tangible book value (deficit) per share before the offer-
ing...........................................................
Increase per share attributable to new investors...............
----
Net tangible book value per share as adjusted for this offering..
----
Dilution per share to new investors..............................
====
</TABLE>
The following table summarizes as of April 30, 1996, after giving effect to
this offering, the number of shares of Common Stock purchased from the
Company, the total consideration paid therefor and the average price per share
paid by the existing stockholders and by the new investors purchasing shares
of Common Stock in this offering (assuming an initial public offering price of
$ per share) before deduction of the underwriting discounts and commissions
and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 9,600,000 73.3% $ 1,000 $.0001
New investors............... 3,500,000 26.7
---------- ----- ----------- -------- ------
Total(1).................. 13,100,000 100.0%
========== ===== =========== ======== ======
</TABLE>
- --------
(1) Following the sale of Common Stock by the Selling Stockholders in the
offering if the Underwriters' over-allotment option is exercised in full,
the number of shares held by all existing stockholders will be reduced by
525,000 shares to 9,075,000, or 69.3% of the total shares of Common Stock
outstanding after the offering. New investors will hold 4,025,000 shares,
or 30.7% of the total shares of Common Stock outstanding after the
offering, if the Underwriters' over-allotment option is exercised in full.
See "Principal and Selling Stockholders."
Each of the foregoing tables assumes that outstanding employee stock options
will not be exercised. At June 30, 1996, an aggregate of 2,319,000 shares of
Common Stock were subject to outstanding options under the Company's stock
option plans at exercise prices ranging from $3.00 to $12.00 per share, with a
weighted average exercise price of $6.36 per share. Of these options,
1,581,333 are currently exercisable. Options to purchase 60,000 shares of
Common Stock will be granted on the effective date of the Registration
Statement of which this Prospectus is part, with an exercise price equal to
the initial public offering price, and will become exercisable on the date of
grant. To the extent that such stock options are exercised, there may be
further dilution to new investors. See "Management--Stock Option Plans" and
Notes 5 and 9 of Notes to Consolidated Financial Statements.
13
<PAGE>
CAPITALIZATION
The table below sets forth the current portion of long-term debt and
capitalization of the Company as of April 30, 1996 and as adjusted to give
effect to the sale of the 3,500,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $ per
share, after deducting underwriting discounts, commissions and estimated
offering expenses) and the application of the estimated net proceeds therefrom
as described in "Use of Proceeds." This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1996
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Current portion of long-term debt....................... $ 57,000 $
========= =====
Long-term debt, excluding current portion............... $ 431,908 $
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value; 20,000,000 shares
authorized; no shares issued and outstanding actual
and as adjusted...................................... -- --
Common Stock, $0.01 par value; 100,000,000 shares
authorized; 9,600,000 shares issued and outstanding
actual, 13,100,000 shares issued and outstanding as
adjusted(1).......................................... 96,000
Additional paid-in-capital............................ (95,000)
Accumulated deficit................................... (624,970)
--------- -----
Total stockholders' equity (deficit)................ (623,970)
--------- -----
Total capitalization.............................. $(192,062) $
========= =====
</TABLE>
- --------
(1) Excludes (i) 2,319,000 shares of Common Stock issuable upon exercise of
options outstanding as of June 30, 1996 (options to purchase 1,581,333 of
such shares are currently exercisable), (ii) 60,000 shares of Common Stock
issuable upon exercise of options to be granted on the effective date of
the Registration Statement of which this Prospectus is part, all of which
will become exercisable on the date of grant, and (iii) 2,625,000 shares
of Common Stock reserved for issuance upon exercise of options that may be
granted in the future under the Company's stock option and stock purchase
plans. See "Management--Stock Option Plans."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated financial data as of January 31, 1995
and 1996 and for the period from inception (September 20, 1993) to January 31,
1994 and each of the two fiscal years in the periods ended January 31, 1995
and 1996 have been derived from the Company's Consolidated Financial
Statements, which have been audited by Arthur Andersen LLP, independent public
accountants. The selected consolidated financial data as of April 30, 1996 and
for the three months ended April 30, 1995 and 1996 have been derived from the
unaudited consolidated financial statements of the Company. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the Company's consolidated financial position and results of operations
for the periods presented. The results of operations for the three months
ended April 30, 1996 are not necessarily indicative of future operating
results. The data set forth below are qualified by reference to, and should be
read in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements
and the related Notes thereto and other financial information appearing
elsewhere in this Prospectus. The following data are presented in thousands,
except per share amounts and the number of Creative Partners.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED APRIL
JANUARY 31, 30,
------------------------ --------------
1994(1) 1995 1996 1995 1996
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $ 373 $ 4,679 $8,210 $3,150 $2,037
Operating expenses:
Direct costs and related expenses.... 244 3,749 3,622 1,885 1,178
Salaries and related expenses........ 133 1,598 2,247 466 755
General and administrative........... 119 722 985 234 255
------ ------- ------ ------ ------
Total operating expenses............ 496 6,069 6,854 2,585 2,188
Operating income/(loss).............. (123) (1,390) 1,356 565 (151)
Interest expense..................... 3 103 162 42 33
------ ------- ------ ------ ------
Income/(loss) before income taxes.... (126) (1,493) 1,194 523 (184)
Income tax benefit/(expense)......... 50 427 (494) (217) 0
------ ------- ------ ------ ------
Net income/(loss).................... $ (76) $(1,065) $ 700 $ 306 $ (184)
====== ======= ====== ====== ======
PER SHARE DATA:
Net income/(loss) per share(2)....... $ $ $ $ $
Shares used in per share
computation(2)......................
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
--------------- -----------
1995 1996 1996
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 7 $ 48 $ 15
Working capital................................... (1,515) (973) (1,281)
Total assets...................................... 2,538 2,053 2,523
Long-term debt.................................... 420 448 432
Total stockholders' deficit....................... (1,140) (440) (624)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED APRIL
JANUARY 31, 30,
------------------------ --------------
1994(1) 1995 1996 1995 1996
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER DATA (UNAUDITED):
Revenues, excluding Miller(3)........ $ 373 $ 1,700 $2,758 $ 52 $2,037
Retainer and fee revenues(4)......... $ 0 $ 560 $1,642 $ 0 $ 848
Retainer and fee revenues as a
percentage of total revenues(4)..... 0.0% 12.0% 20.0% 0.0% 41.6%
Number of Creative Partners at end of
period.............................. 15 27 38 29 56
</TABLE>
- --------
(1) The Company's initial operating business, Leap Partnership, was formed
September 20, 1993, and had no operations prior to November 1993.
(2) Calculated on the basis described in Note 2 of Notes to the Company's
Consolidated Financial Statements.
(3) In December 1995, the Company voluntarily resigned the Miller account in
order to pursue other assignments. The information provided presents
revenues as if Miller had been excluded throughout each of the periods
presented. See "Business--Leap's Clients."
(4) Retainer and fee revenues represent revenues derived from fixed fee
arrangements with clients, not specific to particular projects, which
typically contemplate monthly payments over specified service periods. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's consolidated financial statements, accompanying
notes thereto and other financial information appearing elsewhere in this
Prospectus. The following presentation contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk Factors"
and elsewhere in this Prospectus.
OVERVIEW
Leap is a strategic and creative communications company that develops and
implements integrated brand marketing campaigns using traditional and new
media primarily for market leading clients. Its central mission is to build
brand equity for its clients.
The Company generates its revenues from a variety of sources: fees and
retainers for strategic marketing and creative services, which may include
fees based upon the airing or publication of Company-created material on
various media; production revenues for creative executions, including the
communication of messages through a variety of new media; and fixed fees for
specific project assignments.
Fees and retainers are established by the Company taking into consideration
the Company's resources and skills which will be applied to generate relevant
strategic solutions for the client's marketing and communication concerns, the
value of Leap's strategic thinking and Leap's ability to produce memorable,
entertaining and effective advertising. The Company prefers to structure its
compensation arrangements with clients to provide for retainers or fees that
integrate such an added value approach, rather than fees based on a percentage
of media charges or other fixed methodologies. However, certain assignments
covered by fees and retainers have been based upon traditional methodologies
which have included either an estimate of the amount and level of professional
expertise provided by the Company and other committed resources needed to
execute a particular client's engagement or based upon an estimate of the
client's advertising expenditures over certain periods.
The term of written agreements between the Company and its clients generally
is a minimum of one year. However, written agreements typically are terminable
by either the client or the Company on short notice, often 90 days, and in
certain instances less. The Company at times performs services prior to the
execution of written agreements. Revenues, even if predominantly retainer- or
project-based, can vary materially from period to period. The Company's
strategy is to focus on providing expanding ranges and amounts of services to
a relatively limited number of major clients. The Company's results of
operations will, therefore, by design, be dependent upon the Company's ability
to maintain its relationships with its key clients or to replace clients
quickly should the Company or the client desire to reduce or terminate a
relationship. There can be no assurance that period-to-period fluctuations in
operating results will not occur.
The Company has experienced fluctuations in its revenues since inception,
which are to a significant degree a function of establishing or terminating
client relationships and to a lesser degree reflect its mix of fees and
production revenues. The Company has a limited operating history upon which an
evaluation of the Company and its prospects may be based, and the Company has
not identified any particular trends with respect to its historic revenues.
Revenues from fixed fee arrangements, typically in the form of monthly
retainers, are recognized over the period in which services are rendered.
Revenues from production services are recognized at the completion of such
services. Leap's production projects are usually commenced and completed in a
short time period, often less than 60 days. Outside production costs are
initially recorded as costs in excess of billings and are expensed as direct
costs and related expenses at the completion of such services. Revenues earned
from fees based upon third-party media placements are recognized when the
Company-created materials appear on various media in accordance with industry
practice. Salaries and other related general and administrative costs are
expensed as incurred.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, operating
expenses and certain other items which are included in the Company's
statements of operations for the fiscal years and three-month periods
indicated. The information for each of the quarters reflected is unaudited,
but has been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of the Company's management, reflects all
adjustments in conjunction with the Company's audited consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. Operating
results for any quarter are not necessarily indicative of results for any
future periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JANUARY 31, ENDED APRIL 30,
------------------- ----------------
1995 1996 1995 1996
-------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct costs and related expenses..... 80.1 44.1 59.8 57.8
Salaries and related expenses......... 34.2 27.4 14.8 37.1
General and administrative............ 15.4 12.0 7.4 12.5
-------- -------- ------- -------
Total operating expenses............ 129.7 83.5 82.1 107.4
Operating income/(loss)................. (29.7) 16.5 17.9 (7.4)
Interest expense........................ 2.2 2.0 1.3 1.7
-------- -------- ------- -------
Income/(loss) before income taxes....... (31.9) 14.5 16.6 (9.1)
Income tax benefit/(expense)............ 9.1 (6.0) (6.9) 0.0
-------- -------- ------- -------
Net income/(loss)....................... (22.8)% 8.5% 9.7% (9.1)%
======== ======== ======= =======
</TABLE>
Three Months Ended April 30, 1996 Compared to Three Months Ended April 30,
1995
Revenues decreased to $2.0 million for the three months ended April 30, 1996
from $3.2 million for the three months ended April 30, 1995, a decrease of
$1.2 million or 37.5%. The net decrease of $1.2 million is primarily
attributable to the Company's resignation of the Miller account (which
represented approximately $3.1 million or 98% of the Company's revenues in the
three months ended April 30, 1995). In the second half of fiscal 1996, Miller
began to reduce its advertising expenditures on campaigns in which the Company
was involved, which resulted in a significant decline in Leap's revenues
during such period. The Company's management viewed an expansion of Miller's
advertising budget for such campaigns as unlikely and determined that Leap's
resources could be better utilized for other opportunities. The Company
therefore resigned the Miller account in December 1995 in order to pursue
other assignments. Such decrease was offset in part by an increase in other
business revenues of $1.9 million during the three months ended April 30,
1996. The increase in other business revenues is attributable to services
provided to existing and new clients. Clients from which the Company received
revenues for the first time during the three months ended April 30, 1996
included U.S. Robotics and R.J. Reynolds. Of the $2.0 million in revenues for
the three months ended April 30, 1996, approximately $194,000, or 9.5%, was
attributable to U.S. Robotics and approximately $100,000, or 4.9%, was
attributable to R.J. Reynolds. Excluding Miller revenues, revenues increased
to $2.0 million for the three months ended April 30, 1996 from $52,000 for the
three months ended April 30, 1995.
Direct costs and related expenses generally consist of production costs
which include services such as filming, animation, editing, special effects,
photography and illustrations, artwork, computer design and various related
production services which are generally outsourced, along with contract labor,
talent and other costs related to creative executions which may include
traditional media as well as new technologies and multimedia. Direct costs and
related expenses decreased to $1.2 million for the three months ended April
30, 1996 from $1.9 million for the three months ended April 30, 1995, a
decrease of $700,000 or 36.8%. The decrease was primarily attributable to
reduced production work due to Leap's resignation of the Miller account. As a
percentage of revenues, direct costs and related expenses remained relatively
unchanged in the three months ended April 30, 1996 as compared to the three
months ended April 30, 1995.
Salaries and related expenses consist primarily of salaries and wages for
employees, related payroll tax expenses, group medical and dental insurance
coverages and recruiting expenses. Salaries and related expenses increased to
$755,000 for the three months ended April 30, 1996 from $466,000 for the three
months ended April 30, 1995, an increase of $289,000 or 62.0%. The increased
expenses reflect the addition,
17
<PAGE>
since April 30, 1995, of 27 new Creative Partners who are primarily engaged in
creative activities, including programmers and multimedia designers, to
support new clients and to strengthen the Company's management team.
General and administrative expenses include space and facilities expenses,
corporate expenses, depreciation, insurance, legal and accounting fees, and
management information systems expenses. General and administrative expenses
increased to $255,000 for the three months ended April 30, 1996 from $234,000
for the three months ended April 30, 1995, an increase of $21,000 or 9.0%. The
increase is primarily due to additional legal and accounting fees.
Interest expense decreased to $34,000 for the three months ended April 30,
1996 from $42,000 for the three months ended April 30, 1995, a decline of
$8,000 or 19.0%. The decrease is primarily attributable to reduced borrowings
from available bank lines of credit.
Combined federal and state income tax rates were 40% for the three months
ended April 30, 1996 and 1995, respectively. Income tax expense of $217,300 is
reflected for the three months ended April 30, 1995 as a result of the
Company's taxable income during the period.
Fiscal Year Ended January 31, 1996 Compared to Fiscal Year Ended January 31,
1995
Revenues increased to $8.2 million for fiscal 1996 from $4.7 million for
fiscal 1995, an increase of $3.5 million, or 74.5%. The increase is primarily
attributable to a significant increase in fees earned from Miller during
fiscal 1996, and the remainder is attributable to services provided to new
clients and increased demand for services by existing clients. Miller
represented approximately 66% and 64% of the Company's total revenues for
fiscal 1996 and 1995, respectively. Excluding Miller, revenues increased from
$1.7 million in fiscal 1995 to $2.8 million in fiscal 1996, an increase of
$1.1 million or 64.7%.
Direct costs and related expenses decreased to $3.6 million for fiscal 1996
from $3.7 million for fiscal 1995, a decrease of $100,000 or 2.7%.
Approximately $375,000, or 10%, of the direct costs in fiscal 1995 were
incurred in connection with business development activities for which no
corresponding revenues were generated by the Company. Exclusive of these
costs, direct costs increased by approximately $300,000, or 9%, from fiscal
1995 to fiscal 1996. This increase was attributable to an increase in
production activities. Revenues specific to production activities increased
approximately 24% in fiscal 1996. As a percentage of production revenues,
direct costs decreased by approximately 11%, as a result of increased
efficiencies and improved margins.
Salaries and related expenses increased to $2.2 million for fiscal 1996 from
$1.6 million for fiscal 1995, an increase of $600,000, but declined as a
percentage of revenues from 34.2% to 27.4%. The increased expenses reflected
the addition, in fiscal 1996, of 11 new Creative Partners.
General and administrative expenses increased to $985,000 for fiscal 1996
from $722,000 for fiscal 1995, an increase of $263,000. The increase is
primarily due to additional expenses associated with increased occupancy costs
and increased staffing in administrative functions. As a percentage of
revenues, general and administrative expenses declined from 15.4% in fiscal
1995 to 12.0% in fiscal 1996.
Interest expense increased to $161,000 for fiscal 1996 from $103,000 for
fiscal 1995, an increase of $58,000 or 56.3%. The increase is primarily
attributable to increased borrowings from available bank lines of credit in
order to fund the Company's growth and operations. Interest rates remained
relatively constant for both fiscal 1996 and 1995.
Combined federal and state income tax rates were 40% for fiscal 1996 and
1995, respectively. An income tax expense of $494,000 is reflected for fiscal
1996, as a result of the Company's taxable income during the
18
<PAGE>
year. An income tax benefit of $427,300 is reflected for fiscal 1995, as a
result of the Company's net operating loss during the period. The Company
generated a net operating loss from its inception, September 20, 1993, through
January 31, 1995 of approximately $1.6 million. The net operating loss offsets
the taxable income generated in fiscal 1996. The balance of the net operating
loss of approximately $260,000 has been fully reserved, primarily due to the
Company's history of operating losses.
Fiscal Year Ended January 31, 1995 Compared to Fiscal Year Ended January 31,
1994
The Company's inception was September 20, 1993, and operations commenced
during November 1993. Since less than three months of operations are included
in fiscal 1994, comparisons to fiscal 1995 are not meaningful.
During fiscal 1994, the Company's revenues were $373,000 and operating
expenses were $496,000, resulting in a net loss of $123,000. The loss was
primarily attributable to start-up costs incurred in connection with
commencing operations.
19
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The following table presents the Company's operating results and other data
for each of the eight quarters preceding April 30, 1996, including such
operating results expressed as a percentage of revenues for the respective
periods. The information for each of these quarters is unaudited, but has been
prepared on the same basis as the audited consolidated financial statements
and, in the opinion of the Company's management, reflects all adjustments in
conjunction with the Company's audited consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. Operating results for
any quarter are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1994 1994 1995 1995 1995 1995 1996 1996
-------- ----------- ----------- --------- -------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ $ 582 $1,212 $2,299 $3,150 $2,427 $1,419 $1,214 $2,037
Operating expenses:
Direct costs and
related expenses..... 456 1,076 1,873 1,885 1,046 537 154 1,178
Salaries and related
expenses............. 331 476 530 466 477 561 743 755
General and
administrative....... 180 177 236 234 229 249 273 255
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 967 1,729 2,639 2,585 1,752 1,347 1,170 2,188
Operating
income/(loss).......... (385) (517) (340) 565 675 72 44 (151)
Interest expense........ 22 30 38 42 46 32 41 33
------ ------ ------ ------ ------ ------ ------ ------
Income/(loss) before
income taxes........... (407) (547) (378) 523 629 40 3 (184)
Income tax
benefit/(expense)...... (117) (156) (109) 217 260 16 1 0
------ ------ ------ ------ ------ ------ ------ ------
Net income/(loss)....... $ (290) $ (391) $ (269) $ 306 $ 369 $ 24 $ 2 $ (184)
====== ====== ====== ====== ====== ====== ====== ======
PER SHARE DATA:
Net income/(loss) per
share(1)............. $ $ $ $ $ $ $ $
Shares used in per
share
computation(1).......
OTHER DATA:
Revenues, excluding
Miller(2)............ $ 532 $ 529 $ 143 $ 52 $ 761 $ 882 $1,063 $2,037
<CAPTION>
AS A PERCENTAGE OF REVENUES
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct costs and
related expenses..... 78.3 88.8 81.4 59.9 43.1 37.9 12.7 57.8
Salaries and related
expenses............. 56.8 39.3 23.1 14.8 19.7 39.6 61.2 37.1
General and
administrative....... 31.0 14.6 10.3 7.4 9.4 17.5 22.5 12.5
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 166.1 142.7 114.8 82.1 72.2 95.0 96.4 107.4
Operating
income/(loss).......... (66.1) (42.7) (14.8) 17.9 27.8 5.0 3.6 (7.4)
Interest expense........ 3.8 2.5 1.6 1.3 1.9 2.2 3.4 1.7
------ ------ ------ ------ ------ ------ ------ ------
Income/(loss) before
income taxes........... (69.9) (45.2) (16.4) 16.6 25.9 2.8 0.2 (9.1)
Income taxes
benefit/(expense)...... (20.1) (12.9) (4.7) 6.9 10.7 1.1 0.1 0.0
------ ------ ------ ------ ------ ------ ------ ------
Net income/(loss)....... (49.8)% (32.3)% (11.7)% 9.7% 15.2% 1.7% 0.1% (9.1)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- -------
(1) Calculated on the basis described in Note 2 of Notes to the Company's
Consolidated Financial Statements.
(2) The Company voluntarily resigned the Miller account in December 1995 in
order to pursue other assignments. See "Business--Leap's Clients."
20
<PAGE>
Depending upon its client mix at any time, the Company could experience
seasonality in its business. Such seasonality arises from the timing of
product introductions and business cycles of the Company's clients and could
be material to the Company's interim results. Such cycles vary from client to
client, and the overall impact on the Company's results of operations cannot
be predicted. In addition, the advertising industry as a whole exhibits
seasonality. Typically, advertising expenditures are highest in the fourth
calendar quarter and lowest in the first calendar quarter, particularly in
January. Although the Company has too limited an operating history to exhibit
any discernible seasonal trend, as the Company matures, its business and
results of operations could be affected by the overall seasonality of the
industry.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations and
investments in property and equipment through cash generated from bank
borrowings, loans from a Company officer and equipment leases. At April 30,
1996, the Company had no material capital commitments.
The Company had an accumulated deficit of $625,000 at April 30, 1996. The
Company's operations are subject to certain risks and uncertainties including,
among others, a limited operating history, net operating losses, management's
plan for growth and expansion, changing technologies, and current and
potential competitors with greater financial, technical and marketing
resources.
The Company's net working capital deficit increased $308,000 to $1.3 million
at April 30, 1996. The increase is primarily attributable to the Company's
first quarter loss of $184,382 which resulted in increased short-term bank
borrowings. The Company's net working capital deficit decreased $542,000 to
$973,000 at January 31, 1996, from $1.5 million at January 31, 1995. The
decrease is primarily attributable to the Company's net income of $700,460
during fiscal 1996 which resulted in a net reduction of $117,000 of short-term
borrowings and net changes in various working capital accounts.
The Company's cash and cash equivalents decreased $33,000 and $1,000 for the
quarters ended April 30, 1996 and 1995, respectively. The decreases are the
result of net decreases in cash flows from operating activities of $456,000
and $412,000, respectively, arising primarily from increases in accounts
receivable of $420,000 and $1.2 million, respectively; decreases in cash flows
from investing activities for purchases of computer and office equipment of
$118,000 and $27,000, respectively; and increases in cash flows from financing
activities from increased borrowings of $556,000 on the Company's lines of
credit and $450,000 from an officer of the Company, respectively.
The Company's cash and cash equivalents increased $41,000 and decreased
$111,000 for fiscal years 1996 and 1995, respectively. The increase in fiscal
1996 is the result of a net increase of $400,000 in cash flows from operating
activities which primarily consist of the Company's net income of $700,000,
after the effects of depreciation and other non-cash items of $648,000, a
decrease of $286,000 in accounts receivable offset by a decrease of $1.1
million in accounts payable; a decrease of $242,000 in cash flows from
investing activities for purchases of computer and office equipment; and a net
decrease of $117,000 in cash flows from financing activities resulting from
increased borrowings of $400,000 from an officer of the Company and $517,000
of principal reductions on the Company's bank borrowings. The decrease in
fiscal 1995 is the result of a net decrease of $564,000 in cash flows from
operating activities which primarily consist of the Company's net loss of $1.1
million, after the effects of depreciation and other non-cash items of
$320,000, an increase of $555,000 in accounts receivable and an increase of
$591,000 in costs in excess of billings, offset by an increase of $2.0 million
in accounts payable and accrued expenses; a decrease of $282,000 in cash flows
from investing activities for purchases of computer and office equipment; and
an increase of $735,000 in cash flows from financing activities resulting from
increased borrowings on the Company's existing lines of credit.
The Company has a $1.5 million credit facility available under a revolving
line of credit. The Company also has a separate $500,000 line of credit
available to purchase computer and office equipment. The credit facilities are
collateralized by all Company chattel paper, billed and unbilled accounts,
equipment and general
21
<PAGE>
intangibles. Furthermore, the obligations are guaranteed by certain
stockholders of the Company. The credit facilities bear interest at the bank's
index rate plus 1%. At April 30, 1996, the outstanding balances were $774,500
for the revolving line of credit and $241,022 for the line of credit to be
converted to a term note. The Company intends to repay this indebtedness in
full from the proceeds of the offering. See "Use of Proceeds." The credit
agreements expire on September 30, 1996. In connection with the offering, the
Company expects to negotiate amendments to the existing credit facilities that
will, among other things, extend their maturity dates.
In February 1995, the Company secured financing from an officer of the
Company to fund additional working capital needs. The $450,000 installment
note bears interest at prime plus 1.5% through August 1, 1996 and is
collateralized by a second mortgage on the Company's principal office
building. $50,000 has been repaid on the loan and the remainder will be repaid
from the proceeds of the offering. See "Use of Proceeds" and "Certain
Transactions."
On May 30, 1996, the Company obtained a $596,000 loan secured by a mortgage
on the building in which the Company's offices are located. The loan bears
interest at the lender's index rate and is payable in monthly principal and
interest installments of $7,794 through June 2001. The Company intends to
repay this indebtedness in full from the proceeds of the offering. See "Use of
Proceeds."
The Company is a defendant in pending litigation involving claims by the
Spin Doctors (a recording and performance group) arising from a television
commercial created by the Company. Although such litigation is in an early
stage, and it is therefore difficult to predict its ultimate outcome, an
adverse determination and award not covered by insurance could have a material
adverse effect on the Company's results of operations and, if the offering
contemplated by this Prospectus is not consummated, on the Company's liquidity
and consolidated financial position. See "Business--Legal Proceedings" and
Note 6 of Notes to the Company's Consolidated Financial Statements.
The Company believes that the net proceeds of the offering, together with
existing credit facilities and any funds from operations, will be sufficient
to meet the Company's cash requirements for at least the next twelve months.
The Company's long-term capital requirements will depend on numerous factors,
including the rates at which the Company grows, expands its personnel and
infrastructure to accommodate growth and invests in new technologies. The
Company has various ongoing needs for capital, including working capital for
operations, project development costs and capital expenditures to maintain and
expand its operations. In addition, as part of its strategy, the Company
evaluates potential acquisitions of, or alliances with, businesses that extend
or complement the Company's business. While the Company has no present plans,
commitments or agreements with respect to any material acquisition or
alliance, the Company may in the future consummate acquisitions or alliances
which may require the Company to make additional capital expenditures, and
such expenditures may be significant. Future acquisitions and alliances may be
funded with available cash from the net proceeds of the offering, seller
financing, institutional financing and/or additional equity or debt offerings.
22
<PAGE>
BUSINESS
The following presentation contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
Leap is a strategic and creative communications company that develops and
implements integrated brand marketing campaigns using traditional and new
media primarily for market leading clients. The Company's marketing and
communications services combine comprehensive strategic brand marketing
skills, award-winning creative talent, and the production capabilities of
world class full service advertising agencies with the technological expertise
to exploit new interactive and other digital media. Leap's mission is to build
brand equity for its clients. Leap focuses on establishing long-term marketing
partnerships with marquee clients of national and international scope that
position the Company as the steward for major brands with correspondingly
significant advertising budgets.
INDUSTRY BACKGROUND
A number of significant factors and trends are driving changes and creating
opportunities in the marketing communications business, including the
following:
Advertising Market. Approximately $161 billion was spent on advertising in
the United States in 1995, according to McCann-Erickson Worldwide, a leading
advertising agency that regularly publishes such information. A significant
portion of such market is accounted for by large national-to-global
advertisers with correspondingly large advertising budgets. Leap's present and
prospective clients currently advertise primarily on national mass circulation
media such as network television, network radio and nationally circulating
newspapers and magazines. According to McCann-Erickson, total U.S. spending on
such media amounted to approximately $40 billion in 1995.
Advertising Migrating to Accountable Media. Leap believes that large
advertisers increasingly are looking for ways to improve the effectiveness of
their advertising without increasing advertising expenditures, and to better
measure results from advertising. Historically, large advertisers, through
their advertising agencies, have had a strong bias towards using "broad cast"
media, such as television and newspapers. According to McCann-Erickson
research, 22.5% of total advertising spending in 1995 went to television,
22.6% to newspapers, 20.4% to direct-response mail advertising, 7.0% to radio
and 6.4% to yellow page publishers. The remaining 21% was allocated to
magazines, outdoor signage, and other media. Management believes that less
than $50 million was spent in 1995 on digital interactive media, classified
within the "other" segment, such as the Internet, CD-ROMs and interactive
presentations.
The Company believes that advertisers are beginning to shift away from
relying primarily on traditional one-way "broad cast" media, such as broadcast
television, to media that enable advertisers to "narrow cast" or customize
marketing messages to a well-defined audience. For example, according to
McCann-Erickson, direct mail advertising in the total U.S. advertising market
increased 41% between 1990 and 1995 compared to a 26% increase for all
advertising expenditures during the same period. Similarly, the Company
believes that the emergence of telemarketing is indicative of this trend. Leap
believes that these trends are primarily due to the fact that by using
interactive media, advertisers can target a particular segment of consumers
with a precision not found in print and broadcast television advertising. In
addition, interactive media can provide an almost instantaneous gauge of the
advertisement's effectiveness. This feedback allows an advertiser to increase
use of a particular message to take advantage of a favorable response, or
continuously to freshen and modify the message to improve its effectiveness.
23
<PAGE>
Emergence of New Media. Advances in technology over the past ten years have
impacted the distribution of brand messages to an extent not seen since the
advent of television, and the Company believes that, as a result, marketers
must make equally sweeping changes in the way they think about communicating
with their customers. For years, companies have sought to create marketing
programs that would communicate with consumers on a personal, one-to-one
basis. Techniques such as direct mail and telemarketing were used to reach
consumers more directly than traditional media including television,
magazines, newspapers or billboards. Recent developments in digital technology
have led to the emergence of new media communications vehicles such as the
World Wide Web, the Internet, CD-ROMs and interactive presentations. Now, such
new media not only permit real time one-to-one communications links with
consumers, but allow consumers, as a consequence of the interactive process,
to shape the advertising messages that they receive and become more engaged by
the messages.
Leap believes that the Internet, and particularly the World Wide Web, by
enabling advertisers to reach well-defined audiences without paying the
significant costs required to buy print space and broadcast media time, is
fast becoming the most cost-effective medium by which marketers can establish
a personalized two-way relationship with consumers. According to the 1995
CommerceNet/Nielsen Internet Demographics Survey, there are over 18 million
users of the World Wide Web. InterNet Info reports that as of April 12, 1996,
approximately 276,400 commercial Web sites were registered as domain names, an
increase of more than 60% in the first quarter of 1996 over the fourth quarter
of 1995. Industry observers expect this trend to continue and accelerate. The
Internet offers the ability to target and track consumers with specific brand
messages plus the opportunity to capture consumer preferences, opinions, needs
and wants. Advertising and marketing management could have instant access to
consumer feedback and continuously sharpen marketing plans to address the
current marketplace. Leap believes that a marketer's Web site, if used
correctly, can significantly augment traditional consumer research efforts
while providing useful information to customers and prospects.
Early adopters of Internet advertising have generally established Web sites
as a relatively inexpensive way to signal a technologically sophisticated
image to consumers without spending a significant portion of their overall
advertising budget. The Company believes, however, that as advertisers become
more familiar with interactive advertising techniques and opportunities, the
amounts spent to utilize new media will increase rapidly. A Forrester Research
report dated June 1995 estimated that the market for advertising on the
Internet will reach $74 million in 1996 and will exceed $2.0 billion by the
year 2000. Management believes that over the next few years the rate of growth
of advertising expenditures on new media will greatly exceed that of
expenditures for traditional media such as television or print as more
consumers, households and businesses connect to the World Wide Web and
marketers feel compelled to communicate through that channel.
Increasing Importance of Brand Identity. The Company believes that branding
of products and services, always important in the consumer markets, will
become even more important in coming years. In some markets, consumers are
presented with an increasing proliferation of products that are difficult to
distinguish. Even when a product or service is demonstrably better, the
Company believes that competitors can rapidly adapt their products to
neutralize such advantages. As a result, most sophisticated marketers rely on
the image or brand identity of their companies, products or services to
differentiate themselves from competitors. A well defined brand identity can
build long term equity with consumers and can be the basis for a sustainable
competitive advantage.
Importance of Speed to Market. As competitive pressures have increased and
the importance of being first to market has increased, companies are
shortening the cycle times required to bring products to market. In turn,
their marketing partners must reduce their own cycle times for creating and
producing communications elements. In addition, in recent years an increasing
number of marketers have downsized and streamlined their organizations. Their
advertising agencies, which are traditionally heavily departmentalized, are
expected to respond to such measures by themselves becoming more efficient.
Leap believes that advertising agencies that have responsive and nimble
organizations and embrace developing technologies will be best positioned to
respond to client demands for speed and increased efficiency.
In summary, as brand identity and speed to market become more important to
advertisers, and as more advertisers add new media to the portfolio of
marketing communications channels they use, Leap expects that
24
<PAGE>
there will be increased demand for the services of marketing communications
companies able to develop powerful, strategically sound brand identities
across a broad spectrum of media. Leap believes that more and more advertisers
are looking to their marketing partners for more complete marketing solutions;
they are seeking both traditional marketing expertise in research,
segmentation, strategy development, creative development, production, and
message distribution, and the ability to extend that work into new areas. This
ability requires forward thinking media strategies that are free from the
historical advertising agency biases that favor traditional media, as well as
the technological expertise necessary to operate in new media areas. The
Company believes that firms that offer such integrated skills have the
greatest opportunity to be entrusted with developing brand identity for
forward thinking clients and should enjoy access to the significant
advertising budgets that accompany such assignments.
LEAP'S CORE STRENGTHS
Leap's central mission is to build brand equity for its clients by designing
and implementing strategic brand marketing plans and comprehensive advertising
campaigns that are driven by premier talent and creative content and employ
both traditional and new media. Management believes that certain core
strengths have been, and will continue to be, integral to Leap's success in
achieving this goal.
Roster of Marquee Clients. Leap has successfully competed for and serviced
major accounts. For example, Leap was selected after a nationwide review as
agency of record for Nike's Niketown and Nike Factory Stores. In addition to
Nike, Leap's present clients include U.S. Robotics, Tommy Armour, the Chicago
Tribune Company, R.J. Reynolds, Pizza Hut, Inc. and The University of Notre
Dame. Leap's projects for national advertisers have included the 1995 Super
Bowl campaign for Miller, based on fictional quarterback "Elmer Bruker," for
which Leap won a "Clio" award. Leap attributes its success in attracting such
clients to the reputations of Leap and its senior management, as well as its
other core strengths, and believes that these factors, coupled with the client
roster itself, will enhance Leap's ability to attract additional significant
clients of national and international scope.
Strategic Orientation. Leap specializes in the strategic positioning of
brands. Beginning with a thorough appraisal of the needs, wants, impressions
and opinions of the client's customers and the position of the client's brand
in its marketplace in relationship to customers, competitors and retailers,
Leap develops a distinct identity for the brand. Fusing the brand strategy
with client goals, objectives and information, Leap then develops a strategic
platform that serves as the grounding for all brand messages across all media.
For example, when Nike first engaged Leap, Niketown had been positioned simply
from a retail orientation as "the most Nike stuff anywhere." Leap, however,
envisioned Niketown not merely as a retail concept but as a structure that
embodies and serves as a standard bearer for the Nike philosophy and adds to
the overall brand values.
Talent and Creative Distinction. Leap maintains a multidisciplinary talent
strategy as one of its core principles. Recognizing that the best strategic
platform is useless without creative executions that inform, engage and
entertain consumers, Leap's management places heavy emphasis on creativity in
the selection and training of personnel. The Company believes that its success
in attracting such creatives is in part attributable to the reputations of
Frederick Smith, George Gier, Joseph A. Sciarrotta and Thomas R. Sharbaugh,
who in the aggregate have over 70 years of advertising experience. Among
numerous accolades received by these men for their work, Messrs. Gier and
Sciarrotta were each named a National Creative All-Star for 1994 by Adweek
magazine. While employed by DDB Needham, Messrs. Smith, Gier and Sciarrotta
were best known for their campaigns for Anheuser-Busch, Inc.'s Bud Light
brand. The team created and produced the memorable "Yes I am!" and "Ladies
Night" commercials for Bud Light. Mr. Sharbaugh has a wealth of experience in
brand stewardship acquired during 18 years in marketing at Anheuser-Busch,
Inc. ("Anheuser-Busch") and Sears Roebuck and Co. ("Sears"). Mr. Sharbaugh
oversaw the "Softer Side of Sears" campaign, which was an important part of
the fundamental repositioning of Sears' retail operations. In addition, during
his tenure at Anheuser-Busch, Mr. Sharbaugh oversaw noteworthy campaigns, such
as "This Bud's For You," "Gimme a
25
<PAGE>
Light," "Spuds McKenzie" and "the Bud Bowl," that contributed to Budweiser's
stronghold on the top position in the beer market and Bud Light's emergence as
the leading light beer. See "Management--Executive Officers, Directors and
Significant Employees."
Leap's employees include experienced writers, art directors, graphic
designers, Web designers, producers and strategic thinkers. Leap's talent
strategy targets skilled individuals who, in addition to being creative, are
adept marketers attuned to the brand strategy and business objectives of
clients. The Company believes that it has to date, despite intense competition
for talent, been successful in attracting and retaining superior creative and
strategic thinkers as well as highly skilled programmers and interactive media
developers. All employees share the same title, "Creative Partner," and are
called upon to contribute beyond their primary areas of expertise.
The depth of Leap's talent extends well beyond its senior management. Leap's
strategy is to recruit the very best talent available, and the work of Leap's
Creative Partners has received numerous accolades and awards. Despite its
short history, Leap has achieved international recognition for creative
advertising. The Company received a "Clio" award for Special Effects for its
1995 Super Bowl Campaign for Miller, was a finalist in two categories at the
1995 London International Advertising Awards and has received more than a
dozen awards from the Chicago Show.
Organizational Model and Creative Process. Leap operates with an
organizational structure that differs significantly from the traditional
agency model. Instead of functional departments organized in a vertical
hierarchy, Leap is a flat organization built around cross-functional work
teams. Employees with varied skill sets (such as writers, art directors,
graphic designers, Web designers, programmers, account planners, producers or
media planners) are brought together as needed to service each client's
specific needs. Unlike the traditional agency model, Leap's structure enables
the client to deal directly with the creative and other team members and also
does not grant any one person proprietary control over a creative concept.
Management believes that this flat open structure yields better
communications, shorter cycle times, more responsive services, more efficient
use of resources, and a richer flow of creative ideas. Management also
believes that this unusual structure has enabled Leap to create a culture and
working environment that is attractive to creative talent. Leap has used this
to its advantage, bringing together top level marketing practitioners,
creative minds and technical talent selected for their balance of strategic
understanding and creative capabilities. In addition, Leap has used advanced
technology to link its people, assets and ideas into a flexible, fast-acting
organization.
Integrated Services Approach. Leap provides a full range of strategic,
creative, interactive and production services for both traditional and new
media projects. Leap's strategies are designed to integrate the most effective
and beneficial aspects of a wide array of media. Creative executions may
include television, print, outdoor and radio advertisements, as well as
promotions, direct mail, package design and logo design. Leap will also
develop and execute digital interactive solutions including World Wide Web
sites, CD-ROMs and interactive presentations. While Leap does not provide
traditional media buying services, it does coordinate placements of
advertisements on interactive media for its clients.
Technological Sophistication and Expertise. Management believes that the
Company is in the forefront in the application of new marketing communications
technology. The Company provides creative services for itself and its clients
by developing and maintaining sites on the Internet's World Wide Web. In
addition, Leap creates and implements interactive marketing solutions in a
variety of digital media including CD-ROMs. The Company's Creative Partners
include skilled programmers and interactive media developers. Management
believes that Leap's investment in technology serves as a competitive
advantage in recruiting and retaining talented employees.
As an example of the Company's technological sophistication, Leap recently
obtained a U.S. patent for an interactive video display system. The system
utilizes cable, wireless and digital satellite technologies to
26
<PAGE>
enable a large screen display system to receive digital audio/video signals
and to transmit the signals to a consumer or viewer at an adjacent or remote
location. The Company believes that the system described in the patent could
over time be used in multiple applications ranging from enhancement of an
advertiser's message on a billboard to interactive entertainment programming
at sporting and concert venues. The Company has not yet used the system
described in the patent in its business and there can be no assurance that it
will do so in the future.
Leap is networked to the Internet through a 1.5 Mbps T1 line. The Company
has developed an intranet Web site to allow easy distribution of information
internally in a secured environment, and its clients can view and proof both
print and graphics remotely through password protected Web pages. Proofing and
annotation of audio and video work is accomplished with Emotion's Creative
Partner content distribution system. Leap's programmers are versed in Basic,
Pascal, C/C++, Java, Peri, Lingo and Hypertalk. Leap develops Internet
projects on a number of platforms including Macintosh and Windows NT servers.
Leap also utilizes two Sun Microsystems Sparc Servers, one in-house and one
offsite. The in-house Sparc Server is used for development of Web projects and
beta testing new technologies for companies, including Netscape and
Macromedia, before they are released to the public for general sale. Completed
work is transferred to a Sun Sparc 20, which is housed at a location that
contains Chicago's Network Access Point, one of the hubs at which the world's
telecommunications providers (such as Sprint and MCI) share information
between networks. This Sparc 20 is monitored 24 hours a day, 7 days a week to
ensure optimal connectivity and functionality.
LEAP'S STRATEGY
Leap's strategy embodies the following key elements to build its business
and succeed in its mission:
Focus on Brand Stewardship. Leap's objective is to develop and nurture long-
term relationships with existing and new clients who have entrusted the
Company with the stewardship of their brands and the responsibility for
designing, creating and delivering key consumer messages over traditional and
new media. Leap has thus far been successful in winning additional assignments
from several clients who initially retained Leap to undertake a single project
in Web design or a specific brand advertising assignment. As such clients
worked with Leap and experienced its integrated, value-added approach, other
assignments and additional responsibilities followed. For example, Leap
received an initial assignment to do the strategic positioning and creative
development for Tommy Armour's 855s irons. Leap's scope of work for Tommy
Armour grew to include assignments for a World Wide Web site, new club design,
logo design, package design and material used at the point-of-purchase.
Similarly, Leap was initially engaged by U.S. Robotics to develop advertising
for its modem division. Leap has since received assignments to redesign and
develop a number of U.S. Robotics' Web sites. Leap is also working on adapting
U.S. Robotics' installation software CD-ROM to an advertising/marketing new
media tool. In addition, the Company has been engaged to do advertising for
U.S. Robotics' telephony division. Management believes that its focus on long-
term partnerships should provide a recurring revenue stream not associated
with single project assignments.
Maintain Superiority in Talent, Technology, and Service. Leap intends to
continue to attract, hire and retain top level strategic, creative and
technical talent and to be a leader in developing better ways of communicating
with consumers through leading-edge technology. With its flexible work team
approach and flat organizational structure, Leap is dedicated to providing
faster and more cost effective solutions to its clients' needs. Leap believes
that it can provide a competitive advantage to itself and its clients by
creating leading multimedia marketing programs that use interactive
technologies and MIS tools for optimizing the effectiveness of marketing
initiatives.
Target Market Leaders as Clients. Leap intends to focus on a limited number
of marquee clients, with businesses of national or global scope, that seek to
develop long-term marketing partnerships for significant national or
international brands and are interested in using traditional and new media for
their marketing communications. Many of Leap's current clients are, and future
targets are expected to be, market leaders with aggressive plans for growth
and multi-faceted communications needs.
27
<PAGE>
Develop Proprietary Program Material. Leap believes there is a significant
opportunity to create, develop and own proprietary program material for its
clients or itself. For example, Leap could create fictional characters, events
(a fictional sports league, for example) or locations (a fictional shopping
mall) that could be used in clients' marketing campaigns. This is similar in
concept to the early days of television when third parties, often advertising
agencies, developed entertainment programs sponsored by agency clients. Leap's
strategy, in contrast to the earlier concept, is to retain ownership of
programs it creates and to use such fictional creations primarily on the World
Wide Web, rather than television. If these fictional characters, events or
locations are developed and prove popular, the Company could license them to
sponsors. Moreover, the Company could create collateral merchandise, such as
clothing, games, and toys, based on these fictional creations. Leap's
management believes that this strategy, over time, could result in the
creation of intellectual property which, if properly utilized, could generate
a recurring revenue stream for the Company.
Pursue Acquisitions and Alliances. The Company expects to pursue
acquisitions of, or alliances with, businesses that extend or complement the
Company's business. The Company may explore acquisitions to obtain additional
top level talent, to supplement its scope of services and technology or to add
to its client roster. To assist the Company in attracting and servicing
international clients, the Company intends to seek out and establish strategic
alliances with international partners who share or expand Leap's core
strengths and services.
Broaden Operations Geographically to Service Clients. In keeping with the
Company's strategy of developing long-term relationships with national-to-
global clients, management intends to expand localized client account
management and support services through cost effective computerized local
offices. Primary creative marketing and advertising support will be provided
by personnel at the Company's corporate headquarters as management believes
that centralized operations can best preserve Leap's culture, assist
creativity and maximize the operational efficiencies of Leap's structure. The
Company presently operates a remote facility to ensure responsiveness to a
particular client's needs, and management will continue to evaluate the need
for localized account management and support on a client by client basis. It
is currently anticipated that larger national accounts will require small
local offices to supplement the primary operations at headquarters.
Create the Marketing Multiplier. In its work for clients, Leap applies a
concept it calls the "marketing multiplier." This concept involves the mixing
of advertising, entertainment and technology to increase the opportunities for
delivering brand messages in a fresh way. Ideally, this generates publicity
and public relations opportunities, creates product recognition and makes the
selling message more memorable. Leap seeks to create the "big idea," a
marketing theme which has greater impact as it is translated across multiple
communications channels into advertising, promotions, programming,
entertainment and Internet content. For example, in 1994 Leap created a series
of humorous spots for Miller Brewing Company that followed fictional
quarterback Elmer Bruker, a member of every winning Super Bowl team who never
saw any playing time. Leap wrote a Bruker biography, created Bruker trading
cards and orchestrated promotions and public relations efforts. The Bruker
idea generated "free" publicity and product recognition that went far beyond
the spots themselves. At Super Bowl 1995, network sportscasters interviewed
Bruker and fans displayed Bruker banners. The Company believes that major
national-to-global advertisers are embracing the "marketing multiplier" or
"big idea" marketing strategy as a way to build brand equity on a cost
effective basis and that Leap, with its expertise in developing communications
across all platforms and its relationships with clients and members of the
media and entertainment industries, is well positioned to leverage the
multiplier effectively for the brands it promotes.
LEAP'S SERVICES
Leap focuses on providing integrated marketing and communications services
designed to build brand equity through both traditional and new media.
Creative marketing solutions are generated with the goal of increasing the
client's sales while maximizing return on investment. The Company's solutions
are formulated through an ongoing process of building brand strategy and
creating and producing traditional and new media content.
28
<PAGE>
Strategic Brand Management. Leap focuses on developing a unique selling
proposition for a client or a client's product that builds brand equity and
differentiates the client or product from its competition. The Company creates
integrated marketing communications campaigns using a combination of
traditional and new media techniques designed to leverage marketing multiplier
principles. Leap has an account planning philosophy that places the consumer
at the center of the process, enhancing understanding of consumer needs,
motives and perceptions.
Creative Content Development. Leap develops creative ideas and executions
for delivery through a variety of distribution channels. Leap creates
television, print, radio and outdoor ads; develops logos, packaging, product
and collateral designs; creates promotions; generates design, programming and
content for World Wide Web sites, interactive kiosks and laptop presentations;
and develops entertainment programming.
New Media Production and Services. As part of Leap's integrated marketing
strategy, it generates and provides new media products and services including
designing and programming World Wide Web sites, interactive kiosks, CD-ROMs
and laptop presentations.
Innovative Production. Once strategy and creative content are approved by
clients, Leap produces the work in a manner designed to maintain high
standards of quality and deliver an attractive return on investment. Leap
seeks to deliver innovative solutions that can lower production costs, or
provide new media or new distribution channels for Leap's clients.
LEAP'S CLIENTS
Leap serves a variety of clients ranging from large companies such as Nike
and R.J. Reynolds to small companies such as Luminair Multimedia One, LLC and
The One Show. Leap's current clients include Nike, R.J. Reynolds, the Chicago
Tribune Company, U.S. Robotics, Tommy Armour and The University of Notre Dame.
Leap also believes in providing pro-bono services to worthy organizations and
has to date provided services to the Brain Injury Association and the
Partnership for a Drug Free America.
The Company's clients to date have included the following:
<TABLE>
<CAPTION>
CLIENT SERVICES PROVIDED BY LEAP
------ -------------------------
<C> <S>
Nike, Inc..................... Agency of record for Niketown and Nike Factory
Stores, developing strategic brand
positioning, producing print, radio, digital
design, packaging, multi-media, World Wide Web
strategy and design and strategic database
design.
U.S. Robotics, Inc............ Agency of record producing television, print,
radio, World Wide Web design, CD-ROM and
strategic database design.
Tommy Armour Golf Co.......... Agency of record developing strategic brand
positioning, producing television, print,
World Wide Web strategy and design, golf club
design, and logo design.
Ameritech..................... Agency of record assigned to Ameritech Internet
access project and Yellow Pages Internet
access project.
R.J. Reynolds Tobacco Co...... Providing strategic brand repositioning and
creative campaigns for selected brands.
Pizza Hut, Inc................ Strategic planning.
Chicago Tribune Company....... Development of World Wide Web programming and
content for delivery via the Internet.
The University of Notre Dame.. Television, CD-ROM, and multi-media design on a
project basis.
Cincinnati Bell Telephone..... Television, print, Internet access marketing,
radio, name generation, logo design, and
package design for various services on a
project basis.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
CLIENT SERVICES PROVIDED BY LEAP
------ -------------------------
<C> <S>
Anheuser-Busch, Inc................... Television on a project basis.
YES! Entertainment.................... Strategic positioning and television on
a project basis.
Brain Injury Association.............. Television and print on a pro bono
basis.
Partnership for a Drug Free America... Television on a pro bono basis.
The One Show.......................... Production of the CD-ROM for an award
show.
Boston Market, Inc.................... Television, outdoor, menu design, and
promotions on a project basis.
United States Satellite Broadcasting.. Television and print on a project
basis.
Papa John's International, Inc. ...... Positioning, television, and menu
design on a project basis for this
regional pizza delivery company.
Luminair Multimedia One, LLC.......... Development of "History of Notre Dame
Football" CD-ROM.
Miller Brewing Company................ Previous agency of record for Miller
Lite Ice producing television, radio,
and print; television and promotional
work for Miller Lite on a project
basis producing a Super Bowl
commercial and campaign; new product
development and World Wide Web site
development for Plank Road Brewery and
America Specialty & Craft Beers
divisions on a project basis.
</TABLE>
Leap was added to Miller's roster of agencies in May 1994 to do project work
for Miller Brewing Company and Plank Road Brewery. During the course of an 18-
month relationship, Leap developed a Super Bowl campaign for Miller Lite, was
assigned agency of record for Miller Lite Ice, and worked on a number of new
product development assignments for Plank Road. In December 1995, the Company
voluntarily resigned the Miller account in order to pursue other assignments.
Leap's three largest clients accounted for approximately 85% of Leap's
revenues for the fiscal year ended January 31, 1996, with fluctuations in the
amount of revenue contribution from each such client from quarter to quarter.
Miller, Leap's largest client during fiscal 1996, accounted for approximately
66% of Leap's revenues during such period. Cincinnati Bell Telephone, Nike and
Tommy Armour accounted for approximately 33%, 30% and 19%, respectively, of
the Company's revenues for the quarter ended April 30, 1996. Since Leap is
retained by a number of its clients on a project-by-project basis, a client
from whom Leap generates substantial revenue in one period may not be a
substantial source of revenue in a subsequent period.
CLIENT CASES
The following cases further illustrate the range of services that the
Company offers its clients and the value that such services can provide.
Niketown
Nike's global marketing director embarked on a national search for a second
agency to augment its longtime agency of record, Wieden & Kennedy. After a
nationwide review, Leap was selected as Nike's second agency of record. Leap's
first assignment was to reposition the Niketown brand of retail stores from a
basic retail strategy to an extension of Nike's "Just Do It" philosophy. Nike
management approved Leap's positioning strategy for Niketown and Leap then
created and executed elements including television, radio, print, outdoor
advertising, in-store strategies, multimedia strategy and design, Web site
development and packaging. In addition to ongoing advertising for existing
Niketown locations, Leap is also heavily involved in launching new locations
domestically and internationally.
30
<PAGE>
Chicago Tribune Company -- Online Arts and Entertainment Service Guide
Leap has been engaged as the strategic developer of the architecture and
look and feel of a leisure and entertainment segment of the Chicago Tribune
Company's Web site which the Company expects to be the most comprehensive
entertainment guide for the Chicago area. The site is intended to provide
consumers with up-to-date high-quality content, and eventually transactional
abilities, for nightclubs, bars, restaurants, live music, calendars, movie
guides, libraries, museums, parks and special events. The Company's plans also
envision versions of the site which will be "intelligent" and through usage
will track a user's preferences and provide personalized information.
Miller Brewing Company -- Super Bowl Campaign
As a member of Miller's agency roster, Leap recognized an opportunity for
Miller to reinforce its position as the NFL official beer sponsor as well as
compete directly with the Anheuser-Busch promotion "Bud Bowl." Facing a fast
turnaround schedule (six weeks), Leap created and produced television
commercials complete with celebrity talent and estate negotiation, a live
action shoot, a blue screen shoot, selection of NFL footage, editing and
compositing. The result was "Elmer Bruker," the story of the quarterback who
was a member of every winning Super Bowl team but never played. The spot
employed visual effects technology, such as that used in the movie "Forest
Gump," to incorporate football legends including Vince Lombardi and Hank
Stramm, and live action shots with Jimmy Johnson. The spots launched during
the college Bowl games on December 31, 1994. Leap orchestrated promotions and
public relations, wrote a Bruker biography, and created Bruker trading cards.
Tommy Armour Golf Company
Leap was retained as agency of record for Tommy Armour in May 1995. The
initial assignment was to create an advertising campaign that would relaunch
Tommy Armour's 855s Oversized Irons and begin to reposition the company as
forward thinking and technology focused. The 855s irons had been launched in
1994 with little advertising support and Tommy Armour felt it had missed an
opportunity to convey product innovation to consumers.
Leap developed a campaign based on game improvements and a themeline for the
advertising, "Take your game to the next level." The elements of the
communication plan included national television advertising, featuring
professional golfer Jim Gallagher, Jr., that ran on Saturday and Sunday golf
tournament telecasts and the CNN Airport Network. National trade and consumer
print advertising was also placed in golf publications. Leap created
integrated point of purchase materials, developed an updated Tommy Armour
logo, assisted in promotions and developed a Web site.
At the time Leap suggested the development of a Web site to Tommy Armour,
the Company was not aware of any other golf companies on the World Wide Web.
Leap convinced Tommy Armour that the Web site should be an integrated part of
its marketing plan and would offer benefits to consumers, trade partners and
the company. Leap crafted a deal with Golf Web, an online golf magazine, for
Tommy Armour to be the sole sponsor of Golf Web's coverage of all four major
tournaments in 1996, with a hyperlink to the Tommy Armour Web site. Leap
designed and developed the Tommy Armour Web site which includes product
information, a pro shop locator to help consumers find Tommy Armour products,
pro biographies, Tommy Armour news, and a golf trivia quiz. The Tommy Armour
Web site now serves consumers by providing relevant information and games,
trade partners by funneling customers to their retail outlets and Tommy Armour
by providing information about its customers.
COMPETITION
The markets for the Company's services are highly competitive. Clients may
change their marketing and communications advisors with relative ease or
perform these functions themselves. Clients may also reduce or eliminate their
expenditures on advertising and marketing at any time for any reason. The
Company faces
31
<PAGE>
competition from a number of sources, all striving to attract new clients or
additional assignments or accounts from existing clients. These sources
include national and regional full-service and specialty advertising agencies
as well as specialized and integrated marketing communications firms. The
Company could also be viewed as competing with large
entertainment/technology/marketing companies. While management believes that
Leap has a technological head start over most traditional agencies, many
agencies have begun to internally develop or acquire new media capabilities
(e.g., corporate identity and packaging, advertising services or World Wide
Web site design), have emerged technically proficient in the new media arena
and are competing with the Company in the interactive advertising market. 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.
There are relatively low barriers to entry into the Company's business. For
example, the Company has no significant proprietary technology that would
preclude or inhibit competitors from entering the integrated marketing
communication solutions market. 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 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 Company's business, financial condition
and operating results.
The Company believes that the principal competitive factors in its markets
are the abilities to understand the client's business and develop
strategically sound interactive solutions, present unique creative concepts,
demonstrate breadth and depth of technical and new media expertise, develop
strong customer relationships and produce high quality products with speed and
efficiency, and at a competitive price. The Company believes that it competes
favorably with respect to each of these factors, due in large part to a
structure that combines the creative talent and other skills of a traditional
advertising agency, as well as access to significant client advertising
budgets, with the technological vision required to convert client budgets into
effective digital, interactive marketing communications. However, there can be
no assurance that the Company will continue to compete successfully. To the
extent that the Company's competitors are perceived as providing superior
products, services or terms, or to the extent that the Company's clients are
dissatisfied with the Company's products, services or terms, the Company's
business, operating results and financial condition could be materially
adversely affected.
CREATIVE PARTNERS
As of June 30, 1996, Leap employed a total of 72 Creative Partners, 65 of
whom were full-time and 7 part-time. Of these, 62 were engaged in servicing
clients and 10 were involved in finance and administration. The Company
expects to hire a significant number of Creative Partners in fiscal 1997 to
accommodate anticipated growth and expansion. None of the Company's Creative
Partners are represented by a labor union, and the Company believes that its
relations with its Creative Partners are good.
FACILITIES
The Company owns its main office in Chicago which is a 12,400 square foot
two-story facility. The Company also leases a 2,200 square foot facility in
Portland, Oregon to service a local client. The Company is currently seeking
additional office space in Chicago, and believes that the space required to
serve the Company's present needs and anticipated growth will be available for
purchase or lease on commercially reasonable terms on an as-needed basis.
32
<PAGE>
LEGAL PROCEEDINGS
In September 1995, the Spin Doctors (also known as Modigliani, Inc.), a
recording and performing group, and Mow B'Jow Music, Inc., their music
publisher, filed a lawsuit against Leap, Miller and Trivers/Myers Music in the
United States District Court, Central District of California. The complaint
alleges copyright and persona infringement, statutory and common law unfair
competition and unjust enrichment stemming from the airing of a television
commercial created by Leap for a client. The suit has been referred to the
Company's insurance carrier and legal counsel. The complaint seeks substantial
monetary damages. In an unsolicited demand, the plaintiffs have offered to
compromise the case in the amount of $5,750,000. The defendants rejected such
offer to settle because of their belief that the plaintiffs' claims have no
merit, and the Company intends to vigorously defend its position. Although the
suit is in an early stage and it is therefore difficult to predict its
ultimate outcome, an adverse determination and award not covered by insurance
could have a material adverse effect on the Company's results of operations
and, if the offering contemplated by this Prospectus is not consummated, on
the Company's liquidity and consolidated financial position.
The Company is not a party to any other material litigation.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Steven Lutterbach(1).......... 46 Chairman and Chief Executive Officer
Frederick Smith.................. 42 Vice Chairman and Chief Operating Officer
Thomas R. Sharbaugh.............. 52 President and Director
George Gier...................... 35 Executive Vice President, Chief Marketing
and Information Officer and Director
Joseph A. Sciarrotta............. 34 Executive Vice President, Chief Creative
Officer and Director
Peter Vezmar..................... 39 Chief Financial Officer and Treasurer
Robert C. Bramlette.............. 46 Chief Legal and Strategic Officer and
Secretary
Guy Day(1)(2)(4)................. 65 Director
John Keane(1)(2)(3)(4)........... 66 Director
Thomas McElligott(2)(3).......... 52 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Messrs. Day, Keane and McElligott will become directors of the Company on
the effective date of the Registration Statement filed in connection with
the offering.
(3) Member of Audit Committee.
(4) Member of Stock Committee.
R. Steven Lutterbach co-founded Leap, has served as a director and officer of
the Company since its inception and became Chairman of the Board and Chief
Executive Officer in March 1996. From 1990 to the present, Mr. Lutterbach has
served as President of Forest Beach Development, Inc. and Long Beach
Development, Inc., both real estate development companies, which require
minimal amounts of his time. Mr. Lutterbach also co-founded the Alliance
Banking and Financial Service Companies, a full service bank in Michigan. Mr.
Lutterbach's previous experience includes positions as Chairman and Chief
Executive Officer of Control Resources Industries, Inc., a publicly held
company specializing in environmental products and service. Mr. Lutterbach
currently serves on the Board of Directors of several privately-held
businesses, foundations and social organizations, including Alliance Banking
Company.
Frederick Smith, a co-founder of Leap, was appointed Vice Chairman and Chief
Operating Officer of the Company in May 1996 and has served as a director and
officer since the Company's inception. From January 1991 until the formation of
Leap in September 1993, Mr. Smith was employed by DDB Needham Chicago, where he
was a Vice President, Executive Producer. While there, his principal accounts
were Bud Light, Michelob (for which he produced a commercial featuring Phil
Collins), Discover Card Services, General Mills and Audi. Mr. Smith's previous
experience included one year at Young and Rubicam Chicago, where he was
responsible for the Old Style "Heart of the Heartland" campaign, and five years
at Leo Burnett in Chicago where his client list included McDonald's, Kelloggs
and United Airlines.
Thomas R. Sharbaugh joined the Company in April 1996, became a director at
that time and was appointed President in May 1996. Prior to joining Leap, Mr.
Sharbaugh was employed by Sears from March 1994 until February 1996 as Vice
President, Strategic Marketing and Advertising. While at Sears, Mr. Sharbaugh
oversaw the "Softer Side of Sears" campaign, which was named as one of the top
10 print campaigns and top 25 television campaigns of 1995 (for the first time
ever for a retail advertiser). Prior to joining Sears, Mr. Sharbaugh held
various senior level executive marketing positions during his 16-year tenure at
Anheuser-Busch. As Vice President of Brand Management and, prior to that, as
Vice President of
34
<PAGE>
Budweiser Brands, he was responsible for managing brand marketing activities
and new product marketing. Mr. Sharbaugh's responsibilities at Anheuser-Busch
included the development and market launch of Bud Light; management of the
"This Bud's For You" campaign for Budweiser; the "Gimme a Light", "Spuds
McKenzie" and "Make it a Bud Light" campaigns for Bud Light; and the "Bud
Bowl" promotional campaign. Mr. Sharbaugh has received many awards for his
marketing accomplishments, including the Food and Beverage Marketing's
"Brammy" award for best sports marketing promotion in 1990, and was named to
Advertising Age's "Marketing 100" in 1992.
George Gier co-founded Leap, has served as a director and officer of Leap
since its inception and was appointed Executive Vice President, Chief
Marketing and Information Officer in May 1996. From January 1991 until joining
the Company, he was employed by DDB Needham Chicago, where he was a Vice
President, Creative Director. Mr. Gier's previous experience included Hal
Riney & Partners in San Francisco, where his principal assignment was the
introduction of Saturn automobiles. Prior to joining Hal Riney & Partners, Mr.
Gier spent four years at Fallon McElligott in Minneapolis, where his client
list included Lee Jeans, Porsche, Federal Express, Gilbey's Gin and Time/Life
Books. Mr. Gier's accolades include three "Clios" and 14 awards from The One
Show, and he has twice been a finalist for the Stephen E. Kelly Awards. In
1993, Mr. Gier was named Midwest Copywriter of the year by Adweek magazine,
and in 1994, he was named a National Creative All-Star by Adweek magazine.
Joseph A. Sciarrotta co-founded Leap, has served as a director and officer
of Leap since its inception and was appointed Executive Vice President, Chief
Creative Officer in May 1996. From January 1991 to August 1993, he was
employed by DDB Needham Chicago, where he was a Senior Vice President, Group
Creative Director. While at DDB Needham, Mr. Sciarrotta was responsible for
the Bud Light, Frito Lay, and Busch Garden Theme Parks accounts, among others.
Prior to his move to DDB Needham, Mr. Sciarrotta spent six years at J. Walter
Thompson Chicago where he was a Senior Vice President, Creative Director. His
work, while at J. Walter Thompson, on 7-11, Lowenbrau, Oscar Mayer, Kraft
Miracle Whip, Quaker Oats and Godfather's Pizza earned him various creative
awards as well as Effie awards for effective advertising. In 1990, Mr.
Sciarrotta was named to the Adweek Creative All-Star Team as TV Art Director
of the Year for the Midwest, and in 1994, he was named a National Creative
All-Star by Adweek magazine.
Peter Vezmar joined the Company in June 1994 as the Director of Finance and
has served as Chief Financial Officer and Treasurer of Leap since March 1996.
From February 1989 until November 1994, Mr. Vezmar was employed by Pavichevich
Brewing Co., a public company, as its Chief Financial Officer. Mr. Vezmar is a
Certified Public Accountant and a former partner in a regional CPA firm.
Robert C. Bramlette has served as Chief Legal and Strategic Officer and as
Secretary of the Company since May 1996. Prior to joining Leap, Mr. Bramlette
was Of Counsel to the law firm Krupa & Braun, which he joined in February
1996. Prior to joining Krupa & Braun, Mr. Bramlette was employed by Sears for
sixteen years, most recently as its Assistant General Counsel, Real Estate,
and prior to that time, in a number of positions including Director of
Corporate Communications.
Guy Day will become a member of the Company's Board of Directors on the
effective date of the Registration Statement filed in connection with the
offering. Mr. Day is the sole owner and employee of G. Bidet Co. Inc., a
California-based advertising consulting company, which he founded in 1987.
From 1989 to 1990, Mr. Day held the position of Vice Chairman at the
advertising agency Keye/Donna/Pearlstine where he assisted in the
reorganization of this midsize agency. Mr. Day joined McElligott Wright
Morrison White as its Vice Chairman for a four-month period in 1991 during
which he assisted in the firm's campaign to obtain an automobile manufacturer
as a client. In 1966 Mr. Day co-founded Faust/Day, Inc. which by way of merger
became Chiat/Day, Inc. From 1968 to 1976, Mr. Day served this agency as
Creative Director and Chief Operating Officer. In 1982, Mr. Day returned to
Chiat/Day, Inc. from a sabbatical and served as its President in charge of
western operations until 1987. During his employment at Chiat/Day the agency
was twice selected as Advertising Age's "National Agency of the Year."
John Keane will become a member of the Company's Board of Directors on the
effective date of the Registration Statement filed in connection with the
offering. Mr. Keane is the Gillen Dean and Korth Professor of Strategic
Management at The University of Notre Dame's College of Business
Administration.
35
<PAGE>
He joined The University of Notre Dame in January 1989 in his current
position. Prior to such time, Mr. Keane held various management and consulting
positions in the advertising industry. From 1972 to 1984 he was the founding
President of Managing Change, Inc., a marketing consulting firm, and from 1961
to 1972 he was employed by Needham, Harper & Steers, Inc., Wade Advertising,
Inc., North Advertising, Inc. and J. Walter Thompson Company, where his
clients included Seven-Up, Kraft Foods, Oscar Mayer, Quaker Oats, S.C. Johnson
and Campbell Taggart. Mr. Keane is a director of Excel Industries, Inc., a
publicly held manufacturer of automotive parts.
Thomas McElligott will become a member of the Company's Board of Directors
on the effective date of the Registration Statement filed in connection with
the offering. In 1981, Mr. McElligott co-founded the Fallon McElligott Rice
agency, which in 1984 was named Advertising Age's "National Agency of the
Year." After seven years at Fallon McElligott Rice, he moved in 1989 to
Chiat/Day/Mojo, serving as its Executive Creative Director. In 1990, Mr.
McElligott founded the advertising agency McElligott Wright Morrison White
where he served as Chief Executive Officer and Creative Director until he
retired in 1992. Mr. McElligott is a member of the Advertising Hall of Fame.
BOARD OF DIRECTORS
Upon the completion of the offering, the Board of Directors will be divided
into three classes. The Board will be composed of three Class I directors
(Messrs. Smith, Sciarrotta and Keane), two Class II directors (Messrs.
Sharbaugh and Gier) and three Class III directors (Messrs. Lutterbach, Day and
McElligott). The terms of the Class I, Class II and Class III directors expire
on the date of the 1997, 1998 and 1999 annual meetings, respectively. At each
annual meeting, successors to the class of directors whose term expires at
that annual meeting will be elected for a three-year term. Directors elected
by the stockholders may be removed only for cause.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls.
Compensation Committee
The Compensation Committee determines the compensation of the Company's
executive officers and makes recommendations concerning the grant of options
to purchase shares of the Company's stock under the Company's 1996 Stock
Option Plan, Employee Incentive Compensation Plan and Employee Stock Purchase
Plan.
Stock Committee
The Stock Committee will administer the Company's 1996 Stock Option Plan,
Employee Incentive Compensation Plan and Employee Stock Purchase Plan.
Other Committees
The Board of Directors may establish such other committees as deemed
necessary and appropriate from time to time.
36
<PAGE>
COMPENSATION OF THE BOARD OF DIRECTORS
The Company intends to pay a fee of $2,000 per Board meeting attended and
$500 per committee meeting attended to its directors who are not employees of
the Company. The Company will reimburse such directors for travel and lodging
expenses incurred in connection with their activities on behalf of the
Company. In addition, non-employee directors are eligible to participate in
the Company's Non-Employee Directors' Stock Option Plan. On the effective date
of the Registration Statement filed in connection with the offering, each of
Messrs. Day, Keane and McElligott will be granted options to purchase 20,000
shares of Common Stock pursuant to the plan. See "--Stock Option Plans--Non-
Employee Directors' Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the fiscal year
ended January 31, 1996 to its chief executive officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during such period (each, a "Named Executive Officer").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME SALARY ($) BONUS ($) COMPENSATION ($)
- ---- ---------- --------- ----------------
<S> <C> <C> <C>
R. Steven Lutterbach
Chief Executive Officer................. $201,000 -- --
Frederick Smith
Chief Operating Officer................. 201,000 -- --
George Gier
Executive Vice President, Chief
Marketing and Information Officer...... 201,000 -- --
Joseph A. Sciarrotta
Executive Vice President and Chief Crea-
tive Officer........................... 221,226 -- --
</TABLE>
No stock options or stock appreciation rights have been granted to the Named
Executive Officers since the Company's inception.
STOCK OPTION AND STOCK PURCHASE PLANS
1996 Stock Option Plan
Effective January 3, 1996, the Company adopted the 1996 Stock Option Plan
(the "1996 Stock Option Plan") which permits the grant of incentive stock
options and non-qualified stock options. The 1996 Stock Option Plan was
amended and restated, effective March 12, 1996, upon the Company's
reorganization. As of June 30, 1996, options for 2,304,000 shares had been
granted under the 1996 Stock Option Plan and no additional shares of Common
Stock remained available for issuance thereunder. The 1996 Stock Option Plan
is administered by the Stock Committee, which has broad authority, subject to
the terms of the 1996 Stock Option Plan, to determine the material terms and
provisions under which the options are granted, including the individuals to
whom such options may be granted, exercise prices and numbers of shares
subject to options, the time or times during which options may be exercised
and certain other terms and conditions of the options granted. Officers,
directors, and other key employees of the Company, its subsidiaries and
affiliates are eligible to receive grants.
The exercise price of the incentive stock options under the 1996 Stock
Option Plan shall be equal to the fair market value of the Common Stock on the
date of grant; provided, however, that in the case of incentive stock options
granted to holders of more than 10% of the voting stock of the Company or any
subsidiary, the exercise price shall be not less than 110% of the fair market
value of the Common Stock on the date of grant. The exercise price of non-
qualified options shall be equal to the fair market value of the Common Stock
on
37
<PAGE>
the grant date as determined by the Stock Committee. The exercise price may be
paid in cash, by delivery of Common Stock or a combination thereof. The Plan
will terminate March 10, 2006 unless previously terminated by the Board of
Directors.
Non-employee Directors' Stock Option Plan
Effective May 1996, the Company adopted the 1996 Non-employee Directors'
Stock Option Plan (the "Directors' Plan"), pursuant to which options to
acquire a maximum of 200,000 shares of Common Stock may be granted to non-
employee directors. Options granted under the Directors' Plan do not qualify
as incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The Directors' Plan provides that on the
effective date of the Registration Statement filed in connection with the
offering, each of Messrs. Day, Keane and McElligott will be granted options to
purchase 20,000 shares of Common Stock at an exercise price equal to the
initial public offering price. Such options will become fully exercisable on
the date of grant. Pursuant to the Directors' Plan, each non-employee director
appointed or elected after the offering will be granted options to purchase
5,000 shares of Common Stock on the date of such director's initial election
or appointment to the Board of Directors and on each anniversary of the
initial grant date. Such options shall become exercisable one year after the
date of grant at an exercise price equal to the fair market value of the
Common Stock on the date of grant. All options granted under the Directors'
Plan will have a five-year term. The options may be exercised by payment in
cash, check or shares of Common Stock.
Employee Incentive Compensation Plan
Effective May 1996, the Company adopted the Employee Incentive Compensation
Plan (the "Incentive Plan"), which permits grants of incentive stock options,
non-qualified stock options, stock appreciation rights ("SARs"), performance
shares, restricted stock, deferred stock and other stock-based awards. The
Incentive Plan authorizes the issuance of up to 2,000,000 shares of Common
Stock in connection with such awards. As of June 30, 1996, options to purchase
15,000 shares of Common Stock had been granted under the Plan. The Incentive
Plan is administered by the Stock Committee, which has broad authority,
subject to the terms of the Incentive Plan, to grant stock options and make
other awards under the Incentive Plan. Directors, officers, employees and
consultants of the Company are eligible to receive grants.
The exercise price of stock options may not be less than the fair market
value of the Common Stock on the grant date. The Stock Committee will
determine when options may be exercised. The exercise price may be paid in
cash, by delivery of Common Stock or both.
SARs may be granted in conjunction with any stock option under the Incentive
Plan, in which case the exercise of the SAR shall require the cancellation of
a corresponding stock option, and the exercise of the stock option shall
require the cancellation of a corresponding portion of the SAR. In the case of
non-qualified stock options, such SARs may be granted at or after the time of
grant of such stock option. In the case of incentive stock options, such SARs
may be granted only at the time of grant of such option. An SAR may also be
granted on a standalone basis. Upon exercise of an SAR, the holder is entitled
to receive in cash, stock or both, as determined by the Stock Committee, the
difference between the fair market value of one share of Common Stock and (i)
the grant price of the SAR if the SAR was granted on a stand alone basis or
(ii) the option price if the SAR was granted in conjunction with a stock
option. An SAR granted in tandem with an incentive stock option is not
exercisable unless the fair market value of the Common Stock on the date of
exercise exceeds the option price.
The Incentive Plan also authorizes the granting of restricted and deferred
stock. The Stock Committee may condition the grant of restricted and deferred
stock upon the attainment of specified performance goals by the grantee or the
Company or other factors or criteria as the Stock Committee shall determine.
38
<PAGE>
The Incentive Plan also authorizes other awards that are payable in, valued
in whole or in part by reference to, or otherwise based on or related to
shares of Common Stock, as deemed by the Stock Committee to be consistent with
the purposes of the Incentive Plan. Such stock-based awards may include,
without limitation, shares of Common Stock awarded as bonus, not subject to
any restrictions or conditions, convertible or exchangeable debt securities,
other rights convertible or exchangeable into the shares of Common Stock,
awards with value and payment contingent upon performance of the Company or
any other factors, and awards valued by reference to the book value of shares
of stock or the value of securities of or the performance of the Company.
Employee Stock Purchase Plan
Effective May 1996, the Company adopted the Employee Stock Purchase Plan
(the "Stock Purchase Plan"). A total of 500,000 shares of Common Stock have
been reserved for issuance under the Purchase Plan. The Purchase Plan, which
is intended to qualify under Section 423 of the Code, permits eligible
employees of the Company to purchase Common Stock through payroll deductions
with all such deductions credited to an account under the Purchase Plan.
Payroll deductions may be up to 10% of compensation generally including
payments for base salary, commissions, overtime, shift premiums and shift
differential and up to a maximum of $25,000 for all purchase periods ending
within any Plan Year (as hereinafter defined).
The Purchase Plan operates on an annual basis from February 1 to the last
day of the following January (the "Plan Year"). To be eligible to participate
during a Plan Year, an employee must file all requisite forms prior to a
specified due date known as the "Grant Date." There are generally four
quarterly purchase dates each Plan Year (the "Exercise Dates"). The
determination of the Grant Date and the Exercise Dates are completely within
the discretion of the Plan Committee. Each offering period generally will be
for a period of three months, but may be as long as 27 months. On each
Exercise Date, participants' payroll deductions credited to their accounts
will be automatically applied to the purchase price of Common Stock at a price
per share which is the lesser of eighty-five percent (85%) of the fair market
value of the Common Stock on the Grant Date or on the Exercise Date. Employees
may end their participation in the Purchase Plan at any time during an
offering period, and their payroll deductions to date will be refunded.
Participation ends automatically upon termination of employment with the
Company.
Employees are eligible to participate in the Stock Purchase Plan if they are
customarily employed by the Company or a designated subsidiary for at least 20
hours per week and for more than five months in any calendar year. No person
will be able to purchase Common Stock under the Stock Purchase Plan if such
person, immediately after the purchase, would own stock possessing 5% or more
of the total combined voting power or value of all outstanding shares of all
classes of stock of the Company.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of Messrs.
Lutterbach, Smith, Gier, Sciarrotta and Sharbaugh. The employment agreement
with Mr. Lutterbach provides for an annual base salary of $300,000. The
agreements between the Company and each of Messrs. Smith, Gier and Sciarrotta
provide for an annual base salary of $200,000. Each of such agreements expires
on March 11, 1999 and is terminable by the Company only in the event of death
or disability or for "Cause" (as defined).
The employment agreement between Leap and Mr. Sharbaugh provides for an
annual base salary of $300,000. In addition, pursuant to such agreement, Mr.
Sharbaugh received options to purchase 1,800,000 shares of Common Stock
pursuant to the 1996 Stock Option Plan. The options granted to Mr. Sharbaugh
have an exercise price of $7.25 per share and a 10-year term. Of such options,
1,400,000 vested and became exercisable on March 12, 1996 upon execution of
the employment agreement and 100,000 shares will vest and become exercisable
on each anniversary thereof for the next four years. Mr. Sharbaugh's
employment agreement expires on March 30, 1999 and is terminable by the
Company only in the event of death or disability or for "Cause" (as defined).
39
<PAGE>
Each of the employment agreements contains provisions that restrict the
employee from misappropriating confidential information during the term of
employment and thereafter and from soliciting Leap's clients, prospects or
employees for two years following termination of employment.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law ("DGCL"),
the Company has adopted provisions in the Restated Certificate which eliminate
the personal liability of its directors to the Company or its stockholders for
monetary damages for breach of their fiduciary duty as a director to the
fullest extent permitted by the DGCL except for liability (i) for any breach
of their duty of loyalty to the Company 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 DGCL (unlawful
payments of dividends or unlawful stock repurchases or redemptions), or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Restated Certificate also contains provisions which require the Company
to indemnify its directors and officers and permit the Company to indemnify
its employees to the fullest extent permitted by Delaware law, including those
circumstances in which indemnification would otherwise be discretionary,
except that the Company shall not be obligated to indemnify any such person
(i) with respect to proceedings, claims or actions initiated or brought
voluntarily by any such person and not by way of defense or (ii) for any
amounts paid in settlement of an action indemnified against by the Company
without the prior written consent of the Company. The Company has entered into
indemnity agreements with each of its directors, Mr. Vezmar and Mr. Bramlette
providing for such indemnification and for certain additional indemnification
rights.
CERTAIN TRANSACTIONS
In February 1995, Mr. Lutterbach made a loan to the Company which totalled
approximately $400,000 at May 31, 1996. Such loan bears interest at the prime
rate plus 1 1/2% per annum. The loan is secured by a second mortgage on the
property located at 22 West Hubbard Street, Chicago, Illinois 60610, the
Company's principal executive offices. The Company intends to repay this
indebtedness in full from the proceeds of the offering. See "Use of Proceeds."
The Company currently has outstanding approximately $2.0 million of
indebtedness to Manufacturers Bank of Chicago ("Manufacturers") under two loan
facilities and recently obtained a loan in the principal amount of $596,000
from Manufacturers, secured by a mortgage on the Company's office building.
The full amount of such indebtedness is personally guaranteed by Mr.
Lutterbach and his spouse, Mr. Gier and his spouse, Mr. Sciarrotta and Mr.
Smith. The Company intends to repay this indebtedness in full from the
proceeds of the offering. See "Use of Proceeds."
From November 1, 1994 until October 26, 1995, the Company was a party to a
revolving credit agreement with Alliance Banking Company ("Alliance") of New
Buffalo, Michigan, under which amounts up to approximately $1,000,000 were
outstanding from time to time. On October 26, 1995, all outstanding debt under
the revolving credit agreement was paid in full and the agreement was
terminated. In addition, the Company had outstanding a mortgage loan,
initially in the amount of $480,000 from Alliance. Such loan was paid in full
on May 31, 1996. The full amount of such indebtedness was personally
guaranteed by Messrs. Gier, Lutterbach, Sciarrotta and Smith. Mr. Lutterbach
is a member of the Board of Directors of and a significant stockholder in
Alliance.
The Company has adopted a policy that all future transactions with
affiliated entities or persons will be on terms no less favorable than could
be obtained from unrelated parties and all future transactions between the
Company and its officers, directors, principal stockholders and affiliates
will be approved by a majority of the Company's independent directors.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996 and as adjusted to
give effect to the sale of shares of Common Stock in the offering, by (a) each
director and executive officer of the Company, (b) each person known by the
Company to own beneficially five percent or more of the Common Stock, (c) each
Selling Stockholder and (d) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY
BENEFICIALLY OWNED AFTER
SHARES OWNED AFTER OFFERING IF OVER-
BENEFICIALLY OFFERING IF OVER- NUMBER ALLOTMENT OPTION
OWNED PRIOR TO ALLOTMENT OPTION OF EXERCISED IN
OFFERING(1) NOT EXERCISED(1) SHARES FULL(1)
------------------ --------------------- BEING ---------------------
NAME NUMBER PERCENT NUMBER PERCENT OFFERED NUMBER PERCENT
---- ---------- ------- ---------- ------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
R. Steven
Lutterbach(2).......... 2,400,000 25.0% 2,400,000 18.3% 131,250 2,268,750 17.3%
Frederick Smith(3)...... 2,400,000 25.0 2,400,000 18.3 131,250 2,268,750 17.3
Joseph A.
Sciarrotta(4).......... 2,340,000 24.4 2,340,000 17.9 131,250 2,208,750 16.9
George Gier(5).......... 2,300,000 24.0 2,300,000 17.6 131,250 2,168,750 16.6
Thomas R. Sharbaugh(6).. 1,400,000 12.7 1,400,000 9.7 -- 1,400,000 9.7
All executive officers
and directors as a group
(7 persons prior to the
offering, 10 persons
after the offering)(7).. 10,858,333 98.5% 10,918,333(8) 74.9% 525,000 10,393,333(8) 71.3%
</TABLE>
- --------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) The shares shown include 150,000 shares held by trusts for Mr.
Lutterbach's children, as to which Mr. Lutterbach disclaims beneficial
ownership.
(3) The shares shown include 150,000 shares held by trusts for Mr. Smith's
children, for which Mr. Smith, as co-trustee, shares voting and investment
power.
(4) The shares shown include 50,000 shares held by a trust for Mr.
Sciarrotta's family, for which Mr. Sciarrotta, as co-trustee, shares
voting and investment power.
(5) The shares shown include 100,000 shares held by trusts for Mr. Gier's
children, for which Mr. Gier, as co-trustee, shares voting and investment
power.
(6) The shares shown are issuable to Mr. Sharbaugh pursuant to currently
exercisable options.
(7) The shares shown include 1,418,333 shares issuable to officers pursuant to
currently exercisable options.
(8) Includes 60,000 shares issuable to non-employee directors pursuant to
options that will become exercisable on the effective date of the
Registration Statement filed in connection with the offering.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, par value $.01 per share, and 20,000,000 shares of Preferred
Stock, par value $.01 per share.
The following summary of certain provisions of the Common Stock and the
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate and Bylaws that are included as exhibits to the Registration
Statement of which this Prospectus is a part, and by the provisions of
applicable law.
COMMON STOCK
As of June 30, 1996, there were 9,600,000 shares of Common Stock outstanding
that were held of record by 18 stockholders. There will be 13,100,000 shares
of Common Stock outstanding after giving effect to the sale of the shares of
Common Stock offered hereby and excluding shares of Common Stock reserved for
issuance upon exercise of options granted under the Company's stock option
plans. The Company has applied
41
<PAGE>
to list the Common Stock on the Nasdaq National Market under the symbol
"LEAP." To date, there exists no market for the Common Stock and there can be
no assurance that a market will develop.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Holders of Common Stock are entitled to one
vote per share in all matters to be voted upon by stockholders. In the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
the Company's liabilities and the liquidation preferences of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and no
rights to convert their Common Stock into any other securities, and there are
no redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may issue in the future.
PREFERRED STOCK
The authorized class of Preferred Stock may be issued in series from time to
time with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof as the Board of Directors
determines. The rights, priorities, preferences, qualifications, limitations
and restrictions of different series of Preferred Stock may differ with
respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The Board of Directors may authorize the issuance of Preferred Stock
which ranks senior to the Common Stock with respect to the payment of
dividends and the distribution of assets on liquidation. In addition, the
Board of Directors is authorized to fix the limitations and restrictions, if
any, upon the payment of dividends on Common Stock to be effective while any
shares of Preferred Stock are outstanding. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change of control of the Company. The Company has no
present intention to issue shares of Preferred Stock.
CERTAIN CORPORATE PROVISIONS
The Company's Restated Certificate and Bylaws contain a number of provisions
relating to corporate governance and to the rights of stockholders. Certain of
these provisions may be deemed to have a potential "anti-takeover" effect in
that such provisions may delay, defer or prevent a change of control of the
Company. These provisions include (a) the classification of the Board of
Directors into three classes, each serving for staggered three year terms, (b)
the authority of the Board to issue series of Preferred Stock with such voting
rights and other powers as the Board of Directors may determine, (c) notice
requirements in the Bylaws relating to nominations to the Board of Directors
and to the raising of business matters at stockholders meetings, (d) a
requirement that a vote of the holders of at least 80% of the shares entitled
to vote generally for the election of directors is required to amend
provisions of the Restated Certificate relating to the classification of the
Board and removal of directors, and (e) a prohibition of stockholder action by
written consent.
The Company is subject to the provisions of the DGCL. Section 203 of the
DGCL prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless the business combinations is approved in a
prescribed manner. A "business combination" includes mergers, asset sales, and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates owns, or within three years did own, 15
percent or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the Company's
Common Stock. Future sales of substantial amounts of Common Stock in the
public market could adversely affect the prevailing market prices.
Upon completion of the offering, there will be 13,100,000 shares of Common
Stock of the Company outstanding. Of these shares, the 3,500,000 shares sold
in the offering will be immediately eligible for resale in the public market
without restriction under the Securities Act, unless they are held by
"affiliates" of the Company within the meaning of Rule 144 under the
Securities Act. The remaining 9,600,000 shares will be "restricted" securities
within the meaning of Rule 144.
The Company, its officers and directors and stockholders (who in the
aggregate will hold all of the restricted securities upon completion of the
offering) have agreed that they will not directly or indirectly, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of,
without the prior written consent of Dean Witter, any shares of Common Stock
or any other equity security of the Company, or any securities convertible
into or exercisable or exchangeable for, or warrants, options or rights to
purchase or acquire, Common Stock or any other equity security of the Company,
or enter into any agreement to do any of the foregoing, for a period of 180
days from the effective date of the Registration Statement of which this
Prospectus forms a part. Beginning 181 days after the effective date, all of
the currently outstanding restricted shares will become eligible for resale in
the public market subject to compliance with applicable provisions of Rule 144
adopted under the Securities Act. Dean Witter may, in its sole discretion and
at any time without notice, release any portion of the shares subject to lock-
up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an "affiliate" of the Company, as that term is
defined in Rule 144 (an "Affiliate"), who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least two
years from the later of the date such securities were acquired from the
Company or (if applicable) the date they were acquired from an Affiliate is
entitled to sell, within any three-month period, a number of such shares that
does not exceed the greater of one percent of the then outstanding shares of
Common Stock (approximately 131,000 shares immediately after the offering) or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule
144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition,
under Rule 144(k), if a period of at least three years has elapsed between the
later of the date restricted securities were acquired from the Company and the
date they were acquired from an Affiliate of the Company, a stockholder who is
not an Affiliate of the Company at the time of sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to
sell the shares immediately without compliance with the foregoing requirements
under Rule 144.
The Company intends to file a registration statement under the Securities
Act no earlier than 90 days after the offering, covering an aggregate of
5,004,000 shares of Common Stock reserved for issuance under the stock option
and stock purchase plans. Upon the effectiveness of that registration
statement, 1,641,333 of the shares of Common Stock issuable under the stock
option and stock purchase plans, other than shares held by Affiliates, will be
immediately eligible for resale in the public market without restriction,
subject to the terms of the lock-up agreements which will be applicable to
options to purchase 1,478,333 shares.
43
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (a copy of which has been
filed as an exhibit to the Registration Statement), to purchase from the
Company the number of shares of Common Stock set forth opposite their
respective names in the table below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Dean Witter Reynolds Inc...........................................
Donaldson, Lufkin & Jenrette Securities Corporation................
---------
Total............................................................ 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased. The Underwriters
have advised the Company that they propose to offer the shares of Common Stock
to the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers (who may include the Underwriters) at such
price less a concession not to exceed $ per share. The Underwriters may
allow, and such dealers may reallow, a discount not to exceed $ per share
on sales to certain other dealers. After the initial offering to the public,
the public offering price and such concessions may be changed.
The Selling Stockholders have granted to the Underwriters an option
exercisable for 30 days from the date of this Prospectus to purchase up to
525,000 additional shares of Common Stock at the initial public offering price
less the underwriting discounts and commissions, solely to cover over-
allotments. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number of shares
of Common Stock set forth opposite each Underwriter's name in the preceding
table bears to the total number of shares of Common Stock listed in such
table.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, subject to certain exceptions, its directors and officers and
the Selling Stockholders have agreed with the Underwriters that they will not
offer, sell or contract to sell, or otherwise dispose of, or enter into any
agreement to sell, directly or indirectly, any shares of the Company's Common
Stock or any securities convertible into, or exchangeable or exercisable for,
shares of the Company's Common Stock for a period of 180 days after the
effective date of the Registration Statement of which this Prospectus forms a
part without the prior written consent of Dean Witter. See "Shares Eligible
for Future Sale."
The Underwriters do not intend to confirm sales of shares of Common Stock
offered hereby to any accounts over which they exercise discretionary
authority.
44
<PAGE>
Prior to this offering, there has been no established trading market for the
Common Stock. The initial price to public of the Common Stock offered hereby
will be determined by negotiation between the Company and the Representatives.
The factors to be considered in determining the initial price to public
include the history of and the prospects for the industry in which the Company
competes, the ability of the Company's management, the past and present
operations of the Company, the historical results of operations of the
Company, the prospects for future earnings of the Company, the general
condition of the securities market at the time of this offering, the recent
market prices of securities of generally comparable companies and other
factors deemed relevant.
LEGAL MATTERS
The legality of the issuance of the shares of Common Stock being offered
hereby will be passed upon for the Company and the Selling Stockholders by
Katten Muchin & Zavis, a partnership including professional corporations,
Chicago, Illinois. Certain legal matters will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company for the period from
inception (September 20, 1993) to January 31, 1994 and the fiscal years ended
January 31, 1995 and 1996, appearing in this Prospectus and Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report thereon appearing elsewhere in the
Registration Statement, and are included in reliance upon the report given
upon the authority of such firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the 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. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information, reference is made to
the Registration Statement and exhibits thereto. The information so omitted,
including exhibits, may be obtained from the Commission at its principal
office in Washington, D.C. upon the payment of the prescribed fees, or may be
examined without charge at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549-1004. Such materials also may be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports contain-
ing consolidated financial statements audited by independent public accoun-
tants.
45
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants............. F-2
Consolidated Balance Sheets as of January 31, 1995 and 1996 and (Unau-
dited) April 30, 1996.................................................... F-3
Consolidated Statements of Operations for the Period from Inception (Sep-
tember 20, 1993) to January 31, 1994 and for the Fiscal Years Ended Janu-
ary 31, 1995 and 1996 and for the (Unaudited) Three-Month Periods Ended
April 30, 1995 and 1996.................................................. F-4
Consolidated Statements of Stockholders' Deficit for the Period from In-
ception (September 20, 1993) to January 31, 1994 and for the Fiscal Years
Ended January 31, 1995 and 1996 and for the (Unaudited) Three-Month Pe-
riod Ended April 30, 1996................................................ F-5
Consolidated Statements of Cash Flows for the Period from Inception (Sep-
tember 20, 1993) to January 31, 1994 and for the Fiscal Years Ended Janu-
ary 31, 1995 and 1996 and for the (Unaudited) Three-Month Periods Ended
April 30, 1995 and 1996.................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of The Leap Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Leap
Group, Inc. (a Delaware corporation) and subsidiaries as of January 31, 1995
and 1996, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the period from inception (September 20, 1993) to
January 31, 1994 and for each of the years in the two-year period ended
January 31, 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 The Leap
Group, Inc. and subsidiaries as of January 31, 1995 and 1996, and the results
of its operations and its cash flows for the period from inception (September
20, 1993) to January 31, 1994 and for each of the years in the two-year period
ended January 31, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois,
June 7, 1996
F-2
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
---------------------- APRIL 30,
1995 1996 1996
ASSETS ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents................ $ 6,715 $ 47,981 $ 15,388
Accounts receivable...................... 648,757 362,388 782,918
Costs in excess of billings.............. 591,263 619,660 589,972
Deferred income tax asset................ 477,793 0 0
Prepaid expenses......................... 18,285 42,201 45,536
---------- ---------- ----------
Total current assets................... 1,742,813 1,072,230 1,433,814
---------- ---------- ----------
Property and Equipment
Land..................................... 158,921 158,921 158,921
Building and improvements................ 432,093 442,923 465,019
Furniture and equipment.................. 233,162 549,983 645,440
---------- ---------- ----------
824,176 1,151,827 1,269,380
Less accumulated depreciation............ (103,598) (254,454) (301,954)
---------- ---------- ----------
Net property and equipment............. 720,578 897,373 967,426
---------- ---------- ----------
Other Assets............................... 74,137 83,190 121,360
---------- ---------- ----------
Total Assets............................... $2,537,528 $2,052,793 $2,522,600
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable......................... $2,000,559 $ 898,133 $ 942,677
Accrued expenses......................... 282,140 230,952 299,463
Notes payable to bank.................... 940,873 459,378 1,015,522
Current portion of mortgage payable...... 34,160 37,117 37,000
Current portion of capital lease
obligations............................. 0 19,178 20,000
Notes payable to officer................. 0 400,000 400,000
---------- ---------- ----------
Total current liabilities.............. 3,257,732 2,044,758 2,714,662
Long-Term Debt
Mortgage payable......................... 419,844 381,097 372,732
Capital lease obligations................ 0 66,526 59,176
---------- ---------- ----------
Total Liabilities.......................... 3,677,576 2,492,381 3,146,570
---------- ---------- ----------
Commitments and Contingencies (Note 6)
Stockholders' Deficit
Preferred Stock, $.01 par value,
20,000,000 shares authorized; no shares
issued nor outstanding.................. 0 0 0
Common Stock, $.01 par value; 100,000,000
shares authorized, 9,600,000 shares
issued and outstanding as of January 31,
1995 and 1996, and as of April 30,
1996.................................... 96,000 96,000 96,000
Additional paid in capital............... (95,000) (95,000) (95,000)
Accumulated deficit...................... (1,141,048) (440,588) (624,970)
---------- ---------- ----------
Total Stockholders' deficit............ (1,140,048) (439,588) (623,970)
---------- ---------- ----------
Total Liabilities and Stockholders'
Deficit................................... $2,537,528 $2,052,793 $2,522,600
========== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-3
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
----------------------------------- ----------------------
1994(1) 1995 1996 1995 1996
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 372,500 $ 4,679,248 $8,209,622 $3,150,442 $2,037,032
Operating expenses:
Direct costs and
related expenses..... 243,717 3,749,019 3,622,016 1,885,480 1,178,203
Salaries and related
expenses............. 132,867 1,598,047 2,246,963 465,741 754,862
General and
administrative
expenses............. 118,541 722,092 984,966 234,392 254,596
---------- ----------- ---------- ---------- ----------
Total operating
expenses........... 495,125 6,069,158 6,853,945 2,585,613 2,187,661
---------- ----------- ---------- ---------- ----------
Operating
income/(loss).......... (122,625) (1,389,910) 1,355,677 564,829 (150,629)
Interest expense........ 3,607 102,699 161,194 41,866 33,753
---------- ----------- ---------- ---------- ----------
Income/(loss) before
income taxes....... (126,232) (1,492,609) 1,194,483 522,963 (184,382)
Income tax
benefit/(expense)...... 50,493 427,300 (494,023) (217,300) 0
---------- ----------- ---------- ---------- ----------
Net income/(loss)....... $ (75,739) $(1,065,309) $ 700,460 $ 305,663 $ (184,382)
========== =========== ========== ========== ==========
Per share data:
Net income/(loss) per
share................ $ (0.01) $ (0.10) $ 0.07 $ 0.03 $ (0.02)
========== =========== ========== ========== ==========
Shares used in per
share computation.... 10,311,000 10,311,000 10,311,000 10,311,000 10,311,000
========== =========== ========== ========== ==========
</TABLE>
- --------
(1) For short period from business inception, September 20, 1993, through
January 31, 1994.
The accompanying notes to the financial statements are an integral part of
these statements.
F-4
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL DEFICIT DEFICIT
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of September
20, 1993 (Inception)... -- $ -- $ -- $ -- $ --
Issuance of common
stock, at $.01 par
value.................. 9,600,000 96,000 (95,000) -- 1,000
Net loss............... -- -- -- (75,739) (75,739)
--------- ------- -------- ---------- ----------
Balance as of January
31, 1994............... 9,600,000 96,000 (95,000) (75,739) (74,739)
Net loss............... -- -- -- (1,065,309) (1,065,309)
--------- ------- -------- ---------- ----------
Balance as of January
31, 1995............... 9,600,000 96,000 (95,000) (1,141,048) (1,140,048)
Net income............. -- -- -- 700,460 700,460
--------- ------- -------- ---------- ----------
Balance as of January
31, 1996............... 9,600,000 96,000 (95,000) (440,588) (439,588)
Net loss--unaudited.... -- -- -- (184,382) (184,382)
--------- ------- -------- ---------- ----------
Balance as of April 30,
1996--unaudited........ 9,600,000 $96,000 $(95,000) $ (624,970) $ (623,970)
========= ======= ======== ========== ==========
</TABLE>
The accompanying notes to the financial statements are an integral part of
these statements.
F-5
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
--------------------------------- ---------------------
1994(1) 1995 1996 1995 1996
-------- ----------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income/(loss)....... $(75,739) $(1,065,309) $ 700,460 $ 305,663 $(184,382)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization......... 5,957 106,930 169,598 25,775 53,125
Deferred income
taxes................ (50,493) (427,300) 477,793 217,300 0
Changes in operating
assets and
liabilities:
Accounts receivable.. (93,500) (555,257) 286,369 (1,177,976) (420,530)
Costs in excess of
billings............ 0 (591,263) (28,397) 446,876 29,688
Prepaid expenses..... (22,387) 4,103 (23,916) 2,604 (3,335)
Other assets......... (13,711) (69,716) (27,795) 149 (43,795)
Accounts payable..... 191,159 1,809,400 (1,102,426) (244,641) 44,544
Accrued expenses..... 57,886 224,254 (51,188) 11,321 68,511
-------- ----------- ---------- ---------- ---------
Net cash (used
in)/provided by
operating activities... (828) (564,158) 400,498 (412,929) (456,174)
-------- ----------- ---------- ---------- ---------
Cash flows from investing
activities:
Capital expenditures.... (62,605) (281,571) (241,947) (26,667) (117,553)
-------- ----------- ---------- ---------- ---------
Cash flows from financing
activities:
Proceeds from issuance
of common stock........ 1,000 0 0 0 0
Net
borrowings/(repayments)
on line of credit...... 180,220 760,653 (722,517) (114) 556,144
Borrowings on term
note................... 0 0 241,022 0 0
Mortgage payable........ 0 (25,996) (35,790) (11,237) (8,482)
Note payable to
officer................ 0 0 400,000 450,000 0
Capital lease
obligations............ 0 0 0 0 (6,528)
-------- ----------- ---------- ---------- ---------
Net cash provided
by/(used in) financing
activities............. 181,220 734,657 (117,285) 438,649 541,134
-------- ----------- ---------- ---------- ---------
Net increase/(decrease)
in cash and cash
equivalents............. 117,787 (111,072) 41,266 (947) (32,593)
Cash and cash
equivalents, at
beginning of period..... 0 117,787 6,715 6,715 47,981
-------- ----------- ---------- ---------- ---------
Cash and cash
equivalents, at end of
period.................. $117,787 $ 6,715 $ 47,981 $ 5,768 $ 15,388
======== =========== ========== ========== =========
Supplementary disclosure
of cash paid during the
period:
Interest paid........... $ 2,564 $ 88,091 $ 166,898 $ 46,407 $ 30,753
======== =========== ========== ========== =========
Schedule of noncash
investing and financing
activities:
Property purchased under
mortgage payable....... $ 0 $ 480,000 $ 0 $ 0 $ 0
======== =========== ========== ========== =========
Equipment purchased
under capital lease
obligations............ $ 0 $ 0 $ 85,704 $ 0 $ 0
======== =========== ========== ========== =========
</TABLE>
- --------
(1) For short period from business inception, September 20, 1993, through
January 31, 1994.
The accompanying notes to the financial statements are an integral part of
these statements.
F-6
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF APRIL 30, 1996 AND INFORMATION RELATING TO THE THREE MONTHS
ENDED APRIL 30, 1995 AND 1996 IS UNAUDITED.)
NOTE 1 -- DESCRIPTION OF BUSINESS
The Leap Group, Inc. (the "Company") is a Delaware corporation incorporated
in March, 1996, to act as the parent company for three wholly-owned
subsidiaries--The Leap Partnership, Inc. ("Leap Partnership"), an Illinois
corporation established in September, 1993; Lilypad Services, Inc.
("Lilypad"), an Illinois corporation established in September, 1995; and
Tadpole Productions, Inc. ("Tadpole"), an Illinois corporation established in
September, 1995.
The Company is a strategic and creative communications company that develops
and implements integrated brand marketing campaigns using traditional and new
media primarily for market leading clients.
The Company has a limited operating history. The Company began operations in
November, 1993 and experienced operating losses during fiscal 1994 and 1995.
Although the Company had operating income in fiscal 1996, it resigned the
account of its most significant client near the end of fiscal 1996 and had an
operating loss of approximately $151,000 for the quarter ended April 30, 1996,
and an accumulated deficit of approximately $624,000 at April 30, 1996.
The Company's operations are subject to certain risks and uncertainties
including, among others, a limited operating history, substantial operating
losses, management's plan for growth and expansion, and current and potential
competitors with greater financial, technical and marketing resources. These
and other risks and uncertainties are discussed elsewhere in this Prospectus.
Should the initial public offering contemplated by this Prospectus (the
"Offering") not be completed and management desire to continue to implement
its strategic growth plans through fiscal 1997, the Company could, in the
future, be required to consider other financing alternatives. However, such
financing may not be available on terms acceptable to the Company, or at all.
Alternatively, the Company could modify its strategic plans to adjust to
available working capital resources.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying Consolidated Financial Statements have been prepared on the
basis that the entities that now comprise the Company were combined at their
inception for financial reporting purposes. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of ninety days or less to be cash equivalents.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:
Cash, trade receivables and trade payables: the carrying amounts approximate
fair value because of the short maturity of these items.
Notes payable to a bank and mortgage payable: due to the floating interest
rate on these obligations, the carrying amounts approximate fair value.
F-7
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Company policy provides for capitalization of all major
expenditures for renewal and improvements and for current charges to income
for repairs and maintenance. The provision for depreciation and amortization
has been calculated using straight-line and accelerated methods over the
estimated economic lives of the related assets as follows:
<TABLE>
<S> <C>
Building...................................................... 39 years
Building improvements......................................... 7 years
Furniture and fixtures........................................ 7 years
Equipment..................................................... 3-5 years
</TABLE>
Revenue Recognition
Retainers from fixed fee arrangements, typically in the form of monthly
retainers, are recognized over the period in which services are rendered.
Revenues from production services are recognized at the completion of such
services. The Company's production projects are usually commenced and
completed in a short time period, often less than 60 days. Outside production
costs are initially recorded as costs in excess of billings and are expensed
as direct costs and related expenses at completion. Revenue earned from fees
based upon third-party media placements are recognized when the Company-
created materials appear on various media in accordance with industry
practice. Salary and other related general and administrative costs are
expensed as incurred.
Concentration of Credit and Other Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet items. The
Company attempts to limit its concentration of credit risk by securing clients
which are well-known advertisers of consumer and industrial goods and
services. The Company does not have an allowance for doubtful accounts
recorded at January 31, 1995, January 31, 1996 or April 30, 1996.
While the Company typically enters into written agreements with its clients,
it at times performs services prior to the execution of such agreements, and
written contracts are typically terminable by either party on short notice,
often 90 days and in certain instances less. Management considers the
relationships with existing clients to be good, however, the loss of any one
or more of the Company's significant clients could have a material adverse
effect on the Company's business, financial condition and results of
operations. For the three months ended April 30, 1996, three clients accounted
for 33%, 30%, and 19%, respectively, of consolidated revenues. During fiscal
year 1996, one client accounted for approximately 66% of consolidated
revenues. In fiscal year 1995, two clients accounted for approximately 64% and
28%, respectively, of consolidated revenues.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, which requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards, and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized.
Post-retirement Benefits
The Company has no obligations for post-retirement benefits.
F-8
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Per Share Data
Net income (loss) per common share is computed by dividing net income (loss)
by the weighted average number of common shares and dilutive common stock
equivalent shares outstanding during the year.
Common and equivalent shares include "cheap stock," whether dilutive or
anti-dilutive. Cheap stock consists of any common stock, options, and warrants
issued within one year prior to the effective date of the Offering, with a
price below the initial public offering price. The initial public offering
price, for purposes of this computation, is assumed to be $13.00 per share.
These have been included as common stock equivalents for all years presented,
reduced by the number of shares of common stock which could be purchased with
the proceeds from the assumed exercise of the options and warrants, including
tax benefits assumed to be realized. Supplementary earnings per common share,
giving effect to the intended repayment of debt with a portion of the proceeds
anticipated with the Offering, is not materially different from net
income/(loss) per common share as shown on the statement of operations.
Management's 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
period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim balance sheet and
related statement of stockholders' deficit as of April 30, 1996, and the
related statements of operations and cash flows for the three months ended
April 30, 1995 and 1996, have been prepared on the same basis as the audited
financial statements contained herein and include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein. The results of operations for the
three months ended April 30, 1996, are not necessarily indicative of the
results that may be expected for the fiscal year ending January 31, 1997.
Recently Issued Accounting Standards
In October, 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 establishes
financial accounting and reporting standards for stock-based compensation. The
Statement defines a fair value-based method of accounting for an employee
stock option or similar equity instrument. However, it also allows a company
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. Companies electing to remain with the
accounting in Opinion No. 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
the Statement had been applied. The Company will be required to adopt SFAS No.
123 during fiscal 1997. Management believes that the Company will elect to
make pro forma disclosure as allowed by SFAS No. 123.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which the Company adopted in fiscal 1996. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and
used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. To date, no such events or circumstances have occurred. However,
the Company intends to continue to perform a periodic review of assets for
impairment.
F-9
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- NOTES PAYABLE TO BANKS
Lines of Credit
On November 1, 1994, the Company entered into a revolving credit agreement
with a bank for a line of credit of up to $1 million. The interest rate on
January 31, 1995 (1.5% above the bank's prime lending rate) was 10.5%. The
line was collateralized by all business assets, including a second mortgage on
the Company's commercial real estate, and was guaranteed by certain
stockholders of the Company. At January 31, 1995, $941,000 was outstanding
under such line and was classified as short-term debt. On October 26, 1995,
all outstanding debt under the line was paid in full, the agreement was
terminated and the mortgage was discharged.
On October 4, 1995, the Company obtained a line of credit with a bank for up
to $1,500,000 through July 5, 1996. The interest rate on January 31, 1996 (1%
above the bank's prime lending rate) was 9.5%. The line is collateralized by
most of the Company's general business assets and by the guarantees of certain
stockholders of the Company. At January 31, 1996, $218,000, and at April 30,
1996, $774,500, was outstanding under such line and classified as current.
There are no material covenants associated with this line.
Revolving Line and Term Note
On October 4, 1995, the Company obtained an additional line of credit for up
to $500,000 to purchase computer and office equipment. The interest rate on
January 31, 1996, (1% above the bank's prime lending rate) was 9.5%. The note
is secured by all the computer equipment of the Company and is guaranteed by
certain stockholders of the Company. At January 31, 1996 and at April 30,
1996, the outstanding balance was approximately $241,000 which was classified
as current. On April 4, 1996, the agreement expired and was subsequently
extended through September 30, 1996. The agreement contains various non-
financial covenants with which the Company is in compliance through April 30,
1996.
Mortgage
On March 9, 1994, the Company secured a loan for $480,000 to purchase the
building in which the Company's current offices are located. The three-year
balloon note bears interest at the rate of 8.5%, payable in monthly principal
and interest installments of $5,995 through March 9, 1997, and is
collateralized by a mortgage on the Company's offices. This loan was
refinanced subsequent to January 31, 1996.
NOTE 4 -- RELATED PARTY TRANSACTIONS
Guarantees of Notes Payable to Banks
As discussed in Note 3, substantially all of the Company's debt has been
guaranteed by certain shareholders of the Company.
Note Payable to Officer
In February 1995, the Company secured additional financing from an officer
of the Company to fund additional working capital needs of the Company. The
$450,000 installment note bears interest at prime plus 1.5% through August 1,
1996 and is collateralized by a second mortgage on the Company's principal
office building. $50,000 has been repaid on the loan and the remainder will be
repaid within the next year.
F-10
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5 -- CAPITAL STOCK
Incorporation
On September 20, 1993, Leap Partnership was incorporated in Illinois.
Subsequently, on March 11, 1996, the Company was formed and became the parent
to the wholly-owned subsidiaries, Leap Partnership, Lilypad, and Tadpole. In
connection with the formation of the Company, each of the four shareholders of
Leap Partnership exchanged their 25 shares of Leap Partnership common stock
for 2,400,000 shares of the Company's common stock. Common stock and per share
amounts have been retroactively restated in the accompanying financial
statements to reflect the effect of the reorganization. The combined entities
have been under common control since inception and have been included in the
consolidated financial statements at historical cost since their respective
dates of inception in a manner similar to a pooling of interests.
The certificate of incorporation of the Company authorizes 40,000,000 shares
of common stock with $.01 par value and 10,000,000 shares of preferred stock
with a $.01 par value per share. On May 29, 1996, the Board of Directors and
Stockholders of the Company approved an amendment to the certificate of
incorporation which increased the total number of authorized shares of common
stock to 100,000,000 and preferred shares to 20,000,000.
1996 Stock Option Plan
On January 3, 1996, the Board of Directors and Shareholders at Leap
Partnership adopted the 1996 Stock Option Plan (the "1996 Stock Option Plan"),
which was assumed and Amended and Restated on March 12, 1996, by the Board of
Directors and Stockholders of the Company, whereby certain eligible employees
may be granted options. The 1996 Stock Option Plan allows issuance of
incentive stock options and nonqualified options. The 1996 Stock Option Plan
is administered by the Board of Directors, as a whole, or the 1996 Stock
Option Committee of the Board of Directors (the "Stock Committee"). The
exercise price of incentive stock options shall not be less than the stock's
fair market value on the date of grant.
On January 3, 1996, the Stock Committee granted options to purchase 504,000
shares of Common Stock at an exercise price of $3.00 per share under the 1996
Stock Option Plan. Of such options, 181,333 were exercisable on the date of
grant, 161,333 will vest on January 1, 1997, and 161,334 will vest on January
1, 1998.
NOTE 6-- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases telephones, copiers, and other equipment under operating
leases which expire in 1998. Minimum future lease payments under these leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
-----------
<S> <C>
1997.......................................................... $27,828
1998.......................................................... 27,828
-------
Total minimum lease payments required......................... $55,656
=======
</TABLE>
F-11
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Capital Leases
The Company leases computer equipment under capital leases. Future minimum
lease payments under the capital leases as of January 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY
31,
-----------
<S> <C>
1997........................................................ $ 32,525
1998........................................................ 32,525
1999........................................................ 32,525
2000........................................................ 18,206
--------
Total minimum lease payments required....................... $115,781
less amount representing interest.......................... (30,077)
--------
Obligation under capital leases............................. $ 85,704
less current portion of capital lease obligation........... (19,178)
--------
Non-current portion of capital lease obligation............. $ 66,526
--------
</TABLE>
Litigation
In September, 1995, the Spin Doctors (also known as Modigliani, Inc.), a
recording and performing group, and Mow B'Jow Music, Inc., their music
publisher, filed a lawsuit against Leap, Miller and Trivers/Myers Music in the
United States District Court, Central District of California. The complaint
alleges copyright and persona infringement, statutory and common law unfair
competition and unjust enrichment stemming from the airing of a television
commercial created by the Company for a client. The suit has been referred to
the Company's insurance carrier and legal counsel. The complaint seeks
substantial monetary damages. In an unsolicited demand, the plaintiffs have
offered to compromise the case in the amount of $5,750,000. The defendants
rejected such offer to settle because of their belief that the plaintiffs'
claims have no merit, and the Company intends to vigorously defend its
position. Although the suit is in an early stage and it is therefore difficult
to predict its ultimate outcome, an adverse determination and award of damages
not covered by insurance could have a material adverse effect on the Company's
results of operations and, if the offering contemplated by this Prospectus is
not consummated, on the Company's liquidity and consolidated financial
position.
Employment Agreements
The Company has entered into three-year employment agreements with five
employees, all expiring in March, 1999. Three of the agreements provide for
annual base salaries of $200,000 and the other two agreements provide for
annual base salaries of $300,000.
NOTE 7 -- INCOME TAXES
Income taxes are provided based upon income reported for financial reporting
purposes using the provisions of Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes, which requires the liability
method as described in Note 2.
The income tax provisions (benefits) charged to net income are summarized as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
31,
-----------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Federal:
Current..................................... $ -- $ -- $ 16,230
Deferred.................................... (42,920) (363,205) 406,125
-------- --------- --------
$(42,920) $(363,205) $422,355
State:
Current..................................... $ -- $ -- $ --
Deferred.................................... (7,573) (64,095) 71,668
-------- --------- --------
Total Tax Provision (Benefit)............. $(50,493) $(427,300) $494,023
======== ========= ========
</TABLE>
F-12
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The statutory federal income tax rate is reconciled to the Company's
effective income tax rate below:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JANUARY
31,
--------------------
1994 1995 1996
----- ----- ----
<S> <C> <C> <C>
Statutory rate......................................... (34.0)% (34.0)% 34.0%
State, net of Federal.................................. (4.9) (4.9) 4.9
Change in valuation allowance.......................... -- 11.4 1.3
Other.................................................. (1.1) (1.1) 1.2
----- ----- ----
Effective rate......................................... (40.0)% (28.6)% 41.4%
===== ===== ====
</TABLE>
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. The components of the net deferred income tax asset are as
follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforward........................ $ 582,296 $ 103,600
Alternative minimum tax credit......................... -- 16,230
Compensation accruals.................................. 57,868 55,598
Other.................................................. -- 3,173
Less--Valuation allowance.............................. (162,371) (178,601)
--------- ---------
Net deferred income tax asset...................... $ 477,793 $ --
========= =========
</TABLE>
Although the Company achieved net income during 1996, it resigned the
account of its most significant client in December, 1995, as discussed in Note
8. For this reason, and the Company's history of operating losses before
fiscal 1996, management has recorded a valuation allowance to fully reserve
for its net deferred tax asset at January 31, 1996.
At January 31, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $260,000. The net operating loss
carryforwards expire in 2009 and 2010.
NOTE 8 -- RESIGNATION FROM SIGNIFICANT CLIENT
Revenues from a major client represented approximately 66% and 64% of the
Company's total revenues in fiscal 1995 and 1996, respectively. In December
1995, the Company resigned the account of this client in order to pursue other
assignments.
NOTE 9 -- SUBSEQUENT EVENTS
Initial Public Offering
The Company plans to complete an underwritten Offering of 3,500,000 shares
of its common stock.
Grants Under the 1996 Stock Option Plan
On March 12, 1996, the Committee granted to an officer of the Company
options to purchase 1,800,000 shares of Common Stock at an exercise price of
$7.25 per share. On the date of grant, 1,400,000 of these options became
exercisable; the remaining 400,000 options will become exercisable in four
equal annual installments beginning one year after the date of grant. No
shares of Common Stock remain available for issuance under the 1996 Stock
Option Plan.
F-13
<PAGE>
THE LEAP GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Employee Incentive Compensation Plan
Effective May 29, 1996, the Company adopted the Employee Incentive
Compensation Plan (the "Incentive Plan"), which permits grants of incentive
stock options, nonqualified stock options, stock appreciation rights,
performance shares, restricted stock, deferred stock and other stock-based
awards. The Incentive Plan authorizes the issuance of up to 2,000,000 shares
of Common Stock in connection with such awards. On June 7, 1996, pursuant to
the Incentive Plan, an officer of the Company was granted options to purchase
15,000 shares of Common Stock at an exercise price of $12.00 per share. Such
options vest in equal installments on each of the first three anniversaries of
the grant date. Directors, officers, employees and consultants of the Company
are eligible to receive grants under the Incentive Plan.
Employee Stock Purchase Plan
Effective May 29, 1996, the Company's Board of Directors adopted the
Employee Stock Purchase Plan (the "Stock Purchase Plan"), which provides for
the issuance of a maximum of 500,000 shares of Common Stock. Under Section 423
of the Internal Revenue Code (the "Code"), eligible employees can have up to
10% of their earnings withheld to be used to purchase shares of the common
stock on specified dates determined by the Board of Directors up to a maximum
of $25,000 per year. The price of the common stock purchased under the Stock
Purchase Plan will be equal to 85% of the lower of the fair market value of
the common stock on the commencement date of each offering period or the
specified purchase date.
Non-Employee Director's Stock Option Plan
On May 29, 1996, the Board of Directors adopted the 1996 Non-Employee
Director's Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for the issuance of up to 200,000 nonstatutory stock options to non-
employee directors of the Company. On the effective date of the Offering, each
of three non-employee directors will be granted immediately exercisable
options to purchase 20,000 shares of Common Stock at an exercise price equal
to the initial public offering price. Each person who becomes a non-employee
director of the Company after the date of the Offering will automatically be
granted nonstatutory options to purchase 5,000 shares of Common Stock on the
date of such director's initial election or appointment to the Board of
Directors and on each anniversary of the initial grant date. Such options
shall become exercisable one year after the date of grant at an exercise price
equal to the fair market value of the Common Stock on the date of grant. All
options granted under the Directors' Plan will have a five-year term.
Mortgage Refinancing
On May 30, 1996, the Company refinanced an existing mortgage loan. The new
loan is in the amount of $596,000, bears interest at prime plus 1%, and is
payable in monthly principal and interest installments of $7,794 through May
2001, with a balloon payment of approximately $360,000 in June 2001. The loan
is secured by a mortgage on the building in which the Company's current
offices are located.
F-14
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UN-
DERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICI-
TATION OF ANY OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Selected Consolidated Financial and Other Data........................... 15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 34
Certain Transactions..................................................... 40
Principal and Selling Stockholders....................................... 41
Description of Capital Stock............................................. 41
Shares Eligible For Future Sale.......................................... 43
Underwriting............................................................. 44
Legal Matters............................................................ 45
Experts.................................................................. 45
Additional Information................................................... 45
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING 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 UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE LEAP GROUP, INC.
LOGO
3,500,000 SHARES
COMMON STOCK
P R O S P E C T U S
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Common
Stock pursuant to the Prospectus contained in this Registration Statement. The
Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 19,431
NASD filing fee.................................................. 6,135
Nasdaq listing fee............................................... 25,125
Accountants' fees and expenses................................... 150,000
Blue Sky fees and expenses....................................... 15,000
Legal fees and expenses.......................................... 325,000
Transfer Agent and Registrar fees and expenses................... 10,000
Printing and engraving expenses.................................. 135,000
Miscellaneous expenses........................................... 64,309
--------
Total.......................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Registrant's Amended and Restated Certificate of
Incorporation (the "Certificate") provides that the Registrant shall indemnify
its directors to the full extent permitted by the General Corporation Law of
the State of Delaware (the "DGCL") and may indemnify its officers and
employees to such extent, except that the Registrant shall not be obligated to
indemnify any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (ii) for any amounts paid in settlement of an action indemnified against by
the Registrant without the prior written consent of the Registrant. The
Registrant intends to enter into indemnity agreements with each of its
directors. These agreements may require the Registrant, among other things, to
indemnify such directors against certain liabilities that may arise by reason
of their status or service as directors, to advance expenses to them as they
are incurred, provided that they undertake to repay the amount advanced if it
is ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' liability insurance if available on
reasonable terms.
In addition, Article IX of the Certificate provides that a director of the
Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for willful or negligent conduct in paying dividends or
repurchasing stock out of other than lawfully available funds or (iv) for any
transaction from which the director derives an improper personal benefit.
Reference is made to Section 145 of the DGCL which provides for
indemnification of directors and officers in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In September 1993, the Registrant's predecessor entity issued an aggregate
of 100 shares of Common Stock to four individuals in exchange for cash in the
aggregate amount of $1,000. In March 1996, the Registrant issued an aggregate
of 9,600,000 shares of Common Stock to the same four individuals in exchange
for their stock in the predecessor business. Such transactions were effected
in reliance upon the exemption
II-1
<PAGE>
from the registration requirements of the Securities Act contained in Section
4(2) of the Securities Act and the rules and regulations promulgated thereunder
on the basis that such transactions did not involve any public offering. No
underwriters were engaged with respect to any of these transactions and no
underwriting discounts or commissions were paid in connection with the sale of
any such securities.
ITEM 16. EXHIBITS
(a)Exhibits.
<TABLE>
<C> <S> <C>
1. Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
4.1 Specimen stock certificate representing Common Stock.
5. Opinion of Katten Muchin & Zavis as to the legality of
securities to be registered.
*10.1 Revolving Credit Agreement, dated October 4, 1995, by and
between the Company and Manufacturers Bank for a line of
credit up to $1,500,000, and related documentation.
10.2 Revolving Credit Agreement, dated April 4, 1996 by and
between the Company and Manufacturers Bank, for a line of
credit up to $500,000, and related documentation.
*10.3 Mortgage, Assignment of Leases & Security Agreement and
Mortgage Note, dated May 7, 1996, in the principal amount of
$596,000 by and between the Company and Manufacturers Bank.
*10.4 Installment Note and Trust Deed dated February 1, 1995 in the
principal amount of $500,000 by and between the Company and
R. Steven Lutterbach.
10.5 Form of the Leap Group, Inc. Employee Incentive Compensation
Plan.
10.6 Form of the Leap Group, Inc. Non-employee Directors' Stock
Option Plan.
10.7 Form of the Leap Group, Inc. Employee Stock Purchase Plan.
*10.8 The Leap Group, Inc. Amended and Restated 1996 Stock Option
Plan
*10.9 Employment Agreement dated March 12, 1996 by and between the
Company and
R. Steven Lutterbach.
*10.10 Employment Agreement dated March 12, 1996 by and between the
Company and
Thomas Sharbaugh.
*10.11 Employment Agreement dated March 12, 1996 by and between the
Company and Frederick Smith.
*10.12 Employment Agreement dated March 12, 1996 by and between the
Company and
George Gier.
*10.13 Employment Agreement dated March 12, 1996 by and between the
Company and
Joseph A. Sciarrotta.
10.14 Form of Indemnification Agreement.
*11. Statement regarding computation of per share earnings.
*21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Katten Muchin & Zavis (contained in Exhibit 5).
*23.3 Consent of Guy Day.
*23.4 Consent of John Keane.
*23.5 Consent of Thomas McElligott.
*24. Power of Attorney.
27. Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
II-2
<PAGE>
(b)Financial Statement Schedule
Independent Auditors' Report
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the applicable provisions of the DGCL, or otherwise,
the Registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON THE 5TH DAY OF JULY, 1996.
The Leap Group, Inc.
/s/ R. Steven Lutterbach
By: _________________________________
R. STEVEN LUTTERBACH Chairman and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON JULY 5TH, 1996.
SIGNATURE TITLE
/s/ R. Steven Lutterbach Chief Executive Officer and Director
- ------------------------------------- (principal executive officer)
R. STEVEN LUTTERBACH
/s/ Peter Vezmar Chief Financial Officer (principal
- ------------------------------------- financial and accounting officer)
PETER VEZMAR
Chief Operating Officer and Director
*
- -------------------------------------
FREDERICK SMITH
President and Director
*
- -------------------------------------
THOMAS R. SHARBAUGH
Executive Vice President, Chief
* Marketing and Information Officer
- ------------------------------------- and Director
GEORGE GIER
Executive Vice President, Chief
* Creative Officer and Director
- -------------------------------------
JOSEPH SCIARROTTA
/s/ Peter Vezmar
*By: ___________________________
PETER VEZMAR
as Attorney-in-Fact
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON THE 5TH DAY OF JULY, 1996.
The Leap Group, Inc.
By: _________________________________
R. STEVEN LUTTERBACH Chairman and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED ON JULY 5TH, 1996.
SIGNATURE TITLE
Chief Executive Officer and Director
- ------------------------------------- (principal executive officer)
R. STEVEN LUTTERBACH
Chief Financial Officer (principal
- ------------------------------------- financial and accounting officer)
PETER VEZMAR
Chief Operating Officer and Director
*
- -------------------------------------
FREDERICK SMITH
President and Director
*
- -------------------------------------
THOMAS R. SHARBAUGH
Executive Vice President, Chief
* Marketing and Information Officer
- ------------------------------------- and Director
GEORGE GIER
Executive Vice President, Chief
* Creative Officer and Director
- -------------------------------------
JOSEPH SCIARROTTA
*By: ___________________________
PETER VEZMAR
as Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<C> <S> <C>
1. Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Bylaws of the Registrant.
4.1 Specimen stock certificate representing Common Stock.
5. Opinion of Katten Muchin & Zavis as to the legality of
securities to be registered.
*10.1 Revolving Credit Agreement dated October 4, 1995 for a line of
credit up to $1,500,000 by and between the Company and
Manufacturers Bank and related documentation.
10.2 Revolving Credit Agreement dated April 4, 1996 for a line of
credit up to $500,000 by and between the Company and
Manufacturers Bank and related documentation.
*10.3 Mortgage, Assignment of Leases & Security Agreement and
Mortgage Note dated May 7, 1996 in the principal amount of
$596,000 by and between the Company and Manufacturers Bank.
*10.4 Installment Note and Trust Deed dated February 1, 1995 in the
principal amount of $500,000 by and between the Company and R.
Steven Lutterbach.
10.5 Form of the Leap Group, Inc. Employee Incentive Compensation
Plan.
10.6 Form of the Leap Group, Inc. Non-employee Directors' Stock
Option Plan.
10.7 Form of the Leap Group, Inc. Employee Stock Purchase Plan.
*10.8 The Leap Group, Inc. Amended and Restated 1996 Stock Option
Plan.
*10.9 Employment Agreement dated March 12, 1996 by and between the
Company and
R. Steven Lutterbach.
*10.10 Employment Agreement dated March 12, 1996 by and between the
Company and
Thomas Sharbaugh.
*10.11 Employment Agreement dated March 12, 1996 by and between the
Company and Frederick Smith.
*10.12 Employment Agreement dated March 12, 1996 by and between the
Company and
George Gier.
*10.13 Employment Agreement dated March 12, 1996 by and between the
Company and
Joseph A. Sciarrotta.
10.14 Form of Indemnification Agreement.
*11. Statement regarding computation of per share earnings.
*21. Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Katten Muchin & Zavis (contained in Exhibit 5).
*23.3 Consent of Guy Day.
*23.4 Consent of John Keane.
*23.5 Consent of Thomas McElligott.
*24. Power of Attorney.
27. Financial Data Schedule
</TABLE>
- --------
* Previously filed.
(b)Financial Statement Schedule
Independent Auditors' Report
II-6
<PAGE>
Description of Artwork
Contained in the Registration Statement
Background
- ----------
An oval shaped "lilypad", covering 3/4 of the page, appears as a background
on each page of the artwork and alternates extending from the top and bottom
of each page. The lilypad is a bright green color offset against a blue
background to give the impression of a lilypad floating on water. The words
"Graphic Design. Digital Media. Advertising" are listed in a repeating pattern
in small print along the edge of the lilypad.
Text On Each Page
- -----------------
At the bottom of each page, the following text appears in addition to any
other text on that page:
The images displayed on these pages are a sample of some of the services
provided by the Company to certain of its current and former clients. Of the
clients referenced on these pages, only Nike, Tommy Armour, Cincinnati Bell and
U.S. Robotics accounted for a significant portion of Leap's revenues in the
fiscal quarter ended April 30, 1996. Since the Company is often retained by its
clients on a project-by-project basis, there can be no assurance that any
significant client in any prior period will be a source of revenues in any
future period. The sizes and placement of the images are not intended to
indicate the relative revenue generated from the services provided to the
clients displayed.
Front Inside Cover
- ------------------
Image 1: Image of Troy Aikman and Nate Newton of the Dallas Cowboys, as
they appear in a Tommy Armour Golf television commercial.
[Caption] ADVERTISING
Television, Print,
Radio, Outdoor
Image 2: A screen image from a Niketown Global Expansion Interactive
Presentation. The copy reads "Air Max. Lightweight mesh upper. Modified
gussetted tongue for ease of entry. Molded skeletal support frame and uni
directional nylon webbing eye stay straps enhance fit. Semi curve lasted
training shoe engineered for runner seeking the ultimate in full length Nike-Air
cushioning."
[Caption] NEW MEDIA
The Internet, The World Wide Web,
CD-ROMs, Proprietary Online Services,
Interactive Presentations
Image 3: An image of various beer bottles, showing beer label designs,
including the labels for Northstone Amber Ale, the Plank Road Brewery and
Milwaukee, Wisconsin.
[Caption] GRAPHIC DESIGN
Corporate Identity, Packaging,
New Product Development
[Text Across Bottom of Page]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
Front Inside Left Spread Page
- -----------------------------
Image 1: A screen from the Tommy Armour Golf World Wide Web page. The
index reads "Catalog, Pro Shop Locator, News, Q-A Department, Guestbook, The
Golf Doctor, and Pro Biographies." The banner reads "Buy a set of 855s irons
and get the driver Jim Gallagher Jr. uses free. (Jim's swing not included)."
[Caption] Tommy Armour
World Wide Web Site
Image 2: A screen image from the One Show CD-Rom. The text reads "Please
select a Category: print, radio, tv, other."
[Caption] The One Show
CD ROM
The Company is not currently performing services for The One
Show.
Image 3: The image depicts a dorm room desk at the University of Notre
Dame. The toolbar reads: tour, alumni, faculty, students, interview.
[Caption] Notre Dame Interactive Recruiting Program
project in development.
Image 4: A World Wide Web screen features the name Metromix, and the index
lists events, dining and nightclubs.
[Caption] Chicago Tribune Interactive Leisure & Entertainment Guide
project in development.
[Text Across Bottom of Page]
Vision. Leap is a strategic and creative communications company that develops
and implements brand-driven integrated marketing campaigns for large clients and
for its own proprietary use, utilizing both traditional and new technologies and
media.
Front Inside Spread Right Page:
- ------------------------------
<PAGE>
Images 1-3: Three images from the Niketown Global Expansion Interactive
Presentation. Image 1 is a screen from the Nike Timeline. It reads "1992. The
first Niketown opens its doors in Chicago, and quickly becomes the #1 tourist
attraction in the city. Filled with everything that embodies the Nike brand and
spirit, it is a dedication to all athletes and the dreams they chase." The
toolbar reads "Corporate, Niketown, Products, employees, facts & figs, expansion
map, Niketown tour". The same toolbar appears on images 1-3. Image 2 shows a
computer generated Nike shoebox. Image 3 shows a screen featuring a virtual
reality tour of Niketown Chicago.
[Caption] Niketown Global Expansion Interactive Presentation
Images 4 & 5: Two screen images from the History of Notre Dame Football
CD-Rom. Image 4 is a screen from the Legends section showing a picture of a
1923 Notre Dame listing the team members, and featuring the legendary Four
Horsemen. Image 5 is the main screen, with the roll-over pop up menu showing
"The Legends."
[Caption] History of Notre Dame Football
CD-ROM
Back Inside Cover:
- -----------------
Image 1: A Cincinnati Bell Fuse Internet Access print ad. The headline
reads "When choosing an internet service provider, remember two things: 1) The
internet depends completely on phone lines, 2) We know a lot about phone lines.
Cincinnati Bell Telephone. Fuse. The simple, reliable access to the net."
[Caption] Cincinnati Bell Telephone
Fuse Internet Access Service
Print Ad
The Company is not currently performing services for
Cincinnati Bell.
Image 2: Image depicts various postcard books prepared for Nike's Niketown.
[Caption] Niketown
Direct Mail.
Back Inside Spread Left Page:
- ----------------------------
Image 1: A television frame from a Partnership For a Drug Free America
commercial featuring actor Carroll O'Connor.
<PAGE>
[Caption] Partnership for a Drug Free America
Carroll O'Connor TV Commercial "My Son Hugh"
The Company is not currently performing services for
Partnership for a Drug Free America.
Image 2: A television frame from a Boston Chicken commercial in a recent
campaign depicting a car driving down the street.
[Caption] Boston Chicken
TV Campaign
The Company is not currently performing services for Boston
Chicken.
Image 3: A television frame from a Tommy Armour Golf commercial featuring
golf pro Jim Gallagher, Jr.
[Caption] Tommy Armour Golf
TV Commercial
Images 4-6: Three television frames from the Elmer Bruker Miller Lite Super
Bowl commercial. Image 4 shows Bruker on the sidelines eating a hot dog
alongside Chief's coach Hank Stram. Image 5 shows Bruker during the coin toss
of a Pittsburgh Steelers Super Bowl Game. Image 6 shows Bruker watching the
Super Bowl on television alongside former Cowboy's coach Jimmy Johnson.
[Caption] Miller Lite "Elmer Bruker"
Super Bowl TV Commercial
The Company is not currently performing services for Miller.
Back Inside Spread Right Page:
- -----------------------------
Image 1: A print ad for a U.S. Robotics product. The headline
reads "Waiting is necessary evil. We want to make it a lost art."
[Caption] U.S. Robotics
Print Ad
Image 2: A Niketown print ad featuring Michael Jordan, with headline
reading "We have liftoff. Niketown, Coming July 13/Sixth and Pike."
[Caption] Niketown
Print Ad
Image 3: A Miller Lite Ice print ad depicting a fishbowl with a fish
floating inside. The headline reads "This fish is in. He's always in. If he
goes out, he'll die. You, however, have no excuse. Ice brewed for the taste
that goes all out when you're out. The night is young."
[Caption] Miller Lite Ice
Print Ad
The Company is not currently performing services for Miller.
<PAGE>
EXHIBIT 1
TH&T DRAFT 6/26/96
------------------
3,500,000 Shares
THE LEAP GROUP, INC.
Common Stock, $.01 par value
UNDERWRITING AGREEMENT
----------------------
July __, 1996
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
1. Introductory. The Leap Group, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell, pursuant to the terms of this Agreement,
to the several Underwriters named in Schedule A hereto (the "Underwriters",
which term also shall include any underwriter substituted as hereinafter
provided in Section 11) an aggregate of 3,500,000 shares of common stock, $.01
par value (the "Common Stock"), of the Company. The aggregate of 3,500,000
shares so proposed to be sold are hereinafter referred to as the "Firm Stock".
The selling shareholders named in Schedule B hereto (the "Selling Shareholders")
also propose to sell severally to the Underwriters, on a pro rata basis, at the
option of the Underwriters, an aggregate of not more than 525,000 additional
shares of Common Stock as provided in Section 3 of this Agreement. The aggregate
of 525,000 shares so proposed to be sold is herein called the "Optional Stock".
The Firm Stock and the Optional Stock are collectively referred to herein as the
"Stock". Dean Witter Reynolds Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives of the several Underwriters and in
such capacity are hereinafter referred to as the "Representatives".
<PAGE>
-2-
Before the purchase and public offering of the Stock by the several
Underwriters, the Company and the Representatives, acting on behalf of the
several Underwriters, shall enter into an agreement substantially in the form of
Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Company and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the Stock will
be governed by this Agreement, as supplemented by the Pricing Agreement. From
and after the date of the execution and delivery of the Pricing Agreement, this
Agreement shall be deemed to incorporate the Pricing Agreement.
2. (a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters, as of the
date hereof and as of the date of the Pricing Agreement (such later date being
hereinafter referred to as the "Representation Date"), that:
(i) A registration statement on Form S-1 (File No. 333-05051)
with respect to the Stock, a copy of which has heretofore been delivered to
you, has been carefully prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
published rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act, has
been filed with the Commission under the Act and was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to the Commission's Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-
T; and the Company has so prepared and proposes so to file prior to the
effective date of such registration statement an amendment to such
registration statement including the final form of prospectus (which may
omit such information as permitted by Rule 430A of the Rules and
Regulations). Such registration statement as amended and the prospectus
constituting a part thereof (including in each case the information, if
any, deemed to be a part thereof pursuant to Rule 430A(b) or Rule 434 of
the Rules and Regulations) are hereinafter referred to as the "Registration
Statement" and the "Prospectus", respectively, except that if any revised
prospectus shall be provided to the Underwriters by the Company for use in
connection with the offering of the Stock which differs from the prospectus
on file at the Commission at the time the Registration Statement becomes
effective (whether or not such prospectus is required to be filed by the
Company pursuant to Rule 424(b) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use. If the Company
elects to rely on Rule 434 under the Rules and Regulations, all references
to the Prospectus shall be deemed to include, without limitation, the form
of prospectus and the term sheet, taken together, provided to the
Underwriters by the Company in reliance on Rule 434 under the Rules and
Regulations (the "Rule 434 Prospectus"). If the Company files a
registration statement to register a portion of the Securities and relies
on Rule 462(b) for such registration statement to become effective upon
filing with the Commission (the "Rule 462 Registration Statement"), then
any reference to "Registration
<PAGE>
-3-
Statement" herein shall be deemed to be to both the registration statement
referred to above (No. 333-05051) and the Rule 462 Registration Statement,
as each such registration statement may be amended pursuant to the Act.
(ii) When the Registration Statement becomes effective and as of
the Representation Date, the Registration Statement and the Prospectus will
conform in all material respects to the requirements of the Act and the
Rules and Regulations. At the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement will
not include 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. The Prospectus, at the time the
Registration Statement becomes effective and as of the Representation Date
(unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with the
offering of the Stock which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for such
use) and at the Closing Date (as hereinafter defined), will not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, directly or through the Representatives, or by
any Selling Shareholder, specifically for use in the preparation thereof.
(iii) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, (A) neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations (indirect, direct or contingent) or entered into any oral or
written agreements or other transactions not in the ordinary course of
business that, singly or in the aggregate, could reasonably be expected to
be material to the Company and its subsidiaries considered as a whole or
that could reasonably be expected to result in a material reduction in the
earnings of the Company and its subsidiaries considered as a whole, (B)
neither the Company nor any of its subsidiaries has sustained any loss or
interference with its business or properties from strike, fire, flood,
windstorm, accident or other calamity (whether or not covered by insurance)
that, singly or in the aggregate, could reasonably be expected to be
material to the Company and its subsidiaries considered as a whole, (C)
there has been no material change in the indebtedness of the Company, no
change in the capital stock of the Company and no dividend or distribution
of any kind declared, paid or made by the Company on any class of its
capital stock, and (D) there has not been any material adverse change, nor
any development that could, singly or in the aggregate, result in a
material adverse change in the financial condition, business, prospects or
results of operations of the Company and its subsidiaries considered as a
whole, whether or not arising in the ordinary course of business.
<PAGE>
-4-
(iv) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement, fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the respective
periods therein specified. Such financial statements and related notes and
schedules have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis except as may be set
forth in the Prospectus. The selected financial data set forth in the
Prospectus under the caption "Selected Consolidated Financial Data" fairly
presents, on the basis stated in the Registration Statement, the
information set forth therein.
(v) Arthur Andersen LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
(vi) The Company and each of its subsidiaries have been duly
organized and are validly existing and in good standing as corporations
under the laws of their respective jurisdictions of organization, with
corporate power and authority to own, lease and operate their properties
and to conduct their businesses as described in the Registration Statement
and Prospectus; the Company is and each of its subsidiaries is in
possession of and operating in compliance with all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and
orders required for the conduct of its business, all of which are valid and
in full force and effect, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such franchise, grant, authorization,
license, permit, easement, consent, certificate or order which, singly or
in the aggregate, if the subject of an unfavorable decision, would result
in a materially adverse change in the condition (financial or otherwise),
business, prospects or results of operations of the Company and its
subsidiaries considered as a whole; and the Company and each of such
subsidiaries is duly qualified to do business and in good standing as a
foreign corporation in all other jurisdictions where its ownership or
leasing of properties or the conduct of its business requires such
qualification, except where the failure to be so qualified, singly or in
the aggregate, would not have a material adverse effect on the financial
position, stockholders' equity, results of operations or prospects of the
Company and its subsidiaries, taken as a whole.
(vii) The Company has authorized, issued and outstanding capital
stock as set forth under the heading "Capitalization" in the Prospectus
(except for subsequent issuances, if any, pursuant to reservations or
agreements referred to in the Prospectus); the issued and outstanding
shares of Common Stock (including the outstanding shares of the
<PAGE>
-5-
Stock) of the Company conform to the description thereof in the Prospectus
and have been duly authorized and validly issued and are fully paid and
nonassessable and have been approved for listing on the Nasdaq National
Market; the stockholders of the Company have no preemptive rights with
respect to any shares of capital stock of the Company and all outstanding
shares of capital stock of each corporate subsidiary have been duly
authorized and validly issued, and are fully paid and nonassessable and are
owned directly by the Company or by another subsidiary of the Company free
and clear of any liens, encumbrances, equities or claims.
(viii) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein and in the
Pricing Agreement, will be duly and validly issued and fully paid and
nonassessable and will conform to the description thereof in the
Prospectus.
(ix) Except as disclosed in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is the subject, that are required to be disclosed in the
Registration Statement (other than as described therein), or which, if
determined adversely to the Company or any subsidiary, would individually
or in the aggregate result in a material adverse change in the financial
condition, business, prospects or results of operations of the Company and
its subsidiaries considered as a whole or which might materially and
adversely affect the consummation of this Agreement; and to the best of the
Company's knowledge no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(x) Neither the Company nor any of its subsidiaries is, or with
the giving of notice or passage of time or both would be, in breach or
violation of any of the terms or provisions of or in default under (A) any
statute, rule or regulation applicable to the Company or any of its
subsidiaries, except where the failure to comply would not, singly or in
the aggregate, have a material adverse effect on the financial position,
stockholders' equity, results of operations or prospects of the Company and
its subsidiaries, taken as a whole, (B) any indenture, contract, lease,
mortgage, deed of trust, note or other agreement or instrument material to
the conduct of the business of the Company and its subsidiaries, taken as a
whole, to which the Company or such subsidiary is a party or by which it
may be bound, (C) its certificate of incorporation, by-laws or other
organizational documents, and (D) any order, decree or judgment of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries. The performance of this Agreement and the
consummation of the transactions herein contemplated will not, with the
giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default
under (W) any statute, rule or regulation applicable to the Company or any
of its subsidiaries, (X) any indenture, contract, mortgage, lease, deed of
trust, note or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it is bound, (Y) the Company's or
any such subsidiary's certificate of
<PAGE>
-6-
incorporation, by-laws or other organizational documents, or (Z) any order,
decree, judgment of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
respective properties.
(xi) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is imminent; and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which might be expected
to result in any material adverse change in the financial condition,
business, prospects or results of operations of the Company and its
subsidiaries considered as a whole.
(xii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is
required for the issuance and sale of the Stock by the Company or for the
consummation by the Company of the transactions contemplated by this
Agreement, including, without limitation, the use of the proceeds from the
sale of the Stock to be sold by the Company in the manner contemplated in
the Prospectus under the caption "Use of Proceeds," except such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Act or the securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the Stock
by the Underwriters.
(xiii) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company.
(xiv) The Company and its subsidiaries own or have the legal or
contractual right to use all trademarks, trademark registrations, service
marks, service mark registrations, trade names and copyrights described in
the Prospectus as being owned, licensed or used by the Company or any of
its subsidiaries or that are material to the conduct of their respective
businesses as described in the Prospectus (collectively, "Intellectual
Property") and except as described in the Prospectus, neither the Company
nor any of its subsidiaries is aware of any claim (or of any facts that
would form a reasonable basis for any claim) to the contrary or any
challenge by any third party to the rights of the Company or any of its
subsidiaries with respect to any such Intellectual Property or to the
validity or scope of any such Intellectual Property and neither the Company
nor any of its subsidiaries has any claim against a third party with
respect to the infringement by such third party of any such Intellectual
Property, which claims or challenges, if adversely determined, could,
singly or in the aggregate, have a material adverse effect on the financial
condition, business, prospects or results of operations of the Company and
its subsidiaries considered as a whole. The Company has a good faith belief
in the distinctiveness and enforceability of all trademarks, service marks
and trade names comprising the Intellectual Property owned by the Company.
(xv) The Company and each of its subsidiaries have such
certificates, permits, licenses, franchises, consents, approvals,
authorizations and clearances as are necessary to own, lease or operate
their respective properties and to conduct their
<PAGE>
-7-
respective businesses in the manner described in the Prospectus
("Licenses") and all such Licenses are valid and in full force and effect,
except where failure to possess any such License, singly or in the
aggregate, would not result in a material adverse change in the financial
condition, business, prospects or results of operations of the Company and
its subsidiaries considered as a whole. The Company and each of its
subsidiaries are in compliance in all material respects with their
respective obligations under such Licenses and no event has occurred that
allows, or after notice or lapse of time or both would allow, revocation,
suspension or termination of any such License or a material violation of
any such laws or regulations. No such License contains a burdensome
restriction on the Company or any of its subsidiaries that is not
adequately disclosed in the Registration Statement and the Prospectus.
(xvi) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xvii) The Company and its subsidiaries have good and marketable
title to all properties (real and personal) owned by the Company and its
subsidiaries, free and clear of any mortgage, pledge, lien, security
interest, claim or encumbrance of any kind that may materially interfere
with the use of such properties or the conduct of the business of the
Company and its subsidiaries considered as a whole, except as disclosed in
the Registration Statement and the Prospectus; and all material properties
held under lease or sublease by the Company or its subsidiaries are held
under valid, subsisting and enforceable leases or subleases.
(xviii) The Company and its subsidiaries maintain accurate books
and records reflecting their respective assets and maintain internal
accounting controls which provide reasonable assurance that (A)
transactions are executed with management's authorization, (B) transactions
are recorded as necessary to permit preparation of financial statements and
to maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's authorization and (D) the reported
accountability of assets is compared with existing assets at reasonable
intervals.
(xix) The Company has complied, and will continue to comply,
with all provisions of Section 517.075 of the Florida Statutes (Chapter 92-
198, Laws of Florida) and the rules thereunder.
(xx) The Company and its subsidiaries carry or are entitled to
the benefits of insurance in such amounts and covering such risks as is
generally maintained by or on behalf of companies of established repute
engaged in the same or similar business, and all such insurance is in full
force and effect.
(xxi) The properties, assets and operations of the Company and
its subsidiaries are in compliance with all applicable federal, state,
local and foreign laws, rules and regulations, orders, decrees, judgments,
permits and licenses relating to public
<PAGE>
-8-
and worker health and safety and to the protection and clean-up of the
natural environment and activities or conditions related thereto,
including, without limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials (collectively,
"Environmental Laws"), except to the extent that failure to comply could
not, singly or in the aggregate, have a material adverse effect on the
financial condition, business, prospects or results of operations of the
Company and its subsidiaries considered as a whole. With respect to such
properties, assets and operations, including any previously owned, leased
or operated properties, assets or operations, there are no past, present
or, to the best knowledge of the Company, reasonably anticipated future
events, conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of its subsidiaries that may
interfere with or prevent compliance or continued compliance in all
material respects with applicable Environmental Laws. Neither the Company
nor any of its subsidiaries is the subject of any federal, state, local or
foreign investigation, and neither the Company nor any of its subsidiaries
has received any notice or claim (or is aware of any facts that would form
a reasonable basis for any claim), nor entered into any negotiations or
agreements, with any third party relating to any liability or remedial
action or potential liability or remedial action under Environmental Laws,
nor are there any pending, reasonably anticipated or, to the best knowledge
of the Company, threatened actions, suits or proceedings against or
affecting the Company, any of its subsidiaries or their properties, assets,
or operations, in connection with any such Environmental Laws. The term
"hazardous materials" shall mean those substances that are regulated by or
form the basis for liability under any applicable Environmental Laws.
(xxii) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns or extensions required to be filed,
such returns are complete and accurate in all material respects, and all
taxes shown by such returns or otherwise assessed that are due or payable
have been paid, except such taxes as are being contested in good faith and
as to which adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company and its subsidiaries in respect of any
tax liability for any year not finally determined are adequate to meet any
assessments or reassessments for additional taxes; and there has been no
tax deficiency asserted and, to the best knowledge of the Company, no tax
deficiency might be asserted or threatened against the Company or any of
its subsidiaries that could, singly or in the aggregate, have a material
adverse effect on the financial condition, business, prospects or results
of operations of the Company and its subsidiaries considered as a whole.
(xxiii) Each "employee benefit plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), in
which employees of the Company or any of its subsidiaries are eligible to
participate is in compliance in all material respects with the applicable
provisions of ERISA and the Internal Revenue Code of 1986, as amended.
Neither the Company nor any of its subsidiaries has any liability under
Title IV of ERISA, nor does the Company or any of its subsidiaries expect
that any such liability will be incurred, that could singly or in the
aggregate, have a material
<PAGE>
-9-
adverse effect on the financial condition, business, prospects or results
of operations of the Company and its subsidiaries considered as a whole.
(xxiv) No transaction has occurred between or among the Company,
its subsidiaries and any of their respective officers, directors or
affiliates or, to the best of the Company's knowledge, any affiliate of any
such officer or director, that is required to be described in the
Registration Statement that is not so described.
(xxv) There are no contracts, agreements or understandings
between the Company or its subsidiaries and any third party (whether acting
in an individual, fiduciary or other capacity) granting such third party
the right to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned by
such third party or to require the Company to include such securities in
the securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act.
(xxvi) There are no statutes, regulations, contracts or other
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required. The
contracts so described in the Registration Statement and the Prospectus are
in full force and effect and neither the Company nor any of its
subsidiaries nor, to the best knowledge of the Company, any other party is
in breach of or default under any such contracts.
(xxvii) The Company has not taken and will not take, directly or
indirectly, any action designed to or that could reasonably be expected to
cause or result in the stabilization or manipulation of the price of the
Common Stock and the Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the Stock
other than any preliminary prospectus filed with the Commission or the
Prospectus or other materials, if any, permitted by the Act or the Rules or
Regulations.
(xxviii) Neither the Company nor any of its subsidiaries has, at
any time during the last five years, (A) made any unlawful contributions to
any candidate for foreign office or failed to disclose fully any
contributions in violation of law or (B) made any payment to any federal,
state or local governmental officer or official or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(xxix) Except as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the Company
or any of its subsidiaries any brokerage or finder's fee or any other fee,
commission or similar payment in connection with the Stock to be sold by
the Company.
<PAGE>
-10-
(b) Any certificate signed by an officer of the Company and delivered to
the Representatives or counsel for the Underwriters shall be deemed a
representation and warranty of the Company to each Underwriter as to the matters
covered thereby.
(c) Representations, Warranties and Agreements of the Selling Shareholders.
Each Selling Shareholder severally represents and warrants to, and agrees with,
the several Underwriters that:
(i) Such Selling Shareholder has full right, power and authority
to enter into this Agreement, the Pricing Agreement and the custody
agreement and power of attorney (the "Custody Agreement"). Such Selling
Shareholder has duly executed and delivered this Agreement and the Pricing
Agreement. The Custody Agreement has been duly executed and delivered on
behalf of each Selling Shareholder and the Custody Agreement constitutes
the valid and binding agreement of such Selling Shareholder enforceable
against such Selling Shareholder in accordance with its terms.
(ii) Such Selling Shareholder has full right, power and authority
to sell, transfer, assign and deliver the Stock being sold by such Selling
Shareholder hereunder. Immediately prior to the delivery of the shares of
Stock being sold by such Selling Shareholder, such Selling Shareholder was
the sole registered owner of such shares of Stock and had good and valid
title to such shares of Stock, free and clear of all adverse claims as
defined in Section 8-302 of the Uniform Commercial Code and, upon
registration of such shares of Stock in the names of the Underwriters or
their nominees, assuming that such purchasers purchased such shares of
Stock in good faith without notice of any adverse claims as defined in
Section 8-302 of the Uniform Commercial Code, such purchasers will have
acquired all the rights of such Selling Shareholder in such shares of Stock
free of any adverse claim, any lien in favor of the Company or restrictions
on transfer imposed by the Company.
(iii) The performance of this Agreement and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not, with the giving of notice or the passage of time or
both, result in a breach or violation of any of the terms or provisions of
or constitute a default under any statute, rule or regulation applicable to
such Selling Shareholder (assuming the registration of the Stock under the
Act and due qualification of the Stock for public offering under state
securities or Blue Sky laws), or any indenture, mortgage, deed of trust,
note or other agreement or instrument to which such Selling Shareholder is
a party or by which it is bound, or any judgment, order or decree of any
court or governmental agency or body having jurisdiction over such Selling
Shareholder or any of its properties.
(iv) For a period of 180 days after the effective date of the
Registration Statement, without the prior written consent of Dean Witter
Reynolds Inc., such Selling Shareholder will not offer to sell, contract to
sell, sell, distribute, grant any option to purchase, pledge, hypothecate
or otherwise dispose of or enter into any agreement to sell, directly or
indirectly, any shares of Common Stock, or any securities convertible into,
or
<PAGE>
-11-
exercisable or exchangeable for, shares of Common Stock, except for (A) the
Stock being sold hereunder, (B) the exercise of outstanding options granted
by the Company or pursuant to any options granted or to be granted pursuant
to any employee or non-employee director stock option plans (but not the
sale, distribution, pledge, hypothecation or other disposition of shares of
Common Stock received upon exercise of any such option), or (C) transfers
pursuant to bona fide gifts, provided that each transferee pursuant to this
clause (C) delivers to Dean Witter Reynolds Inc., prior to such transfer, a
written agreement pursuant to which such transferee agrees to be bound by
the terms of the agreement entered into by the transferor as if a signatory
thereto.
(v) Such Selling Shareholder has duly executed and delivered the
Custody Agreement (A) appointing R. Steven Lutterbach, Peter Vezmar,
Matthew S. Brown and Marguerite M. Elias and each of them, as attorney-in-
fact (the "Attorneys-in-fact") with authority to execute and deliver this
Agreement on behalf of such Selling Shareholder, to authorize the delivery
of the shares of Stock to be sold by such Selling Shareholder hereunder and
otherwise to act on behalf of such Selling Shareholder in connection with
the transactions contemplated by this Agreement, and (B) appointing the
Company, as Custodian, to hold in custody for delivery under this Agreement
certificates for the shares of Stock to be sold by such Selling Shareholder
hereunder.
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such
Selling Shareholder of the transactions contemplated by this Agreement,
except such as may be required by the NASD or under the Act or the
securities or Blue Sky laws of any jurisdiction in connection with the
purchase and distribution of the Stock by the Underwriters.
(vii) Such Selling Shareholder has not (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Stock or (B) since the filing of
the Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of, the Stock or (2) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(viii) All information furnished or to be furnished to the
Company by or on behalf of such Selling Shareholder for use in connection
with the preparation of the Registration Statement and the Prospectus,
insofar as it relates to such Selling Shareholder, is or will be true and
correct in all respects and, with respect to the Registration Statement,
does not and will not contain an 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, and, with respect to the
Prospectus, does not and will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
<PAGE>
-12-
(ix) Nothing has come to such Selling Shareholder's attention
that has caused such Selling Shareholder to believe that (A) at the time
the Registration Statement becomes effective and at the Representation
Date, it 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
the statements therein not misleading and (B) the Prospectus, at the time
the Registration Statement becomes effective and as of the Representation
Date (unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with the
offering of the Stock which differs from the prospectus on file at the
Commission at the time the Registration Statement becomes effective, in
which case at the time it is first provided to the Underwriters for such
use) and at the Closing Date, the Prospectus will include any untrue
statement of material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The foregoing representations,
warranties and agreements in this subsection (ix) shall not apply to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter, directly or
through the Representatives, specifically for use in the preparation
thereof.
(x) Any transfer taxes which are required to be paid in
connection with the sale and delivery of the Stock to the Underwriters
hereunder have been paid and all laws imposing such taxes have been fully
complied with.
Each Selling Shareholder agrees that the shares of Stock represented by the
certificates held in custody under the Custody Agreement are for the benefit of
and coupled with and subject to the interests of the Underwriters, the other
Selling Shareholders and the Company hereunder, and that the arrangement for
such custody and the appointment of the Attorneys-in-fact are irrevocable; that
the obligations of such Selling Shareholders hereunder shall not be terminated
by operation of law, whether by the death or incapacity of any such Selling
Shareholders, or any other event, that if any of such Selling Shareholders
should die or become incapacitated or any other event occur, before the delivery
of the Stock hereunder, certificates for the Stock to be sold by such Selling
Shareholder shall be delivered on behalf of such Selling Shareholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and action taken by the Attorneys-in-fact or any of them under the
Custody Agreement shall be as valid as if such death, incapacity or other event
had not occurred, whether or not the Custodian, the Attorneys-in-fact or any of
them shall have notice of such death, incapacity or other event.
Each Selling Shareholder further agrees that neither such Selling
Shareholder nor any of its affiliates will (a) take, directly or indirectly,
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to cause or to result in, or that might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company to facilitate the sale or resale of any
of the shares of the Stock, (b) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Stock or (c)
<PAGE>
-13-
pay to or agree to pay any person any compensation for soliciting another to
purchase any other securities of the Company.
3. Purchase by, and Sale and Delivery to, Underwriters; Closing Date. On
the basis of the representations, warranties, covenants and agreements herein
contained, and subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters the Firm Stock, and subject to the terms and
conditions herein set forth, the Underwriters agree, severally and not jointly,
to purchase from the Company, at the price per share set forth in the Pricing
Agreement, the number of shares of Firm Stock set forth opposite their names in
Schedule A (except as otherwise provided in the Pricing Agreement), subject to
adjustment in accordance with Section 11 hereof.
If the Company has elected not to rely upon Rule 430A under the Rules and
Regulations, the initial public offering price and the purchase price per share
to be paid by the several Underwriters for the Firm Stock each have been
determined and set forth in the Pricing Agreement, dated the date hereof, and an
amendment to the Registration Statement and the Prospectus will be filed before
the Registration Statement becomes effective.
If the Company has elected to rely upon Rule 430A under the Rules and
Regulations, the purchase price per share to be paid by the several Underwriters
for the Firm Stock shall be an amount equal to the initial public offering
price, less an amount per share to be determined by agreement between the
Representatives and the Company. The initial public offering price per share of
the Firm Stock shall be a fixed price to be determined by agreement between the
Representatives and the Company. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing Agreement.
In the event that such prices have not been agreed upon and the Pricing
Agreement has not been executed and delivered by all parties thereto by the
close of business on the fourteenth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by the Company and the
Representatives.
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the business day preceding the Closing Date or,
if no such direction is received, in the names of the respective Underwriters in
the amount set forth opposite each Underwriter's name on Schedule A hereto),
against payment of the purchase price therefor by wire transfer of immediately
available funds, payable to the order of the Company, all at the offices of
Katten Muchin & Zavis. The time and date of delivery and closing shall be at
10:00 A.M., on the third/1/ full business day after the Registration Statement
becomes effective (or, if the Company has elected to rely upon Rule 430A, the
third/1/ full business day after execution of the Pricing Agreement); provided,
however, that such date and time may be accelerated or extended by agreement
between the Company and the Representatives or postponed pursuant to the
provisions of Section 12 hereof. The time and date
- ---------------------
1 If priced after 4:30 New York Time, change to fourth business day.
<PAGE>
-14-
of such payment and delivery are herein referred to as the "Closing Date". The
Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
3:00 P.M., New York Time, on the business day preceding the Closing Date.
In addition, for the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Stock as contemplated by the
Prospectus, each Selling Shareholder hereby grants the Underwriters an option to
purchase, severally and not jointly, up to the number of shares of the Optional
Stock set forth opposite the name of such Selling Shareholder in Schedule B
hereto. The purchase price per share to be paid for the Optional Stock shall be
the same price per share as for the Firm Stock, less the amount of any dividend
declared by the Company and payable on any Optional Stock and as to which the
record date has occurred after the date of the Pricing Agreement. The option
granted hereby may be exercised as to all or any part of the Optional Stock at
any time not more than 30 days subsequent to the effective date of this
Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock
previously has been, or simultaneously is, sold and delivered. The right to
purchase the Optional Stock or any portion thereof may be surrendered and
terminated at any time upon notice by the Representatives to the Selling
Shareholders.
The option granted hereby may be exercised by the Representatives on behalf
of the Underwriters by giving written notice to the Selling Shareholders setting
forth the number of shares of the Optional Stock to be purchased by them and the
date and time for delivery of and payment for the Optional Stock. Such date and
time for delivery of and payment for the Optional Stock (which may be the First
Closing Date) is herein called the "Option Closing Date" and shall not be later
than [two] business days after written notice is given. All purchases of
Optional Stock from the Selling Shareholders shall be made on a pro rata basis.
Optional Stock shall be purchased for the account of each Underwriter in the
same proportion as the number of shares of Firm Stock set forth opposite such
Underwriter's name in Schedule A hereto bears to the total number of shares of
Firm Stock (subject to adjustment by the Representatives to eliminate odd lots).
Upon exercise of the option by the Representatives, each of the Selling
Shareholders agrees to sell to the Underwriters the number of shares of Optional
Stock to be purchased from such Selling Shareholder as set forth in the written
notice of exercise and the Underwriters agree, severally and not jointly,
subject to the terms and conditions herein set forth, to purchase such shares of
Optional Stock.
The Selling Shareholders will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Selling
Shareholders given at or prior to 12:00 Noon, New York Time, on the business day
preceding the Option Closing Date or, if no such direction is received, in the
names of the respective Underwriters), against payment of the purchase price
therefor by wire transfer of immediately available funds, payable to the order
of the Company as custodian for the Selling Shareholders, all at the offices of
Katten Muchin & Zavis. The Selling Shareholders shall make the certificates for
the Optional Stock available to the Representatives for examination on
<PAGE>
-15-
behalf of the Underwriters not later than 3:00 P.M., New York Time, on the
business day preceding the Option Closing Date.
It is understood that Dean Witter Reynolds Inc. or Donaldson, Lufkin &
Jenrette Securities Corporation, individually and not as Representatives of the
several Underwriters, may (but shall not be obligated to) make payment to the
Company or to the Selling Shareholders on behalf of any Underwriter or
Underwriters, for the Stock to be purchased by such Underwriter or Underwriters.
Any such payment by Dean Witter Reynolds Inc. or Donaldson, Lufkin & Jenrette
Securities Corporation shall not relieve such Underwriter or Underwriters from
any of its or their other obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters propose to make an initial public offering of the Stock at the
initial public offering price. The Representatives shall promptly advise the
Company and the Selling Shareholders of the making of the initial public
offering.
4. Covenants and Agreements 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 under the Act, will advise the Representatives
promptly as to the time at which the Registration Statement becomes effective,
will advise the Representatives promptly of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose, and will use its best
efforts to prevent the issuance of any such stop order and to obtain as soon as
possible the lifting thereof, if issued. If the Company elects to rely on Rule
434 under the Rules and Regulations, the Company will prepare a "term sheet"
that complies with the requirements of Rule 434 under the Rules and Regulations.
If the Company elects not to rely on Rule 434, the Company will provide the
Underwriters with copies of the form of Prospectus, in such number as the
Underwriters may reasonably request, and if required file or transmit for filing
with the Commission such Prospectus in accordance with Rule 424(b) of the Rules
and Regulations by the close of business in New York on the business day
immediately succeeding the date of the Pricing Agreement. Any copies of the
Registration Statement and the Prospectus furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
If the Company elects to rely on Rule 434, the Company will provide the
Underwriters with the copies of the form of Rule 434 Prospectus, in such number
as the Underwriters may reasonably request, and file or transmit for filing with
the Commission the 434 Prospectus in accordance with Rule 424(b) of the Rules
and Regulations by the close of business in New York on the business day
immediately succeeding the date of the Pricing Agreement.
(b) The Company will advise the Representatives promptly of any request by
the Commission for any amendment of or supplement to the Registration Statement
or
<PAGE>
-16-
the Prospectus or for additional information, and will not at any time file any
amendment to the Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the Representatives a reasonable
time prior to the proposed filings thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the Act and the
Rules and Regulations.
(c) The Company will prepare and file with the Commission, promptly upon
the request of the Representatives, any amendments or supplements to the
Registration Statement or the Prospectus (including any revised prospectus which
the Company proposes for use by the Underwriters in connection with the offering
of the Stock which differs from the prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424 of the Rules and
Regulations or any term sheet prepared in reliance on Rule 434 of the Rules and
Regulations) which in the opinion of the Representatives may be necessary to
enable the several Underwriters to continue the distribution of the Stock and
will use its best efforts to cause the same to become effective as promptly as
possible.
(d) If at any time after the effective date of the Registration Statement
when a prospectus relating to the Stock is required to be delivered under the
Act any event relating to or affecting the Company or any of its subsidiaries
occurs or has occurred as a result of which the Prospectus would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it is necessary, at any time
to amend the Prospectus to comply with the Act, the Company will promptly notify
the Representatives thereof and will prepare an amended or supplemented
prospectus (in form and substance reasonably satisfactory to counsel to the
Underwriters) which will correct such statement or omission; and, in case any
Underwriter is required to deliver a prospectus relating to the Stock nine
months or more after the effective date of the Registration Statement, the
Company upon the request of the Representatives and at the expense of such
Underwriter will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Act.
(e) The Company will deliver to the Representatives, at or before the
Closing Date, signed copies of the Registration Statement and all amendments
thereto including all financial statements and exhibits thereto, and will
deliver to the Representatives such number of copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on the date of
the initial public offering, and thereafter from time to time during the period
when delivery of a prospectus relating to the Stock is required under the Act,
as many copies of the Prospectus, in final form or as thereafter amended or
supplemented as the Representatives may reasonably request; provided, however,
that the expense of the preparation and delivery of any prospectus required for
use nine months or more after the
<PAGE>
-17-
effective date of the Registration Statement shall be borne by the Underwriters
required to deliver such prospectus.
(f) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than 60 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the Act) which will be in reasonable detail (but
which need not be audited) and which will comply with Section 11(a) of the Act,
covering a period of at least twelve months beginning not later than the first
day of the Company's fiscal quarter next following the "effective date" (as
defined in Rule 158) of the Registration Statement.
(g) The Company will cooperate with the Representatives to enable the
Stock to be qualified for sale under the securities laws of such jurisdictions
as the Representatives may designate and at the request of the Representatives
will make such applications and furnish such information as may be required of
it as the issuer of the Stock for that purpose; provided, however, that the
Company shall not be required to qualify to do business or to file a general
consent to service of process in any such jurisdiction. The Company will, from
time to time, prepare and file such statements and reports as are or may be
required of it as the issuer of the Stock to continue such qualifications in
effect for so long a period as the Representatives may reasonably request for
the distribution of the Stock.
(h) The Company will furnish to its shareholders annual reports containing
financial statements certified by independent public accountants. During the
period of five years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters, copies of
each annual report of the Company and each other report furnished by the Company
to its shareholders; and will deliver to the Representatives, as soon as they
are available, copies of any other reports (financial or other) which the
Company shall publish or otherwise make available to any of its security holders
as such, and as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange or the NASD. Such reports or documents shall be identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(i) The Company will file with the Nasdaq National Market all documents
and notices required by the Nasdaq National Market of companies that have issued
securities that are traded in the over-the-counter market and quotations for
which are reported by Nasdaq National Market.
(j) The Company will use the net proceeds received by it from the sale of
the Stock in the manner specified in the Prospectus under "Use of Proceeds".
(k) The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 under the Act.
<PAGE>
-18-
(l) During a period of 180 days from the date of the Pricing Agreement,
the Company will not, without prior written consent of Dean Witter Reynolds
Inc., directly or indirectly, sell, offer to sell, grant any option for the sale
of, or otherwise dispose of or enter into any agreement to sell, any Common
Stock or any security convertible into Common Stock (except for Common Stock or
options for Common Stock issued pursuant to reservations, agreements or employee
benefit plans disclosed in the Registration Statement) or file any registration
statement under the Act with respect to any of the foregoing (except for a
registration statement on Form S-8 covering Common Stock or options for Common
Stock issued pursuant to reservations, agreements or employee benefit plans
disclosed in the Registration Statement; provided, however, that any such
registration statement shall be filed no earlier than 90 days after the
effective date of the Registration Statement).
(m) At the time this Agreement is executed, the Company shall have
furnished to the Representatives a letter from each officer and director of the
Company and shareholder of the Company addressed to the Representatives, in
which each such person agrees that, during a period of 180 days from the
effective date of the Registration Statement, such person will not, without the
prior written consent of Dean Witter Reynolds Inc., directly or indirectly, (i)
sell, offer to sell, grant any option for the sale of, or otherwise dispose of
or transfer, any shares of Common Stock beneficially owned by such person or any
securities convertible into or exchangeable or exercisable for such Common
Stock, whether now owned or hereafter acquired by such person or with respect to
which such person has or hereafter acquires the power of disposition, except for
(A) transfers by bona fide gift, provided that the transferee, prior to such
transfer, delivers to Dean Witter Reynolds Inc. an agreement pursuant to which
such transferee agrees to be bound by the terms of the letter agreement as if a
signatory thereto and (B) the Stock sold hereunder, or (ii) enter into any swap
or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction is to be settled by delivery of
Common Stock or other securities, in cash or otherwise.
5. Payment of Expenses. The Company will pay (directly or by
reimbursement) all expenses incident to the performance of the obligations of
the Company and of the Selling Shareholders under this Agreement, including but
not limited to all expenses and taxes incident to delivery of the Stock to the
Representatives, all expenses incident to the registration of the Stock under
the Act and the printing of copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, any amendments or supplements thereto
including any term sheet delivered by the Company pursuant to Rule 434 of the
Rules and Regulations, the "Blue Sky" memorandum, the Custody Agreement and this
Agreement and furnishing the same to the Underwriters and dealers except as
otherwise provided in Sections 4(d) and 4(e), the fees and disbursements of the
Company's counsel and accountants, all filing and printing fees and expenses
(including the reasonable legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification of the Stock for sale
under the laws of such jurisdictions as the Representatives may designate, all
fees and expenses (including the
<PAGE>
-19-
reasonable legal fees and disbursements of counsel for the Underwriters) paid or
incurred in connection with filings made with the NASD, the fees and expenses
incurred in connection with the listing of the Stock on the Nasdaq National
Market, the costs of preparing stock certificates, the costs and fees of any
registrar or transfer agent and all other costs and expenses incident to the
performance of their obligations hereunder which are not otherwise specifically
provided for in this Section.
Each Selling Shareholder will pay (directly or by reimbursement) all fees
and expenses incident to the performance of such Selling Shareholder's
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and expenses of counsel for
such Selling Shareholder, such Selling Shareholder's pro rata share of fees and
expenses of the Attorneys-in-fact and the Custodian, and all expenses and taxes
incident to the sale and delivery of the Stock to be sold by such Selling
Shareholder to the Underwriters hereunder.
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, each employee, officer, partner,
director and agent of the Underwriter, and each person, if any, who controls
such Underwriter within the meaning of the Act, against any losses, claims,
damages, liabilities or expenses (including the reasonable cost of investigating
and defending against any claims therefor and reasonable counsel fees incurred
in connection therewith), joint or several, as incurred, which may be based upon
the Act, or any other federal or state statute or at common law, arising out of
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the information
deemed to be part of the Registration Statement pursuant to Rule 430A(b) or Rule
434 of the Rules and Regulations, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided that the Company shall not be liable with
respect to any claims made against any Underwriter or any such employee,
officer, partner, director or agent or any such controlling person under this
subsection unless such Underwriter or employee, officer, partner, director or
agent or controlling person shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim that shall have been served upon such
Underwriter or employee, officer, partner, director or agent or controlling
person (such notification by an Underwriter shall suffice as notification on
behalf of its officers, partners, directors, employees, agents and controlling
persons), but failure to notify the Company of any such claim shall not relieve
it from any liability which it may have to such Underwriter or employee,
officer, partner, director or agent or controlling person otherwise than on
account of the indemnity agreement contained in this Section 6(a).
<PAGE>
-20-
The Company shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any liability with respect to which indemnity may be sought against the
Company, but, if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it and reasonably satisfactory to such
Underwriter or indemnified person, as the case may be. In the event the Company
elects to assume the defense of any such suit and retain such counsel, the
Underwriter or Underwriters or other indemnified person or persons, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Company shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter or Underwriters or other indemnified person or persons,
and such Underwriter or Underwriters or other indemnified person or persons have
been advised by counsel that one or more legal defenses may be available to it
or them which may not be available to the Company, in which case the Company
shall not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel; it being understood,
however, that the Company 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
fees and expenses of more than one separate firm of attorneys (in addition to
local counsel) for all such Underwriters as indemnified persons, which firm
shall be designated in writing by Dean Witter Reynolds Inc. The Company will
not, without the prior written consent of each Underwriter, settle or compromise
or consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not such Underwriter or other indemnified party is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent (i) includes an unconditional release of such Underwriter and each
such other indemnified person or persons from all liability arising out of such
claim, action, suit or proceeding and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party. The Company agrees that a breach of the preceding sentence
shall cause irreparable harm to the Underwriters and that the Underwriters shall
be entitled to injunctive relief from any appropriate court ordering specific
performance of said provision. This indemnity agreement will be in addition to
any liability which the Company might otherwise have. The Company shall not be
liable to indemnify any person for any settlement effected without the consent
of the Company.
(b) Each Selling Shareholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter, each employee, officer, partner,
director and agent of the Underwriter and each person, if any, who controls such
Underwriter within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and reasonable counsel fees incurred in
connection therewith), joint or several, as incurred, which may be based upon
the Act, or any other statute or at common law, arising out of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the information
deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the
Rules and Regulations, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
<PAGE>
-21-
Prospectus (or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that such Selling Shareholder shall
not be liable with respect to any claims made against any Underwriter or any
such employee, officer, partner, director or agent or any such controlling
person under this subsection unless such Underwriter or employee, officer,
partner, director or agent or controlling person shall have notified such
Selling Shareholder in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Underwriter or employee or agent or controlling
person (such notification by an Underwriter shall suffice as notification on
behalf of its officers, partners, directors, employees, agents or controlling
persons), but failure to notify such Selling Shareholder of such claim shall not
relieve such Selling Shareholder from any liability which such Selling
Shareholder may have to such Underwriter or employee or agent or controlling
person otherwise than on account of its indemnity agreement contained in this
Section 6(b); and provided, further, that each Selling Shareholder shall only be
liable under this paragraph for that proportion of any such losses, claims,
damages, liabilities or expenses which the number of shares of the Stock set
forth opposite his name in Schedule B hereto bears to the total number of shares
of Stock sold hereunder; provided, however, that in no event shall such
liability exceed the net proceeds received by such Selling Shareholder from the
sale of Stock hereunder.
Such Selling Shareholder shall be entitled to participate at his own
expense in the defense, or, if he so elects, to assume the defense of any suit
brought to enforce any liability with respect to which indemnity may be sought
against such Selling Shareholder, but, if such Selling Shareholder elects to
assume the defense, such defense shall be conducted by counsel chosen by him and
reasonably satisfactory to such Underwriter or indemnified person, as the case
may be. In the event that any Selling Shareholder elects to assume the defense
of any such suit and retain such counsel, the Underwriter or Underwriters or
other indemnified person or persons, defendant or defendants in the suit, may
retain additional counsel but shall bear the fees and expenses of such counsel
unless (i) such Selling Shareholder shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include such
Underwriter or Underwriters or other indemnified person or persons and such
Selling Shareholder and such Underwriter or Underwriters or other indemnified
person or persons have been advised by counsel that one or more legal defenses
may be available to it or them which may not be available to such Selling
Shareholder, in which case such Selling Shareholder shall not be entitled to
assume the defense of such suit notwithstanding its obligation to bear the fees
and expenses of such counsel; it being understood, however, that such Selling
Shareholder 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 fees and
expenses of more than one separate firm of attorneys (in addition to local
counsel) for all such Underwriters as indemnified persons, which firm shall be
designated in writing by Dean Witter Reynolds Inc. This indemnity agreement
will be in addition to any liability which such Selling Shareholder might
otherwise have.
<PAGE>
-22-
(c) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its directors, each person named in the Registration Statement
as a prospective director, each of its officers who have signed the Registration
Statement, each of its employees, officers, directors and agents and each
person, if any, who controls the Company within the meaning of the Act and each
Selling Shareholder and each person, if any, who controls a Selling Shareholder
within the meaning of the Act, against any losses, claims, damages, liabilities
or expenses (including the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, as incurred, which may be based upon the Act, or any other
statute or at common law, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the information deemed to be part of the
Registration Statement pursuant to Rule 430A(b) of the Rules and Regulations, if
applicable, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in the Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but only insofar as
any such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company by such Underwriter, directly
or through the Representatives, specifically for use in the preparation thereof;
provided, however, that in no case is such Underwriter to be liable with respect
to any claims made against the Company or any person against whom the action is
brought unless the Company or such person shall have notified such Underwriter
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Company or such person, but failure to notify such Underwriter of such
claim shall not relieve it from any liability which it may have to the Company
or such person otherwise than on account of its indemnity agreement contained in
this Section 6(c). Such Underwriter shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
reasonably satisfactory to the Company or such person, as the case may be. In
the event that any Underwriter elects to assume the defense of any such suit and
retain such counsel, the Company, said employees, agents, officers, directors,
prospective directors and any other Underwriter or Underwriters or employee or
employees or agent or agents or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, respectively; it being understood, however, that the
Underwriters 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 fees and
expenses of more than one separate firm of attorneys (in addition to local
counsel) for the Company and all such Selling Shareholders as indemnified
persons, which firm shall be designated in writing by the Company. The
Underwriter against whom indemnity may be sought shall not be liable to
indemnify any person for any settlement of any such claim effected without such
Underwriter's consent. This indemnity agreement will be in addition to any
liability which such Underwriter might otherwise have. The Underwriters will
not, without the prior written
<PAGE>
-23-
consent of the Company and each Selling Shareholder, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not the Company or such Selling Shareholder or other indemnified
party is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent (i) includes an unconditional release of the
Company or such Selling Shareholder and each such other indemnified person or
persons from all liability arising out of such claim, action, suit or proceeding
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party. The
Underwriters agree that a breach of the preceding sentence shall cause
irreparable harm to the Company and the Selling Shareholders and that the
Company and the Selling Shareholders shall be entitled to injunctive relief from
any appropriate court ordering specific performance of said provision.
(d) If the indemnification provided for in this Section 6 is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above in respect of any losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to herein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (or actions in
respect thereof), as incurred, in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Stock.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law, then each indemnifying party shall contribute
to such amount paid or payable by such indemnified party, as incurred, in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Shareholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Selling Shareholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Selling
Shareholders and the Underwriters agree that it would not be just and equitable
if contribution were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such claim. Notwithstanding the provisions of this subsection
(d), no Underwriter shall be required to contribute any amount in excess of the
<PAGE>
-24-
amount by which the total price at which the shares of the Stock underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. Further, notwithstanding the provisions of this subsection (d), no
Selling Shareholder shall be required to contribute any amount that, together
with the amount of any damages which such Selling Shareholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, exceeds the limit of such Selling Shareholder's liability
prescribed by subsection (b) of this Section 6. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute are several in
proportion to their respective underwriting obligations and not joint.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Shareholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Shareholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective obligations
of the several Underwriters hereunder shall be subject to the accuracy, at and
(except as otherwise stated herein) as of the date hereof, the Representation
Date and the Closing Date or the Option Closing Date, as the case may be, of the
representations and warranties made herein by the Company and the Selling
Shareholders, to the accuracy of the statements of the Company's officers or
directors in any certificate furnished pursuant to the provisions hereof, to
compliance at and as of such Closing Date by the Company and the Selling
Shareholders with their covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to such Closing Date, and to the
following additional conditions:
(a) The Registration Statement shall become effective not later than 3:00
P.M., New York City time, on the date hereof or, with the consent of the
Representatives, at a later time and date, not later, however, than 5:30 P.M.,
New York City time on the first business day following the date hereof, or at
such later date as may be approved by a majority in interest of the
Underwriters, and at such Closing Date (i) no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that purpose
shall have been initiated or, to the knowledge of the Company or the
Representatives, threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
reasonable satisfaction of the Representatives, and (ii) there shall not have
come to the attention of the Representatives any facts that would cause them to
believe that the Prospectus, at the time it was required to be delivered to a
purchaser of the Stock, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If the
<PAGE>
-25-
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Stock and any price related information previously omitted from the
effective Registration Statement pursuant to Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and before the Closing Date
the Company shall have provided evidence satisfactory to the Representatives of
such timely filing, or a post-effective amendment providing such information
shall have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) At the time of execution of this Agreement, the Representatives shall
have received from Arthur Andersen LLP a letter, dated the date of such
execution, in form and substance previously approved by the Representatives, and
to the effect that:
(i) They are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the
applicable published Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and supporting
schedule(s) examined by them and included in the Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations as
indicated in their reports thereon, copies of which have been furnished to
the Representatives;
(iii) They have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in SAS No. 71, Interim Financial Information, on
the unaudited consolidated interim financial statements included in the
Registration Statement;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company included in the Prospectus agrees with the corresponding amounts
(after restatement where applicable) in the audited consolidated financial
statements for such fiscal years;
(v) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included or incorporated by reference
in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter, nothing
came to their attention that caused them to believe that:
(A) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in
<PAGE>
-26-
the Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations thereunder, or are not in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with the basis for the audited consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived the unaudited condensed
financial statements referred to in clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included in the Prospectus;
(D) As of a specified date not more than three days prior to the
date of such letter, there has been any change in the consolidated
capital stock of the Company (other than issuances of capital stock
upon exercise of options, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which were
outstanding on the date of the latest balance sheet included in the
Prospectus) or any increase in the consolidated long-term debt of the
Company and consolidated subsidiaries, any decrease in the
consolidated net current assets, net assets or other items specified
by the Representatives, or any change in any other items specified by
the Representatives, in each case as compared with amounts shown in
the latest balance sheet included in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus
discloses have occurred or may occur or which are described in such
letter; and
(E) For the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (D) there was any decrease in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for increases or decreases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
<PAGE>
-27-
(v) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii), (iv)
and (v) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus or in Part II of, or in exhibits and schedules to,
the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
(c) The Representatives shall have received from Arthur Andersen LLP a
letter, dated the Closing Date, to the effect that such accountants reaffirm, as
of such Closing Date, and as though made on such Closing Date, the statements
made in the letter furnished by such accountants pursuant to paragraph (b) of
this Section 8, except that the specified date will be a date not more than
three business days prior to the Closing Date.
(d) The Representatives shall have received from Katten Muchin & Zavis,
counsel for the Company, an opinion, dated the Closing Date, to the effect that:
(i) The Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of Delaware
and has the corporate power and authority to own or lease its properties
and conduct its business as described in the Prospectus; and the Company is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction set forth in a certificate from the Company which specifies
all states in which the Company has assets or conducts operations.
(ii) The Company has an authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus; the
authorized capital stock of the Company (including the Common Stock)
conforms as to legal matters to the description thereof in the Prospectus;
all outstanding shares of Common Stock (including the Optional Stock) have
been duly authorized and validly issued and are fully paid and
nonassessable, and the stockholders of the Company have no preemptive
rights granted by the Company under its certificate of incorporation or by-
laws or any contract known to such counsel with respect to any shares of
capital stock of the Company.
(iii) All of the shares of the Firm Stock to be issued and sold
by the Company hereunder have been duly authorized and when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement will have been validly issued and will be fully paid and
nonassessable.
(iv) To such counsel's knowledge, there are no legal or
governmental proceedings pending other than those set forth under
"Business -- Legal Proceedings" in the Prospectus to which the Company or
any of its subsidiaries is a party or of which any
<PAGE>
-28-
property of the Company or any subsidiary is the subject, which are
required to be described in the Registration Statement or the Prospectus;
and to such counsel's knowledge no such proceedings are threatened by
governmental authorities or others.
(v) This Agreement and the Pricing Agreement have been duly
authorized, executed and delivered by the Company; and the performance by
the Company of this Agreement and the Pricing Agreement and the
consummation of the transactions herein and therein contemplated will not
result in a breach or violation of any of the terms or provisions of or
constitute a default under any statute, contract, indenture, mortgage, deed
of trust, loan agreement, note, lease or other agreement or instrument
known to such counsel to which the Company is a party or by which it is
bound, the Company's Certificate of Incorporation or By-laws, or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
properties.
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company
of the transactions contemplated by this Agreement and the Pricing
Agreement, except such as may be required under the Act or as may be
required under the securities or Blue Sky laws of any jurisdiction or by
the NASD in connection with the purchase and distribution of the Stock by
the Underwriters.
(vii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act.
(viii) The Company has been advised by the NASD that the Common
Stock has been approved for listing on the Nasdaq National Market. The
Registration Statement on Form 8-A relating to the Common Stock has become
effective under the Securities Exchange Act of 1934, as amended.
(ix) The Registration Statement and the Prospectus (other than
the financial statements and supporting schedules and other financial data
included therein, as to which no opinions need be rendered), and each
amendment or supplement thereto, as of their respective effective or issue
dates and as of the Closing Date complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations.
[The Rule 434 Prospectus conforms to the requirements of Rule 434 in all
material respects.]/2/
(x) Such counsel does not know of any legal or governmental
proceedings or of any contracts or documents of a character required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration
- -------------
/2/ Include if the Company will rely on Rule 434.
<PAGE>
-29-
Statement or Prospectus which are not described and filed as required, and
the descriptions in the Registration Statement and Prospectus of such
contracts and other documents are accurate in all material respects and
such descriptions fairly present in all material respects the information
required to be shown.
(xi) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(xii) The Leap Partnership, Inc., Lilypad Interactive, Inc.
[Tanagram] and Tadpole Productions, Inc., subsidiaries of the Company (the
"Subsidiaries"), have each been duly incorporated, are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation and have corporate power and authority to
own their respective properties and conduct their respective businesses as
described in the Prospectus, and each of such Subsidiaries is duly
qualified as a foreign corporation and is in good standing in each
jurisdiction set forth in a certificate from the Company which specifies
all states in which such Subsidiary has assets or conducts operations.
(xiii) All outstanding shares of capital stock of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned of record and, to such counsel's
knowledge, beneficially, by the Company free and clear of any liens,
encumbrances, equities and claims.
Such counsel shall also state that nothing has come to such counsel's
attention that would lead such counsel to believe that the Registration
Statement (except for financial statements and schedules and other
financial data included therein, as to which no view is rendered), at the
time it became effective or at the Representation Date, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectus (except for financial statements and
schedules and other financial data included therein, as to which no view is
rendered), at the Representation Date (unless the term "Prospectus" refers
to a prospectus which has been provided to the Underwriters by the Company
for use in connection with the offering of the Stock which differs from the
prospectus on file at the Commission at the time the Registration Statement
became effective, in which case at the time it was first provided to the
Underwriters for such use) or at the Closing Date, included any untrue
statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(e) The Representatives shall have received from Katten Muchin & Zavis,
counsel for the Selling Shareholders, an opinion dated the Closing Date to the
effect that:
<PAGE>
-30-
(i) This Agreement and the Pricing Agreement has been duly
executed and delivered by or on behalf of each Selling Shareholder. The
Custody Agreement has been duly executed and delivered by each Selling
Shareholder and constitutes the valid and binding agreement of such Selling
Shareholder in accordance with its terms.
(ii) Immediately prior to the delivery of the shares of Stock
being sold by such Selling Shareholder, such Selling Shareholder was the
sole registered owner of such shares of Stock and, upon payment for such
shares of Stock, delivery to the Underwriters by such Selling Shareholder
of such shares of Stock and registration of such shares of Stock in the
names of the Underwriters or their nominees, assuming that such purchasers
purchased such shares of Stock in good faith without notice of any adverse
claims as defined in Section 8-302 of the Uniform Commercial Code, such
purchasers will have acquired all the rights of such Selling Shareholder in
such shares of Stock free of any adverse claim, any lien in favor of the
Company or restrictions on transfer imposed by the Company.
(iii) To such counsel's knowledge, the performance of this
Agreement, the Pricing Agreement and the Custody Agreement and the
consummation of the transactions herein and therein contemplated will not,
with the giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default
under any statute, rule or regulation applicable to any Selling
Shareholder, or any indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which any Selling Shareholder is a party
or by which it is bound, or any judgment, order or decree known to such
counsel of any court or governmental agency or body having jurisdiction
over any Selling Shareholder or any of its properties.
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by any of the
Selling Shareholders of the transactions contemplated by this Agreement and
the Pricing Agreement, except such as may be required under the Act or as
may be required under the securities or Blue Sky laws of any jurisdiction
in connection with the purchase and distribution of the Stock by the
Underwriters.
(f) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, their opinion or opinions dated
the Closing Date with respect to the validity of the Stock, the Registration
Statement, the Prospectus and such other related matters as the Representatives
may require. In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the Commonwealth of
Massachusetts, the General Corporation Law of the State of Delaware and the
federal law of the United States, upon opinions of counsel satisfactory to the
Representatives. The Company and the Selling Shareholders shall have furnished
to such counsel such documents as they may request for the purpose of enabling
them to pass upon such matters.
<PAGE>
-31-
(g) The Representatives shall have received a certificate, dated such
Closing Date, of the Chief Executive Officer or the President and the chief
financial or accounting officer of the Company to the effect that: (i) no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for that purpose have been instituted or are pending
or contemplated under the Act; (ii) subsequent to the respective dates as of
which information is given in the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations, direct or contingent,
nor entered into any transactions, which in either case are material to the
Company and its subsidiaries considered as a whole, whether or not arising in
the ordinary course of business, and there has not been any material adverse
change in the condition (financial or otherwise), business, prospects or results
of operations of the Company and its subsidiaries considered as a whole, or any
change in the capital stock or long-term debt of the Company and its
subsidiaries considered as a whole; (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or before the Closing Date; (iv) the representations and warranties of the
Company in this Agreement are true and correct at and as of the Closing Date;
and (v) between the execution of this Agreement and the Closing Date, the
business and operations conducted by the Company and its subsidiaries have not
sustained a loss by strike, fire, flood, accident or other calamity (whether or
not insured) of such a character as to interfere materially with the conduct of
the business and operations of the Company and its subsidiaries considered as a
whole. As used in this Section 8(g), the term "Prospectus" means the Prospectus
in the form first used to confirm sales of Stock.
(h) The Representatives shall have received a certificate or certificates,
dated such Closing Date, of each of the Selling Shareholders to the effect that
as of the Closing Date its representations and warranties in this Agreement are
true and correct as if made on and as of the Closing Date, and that it has
performed all its obligations and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(i) The Company and each of the Selling Shareholders shall have furnished
to the Representatives such additional certificates as the Representatives may
have reasonably requested as to the accuracy, at and as of the Closing Date, of
the representations and warranties made herein by them, as to compliance at and
as of the Closing Date by them with their covenants and agreements herein
contained and other provisions hereof to be satisfied at or prior to the Closing
Date, and as to other conditions to the obligations of the Underwriters
hereunder.
(j) The Stock shall have been approved for listing on the Nasdaq National
Market.
(k) In the event the Underwriters exercise the option granted in Section
3(b) hereof to purchase all or any portion of the Optional Shares, the
representations and warranties of the Company and the Selling Shareholders
contained herein and the statements in any certificates furnished by the Company
hereunder shall be true and correct as of the Option Closing Date, and you shall
have received:
(i) A letter from Arthur Andersen LLP, in form and substance
satisfactory to you and dated the Option Closing Date, substantially the
same in scope
<PAGE>
-32-
and substance as the letter furnished to you pursuant to Section 8(b),
except that the specified date in the letter furnished pursuant to this
Section 8(k) shall be a date not more than five days prior to the Option
Closing Date.
(ii) A certificate, dated the Option Closing Date, of the Chief
Executive Officer or President and the chief financial or accounting
officer of the Company confirming that the certificate delivered at the
First Closing Date pursuant to Section 8(g) remains true as of the Option
Closing Date.
(iii) A certificate, dated the Option Closing Date, of the
Selling Shareholders confirming that the certificates delivered at the
First Closing Date pursuant to Section 8(h) remain true as of the Option
Closing Date.
(iv) The opinion of Katten Muchin & Zavis, counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional Stock
and otherwise to the same effect as the opinion required by Section 8(d).
(v) The opinion of Katten Muchin & Zavis, counsel for the Selling
Shareholders, in form and substance satisfactory to counsel for the
Underwriters, dated the Option Closing Date, to the same effect as the
opinion required by Section 8(e).
(vi) The opinion of Testa, Hurwitz & Thibeault, LLP, counsel for
the Underwriters, dated the Option Closing Date, relating to the Optional
Stock and otherwise to the same effect as the opinion required by Section
8(f).
If any of the conditions hereinabove provided for in this Section shall not
have been satisfied when and as required by this Agreement, this Agreement may
be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the Closing Date, but the
Representatives shall be entitled to waive any of such conditions.
9. Termination. This Agreement may be terminated by the Representatives
by notice to the Company if at or prior to the Closing Date or the Option
Closing Date, as the case may be, (i) trading in securities on the New York or
American Stock Exchanges shall have been suspended or minimum or maximum prices
shall have been established on either such exchange, or a banking moratorium
shall have been declared by New York or United States authorities; (ii) there
shall have been any adverse change in the financial markets in the United
States, Japan or Europe or any outbreak or escalation of hostilities between the
United States and any foreign power, or of any other insurrection or armed
conflict involving the United States that, in the judgment of the
Representatives, makes it impracticable or inadvisable to offer, sell or deliver
the Firm Stock or the Optional Stock as applicable, on the terms contemplated by
the Prospectus or this Agreement; (iii) there shall have been since the
execution of this Agreement or since the respective dates as of which
information is given in the Prospectus any material adverse change in the
condition (financial or otherwise), or business, prospects or results of
operations of the
<PAGE>
-33-
Company and its subsidiaries considered as a whole; (iv) there shall have been
any development involving the business or properties or securities of the
Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, makes it impracticable
or inadvisable to offer, sell or deliver the Firm Stock or Option Stock, as
applicable, on the terms contemplated by the Prospectus or this Agreement or (v)
if there shall be any litigation, pending or threatened, which, in the judgment
of the Representatives, makes it impracticable or inadvisable to offer or
deliver the Firm Stock or the Optional Stock as applicable on the terms
contemplated by the Prospectus or this Agreement. As used in this Section 9, the
term "Prospectus" means the Prospectus in the form first used to confirm sales
of Stock.
10. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall be terminated by the Representatives under
Section 8, Section 9 or Section 12, the Company will bear and pay the expenses
specified in Section 5 hereof and, in addition to its obligations pursuant to
Section 6, hereof, the Company will reimburse the reasonable out-of-pocket
expenses of the several Underwriters (including reasonable fees and
disbursements of counsel for the Underwriters) incurred in connection with this
Agreement and the proposed purchase of the Stock, and promptly upon demand the
Company will pay such amounts to you as Representatives. In addition, the
provisions of Section 6 shall survive any such termination.
11. Default By Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Firm Stock hereunder
on the Closing Date and the aggregate number of shares of Firm Stock which such
defaulting Underwriter or Underwriters agreed but failed to purchase does not
exceed 10% of the total number of shares which the Underwriters are obligated to
purchase at the Closing Date, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the shares of Firm Stock which such defaulting Underwriter or Underwriters
agreed but failed to purchase. If any Underwriter or Underwriters shall so
default and the aggregate number of shares of Firm Stock with respect to which
such default or defaults occur is more than 10% of the total number of shares
underwritten and arrangements satisfactory to the Representatives and the
Company for the purchase of such shares of Firm Stock by other persons are not
made within 48 hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the shares of Firm Stock of a
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the Closing Date for a period of not
more than five full business days, in order that the Company may 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 shares of Firm Stock to be purchased by the remaining Underwriters or
substituted underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company or the
Underwriters for
<PAGE>
-34-
damages occasioned by its default hereunder. Any termination of this Agreement
pursuant to this Section 11 shall be without liability on the part of any non-
defaulting Underwriter, the Selling Shareholders or the Company, except for
expenses to be paid or reimbursed pursuant to Section 5 and except for the
provisions of Section 6.
12. Default By the Company. If the Company shall fail at the Closing Date
to sell and deliver the number of shares of Stock which it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any non-defaulting party.
No action taken pursuant to this Section shall relieve the Company so
defaulting from liability, if any, in respect of such default.
13. Notices. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and confirmed to
you, as their Representatives c/o Dean Witter Reynolds Inc. at Two World Trade
Center, 65th Floor, Corporate Finance, New York, New York 10048, Attn: Samuel H.
Wolcott, III, except that notices given to an Underwriter pursuant to Section 6
hereof shall be sent to such Underwriter at the address provided to the
Representatives or, if sent to the Company or any of the Selling Shareholders,
shall be mailed, delivered or telegraphed and confirmed c/o The Leap Group,
Inc., 22 West Hubbard Street, Chicago, Illinois 60610, Attn: Chief Executive
Officer.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Shareholders and
their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Shareholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company, each
of its officers who has signed the Registration Statement and the person or
persons, if any, who control the Company or any Selling Shareholder within the
meaning of Section 15 of the Act.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. The Company and the Selling Shareholders hereby consent to
personal jurisdiction in the State of New York and voluntarily submit to the
jurisdiction of the courts of such state, including the federal district courts
located in such state, in any proceeding with respect to this Agreement.
<PAGE>
-35-
16. Counterparts. This Agreement may be executed by one or more parties
hereto in any number of counterparts each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
17. Authority of the Representatives. In connection with this Agreement,
the Representatives will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representatives jointly or by Dean
Witter Reynolds Inc., as representatives of the several Underwriters, will be
binding on all the Underwriters; and any action taken under this Agreement by
the Attorneys-in-fact will be binding on the related Selling Shareholders.
Any person executing and delivering this Agreement as Attorney-in-fact for
a Selling Shareholder represents by so doing that he has been duly appointed as
Attorney-in-fact by such Selling Shareholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-fact to take such
action.
<PAGE>
-36-
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
THE LEAP GROUP, INC.
By_______________________________
Chief Executive Officer
SELLING SHAREHOLDERS:
R. Steven Lutterbach
Frederick Smith
George Gier
Joseph A. Sciarotta
By_______________________________
[Attorney-in-fact]
____________________________
[Attorney-in-fact]
Acting [on [his] [their] own behalf and] on behalf
of the Selling Shareholder[s] listed in Schedule
B.
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting on their own behalf and as
Representatives of the several Under-
writers referred to in the foregoing
Agreement.
BY DEAN WITTER REYNOLDS INC.
By____________________________________
Authorized Signature
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares of
Stock to be
Name Purchased
- ---- ---------
<S> <C>
Dean Witter Reynolds Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Total.................................................... 3,500,000
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Shares of
Selling Shareholders Stock to be Sold
- -------------------- ----------------
<S> <C>
R. Steven Lutterbach 131,250
Frederick Smith 131,250
George Gier 131,250
Joseph A. Sciarotta 131,250
Total....................................... 525,000
=======
</TABLE>
<PAGE>
EXHIBIT A
3,500,000 Shares
THE LEAP GROUP, INC.
Common Stock, $.01 par value
PRICING AGREEMENT
-----------------
[Date]
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
2 World Trade Center
65th Floor
New York, New York 10048
Dear Sirs:
Reference is made to the Underwriting Agreement, dated _____________,
1996 (the "Underwriting Agreement"), relating to the purchase by the several
Underwriters named in Schedule A thereto, for whom Dean Witter Reynolds Inc. and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as
representatives (the "Representatives"), of the above shares of Common Stock,
$.01 par value (the "Common Stock"), of The Leap Group, Inc. (the "Company").
Pursuant to Section 3 of the Underwriting Agreement, the Company
agrees with each underwriter as follows:
1. The initial public offering price per share for the Stock,
determined as provided in Section 3, shall be $_______________.
2. The purchase price per share for the Stock to be paid by the
several Underwriters shall be $_______________.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all
<PAGE>
counterparts, will become a binding agreement between the Underwriters and the
Company in accordance with its terms.
Very truly yours,
THE LEAP GROUP, INC.
By: ___________________________
Title: Chief Executive Officer
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting on their own behalf and as
Representatives of the several
Underwriters referred to in the
foregoing Agreement.
By DEAN WITTER REYNOLDS INC.
By____________________________________
Authorized Signature
<PAGE>
================================================================================
NUMBER NUMBER
[LOGO]
N The Leap Group, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS SEE REVERSE SIDE
TRANSFERABLE IN THE FOR CERTAIN
CITY OF NEW YORK DEFINITIONS
CUSIP
This is to Certify that
is the owner of
SHARES OF FULLY PAID AND NON-ASSESSABLE COMMON STOCK OF THE PAR VALUE OF $.01
EACH OF
The Leap Group, Inc.
transferable on the books of the Company, by the registered owner, hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are issued
and shall be subject to all of the provisions of the Certificate of
Incorporation of the Company and all amendments thereto, and to the By-Laws of
the Company to all of which the holders thereof by acceptance of this
Certificate hereby assents.
This Certificate is not valid unless countersigned by the Transfer Agent
and registered by the Registrar.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated /s/ R. STEVEN LUTTERBACH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
/s/ ROBERT C. BRAMLETTE /s/ FREDERICK SMITH
SECRETARY VICE CHAIRMAN AND CHIEF OPERATING OFFICER
COUNTERSIGNED AND REGISTERED
FIRST CHICAGO TRUST COMPANY OF NEW YORK
(NEW YORK)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED OFFICER
================================================================================
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM--as tenants in common
TEN ENT--as tenants by the entireties
JT TEN --as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT--_____________Custodian____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________
(State)
Additional abbreviations may also be used though not in the above list.
THE LEAP GROUP, INC.
The Company or its Transfer Agent will furnish to any shareholder upon request
and without charge a statement of (1) all of the voting powers, designations,
preferences, and relative, participating, optional or other rights, if any, or
the qualifications, limitations, or the restrictions thereof, if any, of the
shares of each class of stock, including series of preference stock, authorized
to be issued by the Company, (2) the variations in the relative rights and
preferences between the shares of different series (if more than one) of
preference stock, and (3) the authority of the Board of Directors to fix and
determine the relative rights and preferences of subsequent series.
For value received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated
---------------------------
NOTICE: The Signature to this Assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement or any change whatever. X
----------------------------------------
Signature of Stockholder
<PAGE>
EXHIBIT 5
[LETTERHEAD OF KATTEN MUCHIN & ZAVIS]
July 5, 1996
The Leap Group, Inc.
22 W. Hubbard Street
Chicago, IL 60610
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Leap Group, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to 4,025,000 shares of the Company's Common
Stock, $.01 per value per share (the "Common Stock").
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction,
of such instruments, documents and records as we have deemed relevant and
necessary to examine for the purpose of this opinion, including (a) the
Registration Statement, as amended, (b) the proposed Underwriting Agreement by
and among the Company, Dean Witter Reynolds Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and the Selling Stockholders named on Schedule A thereto
(the "Underwriting Agreement"), (c) the Amended and Restated Certificate of
Incorporation of the Company, (d) the By-laws of the Company, as amended to
date, and (e) resolutions adopted by the Board of Directors of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority of the parties signing such documents, the
authenticity of the documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as certified,
conformed or reproduced copies.
<PAGE>
The Leap Group, Inc.
July 5, 1996
Page 2
Based upon and subject to the foregoing, it is our opinion that the
4,025,000 shares of Common Stock covered by the Registration Statement
(including the 525,000 shares subject to the Underwriters' over-allotment
option), when issued and sold by the Company and the selling stockholders,
respectively, and paid for in accordance with the provisions of the Underwriting
Agreement, will be legally issued, fully paid and non-assessable shares of
Common Stock.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation
to advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing of
this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
/s/ Katten Muchin & Zavis
KATTEN MUCHIN & ZAVIS
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 4-04-1996 07-05-1996 DD/80
- --------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- --------------------------------------------------------------------------------------------------------------
Borrower: The Leap Partnership, Inc. Lender: Manufacturers Bank
22 West Hubbard Street 1200 North Ashland Avenue
Chicago, IL 60610 Chicago, IL 60622
==============================================================================================================
Principal Amount: $500,000.00 Initial Rate: 9.250% Date of Note: April 4, 1996
</TABLE>
PROMISE TO PAY. The Leap Partnership, Inc. ("Borrower") promises to pay to
Manufacturers Bank ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Five Hundred Thousand & 00/100 Dollars
($500,000.00), together with interest on the unpaid principal balance from April
4, 1996, until paid in full. The interest rate will not increase above 18.000%.
PAYMENT. Borrower will pay this loan in one principal payment of $500,000.00
plus interest on July 5, 1996. This payment due July 5, 1996, will be for all
principal and accrued interest not yet paid. In addition, Borrower will pay
regular monthly payments of all accrued unpaid interest due as of each payment
date, beginning May 4, 1996, with all subsequent interest payments to be
due on the same day of each month after that. Interest on this Note is computed
on a 365/360 simple interest basis; that is, by applying the ratio of the annual
interest rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at such
other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Manufacturers's Bank
Reference Rate (the "Index"). Lender will tell Borrower the current index rate
upon Borrower's request. Borrower understands that Lender may make loans based
on other rates as well. The interest rate change will not occur more often than
each day. The Index currently is 8.250% per annum. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of 1.000
percentage point over the Index, resulting in an initial rate of 9.250% per
annum. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00 whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Any representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts, including deposit accounts, with Lender. (f) Any of
the events described in this default section occurs with respect to any
guarantor of this Note. (g) A material adverse change occurs in Borrower's
financial condition, or Lender believes the prospect of payment or performance
of the Indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within 15 days; or (b) if the cure
requires more than 15 days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 5.000
percentage points over the Index. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note has been delivered to
Lender and accepted by Lender in the State of Illinois. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Cook County, the State of Illinois. Lender and Borrower hereby waive
the right to any jury trial in any action, proceeding, or counterclaim brought
by either Lender or Borrower against the other. This Note shall be governed by
and construed in accordance with the laws of the State of Illinois.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on this Note against any and all such
accounts.
<PAGE>
04-04-1996 PROMISSORY NOTE Page 2
(Continued)
================================================================================
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
The Leap Partnership, Inc.
By: /s/ Peter Vezmar
--------------------------------------
Peter Vezmar, Chief Financial Officer/Treasurer & Assistant Sec.
Partner/President
By: /s/ Phillip Ruben
--------------------------------------
Phillip Ruben, Assistant Secretary
================================================================================
Variable Rate. Single Pay. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver.
3.20(c) 1995 CFI ProServices, Inc. All
rights reserved. [IL-D20 LEAPPAR.LN
C26.OVL]
<PAGE>
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$500,000.00 4-04-1996 07-05-1996 DD/80
- --------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document
to any particular loan or item.
- --------------------------------------------------------------------------------------------------------------
Borrower: The Leap Partnership, Inc. (Tin: 36-3911479) Lender: Manufacturers Bank
22 West Hubbard Street 1200 North Ashland Avenue
Chicago, IL 60610 Chicago, IL 60622
==============================================================================================================
</TABLE>
THIS BUSINESS LOAN AGREEMENT between The Leap Partnership, Inc. ("Borrower")
and Manufacturers Bank ("Lender") is made and executed on the following terms
and conditions. Borrower has received prior commercial loans from Lender or
has applied to Lender for a commercial loan or loans and other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations
from Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees that:
(a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at
all times shall be subject to Lender's sole judgment and discretion; and (c)
all such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of April 4, 1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means The Leap Partnership, Inc. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means Manufacturers Bank, its successors and
assigns.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens" means: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" means and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien whatsoever, whether
created by law, contract, or otherwise.
<PAGE>
04-04-1996 BUSINESS LOAN AGREEMENT Page 2
(Continued)
================================================================================
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note; (b) Security
Agreements granting to Lender security interests in the Collateral; (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Illinois and
is validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of
<PAGE>
04-04-1996 BUSINESS LOAN AGREEMENT Page 3
(Continued)
================================================================================
Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event
nor Prohibited Transaction (as defined in ERISA) has occurred with respect
to any such plan, and (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 22 West Hubbard Street, Chicago, IL 60610.
Unless Borrower has designated otherwise in writing this location is also
the office or offices where Borrower keeps its records concerning the
Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in making the above referenced Loan to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force and
effect until such time as Borrower's Indebtedness shall be paid in full, or
until this Agreement shall be terminated in the manner provided above,
whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least thirty (30) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, omission or default
of Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, on Lender's forms, and in the
amounts and by the guarantors named below:
<TABLE>
<CAPTION>
<S> <C>
Guarantors Amounts
---------- -------
Elizabeth A. Lutterbach Unlimited
Vicki Gier Unlimited
Frederick Smith Unlimited
George Gier Unlimited
Joseph A. Sciarrotta Unlimited
R. Steven Lutterbach Unlimited
</TABLE>
Other Agreements. Comply with all terms and conditions of all other
agreements, whether nor or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
<PAGE>
04-04-1996 BUSINESS LOAN AGREEMENT Page 4
(Continued)
================================================================================
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of any
change in executive and management personnel; conduct its business affairs
in a reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower may
pay cash dividends on its stock to its shareholders from time to time in
amounts necessary to enable the shareholders to pay income taxes and make
estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of shares of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares
or alter or amend Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's account
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
DEFECTIVE COLLATERALIZATION. This agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
<PAGE>
04-04-1996 BUSINESS LOAN AGREEMENT Page 5
(Continued)
===============================================================================
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's accounts, including deposit accounts, with Lender.
However, this Event of Default shall not apply if there is a good faith
dispute by Borrower or Grantor, as the case may be, as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding, and if Borrower or Grantor gives Lender written
notice of the creditor or forfeiture proceeding and furnishes reserves or a
surety bond for the creditor or forfeiture proceeding satisfactory to
Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness. Lender, at its option, may, but
shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure the Event of Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
Right to Cure. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate and, at Lender's
option, all Indebtedness immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an Event of Default
of the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised singularly
or concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of this Agreement shall
be effective unless given in writing and signed by the party or parties
sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF ILLINOIS. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF COOK
COUNTY, THE STATE OF ILLINOIS. LENDER AND BORROWER HEREBY WAIVE THE RIGHT
TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the Borrowers
signing below is responsible for ALL obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loans irrespective of the failure or insolvency of any
holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all Borrowers.
For notice purposes, Borrower will keep Lender informed at all times of
Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such
<PAGE>
04-04-1996 BUSINESS LOAN AGREEMENT Page 6
(Continued)
===============================================================================
offending provision shall be deemed to be modified to be within the limits
of enforceability or validity; however, if the offending provision cannot
be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instruments delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases consent may be granted or withheld in the sole discretion
of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THE AGREEMENT IS DATED AS OF
APRIL 4, 1996.
BORROWER:
The Leap Partnership, Inc.
By: /s/ Peter Vezmar
----------------------------------------------------------
Peter Vezmar, Chief Financial Officer/Treasurer & Asst. Sec.
By: /s/ Philip Ruben
----------------------------------------------------------
Philip Ruben, Assistant Secretary
LENDER:
Manufacturers Bank
By:
-------------------------------
Authorized Officer
===============================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21 (c) 1996 CFI ProServices, Inc.
All rights reserved. [IL-C40 LEAPPAR.LN C26.OVL]
<PAGE>
EXHIBIT 10.5
THE LEAP GROUP, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
Effective May ___, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I ESTABLISHMENT.......................................................... 1
1.1 Purpose................................................................ 1
ARTICLE II DEFINITIONS............................................................ 1
2.1 "Affiliate"............................................................ 1
2.2 "Agreement" or "Award Agreement"....................................... 1
2.3 "Award"................................................................ 1
2.4 "Beneficiary".......................................................... 2
2.5 "Board of Directors" or "Board"........................................ 2
2.6 "Cash Incentive Award"................................................. 2
2.7 "Cause"................................................................ 2
2.8 "Change in Control" and "Change in Control Price"...................... 2
2.9 "Code" or "Internal Revenue Code"...................................... 2
2.10 "Commission"........................................................... 2
2.11 "Committee"............................................................ 2
2.12 "Common Stock"......................................................... 3
2.13 "Company".............................................................. 3
2.14 "Covered Employee"..................................................... 3
2.15 "Deferred Stock"....................................................... 3
2.16 "Disability"........................................................... 3
2.17 "Disinterested Person"................................................. 3
2.18 "Dividend Equivalent".................................................. 3
2.19 "Effective Date"....................................................... 3
2.20 "Exchange Act"......................................................... 3
2.21 "Fair Market Value".................................................... 4
2.22 "Grant Date"........................................................... 4
2.23 "Incentive Stock Option"............................................... 4
2.24 "NASDAQ"............................................................... 4
2.25 "Non-Qualified Stock Option"........................................... 4
2.26 "Option"............................................................... 4
2.27 "Option Period"........................................................ 4
2.28 "Option Price"......................................................... 4
2.30 "Participant".......................................................... 4
2.31 "Performance Award".................................................... 5
2.32 "Plan"................................................................. 5
2.33 "Representative"....................................................... 5
2.34 "Restricted Stock"..................................................... 5
2.35 "Retirement"........................................................... 5
2.36 "Rule 16b-3"and "Rule 16a-1(c)(3)"..................................... 5
2.37 "Securities Act"....................................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
2.38 "Stock Appreciation Right"............................................. 5
2.39 "Termination of Employment"............................................ 6
ARTICLE III ADMINISTRATION......................................................... 6
3.1 Committee Structure and Authority...................................... 6
ARTICLE IV STOCK SUBJECT TO PLAN.................................................. 9
4.1 Number of Shares....................................................... 9
4.2 Release of Shares...................................................... 9
4.3 Restrictions on Shares................................................. 9
4.4 Stockholder Rights..................................................... 10
4.5 Best Efforts To Register............................................... 10
4.6 Anti-Dilution.......................................................... 10
ARTICLE V ELIGIBILITY............................................................ 11
5.1 Eligibility............................................................ 11
ARTICLE VI STOCK OPTIONS.......................................................... 12
6.1 General................................................................ 12
6.2 Grant and Exercise..................................................... 12
6.3 Terms and Conditions................................................... 12
6.4 Termination by Reason of Death......................................... 15
6.5 Termination by Reason of Disability.................................... 15
6.6 Other Termination...................................................... 15
6.7 Cashing Out of Option.................................................. 16
ARTICLE VII STOCK APPRECIATION RIGHTS.............................................. 16
7.1 General................................................................ 16
7.2 Grant.................................................................. 16
7.3 Terms and Conditions................................................... 17
ARTICLE VIII RESTRICTED STOCK....................................................... 19
8.1 General................................................................ 19
8.2 Awards and Certificates................................................ 19
8.3 Terms and Conditions................................................... 19
ARTICLE IX DEFERRED STOCK......................................................... 21
9.1 General................................................................ 21
9.2 Terms and Conditions................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE X OTHER AWARDS........................................................... 22
10.1 Bonus Stock and Awards In Lieu of Obligations.......................... 22
10.2 Dividend Equivalents................................................... 22
10.3 Other Stock-Based Awards............................................... 23
10.4 Performance Awards..................................................... 23
ARTICLE XI PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN................. 26
11.1 Limited Transfer During Offering....................................... 26
11.2 Committee Discretion................................................... 27
11.3 No Company Obligation.................................................. 27
ARTICLE XII CHANGE IN CONTROL PROVISIONS........................................... 27
12.1 Impact of Event........................................................ 27
12.3 Change in Control Price................................................ 29
ARTICLE XIII MISCELLANEOUS.......................................................... 29
13.1 Amendments and Termination............................................. 29
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards................. 30
13.3 Form and Timing of Payment Under Awards; Deferrals..................... 31
13.4 Status of Awards Under Code Section 162(m)............................. 31
13.5 Unfunded Status of Plan; Limits on Transferability..................... 31
13.6 General Provisions..................................................... 32
13.7 Mitigation of Excise Tax............................................... 34
13.8 Rights with Respect to Continuance of Employment....................... 34
13.9 Awards in Substitution for Awards Granted by Other Corporations........ 34
13.10 Procedure for Adoption................................................. 35
13.11 Procedure for Withdrawal............................................... 35
13.12 Delay.................................................................. 35
13.13 Headings............................................................... 35
13.14 Severability........................................................... 35
13.15 Successors and Assigns................................................. 36
13.16 Entire Agreement....................................................... 36
</TABLE>
iii
<PAGE>
THE LEAP GROUP, INC.
EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
-------
The Leap Group, Inc. Employee Incentive Compensation Plan ("Plan") is
hereby established by The Leap Group, Inc. ("Company"). The purpose of the Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan and the grant of awards thereunder are expressly conditioned
upon the Plan's approval by the stockholders of the Company. If such approval is
not obtained, then this Plan and all Awards (as defined herein) shall be null
and void ab initio. The Plan is adopted, subject to stockholder approval,
effective as of May ___, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, limited liability company, joint-stock company, trust,
unincorporated association or other entity (other than the Company) that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company including, without
limitation, any member of an affiliated group of which the Company is a common
parent corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
2.3 "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock, Dividend Equivalent, Other Stock-Based Award, Performance Award or Cash
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
<PAGE>
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted hereunder. If, upon a Participant's
death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the person, persons, trust or trusts entitled by
will or the laws of descent and distribution to receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cash Incentive Award" means a conditional right granted to a
Participant under Section 10.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.
2.7 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or act of omission which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or act of omission of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.
2.8 "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 12.2 and 12.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.11 "Committee" means the person or persons appointed to administer this
Plan, as further described herein.
2
<PAGE>
2.12 "Common Stock" means the shares of the regular voting Common Stock,
$.01 par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.13 "Company" means The Leap Group, Inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities all or substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.15 "Deferred Stock" means a right, granted to a Participant under
Section 9.1 hereof, to receive Common Stock, cash or a combination thereof at
the end of a specified deferral period.
2.16 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or incurred
while participating in a criminal offense. The determination of Disability shall
be made by the Committee. The determination of Disability for purposes of this
Plan shall not be construed to be an admission of disability for any other
purpose.
2.17 "Disinterested Person" shall have the meaning set forth in Rule 16b-
3, or any successor definition adopted by the Commission, and shall mean a
person who is also an "outside director" under Section 162(m) of the Code.
2.18 "Dividend Equivalent" means a right, granted to a Participant under
Section 10.2, to receive cash, Common Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Common Stock.
2.19 "Effective Date" means May ___, 1996.
2.20 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
3
<PAGE>
2.21 "Fair Market Value" means the fair market value of Common Stock,
Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee and
in the event of grants of Directors Options under Section 6.2, the Fair Market
Value per share of Common Stock as of any given date shall be the closing sale
price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which Common Stock is traded on the date
as of which such value is being determined or, if there is no sale on that date,
then on the last previous day on which a sale was reported.
2.22 "Grant Date" means the date as of which an Award is granted pursuant
to the Plan.
2.23 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.24 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
Market.
2.25 "Non-Qualified Stock Option" means an Option to purchase Common Stock
in the Company granted under the Plan, the taxation of which is pursuant to
Section 83 of the Code.
2.26 "Option" or "Stock Option" means a right, granted to a Participant
under Section 6.1 hereof, to purchase Common Stock or other Awards at a
specified price during specified time periods.
2.27 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.28 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.29 "Other Stock Based Awards" means Awards granted to a Participant
under Section 10.3 hereof.
2.30 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Award has been granted by the Committee under the
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is held by or for the benefit
of the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to
4
<PAGE>
minors act or similar statute for the benefit of the Participant's descendants,
to the extent permitted by the Committee and not inconsistent with Rule 16b-3 or
the status of the Option as an Incentive Stock Option, to the extent intended.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.31 "Performance Award" means a right, granted to a Participant under
Section 10.4 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.32 "Plan" means The Leap Group Inc. Employee Incentive Compensation
Plan, as herein set forth and as amended from time to time.
2.33 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee; provided that only one of the foregoing shall be the Representative
at any point in time as determined under applicable law and recognized by the
Committee.
2.34 "Restricted Stock" means Common Stock granted to a Participant under
Section 8.1 hereof, that is subject to certain restrictions and to a risk of
forfeiture.
2.35 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.36 "Rule 16b-3"and "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.37 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.38 "Stock Appreciation Right" means a right granted under Article VII.
5
<PAGE>
2.39 "Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate of the Company, or ceasing to be an officer, independent
contractor, director or employee of any entity that provides services to the
Company or a Affiliate of the Company, including, without limitation, death,
Disability, dismissal, severance at the election of the Participant, Retirement,
or severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee with
respect to the Company or a Affiliate of the Company, the Agreement shall
establish what act or event shall constitute a Termination of Employment for
purposes of the Plan. A transfer of employment from the Company to a Affiliate,
or from a Affiliate to the Company, will not be a Termination of Employment,
unless expressly determined by the Committee. A Termination of Employment shall
occur for an employee who is employed by a Affiliate of the company if the
Affiliate shall cease to be a Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or a Affiliate of the
Company.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. Prior to the date of the first
registration of an equity security of the Company under the Exchange Act (the
"Registration Date"), the Plan shall be administered by the Board of Directors
(which shall constitute the Committee for purposes of the Plan). From and after
the Registration Date, the Plan shall be administered by the Committee which
shall be comprised of one or more persons. The Committee shall be the
Compensation Committee of the Board of Directors, unless such committee does not
exist or the Board establishes or identifies another committee whose purpose is
the administration of this Plan; provided that only those members of the
Compensation Committee who participate in the decision relative to Awards under
this Plan shall be deemed to be the "Committee" for purposes of this Plan. The
Committee shall be comprised of such number of Disinterested Persons as is
required for application of Rule 16b-3 and the deduction of compensation under
Section 162(m) of the Code, if applicable. In the absence of an appointment, the
Board or the portion thereof that is a
6
<PAGE>
Disinterested Person shall be the Committee. A majority of the Committee shall
constitute a quorum at any meeting thereof (including by telephone conference)
and the acts of a majority of the members present, or acts approved in writing
by a majority of the entire Committee without a meeting, shall be the acts of
the Committee for purposes of this Plan. The Committee may authorize any one or
more of its members or an officer of the Company to execute and deliver
documents on behalf of the Committee. A member of the Committee shall not
exercise any discretion respecting himself or herself under the Plan. The Board
shall have the authority to remove, replace or fill any vacancy of any member of
the Committee upon notice to the Committee and the affected member. Any member
of the Committee may resign upon notice to the Board. The Committee may
allocate among one or more of its members, or may delegate to one or more of its
agents, such duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan and the limitation of section (c)(2)(ii) of Rule 16b-3 so that
the Plan is described in that section:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Awards or any combination
thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each stock-based Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Award, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 13.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock;
7
<PAGE>
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
the Plan, Awards and the issuance of shares of Common Stock under the Plan
and to require of a Participant that appropriate action be taken with
respect to such requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require, as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any Federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
8
<PAGE>
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to de novo review if challenged
in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 2,000,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. The Committee shall have full authority to determine
the number of shares of Common Stock available for Award, and in its discretion
may include (without limitation) as available for distribution any shares of
Common Stock that have ceased to be subject to an Award, any shares of Common
Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award, including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Options to a
particular Participant under applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. The Company shall
not be required to issue or deliver any certificates for shares of Common Stock,
cash or
9
<PAGE>
other property prior to (i) the listing of such shares on any stock exchange or
NASDAQ (or other public market) on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under Federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Award. The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Award to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder as
to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued and transferred.
Upon exercise of the Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued and transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Best Efforts To Register. After the initial public offering of
shares of Common Stock under the Securities Act, the Company will register
under the Securities Act the Common Stock delivered or deliverable pursuant to
Awards on Commission Form S-8 if available to the Company for this purpose (or
any successor or alternate form that is substantially similar to that form to
the extent available to effect such registration), in accordance with the rules
and regulations governing such forms, as soon after stockholder approval of the
Plan as the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its best efforts to cause the registration
statement to become effective and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock split,
reverse stock split, combination or exchange of shares, recapitalization or
other change in the capital structure of the Company, corporate separation or
division of the
10
<PAGE>
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Awards under the Plan,
the number of shares of Common Stock covered by outstanding Awards, the maximum
number of Awards available for grant to any Participant for a stated period of
time (including the maximum number of Stock Appreciation Rights), the exercise
price per share of outstanding Awards, and performance conditions and any other
characteristics or terms of the Awards as the Committee shall deem necessary or
appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that the Committee may limit any such
adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code, if applicable, and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall
reasonably be determined by the Committee.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
subsidiary of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award
with respect to Participants, the Committee may give consideration to the
person's functions and responsibilities, the person's contributions to the
Company and its subsidiaries, the value of the individual's service to the
Company and its subsidiaries and such other factors deemed relevant by the
Committee. The Committee may designate in writing any person who is not eligible
to participate in the Plan if such person would otherwise be eligible to
participate in this Plan (and members of the Committee are expressly excluded to
the extent such persons are intended to be Disinterested Persons).
11
<PAGE>
ARTICLE VI
----------
STOCK OPTIONS
-------------
6.1 General. The Committee shall have authority to grant Stock
Options under the Plan at any time or from time to time. Stock Options may be
granted alone or in addition to other Awards and may be either Incentive Stock
Options or Non-Qualified Stock Options. An Option shall entitle the Participant
to receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements), including, without
limitation, payment of the Option Price. During any calendar year, Options to
purchase no more than 500,000 shares of Common Stock shall be granted to any
Participant.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as
of the date the Committee determines. Each Option granted under this Plan shall
be evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and condition of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. Only a person who is a common-law
employee of the Company, any parent corporation of the Company or a subsidiary
(as such terms are defined in Section 424 of the Code) on the date of grant
shall be eligible to be granted an Option which is intended to be and is an
Incentive Stock Option. To the extent that any Stock Option is not designated
as an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so as
to disqualify the Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify any Incentive Stock Option under such
Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such
terms and conditions as shall be determined by the Committee, including the
following:
(a) Option Period. The Option Period of each Stock Option shall be
fixed by the Committee; provided that no Stock Option shall be exercisable
more than ten (10) years after the date the Stock Option is granted. In
the case of an Incentive Stock Option granted to an individual who owns
more than ten percent (10%) of the combined voting power of all classes of
stock of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section 424 of
the Code), the Option Period shall not exceed five (5) years from the date
of grant. No Option
12
<PAGE>
which is intended to be an Incentive Stock Option shall be granted more
than ten (10) years from the date the Plan is adopted by the Company or the
date the Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee; provided,
however, that the Option Price of an Incentive Stock Option shall be not
less than the Fair Market Value per share on the date the Option is
granted. If such Option is intended to qualify as an Incentive Stock Option
and is granted to an individual who owns or who is deemed to own stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), the Option Price per share shall not
be less than one hundred ten percent (110%) of such Fair Market Value per
share.
(c) Exercisability. Subject to Section 12.1, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any
time waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Stock Option. If the Committee intends that an Option be an Incentive
Stock Option, the Committee may, in its discretion, provide that the
aggregate Fair Market Value (determined at the Grant Date) of the Common
Stock as to which such Incentive Stock Option is exercisable for the first
time during any calendar year shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Except when waived by the Committee, such notice shall be
accompanied by payment in full of the purchase price by cash or check or
such other form of payment as the Company may accept. If approved by the
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Common Stock already owned by
the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by the execution and delivery of a
note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee and permitted in accordance with
Section 6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option having
a total Fair Market
13
<PAGE>
Value on the date of delivery equal to the Option Price; (iv) by the
delivery of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (v) by certifying ownership of shares of Common Stock by the
Participant to the satisfaction of the Committee for later delivery to the
company as specified by the committee; or by any combination of the
foregoing or by any other method permitted by the Committee. If payment of
the Option Price of a Stock Option is made in whole or in part in the form
of Restricted Stock or Deferred Stock, the number of shares of Common Stock
to be received upon such exercise that is equal to the number of shares of
Restricted Stock or Deferred Stock used for payment of the Option Price
shall be subject to the same forfeiture restrictions or deferral
limitations to which such Restricted Stock or Deferred Stock was subject,
unless otherwise determined by the Committee. In the case of an Incentive
Stock Option, the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
Stock Option may be authorized only at the time the Stock Option is
granted. No shares of Common Stock shall be issued until full payment
therefor, as determined by the Committee, has been made. Subject to any
forfeiture restrictions or deferral limitations that may apply if a Stock
Option is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a stockholder of the Company holding the
class of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
paid in full for such shares and such shares have been recorded on the
Company's official stockholder records as having been issued or
transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of credit or guarantee shall obligate the Company for an
amount to exceed the lesser of the aggregate Fair Market Value per share of
the Common Stock on
14
<PAGE>
applicable laws or the regulations and rules of the Federal Reserve Board
and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
an Agreement and then only consistent with the intent that the Option be an
Incentive Stock Option, no Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent and distribution or by a designation of beneficiary effective upon
the death of the Participant, and all Stock Options shall be exercisable
during the Participant's lifetime only by the Participant. If and to the
extent transferability is permitted by Rule 16b-3 or does not result in
liability to any Participant and except as otherwise provided herein or by
an Agreement, every Option granted hereunder shall be freely transferable,
but only if such transfer does not result in liability under Section 16 of
the Exchange Act to the Participant or other Participants and is consistent
with registration of the Option and sale of Common Stock on Form S-8 (or a
successor form) or is consistent with the use of Form S-8 (or the
Committee's waiver of such condition) and consistent with an Award's
intended status as an Incentive Stock Option (as applicable).
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held
15
<PAGE>
by such Participant shall thereupon terminate, except that such Stock Option, to
the extent then exercisable, may be exercised for the lesser of the ninety (90)
day period commencing with the date of such Termination of Employment or until
the expiration of the Option Period. Unless otherwise provided in an Agreement
or determined by the Committee, if the Participant incurs a Termination of
Employment which is either (a) voluntary on the part of the Participant (and is
not due to Retirement) or (b) with Cause, the Option shall terminate
immediately. Unless otherwise provided in an Agreement or determined by the
Committee, the death or Disability of a Participant after a Termination of
Employment otherwise provided herein shall not extend the time permitted to
exercise an Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
with respect to which Option at least six months have elapsed since the Grant
Date (provided that such limitation shall not apply to an Option granted to a
Participant who has subsequently died) to be exercised by paying the Participant
an amount, in cash or Common Stock, equal to the excess of the Fair Market Value
of the Common Stock that is subject to the Option over the Option Price times
the number of shares of Common Stock subject to the Option on the effective date
of such cash-out. Cash-outs relating to Options held by Participants who are
actually or potentially subject to Section 16(b) of the Exchange Act shall
comply with the "window period" provisions of Rule 16b-3, to the extent
applicable, and, in the case of cash-outs of Non-Qualified Stock Options held by
such Participants, the Committee may determine Fair Market Value under the
pricing rule set forth in Section 7.3(b).
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of grant
16
<PAGE>
of such Stock Option. In the case of an Incentive Stock Option, such rights may
be granted only at the time of grant of such Stock Option. A Stock Appreciation
Right may also be granted on a stand-alone basis. The grant of a Stock
Appreciation Right shall occur as of the date the Committee determines. Each
Stock Appreciation Right granted under this Plan shall be evidenced by an
Agreement, which shall embody the terms and conditions of such Stock
Appreciation Right and which shall be subject to the terms and conditions set
forth in this Plan. During any calendar year, Stock Appreciation Rights
covering no more than [________] shares of Common Stock shall be granted to any
Participant.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand-alone basis shall be for such period and shall be
exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the portion of the Stock Appreciation
Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right granted
in conjunction with a Stock Option, a Participant shall be entitled to
receive an amount in cash, shares of Common Stock or both as determined by
the Committee or as otherwise permitted in an Agreement equal in value to
the excess of the Fair Market Value per share of Common Stock over the
Option Price per share of Common Stock specified in the related Agreement
multiplied by the number of shares in respect of which the Stock
Appreciation Right is exercised. In the case of a Stock Appreciation Right
granted on a stand-alone basis, the Agreement shall specify the value to be
used in lieu of the Option Price per share of Common Stock. The aggregate
Fair Market Value per share of the Common Stock shall be determined as of
the date of exercise of such Stock Appreciation Right.
(c) Special Rules. In the case of Stock Appreciation Rights relating
to Stock Options held by Participants who are actually or potentially
subject to Section 16(b) of the Exchange Act:
17
<PAGE>
(i) The Committee may require that such Stock Appreciation Rights
be exercised only in accordance with the applicable "window period"
provisions of Rule 16b-3;
(ii) The Committee may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights (other than those relating
to Incentive Stock Options) during a Rule 16b-3 "window period" shall
be based on the highest mean sales price of the Common Stock on the
principal exchange on which the Common Stock is traded, NASDAQ or
other relevant market for determining value on any day during such
"window period"; and
(iii) No Stock Appreciation Right shall be exercisable during
the first six months of its term, except that this limitation shall
not apply in the event of death or Disability of the Participant prior
to the expiration of the six-month period.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under the Plan unless otherwise
provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at such
time as a Stock Option would terminate under the Plan, unless otherwise
provided in an Agreement.
(f) Effect on Shares Under the Plan. Upon the exercise of a Stock
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4.2 on the number of
shares of Common Stock to be issued under the Plan, but only to the extent
of the number of shares of Common Stock covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(g) Incentive Stock Option. A Stock Appreciation Right granted in
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the
Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
18
<PAGE>
ARTICLE VIII
------------
RESTRICTED STOCK
----------------
8.1 General. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
of Restricted Stock to be awarded to any Participant, the time or times within
which such Awards may be subject to forfeiture and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate (including a division or department of the
Company or an Affiliate) for or within which the Participant is primarily
employed or upon such other factors or criteria as the Committee shall
determine. The provisions of Restricted Stock Awards need not be the same with
respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall be issued a certificate
in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Award as
determined by the Committee. The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be
subject to the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the
Plan and the Agreement, during a period set by the Committee commencing
with the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber any interest in shares of Restricted Stock.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common Stock
that is the subject of the Restricted Stock, including, if applicable, the
right to vote the
19
<PAGE>
shares and the right to receive any cash dividends. Unless otherwise
determined by the Committee and subject to the Plan, cash dividends on the
class of Common Stock that is the subject of the Restricted Stock shall be
automatically deferred and reinvested in additional Restricted Stock, and
dividends on the class of Common Stock that is the subject of the
Restricted Stock payable in Common Stock shall be paid in the form of
Restricted Stock of the same class as the Common Stock on which such
dividend was paid.
(c) Acceleration. Based on service, performance by the Participant or
by the Company or an Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death or
Disability, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to the
Participant.
(f) Election. A Participant may elect to further defer receipt of the
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to completion of
the Restriction Period.
20
<PAGE>
ARTICLE IX
----------
DEFERRED STOCK
--------------
9.1 General. The Committee shall have authority to grant Deferred
Stock under the Plan at any time or from time to time. Shares of Deferred Stock
may be awarded either alone or in addition to other Awards granted under the
Plan. The Committee shall determine the persons to whom and the time or times
at which Deferred Stock will be awarded, the number of shares of Deferred Stock
to be awarded to any Participant, the duration of the period (the "Deferral
Period") prior to which the Common Stock will be delivered, and the conditions
under which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject
to the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the
Plan and the Agreement, Deferred Stock Awards, or any interest therein, may
not be sold, assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period (or Elective
Deferral Period as defined in Section 9.2(e), where applicable), the
Committee may elect to deliver Common Stock, cash equal to the Fair Market
Value of such Common Stock or a combination of cash and Common Stock to the
Participant for the shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
to the Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) Acceleration. Based on service, performance by the Participant or
by the Company or the Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations
21
<PAGE>
in installments and may accelerate the vesting of all or any part of any
Award and waive the deferral limitations for all or any part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) Election. A Participant may elect further to defer receipt of the
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event (an "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made at least one (1) year
prior to completion of the Deferral Period for the Award (or of the
applicable installment thereof).
ARTICLE X
---------
OTHER AWARDS
------------
10.1 Bonus Stock and Awards In Lieu of Obligations. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisition of Common Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Common Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee.
10.2 Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Common
Stock, other Awards, or other property equal in value to dividends paid with
respect to a specified number of shares of Common Stock. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award.
The Committee may provide that Dividend Equivalents will be paid or distributed
when accrued or will be deemed to have been reinvested in additional Common
Stock, Awards, or other
22
<PAGE>
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.
10.3 Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Common Stock, purchase rights for Common Stock,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
book value of Common Stock or the value of securities of or the performance of
specified Subsidiaries. The Committee shall determine the terms and conditions
of such Awards. Common Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 10.3 shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 10.3.
10.4 Performance Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and its timing, may be subject
to performance conditions specified by the Committee. The Committee may
use business criteria and other measures of performance it deems
appropriate in establishing any performance conditions, and may exercise
its discretion to reduce or increase the amounts payable under any Award
subject to performance conditions, except as limited under Sections 10.4(b)
and 10.4(c) hereof in the case of a Performance Award intended to qualify
under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If
the Committee determines that a Performance Award to be granted to a person
the Committee regards as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the
grant and/or settlement of such Performance Award shall be contingent upon
achievement of preestablished performance goals and other terms set forth
in this Section 10.4(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and
a targeted level or levels of performance with respect to such
23
<PAGE>
criteria, as specified by the Committee consistent with this Section
10.4(b). Performance goals shall be objective and shall otherwise
meet the requirements of Code Section 162(m), including the
requirement that the level or levels of performance targeted by the
Committee result in the performance goals being "substantially
uncertain." The Committee may determine that more than one
performance goal must be achieved as a condition to settlement of such
Performance Awards. Performance goals may differ for Performance
Awards granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for
specified Affiliates or business units of the Company (except with
respect to the total stockholder return and earnings per share
criteria), shall be used exclusively by the Committee in establishing
performance goals for such Performance Awards: (1) total stockholder
return; (2) such total stockholder return as compared to total return
(on a comparable basis) of a publicly available index such as, but not
limited to, the Standard & Poor's 500 or the Nasdaq-U.S. Index; (3)
net income; (4) pre-tax earnings; (5) EBITDA; (6) pre-tax operating
earnings after interest expense and before bonuses, service fees, and
extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on
investment; (12) operating income, excluding the effect of charges for
acquired in-process technology and before payment of executive
bonuses; and (13) working capital. The foregoing business criteria
shall also be exclusively used in establishing performance goals for
Cash Incentive Awards granted under Section 10.4(c) hereof.
(iii) Performance Period: Timing For Establishing Performance
Goals. Achievement of performance goals in respect of such
Performance Awards shall be measured over such periods as may be
specified by the Committee. Performance goals shall be established on
or before the dates that are required or permitted for "performance-
based compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement
of Performance Awards may be in cash or Common Stock, or other Awards,
or other property, in the discretion of the Committee. The Committee
may, in its discretion, reduce the amount of a settlement otherwise to
be made in connection with such Performance Awards, but may not
exercise discretion to increase any such amount payable in respect of
a Performance Award subject to this Section 10.4(b). The Committee
shall specify the circumstances in which such Performance
24
<PAGE>
Awards shall be forfeited or paid in the event of a Termination of
Employment or a Change in Control prior to the end of a performance
period or settlement of Performance Awards, and other terms relating
to such Performance Awards.
(c) Cash Incentive Awards Granted to Designated Covered Employees.
The Committee may grant Cash Incentive Awards to Participants including
those designated by the Committee as likely to be Covered Employees, which
Awards shall represent a conditional right to receive a payment in cash,
unless otherwise determined by the Committee, after the end of a specified
calendar year or calendar quarter or other period specified by the
Committee, in accordance with this Section 10.6(c). With respect to any
calendar year, the maximum Cash Incentive Award payable to any Participant
shall not exceed 8.1% of the Company's operating income, excluding the
effect of charges for acquired in-process technology and before payment of
executive bonuses, for such year.
(i) Cash Incentive Award. The Cash Incentive Award for
Participants the Committee regards as likely to be regarded as Covered
Employees shall be based on achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section
10.4(b), and may be based on such criteria for any other Participant.
The Committee may specify the amount of the individual Cash Incentive
Award as a percentage of any such business criteria, a percentage
thereof in excess of a threshold amount, or another amount which need
not bear a strictly mathematical relationship to such relationship
criteria. The Committee may establish an Cash Incentive Award pool
that includes Participants the Committee regards likely to be regarded
as Covered Employees, which shall be an unfunded pool, for purposes of
measuring Company performance in connection with Cash Incentive
Awards. The amount of the Cash Incentive Award pool shall be based
upon the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 10.4(b) hereof in
the given performance period, as specified by the Committee. The
Committee may specify the amount of the Cash Incentive Award pool as a
percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not bear
a strictly mathematical relationship to such business criteria.
(ii) Potential Cash Incentive Awards. Not later than the date
required or permitted for "qualified performance-based compensation"
under Code Section 162(m), the Committee shall determine the
Participants who will potentially receive Cash Incentive Awards for
the specified year, quarter or other period, either as individual Cash
Incentive
25
<PAGE>
Awards or out of an Cash Incentive Award pool established by such date
and the amount or method for determining the amount of the individual
Cash Incentive Award or the amount of such Participant's portion of
the Cash Incentive Award pool or the individual Cash Incentive Award.
(iii) Payout of Cash Incentive Awards. After the end of the
specified year, quarter or other period, as the case may be, the
Committee shall determine the amount, if any, of potential individual
Cash Incentive Award otherwise payable to a Participant, the Cash
Incentive Award pool and the maximum amount of potential Cash
Incentive Award payable to each Participant in the Cash Incentive
Award pool. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Cash Incentive Award
shall be increased or reduced from the amount of his or her potential
Cash Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such
amount in the case of an Cash Incentive Award intended to qualify
under Code Section 162(m). The Committee shall specify the
circumstances in which an Cash Incentive Award shall be paid or
forfeited in the event of Termination of Employment by the Participant
or a Change in Control prior to the end of the period for measuring
performance or the payout of such Cash Incentive Award, and other
terms relating to such Cash Incentive Award in accordance with the
Plan. Upon the completion of the measuring period and the
determination of the right to payment and the amount, the Committee
shall direct the Committee to make payment.
(d) Written Determinations. All determinations by the Committee as to
the establishment of performance goals and the potential Performance Awards
or Cash Incentive Awards related to such performance goals and as to the
achievement of performance goals relating to such Awards, the amount of any
Cash Incentive Award pool and the amount of final Cash Incentive Awards,
shall be made in writing in the case of any Award intended to qualify under
Code Section 162(m). The Committee may not delegate any responsibility
relating to such Performance Awards or Cash Incentive Awards.
ARTICLE XI
----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
------------------------------------------------------
11.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not,
26
<PAGE>
during the period requested by the underwriters managing the registered public
offering, effect any public sale or distribution of shares received directly or
indirectly pursuant to an exercise of an Award.
11.2 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article X shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article X, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
11.3 No Company Obligation. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XII
-----------
CHANGE IN CONTROL PROVISIONS
----------------------------
12.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 12.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding as of
the date of such Change in Control and not then exercisable shall become
fully exercisable to the full extent of the original grant;
(b) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock or other Award shall lapse, and such
Restricted Stock, Deferred Stock or other Award shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
27
<PAGE>
(c) The performance goals and other conditions with respect to any
outstanding Performance Award or Cash Incentive Award shall be deemed to
have been satisfied in full, and such Award shall be fully distributable,
if and to the extent provided by the Committee in the Agreement relating to
such Award or otherwise, notwithstanding that the Award may not be fully
deductible to the Company under Section 162(m) of the Code.
(d) The Committee shall have full discretion, notwithstanding anything
herein or in an Award Agreement to the contrary, to do any or all of the
following with respect to an outstanding Award:
(1) To cause any Award to be cancelled, provided notice of at
least 15 days thereof is provided before the date of
cancellation;
(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;
(3) To grant the Participant by giving notice during a pre-set
period to surrender all or part of a stock-based Award to
the Company and to receive cash in an amount equal to the
amount by which the "Change in Control Price" (as defined in
Section 12.3) per share of Common Stock on the date of such
election shall exceed the amount which the Participant must
pay to exercise the Award per share of Common Stock under
the Award (the "Spread") multiplied by the number of shares
of Common Stock granted under the Award;
(4) To require the assumption of the obligation of the Company
under the Plan subject to appropriate adjustment; and
(5) To take any other action the Committee determines to take.
12.2 Definition of Change in Control. For purposes of this Plan, a "Change
in Control" shall be deemed to have occurred if (a) any corporation, person or
other entity (other than the Company, a majority-owned subsidiary of the Company
or any of its subsidiaries, or an employee benefit plan (or related trust)
sponsored or maintained by the Company), including a "group" as defined in
Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of stock
representing more than the greater of (i) twenty-five percent (25%) of the
combined voting power of the Company's then outstanding securities or (ii) the
percentage of the combined voting power of the Company's then outstanding
securities which equals (A) ten percent
28
<PAGE>
(10%) plus (B) the percentage of the combined voting power of the Company's
outstanding securities held by such corporation, person or entity on the
Effective Date; (b)(i) the stockholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another corporation
other than a majority-owned subsidiary of the Company, or to sell or otherwise
dispose of all or substantially all of the Company's assets, and (ii) the
persons who were the members of the Board of Directors of the Company prior to
such approval do not represent a majority of the directors of the surviving,
resulting or acquiring entity or the parent thereof; (c) the stockholders of the
Company approve a plan of liquidation of the Company; or (d) within any period
of 24 consecutive months, persons who were members of the Board of Directors of
the Company immediately prior to such 24-month period, together with any persons
who were first elected as directors (other than as a result of any settlement of
a proxy or consent solicitation contest or any action taken to avoid such a
contest) during such 24-month period by or upon the recommendation of persons
who were members of the Board of Directors of the Company immediately prior to
such 24-month period and who constituted a majority of the Board of Directors of
the Company at the time of such election, cease to constitute a majority of the
Board.
12.3 Change in Control Price. For purposes of the Plan, "Change in Control
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or (b) if the Change in Control is the result of
a tender or exchange offer, merger, consolidation, liquidation or sale of all or
substantially all of the assets of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common Stock paid in such
Corporate Transaction, except that, in the case of Incentive Stock Options and
Stock Appreciation Rights relating to Incentive Stock Options, such price shall
be based only on the Fair Market Value of the Common Stock on the date any such
Incentive Stock Option or Stock Appreciation Right is exercised. To the extent
that the consideration paid in any such Corporate Transaction consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
ARTICLE XIII
------------
MISCELLANEOUS
-------------
13.1 Amendments and Termination. The Board may amend, alter or discontinue
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would (a) impair the rights of a Participant under a Stock Option,
Stock Appreciation Right, Restricted Stock Award or Deferred Stock Award
29
<PAGE>
theretofore granted without the Participant's consent, except such an
amendment (a) made to avoid an expense charge to the Company or an Affiliate,
(b) made to cause the Plan to qualify for the exemption provided by Rule 16b-3,
(c) to prevent the Plan from being disqualified from the exemption provided by
Rule 16b-3, or (d) made to permit the Company or an Affiliate a deduction under
the Code. In addition, no such amendment shall be made without the approval of
the Company's stockholders to the extent such approval is required by law or
agreement. Notwithstanding the foregoing, the Plan may not be amended more than
once every six (6) months to change the Plan provisions listed in section
(c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the Code or
Rule 16b-3.
The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and further
subject to any approval or limitations the Board may impose.
The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent or reduce an Option
Price, except such an amendment made to cause the Plan or Award to qualify for
the exemption provided by Rule 16b-3, avoid an expense charge to the Company or
an Affiliate or qualify for a deduction. The Committee's discretion to amend the
Plan or Agreement shall be limited to the Plan's constituting a plan described
in section (c)(2)(ii) of Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
is available.
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or
30
<PAGE>
any business entity to be acquired by the Company or a subsidiary, or any other
right of a Participant to receive payment from the Company or any subsidiary.
Such additional, tandem, and substitute or exchange Awards may be granted at any
time. If an Award is granted in substitution or exchange for another Award or
award, the Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts payable
under other plans of the Company or any subsidiary, in which the Fair Market
Value of Common Stock subject to the Award is equivalent in value to the cash
compensation, or in which the exercise price, grant price or purchase price of
the Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Common Stock minus the value of the cash
compensation surrendered.
13.3 Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Common
Stock in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee
(subject to Section 13.1 of the Plan) or permitted at the election of the
Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of Dividend Equivalents in respect of installment
or deferred payments denominated in Common Stock.
13.4 Status of Awards Under Code Section 162(m). On and after the date
Section 162(m) of the Code applies to Awards, it is the intent of the Company
that Awards granted to persons who are Covered Employees within the meaning of
Code Section 162(m) shall constitute "qualified performance-based compensation"
satisfying the requirements of Code Section 162(m). Accordingly, the provisions
of the Plan shall be interpreted in a manner consistent with Code Section
162(m) after the date Section 162(m) is applicable. If any provision of the Plan
or any agreement relating to such an Award does not comply or is inconsistent
with the requirements of Code Section 162(m), such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.
13.5 Unfunded Status of Plan; Limits on Transferability. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation.
The Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such
31
<PAGE>
trusts or other arrangements is consistent with the "unfunded" status of the
Plan. Unless otherwise provided in this Plan or in an Agreement, no Award shall
be subject to the claims of Participant's creditors and no Award may be
transferred, assigned, alienated or encumbered in any way other than by will or
the laws of descent and distribution or to a Representative upon the death of
the Participant.
13.6 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Award that gives rise to the withholding
requirement provided that any applicable requirements under Section 16 of
the Exchange Act are satisfied. The obligations of the Company under this
Plan shall be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
If the Participant disposes of shares of Common Stock acquired pursuant to
an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Company shall have the right to deduct any
taxes required by law to be withheld from any amounts otherwise payable to
the Participant. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Award that gives rise to the withholding requirement,
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under the Plan shall be
conditional
32
<PAGE>
on such payment or arrangements, and the Company and its Affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall be
permissible only if sufficient shares of Common Stock are available under
the Plan for such reinvestment (taking into account then outstanding
Options and other Awards).
(e) Representation. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Illinois (other than its law respecting choice of law)
except to the extent the General Corporation Law of the State of Delaware
would be mandatorily applicable. The Plan shall be construed to comply
with all applicable law and to avoid liability to the Company, an Affiliate
or a Participant, including, without limitation, liability under Section
16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
33
<PAGE>
(i) The grant of an Award shall in no way affect the right of the
Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidation, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
13.7 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 13.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 13.7 shall apply
with respect to any person only if, after reduction for any applicable Federal
excise tax imposed by Section 4999 of the Code and Federal income tax imposed by
the Code, the Total Payments accruing to such person would be less than the
amount of the Total Payments as reduced, if applicable, under the foregoing
provisions of the Plan and after reduction for only Federal income taxes.
13.8 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
13.9 Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation
34
<PAGE>
of the employing corporation with the Company or an Affiliate, or the
acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this Plan at the time of such grant as the
majority of the members of the Committee may deem appropriate to conform, in
whole or in part, to the provisions of the awards in substitution for which they
are granted.
13.10 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
13.11 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
13.12 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to
suspend or delay any time period described in the Plan or an Agreement if the
Committee shall determine that the action may constitute a violation of any law
or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
shall not constitute a violation of law or result in liability to the Company,
an Affiliate or a stockholder of the Company. The Committee shall have the
discretion to suspend the application of the provisions of the Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-
3 does not apply to the Plan.
13.13 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
13.14 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
35
<PAGE>
13.15 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
13.16 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
Executed this ____ day of May, 1996, effective May ___, 1996.
THE LEAP GROUP, INC.
By:
---------------------------
R. Steven Lutterbach
Chief Executive Officer
36
<PAGE>
EXHIBIT 10.6
THE LEAP GROUP, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Effective May ___, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I ESTABLISHMENT..................................... 1
1.1 Purpose........................................... 1
ARTICLE II DEFINITIONS....................................... 1
2.1 "Affiliate"....................................... 1
2.2 "Agreement" or "Option Agreement"................. 1
2.3 "Board of Directors" or "Board"................... 1
2.4 "Change in Control"............................... 1
2.5 "Code" or "Internal Revenue Code"................. 2
2.6 "Commission"...................................... 2
2.7 "Committee"....................................... 2
2.8 "Common Stock".................................... 2
2.9 "Company"......................................... 2
2.10 "Director"........................................ 2
2.11 "Disability"...................................... 3
2.12 "Effective Date".................................. 3
2.13 "Exchange Act".................................... 3
2.14 "Fair Market Value"............................... 3
2.15 "Grant Date"...................................... 4
2.16 "NASDAQ".......................................... 4
2.17 "Option".......................................... 4
2.18 "Option Period"................................... 4
2.19 "Option Price".................................... 4
2.20 "Participant"..................................... 4
2.21 "Plan"............................................ 4
2.22 "Public Offering"................................. 4
2.23 "Representative".................................. 4
2.24 "Rule 16b-3" or "Rule 16a-1(c)(3)"................ 4
2.25 "Securities Act".................................. 5
ARTICLE III ADMINISTRATION.................................... 5
3.1 Committee Structure and Authority................. 5
ARTICLE IV STOCK SUBJECT TO PLAN............................. 6
4.1 Number of Shares.................................. 6
4.2 Release of Shares................................. 6
4.3 Restrictions on Shares............................ 6
4.4 Reasonable Efforts To Register.................... 6
4.5 Adjustments....................................... 7
4.6 Limited Transfer During Offering.................. 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE V OPTIONS........................................... 7
5.1 Eligibility....................................... 7
5.2 Grant and Exercise................................ 8
5.3 Terms and Conditions.............................. 8
5.4 Other Termination................................. 9
ARTICLE VI MISCELLANEOUS..................................... 9
6.1 Amendments and Termination........................ 9
6.2 General Provisions................................ 10
6.3 Special Provisions Regarding a Change in Control.. 11
6.4 Delay............................................. 12
6.5 Headings.......................................... 12
6.6 Severability...................................... 12
6.7 Successors and Assigns............................ 12
6.8 Entire Agreement.................................. 12
</TABLE>
ii
<PAGE>
THE LEAP GROUP, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose. The Leap Group, Inc. Non-employee Directors' Stock Option
Plan ("Plan") is hereby established by The Leap Group, Inc. ("Company"),
effective May __, 1996 ("Effective Date"). The purpose of the Plan is to promote
the overall financial objectives of the Company and its stockholders by
motivating directors of the Company who are not employees, to further align the
interests of such directors with those of the stockholders of the Company and to
achieve long-term growth and performance of the Company. The Plan and the grant
of Options hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company to the extent required for an application of Rule
16b-3 of the Securities Exchange Act of 1934, as amended, and if such approval
is not obtained, then the Plan and all Options granted thereunder shall be null
and void ab initio.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
member of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Option Agreement" means, individually or collectively,
any agreement entered into pursuant to this Plan pursuant to which an Option is
granted to a Participant.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.4 "Change in Control" means the happening of any of the following events
following a Public Offering: (a) any corporation, person or other entity (other
than the Company, a majority-owned subsidiary of the Company or any of its
subsidiaries, or an employee benefit plan (or related trust) sponsored or
maintained by the Company), including a "group" as defined in Section 13(d)(3)
of the Exchange Act, becomes the
<PAGE>
beneficial owner of stock representing more than the greater of (i) twenty-five
percent (25%) of the combined voting power of the Company's then outstanding
securities or (ii) the percentage of the combined voting power of the Company's
then outstanding securities which equals (A) ten percent (10%) plus (B) the
percentage of the combined voting power of the Company's outstanding securities
held by such corporation, person or entity on the Effective Date; (b)(i) the
stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a majority-
owned subsidiary of the Company, or to sell or otherwise dispose of all or
substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors prior to such approval do not represent a
majority of the directors of the surviving, resulting or acquiring entity or the
parent thereof; (c) the stockholders of the Company approve a plan of
liquidation of the Company; or (d) within any period of 24 consecutive months,
persons who were members of the Board of Directors immediately prior to such 24-
month period, together with any persons who were first elected as directors
(other than as a result of any settlement of a proxy or consent solicitation
contest or any action taken to avoid such a contest) during such 24-month period
by or upon the recommendation of persons who were members of the Board of
Directors of the Company immediately prior to such 24-month period and who
constituted a majority of the Board of Directors at the time of such election,
cease to constitute a majority of the Board.
2.5 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.6 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.7 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan, as further described in the Plan.
2.8 "Common Stock" means the shares of the common stock, par value $.01
per share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.9 "Company" means The Leap Group, Inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
2.10 "Director" means each and any director who serves on the Board and who
is not an officer or employee of the Company or any of its Affiliates.
2
<PAGE>
2.11 "Disability" means a mental or physical illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of the Plan shall not
be construed to be an admission of disability for any other purpose.
2.12 "Effective Date" means May __, 1996.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.14 "Fair Market Value" means:
(a) prior to a Public Offering, the value determined on the basis of the
good faith determination of the Committee and without regard to whether the
Common Stock is restricted, illiquid or represents a minority interest, unless
expressly provided otherwise in an Agreement;
(b) on the date of a Public Offering, the initial price to the public; and
(c) on or after a Public Offering, the value determined on the basis of the
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(i) if the Common Stock is listed on a national securities exchange
or quoted on NASDAQ, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations
are reported, then on the immediately preceding date on which quotations
were reported), as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by NASDAQ, as the
case may be;
(ii) if the Common Stock is not listed on a national securities
exchange or quoted on NASDAQ, but is actively traded in the over-the-
counter market, the average of the closing bid and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations were reported), or the most recent
preceding date for which such quotations are reported; and
(iii) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (i) or (ii), the value determined in
good faith by the Committee.
3
<PAGE>
2.15 "Grant Date" means the date as of which an Option is granted pursuant
to the Plan.
2.16 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq National
Market.
2.17 "Option" means the right to purchase the number of shares of Common
Stock specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the Committee
imposes.
2.18 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article V.
2.19 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 5.3.
2.20 "Participant" means a Director to whom an Option has been granted
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such appointed Representative. The term shall also include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants; a
partnership the interests in which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee and not inconsistent with
an application of Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Directorship" shall mean the Termination of Directorship of the
Director.
2.21 "Plan" means The Leap Group, Inc. Non-employee Directors' Stock Option
Plan, as herein set forth and as may be amended from time to time.
2.22 "Public Offering" means the initial public offering of shares of
Common Stock under the Securities Act.
2.23 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee;
provided that only one of the foregoing shall be the Representative at any point
in time as determined under applicable law and recognized by the Committee.
2.24 "Rule 16b-3" or "Rule 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as promulgated under the Exchange Act, as amended from time to time, or
any successor thereto, in effect and applicable to the Plan and Participants.
4
<PAGE>
2.25 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee which, except as provided herein, shall be comprised of one or
more persons. The Committee shall be the Compensation Committee of the Board of
Directors, unless such committee does not exist or the Board establishes another
committee whose purpose is the administration of the Plan. In the absence of an
appointment, the Board shall be the Committee; provided that only those members
of the Compensation Committee of the Board who participate in the decision
relative to Options under the Plan shall be deemed to be part of the "Committee"
for purposes of the Plan. A majority of the Committee shall constitute a quorum
at any meeting thereof (including telephone conference) and the acts of a
majority of the members present, or acts approved in writing by a majority of
the entire Committee without a meeting, shall be the acts of the Committee for
purposes of the Plan. The Committee may authorize any one or more of its
members or an officer of the Company to execute and deliver documents on behalf
of the Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member. Any member of the
Committee may resign upon notice to the Board. The Committee may allocate among
one or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines.
The Committee shall have the authority, subject to (i) the terms of the
Plan and (ii) the limitations of Rule 16b-3(c)(2)(ii), to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall, from time to time, deem advisable, to interpret the terms and
provisions of the Plan and any Option issued under the Plan and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
5
<PAGE>
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for issuance
pursuant to Options under the Plan shall be two hundred thousand (200,000)
shares of Common Stock authorized for issuance on the Effective Date. Such
shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
4.2 Release of Shares. The Committee shall have full authority to
determine the number of shares of Common Stock available for Stock Options, and
in its discretion may include (without limitation) as available for distribution
any shares of Common Stock that have ceased to be subject to Stock Options, any
shares of Common Stock subject to any Stock Options that are forfeited, any
Stock Options that otherwise terminate without issuance of shares of Common
Stock being made to the Participant, or any shares (whether or not restricted)
of Common Stock that are received by the Company in connection with the exercise
of a Stock Option, including the satisfaction of any tax liability or the
satisfaction of a tax withholding obligation. If any shares could not again be
available for Options to a particular Participant under applicable law, such
shares shall be available exclusively for Options to Participants who are not
subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Option shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the Option Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange,
NASDAQ or other public market on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of an
Option. The Company may cause any certificate for any share of Common Stock to
be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in the Plan or as
the Committee may otherwise require. The Committee may require any person
exercising an Option to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
the shares of Common Stock in compliance with applicable law or otherwise.
Fractional shares shall not be delivered, but shall be rounded to the next lower
whole number of shares.
4.4 Reasonable Efforts To Register. If there has been a Public Offering,
the Company will register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that
6
<PAGE>
form to the extent available to effect such registration), in accordance with
the rules and regulations governing such forms, as soon as such forms are
available for registration to the Company for this purpose. The Company will
use its reasonable efforts to cause the registration statement to become
effective as soon as possible and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Option. The
Company may delay the foregoing obligation if the Committee reasonably
determines that any such registration would materially and adversely affect the
Company's interests or if there is no material benefit to Participants.
4.5 Adjustments. In the event of a stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company stock
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee shall adjust or substitute, as the case may
be, the number of shares of Common Stock available for Options under the Plan,
the number of shares of Common Stock covered by outstanding Options, the
exercise price per share of outstanding Options, and any other characteristics
or terms of the Options as the Committee shall deem necessary or appropriate to
reflect equitably the effects of such changes to the Participants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional share as shall reasonably be determined by the
Committee.
4.6 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Option.
ARTICLE V
---------
OPTIONS
-------
5.1 Eligibility. Each Director shall be granted Options to purchase
shares of Common Stock as provided herein.
7
<PAGE>
5.2 Grant and Exercise. Each person who is a Director on the effective
date of a Public Offering shall become a Participant and shall be granted an
Option on the effective date of a Public Offering to purchase twenty thousand
(20,000) shares of Common Stock without further action by the Board or the
Committee. Each person who is subsequently elected as a Director shall become a
Participant and shall, on his date of election and on each anniversary thereof
for so long as such person remains a Director, without further action by the
Board or the Committee, be granted an option to purchase five thousand (5,000)
shares of Common Stock. If the number of shares of Common Stock available to
grant under the Plan on a scheduled date of grant is insufficient to make all
automatic grants required to be made pursuant to the Plan on such date, then
each eligible Director shall receive an Option to purchase a pro rata number of
the remaining shares of Common Stock available under the Plan; provided further,
however, that if such proration results in fractional shares of Common Stock,
then such Option shall be rounded down to the nearest number of whole shares of
Common Stock. If there is no whole number of shares remaining to be granted,
then no grants shall be made under the Plan. Each Option granted under the Plan
shall be evidenced by an Agreement, in a form approved by the Committee, which
shall embody the terms and conditions of such Option and which shall be subject
to the express terms and conditions set forth in the Plan. Such Agreement shall
become effective upon execution by the Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Committee, including in each case the
following:
(a) Option Period. The Option Period of each Option shall be five (5)
years.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be the Fair Market Value as of the Grant Date.
(c) Exercisability. Unless an earlier time is specified in an Agreement,
and subject to the provisions of Section 6.3, Options granted on the Effective
Date of a Public Offering shall become fully exercisable upon the Grant Date and
Options granted thereafter shall become exercisable on the first anniversary of
the Grant Date. An Option only shall be exercisable during the Option Period.
(d) Method of Exercise. Subject to the provisions of this Article V, a
Participant may exercise Stock Options, in whole or in part, at any time during
the Option Period by the Participant's giving written notice of exercise on a
form provided by the Committee (if available) to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be purchased.
Except when waived by the Committee, such notice shall be accompanied by payment
in full of the purchase price by cash or check or such other form of payment as
the Company may accept. If approved by the Committee (including approval at the
time of exercise), payment in full or in part may also be made (i) by delivering
Common Stock already owned by the Participant having a total Fair Market Value
on the date of such delivery equal to the Option Price; (ii) by the execution
and delivery of a note or other
8
<PAGE>
evidence of indebtedness (and any security agreement thereunder) satisfactory to
the Committee and permitted in accordance with Section 5.3(e); (iii) by
authorizing the Company to retain shares of Common Stock which would otherwise
be issuable upon exercise of the Option having a total Fair Market Value on the
date of delivery equal to the Option Price; (iv) by the delivery of cash or the
extension of credit by a broker-dealer to whom the Participant has submitted a
notice of exercise or otherwise indicated an intent to exercise an Option (in
accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (v) by certifying ownership of
shares of Common Stock by the Participant to the satisfaction of the Committee
for later delivery to the company as specified by the committee; or (vi) by any
combination of the foregoing or by any other method permitted by the Committee.
(e) Nontransferability of Options. Except as provided herein or in an
Agreement, no Option or interest therein shall be transferable by the
Participant other than by will or by the laws of descent and distribution, and
all Options shall be exercisable during the Participant's lifetime only by the
Participant. If and to the extent transferability is permitted by Rule 16b-3
and except as otherwise provided herein or by an Agreement, every Option granted
hereunder shall be freely transferable, but only if such transfer does not
result in liability under Section 16 of the Exchange Act to the Participant or
other Participants and is consistent with registration of the Option and sale of
Common Stock on Form S-8 (or a successor form) or the Committee's waiver of such
condition.
5.4 Termination. Unless otherwise provided in an Agreement or determined by
the Committee, if a Participant ceases to be a Director due to death, any
unexpired and unexercised Stock Option held by such Participant shall thereafter
be fully exercisable for a period of ninety (90) days following the date of the
appointment of a Representative (or such other period or no period as the
Committee may specify) or until the expiration of the Option Period, whichever
period is the shorter. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant ceases to be a Director due to a Disability,
any unexpired and unexercised Stock Option held by such Participant shall
thereafter be fully exercisable by the Participant for the period of ninety (90)
days (or such other period or no period as the Committee may specify)
immediately following the date the Participant ceases to be a Director or until
the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following the date the Participant ceases to be
a Director due to Disability shall not affect the foregoing.
Unless otherwise provided in an Agreement or determined by the Committee, if
a Participant's directorship is terminated for any reason other than due to
Participant's death or Disability, any Option held by such Participant shall
thereupon terminate. Unless otherwise provided in an Agreement, the death or
Disability of a Participant after a termination of Directorship otherwise
provided herein shall not extend the exercisability of the time permitted to
exercise an Option.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Amendments and Termination.
The Board may amend, alter or discontinue the Plan at any time, but no
amendment, alteration or discontinuation shall be made which would (a) impair
the rights of a Participant under a Stock Option, theretofore granted without
the Participant's consent, except such an amendment (a) made to avoid an expense
charge to the Company or an Affiliate, (b) made to cause the Plan to qualify for
the exemption provided by Rule 16b-3, (c) to prevent the Plan from being
disqualified from the exemption provided by Rule 16b-3, or (d) made to permit
the Company or an Affiliate a deduction under the Code. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement.
9
<PAGE>
Notwithstanding the foregoing, the Plan may not be amended more than once every
six (6) months to change the Plan provisions listed in section (c)(2)(ii)(A) of
Rule 16b-3, other than to comport with changes in the Code or Rule 16b-3.
The Committee may amend the Plan at any time subject to the same
limitations (and exceptions to limitations) as applied to the Board and further
subject to any approval or limitations the Board may impose.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price,
except such an amendment made to cause the Plan or Award to qualify for the
exemption provided by Rule 16b-3, avoid an expense charge to the Company or an
Affiliate or qualify for a deduction. The Committee's discretion to amend the
Plan or Agreement shall be limited to the Plan's constituting a plan described
in section (c)(2)(ii) of Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan, to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
is available.
6.2 General Provisions.
(a) Representation. The Committee may require each person purchasing or
receiving shares pursuant to an Option to represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof in violation of the Securities Act. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
10
<PAGE>
(b) Withholding. If determined to be required to protect the Company, no
later than the date as of which an amount first becomes includable in the gross
income of the Participant for Federal income tax purposes with respect to any
Option, the Participant shall pay to the Company (or other entity identified by
the Committee), or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
may be settled with Common Stock, including Common Stock that is part of the
Option that gives rise to the withholding requirement, provided that any
applicable requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the Participant.
(c) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of Illinois (other than its law respecting choice of law) except to the
extent the General Corporation Law of the State of Delaware would be mandatorily
applicable. The Plan shall be construed to comply with all applicable law, and
to avoid liability to the Company, an Affiliate or a Participant, including,
without limitation, liability under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value of
any shares of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common Stock,
cash or other thing of value under the Plan or an Agreement shall be transferred
unless and until all disputes between the Company and the Participant have been
fully and finally resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3). To the extent any
provision of the Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee. Moreover, in the event the Plan does not include a provision
required by Rule 16b-3 or Rule 16a-1(c)(3) to be stated therein, such provision
(other than one relating to eligibility requirements, or the price and amount of
Options) shall be deemed to be incorporated by reference into the Plan with
respect to Participants subject to Section 16.
6.3 Special Provisions Regarding a Change in Control.
Notwithstanding any other provision of the Plan to the contrary, unless
otherwise provided in an Agreement, in the event of a Change in Control:
11
<PAGE>
(a) Any Stock Options outstanding as of the date of such Change in Control
and not then exercisable shall become fully exercisable to the full extent of
the original grant;
(b) The Committee shall have full discretion, notwithstanding anything
herein or in an Option Agreement to the contrary, to do any or all of the
following with respect to an outstanding Stock Option;
(1) To cause any Stock Option to be cancelled, provided notice of at
least 15 days thereof is provided before the date of cancellation;
(2) To provide that the securities of another entity be substituted
hereunder for the Common Stock and to make equitable adjustment
with respect thereto;
(3) To grant the Participant by giving notice during a pre-set period
to surrender all or part of a Stock Option to the Company and to
receive cash in an amount equal to the amount by which the "Change
in Control Price" (as defined in Section 6.3(c)) per share of
Common Stock on the date of such election shall exceed the amount
which the Participant must pay to exercise the Option per share of
Common Stock, under the Option (the "Spread") multiplied by the
number of shares of Common Stock granted under the Option;
(4) To require the assumption of the obligation of the Company under
the Plan subject to appropriate adjustment; and
(5) To take any other action the Committee determines to take.
(c) For purposes of this Section, "Change in Control Price" means the
higher of (i) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on NASDAQ during the sixty (60)-day period prior to and including the date of
a Change in Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
6.4 Delay. If at the time, the Participant is subject to "short-swing"
liability under Section 16 of the Exchange Act, any time period provided for
under the Plan, to the extent necessary to avoid the imposition of liability,
shall be suspended and delayed during the period the Participant would be
subject to such liability.
6.5 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
6.6 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
6.7 Successors and Assigns. The Plan shall inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
6.8 Entire Agreement. The Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Plan shall control.
12
<PAGE>
Executed on this ____ day of May, 1996.
THE LEAP GROUP, INC.
By:
-----------------------------
R. Steven Lutterbach
Chief Executive Officer
13
<PAGE>
EXHIBIT 10.7
THE LEAP GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
Effective May __, 1996
<PAGE>
THE LEAP GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <S> <C>
ARTICLE I ESTABLISHMENT............................................. 1
1.1 Purpose................................................... 1
ARTICLE II DEFINITIONS............................................... 1
2.1 "Account"................................................. 1
2.2 "Agreement" or "Option Agreement"......................... 1
2.3 "Beneficiary"............................................. 1
2.4 "Board of Directors" or "Board"........................... 2
2.5 "Cause"................................................... 2
2.6 "Change in Control"....................................... 2
2.7 "Code" or "Internal Revenue Code"......................... 3
2.8 "Commission".............................................. 3
2.9 "Committee"............................................... 3
2.10 "Common Stock"............................................ 3
2.11 "Company"................................................. 3
2.12 "Continuous Service"...................................... 3
2.13 "Contribution Rate"....................................... 3
2.14 "Disability".............................................. 3
2.15 "Effective Date".......................................... 4
2.16 "Eligible Employee"....................................... 4
2.17 "Exercise Date"........................................... 4
2.18 "Exchange Act"............................................ 4
2.19 "Fair Market Value"....................................... 4
2.20 "Grant Date".............................................. 5
2.21 "Option Period"........................................... 5
2.22 "Option Price"............................................ 5
2.23 "Participant"............................................. 5
2.24 "Plan".................................................... 5
2.25 "Plan Year"............................................... 5
2.26 "Representative".......................................... 6
2.27 "Retirement".............................................. 6
2.28 "Rule 16a-1(c)(3)" and "Rule 16b-3"....................... 6
2.29 "Securities Act".......................................... 6
2.30 "Stock Option" or "Option"................................ 6
2.31 "Subsidiary".............................................. 6
2.32 "Termination of Employment"............................... 6
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE III ADMINISTRATION............................................ 7
3.1 Committee Structure and Authority......................... 7
ARTICLE IV STOCK SUBJECT TO PLAN..................................... 9
4.1 Number of Shares.......................................... 9
4.2 Release of Shares......................................... 9
4.3 Restrictions on Shares.................................... 10
4.4 Stockholder Rights........................................ 10
4.5 Anti-Dilution............................................. 10
4.6 Custodian................................................. 11
ARTICLE V ELIGIBILITY............................................... 11
5.1 Eligibility............................................... 11
5.2 Grant of Options.......................................... 12
5.3 Option Period............................................. 12
5.4 Option Price.............................................. 12
5.5 Contribution Rate......................................... 12
5.6 Purchase of Shares........................................ 13
5.7 Cancellation of Options................................... 14
5.8 Terminated Employees...................................... 14
5.9 Deceased Employees........................................ 14
5.10 Disabled or Retired Employees............................. 15
5.11 Limitations............................................... 15
5.12 Nonassignability.......................................... 15
ARTICLE VI MISCELLANEOUS............................................. 15
6.1 Amendments and Termination................................ 15
6.2 Unfunded Status of Plan................................... 16
6.3 General Provisions........................................ 16
6.4 Mitigation of Excise Tax.................................. 18
6.5 Rights with Respect to Continuance of Employment.......... 18
6.6 Options in Substitution for Options Granted by
Other Corporations........................................ 19
6.7 Delay..................................................... 19
6.8 Headings.................................................. 19
6.9 Severability.............................................. 19
6.10 Successors and Assigns.................................... 19
6.11 Entire Agreement.......................................... 20
</TABLE>
ii
<PAGE>
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
-------
The Leap Group, Inc. Employee Stock Purchase Plan ("Plan") is hereby
established by The Leap Group, Inc. ("Company"). The purpose of the Plan is to
promote the overall financial objectives of the Company's stockholders by
motivating those persons participating in the Plan to achieve long-term growth
in stockholder equity. The Plan and the grant of awards thereunder is expressly
conditioned upon the Plan's approval by the stockholders of the Company, and if
such approval is not obtained then the Plan and any Option granted thereunder
shall be null and void ab initio. The Plan is intended as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended, and Options granted hereunder are intended to constitute
options granted under such a plan, and the Plan document and all actions taken
in connection with the Plan shall be constructed consistently with such intent.
The Plan is adopted effective as of May __, 1996.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Account" shall mean the bookkeeping account established on behalf of
a Participant to which shall be credited all contributions paid for the purpose
of purchasing Common Stock under the Plan, and to which shall be charged all
purchases of Common Stock pursuant to the Plan. The Company shall have custody
of such Account.
2.2 "Agreement" or "Option Agreement" means, individually or collectively,
any enrollment, subscription and withholding agreement entered into pursuant to
the Plan. An Agreement shall be the authorization of the Company or a
Subsidiary to withhold from payroll amounts to be applied to purchase Common
Stock.
2.3 "Beneficiary" means the person or entity which has been designated by
a Participant in his or her most recent written beneficiary designation filed
with the Committee to receive the benefits specified under the Plan upon such
Participant's death or to which Options or other rights are transferred if and
to the extent permitted hereunder (but only to the extent consistent with the
plan's being described in Section 423 of the Code). If, upon a Participant's
death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the person or entity entitled by will or the
laws of descent and distribution to receive such benefits.
<PAGE>
2.4 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.5 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or a Subsidiary for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's or Subsidiary's established
practices, policies or guidelines applicable to the Participant or (b) the
Participant's act or act of omission which constitutes gross misconduct with
respect to the Company or a Subsidiary in any material respect, including,
without limitation, an act or act of omission of a criminal nature, the result
of which is detrimental to the interests of the Company or a Subsidiary, or
conduct, or the omission of conduct, which constitutes a material breach of a
duty the Participant owes to the Company or a Subsidiary.
2.6 "Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, or an employee benefit
plan (or related trust) sponsored or maintained by the Company), including a
"group" as defined in Section 13(d)(3) of the Exchange Act, becomes the
beneficial owner of stock representing more than the greater of (i) twenty-five
percent (25%) of the combined voting power of the Company's then outstanding
securities or (ii) the percentage of the combined voting power of the Company's
then outstanding securities which equals (A) ten percent (10%) plus (B) the
percentage of the combined voting power of the Company's outstanding securities
held by such corporation, person or entity on the Effective Date; (b)(i) the
stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a majority-
owned subsidiary of the Company, or to sell or otherwise dispose of all or
substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24-month period by or upon the recommendation of persons who were
members of the Board of Directors of the Company immediately prior to such 24-
month period and who constituted a majority of the Board of Directors of the
Company at the time of such election, cease to constitute a majority of the
Board.
2
<PAGE>
2.7 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any successor thereto.
2.8 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.9 "Committee" means the Compensation Committee of the Board or such
other Board committee as may be designated by the Board to administer the Plan,
provided that the Committee shall be comprised of only "disinterested persons"
as required for an application of Rule 16b-3.
2.10 "Common Stock" means the shares of the regular voting Common Stock,
$.01 par value per share, of the Company, whether presently or hereafter issued,
and any other stock or security resulting from adjustment thereof as described
hereinafter or the common stock of any successor to the Company which is
designated for the purpose of the Plan.
2.11 "Company" means The Leap Group, Inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities substantially all of the securities of the Company shall be
exchanged; and any assignee of or successor to substantially all of the assets
of the Company.
2.12 "Continuous Service" shall mean, subject to modification by the
Committee, an Eligible Employee's number of full years and completed months of
continuous employment with the Company or a Subsidiary (but only since the date
such entity became a Subsidiary) from the most recent date of hire to the date
of Termination of Employment for any reason. The Committee may provide rules
from time to time regarding the calculation of Continuous Service and the method
for crediting such service.
2.13 "Contribution Rate" means the rate determined under Section 5.5
2.14 "Disability" means a mental or physical injury or illness that
entitles the Participant to receive benefits under the long-term disability plan
of the Company or a Subsidiary of the Company, or if the Participant is not
covered by such a plan, a mental or physical injury or illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Company or a Subsidiary of the Company. Notwithstanding the
foregoing, a Disability shall not qualify under this Plan if it is the result of
(i) a willfully self-inflicted injury or willfully self-induced sickness; or
(ii) an injury or disease contracted, suffered, or incurred while participating
in a criminal offense. The determination of Disability shall be made by
3
<PAGE>
the Committee, in its sole discretion. The determination of Disability for
purposes of this Plan shall not be construed to be an admission of disability
for any other purpose.
2.15 "Effective Date" means May , 1996.
2.16 "Eligible Employee" means each current, common law employee of the
Company or a Subsidiary (if the Company has extended participation to the
employees of a Subsidiary) on a Grant Date, except that the Committee in its
sole discretion may exclude:
(a) any employee who has accrued less than a minimum period of
Continuous Service established by the Committee (but not to exceed 2
years).
(b) any employee whose customary employment is 20 hours or less per
week;
(c) any employee whose customary employment is for not more than 5
months in any calendar year; and
(d) any employee who is a highly compensated employee of the Company
or Subsidiary within the meaning of Section 414(q) of the Code.
As of the Effective Date and unless and until amended by the Committee,
employees described in Section 2.16(b) and (c) are excluded as Eligible
Employees. Any period of service described in this Section may be decreased in
the discretion of the Committee. Any employee who would directly or indirectly
own or hold (applying the rules of Section 424(d) of the Code to determine stock
ownership) immediately following the grant of an Option hereunder an aggregate
of five percent (5%) or more of the total combined voting power or value of all
outstanding shares of all classes of stock of the Company or any Subsidiary is
excluded as an Eligible Employee.
2.17 "Exercise Date" means such one or more dates determined by the
Committee on which the accumulated value of the Account shall be applied to
purchase Common Stock and unless otherwise specified by the Committee shall be
[JULY 31], 1996, [OCTOBER 31], 1996 and the last day of January, April, July and
October of each calendar year thereafter. The Committee may accelerate an
Exercise Date in order to satisfy the employment period requirement of Section
423(a)(2), and the date of a Change in Control shall be an Exercise Date.
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the Commission thereunder.
2.19 "Fair Market Value" means the fair market value of Common Stock as
determined by the Committee or under procedures established by the Committee.
4
<PAGE>
Unless otherwise determined by the Committee, the Fair Market Value per share of
Common Stock as of any given date shall be the closing sale price per share
reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Common Stock is traded on the date as of which such
value is being determined or, if there is no sale on that date, then on the last
previous day on which a sale was reported.
2.20 "Grant Date" means the date or dates established by the Committee on
which one or more Options are granted pursuant to the Plan. The Committee may
determine for any Plan Year that there shall be no Grant Date, in which case no
Options shall be granted for that Plan Year. The terms and conditions of any
Option granted on a particular Grant Date shall be independent of and have no
effect on the terms and conditions of any Option granted on another Grant Date.
2.21 "Option Period" means the period beginning on the day next following
an Exercise Date and ending on the next following Exercise Date, as determined
by the Committee, subject to the limitations of Section 5.3.
2.22 "Option Price" means the price at which the Common Stock granted as of
a specific Grant Date may be purchased under an Option. The price shall be
subject to the limitation set forth in Section 5.4.
2.23 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Option has been granted by the Committee under the
Plan, and in the event a Representative is appointed for a Participant or
another person becomes a Representative, then the term "Participant" shall mean
such Representative, to the extent consistent with Section 423 of the Code. The
term shall also include a trust for the benefit of the Participant, the
Participant's parents, spouse or descendants, or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee and not inconsistent with
an intended application of Rule 16b-3, the intent to comply with Section 423 of
the Code and the use of Commission Form S-8 (or the Committee's waiver of such).
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.24 "Plan" means The Leap Group, Inc. Employee Stock Purchase Plan, as
herein set forth and as may be amended from time to time.
2.25 "Plan Year" means the period of twelve (12) or fewer consecutive
months ending January 31, 1997, and the twelve (12) consecutive month period
ending the last day of each January of each calendar year thereafter. The
Committee may at any time in its discretion designate another period as the Plan
Year.
5
<PAGE>
2.26 "Representative" means (a) the person or entity acting as the executor
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option or shares of Common Stock have been permissibly
transferred; provided that only one of the foregoing shall be the Representative
at any point in time as determined under applicable law and recognized by the
Committee.
2.27 "Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company, if the Participant is covered by such a plan, and if the
Participant is not covered by such a plan, then age sixty-five (65), or age
fifty-five (55) with the accrual of ten (10) years of service.
2.28 "Rule 16a-1(c)(3)" and "Rule 16b-3" mean Rule 16a-1(c)(3) and Rule
16b-3, as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Commission under Section 16 of the Exchange
Act.
2.29 "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
2.30 "Stock Option" or "Option" means the right to purchase the number of
shares of Common Stock specified by the Plan at a price and for a term fixed by
the Plan, and subject to such other limitations and restrictions as the Plan and
the Committee may impose.
2.31 "Subsidiary" means any company as currently defined in Section 424(f)
of the Code. Unless otherwise indicated the term "Company" shall hereinafter be
deemed to include all Subsidiaries of the Company having employees to which the
Company has extended participation in the Plan.
2.32 "Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an employee of the Company, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company of all businesses owned or operated by the Company. A transfer of
employment from the Company to a Subsidiary, or from a Subsidiary to the
Company, will not be a Termination of Employment, unless expressly determined by
the Committee. A Termination of
6
<PAGE>
Employment shall occur for an employee who is employed by a Subsidiary of the
Company if the Subsidiary shall cease to be a Subsidiary and the Participant
shall not immediately thereafter become an employee of the Company or a
Subsidiary of the Company.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the
authority to remove, replace or fill any vacancy of any member of the Committee
upon notice to the Committee and the affected member. Any member of the
Committee may resign upon notice to the Board. The Committee may allocate among
one or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Options may be granted from time
to time;
(b) to determine whether and to what extent Options are to be granted
hereunder;
(c) to determine the number of shares of Common Stock available as of
any Grant Date;
(d) to determine any Grant Date, Exercise Date and Option Period, and
provide for all aspects of payroll deduction, suspension or withdrawal;
(e) to determine the number of shares of Common Stock to be covered by
each Option;
7
<PAGE>
(f) to determine the terms and conditions of any Option granted hereunder
(including, but not limited to, the Option Price, the Option Period, any
exercise restriction or limitation and any exercise acceleration or
forfeiture regarding any Option and the shares of Common Stock relating
thereto);
(g) to adjust the terms and conditions, at any time or from time to
time, of any Option, subject to the limitations of Section 6.1;
(h) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Option shall be
deferred;
(i) to determine under what circumstances an Option may be settled in
cash or Common Stock;
(j) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(k) to determine whether a Participant has a Disability or reached
Retirement;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under the Plan;
(m) to determine what securities law requirements are applicable to
the Plan, Options and the issuance of shares of Common Stock, and to
require of a Participant that appropriate action be taken with respect to
such requirements;
(n) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(o) to require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any Federal, state or local taxes as may be
necessary in order for the Company or any other entity to obtain a
deduction or as may be otherwise required by law;
(p) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(q) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
8
<PAGE>
(r) to determine the restrictions or limitations on the transfer of
Common Stock or Options;
(s) to determine whether an Option is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(t) to determine the permissible methods of Option exercise and
payment;
(u) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of this Plan; and
(v) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Option issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Options granted at different times or to
different Participants. Any determination made by the Committee pursuant to the
provisions of the Plan shall be made in its sole discretion, and in the case of
any determination relating to an Option, may be made at the time of the grant of
the Option or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Participants. Any determination shall not be subject
to de novo review if challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Options under the Plan shall be 500,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares shall consist of
authorized and unissued shares.
4.2 Release of Shares. The Committee shall in its sole discretion
determine the number of shares of Common Stock available under the Plan, and may
include, in its sole discretion, any shares of Common Stock that cease to be
subject to an Option
9
<PAGE>
or are forfeited, any shares subject to an Option that terminates without
issuance of shares of Common Stock being made to a Participant, or any shares
(whether or not restricted) of Common Stock that are received by the Company in
connection with the exercise of an Option, including the satisfaction of tax
withholding.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Option Agreement with respect to such
Option. The Company shall not be required to issue or deliver any certificates
for shares of Common Stock, cash or other property prior to (i) the listing of
such shares on any stock exchange (or other public market) on which the Common
Stock may then be listed (or regularly traded), (ii) the completion of any
registration or qualification of such shares under Federal or state law, or any
ruling or regulation of any government body which the Committee determines to be
necessary or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company to obtain a deduction with respect to the
exercise of an Option. The Company may cause any certificate for any shares of
Common Stock to be delivered to be properly marked with a legend or other
notation reflecting the limitations on transfer of such Common Stock as provided
in this Plan or as the Committee may otherwise require. The Committee may
require any person exercising an Option to make such representations and furnish
such information as it may consider appropriate in connection with the issuance
or delivery of the shares of Common Stock in compliance with applicable law or
otherwise. Fractional shares shall not be delivered, but shall be rounded to
the next lower whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option or other action required, such shares shall have been recorded on
the Company's official stockholder records as having been issued and
transferred. Subject to Section 4.3, upon exercise of the Option or any portion
thereof, the Company shall issue the shares of Common Stock at such time as
determined by the Committee, and the Participant will not be treated as a
stockholder for any purpose whatsoever prior to such issuance. No adjustment
shall be made for cash dividends or other rights for which the record date is
prior to the date such shares are recorded as issued and transferred in the
Company's official stockholder records, except as provided in an Agreement.
4.5 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, merger, recapitalization or other
change in the capital structure of the Company, corporate separation or division
of the Company (including, but not limited to, a split-up, spin-off, split-off
or distribution to Company stockholders other than a normal cash dividend), sale
by the Company of all or a substantial portion of its assets (measured on either
a stand-alone or consolidated
10
<PAGE>
basis), reorganization, reclassification, rights offering, partial or complete
liquidation or any other corporate transaction, Company share offering or other
event involving the Company and having an effect similar to any of the
foregoing, then the Committee shall adjust or substitute, as the case may be,
the number of shares of Common Stock available for Options under the Plan, the
number of shares of Common Stock covered by outstanding Options, the exercise
price per share of outstanding Options, the Exercise Date, and any other
characteristics or terms of the Options as the Committee shall deem necessary or
appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that any fractional share resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
shares with appropriate payment for such fractional share as shall reasonably be
determined by the Committee.
4.6 Custodian. Shares of Common Stock purchased pursuant to the Plan may
be delivered to and held in the custody of such investment or financial firm as
shall be appointed by the Committee. The custodian may hold in nominee or
street name certificates for shares purchased pursuant to the Plan, and may
commingle shares in its custody pursuant to the Plan in a single account without
identification as to individual Participants. By appropriate instructions to
the custodian on forms to be provided for the purpose, a Participant may from
time to time obtain (a) transfer into the Participant's own name or into the
name of the Participant and another individual of all or part of the whole
shares held by the custodian for the Participant's account; (b) transfer of all
or part of the whole shares held for the Participant's account by the custodian
to a regular individual brokerage account in the Participant's own name or in
the name of the Participant and another individual, either with the firm then
acting as custodian or with another firm, or (c) sale of all or part of the
whole shares held by the custodian for the Participant's account at the market
price at the time the order is executed and remittance of the net proceeds of
the sale to the Participant. Upon termination of participation in the Plan, and
upon receipt of instructions from the Participant, the shares held by the
custodian for the account of the Participant will be transferred to the
Participant in accordance with (a) above, transferred to a brokerage account in
accordance with (b) above, or sold in accordance with (c), above.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan as of any Grant Date shall be those persons
(and only those persons) who are Eligible Employees of the Company or Eligible
Employees of a Subsidiary to whom the Company has extended participation on a
Grant Date.
11
<PAGE>
5.2 Grant of Options. The Committee shall have authority to grant Options
under the Plan at any time or from time to time to all Eligible Employees as of
a Grant Date. (To the extent an Option is granted to any Eligible Employee of
an entity on a relevant date, all Eligible Employees of the entity shall be
granted an Option to the extent required by law.) An Option shall entitle the
Participant to receive shares of Common Stock at the conclusion of the Option
Period, subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Agreement,
including without limitation, payment of the Option Price. Each Option granted
under this Plan shall be evidenced by an Agreement, in a form approved by the
Committee, which shall embody the terms and conditions of such Option and which
shall be subject to the express terms and conditions set forth in this Plan and
to such other terms and conditions as the Committee may deem appropriate. The
grant and exercise of Options hereunder shall be subject to all applicable
Federal, state and local laws, rules and regulations and to such approvals by
any governmental or regulatory agencies as may be required. As of any Grant
Date, each Eligible Employee shall be granted Options with the same rights and
privileges as the Options granted to each other Eligible Employee on that Grant
Date, except the amount of the Common Stock which may be purchased by any
Participant under any Option may bear a uniform relationship to the total
compensation, or the basic or regular rate of compensation (as determined by the
Committee), of all Eligible Employees on that Grant Date, and the Option may
establish a maximum amount of Common Stock which may be purchased.
5.3 Option Period. Each Agreement shall specify the period for which the
Option thereunder is granted, which shall be determined by the Committee. In no
event shall the Option Period extend beyond the period permitted under Section
423(b)(7) of the Code.
5.4 Option Price. Subject to the limits stated herein, the Option Price
per share at which shares of Common Stock may be acquired upon exercise of an
Option shall be determined by the Committee. Unless otherwise specified by the
Committee, with respect to any Exercise Date, the Option Price shall not be less
than the lesser of (a) eighty-five percent (85%) of the Fair Market Value of a
share of Common Stock (averaged over such period as the Committee may determine
and as permitted by law) on the applicable Grant Date and (b) eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock (averaged over
such period as the Committee may determine and as permitted by law) on the
applicable Exercise Date. The Committee reserves the right to increase the
Option Price by the value of any accretion to the amounts credited to an Account
if the Participant is credited with such accretion regardless of the method of
accounting for such accretion.
5.5 Contribution Rate. If an Eligible Employee elects to participate, the
Participant shall file an Agreement with the Committee within the time period
designated by the Committee. The Committee may provide that the Agreement shall
12
<PAGE>
specify the percentage of the Participant's compensation (as defined by the
Committee) determined by the Participant to be deducted each pay period. Such
amount shall be credited to the Account and shall be the Participant's
Contribution Rate. Such deductions shall begin as of the first regularly
scheduled payroll date on or after the later of the Grant Date and the date
specified by the Committee. Participants may not make any separate cash
payments outside payroll deductions under the Plan, except that, in the event of
a Change in Control, the Committee may permit each Participant to make a single
sum payment with respect to the Option before the Exercise Date equal to the
amount the Participant would have contributed as determined by the Committee for
the payroll periods remaining to the Exercise Date. The Committee may establish
minimum and maximum percentages to be contributed and a date by when any
Agreement must be filed with the Committee. Such contributions will be held in
the general funds of the Company, and no interest shall accrue on any amounts
held under this Plan, unless expressly determined by the Committee, and any
separate accounting shall not limit the Company's use of the funds. If payroll
deductions are made by a Subsidiary, that corporation will promptly remit the
amount of the deduction to the Company. A Participant's Contribution Rate, once
established, shall remain in effect until the next following Grant Date unless
and until contributions are suspended or fully discontinued in order to comply
with Section 401(k) of the Code or for such other reasons as the Committee in
its sole discretion may determine, or if the Participant shall request
suspension or discontinuance. If a Participant requests to suspend payroll
deductions the Participant may do so at such times and in such manner as the
Committee may permit, and previously deducted amounts shall be retained until
the Exercise Date. A Participant who has suspended contributions (1) will
receive any shares of Common Stock as of the Exercise Date and (2) may
recommence payroll deductions at such time, if at all, as determined by the
Committee. If a Participant requests to cancel and totally discontinue payroll
deductions, the Participant may do so by providing written notice to the
Committee, and there shall be paid to the Participant the value of the
Participant's Account at such time as the Committee directs and the Participant
shall not receive any shares of Common Stock as of the Exercise Date.
5.6 Purchase of Shares. Subject to Sections 5.7, 5.8, 5.9, 5.10 and 5.11,
on each Exercise Date, a Participant who has previously executed an Agreement
with respect to a specific Grant Date and made one or more payments described in
Section 5.5 shall be deemed to have exercised the Option to the extent of the
value of the Account, and shall be deemed to have purchased such number of full
shares of Common Stock as equals the value of the Account, subject to the limits
of Sections 423(b)(3) and 423(b)(8) of the Code and the number of shares
available as of the Exercise Date and proportionably allocable to other
Participants for that Grant Date. The number of shares of Common Stock to be
purchased as of any Exercise Date shall be determined by dividing the Option
Price per share of the Common Stock into the Account value and the value of the
shares so purchased shall be charged to the Account. Any value remaining in an
Account of the Participant shall be retained
13
<PAGE>
by the Plan as an initial value credited to the Account of the Participant if
there is an effective Agreement respecting the Participant on the Grant Date
immediately following the Exercise Date, or if there is not an effective
Agreement regarding the Participant in the Grant Date immediately following the
Exercise Date, then the remaining value shall be returned at such time as
determined by the Committee to the Participant and not applied to purchase
Common Stock. Certificates of Common Stock purchased hereunder may be held by
the custodian as provided in Section 4.6. The Committee may determine and
designate that any Common Stock issued to the Participant who is subject to
reporting under Section 16 of the Exchange Act must be held for six (6) months
to the extent required by law to avoid liability under the Exchange Act. The
Committee may amend the Plan or any Agreement or provide in operation for
Participants to dispose of shares of Common Stock received upon the Exercise
Date on or immediately thereafter (which time may include any period during
which the Option is held) to the extent such disposition would not result in
liability under Section 16 of the Exchange Act. If the total number of shares
to be purchased as of any Exercise Date by all Participants exceeds the number
of shares authorized and remaining available under this Plan or made available
by the Committee as to any Exercise Date, a pro rata allocation of the available
shares will be made among all Participants authorizing such payroll deductions
based on the amount of their respective payroll deductions through the Exercise
Date. Any cash remaining will be returned to Participants.
5.7 Cancellation of Options. Except as otherwise provided in an
Agreement, an Option shall cease to be exercisable and shall be cancelled on or
after the expiration of the Option Period.
5.8 Terminated Employees. Except as otherwise provided by the Committee
or in an Agreement, any Participant who incurs a Termination of Employment for
any reason, except death, Disability or Retirement, during the Option Period
shall cease to be a Participant, the Option of the Participant shall be null and
void on the date of the Termination of Employment without notice to the
Participant and the balance of the Account of the Participant shall be
distributed to the Participant at such time as the Committee determines.
5.9 Deceased Employees. If a Participant shall die during an Option
Period while an Eligible Employee, no further contributions by deduction from
regularly scheduled payments on behalf of the deceased Participant shall be
made, except that the Representative of such Participant may make a single sum
payment with respect to the Option of the Participant at any time on or before
the Exercise Date equal to the amount the Participant would have contributed as
determined by the Committee for the payroll periods remaining to the Exercise
Date. The Representative of such Participant may at any time prior to the
Exercise Date request a distribution of the Account of the Participant. If the
Representative does not request a distribution, the
14
<PAGE>
balance accumulated in the deceased Participant's Account shall be used to
purchase shares of Common Stock on the Exercise Date.
5.10 Disabled or Retired Employees. If a Participant incurs a Termination
of Employment due to Disability, or if a Participant incurs a Termination of
Employment due to Retirement, during an Option Period, no further contributions
by deduction from regularly scheduled payments on behalf of the disabled or
retired Participant shall be made, except that the Participant may make a single
sum payment with respect to the Option of the Participant at any time on or
before the Exercise Date equal to the amount the Participant would have
contributed as determined by the Committee for the payroll periods remaining to
the Exercise Date. The Participant may at any time prior to the Exercise Date
request a distribution of the Account. If the Participant does not request a
distribution of the Account, the balance accumulated in the disabled or retired
Participant's Account shall be used to purchase shares of Common Stock on the
Exercise Date.
5.11 Limitations. Notwithstanding any other provision of this Plan, in no
event may a Participant (i) purchase under the Plan during any Plan Year Common
Stock having a fair market value (determined at the Grant Date) of more than
$25,000 or (ii) receive any rights to purchase stock hereunder if he or she
beneficially owns, immediately after the Option is granted, five percent (5%) or
more of the total voting power or value of all classes of stock of the Company.
Subject to the foregoing, as of any Grant Date a Participant may not receive an
Option to purchase a number of shares of Common Stock in excess of the maximum
number of shares of Common Stock determined by the Committee, and in the absence
of a determination, the maximum number shall be determined by dividing $25,000
by the lowest closing price of the Common Stock as reported on the principal
exchange or market on which the Common Stock was traded during the 12-month
period ending immediately prior to the Grant Date.
5.12 Nonassignability. Except as provided herein or in an Agreement, no
Option or interest therein shall be transferable by a Participant other than by
will or by the laws of descent and distribution, and all Options shall be
exercisable during the Participant's lifetime only by the Participant or, if
consistent with Section 423 of the Code, by designation of a Beneficiary upon
the death of the Participant.
ARTICLE VI
----------
MISCELLANEOUS
-------------
6.1 Amendments and Termination. The Board may amend, alter, or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would (a) impair the rights of a Participant
under an Option theretofore
15
<PAGE>
granted without the Participant's consent, except such an amendment made to
cause the Plan to qualify for the exemption provided by Rule 16b-3 or as a Plan
described in Section 423 of the Code or (b) disqualify the Plan from the
exemption provided by Rule 16b-3. In addition, no amendment shall be made
without the approval of the Company's stockholders to the extent such approval
is required by law or agreement.
The Committee may amend the Plan at any time subject to the same
limitations on its right to amend the Plan as apply to the Board as described in
the preceding paragraph, and any such amendment shall be subject to the approval
or rejection of the Board.
The Committee may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent, except such an amendment made
to cause the Plan or Option to qualify for the exemption provided by Rule 16b-3
or to qualify as an Option under Section 423 of the Code.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Options which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything to the contrary herein, if any right or action under this Plan or an
Agreement would cause a transaction to be ineligible for pooling of interests
accounting that would, but for the right or action, be eligible for such
accounting treatment, the Committee may modify or adjust the right or action so
that pooling of interest accounting is available.
6.2 Unfunded Status of Plan. It is intended that the Plan be an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or make payments; provided,
however, that, unless the Committee otherwise determines, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
6.3 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to an Option to represent to and agree with
the Company in writing that such person is acquiring the shares without a
view to the distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
16
<PAGE>
(b) Impact on other Compensation. Nothing contained in the Plan shall
prevent the Company from adopting other or additional compensation
arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Option, the Participant shall pay
to the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company to obtain a current deduction.
Unless otherwise determined by the Committee, withholding obligations may
be settled with Common Stock, including Common Stock that is part of the
Option that gives rise to the withholding requirement, provided that any
applicable requirements under Section 16 of the Exchange Act are satisfied.
The obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company shall, to the extent permitted by
law, have the right to deduct any such taxes from any payment otherwise due
to the Participant. If the Participant disposes of shares of Common Stock
acquired pursuant to an Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give the
Company written notice of such transfer and the Company shall have the
right to deduct any taxes required by law to be withheld from any amounts
otherwise payable to the Participant.
(d) Representative. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Illinois (other than its law respecting choice of law),
except to the extent that the General Corporation Law of the State of
Delaware would be mandatorily applicable. The Plan shall be construed to
comply with all applicable law, and to avoid liability to the Company or a
Participant, including, without limitation, liability under Section 16(b)
of the Exchange Act.
(f) Offset. Any amounts owed to the Company by a Participant of
whatever nature may be offset by the Company from the value of any shares
of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common
Stock, cash or other thing of value under the Plan or an Agreement shall be
transferred unless and until all disputes of any type between the Company
and
17
<PAGE>
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company.
(g) Fail Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable. To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Options) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
6.4 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 6.4),
either alone or together with other payments or rights accruing to the
Participant from the Company ("Total Payments") would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations thereunder),
such payment or right shall be reduced to the largest amount or greatest right
that will result in no portion of the amount payable or right accruing under the
Plan being subject to an excise tax under Section 4999 of the Code or being
disallowed as a deduction under Section 280G of the Code. The determination of
whether any reduction in the rights or payments under this Plan is to apply
shall be made by the Committee in good faith after consultation with the
Participant, and such determination shall be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee
in making such determination and providing the necessary information for this
purpose. The foregoing provisions of this Section 6.4 shall apply with respect
to any person only if after reduction for any applicable Federal excise tax
imposed by Section 4999 of the Code and Federal income tax imposed by the Code,
the Total Payments accruing to such person would be less than the amount of the
Total Payments as reduced, if applicable, under the foregoing provisions of the
Plan and after reduction for only Federal income taxes.
6.5 Rights with Respect to Continuance of Employment. The Plan does not,
directly or indirectly, create any absolute right for the benefit of any
Employee or class of Employees to purchase any Common Stock under the Plan.
Nothing contained herein shall be deemed to alter the relationship between the
Company and a Participant, or the contractual relationship between a Participant
and the Company if there is a written contract regarding such relationship.
Nothing contained herein shall be construed to constitute a contract of
employment between the Company and a Participant. The Company and each of the
Participants continue to have the right to terminate this employment
relationship at any time for any reason, except as provided in a written
contract. The Company shall have no obligation to retain the Participant
18
<PAGE>
in its employ or service as a result of this Plan. There shall be no inference
as to the length of employment or service hereby, and the Company reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
6.6 Options in Substitution for Options Granted by Other Corporations.
Options may be granted under the Plan from time to time in substitution for
awards held by employees, directors or service providers of other corporations
who are about to become Employees of the Company as the result of a merger or
consolidation of the employing corporation with the Company, or the acquisition
by the Company of the assets of the employing corporation, or the acquisition by
the Company of the stock of the employing corporation, as the result of which it
becomes a designated employer under the Plan. The terms and conditions of the
Options so granted may vary from the terms and conditions set forth in this Plan
at the time of such grant as the majority of the members of the Committee may
deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
6.7 Delay. Any time period provided for under the Plan or an Agreement,
to the extent necessary to avoid the imposition of liability, shall be suspended
or delayed during the period a Participant would be subject to liability under
Section 16 of the Exchange Act, but not by more than six (6) months and one (1)
day. The Company shall have the right to suspend or delay any time period for
an action described in the Plan or an Agreement if the Committee shall determine
that the action may constitute a violation of any law or result in liability
under any law to the Company or a stockholder of the Company until such time as
the action required or permitted shall not constitute a violation of law or
result in liability to the Company or a stockholder of the Company. The
Committee shall have the discretion to suspend the application of the provisions
of the Plan required solely to comply with Rule 16b-3 if the Committee shall
determine that Rule 16b-3 does not apply to the Plan and may amend the Plan's
provisions or operations to reduce obligations imposed by Rule 16b-3 if Rule
16b-3 is amended to reduce obligations imposed on the Plan and its operations.
6.8 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
6.9 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
6.10 Successors and Assigns. The Plan shall inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding
19
<PAGE>
upon or insure to the benefit of the Participant's heirs, legal representatives
and successors.
6.11 Entire Agreement. The Plan and an Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Agreement shall control.
Executed this ____ day of May, 1996, effective May __, 1996.
THE LEAP GROUP, INC.
By:
---------------------------------
R. Steven Lutterbach
Chief Executive Officer
20
<PAGE>
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
AGREEMENT, effective as of ________, 1996 between The Leap Group,
Inc., a Delaware corporation (the "Company"), and _______________ (the
"Indemnitee").
WHEREAS, it is essential that the Company retain and attract as
directors and executive officers the most capable persons available;
WHEREAS, Indemnitee is a director or executive officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and executive
officers of public companies in today's environment.
WHEREAS, basic protection against undue risk of personal liability of
directors and executive officers heretofore has been provided through insurance
coverage providing reasonable protection at reasonable costs, and Indemnitee has
relied on the availability of such coverage; but as a result of substantial
changes in the marketplace for such insurance it has become increasingly more
difficult to obtain such insurance on terms providing reasonable protection at
reasonable cost;
WHEREAS, the By-Laws of the Company (the "By-Laws") require the
Company to indemnify directors, officers and certain other persons to the full
extent permitted by law and the Indemnitee has been serving and continues to
serve as a director or executive officer of the Company in part in reliance on
the By-Laws;
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's continued
service to the Company in an effective manner, the increasing difficulty in
obtaining satisfactory director and officer liability insurance coverage, and
Indemnitee's reliance on the By-Laws, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by the By-Laws will
be available to Indemnitee (regardless of, among other things, any amendment to
or revocation of the By-Laws or any change in the composition of the Company's
Board of Directors or acquisition transaction relating to the Company), the
Company wishes to provide in this Agreement for the indemnification of and the
advancing of expenses to Indemnitee to the fullest extent (whether partial or
complete) permitted by law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the continued coverage of Indemnitee under
the Company's directors' and officers' liability insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
<PAGE>
1. DEFINITIONS
(a) Change in Control: Shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of transactions)
all or substantially all of the Company's assets.
(b) Claim: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether instituted by the Company
or any other party, that Indemnitee in good faith believes might lead to the
institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
(c) Expenses: include attorneys' fees and all other costs, expenses
and obligations paid or incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in any Claim relating to any
Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the fact
that Indemnitee is or was a director, officer, employee, agent or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, employee, trustee, agent, partnership committee member or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, or by reason of anything done or not done by Indemnitee in any
such capacity.
(e) Independent Legal Counsel: an attorney or firm of attorneys,
selected in accordance with the provisions of Section 3, who shall not have
otherwise performed services for
2
<PAGE>
the Company or Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
(f) Potential Change in Control: shall be deemed to have occurred if
(i) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change in Control; (ii) any person (including the
Company) publicly announces an intention to take or to consider taking actions
which if consummated would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 9.5% or more
of the combined voting power of the Company's then outstanding Voting
Securities, increases his beneficial ownership of such securities by five
percentage points (5%) or more over the percentage so owned by such person; or
(iv) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
(g) Reviewing Party: any appropriate person or body consisting of a
member or members of Company's Board of Directors or any other person or body
appointed by the Board who is not a party to the particular Claim for which
Indemnitee is seeking indemnification, or Independent Legal Counsel.
(h) Voting Securities: any securities of the Company which vote
generally in the election of directors.
2. BASIC INDEMNIFICATION ARRANGEMENT.
(a) In the event Indemnitee was, is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, a Claim by reason of (or arising in part out of) an
Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest
extent permitted by law as soon as practicable but in any event no later than
thirty days after written demand is presented to the Company, against any and
all Expenses, judgments, fines, penalties and amounts paid in settlement
(including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses, judgments, fines, penalties or
amounts paid in settlement) of such Claim. If so requested by Indemnitee, the
Company shall advance (within two business days of such request) any and all
Expenses to Indemnitee (an "Expense Advance"). Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with (i) liability under Section 16(b)
of the Securities Exchange Act of 1934, as amended or under federal or state
securities laws for "insider trading", (ii) conduct finally adjudged as
constituting active or deliberate dishonesty or willful fraud or illegality, or
(iii) conduct finally adjudged as producing an unlawful personal benefit.
Notwithstanding anything in this Agreement to the contrary, prior to a Change in
Control, Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by
3
<PAGE>
Indemnitee unless the Board of Directors has authorized or consented to the
initiation of such Claim.
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law, and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, the Reviewing Party shall
be selected by the Board of Directors, and if there has been such a Change in
Control (other than a Change in Control which has been approved by a majority of
the Company's Board of directors who were directors immediately prior to such
Change in Control), the Reviewing Party shall be the Independent Legal Counsel
referred to in Section 3 hereof. If there has been no determination by the
Reviewing Party within thirty days after written demand for indemnification made
under Section 2(a) or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part under
applicable law, Indemnitee shall have the right to commence litigation in any
court in the State of Illinois or the State of Delaware having subject matter
jurisdiction thereof and in which venue is proper seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall
be conclusive and binding on the Company and Indemnitee.
3. CHANGE IN CONTROL.
If there is a Change in Control of the Company (other than a Change in
Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such change in Control) then
with respect to all matters thereafter arising concerning the rights of
Indemnitee to indemnity payments and Expense Advances under the By-Laws, this
Agreement or any other agreement or Company By-Law now or hereafter in effect
relating to Claims for Indemnifiable Events, the Company shall seek legal advice
only from Independent Legal Counsel selected by Indemnitee and approved by the
Company (which approval shall not be unreasonably withheld). Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee would be permitted to
be indemnified under applicable law. The Company shall pay the
4
<PAGE>
reasonable fees of the Independent Legal Counsel referred to above and fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES.
The Company shall indemnity Indemnitee against any and all expenses
(including attorneys' fees) and, if requested by Indemnitee, shall (within two
business days of such request) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee for
(i) indemnification or advance payment of Expenses by the Company under this
Agreement, the By-Laws or any other agreement or Company By-Law now or hereafter
in effect relating to Claims for Indemnifiable Events and/or (ii) recovery under
any directors' and officers' liability insurance policies maintained by the
Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
5. PARTIAL INDEMNITY, ETC.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the Expenses, judgments,
fines, penalties and amounts paid in settlement of a Claim but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any or
all Claims relating in whole or in part to an Indemnifiable Event or in defense
of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.
6. BURDEN OF PROOF.
In connection with any determination by the Reviewing Party or
otherwise as to whether Indemnitee is entitled to be indemnified hereunder the
burden of proof shall be on the Company to establish that Indemnitee is not so
entitled.
7. NO PRESUMPTIONS.
For purposes of this Agreement, the termination of any claim, action,
suit or proceeding, by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or
5
<PAGE>
did not have such belief, prior to the commencement of legal proceedings by
Indemnitee to secure a judicial determination that Indemnitee should be
indemnified under applicable law shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief.
8. NONEXCLUSIVITY, ETC.
The rights of the Indemnitee hereunder shall be in addition to any
other rights Indemnitee may have under the By-Laws or the Delaware General
Corporation Law or otherwise. To the extent that a change in the Delaware
General Corporation Law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under the
By-Laws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
9. LIABILITY INSURANCE.
To the extent the Company maintains and insurance policy or policies
providing directors' and officers' liability insurance, Indemnitee shall be
covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage available for any Company director or
officer.
10. PERIOD OF LIMITATIONS.
No legal action shall be brought and no cause of action shall be
asserted by or in the right of the Company against Indemnitee, Indemnitee's
spouse, heirs, executors or personal or legal representatives after the
expiration of two years from the date of accrual of such cause of action, and
any claim or cause of action of the Company shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within such two-
year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern.
11. AMENDMENTS, ETC.
No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
12. SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
6
<PAGE>
13. NO DUPLICATION OF PAYMENTS.
The Company shall not be liable under this Agreement to make any
payment in connection with any Claim made against Indemnitee to the extent
Indemnitee has otherwise actually received payment (under any insurance policy,
the Company By-Laws or otherwise) of the amounts otherwise indemnifiable
hereunder.
14. BINDING EFFECT, ETC.
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors, assigns,
including any direct or indirect successor by purchase, merger, consolidation or
otherwise to all or substantially of the business and/or assets of the Company,
spouses, heirs, executors and personal and legal representatives. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as an executive officer or director of the Company or of any other
enterprise at the Company's request.
15. SEVERABILITY.
The provisions of this Agreement shall be severable in the event that
any of the provisions hereof (including any provision within a single section,
paragraph or sentence) is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable in any respect, and the validity and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired and shall remain enforceable
to the fullest extent permitted by law.
16. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Illinois applicable to contracts made
and to be performed in such state without giving effect to the principles of
conflicts of laws.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this __th day of ______, 1996.
THE LEAP GROUP, INC. INDEMNITEE
By:
-------------------------------- -------------------------------
Title:
--------------------------------
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Chicago, Illinois
July 5, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of January 31, 1996, and the restated
consolidated statement of operations, stockholders' deficit and cash flows for
the period ended January 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jan-31-1996
<PERIOD-START> Feb-01-1995
<PERIOD-END> Jan-31-1996
<CASH> 48
<SECURITIES> 0
<RECEIVABLES> 362
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,072
<PP&E> 1,152
<DEPRECIATION> (254)
<TOTAL-ASSETS> 2,053
<CURRENT-LIABILITIES> 2,045
<BONDS> 418
<COMMON> 96
0
0
<OTHER-SE> (536)
<TOTAL-LIABILITY-AND-EQUITY> 2,053
<SALES> 0
<TOTAL-REVENUES> 8,210
<CGS> 0
<TOTAL-COSTS> 3,622
<OTHER-EXPENSES> 3,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 1,194
<INCOME-TAX> (494)
<INCOME-CONTINUING> 700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 700
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
